**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


________________________________




**FORM
      10-K**


________________________________





**(Mark
      One)**


**** x  **ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**




**For
      the Year Ended December 31, 2005**




**OR**




****  ̈  **TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**




**For
      the Transition Period from**  **to**  ****




**Commission
      File Number: 0-30849**




**WEBEX
      COMMUNICATIONS, INC.**


**(Exact
      name of registrant as specified in its charter)**





**Delaware**
            **77-0548319****(State
                or other jurisdiction of incorporation or
                organization)**
            **(I.R.S.
                Employer Identification
                Number)**




**3979
                Freedom Circle****Santa
                Clara, California**
            **95054****(Address
                of principal executive offices)**
            **(Zip
                Code)**




**Registrant’s
      telephone number, including area code: (408) 435-7000**




**Securities
      registered pursuant to Section 12(b) of the Act:**




**None**




**Securities
      registered pursuant to Section 12(g) of the Act:**




**Common
      Stock, $0.001 par value per share**


**(Title
      of Class)**




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes x No  ̈




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. Yes  ̈ No x




Indicate
      by check mark whether the Registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the Registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x No  ̈




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of Registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. x




Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Act). Yes x No  ̈




Indicate
      by check mark whether the Registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes  ̈ No x




The
      aggregate market value of Common Stock held by non-affiliates as of June 30,
      2005 (the last business day of the registrant’s most recently-completed second
      fiscal quarter and based upon the closing sale price on the Nasdaq National
      Market on such date) was approximately $831,885,394. Shares of Common Stock
      held
      by each executive officer and director, and shares held by other individuals
      and
      entities and based on Schedule 13G filings, have been excluded since such
      persons may be deemed affiliates. This determination of affiliate status is
      not
      necessarily a conclusive determination for other purposes.




As
      of
      February 28, 2006, there were 46,813,911 shares of Common Stock, $0.001 per
      share par value, outstanding.





**DOCUMENTS
      INCORPORATED BY REFERENCE**




Items
      10
      (as to directors, audit committee and audit committee financial expert, and
      section 16(a) beneficial ownership reporting compliance), 11, 12 (as to security
      ownership of certain beneficial owners and management), 13 and 14 of Part III
      of
      this Annual Report of Form 10-K are incorporated by reference from the Proxy
      Statement for the Registrant’s 2006 Annual Meeting of Stockholders to be held on
      May 9, 2006, which Proxy Statement will be filed within 120 days of the end
      of
      the year ended December 31, 2005 .








**WEBEX
        COMMUNICATIONS, INC.**


**FORM
      10-K**


**For
      the Year Ended December 31, 2005**




**TABLE
      OF CONTENTS**


**Page No.****PART
                I**Item
                1.
            Business
            1Item
                1A.
            RiskFactors
            8Item
                1B.
            Unresolved
                Staff Comments
            23Item
                2.
            Properties
            23Item
                3.
            Legal
                Proceedings
            23Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            23Executive
                Officers of the Registrant
            24**PART
                II**Item
                5.
            Market
                for the Registrant’s Common Stock, Related
                Stockholder Matters and Issuer Purchases of Equity
                Securities
            26Item
                6.
            Selected
                Financial Data
            28Item
                7.
            Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operations
            29Item
                7A.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            43Item
                8.
            Financial
                Statements and Supplementary
                Data
            44Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting
                and Financial Disclosure
            69Item
                9A.
            Controls
                and Procedures
            69Item
                9B.
            Other
                Information
            71**PART
                III**Item
                10.
            Directors
                and Executive Officers of the
                Registrant
            71Item
                11.
            Executive
                Compensation
            71Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Managementand
                Related Stockholder Matters
            71Item
                13.
            Certain
                Relationships and Related
                Transactions
            72Item
                14.
            Principal
                Accountant Fees and Services
            72**PART
                IV**Item
                15.
            Exhibits
                and Financial Statement
                Schedules
            72Signatures
            74Exhibit
                Index
            75




TOC **When
        used in
        this Report, the words
“anticipates,”“expects,”“intends,”“plans,”“believes,”“seeks,”“estimates” and
        similar expressions are intended to identify forward-looking statements.
        These
        are statements that relate to future periods and include, but are not limited
        to, statements about the features, benefits and performance of our current
        service offerings and technology including our belief that use of our services
        allows users to be more productive and efficient, expected expenses including
        those related to sales and marketing, research and development and general
        and
        administrative, our beliefs regarding the health and growth of the market
        for
        our web collaboration services, our anticipation that cash flow from operations
        will be sufficient to fund our current operations as well as fund future
        expansion, our expectation that existing cash resources and cash generated
        from
        operations will be sufficient to fund our anticipated working capital needs
        and
        capital expenditures for at least the next twelve months and that we will
        continue to generate cash from operations for at least the next twelve months,
        and the effect of recent accounting pronouncements. Forward-looking statements
        are subject to risks and uncertainties that could cause actual results to
        differ
        materially from those projected. These risks and uncertainties include, but
        are
        not limited to, our dependence on key products and/or services, demand for
        our
        products and services, our ability to attract and retain customers and resellers
        for existing and new services, the impact of reseller practices on our business,
        our ability to expand and manage our operations internationally, our ability
        to
        expand and manage our infrastructure to meet both our internal corporate
        needs
        as well as the demand for our services, our ability to control our expenses,
        our
        ability to integrate and manage acquisitions, our ability to recruit and
        retain
        employees particularly in the areas of sales, engineering, support and hosting
        services, the ability of resellers to successfully resell our services, the
        economy, political tensions or conflict, the strength of competitive offerings,
        the prices being charged by those competitors, the risks discussed below
        and the
        risks discussed in Item 1A “Risk Factors” below. These forward-looking
        statements speak only as of the date hereof. We expressly disclaim any
        obligation or undertaking to release publicly any updates or revisions to
        any
        forward-looking statements contained herein to reflect any change in our
        expectations with regard thereto or any change in events, conditions or
        circumstances on which any such statement is based.**




*Throughout
      this document, all references to “WebEx,”“we,”“us,”“our” or the “Company” mean
      WebEx Communications, Inc. and its consolidated subsidiaries.*




Our
      trademarks include WebEx (word and design), WebEx bifurcated ball logo design,
      WebEx.com, MyWebEx, MyWebExPC, Bringing the Meeting to You, MediaTone, Meeting
      Center, WebEx Meeting Center, Event Center, WebEx Event Center, We’ve Got To
      Start Meeting Like This, Presentation Studio, WebEx Connect, WebEx Global Watch,
      WebEx Contact Center, WebEx Access Anywhere, Power Panels, All Time
      Collaboration, Collaboration Without Limitation, WebExOne, Web Touch, MeetMeNow,
      PCNow, iPresenter and iPresentation. We also refer to trademarks of other
      corporations and organizations in this document.








**PART
      I**





**Item
      1.*****Business*******




***Overview***




We
      offer
      several on-demand web collaboration services. “On-demand” is a software industry
      term meaning that the software is hosted at the vendor’s facilities and
      furnished to customers as a service—sometimes also called “software as a
      service” (SaaS) or a “hosted” service—rather than the software being furnished
      in tangible disc or downloaded-file form for physical installation on a computer
      server at the customer’s location. By web collaboration services, we mean
      on-demand services that allow end-users to conduct online meetings, share
      software applications, documents, presentations and other content online,
      participate in large-scale events or programs, and coordinate projects,
      activities and tasks over the Internet using a standard web browser. Our web
      collaboration services enable users to engage in rich-media, interactive,
      real-time communications without the need to be in the same physical location,
      which we believe allows users to be more productive and efficient .




Originally,
      our principal product offering consisted of a basic real-time collaboration
      service—the web meeting. Since then we have expanded our offerings to include
      more advanced web collaboration services that complement our basic web meeting
      service. We sometimes also refer to such enhanced web collaboration services,
      which are designed for specific uses such as training, events, support and
      sales, as web applications . Our
      current business focus is to continue to enhance and market our various web
      collaboration services including web meetings and web applications, to develop
      and deploy new services, to expand our sales and marketing organizations, and
      to
      expand our WebEx MediaTone Network. For many of our web collaboration services,
      i ntegrated
      telephony and web-based audio and video services are also available using
      standard devices such as telephones, computer web-cameras and
      microphones .




In
      addition to offering real-time web collaboration services, we have recently
      added to our service offerings a set of asynchronous collaboration services.
      These services, and the technology underlying them, were acquired in connection
      with our





September
      2005 acquisition of Intranets.com, Inc., a company headquartered in Burlington,
      Massachusetts (“Intranets”) which is now operating as our wholly-owned
      subsidiary under the name WebExOne, Inc. The term “asynchronous collaboration”
      means collaboration not occurring at the same time and includes capabilities
      such as shared document
      folders, shared calendars, task management, shared database applications,
      discussion forums and contact directories .
      Each
      individual may access these shared resources at a time that is convenient for
      him or her, but may communicate with others in the group by actions such as
      reviewing and modifying documents, posting additional documents, sending and
      responding to task assignments, scheduling meetings and events, and updating
      database entries. These capabilities expand WebEx’s offerings and enable us to
      provide a more comprehensive suite of collaboration services. These new
      asynchronous services are offered in the same manner as our real-time web
      collaboration services, that is, provided as a service over the web and accessed
      through the user’s browser, without any requirement for the customer to
      purchase, install and manage its own hardware and software. This broad suite
      of
      asynchronous services is being marketed under the name WebEx WebOffice.




We
      sell
      our services directly to our customers and indirectly through our resellers.
      We
      offer our services on a monthly subscription basis to our customers and on
      a
      revenue sharing, discounted or pay-per-use basis through our resellers. Revenue
      from subscription services consists primarily of monthly committed subscription
      fees, which are based upon a fixed number of concurrent ports, or a fixed
      usage-based minimum commitment fee, or a flat-rate pricing arrangement with
      a
      fixed number of named hosts. Typically, our committed subscription contracts
      are
      for an initial non-cancelable term ranging from three to twelve months, and
      then
      automatically renew for additional periods unless terminated by either party.
      In
      addition, we obtain revenue from certain usage-based pricing arrangements
      including any of the following: usage in excess of the usage commitment or
      the
      subscribed concurrent ports, telephony, certain reseller arrangements, and
      individual pay-per-use services purchased directly from our website.








***Our
      Services and Technology Architecture***




We
      have
      designed and developed our technology architecture to satisfy the interactive
      communications requirements of a broad range of customers. We provide a number
      of on-demand web collaboration services, including both real-time and
      asynchronous collaboration offerings, which are delivered through our
      proprietary WebEx MediaTone Network.




*WebEx
      Collaboration Services* ***.*** Our
      web
      collaboration services provide a broad range of features that build on the
      real-time functionality and capabilities of the WebEx MediaTone Network.




•  ***WebEx
      Meeting Center.*** WebEx
      Meeting Center is a service designed to enable the sharing of documents and
      applications on the Web and to allow business professionals to communicate
      more
      effectively and economically through interactive online meetings. WebEx Meeting
      Center is a service that can be easily provisioned with low start-up costs
      and
      without the need for the involvement of information technology professionals.
      Our basic service, WebEx Meeting Center Standard, allows users to give
      presentations, demonstrate software, view and annotate any document
      electronically, and includes integrated teleconferencing. An upgraded version
      of
      Meeting Center Standard, Meeting Center Pro, includes the full range of Meeting
      Center Standard functionality and some additional features such as record and
      playback, integrated video, the ability to edit any document collaboratively
      and
      the ability to share applications or a user’s entire desktop.




•  ***WebEx
      Event Center.*** WebEx Event Center offers business managers and executives a professionally
      managed web conferencing service for communications events such as press
      briefings, product announcements and marketing events. WebEx Event Center
      combines WebEx’s interactive meeting capabilities with planning, training,
      logistics management and real-time support services to provide a comprehensive
      service that reduces the customer effort involved in hosting a web seminar.
      WebEx Event Center includes online confirmation, notification, and instruction,
      customized attendee registration, high-resolution text and graphics, the ability
      to demonstrate a broad range of applications in real-time, audience feedback
      collection via polling, white board interaction, guided web browsing, live
      chat,
      recording and archiving of seminars for on-demand playback, and end user
      reports.




•  ***WebEx
      Training Center.*** WebEx
      Training Center is a web collaboration service that is designed for training
      and
      e-learning applications. With WebEx Training Center, users can coordinate
      training schedules from announcement to enrollment to follow-up, deliver live
      instruction from a variety of sources directly to learners’ desktops, and give
      presentations that include audio, video and interactive multimedia. WebEx
      Training Center allows users to administer comprehensive tests, organize
      multiple simultaneous breakout sessions, and record, edit, play back and archive
      entire sessions for future use.




•  ***WebEx*** ***Sales
      Center*** ***.*** WebEx
      Sales Center is a comprehensive online sales solution designed for sales
      professionals, both sales representatives seeking to engage prospects and close
      deals as well as sales managers seeking effective online tools with which to
      monitor their sales organizations. The WebEx Sales Center application permits
      sales representatives to conduct customized media-rich online sales
      presentations and demonstrations, invite specialists or other third-party
      experts to assist in the sales presentation regardless of the third party’s
      location, and then following







the
      presentation maintain contact with the prospect via the WebEx Sales Center
      online communications portal. For sales managers, the WebEx Sales Center service
      is designed to improve sales operations with online sales call analysis and
      monitoring tools that can be integrated with other software applications such
      as
      sales force automation and customer relationship management, thereby helping
      the
      manager to track sales activities and resource allocation.




•  ***WebEx
      Support Center.*** WebEx
      Support Center is a suite of web-based support and system management services.
      These services, each available for purchase individually or in combination,
      are
      as follows:




•  ***Remote
      Support.*** WebEx
      Remote Support is primarily used by customer service organizations to provide
      remote hands-on support for system or software application problems. This
      service enables our customers to enhance the effectiveness of traditional
      telephone-based customer support by allowing their service agents to support
      end-users through a web browser, with no requirement for pre-installed software
      on either computer. The service incorporates a custom user interface to simplify
      support interactions for both the support agent and the end-user.




•  ***Remote
      Access.*** Our
      WebEx Remote Access service, formerly known as WebEx SMARTtech, enables
      customers to centrally manage and administer their company-wide computer
      networks through the use of a secure, web-based remote access network. WebEx Remote
      Access is
      designed to allow a computer-support organization within a company to install
      upgrades, perform maintenance, troubleshoot problems, and engage in proactive
      support on hundreds or even thousands of computers without the need of the
      individual computer user to be present at the machine. The web-based, remotely-administered and centralized computer support capabilities
      of WebEx Remote Access offer companies increased efficiency in managing their
      computer networks without the need to invest in expensive software and hardware
      upgrades and without compromising network security .




•  ***System
      Management.*** WebEx
      System Management, launched in January 2006, is a service that consists of
      five
      applications, or modules, that extend an enterprise’s ability to manage and
      secure its computer-related assets. WebEx System Management is designed to
      allow
      enterprises to provide every computer user with security updates and patches,
      to
      maintain compliance with regulatory and licensing requirements related to the
      enterprise’s computer use, and to distribute software updates to company assets
      anywhere via the Internet, including assets not directly connected to the
      company’s computer network. WebEx System Management also offers asset management
      services, including the ability to manage assets throughout the inventory
      lifecycle and to associate contact and financial information with managed
      assets.




•  ***WebEx
      Enterprise Edition.*** WebEx
      Enterprise Edition is a service that integrates five of WebEx’s currently
      available web collaboration services—WebEx Meeting Center, WebEx Event Center,
      WebEx Training Center, WebEx Sales Center and the WebEx Support Center suite
      of
      services—to create a single source for a customer’s enterprise communications.
      WebEx Enterprise Edition allows users to create a personalized “MyWebEx” meeting
      room with a unique URL that becomes a default meeting address for all web
      meetings. WebEx Enterprise Edition enables users to start meetings with a single
      click of the tool bar icon, allows users to access or share information securely
      in a web meeting where the content or application resides in an unattended
      remote computer, and enables users to integrate MyWebEx with the Microsoft
      Outlook application.




•  ***WebEx
      Presentation Studio.***  WebEx
      Presentation Studio is a service that gives customers the ability to create
      and
      deliver multimedia content for convenient, on-demand access via the Web. With
      WebEx Presentation Studio, users can create presentations that include, and
      integrate as desired, audio content, video content and digital presentation
      software content such as presentations created with Microsoft PowerPoint
      software. For example, WebEx Presentation Studio enables organizations to create
      and distribute sales presentations to sales personnel, capture and track sales
      leads from marketing and promotional presentations and deliver e-learning and
      training presentations to employees. Presentations created with WebEx
      Presentation Studio can be viewed over the Web or can be downloaded to a laptop
      or a personal digital assistant .




•  ***WebEx
      PCNow.*** WebEx
      PCNow, formerly known as MyWebExPC,
      is a service that allows the user to access a remote computer from any location
      in the world, with the user needing only a web browser and an Internet
      connection and without the user needing to open any ports in a firewall
      protecting the computer. For example, the PCNow user can run any application
      or
      access the entire desktop of her remote computer, transfer files to and from
      the
      remote computer, or print a document from the remote computer on a printer
      located at the user’s location .
      PCNow
      has several security features including end-to-end Secure Socket Layer (SSL)
      encryption, two levels of required authentication and each of the following:
      (i)
      the ability to blank the screen of the work
      or
      home computer
      so no one can see what the remotely-located user is doing, (ii) the ability
      to
      lock the keyboard and mouse of the remote computer so no one can interrupt
      the
      user’s use, and (iii) the ability to logout or screen-lock the remote computer
      after the user’s session is complete.







•  ***WebEx
      MeetMeNow.*** WebEx MeetMeNow is a web meeting service designed specifically for the
      individual professional. WebEx MeetMeNow, a somewhat stripped-down version
      of
      our Meeting Center service, offers users several of the basic features offered
      by Meeting Center including the ability (i) to launch meetings directly from
      the
      user’s desktop applications such as instant messaging, (ii) to invite
      prospective attendees to join a conference call, (iii) to share an entire
      desktop in real time, complete with rich annotation, and (iv) to pass control
      of
      documents or applications to any attendee in real time. WebEx MeetMeNow is
      offered online on a month-by-month or yearly subscription basis, requires no
      training and requires only minimal set-up time.




•  ***WebEx
      WebOffice.*** Offered
      as two separate business collaboration offerings, WebOffice Workgroup and
      WebOffice Personal, WebEx WebOffice integrates certain of WebEx’s asynchronous
      and real-time collaboration capabilities into one unified suite designed to
      help
      small businesses and professionals save time and money, and work more
      effectively. WebEx WebOffice Workgroup provides a complete collaboration suite
      including a document manager, group calendar, database manager, task manager
      and
      several other collaborative business tools, and is designed to meet the
      collaboration and web meeting needs of small businesses with five or more users.
      WebEx WebOffice Personal, tailored to the requirements of the individual
      professional, provides users with collaborative applications consisting of
      real-time meetings, document manager, task manager, online calendar and contact
      manager.







Also
      available as add-ons to the purchase of one or more of these services are the
      following services: an audio conferencing service called WebEx Audio, a service
      for monitoring usage of WebEx services within an organization called WebEx
      GlobalWatch, and an asynchronous add-on called WebEx Workspace which shares
      certain of the asynchronous features of the standalone WebEx WebOffice
      offering.







*WebEx
      MediaTone Network* . ****** The
      WebEx MediaTone Network is a private, switched, web-based network that is
      designed to deliver scalable, secure, web collaboration services to our
      customers. The WebEx MediaTone Network is based on MediaTone, our proprietary
      information switching technology. Our MediaTone technology allows the WebEx
      MediaTone Network to handle high-speed data, voice and video communications,
      manage complex media types, and deliver advanced communications capabilities
      regardless of location across a wide variety of platforms, operating systems,
      devices, and browsers—in both wired and wireless configurations. The WebEx
      MediaTone Network includes:




-  a
      distributed network made up of dispersed communications switches, switching
      centers and dedicated network links designed to reduce latency issues and
      service interruptions even when participants are located in different countries;




-  a
      network
      designed to be redundant, meaning that it is designed to detect equipment
      failures that might occur along the network that would cause a network outage
      and to remedy such failures by transferring network operations to alternate,
      functioning equipment located elsewhere on the network;




-  WebEx
      proprietary switches in data centers located in the U.S., Europe and Asia,
      in
      our own facilities and at third-party co-location facilities;




-  high
      capacity Internet connections for high-speed connectivity and redundancy;




-  network
      operations centers where we manage and monitor the WebEx MediaTone Network
      24
      hours a day, seven days a week;




-  the
      ability to add capacity at any facility and otherwise manage heavy network
      traffic during peak usage periods, enabling each WebEx switching cluster to
      scale to meet changes in user demand;




-  online
      content that is transmitted, or “switched”, in real time through the network
      rather than being loaded to, archived on, and downloaded from, a computer
      server;




-  encryption
      of online content with Secure Socket Layer (SSL) technology to provide security;




-  diagnostic
      software for troubleshooting and rapid problem resolution;




-  the
      ability to create a personalized, continuous web meeting room, like a personal
      telephone number or an office extension;




-  the
      ability to simultaneously share multiple documents and presentations at the
      same
      time and the ability to move back and forth among them;




-  the
      ability to support high-speed sharing of rich media content within Microsoft
      PowerPoint presentations, such as the sharing of embedded Adobe Systems Flash
      files, the sharing of streaming content such as Microsoft’s Media Player, and
      the sharing of previously-recorded WebEx meetings, in each instance with the
      ability to start, pause, stop, reverse and fast-forward the content;




-  the
      ability to support video conferencing with just a browser and simple web
      cameras; and







-  the
      ability to access or share information securely in a WebEx meeting even where
      the content or applications reside in an unattended remote computer.









***Customers
      and Resellers***




We
      sell
      our services directly to our customers and indirectly through our resellers.
      We
      offer our services on a monthly subscription basis to our customers and through
      a revenue sharing, discounted or pay-per-use basis through our resellers. Our
      customers purchase and use our services themselves while our resellers integrate
      and resell our services with their offerings. Some of our resellers are also
      end-user customers.




In
      2005,
      we derived approximately 85% of our revenue from direct sales to customers. Typically,
      our direct sales contracts are for an initial non-cancelable term ranging from
      three to twelve months, and then automatically renew for some period unless
      terminated by either party.  In
      2005,
      we generated approximately 15% of our revenue from our resellers, including
      portals, software and service vendors and communications service providers.
      Software and service vendors have agreements to resell our services to end-users
      by marketing, and in some cases integrating, our services into their product
      or
      service offerings. Communications service providers typically resell our
      services in conjunction with their teleconferencing services. Our distribution agreements typically have terms of one to three years and are automatically
      renewed for additional one-year terms unless either party terminates the
      agreement with 30 days prior written notice. In most of these agreements, the reseller purchases subscription or pay-per-use services from us and resells such services
      to end-user customers. Under the vast majority of these agreements, the amount
      of revenue we receive depends on the volume of business generated under the
      agreement.




Under
      our
      agreements with our resellers, we sell our services on a discounted basis to
      the
      reseller, which in turn marks up the price and sells the services to the
      end-user. In such cases, we contract directly with the reseller, and revenue
      is
      recognized on amounts charged to the reseller. We
      also
      have another type of distribution arrangement—known as a referral arrangement—in
      which a third party refers a potential customer to our direct sales force,
      which
      in turn seeks to enter into a contract directly with the potential customer.
      When a sale is made from us to a customer through a lead provided by a referral
      agent, the referral agent receives from us a
      percentage of the proceeds from the sale of WebEx services to the customer,
      and
      we categorize such revenue as revenue received from services sold directly
      to
      customers .




In
      2005,
      sales of our standalone Meeting Center service, whether directly to our
      customers or indirectly through our resellers ,
      accounted for approximately 40% of our revenue. In 2004 and 2003, respectively,
      sales of our standalone Meeting Center service accounted for approximately
      50%
      and 60% of our revenue. This reduction in Meeting Center sales as a percentage
      of our total revenue may continue as we introduce new service offerings and
      as
      we increase revenue from existing services other than Meeting Center.








***Third
      Party Software and Hardware***




We
      license software and purchase hardware, such as database, operating system,
      web
      server and voice-over-IP software, font technology and servers, routers, and
      audio-conference bridges. We believe that use of third-party vendors enables
      us
      to integrate current and emerging technologies into our proprietary service
      offerings. We purchase, or license, these third-party technologies from
      companies including BEA Systems (application servers), Bitstream (font
      technology), Oracle (database technology), Rackable (servers), Sun Microsystems
      (servers), Symantec (file management), Pactolus (audio-conference bridge
      technology), Sonus (audio-conference bridge technology), Convidia
      (audio-conference bridge technology), GIPS (voice-over-IP), and Cybersource
      (credit card payment processing). Also, we purchase from a third party,
      Everdream, the service that we resell as WebEx System Management. While the
      loss
      of one or more of these vendors may result in the need to identify, secure
      and
      integrate alternative technologies, we believe we can obtain, from other sources
      and on comparable business terms, third party software or hardware functionally
      comparable to that provided by these third party vendors.








***Research
      and Development***




The
      emerging market for web collaboration services is characterized by rapid
      technological change, new product introductions and enhancements, evolving
      customer requirements and rapidly changing industry standards. We devote a
      substantial portion of our resources to developing and enhancing our network
      services and application platform, extending our global network, and conducting
      quality assurance testing.




As
      of
      December 31, 2005, we had 902 employees engaged in research and development
      activities. Our research and development expenditures were approximately $45.7
      million, $34.3 million and $24.8 million in 2005, 2004 and 2003, respectively.
      We expect to continue to devote significant resources to research and
      development for the foreseeable future, although we intend to reduce research
      and development costs as a percentage of revenue over the next few years.







TOC


A
      significant
      amount of our development and testing activity is conducted by our subsidiary
      in
      China (“WebEx China”). As of December 31, 2005, of the 848 employees in our
      WebEx China operations, 711 employees were engaged in research and development
      activities.  We
      rely
      on WebEx China for a significant portion of our quality assurance, software
      development and other activities .








***Sales
      and Marketing***




Our
      sales
      efforts target a broad range of businesses, government agencies and non-profit
      organizations primarily through direct sales channels and, to a lesser extent,
      through indirect sales channels. Direct sales are generated through our internal
      sales force, while indirect sales are generated through agreements with our
      resellers. Our internal sales force uses our own WebEx services to maximize
      the
      effectiveness and efficiency of our direct sales channel. Our marketing programs
      include customer needs assessment and market analysis, service and platform
      marketing, brand awareness, advertising, public relations, lead generation,
      and
      educating organizations in our target markets.




We
      derive
      revenue from both U.S.-based and non U.S.-based customers. In 2005, 2004 and
      2003, the percentage of revenues from U.S. customers was 87%, 88% and 93%,
      respectively. In 2005, 2004 and 2003, the percentage of revenues from our
      non-U.S. customers was 13%, 12% and 7%, respectively .
      As of
      December 31, 2005, we had 606 employees engaged in sales, customer care and
      marketing activities. Our sales and marketing expenditures were approximately
      $102.7 million, $84.2 million and $74.2 million in 2005, 2004 and 2003,
      respectively. We expect to continue to devote significant resources to sales
      and
      marketing. More specifically, in the current calendar year we intend to invest
      more of our budget on sales and marketing and to reduce the percentage of our
      budget spent on research and development.








***Competition***




The
      collaboration software and services market is intensely competitive, subject
      to
      rapid change and is significantly affected by new product and service
      introductions and other market activities of industry participants. Although
      we
      do not currently compete against any one entity with respect to all aspects
      of
      our services, we do compete with various companies with respect to specific
      elements of our on-demand web collaboration services. For example, we compete
      with providers of traditional communications technologies such as
      teleconferencing and videoconferencing, application software and tools companies
      including online application services providers, and web conferencing products
      and services such as Adobe Systems, Cisco Systems, Citrix Systems, Genesys,
      IBM,
      Microsoft, Netviewer, NTR, Oracle, PC Visit, Saba, and Salesforce.com.





In
      addition to the above competitors, certain of our resellers offer competitive
      web conferencing, web application and other web collaboration services. One
      of
      our key resellers, Intercall, is a subsidiary of West Corporation which recently
      announced its intention to acquire our competitor Raindance. As a result of
      its
      acquisition of Raindance, Intercall could choose to increase its emphasis on
      offerings competitive with ours, or cease to offer some or all of our offerings,
      or both.




Competition
      from Microsoft for the collaboration software and services markets may adversely
      affect us. ** Microsoft
      has a current product offering which is competitive with ours and which is
      called Microsoft Office Live Meeting. In mid-2005, Microsoft announced the
      acquisition of collaboration software provider Groove Networks. In November
      2005, Microsoft previewed by press announcement its Microsoft Office Live
      offering, which it described as a set of Internet-based software services.
      Microsoft is currently offering a free “beta”, or pre-commercial release,
      version of Office Live. Microsoft’s investment of development and marketing
      resources in products or services that compete directly with us and Microsoft’s
      integration of competitive technologies acquired from other companies, including
      Groove Networks and Placeware, may have an adverse impact on our business.
      More
      generally, Microsoft may attempt to leverage its dominant market position in
      the
      operating system, productivity application or browser markets, through technical
      integration or bundled offerings, to expand further its presence in these web
      collaboration markets. This expanded Microsoft presence in web collaboration
      markets could make it difficult for other vendors of web collaboration products
      and services, such as WebEx, to compete.




In
      addition, some competitors offer web collaboration products and services
      targeted at customers who are more price-conscious and are less concerned about
      functionality, scalability, integration and security features. Such offerings
      may make it more difficult for us to compete in that segment of the market
      and
      may cause some of our existing customers to switch to these competitors. In
      2005, we introduced new services with lower entry prices that enable us to
      compete more effectively with such offerings. If our industry were to experience
      a general decline in prices and there were not a sufficient increase in volume
      to compensate for the price reductions, we might be forced to change the extent
      and type of resources we deploy in the selling of our services in an effort
      to
      maintain operating margins, such as switching to different sales practices.
      Finally, some of our competitors offer software products or products that are
      a
      combination of software and hardware that include web collaboration
      functionality, and which allow customers to purchase such products, install
      them
      at their own facilities, and manage the products by themselves. If significant
      numbers of existing or potential customers determine that they would prefer
      to
      have their web


conferencing
        or more advanced web collaboration needs met with these types of products,
        demand for WebEx services may decrease.




We
      believe that the principal competitive factors in our market include:







TOC


-  service
      functionality, quality and performance;




-  ease
      of
      use, reliability, scalability and security of services;




-  customer
      service and support;




-  establishment
      of a significant base of customers and resellers;




-  ability
      to introduce new services to the market in a timely manner;




-  ability
      to integrate with third-party offerings and services; and




-  pricing.




Although
      we believe our services compete favorably with respect to many of these factors,
      the market for our services is relatively new and rapidly evolving. We may
      not
      be able to maintain our competitive position against current and potential
      competitors, especially those with greater resources such as IBM, Microsoft,
      Cisco Systems and Adobe Systems.








***Intellectual
      Property***




The
      status of United States patent protection in the Internet industry is not well
      defined and will evolve as the U.S. Patent and Trademark Office grants
      additional patents. We currently have 25 issued patents, including eight we
      acquired in connection with our 2003 acquisition of certain assets of Presenter,
      Inc., five we purchased in 2004 from NCR Corporation and one that we own as
      a
      result of our acquisition of Intranets. Our patents are in several areas
      including peer-to-peer connections to facilitate conferencing, document
      annotation, optimizing data transfer, graphical user interface for extracting
      video presentations, and remote collaboration systems involving multiple
      computers. We currently have over 55 patent applications pending in the United
      States Patent Office. We may seek additional patents in the future. We do not
      know if our patent applications or any future patent application will result
      in
      any patents being issued with the scope of the claims we seek, if such patents
      are issued at all. We do not know whether any patents we have received or may
      receive will be challenged, invalidated or be of any value. It is difficult
      to
      monitor unauthorized use of technology, particularly in foreign countries where
      the laws may not protect our proprietary rights as fully as in the United
      States, and our competitors may independently develop technology similar to
      ours. We will continue to seek patent and other intellectual property
      protections, when appropriate, for those aspects of our technology that we
      believe constitute innovations providing significant competitive advantages.




Our
      success depends in part upon our rights to proprietary technology. We rely
      on a
      combination of copyright, trade secret, trademark and contractual protection
      to
      establish and protect our proprietary rights. We require our employees to enter
      into confidentiality and nondisclosure agreements upon commencement of
      employment. Before we will disclose any confidential aspects of our services,
      technology or business plans to customers, potential business partners and
      other
      non-employees, we routinely require such persons to enter into confidentiality
      and nondisclosure agreements. In addition, we require all employees, and those
      consultants involved in the deployment of our services, to agree to assign
      to us
      any proprietary information, inventions or other intellectual property they
      generate, or come to possess, while employed by us. Despite our efforts to
      protect our proprietary rights, unauthorized parties may attempt to copy or
      otherwise obtain and use our services or technology. These precautions may
      not
      prevent misappropriation or infringement of our intellectual property.




Third
      parties may infringe or misappropriate our copyrights, trademarks and similar
      proprietary rights. When we become aware of such infringement, we may take
      action including bringing legal action against such parties. For example, in
      September 2005, we sued our competitor Raindance Communications in federal
      district court in the Northern District of California, alleging that Raindance’s
      web conferencing services infringe nine of our patents. Conversely,
      we may be subject to claims of alleged infringement of patents and other
      intellectual property rights of third parties. For example, in
      October 2005, Raindance filed a separate suit against us in federal district
      court in the Eastern District of Texas, in which Raindance alleges that we
      infringe two of its patents.





In
      addition, we may be unaware of filed patent applications which have not yet
      been
      made public and which relate to our services. From
      time
      to time, we have received notices alleging that we infringe intellectual
      property rights of third parties. In such cases, we investigate the relevant
      facts, respond to the allegations and, where case facts and other conditions
      warrant, consider settlement options.




Intellectual
      property claims may be asserted against us in the future. Intellectual property
      litigation is expensive and time-consuming and could divert management’s
      attention from running our business. Intellectual property litigation could
      also
      require us to develop non-infringing technology or enter into royalty or license
      agreements. These royalty or license agreements, if





required,
      may not be available on acceptable terms, if at all. Our failure or inability
      to
      develop non-infringing technology or license the proprietary rights on a timely
      basis would harm our business.








***Employees***




As
      of
      December 31, 2005, we had 2,091 full-time employees, including 902 in research
      and development, 606 in sales, customer care and marketing activities, 345
      in
      set-up, technical support and training, and 238 in general and administrative.
      As of December 31, 2005, 1,149 of our employees were based outside the United
      States, including 848 in China as part of our WebEx China subsidiary and 209
      in
      India as part of our WebEx India subsidiary. None of our employees is covered
      by
      collective bargaining agreements. We believe our relations with our employees
      are good.








***Available
      Information***




Our
      website is located at http://www.webex.com. We make available, free of charge,
      on or through our website, our Annual Report on Form 10-K, Quarterly Reports
      on
      Form 10-Q, Current Reports on Form 8-K and amendments to reports to be filed
      pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934,
      as
      amended, as soon as reasonably practicable after electronically filing such
      reports with the Securities and Exchange Commission. In addition, we have an
      investor relations web page located on our website, which includes additional
      information including webcasts of earnings announcements, stock information,
      press releases and other information of interest to current and prospective
      investors. Information on our website is not part of this report.








**Item
      1A.** ***Risk
      Factors***


****


The
      following risk factors and other information included in this Annual Report
      should be carefully considered. The risks and uncertainties described below
      are
      not the only ones we face. Additional risks and uncertainties not presently
      known to us or that we deem immaterial also may impair our business operations.
      If any of the following risks occur, our business, financial condition,
      operating results, and cash flows could be materially adversely affected.








*The
      revenue uncertainty associated with one of our two primary pricing models,
      usage-based pricing, makes our quarterly results variable and difficult to
      predict, which could cause unpredictable fluctuations in our stock price.*




We
      use
      two primary pricing models to price our services: a committed-subscription
      pricing model and a usage-based pricing model. Each pricing model is responsible
      for a significant percentage of our total revenue. Because the usage-based
      portion of our revenue varies depending on customer usage, it is more difficult
      to predict than our subscription-based pricing and therefore our revenue may
      fluctuate unpredictably from publicly-announced targets, which in turn could
      cause our stock price to fluctuate unpredictably.




Our
      dominant pricing model has been a
      committed-subscription pricing model. A customer may subscribe to a certain
      number of concurrent-user ports per month, which enables the customer to have
      that set number of users connected to WebEx meetings at any one time, or to
      a
      minimum minutes commitment, which in the typical case enables the customer
      to
      have up to a set number of total minutes to utilize our services during a
      specified time period. With any of these committed subscription offerings,
      the
      customer sometimes also pays overage fees, in addition to the committed
      subscription price. Overage fees are charged when (i) a customer subscribing
      to
      a set number of ports uses more than the subscribed number of ports in one
      or
      more web conference sessions, or (ii) when a customer on a minutes-based
      subscription pricing model uses more than its commitment.





We
      also
      offer flat-rate priced services, meaning that the customer pays a set price
      per
      month that is not influenced by usage or subject to overage fees. One of our
      flat-rate offerings is the named host offering, in which a certain named
      individual may host meetings at which up to a certain number of attendees may
      participate. The
      named
      host service differs from the concurrent-user port offering in several respects:
      (i) with the concurrent user offering, any employee of the customer may host
      a
      meeting, whereas with the named host service only employees who are designated
      as named hosts may host a meeting, (ii) the price charged for a named host
      subscription is appreciably lower than the price charged for a concurrent user
      subscription, in part because the named host model is less flexible with respect
      to who can host a meeting, and (iii) unlike the concurrent user offering, with
      the named host offering there are effectively no overage fees. Our flat-rate
      offering is another of our committed subscription offerings .




We
      have
      recently introduced two new flat-rate offerings targeted at individuals and
      small businesses. The first offering, available for purchase online and called
      MeetMeNow, is a simple web conferencing service offered on a monthly basis.
      The
      second flat-rate offering is our new WebEx WebOffice line of collaboration
      services, which we offer for purchase through a variety
      of monthly subscription plans. We
      refer
      to the revenue associated with our various flat-rate subscription arrangements,
      together with the revenue from our ports subscription and minimum minutes
      subscription arrangements, as committed revenue .




In
      addition to our committed subscription offerings, there are several situations
      in which customers are charged per minute or usage-based pricing. These include
      certain reseller arrangements, customer overage fees for usage above the
      subscribed-to







TOC


amount
      of
      ports or minutes, many types of telephony charges, individual pay-per-use
      services purchased directly from our website, and a limited number of customers
      who do not have a minimum commitment obligation of any kind. A majority of
      revenue received from our telecommunications partner arrangements is usage
      based. As previously discussed, overage fees are charged when a customer
      subscribing to a set number of ports uses more than the subscribed number of
      ports, or when a customer on a minutes pricing model uses more than its
      commitment. We get per-minute telephony revenue when we provide the audio
      conferencing component of a web collaboration session. Finally, we have
      per-minute web collaboration services
      available through our website and payable by credit card. We refer to the
      revenue derived from this per minute or usage-based pricing model, measured
      as
      of the end of any month, as uncommitted revenue .




For
      the
      quarter ended December 31, 2005, usage-based revenue was approximately 27%
      of
      our total revenue. The various usage-based revenue sources are more variable
      and
      difficult to predict than our committed subscription revenue sources, given
      that
      customer demand may vary from month to month depending on a number of factors,
      such as number of business days in a month or vacation patterns. Accordingly,
      to
      the extent the revenue derived from our various usage-based sources—or
      uncommitted revenue—grows faster than the combined revenue from ports, minimum
      minutes and flat-rate offerings—together called committed revenue—our overall
      revenue becomes more difficult to predict. Although the uncommitted revenue
      percentage of our overall revenue was lower in the fourth quarter of 2005 than
      in the third quarter of 2005, in the quarters immediately preceding the third
      quarter of 2005 the uncommitted revenue percentage of total revenue had been
      rising, a trend that if it resumes in future quarters would increase the
      unpredictability of our total revenue.





*There
      are factors other than usage-based pricing--some within and some not within
      our
      control--that make our quarterly results variable and difficult to predict,
      which could cause unpredictable fluctuations in our stock price.*




For
      several additional reasons, some inside and some outside of our control, our
      quarterly revenue and operating results may fluctuate from quarter to quarter
      and may vary from publicly-announced quarterly or annual financial guidance.
      These additional factors include the emerging nature of the market for web
      collaboration services, fluctuations in sales and customer retention and the
      uncertain impact of competition, which are listed below along with several
      other
      factors which could cause our quarterly results to fluctuate
      unpredictably:




Factors
      outside our control include:




-
            the
                emerging nature of the market for, and the growth rate of, the market
                for
                web collaboration software and services generally and particularly
                for
                on-demand web collaboration services;




-
            market
                acceptance of our services;




-
            our
                resellers’ degree of success in distributing our services to end-users;




-
            the
                announcement, introduction and market acceptance of new or enhanced
                services or products by our competitors;




-
            changes
                in offerings, sourcing or pricing policies of our competitors and
                our
                distributors; and




-
            a
                trend toward lower average per-minute prices in the telecommunications
                sector generally.




Factors
      within our control include:




-
            our
                ability to develop, enhance and maintain our web communications network
                in
                a timely manner;




-
            the
                mix of web collaboration services we offer, and our introduction
                of
                asynchronous web collaboration services;




-
            our
                ability to attract and retain customers;




-
            the
                amount and timing of operating costs and capital expenditures relating
                to
                expansion of our business and network infrastructure; and




-
            changes
                in our pricing policies.




If
      any of
      these factors impact our business in an unplanned and negative manner during
      a
      particular period, our operating results may be below market expectations,
      in
      which case the market price of our common stock would likely decline. Also,
      factors such as the growth rate of the market for our services, our ability
      to
      maintain and enhance our network services and







TOC


platform,
      and our competitors’ success could impact our longer-term financial performance
      by reducing demand for our services, which would harm our business.








*One
      of our subscription-based offerings, the named host offering, is the choice
      of
      an increasing percentage of our subscription-based customers, both new and
      existing, because of its lower price relative to our other committed
      subscription offerings. This customer purchasing trend could reduce our revenue
      unless and until the volume of additional customers makes up the difference.*




A
      number
      of our new and existing customers are selecting our named host offering.
      Approximately 87% of our new subscription-based agreements entered into during
      the fourth quarter of 2005 were named host agreements, and approximately 34%
      of
      our current subscription-based agreements are named host agreements. Because
      the
      amount we charge for a named host is less than the amount we charge for a
      concurrent user, we often get less revenue from customers who select the named
      host pricing model than we have historically from our concurrent user customers.
      In addition, we generally do not receive overage revenue under the named host
      model. This loss of subscription and overage revenue may be offset in the future
      if named host customers increase the number of named hosts they subscribe to
      or
      if the number of customers increases due to the availability of this
      lower-priced model. If neither of these trends occurs, our operating results
      will be negatively affected .








*We
      expect that our operating expenses will continue to increase, and if our revenue
      does not correspondingly increase, our business and operating results will
      suffer.*




We
      expect
      to continue to spend substantial financial and other resources on developing
      and
      introducing new services, on expanding our sales and marketing organization,
      on enhancing our network infrastructure and on upgrading leased facilities
      such as our European headquarters. Examples of substantial financial outlays
      and
      commitments made during the past two years include our purchase of a building
      in
      Mountain View, California which now serves as one of our primary network
      operating center facilities, and our signing a ten-year lease for space in
      a
      Santa Clara, California building which became our corporate headquarters in
      January 2005. We base our expansion plans and expense levels in part on our
      expectations of future revenue levels. If our revenue for a particular quarter
      is lower than we expect, we may be unable to reduce, proportionately, our
      operating expenses for that quarter, in which case our operating results for
      that quarter would suffer. And because our fixed expenses have increased
      appreciably due to our expectations relating to future revenue levels, if our
      revenue is sufficiently below expectation in one or more quarters, we may be
      unable to effect proportionate reductions in our operating expenses in a timely
      manner and, therefore, our operating results could suffer.







*Most
      of our customers do not have long-term obligations to purchase our services;
      therefore, our revenue and operating results could decline if our customers
      do
      not continue to use our services.*




Most
      of
      our customer contracts have initial terms of three to twelve months. These
      contracts are typically automatically renewed except where a customer takes
      action to cancel a contract prior to the end of an initial or renewal term.
      In a
      few customer situations, including contracts with the federal government, the
      contract can be terminated by the customer at any time during the term of the
      agreement. Our lost subscription customer ratio was 2.2% for the quarter ended
      December 31, 2005. In addition to cancellation, a customer may stop buying
      our
      services directly from us and, instead, start purchasing our services from
      one
      of our resellers. A customer may also change the number of ports or types of
      services that the customer purchases directly from us such that the overall
      subscription revenue to us is lower, such as switching from a concurrent user
      or
      minimum minutes offering to a named host offering. The
      reasons why a customer would cancel use of our services have included the
      pricing of our service offerings, the failure of the customer’s employees to
      learn about and use our services, the failure of the services to meet the
      customer’s expectations or requirements, financial difficulties experienced by
      the customer, or the customer’s decision to use services or products offered by
      a competitor. As a result of customer cancellations or reductions in purchases
      of our services, we may need to invest additional dollars in sales and marketing
      in order to compensate for increases in net customer losses, or we may need
      to
      invest in the development or acquisition of new offerings in an attempt to
      increase customer retention. We may not obtain a sufficient amount of new or
      incremental business to compensate for any customers that we may lose. The
      loss
      of existing customers or our failure to obtain additional customers, and the
      additional expense associated with acquiring new customers or developing or
      acquiring new products, could harm our business and operating results.






*Our
      business and operating results may suffer if we fail to establish reseller
      relationships, if our resellers experience financial hardships, do not
      successfully market and sell our services, or devote greater efforts to the
      products and services of competitors, or if we fail to become a significant
      participant in the telecommunications provider distribution channel.*







TOC


As
      of
      December 31, 2005, we had distribution agreements in place with
      telecommunications partners, software vendors, web services providers and
      miscellaneous other resellers that during 2005 accounted for 15% of our revenue.
      Our revenue generally consists of initial set-up fees, commitment payments,
      and
      service fees. The majority of the payments received from these resellers are
      per
      minute or usage-based payments. We must continue to establish and extend these
      distribution relationships. Establishing these distribution relationships can
      take as long as several months or more. It typically also takes several months
      before our distribution arrangements generate significant revenue. Our resellers
      are not prohibited from offering and reselling the products and services of
      our
      competitors, and a significant majority of our resellers currently do so. Such
      resellers (i) may be forced for financial hardship reasons, or may choose,
      to
      devote insufficient resources to marketing and supporting our services, (ii)
      may
      devote greater resources to marketing and supporting the products and services
      of our competitors including specific efforts to persuade the reseller’s
      customers to switch from our services to those of our competitors, or (iii)
      may
      be persuaded by a competitor of ours to sever the reseller’s distribution
      arrangement with us and possibly also become the exclusive reseller of that
      competitor. An example of a reseller which may devote greater resources to
      marketing and supporting the products and services of our competitors is our
      distributor Intercall, whose
      corporate parent West Corporation in February 2006 announced its intention
      to
      acquire our competitor Raindance and who therefore may increase its support
      of
      the Raindance offering, or cease offering some or all of our offerings, to
      our
      detriment. With
      regard to the telecommunications-provider distribution channel for web
      collaboration services which may prove economically significant in the future,
      our web collaboration services competitors may be more successful in partnering
      with telecommunications providers, or telecommunications providers may
      independently enter the web collaboration services business, either alone or
      with web conferencing vendors that do not include us. If we fail to establish
      new distribution relationships in a timely manner, if our resellers do not
      successfully distribute our services, if we lose existing resellers for whatever
      reason or if we fail to become a significant participant in the
      telecommunications-provider distribution channel, our ability to maintain
      current levels of market acceptance of our web collaboration services will
      suffer and our business and operating results will be harmed.







*If
      continuing consolidation within the telecommunications industry causes one
      or
      more of our key resellers to significantly curtail or discontinue a reseller
      arrangement with us, our revenues may be negatively affected.* **




Our
      various reseller relationships accounted for 15% of our total revenue in 2005.
      Two of our large resellers, telecommunications providers AT&T and MCI,
      recently have been acquired by, respectively, SBC Communications and Verizon
      Communications. The acquisition of MCI was completed in January 2006, and the
      former MCI is now part of the business unit of Verizon known as Verizon
      Business. The acquisition of AT&T was completed in November 2005, and the
      combined entity is now known as AT&T. If one, or both, or other of our large
      resellers were to significantly reduce the scope of or discontinue a reseller
      arrangement with us whether as a result of having been acquired by another
      entity or otherwise, our reseller-related revenue could drastically decline,
      and
      our business could suffer significantly.







*Our
      total revenue may suffer if we are unable to manage our distribution
      relationships successfully to prevent the undercutting of our direct sales
      efforts.* **




We
      sell
      our services directly to customers and also indirectly through our resellers
      which buy and resell our services. We enter into distribution relationships
      so
      that we can obtain additional customers through third parties that we could
      not
      obtain through our direct sales efforts. Under our agreements with our
      resellers, we sell our services on a discounted basis to the reseller, which
      in
      turn marks up the price and sells the services to the end-user. In such cases,
      we contract directly with the reseller, and revenue is recognized on amounts
      charged to the reseller. We
      also
      have another type of distribution arrangement—known as a referral arrangement—in
      which a third party refers a potential customer to our direct sales force,
      which
      in turn seeks to enter into a contract directly with the potential customer.
      When a sale is made from us to a customer through a lead provided by a referral
      agent, the referral agent receives from us a
      percentage of the proceeds from the sale of WebEx services to the customer,
      we
      include the revenue received by us within the broad category of revenue received
      from services sold directly to customers, and we record the amount paid to
      the
      referral agent as sales and marketing expense. In either the reseller or
      referral agent case, the income per sale received by us when a sale is generated
      by a third party is not as great as it would have been had the sale been made
      by
      us directly, for the same volume of WebEx services. To the extent that sales
      of
      our services generated by our resellers or referral agents are sales that,
      absent the existence of the distribution arrangement, would be made by our
      direct sales force, our income per sale may decrease. Additionally, to the
      extent our existing customers discontinue direct agreements with us in order
      to
      purchase our services from our resellers or through our referral agents,
      our income per sale may decrease.





*We
      expect to depend on sales of our standalone WebEx Meeting Center service for
      a
      significant percentage of our revenue for the foreseeable future.*







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Our
      standalone WebEx Meeting Center service, the service which generates our largest
      sales revenue, accounted for approximately 40% of our revenue for the year
      ended
      December 31, 2005. We have developed and are selling other services, such as
      our
      Event Center, Training Center, Sales Center, Support Center (including
      components WebEx Remote Support, WebEx Remote Access, and the newly-launched
      WebEx System Management), our MeetMeNow service, our PCNow service, and our
      various add-ons such as our audio conferencing service. Our services other
      than
      Meeting Center may not provide significant revenue in the future. If we are
      not
      successful in developing, deploying and selling services other than our
      standalone Meeting Center service, and if sales of our standalone Meeting Center
      service decline or do not increase, our operating results will suffer.







*We
      have modified our business strategy from a narrow focus on web meetings to
      a
      more diverse product line of web collaboration services, and if our investments
      in these new markets are not well targeted or well executed, if overall market
      growth in these new segments is less than anticipated or if we are unable to
      compete successfully in these new market segments, our operating results could
      suffer.*




Our
      business strategy has shifted from a focus on real-time web meetings and
      closely-related applications to an emphasis on a more diverse product line
      of
      web collaboration services, including the asynchronous collaborative service
      offerings we now offer as a result of our acquisition of Intranets. This
      strategy includes a greater emphasis on selling services provided by, or
      obtained through acquisition of, third parties rather than our historical
      practice of selling services developed solely by us. Because the markets for
      these web collaboration services are just emerging, it is uncertain how
      successful WebEx will be in these markets. It is also uncertain how much
      investment in sales, marketing, product development and infrastructure will
      be
      necessary to compete successfully in these markets. If our investments in these
      new markets do not produce or exceed our expected return, our financial results
      will suffer .





*If
      our marketing, branding and lead-generation efforts are not successful, or
      if
      our decision to shift resources to sales and marketing from research and
      development causes service quality problems or delays in the rollout of new
      services or service upgrades, our business may be harmed.*




We
      believe that continued marketing and brand recognition efforts will be critical
      to achieve widespread acceptance of our web collaboration services. In the
      current calendar year, we intend to invest more of our budget on sales and
      marketing and to reduce the percentage of our budget spent on research and
      development. Nevertheless, our marketing and advertising campaigns or branding
      efforts may not be successful. For example, certain sales promotion initiatives,
      such as free introductory or free trial use, may dampen short-term sales even
      as
      such initiatives attempt to cultivate participants’ desire to purchase and use
      our services, in that a customer who might have otherwise purchased our services
      will instead receive free use of our services for the trial period of time.
      In
      addition, failure to adequately generate and develop sales leads could
      negatively impact our revenue and therefore our financial results. More
      specifically, our inability to generate and cultivate sales leads into large
      organizations, where there is the potential for significant use of our services
      and where any future marketplace standardization of our service might emerge,
      could harm our business.  If our marketing, branding or lead-generation
      efforts are not successful, or if a shift in resource emphasis from research
      and
      development to sales and marketing causes a decline in the quality of services
      delivered or delays in the deployment of new or upgraded services, our business
      and operating results will be harmed.






*If
      our services fail to function, whether because of the large number of
      participants or because of separate quality-related issues, we may lose
      customers and our business and reputation may be harmed.*




Our
      business strategy requires that our services be able to accommodate large
      numbers of meetings and users at any one time. Our data network monitoring
      system measures the capacity of our data network by bandwidth use. The goal
      of
      our network capacity planning is to have our average daily peak usage be less
      than 50% of our data network capacity. From time to time daily peak usage
      exceeds 50% of data network capacity. However, by monitoring and managing our
      network resources we have been able to meet our internal goal of maintaining
      average daily peak usage at less than 50% of our data network capacity.
      Whenever average daily peak usage increases to a point approaching or
      exceeding 50% of our network capacity, we add capacity so that we continue
      to
      meet our internal target of having average daily peak usage be less than 50%
      of
      our network capacity. During the quarter ended December 31, 2005, the average
      of
      our daily peak usages, as a percentage of our data network capacity, was less
      than 50% of our total capacity. In addition to our data network, we also
      maintain an integrated telephony network for which capacity planning is
      necessary. If we fail to invest adequately to increase the capacity and quality
      of our data and telephony networks consistent with the growth in usage of each,
      the performance of these networks could be adversely impacted. In addition,
      we
      may encounter performance or other service-quality problems when making upgrades
      and modifications
      to either or both of these networks. If our services do not perform adequately
      because of capacity-related or other quality-related problems with either or
      both of our data and telephony networks, we may lose customers and be unable
      to
      attract new customers and our operating results would be harmed.










*We
      rely on our China subsidiary, which exposes us to economic and political risks
      in China, foreign exchange risk, risks related to political tension between
      China and the United States, risks arising from an inability to enforce our
      intellectual property rights, and risks relating to possible Chinese government
      monitoring of portions of our service delivery operations or infrastructure.*




We
      have
      relied, and for the foreseeable future we plan to continue to rely, on our
      subsidiary WebEx China to conduct a significant portion of our quality assurance
      testing and software development activities, as well as a number of other
      activities including lead research for our sales personnel, creation of
      technical documentation, preparation of marketing materials and the provisioning
      of customer websites. We have five facilities in China, located in Hefei,
      Hangzhou, Shanghai, Shenzhen and Suzhou. Our China subsidiary employed, as
      of
      December 31, 2005, approximately 848 of our worldwide employees. Our reliance
      on
      WebEx China for a significant portion of our quality assurance, software
      development and other activities exposes us to a variety of economic and
      political risks including, but not limited to, technology-development
      restrictions, potentially costly and pro-employee labor laws and regulations
      governing our employees in China, and travel restrictions. Further, our
      per-employee productivity is lower in China than it is in the United States.




We
      also
      face foreign exchange risk in that we have significant payment obligations
      that
      must be made in Chinese currency including employee salaries and lease payments,
      which are currently not offset by sales revenue in China. The Chinese currency,
      or yuan, is a currency whose rate of exchange with other currencies is
      controlled by the Chinese government, and the Chinese government’s decision in
      July 2005 (i) to slightly revalue the yuan’s longtime fixed relationship to the
      U.S. dollar in favor of the yuan, and (ii) to allow a floating relationship
      between the yuan and a basket of international currencies, could over a period
      of time result in a significant appreciation of the yuan relative to the U.S.
      dollar and thereby increase the cost of our Chinese operations and increase
      the
      negative effect of the foreign exchange risk we face in China.




In
      addition, we face risks related to the fact that our operations in China are
      not
      immune from possible Chinese government monitoring or intrusion. As evidenced
      by
      recent publicized issues involving U.S. Internet technology companies, the
      Chinese government may engage in or require as condition of doing business
      in
      China, government monitoring and regulation of Internet services. Although
      we
      are not currently aware of any such activity or requirement, if such monitoring
      or regulation of our services were to occur, this could cause us to lose
      customers and could deter potential future customers from signing up for our
      services which would damage our operating results.





Finally,
      political and economic tensions between the United States and China could harm
      our ability to conduct operations in China, which could increase our operating
      costs and harm our business and operations. If we lost the services of our
      WebEx
      China subsidiary, we would incur increased costs, which would harm our operating
      results and business. Finally, because a substantial amount of our research
      and
      development activity takes place in China, our business may be harmed if we
      encounter difficulties enforcing our intellectual property rights there.







*Our
      international business activities expose us to foreign exchange risk, foreign
      country economic conditions and the challenges of managing a global business
      operation, any of which if not managed successfully could harm our financial
      condition.* **




A
      small
      part of our sales and support activities, and a significant portion of our
      customer provisioning and research and development activities, are conducted
      outside of the United States. Customer payments to us, and payments by us to
      both our foreign-based vendors and to our foreign-based employees, are generally
      made in the local currency. As a result, our financial results could be affected
      by factors such as changes in foreign currency exchange rates or weak economic
      conditions in foreign markets. We do not currently engage in hedging activities
      or other actions to decrease fluctuations in operating results due to changes
      in
      foreign currency exchange rates, although we may do so when the amount of
      revenue obtained from sources outside the United States becomes significant. We
      conduct sales, marketing, network and customer support operations in countries
      outside of the United States, and we currently have subsidiaries in each of
      the
      following non-U.S. countries: China, Hong Kong, Japan, Australia, India, the
      United Kingdom, France, Germany and the Netherlands. Our future results could
      be
      materially adversely affected by a variety of challenges generally associated
      with managing a global business including, among others, the
      following:




-
            staffing
                and managing international operations including multiple non-U.S.
                subsidiary structures;





-
            handling
                the various accounting, tax and legal complexities arising from our
                international operations;




-
            properly
                designing, testing andmaintaining
                internal controls over financial reporting in our non-U.S. subsidiaries,
                as required under the Sarbanes-Oxley Act of 2002 and related laws
                and
                regulations;




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-
            understanding
                cultural differences affecting non-U.S. employee relations or sales
                transactions;
                and




-
            addressing
                political, economic or social instabilities that may arise from time
                to
                time in a specific non-U.S. country or
                region.




The
      cost
      of meeting these and other challenges, or our failure to address adequately
      one
      or more of such challenges, could have a material adverse impact on our costs,
      expenses, and financial condition .







*We
      could incur unexpected costs resulting from claims relating to use of our
      services.*




Many
      of
      the business interactions supported by our services are critical to our
      customers’ businesses. Although it is not standard practice for us to do so, in
      some situations we do make warranties in our customer agreements as to service
      uptime, or the percentage of time that our network will be operational and
      available for customer use. Accordingly, any failure by us to fulfill such
      warranty obligation, or more generally any failure in a customer’s business
      interaction or other communications activity that is caused or allegedly caused
      by our services, could result in a claim for damages against us, regardless
      of
      our responsibility for the failure, and cause us to incur unexpected costs.






*The
      software underlying our services is complex, and our business and reputation
      could suffer if our services fail to perform properly due to defects or similar
      problems with our underlying software.*




Complex
      software, such as the software underlying our services, often contains defects.
      We may be forced to delay commercial release of new services or new versions
      of
      existing services until problems are corrected and, in some cases, we may need
      to implement enhancements to correct defects or bugs that we do not detect
      until
      after deployment of our services. If we do detect a defect or bug in our
      software before we introduce new versions of our services, we might have to
      limit our services for an extended period of time while we resolve the problem.
      In addition, problems with the software underlying our services could result
      in:




-
            damage
                to our reputation;




-
            damage
                to our efforts to build brand awareness;




-
            loss
                of customers, or loss of or delay in revenue;




-
            delays
                in or loss of market acceptance of our services; and




-
            unexpected
                expenses and diversion of resources to remedy errors.







*If
      our services do not work with the many hardware and software platforms used
      by
      our customers and end-users, or if we do not successfully adapt our MediaTone
      on-demand delivery platform to the increasing numbers of customers and varieties
      of web collaboration services we are developing, our business may be harmed.*




We
      currently serve customers and end-users that use a wide variety of constantly
      changing hardware and software applications and platforms. If our services
      are
      unable to support these platforms, they may fail to gain broad market
      acceptance, which would cause our operating results to suffer. Our success
      also
      depends on our ability to deliver our services to multiple platforms and
      systems, to modify our services and underlying technology as new versions of
      applications are introduced, and to manage our MediaTone platform such that
      it
      is able to handle the increasing scale and diversity of our on-demand
      collaboration services. In addition, the success of our services depends on
      our
      ability to anticipate and support new standards, especially web standards.
      If we
      fail to maintain the capacity and quality of our MediaTone network across a
      wide
      variety of user computer platforms, or fail in our efforts to utilize the
      MediaTone network to support new web collaboration services, our business will
      suffer.





*We
      rely on third parties for technologies we use in conducting our business, and
      in
      certain cases we rely on third parties to provide us with products we include
      in
      our set of commercial offerings. If we cannot continue to license these
      third-party technologies or products in a timely manner and on commercially
      reasonable terms, our business could suffer.*







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We
      intend
      to continue to license technologies from third parties, which are integrated
      into our services and which constitute new web collaboration services. For
      example, we license database, operating system, server and enterprise marketing
      automation software, billing software, font-rendering technology,
      voice-over-Internet protocol (VOIP) technology, and credit card payment
      processing services. As our sales volume, together with the scale and variety
      of
      our collaborative service offerings, grows larger, managing these third-party
      relationships and integrating the licensed technologies into our services,
      into
      our service delivery infrastructure and into our sales and marketing operations
      has become more important to the health of our business. If we are unable to
      meet the challenges associated with these more numerous and complex
      relationships with third-party providers, our business could suffer. Also,
      we
      are now relying on third parties to supply us with certain of our web
      collaboration services themselves, such as the System Management service that
      is
      a new offering within the Support Center family of services. These
      product-related third-party technologies, and any that we may utilize in the
      future, may not continue to be available to us on commercially reasonable terms.
      In addition, we may fail to successfully integrate any licensed technology
      or
      licensed product into our MediaTone service delivery platform. This in turn
      could increase our costs and harm our business and operating results .






*Our
      recent growth has placed a strain on our infrastructure and resources, and
      if we
      fail to manage our future growth to meet customer and distribution partner
      requirements, both within the U.S. and internationally, our business could
      suffer.*




We
      have
      experienced a period of rapid expansion in our personnel, facilities, and
      infrastructure that has placed a significant strain on our resources. As an
      example of this expansion, our worldwide headcount increased from 639 at
      December 31, 2002 to 2,091 at December 31, 2005. The December 31, 2005 total
      includes 79 employees who joined WebEx as part of the acquisition of Intranets.
      We expect to continue to increase our personnel during 2006. Our expansion
      has
      placed, and we expect that it will continue to place, a significant strain
      on
      our management, operational and financial resources. In addition to completing
      the physical transfer of one of our primary network operations centers from
      our
      former San Jose headquarters to a facility in Mountain View, California, we
      are
      continuing to transition another of our network operations centers from a
      Denver, Colorado facility to a co-location facility located in Ashburn,
      Virginia.





Separately,
      we are continuing periodically to update our information technology
      infrastructure to meet increased requirements for capacity, flexibility and
      efficiency resulting from the growth of our business. In the event these
      recently re-deployed or recently-updated systems or technologies do not meet
      our
      requirements or are not deployed in a successful or timely manner, our business
      may suffer.







*Breaches
      of our physical or technical security systems, or the security systems of our
      vendors who partner with us in the delivery of services to customers, may result
      in violations of our confidentiality and security obligations to our customers,
      damage to our systems and our reputation, and may endanger the safety of our
      employees.*





Our
      customers and end-users may use our services to share confidential and sensitive
      information, the security of which is critical to their business. Third parties
      may attempt to breach our security or the security of our vendors or customers.
      We may be liable to our customers for any breach in security, and any breach
      could harm our reputation and cause us to lose customers. For example, in
      connection with customer purchases of our services and with the help of an
      outside vendor, we process tens of thousands of credit card transactions per
      month, and any failure in either our or the vendor’s security system to
      safeguard customer information could result in violations of law or industry
      standards by us, damage to our customers or damage to our financial performance
      or reputation. In addition, computers are vulnerable to computer viruses,
      physical or electronic break-ins and similar disruptions, which could lead
      to
      interruptions, delays or loss of data. A breach of the physical security of
      our
      facilities may endanger the safety of our employees. We may be required to
      expend significant capital and other resources to further protect against
      security breaches or to resolve problems caused by any breach, including
      litigation-related expenses if we are sued .






*Changes
      in our executive management team may be disruptive to our
      business.*





From
      time
      to time there are changes in our executive management team, including the hiring
      and departure of executives, and the reorganization of responsibilities and
      personnel. For example, during the first quarter of 2006 we had a reorganization
      affecting the leadership of our sales and customer care organization, our
      product and engineering organization and our marketing organization, which
      are
      important areas of our business. In addition, our president and chief operating
      officer announced his intention
      to leave the Company. Such changes may be disruptive to our business, because
      the executives and employees reporting to them require time to become fully
      productive in their new roles and new organizations. Planned changes in the
      Company’s organization or management may not achieve the expected benefits. In
      addition, the departure of executives may create temporary voids in leadership
      in critical areas of the Company. Because of these risks, organizational and
      management changes







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may
      have
      an adverse impact on our financial performance. We do not have long-term
      employment agreements or life insurance policies on any of our senior
      executives.






*If
      we
      are unable to attract, integrate and retain qualified personnel, our business
      could suffer.*





Our
      future success will depend on our ability to attract, train, retain and motivate
      highly skilled engineering, technical, managerial, sales and marketing and
      customer support personnel. We expect to continue to increase our personnel
      during 2006. As the U.S. economy in general and the technology sector in
      particular continue to grow, we could encounter increasing difficulty hiring
      qualified personnel. We could encounter the same difficulty in other countries
      and regions where we operate and where the demand for skilled technology workers
      is growing quite rapidly, such as in China and India where we have experienced
      a
      significant degree of salary pressure and turnover in our workforce. If we
      encounter difficulty hiring, integrating and retaining a sufficient number
      of
      qualified personnel in the future, the quality of our web collaboration services
      and our ability to develop new services, obtain new customers and provide a
      high
      level of customer service could all suffer, and consequently the health of
      our
      overall business could suffer. If in our hiring we hire employees from our
      competitors, we face a risk that a competitor may claim that we have engaged
      in
      unfair hiring practices, which could cause us to incur costs in defending
      ourselves against such claims, regardless of their merits. Also, our competitors
      appear to value certain specialized skills possessed by certain of our technical
      and sales employees, having hired or attempted to hire such individuals in
      recent quarters. If the rate at which such employees are hired away increases
      appreciably, our business and operations could be harmed.






*Interruption
      or malfunction of our internal business processing systems, including a
      comprehensive database system upgrade we plan to implement during 2006, could
      result in customer invoicing delays and other disruptions to our revenue-related
      financial accounting processes* *.*




Our
      business, which includes thousands of subscription customers and a large number
      of daily transactions, is substantially dependent on the continuous and
      error-free functioning of our automated business processing systems covering
      such areas as order-entry, billing, contract management and collection
      activities. We currently are utilizing an internally-developed, proprietary
      business processing system to capture and record, for billing and financial
      statement generation purposes, customer usage of our various services. Because
      we have to rely on our own know-how and experience, rather than that of an
      outside vendor, to identify, diagnose and repair any bugs,
      start-up problems or other malfunctions relating to the new system, any such
      malfunction could cause delays or errors in transaction processing, which could
      negatively affect customer relationships and could harm our business .
      Actual
      malfunction-related costs that could have negative effects on our business
      include (i) delays in generating, or inability to generate, customer invoices,
      (ii) difficulty, or inability, to track the customer usage data needed to
      generate invoices, (iii) our having to deploy additional resources internally
      to
      troubleshoot these invoice and data collection problems and to complete the
      processing of sales transactions, and (iv) our having to issue credits to
      certain customers due to discrepancies or disagreements with particular
      invoices. During the second quarter of 2005, we experienced actual malfunctions
      of our new business processing system that resulted in an inability to capture
      certain customer usage data we need to prepare invoices and also resulted in
      delays in the issuing of invoices to customers.





In
      addition, during 2006 we plan to install an enhanced version of the application
      we use for financial reporting, human resource management and other enterprise
      resource planning functions. Any
      material interruption or malfunction associated with the installation or
      operation of the application, including bugs or start-up problems relating
      to
      the new system, could result in similar
      billing, collection, credit-issuance and other revenue-related financial
      accounting problems. Such interruptions or malfunctions, if they become
      persistent or large-scale, could harm our customer relationships and,
      additionally, have a negative effect on our
      financial reporting and other internal control activities, which could cause
      us
      to fail to meet legal and compliance requirements applicable to public
      companies, which in turn could harm our business .






*Interruptions
      in either our internal or outsourced computer and communications systems could
      reduce our ability to provide our revenue-generating services and could harm
      our
      business and reputation.*




The
      success of our on-demand web collaboration services depends on the efficient
      and
      uninterrupted operation of our internal and outsourced computer and
      communications hardware, software and services. In 2004 we completed
      installation of an updated version of our server management system, which system
      monitors and reports on the status of our various servers through which our
      real-time web collaboration services are delivered to customers. Any system
      failure, including the malfunction of the new
      server management system, that causes an interruption in our web collaboration
      services or a decrease in their performance, could harm our relationships with
      our customers and resellers. In addition, some of our communications hardware
      and software are hosted at third-party co-location facilities, and we rely
      as
      well on the functional operation of connectivity infrastructure such as fiber
      provided by third-party service providers. These systems and operations,
      including those of our third-party service







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providers,
      are vulnerable to damage or interruption from human error, telecommunications
      failures, physical or remote break-ins, physical damage to fiber lines or other
      third-party service provider infrastructure, sabotage, computer viruses and
      intentional acts of vandalism. In addition, third-party co-location facilities
      may discontinue their operations due to poor business performance. Because
      a
      substantial part of our central computer and communications hardware and network
      operations are located in the San Francisco Bay Area, an earthquake or other
      natural disaster could impair the performance of our entire network. In the
      event of damage to or interruption of our internal or outsourced systems, if
      we
      are unable to implement our disaster recovery plans or our efforts to restore
      our services to normal levels in a timely manner are not successful, our
      business would be harmed. In addition, business interruption insurance may
      not
      adequately compensate us for losses that may occur, which would harm our
      business.






*We
      might have liability for content or information transmitted through our
      services.*




Claims
      may be asserted against us for defamation, negligence, copyright, patent or
      trademark infringement and other legal theories based on the nature and content
      of the materials transmitted through our web collaboration services. Defending
      against such claims could be expensive, could be time-consuming and could divert
      management’s attention away from running our business. In addition, any
      imposition of liability could harm our reputation, could harm our business
      and
      operating results, or could result in the imposition of criminal penalties.






*Our
      success depends upon the patent protection of our software and technology.*




Our
      success and ability to compete depend to a significant degree upon the
      protection of our underlying software and our proprietary technology through
      patents. We regard the effective protection of patentable inventions as
      important to our future opportunities. We currently have 25 issued patents,
      including eight we acquired in connection with our 2003 acquisition of certain
      assets of Presenter, Inc., five we purchased in 2004 from NCR Corporation and
      one that we own as a result of our acquisition of Intranets. Our patents are
      in
      several areas including peer-to-peer connections to facilitate conferencing,
      document annotation, optimizing data transfer, graphical user interface for
      extracting video presentations, and remote collaboration systems involving
      multiple computers. We currently have over 55 patent applications pending in
      the
      United States Patent Office. We may seek additional patents in the future.
      Our
      current patent applications cover different aspects of the technology used
      to
      deliver our services and are important to our ability to compete. However,
      it is
      possible that:




-
            any
                patents acquired by or issued to us may not be broad enough to protect
                us;




-
            any
                issued patent could be successfully challenged by one or more third
                parties, which could result in our loss of the right to prevent others
                from exploiting the inventions claimed in those patents and subjecting
                us
                to claims for seeking to enforce such patents;




-
            current
                and future competitors may independently develop similar technology,
                duplicate our services or design around any of our patents;




-
            our
                pending patent applications may not result in the issuance of patents;
                and




-
            effective
                patent protection, including effective legal-enforcement mechanisms
                against those who violate our patent-related assets, may not be available
                in every country in which we do business.







*We
      also rely upon trademarks, copyrights and trade secrets to protect our
      technology, which may not be sufficient to protect our intellectual property.*




We
      also
      rely on a combination of laws, such as copyright, trademark and trade secret
      laws, and contractual restrictions such as confidentiality agreements and
      licenses, to establish and protect our technology. Also, our software is
      automatically protected by copyright law. These forms of intellectual property
      protection are critically important to our ability to establish and maintain
      our
      competitive position. However,




-
            third
                parties may infringe or misappropriate our copyrights, trademarks
                and
                similar proprietary rights;




-
            laws
                and contractual restrictions, particularly those existing within
                or
                applied within non-U.S. jurisdictions such as China, may not be sufficient
                to prevent misappropriation of our technology or to deter others
                from
                developing similar technologies;




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-
            effective
                trademark, copyright and trade secret protection, including effective
                legal-enforcement mechanisms against those who violate our trademark,
                copyright or trade secret assets, may be unavailable or limited in
                foreign
                countries;




-
            other
                companies may claim common law trademark rights based upon state
                or
                foreign laws that precede the federal registration of our marks;
                and




-
            policing
                unauthorized use of our services and trademarks is difficult, expensive
                and time-consuming, and we may be unable to determine the extent
                of any
                unauthorized use.





Reverse
      engineering, unauthorized copying or other misappropriation of our proprietary
      technology could enable third parties to benefit from our technology without
      paying us for it, which would significantly harm our business.







*We
      may face intellectual property infringement claims that could be costly to
      defend and result in our loss of significant rights.*




We
      may be
      subject to legal proceedings and claims, including claims of alleged
      infringement of the copyrights, trademarks and patents of third parties. Our
      services may infringe issued patents. The holders of such patents could initiate
      infringement claims against us. Also, in response to an infringement action
      brought by us, the defendant in such action could file counterclaims against
      us
      in the same proceeding or file a separate action against us in a different
      court. For example, in September 2005, we sued our competitor Raindance in
      federal district court in the Northern District of California, alleging that
      Raindance’s web conferencing services infringe nine of our patents. In October
      2005, Raindance filed a separate suit against us in federal district court
      in
      the Eastern District of Texas, in which Raindance alleges that we infringe
      two
      of its patents. We believe Raindance’s claims in the Texas-filed lawsuit are
      without merit and we intend to vigorously defend ourselves against these claims.
      The defense of Raindance’s claims and the prosecution of our own claims can be
      expensive, time-consuming and may divert management attention and engineering
      resources from their other responsibilities.





In
      addition, we may be unaware of filed patent applications which have not yet
      been
      made public and which relate to our services. From time to time, we have
      received notices alleging that we infringe intellectual property rights of
      third
      parties. In such cases, we investigate the relevant facts, respond to the
      allegations and, where the facts, applicable law, and other conditions warrant,
      consider settlement options. Intellectual property claims that may be asserted
      against us in the future could result in litigation. Intellectual property
      litigation is expensive and time-consuming and could divert management’s
      attention away from running our business. Intellectual property litigation
      could
      also require us to develop non-infringing technology or enter into royalty
      or
      license agreements. These royalty or license agreements, if required, may not
      be
      available on acceptable terms, if at all, in the event of a successful claim
      of
      infringement. Our failure or inability to develop non-infringing technology
      or
      license proprietary rights on a timely basis would harm our business .







*We
      may engage in future acquisitions or investments that could dilute the ownership
      of our existing stockholders, cause us to incur significant expenses, fail
      to
      complement our existing revenue models or harm our operating results.*




We
      may
      acquire or invest in complementary businesses, technologies or services. For
      example, in September 2005 we acquired Intranets, a company which provides
      web-based collaborative application services primarily to small businesses.
      We
      have changed the name of this subsidiary to WebExOne, Inc., and the various
      collaboration services are now marketed and sold under a new brand name we
      are
      utilizing called WebEx WebOffice. Operating and integrating newly-acquired
      businesses, employees, technologies or services may be expensive and
      time-consuming. To finance any material acquisitions in the future, it may
      be
      necessary for us to reduce our cash reserves or to raise additional funds
      through public or private financings. Additional funds may not be available
      on
      terms that are favorable to us and, in the case of equity financings as with
      acquisitions made with our stock, may result in dilution to our stockholders.
      We
      may be unable to complete any acquisitions or investments on commercially
      reasonable terms, if at all. Even if completed, we may be unable to operate
      any
      acquired businesses profitably, successfully integrate the employees,
      technology, products or services of any acquired businesses into our existing
      business, or achieve post-integration financial targets established for specific
      acquisitions. To illustrate, we could fail to successfully manage the
      newly-acquired WebExOne portion of our business, including such key areas as
      WebExOne sales activity, WebExOne employee motivation and retention including
      key WebExOne executives, and the WebExOne service delivery infrastructure.
      Also,
      we face possible future integration-related risks such as those associated
      with
      transferring the WebExOne service delivery infrastructure from its current
      platform to our proprietary MediaTone platform. Expenses associated with, and
      diverted WebEx employee time and energy required in connection with, the
      integration of a newly-acquired business such as WebExOne, could further
      harm our operating results. More generally, if we are unable to operate and
      integrate any newly acquired entities or technologies effectively, including
      those related to our acquisition of the former Intranets entity now renamed
      WebExOne, our operating results could suffer. Future acquisitions by us, or
      deterioration of the businesses we have acquired, could also result in







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large
      and
      immediate write-downs, or incurrence of debt and contingent liabilities, any
      of
      which would harm our financial performance .







*We
      must compete successfully in the web collaboration services market.*




The
      market for collaboration software and services is intensely competitive, subject
      to rapid change and is significantly affected by new product and service
      introductions and other market activities of industry participants. Although
      we
      do not currently compete against any one entity with respect to all aspects
      of
      our services, we do compete with various companies in regards to specific
      elements of our on-demand web collaboration services. For example, we compete
      with providers of traditional communications technologies such as
      teleconferencing and videoconferencing, application software and tools companies
      including online application services providers, and web conferencing products
      and services such as Adobe Systems, Cisco Systems, Citrix Systems, Genesys,
      IBM,
      Microsoft, Netviewer, NTR, Oracle, PC Visit, Saba, and
      Salesforce.com.





In
      addition to the above competitors, certain of our resellers offer competitive
      web conferencing, web application and other web collaboration services. One
      of
      our key resellers, Intercall, is a subsidiary of West Corporation which recently
      announced its intention to acquire our competitor Raindance. As a result of
      its
      acquisition of Raindance, Intercall could choose to increase its emphasis on
      offerings competitive with ours, or cease to offer some or all of our offerings,
      or both.





Other
      companies could choose to extend their products and services to include
      competitive interactive communication offerings in the future. Many of our
      current and potential competitors have longer operating histories, significantly
      greater financial, technical and other resources and greater name recognition
      than we do. Our current and future competitors may be able to respond more
      quickly to new or emerging technologies and changes in customer requirements.
      In
      addition, current and potential competitors have established, and may in the
      future establish, cooperative relationships with third parties and with each
      other to increase the availability of their products and services in the
      marketplace. Competitive pressures could reduce our market share or require
      us
      to reduce the price of our services, either of which could harm our business
      and
      operating results. For example, we offer VOIP to customers seeking that option
      for the audio portion of their web conferencing service activity, which puts
      us
      in competition with increasing numbers of low cost providers of VOIP products
      and services of ever-increasing quality. One or more of these competitors may
      offer a sufficiently low-cost, feature-attractive, audio-centric VOIP offering
      that, though not a web conferencing offering, might divert business away from
      us, or one or more of these competitors might themselves leverage their
      experience in the VOIP segment of web communications to develop and market
      a web
      conferencing or web application product or service of their own. Finally, our
      revenues and market share could also be reduced if, during this time period
      where the market is still relatively new and competitors are still emerging,
      we
      do not capitalize on our current market leadership by timely developing and
      executing corporate strategies that will increase the likelihood that our
      services will be accepted as the market standard in preference to the offerings
      of our current and future competitors .







*Competition
      from Microsoft in the collaboration software and services markets, from other
      vendors specifically targeted at the low-end market, or customers offering
      customer- premises products may adversely affect our operating results.*




Competition
      from Microsoft in the collaboration software and services markets may adversely
      affect us. Microsoft has a current product offering which is competitive with
      ours and which is called Microsoft Office Live Meeting. Microsoft in March
      2005
      announced the certain improvements to the Live Meeting service and other product
      developments. In mid-2005, Microsoft announced the acquisition of collaboration
      software provider Groove Networks. In November 2005, Microsoft previewed by
      press announcement its Microsoft Office Live offering, which it described as
      a
      set of Internet-based software services. Microsoft is currently offering a
      free
“beta”, or pre-commercial release, version of Office Live. Microsoft’s
      investment of development and marketing resources in products or services that
      compete directly with us and Microsoft’s integration of competitive technologies
      from other companies, including Groove Networks and Placeware, may have an
      adverse impact on our business. More generally, Microsoft may attempt to
      leverage its dominant market position in the operating system, productivity
      application or browser markets, through technical integration or bundled
      offerings, to expand further its presence in these web collaboration markets.
      This expanded Microsoft presence in web collaboration markets could make it
      difficult for other vendors of web collaboration products and services, such
      as
      WebEx, to compete.





In
      addition some competitors offer web collaboration products and services targeted
      at customers who are more price-conscious and are less concerned about
      functionality, scalability, integration and security features. Such offerings
      may make it more difficult for us to compete in that segment of the market
      and
      may cause some of our existing customers to switch to these competitors. In
      2005, we introduced new services with lower entry prices that enable us to
      compete more effectively with such offerings.
      If our industry were to experience a general decline in prices and there were
      not a sufficient increase in volume to compensate for the price reductions,
      we
      might be forced to change the extent and type of resources we deploy in the
      selling of our







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services
      in an effort to maintain operating margins. Such forced price reductions, as
      well as costs or lost sales associated with a transitioning to different sales
      practices, could have a negative effect on our operating results.





Finally,
      some of our competitors offer software products or products that are a
      combination of software and hardware that include web collaborations
      functionality, and which allow customers to purchase such products, install
      them
      at their own facilities, and manage the products by themselves. If significant
      numbers of existing or potential customers determine that they would prefer
      to
      have their basic web conferencing or more advanced web collaboration needs
      met
      with these types of products, demand for WebEx services may decrease.







*Our
      future success depends on the broad market adoption and acceptance of web
      collaboration services.*




The
      market for web collaboration services is relatively new and rapidly evolving.
      Growth in market demand for collaboration services over the Web is uncertain.
      If
      the market for web collaboration services does not continue to grow, our
      business and operating results will be harmed. Factors that might influence
      broad market acceptance of our services include the following, all of which
      are
      beyond our control:




-
            willingness
                of businesses and end-users to use web collaboration services;




-
            the
                continued growth and viability of the Web as an instrument of commerce;




-
            the
                willingness of our resellers to integrate web collaboration services
                in
                their service offerings; and




-
            the
                ongoing level of security and reliability for conducting business
                over the
                Web.







*Our
      success depends on the continued growth of web usage and the continued growth
      in
      reliability and capacity of the Internet.*




Because
      customers access our network through the Web, our revenue growth depends on
      the
      continued development and maintenance of the Internet infrastructure. This
      continued development of the Web would include maintenance of a reliable network
      with the necessary speed, data capacity and security, as well as timely
      development of complementary products and services, including high-speed modems
      and other high-bandwidth communications technologies, for providing reliable,
      high-performance Internet access and services. The success of our business
      will
      rely on the continued improvement of the Web as a convenient and reliable means
      of customer interaction and commerce, as well as an efficient medium for the
      delivery and distribution of information by businesses to their employees.
      If
      increases in web usage or the continued growth in reliability and capacity
      of
      the Internet fail to materialize, our ability to deliver our services may be
      adversely affected and our operating results could be harmed.







*We
      face risks associated with government regulation of the Internet, and related
      legal uncertainties.*




Currently,
      a relatively small number of existing laws or regulations specifically apply
      to
      the Internet, other than laws generally applicable to businesses. Many
      Internet-related laws and regulations, however, are pending and may be adopted
      in the United States, in individual states, in local jurisdictions, and in
      other
      countries. These laws may relate to many areas that impact our business,
      including encryption, network and information security, the convergence of
      traditional communication services, such as telephone services, with Internet
      communications, taxes and wireless networks. For example, media reports have
      surfaced from time to time concerning possible future regulation, and perhaps
      also taxation, of VOIP products and services similar to the manner in which
      current telephony services are currently regulated and taxed. These types of
      regulations could differ between countries and other political and geographic
      divisions both inside and outside the United States. Non-U.S. countries and
      political organizations may impose, or favor, more and different regulation
      than
      that which has been proposed in the United States, thus furthering the
      complexity of regulation. In addition, state and local governments within the
      United States may impose regulations in addition to, inconsistent with, or
      stricter than federal regulations. The adoption of such laws or regulations,
      and
      uncertainties associated with their validity, interpretation, applicability
      and
      enforcement, may affect the available distribution channels for, and the costs
      associated with, our products and services. The adoption of such laws and
      regulations may harm our business.


In
        addition
        to the effect of such potential future laws and regulations, existing laws
        and
        regulations in both domestic and non-U.S. jurisdictions could be interpreted
        to
        apply to our web collaboration business, in which case our regulatory compliance
        obligations and associated financial burdens could increase. An example of
        a
        non-U.S. law or regulation that we are expending
  
 TOC
 resources,
        both infrastructure-related and legal-related, to comply with are the various
        privacy statutes enacted by the European Union. Examples of U.S. laws and
        regulations that we may have to expend greater resources to comply with are
        various U.S. state sales tax laws and regulations that may be held by the
        applicable authorities to apply to the sale of our web collaboration services. We
        do not
        currently collect sales tax from customers in the United States. 
        However,
        one state and one city have indicated that they intend to audit us in connection
        with potential sales tax liability. Moreover, in the future federal tax
        authorities or the tax authorities in one or more states could assert that
        we
        are obligated to collect such taxes from our customers and remit those taxes
        to
        those authorities.  The collection and remittance of such taxes could
        increase the cost of our services and harm our operating results. In addition,
        such authorities may seek to collect sales taxes for sales of services by
        us
        that occurred in the past.  If such a claim were to be asserted against
        us
        and if we were unable to collect such taxes from our customers, we may be
        required to pay such back taxes and any associated interest and penalties,
        which
        would increase our costs and harm our operating results .







*Current
      and future economic and political conditions may adversely affect our business.*




Current
      economic and political conditions, including the effects of the war in Iraq,
      uncertainty about Iraq’s political future, continuing tensions throughout the
      Middle East and the supply and price of petroleum products continue to impact
      the U.S. and global economy, and any negative development in one of these
      geopolitical areas could cause significant worldwide economic harm. The
      sustained price of petroleum products at or above present levels may negatively
      impact the U.S. and world economies generally, which in turn could hurt our
      business. Any significant downturn in the U.S. economy, whether due to the
      effect of increasing interest rates or otherwise, could cause existing or
      potential customers to decide not to purchase our services, which in turn would
      hurt our business. To the extent that changes in laws, regulations or taxes
      in
      the U.S. diminish the economic benefits of arrangements by U.S. companies with
      non-U.S. subsidiaries or suppliers, our business would be adversely affected.
      As
      with our operations in China, our operations in India could be significantly
      disrupted if U.S. relations with India deteriorate, or if India becomes involved
      in armed conflict or otherwise becomes politically destabilized. Moreover,
      depending on severity, a significant terrorist attack anywhere in the world
      and
      particularly one within the United States could have a significantly negative
      effect on both the domestic and global economies. If economic conditions worsen
      as a result of economic, political or social turmoil or military conflict,
      or if
      there are further terrorist attacks in the United States or elsewhere, our
      customers may not be able to pay for our services and our resellers may cease
      operations, which may harm our operating results.







*We
      may experience electrical system failures whether accidentally or intentionally
      caused, which could disrupt our operations and increase our expenses.*




California
      has experienced, and could in the future experience energy shortages and
      blackouts. As was made evident by the well-publicized August 2003 blackout
      that
      simultaneously affected several eastern U.S. states for a period exceeding
      24
      hours, a similarly widespread, long-lasting power outage could occur in northern
      California. As with the eastern U.S. power supply, an important source of
      electrical power to northern California consists of a multi-state grid situated
      in the western United States. An accidental interruption of, or criminal
      disruption to, a key supply or distribution component of the power grid could
      cause a significant power outage in northern California. If power outages or
      energy price increases occur in the future in northern California or other
      locations where we maintain operations, such events could disrupt our
      operations, prevent us from providing our services, harm our reputation, and
      result in a loss of revenue and increase in our expenses, all of which could
      substantially harm our business and results of operations.







*We
      face risks associated with potential future zoning activity relating to our
      Mountain View network operations center property.*





We
      own
      real property in Mountain View, California on which resides a building that
      serves as one of our primary network operations center facilities. Proposals
      have been made to the Mountain View City Council to rezone the area surrounding
      our facility from industrial to residential use. If such rezoning, and the
      accompanying expansion of neighboring residential development, takes place,
      operations in our building could be impeded, interrupted or otherwise negatively
      affected by construction activities, the new residents, or city ordinances
      relating to noise or other byproducts of our building’s operations. Because of
      such negative circumstances, we might be forced to re-locate to a less suitable
      and perhaps more expensive site for our network operations facility, which
      would
      negatively affect our business. Having to invest additional resources and
      management time in the locating and fitting of the alternative network
      operations site would further hurt our business.






*New* *Financial
      Accounting Standards Board (FASB) rules relating to equity-compensation
      programs, the changes we choose to make in our equity compensation programs
      in
      response to the new*







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*rules,
      uncertain analyst and investor response to the new rules, and any changes in
      current accounting rules that may be enacted in the future* *may
      affect our results of operations and cause us to change our business
      practices* *.*




The
      Financial Accounting Standards Board (FASB) has adopted final rules which change
      the way companies account for equity compensation in their financial statements.
      The new accounting standard is effective for fiscal years that begin after
      June
      15, 2005. This accounting rule change requires us to report as a compensation
      expense forms of equity compensation provided to employees, including stock
      options and purchases of stock at a discount pursuant to our employee stock
      purchase plan. The new accounting rule will have a negative effect on our
      reported net income, and if we fail to change our equity compensation practices
      this negative impact will increase. Accordingly, we have begun to change our
      equity compensation practices. In March 2005 we amended our employee stock
      purchase plan to reduce the length of the offering period and the maximum number
      of shares that can be purchased during an offering period. Also because of
      the
      new FASB rule, we are evaluating our existing stock option grant program in
      relation to its future effect on our reported net income, including in that
      evaluation the possibility of reducing the amount of equity compensation we
      grant in the future to employees and the substitution of restricted stock or
      stock appreciation rights in place of stock options. The impact of these equity
      compensation plan changes, and any others we implement, on our business is
      difficult to predict, as is the impact on our stock price due to the
      inexperience of analysts and investors in dealing with this new accounting
      rule.





The
      new
      FASB rule, we believe, will add complexity and uncertainty to our management
      of
      employee compensation practices, and for the foreseeable future will continue
      to
      demand a significant amount of management attention. On the one hand, if in
      response to the new accounting rules we reduce equity-based compensation too
      much, we may be forced to increase cash compensation to make up for our having
      reduced equity-based compensation opportunities, which would increase our
      expenses. Also, if we reduce equity-based compensation too much and thereby
      fail
      to offer compensation packages that are competitive with those being offered
      by
      other public or privately-held technology companies, we may have trouble
      retaining or recruiting key personnel. On the other hand, if we underestimate
      the effect of the new FASB rule on the technology labor market and do not
      sufficiently curtail or modify our current equity compensation practices, our
      compensation expense will increase appreciably and our stock price may be
      negatively affected, thus harming our shareholders and depriving us of an
      equity-related motivation to attract and keep workers which in turn would hurt
      our business. In addition to the new FASB equity compensation rule, other
      significant accounting rules may be enacted in the future by FASB, or existing
      rules may be subject to revised interpretation by the
      American Institute of Certified Public Accountants, the Securities and Exchange
      Commission, or one or more of various bodies formed to interpret accounting
      rules and policies. Any significant future change in accounting rules, policies
      or interpretations could adversely affect our reported financial results or
      the
      way we conduct our business. ******







*While
      we believe that we currently have adequate internal controls over financial
      reporting, we are exposed to risks and increased expense from recent legislation
      requiring companies to evaluate those internal controls* *.*




Section
      404 of the Sarbanes-Oxley Act of 2002 requires our management to report on,
      and
      our independent auditors to attest to, the effectiveness of our internal control
      structure and procedures for financial reporting. We completed an evaluation
      of
      the effectiveness of our internal controls for the fiscal year ended December
      31, 2005, and we have an ongoing program to perform the system and process
      evaluation and testing supporting our legal obligation to comply with these
      requirements. Our business continues to expand in size and complexity, and
      accordingly in 2006 we expect to incur increased expense, relative to our
      expenditures in 2005, and to devote additional management resources to comply
      with Section 404. Any additional acquisitions we may pursue and complete will
      increase our Section 404-related expenses, compliance activities and resource
      allocation. In the event that our chief executive officer, chief financial
      officer or independent registered public accounting firm determine that our
      internal controls over financial reporting are not effective as defined under
      Section 404, investor perceptions of our company may be adversely affected
      and
      could cause a decline in the market price of our stock, and we could experience
      further increases in expenses and redirection of management resources in order
      to remedy such ineffective internal controls .







*Our
      stock price has been and will likely continue to be volatile because of stock
      market fluctuations that affect the prices of technology stocks. A decline
      in
      our stock price could result in securities class action litigation against
      us
      that could divert management’s attention and harm our business.*




Our
      stock
      price has been and is likely to continue to be highly volatile. For example,
      between January 1, 2005 and February 28, 2006, our stock price has traded as
      high as $29.96 on July 28, 2005, and as low as $19.20 on April 15, 2005. Our
      stock price could fluctuate significantly due to a number of factors, including:




-
            variations
                in our actual or anticipated operating results;




-
            sales
                of substantial amounts of our stock;




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-
            announcements
                by or about us or our competitors, including technological innovation,
                new
                products, services or acquisitions;




-
            litigation
                and other developments relating to our patents or other proprietary
                rights
                or those of our competitors;




-
            conditions
                in the Internet industry;




-
            changes
                in laws, regulations, rules or standards by governments, regulatory
                bodies, exchanges or standards bodies; and




-
              changes
                  in securities analysts’ estimates of our performance, or our failure to
                  meet analysts’ expectations.


Many
      of
      these factors are beyond our control. In addition, the stock markets in general,
      and the Nasdaq National Market and the market for Internet technology companies
      in particular, continue to experience significant price and volume fluctuations.
      These fluctuations often have been unrelated or disproportionate to the
      operating performance of these companies. These broad market and industry
      factors may decrease the market price of our common stock, regardless of our
      actual operating performance. In the past, companies that have experienced
      volatility in the market prices of their stock have been the objects of
      securities class action litigation. If we were to be the object of securities
      class action litigation, we could face substantial costs and a diversion of
      management’s attention and resources, which could harm our business .








**Item
      1B.** ***Unresolved
      Staff Comments*** ****




Not
      applicable.








**Item
      2.** ***Properties*** ****




In
      2004,
      we entered into a lease agreement for approximately 160,000 square feet in
      a
      building located in Santa Clara, California, which building is currently used
      for sales, engineering, support, network operations and general corporate
      functions, including its serving as our corporate headquarters. The lease term
      for this building expires in 2014. We have taken occupancy of approximately
      110,000 square feet of the building, and in 2008 we will take occupancy of
      the
      remaining 50,000 square feet.




We
      also
      lease facilities in various U.S. cities and in several non-U.S. countries for
      sales-related activities and, in some cases, to house equipment used in the
      operation of our MediaTone network. In China, we lease facilities located in
      five Chinese cities where we conduct quality assurance, software development
      and
      other activities. The lease expiration dates of all of our real estate leases,
      excluding our headquarters lease, range from March 2006 to February 2011. While
      we believe that these offices are adequate to meet our current requirements,
      it
      may be necessary for us to lease additional facilities over the next 12
      months .




In
      2004,
      we purchased approximately nine acres of real property in Mountain View,
      California on which resides a building containing approximately 125,000 square
      feet of commercial grade facility of which 25,000 square feet consists of data
      infrastructure facility floor space. As part of the purchase, we also acquired
      certain items of data infrastructure equipment previously installed and situated
      on the property. We are currently using this building primarily as a network
      operating center facility to accommodate growing usage requirements on our
      WebEx
      MediaTone Network.








**Item
      3.** ***Legal
      Proceedings*** ****




On
      September 27, 2005, we sued Raindance Communications, Inc., a competitor, for
      patent infringement. The complaint was filed in the U.S. District Court for
      the
      Northern District of California. There are no other parties to the action.
      In
      the action, we allege that Raindance has infringed, and is continuing to
      infringe, nine of our U.S. patents. We are seeking both monetary damages from
      Raindance and an injunction against Raindance enjoining further acts we claim
      to
      be infringing our patents.





On
      October 14, 2005, Raindance filed a complaint against us for patent
      infringement. The complaint was filed in the U.S. District Court for the Eastern
      District of Texas. There are no other parties to the action. In the action,
      Raindance alleges that we have infringed, and are continuing to infringe, two
      of
      Raindance's patents. Raindance is seeking both monetary damages from us and
      an
      injunction against us enjoining further acts Raindance claims to be infringing
      its patents.


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




No
      matters were submitted to a vote of security holders during the fourth quarter
      of the year ended December 31, 2005.







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**Executive
      Officers of the Registrant**




Our
      executive officers and their ages as of March 1, 2006, are:




**Name**
            **Age**
            **Position**Subrah
                S. Iyar
            48
            Chief
                Executive Officer and Chairman of the BoardMichael
                Everett
            56
            Chief
                Financial OfficerDean
                MacIntosh
            47
            Vice
                President, Finance and Principal Accounting OfficerDavid
                Farrington
            49
            Vice
                President, General Counsel and SecretaryShawn
                Farshchi
            49
            Vice
                President, Technical Operations and Chief Information
                OfficerDavid
                Berman
            34
            Vice
                President, Worldwide Sales & ServicesRick
                Faulk
            56
            Chief
                Marketing Officer and President, WebEx Small BusinessGary
                Griffiths
            55
            Vice
                President, Products




**Subrah
      S. Iyar** is a
      co-founder of WebEx and has served as its Chairman and Chief Executive Officer
      since February 1997. Prior to founding WebEx, Mr. Iyar served as Vice President
      and General Manager of the Northern California Internet Business division of
      Quarterdeck Corporation, a software company, from October 1995 until November
      1996. From February 1983 to 1995, Mr. Iyar held several senior positions in
      business development, marketing and sales management at Apple Computer, Inc.,
      a
      computer hardware company, and Intel Corporation, a semiconductor company.
      Mr.
      Iyar holds a B.S. in Electrical Engineering from the Indian Institute of
      Technology and an M.S. in Computer Engineering from the University of
      Southwestern Louisiana.




**Michael
      Everett** has
      served as Chief Financial Officer of WebEx since May 2003. From June 2001 to
      February 2003, Mr. Everett served as Chief Financial Officer of Bivio Networks,
      a privately-held provider of secure Internet Protocol service platforms. From
      November 2000 to April 2001, Mr. Everett served as Senior Vice President and
      Chief Financial Officer of VMWare, Inc., a privately-held infrastructure
      software company that is now a subsidiary of EMC Corporation. From March 1997
      to
      November 2000, Mr. Everett served as Chief Financial Officer of Netro
      Corporation, a publicly-traded broadband wireless access equipment provider
      later acquired by SR Telecom. Mr. Everett also spent approximately ten years
      in
      various executive capacities at Raychem Corporation, a company later acquired
      by
      Tyco International, from 1987 through 1996, where he served as General
      Counsel/Secretary (1987-1988), Senior Vice President and Chief Financial Officer
      (1988-1993) and Senior Vice President, Asia (1993-1996). Mr. Everett holds
      a
      B.A. from Dartmouth College and a J.D. from the University of Pennsylvania
      Law
      School.




**Dean
      MacIntosh** has
      served as Vice President, Finance and Principal Accounting Officer of WebEx
      since February 2005. From February 2001 to February 2005, Ms. MacIntosh served
      as Vice President of Finance of WebEx. From August 1995 through February 2001,
      Ms. MacIntosh held several finance-related positions with Lumisys Incorporated,
      a publicly-held medical imaging manufacturer that was acquired by Eastman Kodak
      Company in December 2000. Ms. MacIntosh served as Lumisys’s controller from
      August 1995 through February 1997, as its vice president of finance from
      February 1997 through August 1998, and as its chief financial officer from
      August 1998 through completion of the acquisition by Kodak in December 2000.
      Following the acquisition and until February 2001, Ms. MacIntosh assisted with
      the transition of Lumisys finance-related activities to the Kodak finance
      organization. Ms. MacIntosh holds a B.A. from the University of California
      at
      Los Angeles and an M.B.A. from San Francisco State University. ****




**David
      Farrington** has
      served as Vice President, General Counsel and Secretary of WebEx since March
      2000. From April 1998 to March 2000, Mr. Farrington was a partner at the law
      firm of Skjerven Morrill MacPherson LLP in San Jose, California. From October
      1989 to January 1998, Mr. Farrington worked at Apple Computer, where he held
      a
      number of senior positions, including senior director of Apple’s corporate
      development group, associate general counsel in charge of legal support for
      Apple’s worldwide sales and marketing organization, and director of Apple’s
      technology law group. Mr. Farrington holds a B.A. in Sociology from the
      University of California, Santa Cruz and a J.D. from Hastings College of the
      Law
      in San Francisco.




**Shawn
      Farshchi** has
      served as Vice President, Technical Operations and Chief Information Officer
      of
      WebEx since January 2003. From July 2002 to December 2002, Mr. Farshchi was
      employed by Oracle Corporation, an enterprise software company, as Regional
      Vice
      President, Oracle Managed Services. From March 2001 to July 2002, Mr. Farshchi
      served as Vice President, Engineering and Chief Information Officer of
      BroadVision Inc., a provider of self-service web applications. From March 1995
      to March 2001, Mr. Farshchi held the following positions at DHL Express, an
      air
      transport company now a division of Deutsche Post World Net: Manager,
      Infrastructure Engineering (March 1995 to March 1996); Director, Infrastructure
      Engineering (March 1996 to February 1997); Vice President, Infrastructure and
      Operations (February 1997 to February 2000); and Chief Information Officer
      (February 2000 to March 2001). Mr. Farshchi holds a B.S.E.E. from San Francisco
      State University and both an M.S. (Telecommunications) and an M.B.A. from Golden
      Gate University.





**David
      Berman** has
      served as Vice President, WebEx Worldwide Sales & Services since February
      2006. From October 2003 to February 2006, Mr. Berman served as WebEx Vice
      President of Worldwide Sales, and from May 2002 to October 2003 Mr. Berman
      served as WebEx Vice President of Corporate Sales. From June 1999 to May 2002,
      Mr. Berman served as a director







TOC


of
      sales
      in the WebEx sales organization. Mr. Berman holds a bachelors degree in Business
      Administration from the University of San Diego. ****




**Rick
      Faulk** has
      served as President, WebEx Small Business, since October 2005, and also as
      Chief
      Marketing Officer since February 2006. From 1997 to September 2005, Mr. Faulk
      served as President and Chief Executive Officer of Intranets.com, Inc., a
      developer of web collaboration services that was acquired by WebEx in September
      2005. From 1994 to 1997, Mr. Faulk served as Vice President, Corporate
      Marketing, of PictureTel Corporation, an audio and visual-collaboration and
      streaming video solutions company acquired by Polycom, Inc. in 2001. From 1992
      to 1994, Mr. Faulk served as Vice President, Worldwide Sales and Marketing,
      of
      Shiva Corporation, a remote access technology company acquired by Intel in
      1998.
      From 1989 to 1992, Mr. Faulk held the following marketing management positions
      at Lotus Development Corporation, a software development company acquired by
      IBM
      in 1995: Director Channel Marketing (1988-89) and Vice President Corporate
      Marketing (1989-1992). Mr. Faulk holds a B.S. in Business Administration from
      Bowling Green University. ****




**Gary
      Griffiths** has
      served as Vice President, Products at WebEx since February 2006. From June
      1999
      through July 2005, Mr. Griffiths served as the chief executive officer of
      Everdream, a privately-held company founded by Mr. Griffiths and which is a
      leading provider of on-demand software desktop management services. Mr. Griffith
      also co-founded, and from January 1996 through March 1999 served as chief
      executive officer of, SegaSoft Networks, a privately-held Internet gaming
      company sold to Sega Enterprises Ltd. (Japan) in 1999. From 1979 to 1995, Mr.
      Griffiths held a variety of management positions at IBM, a leading information
      technology company. Mr. Griffiths serves as a director of Rackable Systems,
      a
      provider of server and storage products for large data center deployments.
      Mr.
      Griffiths holds a B.S. in Aerospace Engineering from the United States Naval
      Academy and an M.S. in Business Administration from the George Washington
      University.




No
      executive officer of WebEx is employed for any specific term or duration of
      office .





**PART
      II**





**Item
      5.** ***Market
      for the Registrant’s Common Stock, Related Stockholder Matters and Issuer
      Purchases of Equity Securities***




**Market
      of Common Stock**




Our
      common stock trades publicly on the Nasdaq National Market under the symbol
      “WEBX”. The following table sets forth for the periods indicated the highest and
      lowest sale price of our common stock during each quarter:





**2005**
            
            
            **High**
            
            
            **Low**First
                Quarter
            
            $
            24.11
            
            $
            19.51Second
                Quarter
            
            $
            27.73
            
            $
            19.20Third
                Quarter
            
            $
            29.96
            
            $
            24.12Fourth
                Quarter
            
            $
            28.20
            
            $
            20.84**2004**
            
            
            **High**
            
            
            **Low**First
                Quarter
            
            $
            30.04
            
            $
            19.25Second
                Quarter
            
            $
            32.38
            
            $
            19.49Third
                Quarter
            
            $
            22.21
            
            $
            17.36Fourth
                Quarter
            
            $
            26.80
            
            $
            21.28








**Holders
      of Record**




As
      of
      February 28, 2006, there were approximately 70 holders of record (not including
      beneficial holders of stock held in street name) of our common stock.








**Dividend
      Policy**





We
      have
      never declared nor paid any cash dividends on our capital stock. Any future
      determination with respect to the payment of dividends will be at the discretion
      of the Board of Directors and will depend upon, among other things, our
      operating results, financial condition and capital requirements, the terms
      of
      then-existing indebtedness, general business conditions and such other factors
      as the Board of Directors deems relevant.








**Securities
      Authorized for Issuance under Equity Compensation Plans**




Information
      regarding Securities Authorized for Issuance under Equity Compensation Plans
      is
      included under Item 12 of Part III of this Report on Form 10-K.





**Issuer
      Purchases of Equity Securities**




The
      following table sets forth purchases of WebEx securities by WebEx during the
      fourth quarter of 2005:








**ISSUER
      PURCHASES OF EQUITY SECURITIES**




**(a)**
            **(b)**
            **(c)**
            **(d)****Total
                Number of Shares (or Units)**
            **Average
                Price Per**
            **Total
                Number of Shares (or Units) Purchased as Part of Publicly Announced**
            **Maximum
                Number (or Approximate Dollar Value) of Shares (or Units) that May
                Yet Be
                Purchased Under the****Period**
            **Purchased (#)(1)**
            **Share
                (or Unit) ($)**
            **Plans
                Or Programs (#)**
            **Plans
                Or Programs****(2)**October1,
                2005 to October 31, 2005
            --
            --
            --
            $14,173,935November1,
                2005 to November 30, 2005
            609,500
            $23.21
            609,500
            $27,440December1,
                2005 to December 31, 2005
            --
            --
            --
            $0Total
            609,500
            $23.21
            609,500
            $0







TOC




(1)  Consists
          of repurchases of shares pursuant to the Company's share repurchase program
          publicly announced on July 29, 2004 pursuant to which the Company's Board
          of
          Directors authozied the repurchase of up to $40,000,000 of the Company's
          common
          stock through December 31, 2005, at which date the program expired.




(2)  The
      WebEx
      Board of Directors in November, 2005 approved a new share repurchase program,
      effective January 1, 2006, which authorizes the repurchase of, at the discretion
      of WebEx management, up to $10,000,000 of the Company’s common stock through
      June 30, 2006.
















**Item
      6.** ***Selected
      Financial Data*** ****





The
      following selected financial information has been derived from audited
      consolidated financial statements including the periods contained in Item 8.
      The
      information set forth below is not necessarily indicative of results of future
      operations and should be read together with “Management’s Discussion and
      Analysis of Financial Condition and Results of Operations” and the consolidated
      financial statements and related notes included in Items 7 and 8 of Part II
      of
      this Form 10-K.








**Year
                ended December 31,****2005**
            
            
            **2004**
            
            
            **2003**
            
            
            **2002**
            
            
            **2001****(In
                thousands, except per share data)****Consolidated
                Income Statement Data:**Net
                revenues
            
            $
            308,422
            
            $
            249,133
            
            $
            189,341
            
            $
            139,861
            
            $
            81,186Cost
                of
                revenues
            
            
            53,893
            
            
            41,854
            
            
            31,798
            
            
            25,064
            
            
            21,527Gross
                profit
            
            
            254,529
            
            
            207,279
            
            
            157,543
            
            
            114,797
            
            
            59,659Operating
                expenses:Sales
                and marketing
            
            
            102,707
            
            
            84,192
            
            
            74,249
            
            
            58,026
            
            
            47,207Research
                and development
            
            
            45,713
            
            
            34,342
            
            
            24,769
            
            
            22,788
            
            
            16,284General
                and administrative
            
            
            26,171
            
            
            18,713
            
            
            13,575
            
            
            14,447
            
            
            10,301Equity-based
                compensation*
            
            
            13
            
            
            571
            
            
            1,849
            
            
            2,966
            
            
            13,688Total
                operating expenses
            
            
            174,604
            
            
            137,818
            
            
            114,442
            
            
            98,227
            
            
            87,480Operating
                income (loss)
            
            
            79,925
            
            
            69,461
            
            
            43,101
            
            
            16,570
            
            
            (27,821
            )Interest
                and
                other income, net
            
            
            6,613
            
            
            308
            
            
            1,074
            
            
            339
            
            
            189Income
                (loss)
                before income taxes
            
            
            86,538
            
            
            69,769
            
            
            44,175
            
            
            16,909
            
            
            (27,632
            )Provision
                for
                income taxes (benefit)
            
            
            33,536
            
            
            21,889
            
            
            (15,627
            )
            
            514
            
            
            —Net
                income
                (loss)
            
            $
            53,002
            
            $
            47,880
            
            $
            59,802
            
            $
            16,395
            
            $
            (27,632
            )Net
                income
                (loss) per share:Basic
            
            $
            1.16
            
            $
            1.09
            
            $
            1.44
            
            $
            0.41
            
            $
            (0.76
            )Diluted
            
            $
            1.11
            
            $
            1.03
            
            $
            1.37
            
            $
            0.39
            
            $
            (0.76
            )Weighted
                average shares used to compute net income (loss) per share:Basic
            
            
            45,819
            
            
            43,817
            
            
            41,554
            
            
            39,687
            
            
            36,418Diluted
            
            
            47,775
            
            
            46,451
            
            
            43,619
            
            
            42,353
            
            
            36,418*Equity-based
                compensation(1):Sales
                and marketing
            
            $
            —
            
            $
            43
            
            $
            699
            
            $
            1,133
            
            $
            6,602Research
                and development
            
            
            —
            
            
            52
            
            
            245
            
            
            528
            
            
            2,871General
                and administrative
            
            
            13
            
            
            476
            
            
            905
            
            
            1,305
            
            
            4,215$
            13
            
            $
            571
            
            $
            1,849
            
            $
            2,966
            
            $
            13,688






**December
                31,****2005**
            
            
            **2004**
            
            
            **2003**
            
            
            **2002**
            
            
            **2001****(In
                thousands)****Consolidated
                Balance Sheet Data:**Cash
                and cash equivalents and short-term investments
            
            $
            197,211
            
            $
            185,138
            
            $
            134,635
            
            $
            68,952
            
            $
            42,146Working
                capital
            
            
            211,251
            
            
            190,066
            
            
            137,575
            
            
            64,907
            
            
            32,117Total
                assets
            
            
            362,777
            
            
            285,793
            
            
            201,496
            
            
            114,324
            
            
            90,296Long-term
                obligations
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            572Accumulated
                earnings (deficit)
            
            
            51,959
            
            
            (1,043
            )
            
            (48,923
            )
            
            (108,725
            )
            
            (125,120
            )Stockholders’
                equity
            
            
            312,029
            
            
            247,062
            
            
            165,894
            
            
            88,120
            
            
            58,827








(1)
      The
      Company accounts for stock awards to employees and directors in accordance
      with
      the intrinsic value method of Accounting Principles Board Opinion No. 25 (APB
      25), and related interpretations. The Company accounts for stock awards to
      parties other than employees and directors in accordance with the provisions
      of
      SFAS 123, and EITF Issue No. 96-18.







TOC


**Item
      7.** ***Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations*** ****





**When
      used in this Report, the words
“anticipates,”“expects,”“intends,”“plans,”“believes,”“seeks,”“estimates” and
      similar expressions are intended to identify forward-looking statements. These
      are statements that relate to future periods and include, but are not limited
      to, statements about the features, benefits and performance of our current
      service offerings and technology including our belief that use of our services
      allows users to be more productive and efficient, expected expenses including
      those related to sales and marketing, research and development and general
      and
      administrative, our beliefs regarding the health and growth of the market for
      our web collaboration services, our anticipation that cash flow from operations
      will be sufficient to fund our current operations as well as fund future
      expansion, our expectation that existing cash resources and cash generated
      from
      operations will be sufficient to fund our anticipated working capital needs
      and
      capital expenditures for at least the next twelve months and that we will
      continue to generate cash from operations for at least the next twelve months,
      and the effect of recent accounting pronouncements. Forward-looking statements
      are subject to risks and uncertainties that could cause actual results to differ
      materially from those projected. These risks and uncertainties include, but
      are
      not limited to, our dependence on key products and/or services, demand for
      our
      products and services, our ability to attract and retain customers and resellers
      for existing and new services, the impact of reseller practices on our business,
      our ability to expand and manage our operations internationally, our ability
      to
      expand and manage our infrastructure to meet both our internal corporate needs
      as well as the demand for our services, our ability to control our expenses,
      our
      ability to integrate and manage acquisitions, our ability to recruit and retain
      employees particularly in the areas of sales, engineering, support and hosting
      services, the ability of resellers to successfully resell our services, the
      economy, political tensions or conflict, the strength of competitive offerings,
      the prices being charged by those competitors, the risks discussed below and
      the
      risks discussed in Item 1A “Risk Factors” below. These forward-looking
      statements speak only as of the date hereof. We expressly disclaim any
      obligation or undertaking to release publicly any updates or revisions to any
      forward-looking statements contained herein to reflect any change in our
      expectations with regard thereto or any change in events, conditions or
      circumstances on which any such statement is based.**








**Overview**




***Business,
      Principal Products, Locations***





We
      offer
      several on-demand web collaboration services. “On-demand” is a software industry
      term meaning that the software is hosted at the vendor’s facilities and
      furnished to customers as a service—sometimes also called “software as a
      service” (SaaS) or a “hosted” service—rather than the software being furnished
      in tangible disc or downloaded-file form for physical installation on a computer
      server at the customer’s location. By web collaboration services, we mean
      services that allow end-users to conduct online meetings, share software
      applications, documents, presentations and other content online, participate
      in
      large-scale events or programs over the Internet using a standard web browser,
      and coordinate projects, activities and tasks. Our web collaboration services
      enable users to engage in rich-media, interactive, real-time communications
      without the need to be in the same physical location, which we believe allows
      users to be more productive and efficient.




Originally,
      our principal product offering consisted of a basic real-time collaboration
      service—the web meeting. Since then we have expanded our offerings to include
      more advanced web collaboration services that complement our basic web meeting
      service. We sometimes also refer to such enhanced web collaboration services,
      which are designed for specific uses such as training, events, support and
      sales, as web applications . We
      have
      recently added to our service offerings a set of asynchronous collaboration
      services acquired in connection with our Intranets.com, Inc. (“Intranets”)
      acquisition. The term “asynchronous collaboration” means collaboration not
      occurring at the same time and includes capabilities such as shared document
      folders, shared calendars, task management, shared database applications,
      discussion forums and contact directories . Our
      current business focus is to continue to enhance and market our various web
      collaboration services including web meetings and web applications, to develop
      and deploy new services such as our new asynchronous collaboration services,
      to
      expand our sales and marketing organizations, and to expand our WebEx MediaTone
      Network.




Our
      web
      collaboration services run on our underlying WebEx
      MediaTone Network. The WebEx
      MediaTone Network is a private, switched, web-based network that is designed
      to
      deliver scalable, secure and managed real-time web collaboration services.
      The
      WebEx MediaTone Network is based on MediaTone, our proprietary information
      switching technology. Our MediaTone technology allows the WebEx MediaTone
      Network to handle high-speed data, voice and video communications, manage
      complex media types, and deliver advanced communications capabilities to
      hundreds or even thousands of computers simultaneously regardless of location
      across a wide variety of platforms, computer operating systems, devices and
      browsers—in both wired and wireless configurations.




Our
      corporate headquarters is located in Santa Clara, California, and we have a
      network operations center located in Mountain View, California. We also lease
      facilities in various U.S. cities and in several non-U.S. countries for
      sales-related





activities
      and, in some cases, to house equipment used in the operation of our MediaTone
      network. In the case of our China subsidiary, our largest subsidiary, our
      employees perform activities including quality assurance testing and software
      development activities, creation of technical documentation, background research
      for our sales personnel, preparation of marketing materials and the provisioning
      of customer web sites.




***Revenue
      and Cash-Generation Models***





We
      sell
      our services directly to customers, which in the fourth quarter of 2005
      accounted for approximately 83% of our revenue, or $69.9 million, and for the
      full 2005 year accounted for approximately 85% of our revenue, or $260.7
      million. We also sell our services indirectly through our resellers that buy
      and
      resell our services. These sales in the fourth quarter of 2005 represented
      approximately 17% of our revenue, or $13.8 million, and which for the full
      2005
      year accounted for approximately 15% of our revenue, or $47.7 million. With
      our
      resellers, w e
      sell
      our services to and contract directly with the reseller, and revenue is
      recognized based on net amounts charged to the reseller. We also have another
      type of distribution arrangement--known as a referral arrangement--in which
      a
      third party refers a potential customer to our direct sales force, which in
      turn
      seeks to enter into a contract directly with the potential customer. When a
      sale
      is made from us to a customer through a lead provided by a referral agent,
      the
      referral agent receives from us a
      percentage of the proceeds from the sale of WebEx services to the customer,
      and
      we categorize such revenue as revenue received from services sold directly
      to
      customers.




The
      majority of our revenue is currently generated based on a committed-subscription
      pricing model. A customer may subscribe to a certain number of concurrent-user
      ports per month, which enables the customer to have that set number of users
      connected to WebEx meetings at any one time, or to a minimum minutes commitment,
      which in the typical case enables the customer to have up to a set number of
      total minutes to utilize our services during a specified time period. For
      minutes-based subscriptions, we have expanded our customer offerings from the
      monthly minutes-based commitment offering to include quarterly, semi-annual
      and
      annual minutes-based commitment offerings. With any of these committed
      subscription offerings, the customer sometimes also pays overage fees, in
      addition to the committed subscription price. Overage fees are charged when
      (i)
      a customer subscribing to a set number of ports uses more than the subscribed
      number of ports in one or more web conference sessions, or (ii) when a customer
      on a minutes-based subscription pricing model uses more than its
      commitment.





We
      also
      offer “flat-rate” priced services, meaning that the customer pays a set price
      per month that is not influenced by usage or subject to overage fees. One of
      our
      flat-rate offerings is the named host offering, in which a certain named
      individual may host meetings at which up to a certain number of attendees may
      participate. The
      named
      host service differs from the concurrent-user port offering in several respects:
      (i) with the concurrent user offering, any employee of the customer may host
      a
      meeting, whereas with the named host service only employees who are designated
      as named hosts may host a meeting, (ii) the price charged for a named host
      subscription is appreciably lower than the price charged for a concurrent user
      subscription, in part because the named host model is less flexible with respect
      to who can host a meeting, and (iii) unlike the concurrent user offering, with
      the named host offering there are effectively no overage fees. Our flat-rate
      offering is another of our committed subscription offerings.





We
      have
      recently introduced two new flat-rate offerings, targeted at individuals and
      small businesses. The first offering, available for purchase online and called
      MeetMeNow, is a monthly subscription to a web conferencing service. The second
      flat-rate offering is our new WebEx WebOffice line of collaboration services,
      which we offer for purchase through a variety of monthly subscription plans. We
      refer
      to the revenue associated with our various flat-rate subscription arrangements,
      together with the revenue from our ports subscription and minimum minutes
      subscription arrangements, as committed revenue .




In
      addition to our committed subscription offerings, there are several situations
      in which customers are charged per minute or usage-based pricing. These include
      certain reseller arrangements, customer overage fees for
      above-the-contract-limit use of ports or minutes, most types of telephony
      charges, and individual pay-per-use services purchased directly from our
      website, and a limited number of customers who do not have a minimum commitment
      obligation of any kind. A majority of revenue received from our
      telecommunications partner arrangements is usage based. As previously discussed,
      overage fees are charged when a customer subscribing to a set number of ports
      uses more than the subscribed number of ports, or when a customer on a minutes
      pricing model uses more than its commitment. We get per-minute telephony revenue
      when we provide the audio conferencing component of a web conferencing session.
      Finally, we have per-minute web conferencing services available through our
      website and payable by credit card. We refer to the revenue derived from this
      per minute or usage-based pricing model, measured as of the end of any month,
      as
      uncommitted revenue .




We
      typically bill our customers monthly and on open account. For each of our
      concurrent-user, named-host and monthly minutes-based commitment subscription
      customers, the customer is billed monthly in advance based on the monthly
      subscription amount stated in the customer agreement. For these customers,
      additional usage beyond the monthly subscription quantity, or overage, is billed
      in arrears based on the actual amount of such overage. For quarterly,
      semi-annual and annual minutes-based subscription customers, all monthly billing
      is in arrears and based on actual usage during the month. If, following the
      last
      month





billed,
      aggregate actual usage is less than the subscription amount, then in addition
      to
      actual usage for the final month, the customer is billed for the remaining
      amount of the contractual commitment not previously billed.




***Market
      Opportunities, Related Challenges and Our Responses*** ****





We
      believe the market for on-demand web collaboration services to be healthy and
      growing. Various published articles have cited several trends underlying this
      projected market increase. One trend is the desire of many companies to achieve
      cost savings in the areas of information technology, or IT, spending and
      employee travel. In light of increased IT budget constraints reportedly faced
      by
      many companies and particularly small companies or self-employed individuals,
      we
      believe a cost-saving decision is to hire an on-demand web collaboration
      services vendor to meet a company’s needs, rather than undertaking the capital
      and personnel spending necessary to construct and maintain an internal company
      or home office network. Additionally, as a result of increasing fuel prices
      and
      travel costs, we believe companies may decide that online collaboration—that is,
      web conferencing and web applications—usage can reduce costs and obviate the
      need to travel to conduct business, perform training, provide support or
      participate in large-attendee events. However, it is possible that growth in
      the
      market for web collaboration services may slow down or be less than currently
      projected.




There
      exist a number of challenges to the projected market growth scenario for
      on-demand web collaboration services, including a concern—actual or
      perceived—about security. As the universe of corporate activities that can be
      conducted in a web conference or with a web application expands, more and more
      of these activities will embrace sensitive corporate or government financial
      data, plans, projects or other proprietary information. If on-demand web
      collaboration technologies do not have embedded within them adequate security
      protections so that the contents of, for example, web conference or application
      will remain private among the participants, usage may not grow as projected.
      Moreover, to the extent that there occur publicized incidents of security
      breaches associated with usage of a web collaboration technology, regardless
      of
      which vendor is involved, the security-related concerns of would-be users of
      the
      technology likely will be increased and this could dampen market growth. We
      have
      assigned a high priority, in the design and implementation of our WebEx
      MediaTone Network, to these security issues.




Another
      challenge to broad adoption of on-demand web collaboration services is general
      acceptance of this mode of communication as a normal part of business activity.
      Individuals may not feel comfortable using the technology, or they may prefer
      traditional means of communicating such as the telephone or face-to-face
      meetings. Broad adoption of web collaboration will occur only if large numbers
      of users incorporate the use of this technology as part of their normal business
      activity.




***Industry-Wide
      Factors Relevant to Us***





The
      collaboration software and services market is intensely competitive, subject
      to
      rapid change and is significantly affected by new product and service
      introductions and other market activities of industry participants. Although
      we
      do not currently compete against any one entity with respect to all aspects
      of
      our services, we do compete with various companies in regards to specific
      elements of our on-demand web collaboration services. For example, we compete
      with providers of traditional communications technologies such as
      teleconferencing and videoconferencing, applications software and tools
      companies including online application services providers, and web conferencing
      products and services such as Adobe Systems, Cisco Systems, Citrix Systems,
      Genesys, IBM, Microsoft,
      Netviewer, NTR, Oracle, PC Visit, Saba, and Salesforce.com.





In
      addition to the above competitors, certain of our resellers offer competitive
      web conferencing, web application and other collaborative web communications
      services. One of our key resellers, Intercall, is a subsidiary of West
      Corporation which recently announced its intention to acquire our competitor
      Raindance. As a result of its acquisition of Raindance, Intercall could choose
      to  increase
      its emphasis on offerings competitive with ours, or cease to offer some or
      all
      of our offerings, or both.




Competition
      from Microsoft for the collaboration software and services markets may adversely
      affect us. ** Microsoft
      has a product offering which is competitive with ours and which is called
      Microsoft Office Live Meeting. In mid-2005, Microsoft announced the acquisition
      of collaboration software provider Groove Networks. In November 2005, Microsoft
      previewed by press announcement its Microsoft Office Live offering, which it
      described as a set of Internet-based software services. Microsoft is currently
      offering a free “beta”, or pre-commercial release, version of Office Live.
      Microsoft’s investment of development and marketing resources in products or
      services that compete directly with us and Microsoft’s integration of
      competitive technologies from other companies, including Groove Networks and
      Placeware, may have an adverse impact on our business. More generally, Microsoft
      may attempt to leverage its dominant market position in the operating system,
      productivity application or browser markets, through technical integration
      or
      bundled offerings, to expand further its presence in these web communications
      markets. This expanded Microsoft presence in web collaboration markets could
      make it difficult for other vendors of web communications products and services,
      such as WebEx, to compete.





In
      addition, some competitors offer web communications products and services
      targeted at customers who are more price-conscious and are less concerned about
      functionality, scalability, integration and security features. Such offerings
      may make it more difficult for us to compete in that segment of the market
      and
      may cause some of our existing customers to switch to these





competitors.
      In 2005, we introduced new services with lower entry prices that enable us
      to
      compete more effectively with such offerings. If our industry were to experience
      a general decline in prices and there were not a sufficient increase in volume
      to compensate for the price reductions, we might be forced to change the extent
      and type of resources we deploy in the selling of our services in an effort
      to
      maintain operating margins, such as switching to different sales practices.
      Finally, some of our competitors offer software products or products that are
      a
      combination of software and hardware that include web collaborations
      functionality, and which allow customers to purchase such products, install
      them
      at their own facilities, and manage the products by themselves. If significant
      numbers of existing or potential customers determine that they would prefer
      to
      have their web conferencing or more advanced web collaboration needs met with
      these types of products, demand for WebEx services may decrease.








**Critical
      Accounting Policies and Estimates**








***General***




Our
      discussion and analysis of our financial condition and results of operations
      are
      based on our consolidated financial statements, which have been prepared in
      accordance with accounting principles generally accepted in the United States
      of
      America. The preparation of these financial statements requires us to make
      estimates and assumptions that affect the reported amounts of assets,
      liabilities, revenue and expenses. We base our estimates on historical
      experience and on various other assumptions that we believe to be reasonable
      under the circumstances, the results of which form the basis for making
      judgments about the carrying values of assets and liabilities that are not
      readily apparent from other sources. Actual results may differ from these
      estimates under different assumptions or conditions.





An
      accounting policy is deemed to be critical if it requires an accounting estimate
      to be made based on assumptions about matters that are highly uncertain at
      the
      time the estimate is made, and if different estimates that reasonably could
      have
      been used or if changes in the accounting estimate that are reasonably likely
      to
      occur, could materially change the financial statements. We believe that there
      are a number of accounting policies that are critical to understanding our
      historical and future performance. These significant accounting policies relate
      to revenue recognition, sales reserves, allowance for doubtful accounts, income
      taxes, goodwill and intangible assets and equity-based compensation. The
      policies, and our procedures related to these policies, are described in detail
      below.





***Revenue
      Recognition***





Revenue
      is derived from the sale of web collaboration services. Web collaboration
      services revenue is generated through a variety of contractual arrangements
      directly with customers and with resellers, who in turn sell the services to
      customers. We sell web collaboration services directly to customers through
      service subscriptions and pay-per-use arrangements. Under these arrangements,
      customers access the application hosted on our servers using a standard web
      browser. Subscription arrangements include monthly subscriber user fees and
      user
      set-up fees. The subscription arrangements are considered service arrangements
      in accordance with EITF Issue No. 00-3, *Application
      of AICPA Statement of Position 97-2, Software Revenue Recognition, to
      Arrangements That Include the Right to Use Software Stored on Another Entity’s
      Hardware* ,
      and
      with multiple deliverables under EITF 00-21, *Accounting
      for Revenue Arrangements with Multiple Deliverables* . In
      addition, because we provide our applications as a service, we follow
      the
      provisions of Securities and Exchange Commission Staff Accounting Bulletin
      No.
      104, *Revenue
      Recognition* . Under
      EITF 00-21, all deliverables are considered one unit of accounting; therefore,
      committed revenue is recognized ratably (straight-line) over the current term
      of
      the contract and variable usage-based fees are recognized as usage occurs.
      During the initial term, we provide training services, web-page design and
      set-up services. Some
      minute based subscriptions involve a quarterly, semi-annual or annual rather
      than monthly commitment by the customer. In these cases, all
      monthly billing is in arrears and monthly revenue is recognized based on actual
      usage during the month. If, following the last month billed, aggregate actual
      usage is less than the subscription amount, then in addition to actual usage
      for
      the final month the customer is billed and revenue is recognized for the
      remaining amount of the contractual commitment not previously billed. In
      addition to subscription services revenue, we derive revenue from pay-per-use
      services and telephony charges that are recognized as the related services
      are
      provided.




We
      also
      enter into reselling arrangements with certain resellers, which purchase and
      resell our services on a revenue sharing, discounted or pay-per-use basis.
      Revenue under these arrangements is derived from our services provided to
      end-users and is recognized over the service period provided that evidence
      of
      the arrangement exists, the fee is fixed or determinable and collectibility
      is
      reasonably assured. Initial set up fees received in connection with these
      arrangements are recognized ratably over the initial term of the contract.
      During the initial term, we provide training services, web-page design and
      set-up services. Service fees are recognized as the services are provided for
      pay-per-use service arrangements and ratably over the service period for
      services provided on a subscription basis through the reseller. Our reseller
      arrangements may require guaranteed minimum revenue commitments that are billed
      in advance to the reseller. Advance payments received from resellers are
      deferred until the





related
      services are provided or until otherwise earned by us. We contract directly
      with
      resellers, and revenue is recognized based on net amounts charged to the
      reseller.




Persuasive
      evidence for all of our arrangements is represented by signed contracts. The
      fee
      is considered fixed or determinable if it is not subject to refund or
      adjustment. Collectibility of guaranteed minimum revenue commitments by
      resellers is not reasonably assured; thus revenue from guaranteed minimum
      commitments is deferred until services are provided to an end-user customer
      or
      until collected from the reseller and the reseller forfeits commitment fees
      at
      the end of the commitment period.





***Sales
      Reserves***





The
      sales
      reserve is an estimate for losses on receivables resulting from customer
      credits, cancellations and terminations and is recorded as a reduction in
      revenue at the time of the sale. Increases to the sales reserve are charged
      to
      revenue, reducing the revenue otherwise reportable. The sales reserve estimate
      is based primarily on an analysis of the historical rate of credits,
      cancellations and terminations. The accuracy of the estimate is dependent on
      the
      rate of future credits, cancellations and terminations being consistent with
      the
      historical rate. If the rate of actual credits, cancellations and terminations
      is different than the historical rate, revenue would be different from what
      was
      reported.




***Allowance
      for Doubtful Accounts***




We
      record
      an allowance for doubtful accounts to provide for losses on accounts receivable
      due to customer credit risk. Increases to the allowance for doubtful accounts
      are charged to general and administrative expense as bad debt expense. Losses
      on
      accounts receivable due to insolvency of the customer are charged to the
      allowance for doubtful accounts. The allowance estimate is based primarily
      on an
      analysis of the historical rate of credit losses. The accuracy of the estimate
      is dependent on the future rate of credit losses being consistent with the
      historical rate. If the rate of future credit losses is greater than the
      historical rate, then the allowance for doubtful accounts may not be sufficient
      to provide for actual credit losses. If we are uncertain whether a loss is
      appropriately charged to the sales reserve or the allowance for doubtful
      accounts, we charge the loss to the sales reserve.




We
      assess, on a quarterly basis, the adequacy of the sales reserve account balance
      and the allowance for doubtful accounts account balance based primarily on
      historical experience. Any adjustments to these accounts are reflected in the
      income statement for the current period, as an adjustment to revenue in the
      case
      of the sales reserve and as a general and administrative expense in the case
      of
      the allowance for doubtful accounts .




The
      following presents the detail of the changes in the sales reserve and allowance
      for doubtful accounts for the eight quarters ended December 31, 2005:





**December
                31, 2005**
            
            
            **September**
              
              **30,
                2005**
            
            
            **June**
              
              **30,
                2005**
            
            
            **March**
              
              **31,
                2005**
            
            
            **December
                31, 2004**
            
            
            **September
                30, 2004**
            
            
            **June**
              
              **30,
                2004**
            
            
            **March**
              
              **31,
                2004**Sales
                reserve:
            
            **(Dollars
                in thousands)**Beginning
                balance
            
            $
            5,479
            
            $
            4,748
            
            $
            4,387
            
            $
            4,631
            
            $
            4,447
            
            $
            4,995
            
            $
            4,682
            
            $
            4,571Amounts
                deducted from revenue
            
            
            3,816
            
            
            4,022
            
            
            3,179
            
            
            2,621
            
            
            2,518
            
            
            1,331
            
            
            2,309
            
            
            2,115Amounts
                written off
            
            
            (3,218
            )
            
            (3,291
            )
            
            (2,818
            )
            
            (2,865
            )
            
            (2,334
            )
            
            (1,879
            )
            
            (1,996
            )
            
            (2,004
            )Ending
                balance
            
            $
            6,077
            
            $
            5,479
            
            $
            4,748
            
            $
            4,387
            
            $
            4,631
            
            $
            4,447
            
            $
            4,995
            
            $
            4,682Allowance
                for doubtful accounts:Beginning
                balance
            
            $
            880
            
            $
            562
            
            $
            845
            
            $
            1,003
            
            $
            916
            
            $
            1,266
            
            $
            1,649
            
            $
            2,266Amounts
                charged (credited) to bad debt expense
            
            
            242
            
            
            454
            
            
            (34
            )
            
            237
            
            
            231
            
            
            (258
            )
            
            (135
            )
            
            (439
            )Amounts
                written off
            
            
            (68
            )
            
            (136
            )
            
            (249
            )
            
            (395
            )
            
            (144
            )
            
            (92
            )
            
            (248
            )
            
            (178
            )Ending
                balance
            
            $
            1,054
            
            $
            880
            
            $
            562
            
            $
            845
            
            $
            1,003
            
            $
            916
            
            $
            1,266
            
            $
            1,649Total
                sales reserve and allowance for doubtful accounts:Beginning
                balance
            
            $
            6,359
            
            $
            5,310
            
            $
            5,232
            
            $
            5,634
            
            $
            5,363
            
            $
            6,261
            
            $
            6,331
            
            $
            6,837Amounts
                deducted from revenue / charged (credited) to bad debt expense
            
            
            4,058
            
            
            4,476
            
            
            3,145
            
            
            2,858
            
            
            2,749
            
            
            1,073
            
            
            2,174
            
            
            1,676Amounts
                written off
            
            
            (3,286
            )
            
            (3,427
            )
            
            (3,067
            )
            
            (3,260
            )
            
            (2,478
            )
            
            (1,971
            )
            
            (2,244
            )
            
            (2,182
            )









Ending
                  balance
              
              $
              7,131
              
              $
              6,359
              
              $
              5,310
              
              $
              5,232
              
              $
              5,634
              
              $
              5,363
              
              $
              6,261
              
              $
              6,331Gross
                  accounts receivable
              
              $
              58,362
              
              $
              49,894
              
              $
              46,296
              
              $
              39,757
              
              $
              38,072
              
              $
              34,694
              
              $
              32,918
              
              $
              29,198Sales
                  reserve as a percentage of gross accounts receivable
              
              
              10.4
              %
              
              11.0
              %
              
              10.3
              %
              
              11.0
              %
              
              12.2
              %
              
              12.8
              %
              
              15.2
              %
              
              16.1
              %Allowance
                  for doubtful accounts
                as
                  a percentage of gross accounts receivable
              
              
              1.8
              %
              
              1.8
              %
              
              1.2
              %
              
              2.1
              %
              
              2.6
              %
              
              2.6
              %
              
              3.8
              %
              
              5.6
              %Total
                  receivable reserves as a percentage of gross accounts
                  receivable
              
              
              12.2
              %
              
              12.8
              %
              
              11.5
              %
              
              13.1
              %
              
              14.8
              %
              
              15.4
              %
              
              19.0
              %
              
              21.7
              %


***Income
      Taxes***





We
      determine deferred tax assets and liabilities at the end of each year based
      on
      the future tax consequences that can be attributed to net operating loss and
      credit carryovers.  Deferred tax assets and liabilities are also determined
      based on the differences between the financial statement carrying amounts of
      existing assets and liabilities and their respective tax bases, using the tax
      rate expected to be in effect when the taxes are actually paid or
      recovered.  The recognition of deferred tax assets is reduced by a
      valuation allowance if it is more likely than not that the tax benefits will
      not
      be realized.  The ultimate realization of deferred tax assets depends
      upon
      the generation of future taxable income during the periods in which those
      temporary differences become deductible.  We consider past performance,
      expected future taxable income and prudent and feasible tax planning strategies
      in assessing the amount of the valuation allowance.  Our forecast of
      expected future taxable income is based over such future periods that we believe
      can be reasonably estimated.  Changes in market conditions that differ
      materially from our current expectations and changes in future tax laws in
      the
      U.S. and in international jurisdictions may cause us to change our judgments
      of
      future taxable income.  These changes, if any, may require us to adjust
      our
      existing tax valuation allowance higher or lower than the amount we have
      recorded.  For the year ended December 31, 2005, we evaluated our deferred
      tax assets and valuation allowance related to the utilization of our net
      operating loss carryforwards.  The evaluation resulted in the realization
      of the tax benefit of these deferred assets of $415,000 for the balance of
      the
      year, of which $387,000 was accounted for as a credit to additional paid-in
      capital.





In
      addition, the calculation of tax liabilities involves significant judgment
      in
      estimating the impact of uncertainties in the application of complex tax
      laws.  Resolution of these uncertainties in a manner inconsistent with
      our
      expectations could have a material impact on our results of operations. 
      We
      account for income tax contingencies in accordance with Statement of Financial
      Accounting Standards No. 5, *Accounting
      for Contingencies* .





***Impairment
      of Goodwill and Intangible Assets***





We
      assess
      the impairment of intangible and other long-lived assets whenever events or
      changes in circumstances indicate that their carrying value may not be
      recoverable from the estimated future cash flows expected to result from their
      use and eventual disposition. Amortizable intangible assets subject to this
      evaluation include acquired developed technology, intellectual property rights,
      trade names and domain names and customer contracts and relationships. We assess
      the impairment of goodwill annually during our fourth quarter and whenever
      events or changes in circumstances indicate that it is more likely than not
      that
      an impairment loss has been incurred. We are required to make judgments and
      assumptions in identifying those events or changes in circumstances that may
      trigger impairment. Some of the factors we consider include:





-  Significant
      decrease in the market value of an asset;





-  Significant
      changes in the extent or manner for which the asset is being used or in its
      physical condition;





-  A
      significant change, delay or departure in our business strategy related to
      the
      asset;





-  Significant
      negative changes in the business climate, industry or economic conditions;
      and




-  Current
      period operating losses or negative cash flow combined with a history of similar
      losses or a forecast that indicates continuing losses associated with the use
      of
      an asset.








Our
      impairment evaluation of long-lived assets includes an analysis of estimated
      future undiscounted net cash flows expected to be generated by the assets over
      their remaining estimated useful lives. If the estimated future undiscounted
      net
      cash flows are insufficient to recover the carrying value of the assets over
      the
      remaining estimated useful lives, we will record an impairment loss in the
      amount by which the carrying value of the assets exceeds the fair value. We
      determine fair value based on discounted cash flows using a discount rate
      commensurate with the risk inherent in our current business model. If, as a
      result of our analysis, we determine that our amortizable intangible assets
      or
      other long-lived assets have been impaired, we will recognize an impairment
      loss
      in the period in which the impairment is determined. Any such impairment charge
      could be significant and could have a material adverse effect on our financial
      position and results of operations. Major factors that influence our cash flow
      analysis are our estimates for future revenue and expenses associated with
      the
      use of the asset. Different estimates could have a significant impact on the
      results of our evaluation.




Our
      impairment evaluation of goodwill is based on comparing the fair value to the
      carrying value of our reporting unit with goodwill. If our revenue and cost
      forecasts are not achieved, we may incur a charge for goodwill impairment,
      which
      could have a material adverse effect on our income statement.





***Equity-Based
      Compensation***





We
      have
      elected to follow the intrinsic-value-based method prescribed by Accounting
      Principles Board (“APB”) Opinion No. 25, *Accounting
      for Stock Issued to Employee* ,
      in
      accounting for employee equity-based compensation, and comply with the
      disclosure provisions of Statement of Financial Accounting Standards (“SFAS”)
      No. 123, *Accounting
      for Stock-Based*  *Compensation,* as
      amended by SFAS No. 148, *Accounting
      for Stock-Based Compensation-Transition and Disclosure* .
      Therefore, we do not record compensation expense for stock options granted
      to
      our employees when the exercise price equals the deemed fair market value of
      the
      stock on the date of grant and the exercise price, number of shares eligible
      for
      issuance under the options and vesting period are fixed. In accordance with
      SFAS
      No. 123 as amended by SFAS No. 148, we disclose our pro forma net income and
      net
      income per share as if we had expensed the fair value of the options. In
      calculating such fair value, we make certain assumptions, as disclosed in Note
      1
      of our consolidated financial statements, consisting of the expected life of
      the
      option, volatility, risk-free interest rate, dividend yield and the weighted
      average fair value of grants. Actual volatility, expected lives, risk-free
      interest rates and dividend yield may be different than our assumptions which
      would result in an actual value of the options being different than estimated.
      In determining volatility, beginning in the fourth quarter of 2005, we
      determined that a
      combination of implied volatility and historical volatility is a better
      indicator of expected volatility than historical volatility alone. In
      addition, we modified our assumption of the expected life of stock options
      granted during the fourth quarter of 2005 to 4.9 years based on further
      analysis. We believe that these refinements will generate more representative
      estimates of fair value.





**Recent
      Accounting Pronouncements**




See
      Note
      1 of the notes to the consolidated financial statements in Item 8 for a full
      description of recent accounting pronouncements, including the respective
      expected dates of adoption and effects on results of operations and financial
      condition.





**Results
      of Operations**




***Net
      Revenues***





**Year
                ended December 31,****2005**
            
            
            **2004**
            
            
            **2003****(Dollars
                in thousands)**Net
                revenues
            
            $
            308,422
            
            $
            249,133
            
            $
            189,341Increase,
                period over period
            
            $
            59,289
            
            $
            59,792Percentage
                increase, period over period
            
            
            24
            %
            
            32
            %







Net
      revenues increased in 2005 and 2004 as compared to the prior year periods due
      primarily to growth in our domestic and international subscriber base and
      increased usage of existing and new service products. During 2005, organic
      growth in the number of customers for our core applications increased by 24%
      to
      over 13,000 customers. In addition, with the acquisition of Intranets during
      the
      third quarter of 2005, an additional 8,800 new customers were added to our
      installed customer base. During 2004, the number of customers in our subscriber
      base grew by more than 26% as compared to 2003.





U.S.
      net
      revenues were $268.8 million for 2005, an increase of 22% from the prior year,
      while international net revenues increased 36% to $39.6 million during 2005. Included
      in U.S. net revenues for 2005 was total non-recurring revenue of $1.4





million
      and $1.6 million recognized in the third and fourth quarters, respectively,
      from
      a project with the U.S. Department of Defense (“DOD”). This revenue is in
      addition to our commercial managed service contract with the DOD. In 2005,
      we
      recorded $3.9 million of revenues related to Intranets, including $704,000
      in
      the third quarter of 2005 and $3.2 million in the fourth quarter of 2005. In
      2004, U.S. net revenues were $219.9 million and international net revenues
      were
      $29.2 million.





One
      of
      the measurement tools, or metrics, which we use to help forecast future revenues
      is what we refer to as monthly revenue rate (“MRR”). We define MRR as the sum of
      the following: (i) committed monthly subscriptions, or the aggregate dollar
      amount of minimum minutes, named hosts and ports that are contractually
      committed to us, as of the end of the month, and (ii) average monthly
      uncommitted revenue for the quarter, or the aggregate dollar amounts of per
      minute or usage-based services such as reseller-related, overage, telephony
      and
      pay-per-use revenues for the quarter; divided by three. Our monthly subscription
      contracts at the end of December 2005 were approximately $21.4 million and
      our
      average monthly-uncommitted revenue in the quarter ended December 31, 2005
      was
      $7.3 million. Thus our monthly revenue rate exiting December 2005 was $28.7
      million .




While
      the
      quarter-exiting MRR is used by us as a forecasting tool for the following
      quarter's revenue, the actual revenue in the next quarter is impacted by other
      factors in addition to the MRR entering that quarter. These factors include
      such
      items as (i) new customer bookings and customer cancellations, and the timing
      of
      each during the quarter, (ii) usage-based revenues, (iii) customer credits,
      (iv)
      set up fees, fees charged for one-time customer events and other non-recurring
      revenues that are not included in MRR, (v) partner commitment fees in deferred
      revenue, and (vi) sales reserve adjustments. Certain revenue elements not
      included in MRR have been declining in recent quarters due to changes in our
      business practices. For example, due to recent changes in our sales compensation
      plans, our sales employees, where permitted to give customer discounts, have
      been more apt than previously to give discounts on the set-up fee portion of
      a
      customer’s payment obligation and less apt than previously to give discounts on
      the monthly subscription, or MRR, portion of the customer’s payment obligation.
      Also, we now less frequently require a prepaid commitment from a reseller than
      we previously did. On the other hand, customer credits, which are among the
      factors outside of MRR that operate to reduce our revenue, have increased in
      the
      most recent three quarters. Also, quarterly minutes-based subscriptions have
      been increasing. While quarterly or semiannual minutes-based subscriptions
      are
      included in the subscription portion of MRR, the revenue associated with them
      is
      recognized variably based on usage until the end of the quarterly or semiannual
      billing period .




The
      following table shows our MRR for the eight quarters ended December 31,
      2005:





**December
                31, 2005**
            
            
            **September**
              
              **30,
                2005**
            
            
            **June**
              
              **30,
                2005**
            
            
            **March**
              
              **31,
                2005**
            
            
            **December
                31, 2004**
            
            
            **September
                30, 2004**
            
            
            **June**
              
              **30,
                2004**
            
            
            **March**
              
              **31,
                2004****(In
                millions)**Uncommitted
                usage - monthly average during the quarter
            
            $
            7.3
            
            $
            7.3
            
            $
            7.7
            
            $
            7.0
            
            $
            6.2
            
            $
            6.0
            
            $
            5.9
            
            $
            5.1Contracted
                subscriptions at the end of the quarter
            
            
            21.4
            
            
            19.2
            
            
            18.3
            
            
            17.4
            
            
            16.8
            
            
            15.9
            
            
            15.1
            
            
            14.1Total
                MRR
            
            $
            28.7
            
            $
            26.5
            
            $
            26.0
            
            $
            24.4
            
            $
            23.0
            
            $
            21.9
            
            $
            21.0
            
            $
            19.2





Our
      lost
      customer ratio is based on customer count and is calculated as the quotient
      obtained from the following: (i) the average monthly number of lost customers
      (including customers who have switched their purchases of our services from
      us
      directly to our partners) during the quarter, divided by (ii) our total number
      of customers at the end of the last month of the quarter plus the average
      monthly number of lost customers during the quarter (including customers who
      have switched their purchases of our services from us directly to our partners).
      Our lost subscription customer ratio for the three months ended December 31,
      2005 was 2.2% per month, which includes Intranets beginning in the fourth
      quarter of 2005. The following table shows our lost customer ratio for the
      eight
      quarters ended December 31, 2005:





**December
                31, 2005**
            
            
            **September**
              
              **30,
                2005**
            
            
            **June**
              
              **30,
                2005**
            
            
            **March**
              
              **31,
                2005**
            
            
            **December
                31, 2004**
            
            
            **September
                30, 2004**
            
            
            **June**
              
              **30,
                2004**
            
            
            **March**
              
              **31,
                2004**Lost
                subscription customer ratio percentage
            
            
            2.2
            %
            
            1.9
            %
            
            1.9
            %
            
            2.0
            %
            
            1.9
            %
            
            1.3
            %
            
            1.5
            %
            
            1.5
            %





***Cost
      of Revenues***





Cost
      of
      revenues consists primarily of costs related to user set-up, network and data
      center operations, technical support and training activities, including Internet
      access and telephony communication costs, personnel, licensed software and
      equipment costs and depreciation. Total cost of revenues for the periods
      reported was as follows:








**Year
                ended December 31,****2005**
            
            
            **2004**
            
            
            **2003****(Dollars
                in thousands)**Cost
                of revenues
            
            $
            53,893
            
            $
            41,854
            
            $
            31,798Percentage
                of net revenues
            
            
            17
            %
            
            17
            %
            
            17
            %Increase,
                period over period
            
            $
            12,039
            
            $
            10,056Percentage
                increase, period over period
            
            
            29
            %
            
            32
            %





Cost
      of
      revenues increased 29% and 32% during 2005 and 2004, respectively, as compared
      to the corresponding prior year periods due primarily to increases in the costs
      for delivering existing and new services to more domestic and international
      customers. In addition, we increased our technical staff 14% during 2005 and
      61%
      during 2004 to support our installed base of customers as well as increased
      expenditures to expand and improve our worldwide network.





In
      the
      third and fourth quarters of 2005, we recognized aggregate costs related to
      the
      non-recurring DOD arrangement in the amount of $1.5 million. Also, during the
      third quarter of 2005, we acquired Intranets, which resulted in the recording
      of
      purchased intangible assets, including developed technology, which is amortized
      into cost of revenues. During 2005, the amortization related to the developed
      technology from Intranets was approximately $548,000. In 2004, we purchased
      land
      and a building containing approximately 125,000 square feet of commercial grade
      facility of which 25,000 square feet consists of data infrastructure facility
      floor space for $15.9 million. Land totaling $9.7 million is not depreciated,
      and the building totaling $6.2 million is being depreciated over 10 years.
      As
      part of the purchase, we also acquired certain items of data infrastructure
      equipment previously installed and situated on the property. During 2004, we
      used this facility as our network-operating center as well as to expand our
      primary switching center to accommodate growing usage requirements on our WebEx
      MediaTone Network.





***Sales
      and Marketing***





Sales
      and
      marketing expense consists of personnel costs, including commissions for sales,
      marketing and customer care, as well as costs of public relations, advertising,
      marketing programs, lead generation, travel and trade shows. Sales and marketing
      expenses for the periods reported were as follows:





**Year
                ended December 31,****2005**
            
            
            **2004**
            
            
            **2003****(Dollar
                in thousands)**Sales
                and marketing
            
            $
            102,707
            
            $
            84,192
            
            $
            74,249Percentage
                of net revenues
            
            
            33
            %
            
            34
            %
            
            39
            %Increase,
                period over period
            
            $
            18,515
            
            $
            9,943Percentage
                increase, period over period
            
            
            22
            %
            
            13
            %





Sales
      and
      marketing expense increased 22% and 13% during 2005 and 2004, respectively,
      as
      compared to the corresponding prior year periods due primarily to increased
      spending on sales and support personnel and additional spending on advertising
      and marketing related programs to build brand awareness and generate leads
      for
      our sales force. Sales and marketing headcount increased 23% in 2005 and 24%
      in
      2004, respectively, as compared to the corresponding prior year periods. During
      2005, we launched several new marketing programs around new product releases,
      including the release of WebOffice, which is intended to expand our offerings
      in
      the small to medium business market, as well as MeetMeNow and PCNow, which
      are
      targeted to individual professionals.





In
      February 2005, we experienced a fire at our Amsterdam headquarters, which
      resulted in additional expenses of $1.1 million in the first quarter of 2005.
      During the third and fourth quarter of 2005, we received $549,000 and $375,000,
      respectively, from our insurance carrier in connection with this loss, which
      amounts were recorded as a reduction to sales and marketing expense in the
      periods received.





***Research
      and Development***





Research
      and development expense consists primarily of salaries and other
      personnel-related expenses, depreciation of equipment and supplies, and
      consulting engineering services. Research and development expenses for the
      periods reported were as follows:





**Year
                ended December 31,****2005**
            
            
            **2004**
            
            
            **2003****(Dollars
                in thousands)**Research
                and development
            
            $
            45,713
            
            $
            34,342
            
            $
            24,769




TOC


Percentage
                of net revenues
            
            
            15
            %
            
            14
            %
            
            13
            %Increase,
                period over period
            
            $
            11,371
            
            $
            9,573Percentage
                increase, period over period
            
            
            33
            %
            
            39
            %





Research
      and development expense increased 33% and 39% during 2005 and 2004,
      respectively, as compared to the corresponding prior year periods due primarily
      to increases in personnel and equipment related expenses resulting from an
      increase in headcount to develop and support existing and new products including
      increases in the number of such personnel in WebEx China. Research and
      development headcount increased 9% in 2005 and 58% in 2004, respectively, as
      compared to the corresponding prior year periods.





We
      recorded a $307,000 expense to in-process research and development in connection
      with the acquisition of Intranets in the third quarter of 2005. This amount
      was
      immediately expensed in the period the acquisition was completed as the project
      associated with the in-process research and development had not yet reached
      technological feasibility and no future alternative uses existed for the
      technology.





***General
      and Administrative***





General
      and administrative expense consists primarily of personnel costs for finance,
      human resources, legal and general management, bad debt expense and professional
      services, such as legal, tax and accounting. General and administrative expenses
      for the periods reported were as follows:


**Year
                ended December 31,****2005**
            
            
            **2004**
            
            
            **2003****(Dollars
                in thousands)**General
                and administrative
            
            $
            26,171
            
            $
            18,713
            
            $
            13,575Percentage
                of net revenues
            
            
            8
            %
            
            8
            %
            
            7
            %Increase,
                period over period
            
            $
            7,458
            
            $
            5,138Percentage
                increase, period over period
            
            
            40
            %
            
            38
            %





General
      and administrative expense increased 40% during 2005 as compared to 2004 due
      primarily to an increase in bad debt expense and increased employee-related
      expenses. Bad debt expense was $899,000 during 2005 compared to a credit of
      $601,000 in 2004. The expense in 2005 was due to an increase in revenue coupled
      with a relatively flat projected percentage of future credit losses. Future
      credit losses are primarily based on trended historical losses. The
      increase in employee-related expenses was due primarily to an increased
      headcount of 18% in 2005 as compared to 2004.





General
      and administrative expense increased 38% during 2004 as compared to 2003 due
      primarily to increased spending on employee-related expenses and increased
      professional service expenses, offset in part by a decrease in bad debt expense.
      General and administrative headcount increased 55% in 2004 as compared to 2003.
      The increase in professional services was required to address new regulations
      including new regulations imposed by the Sarbanes-Oxley Act of 2002. Bad debt
      expense was a credit of $601,000 in 2004 and a debit of $850,000 in 2003. In
      2004, the trend in historical loss percentage decreased sharply compared to
      2003
      resulting in a credit to expense from the bad debt allowance to adjust the
      reserve to the calculated potential future credit loss
      requirements.





***Equity-Based
      Compensation***





Equity-based
      compensation expense represents the amortization of deferred equity-based
      compensation over the vesting period of incentive stock options granted to
      employees and expenses related to issuance of common stock options to
      non-employees. Deferred equity-based compensation represents the difference
      between the exercise price of the stock options granted to employees and the
      fair value of common stock at the time of those grants.





Equity-based
      compensation expense was $13,000, $571,000 and $1.8 million in 2005, 2004 and
      2003, respectively. The decreases from year to year were primarily due to the
      vesting of options granted, forfeitures of unvested options by terminated
      employees and the effects of the fluctuations of our stock price on the
      recognition of expense on options granted to non-employees. In connection with
      the calculation of equity-based compensation expense, members of our Board
      of
      Directors are treated the same as employees of WebEx.





***Interest
      and other income, net*** ****





Interest
      and other income, net consists of net investment income, interest income and
      expense, the effect of non-functional currency transactions of our foreign
      subsidiaries, and certain other expenses. Interest and other income, net was
      $6.6 million,





$308,000
      and $1.1 million in 2005, 2004 and 2003, respectively. The increase in interest
      and other income, net in 2005 was due primarily to increased interest income
      of
      $3.5 million from greater cash and investments balances and higher interest
      rates. To a lesser extent, in 2005, currency exchange gains from transactions
      in
      other than the local currency of our foreign subsidiaries also contributed
      to
      the increase. The decrease in 2004 as compared to the prior year period was
      due
      primarily to increased losses from currency exchange as a result of
      non-functional currency transactions of our foreign subsidiaries, offset in
      part
      by higher interest earned as a result of increased cash invested.





***Provision
      for income taxes***




In
      2005,
      a release of $415,000 of valuation allowance relating primarily to net operating
      loss carryforwards resulted in a tax benefit of $28,000 and an increase of
      $387,000 to additional paid-in capital attributable to the tax benefit of stock
      options. In 2004, the provision for income tax included a release of $4.7
      million of valuation allowance primarily related to remaining net operating
      loss
      carryforwards, which resulted in a tax benefit of $3.8 million and a $900,000
      credit to additional paid-in capital attributable to the tax benefit of stock
      options. Following eight successive quarters of profitability in 2003 and 2002,
      we had evidence to support the recognition of deferred tax assets. Accordingly,
      in 2003 we released a valuation allowance in the amount of $21.4 million based
      on projected future income that resulted in a tax benefit for the year. The
      releases of the valuation allowance were recorded in the fourth quarter of
      2004
      and 2003, respectively, when we updated our forecast of future projected income.
      Our effective tax rate in 2005, 2004 and 2003 has fluctuated as a result of
      the
      valuation allowance adjustments described above and may continue to fluctuate
      in
      2006 with the expected adoption of the new accounting standard requiring
      expensing of equity-based employee compensation (See Note 1 of our
      Consolidated Financial Statements located in Item 8).







**Liquidity
      and Capital Resources**





**Year
                ended December 31,****2005**
            
            
            **2004**
            
            
            **2003****(In
                thousands)**Net
                cash provided by operating activities
            
            $
            68,592
            
            $
            68,805
            
            $
            60,771Net
                cash used in investing activities
            
            
            (112,465
            )
            
            (52,675
            )
            
            (37,214
            )Net
                cash provided by financing activities
            
            
            1,737
            
            
            23,426
            
            
            14,842Net
                (decrease) increase in cash and cash equivalents
            
            $
            (42,136
            )
            $
            39,556
            
            $
            38,399








We
      have
      generated cash from operations in each quarter since the third quarter of 2002.
      We anticipate cash flow from operations will fund our current operations.





As
      of
      December 31, 2005, cash, cash equivalents and short-term investments were $197.2
      million, an increase of $12.1 million compared with cash and cash equivalents
      of
      $185.1 million as of December 31, 2004. As of December 31, 2005 and 2004, we
      had
      no debt.





***Operating
      Activities***




Net
      cash
      provided by operating activities decreased $213,000 in 2005 as compared to
      2004.
      Net cash provided by operating activities decreased due primarily to an increase
      in accounts receivable of $13.5 million due to continued growth in sales, a
      change in the method of recording cash in transit, and to a lesser extent the
      acquisition of Intranets in September 2005. The decrease in cash flow from
      operations in 2005 was offset in part by an increase in net income of $5.1
      million, adjusted for non-cash items of $1.5 million including provisions for
      doubtful accounts and sales reserve, depreciation and amortization and tax
      benefits on stock plans. In addition, an increase in income taxes payable as
      compared to the prior year period offset the decline in cash from
      operations.





Net
      cash
      provided by operating activities increased $8.0 million in 2004 as compared
      to
      2003. Cash provided by operating activities in 2004 was primarily the result
      of
      net income adjusted for non-cash charges offset by uses for working capital
      attributable to increases in accounts receivable and decreases in taxes
      payable.




***Investing
      Activities***





Net
      cash
      used in investing activities increased $59.8 million in 2005 as compared to
      2004. Net cash used in investing activities increased due primarily to an
      increase in net investment purchases of $43.8 million compared to 2004 as well
      as cash used for the acquisition of Intranets in the third quarter of 2005
      of
      $40.0 million, net of cash acquired. Cash used in investing activities was
      offset in part by decreases in capital purchases of $19.5 million during 2005.
      The purchase of property and





equipment
      during 2005 was due primarily to capital expenditures for equipment, hardware
      and software used in our MediaTone Network. During 2004, we acquired land and
      building for our new network operating center.





Net
      cash
      used in investing activities increased $15.5 million in 2004 as compared to
      2003. Net cash used by investing activities related primarily to an increase
      in
      purchases of property and equipment and the acquisition in 2004 of CyberBazaar.
      In 2004, we acquired land and building for our new network operating
      center.





***Financing
      Activities***





Net
      cash
      provided by financing activities decreased $21.7 million in 2005 as compared
      to
      2004. Net cash provided by financing activities decreased due primarily to
      share
      repurchases of $34.1 million in 2005 compared to $5.8 million in 2004, offset
      in
      part by increased proceeds received from issuances of common stock under
      employee stock programs of $35.9 million in 2005 as compared to $29.3 million
      in
      2004. Our Board of Directors authorized a share repurchase program in July
      2004
      for an eighteen-month period, which under management discretion, a maximum
      of
      $40.0 million in shares of our common stock could be repurchased. As of December
      31, 2005, the entire $40.0 million approved by the Board of Directors had been
      used to repurchase 1,767,000 shares of our common stock. During
      the fourth quarter of 2005, the Board of Directors authorized an additional
      $10.0 million for share repurchases through June 2006.





Net
      cash
      provided by financing activities increased $8.6 million in 2004 as compared
      to
      2003. Net cash provided by financing activities increased due primarily to
      cash
      received from stock option exercises and employee stock purchase plan purchases,
      offset in part by increased share repurchases in 2004.





***Other***




In
      December 2004, we entered into an agreement with the government of Hong Kong
      and
      Hong Kong University of Science and Technology (HKUST) pursuant to which WebEx
      and the government of Hong Kong were each to pay equal amounts to fund certain
      research and development projects to be managed jointly by WebEx and HKUST.
      In
      December 2004 and April 2005, we paid $500,000 and $318,000, respectively,
      in
      cash pursuant to the agreement, which amounts were charged to research and
      development. We will obtain sole ownership of any intellectual property
      resulting from the projects, provided, however that WebEx and HKUST may agree
      that some of the proceeds of products and services arising from the projects
      will be paid to HKUST. Under this arrangement, we will provide one final payment
      of $110,000 due in April 2006. This future payment obligation is included in
      “Other commitments” in the table below.





In
      September 2005, we acquired all of the outstanding stock of Intranets. This
      acquisition is intended to expand our offerings in the small to medium business
      market as well as enhance cross selling of Intranets asynchronous services
      into
      the WebEx marketplace. The purchase consideration was approximately $42.7
      million, paid in cash, and includes direct transaction costs. An additional
      $2.7
      million may be paid to the senior management of Intranets based on continued
      employment for one year and is being accrued as compensation expense. See Note
      4
      of our Consolidated Financial Statements located in Item 8 for further
      information.





In
      April
      2004, we completed the acquisition of CyberBazaar of Bangalore India, an audio
      conferencing company, in order to directly pursue the web conferencing market
      in
      India. We subsequently renamed the CyberBazaar entity WebEx Communications
      India
      Pvt. Ltd. WebEx Communications India has continued to maintain the CyberBazaar
      offices, management team and employees. WebEx paid the former CyberBazaar
      shareholders approximately $2.7 million in cash at closing. Additional payments
      of $1.4 million were accrued in 2004 and paid in 2005 based on the performance
      of CyberBazaar in calendar year 2004. These additional payments were tied to
      continued employment of the former owners of CyberBazaar at our new India
      subsidiary and, accordingly, are being expensed as compensation.




In
      September 2004, we entered into an agreement with NCR Corporation, a technology
      company, which included the acquisition from NCR of certain intangible assets
      and a release from any past liability associated with those assets. The terms
      of
      the agreement included our acquiring five NCR patents issued in the U.S.
      together with the foreign counterparts of those patents, obtaining licenses
      to
      certain other NCR patents for the life of those patents, and mutually agreeing
      with NCR not to commence legal actions against each other on other patents
      in
      the companies’ respective portfolios for a period of three years. The acquired
      patents were filed between 1993 and 1997. The amount paid in cash by us under
      the agreement, which was allocated to the acquired intangible assets based
      on
      fair value, was $2.6 million and is being amortized into cost of revenues.
      The
      remainder of the consideration under the agreement consisted of $309,000, which
      was allocated to the value of releases from any liability that might have
      accrued prior to the effective date of the agreement and which was charged
      to
      cost of revenues in the three months ended September 30, 2004.





We
      have a
      revolving credit line with a bank that provides available borrowings up to
      $7.0
      million. Amounts borrowed under the revolving credit line bear interest at
      the
      prime rate and may be repaid and re-borrowed at any time prior to the maturity





date.
      The
      credit agreement expires June 15, 2006. The credit agreement is unsecured and
      is
      subject to compliance with covenants, including a minimum quick ratio and
      minimum profitability, with which we are currently in compliance. As of December
      31, 2005, we had no outstanding borrowings under the credit line, but we did
      have a $4.0 million letter of credit issued under the line as security for
      our
      headquarters lease.





We
      expect
      that existing cash resources and cash generated from operations will be
      sufficient to fund our anticipated working capital and capital expenditure
      needs
      for at least the next 12 months. We anticipate that we will continue to generate
      cash from operations for at least the next 12 months  and
      that
      existing cash reserves will therefore be sufficient to meet our capital
      requirements during this period. We base our expense levels in part on our
      expectations of future revenue levels. If our revenue for a particular period
      is
      lower than we expect, we may take steps to reduce our operating expenses
      accordingly. If cash generated from operations is insufficient to satisfy our
      liquidity requirements, we may seek to sell additional public or private equity
      securities or obtain additional debt financing. There can be no assurance that
      additional financing will be available at all or, if available, will be
      obtainable on terms favorable to us. If we are unable to obtain additional
      financing, we may be required to reduce the scope of our planned technology
      and
      product development and sales and marketing efforts, which could harm our
      business, financial condition and operating results. Additional financing may
      also be dilutive to our existing stockholders .





***Lease
      Commitments***





During
      the fourth quarter of 2005, we began occupancy of new facilities located in
      Amsterdam, the Netherlands and Laguna Hills, California. The lease terms for
      these facilities are 60 and 64 months, respectively and each commenced in
      October 2005. Future minimum lease payments under the life of both of these
      leases total an aggregate of $2.5 million.





With
      the
      acquisition of Intranets in September 2005, we assumed a lease obligation for
      office space in Burlington, Massachusetts. The lease term is for approximately
      66 months which commenced in January 2005. Future minimum lease payments under
      the life of the lease total $2.6 million. The lease requires a letter of credit
      of $260,000, which is collateralized by cash on deposit at a commercial bank.
      The cash on deposit and related interest is treated as restricted cash and
      is
      included in other non-current assets in the consolidated balance
      sheets.





In
      April
      2004, we signed a lease to occupy space in a building located in Santa Clara,
      California that serves as our corporate headquarters. The lease term is for
      approximately ten years, and initial occupancy commenced in the third quarter
      of
      2004. We took possession of additional space in January 2005 and are committed
      to occupy additional space in February 2008. The rent for all of this
      space
      is included in the future minimum rental payments. Minimum lease payments under
      this lease began in January 2005 and total an aggregate of $23.8 million for
      the
      life of the lease .





***Purchase
      Commitments***





As
      of
      December 31, 2005, our material purchase commitments, including those for
      telecommunication lines and data services, equipment and software and
      construction of leasehold improvements at new leased facilities, totaled $16.0
      million. The
      majority of the purchase commitments are expected to be settled in cash within
      12 months.





***Indemnity
      and Warranty Obligations***




In
      our
      agreements with customers and resellers, we agree to indemnify the customers
      and
      resellers in the event a third party asserts an intellectual property
      infringement claim against the customer or reseller based on our services.
      Certain restrictions are placed on the indemnity obligations, including
      geographical limitations and limitations on the type of claims covered. In
      addition, we have provided certain warranties and committed to maintain certain
      service levels in some of our agreements with customers and resellers. These
      warranty and service level provisions specify limited remedies available to
      the
      customer or reseller in the event of a breach of the warranty or a failure
      to
      maintain the specified service level. In addition, our agreements contain
      limitation of liability provisions, which disclaim responsibility for
      consequential, special or indirect damages and which generally limit our
      liability under the agreements to the amount of fees paid to us. As of December
      31, 2005, we had incurred no liability with respect to our indemnification
      obligations and had not incurred any material liability with respect to our
      warranty and service level obligations.





***Off-Balance-Sheet
      Arrangements***





As
      of
      December 31, 2005, we did not have any significant off-balance-sheet
      arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation
      S-K.








**Long
      Term Contracts**





The
      following table summarizes our significant contractual commitments at December
      31, 2005, and the effect such obligations are expected to have on our liquidity
      and cash flows in future periods:





**Payments
                due by period****Total**
            **Less
                than 1 year**
            **1-3
                years**
            **3-5
                years**
            **More
                than 5 years****(In
                thousands)**Operating
                lease commitments
            $43,739
            $6,403
            $12,529
            $11,366
            $13,441Purchase
                commitments
            16,038
            15,446
            592
            —
            —Other
                commitments
            110
            110
            —
            —
            —Total
            $59,887
            $21,959
            $13,121
            $11,366
            $13,441







**Item
      7A.**  **Quantitative
      and Qualitative Disclosures About Market Risk**







***Foreign
      Currency Risk***





A
      small,
      but growing, part of our business is conducted outside the United States. In
      the
      majority of non-U.S. transactions, whether they are revenue transactions or
      the
      payment of expenses or other obligations owing in the non-U.S. country, the
      currency involved is the local currency. In some countries we have far more
      sales collections than we do payment obligations; in other countries, the
      reverse is true. For example, in China we have significant payment obligations
      that must be made in Chinese currency including employee salaries and lease
      payments, and these are currently not offset by revenues in China. As a result
      of this imbalance between local currency collections and payments in certain
      non-U.S. countries, our financial results could be affected by factors such
      as
      changes in foreign currency exchange rates or weak economic conditions in such
      foreign markets. When the amount of revenues obtained from sources outside
      the
      United States becomes significant, we may engage in hedging activities or other
      actions to decrease fluctuations in operating results due to changes in foreign
      currency exchange rates.




***Interest
      Rate Risk***





We
      do not
      use derivative financial instruments or market risk sensitive instruments.
      Instead, we invest in highly liquid investments with short maturities.
      Accordingly, we do not expect any material loss from these investments and
      believe that our potential interest rate exposure is not material.











**Item
      8.** ***Financial Statements and Supplementary Data*** ****







**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**Page**Report
                of Independent Registered Public Accounting
                Firm
            45Consolidated
                Balance Sheets as of December 31, 2005 and
                2004
            46Consolidated
                Statements of Income for the years ended
                December 31, 2005, 2004 and 2003
            47Consolidated
                Statements of Stockholders' Equity and
                Comprehensive Income for the years ended December 31, 2005, 2004
                and
                2003
            48Consolidated
                Statements of Cash Flows for the years ended
                December 31, 2005, 2004 and 2003
            49Notes
                to Consolidated Financial
                Statements
            50







**Report
      of Independent Registered Public Accounting
      Firm**










The
      Board
      of Directors and Stockholders


WebEx
      Communications, Inc.:





We
      have
      audited the accompanying consolidated balance sheets of WebEx Communications,
      Inc. and subsidiaries (the Company) as of December 31, 2005 and 2004, and the
      related consolidated statements of income, stockholders’ equity and
      comprehensive income, and cash flows for each of the years in the three-year
      period ended December 31, 2005. These consolidated financial statements are
      the
      responsibility of the Company’s management. Our responsibility is to express an
      opinion on these consolidated financial statements based on our
      audits.





We
      conducted our audits  in
      accordance with the standards of the Public Company Accounting Oversight Board
      (United States). Those standards require that we plan and perform the audit
      to
      obtain reasonable assurance about whether the financial statements are free
      of
      material misstatement. An audit includes examining, on a test basis, evidence
      supporting the amounts and disclosures in the financial statements. An audit
      also includes assessing the accounting principles used and significant estimates
      made by management, as well as evaluating the overall financial statement
      presentation. We believe that our audits provide a reasonable basis for our
      opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of WebEx Communications, Inc.
      and subsidiaries as of December 31, 2005 and 2004, and the results of their
      operations and their cash flows for each of the years in the three-year period
      ended December 31, 2005, in conformity with U.S. generally accepted accounting
      principles.





We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the effectiveness of the internal control
      over
      financial reporting of WebEx Communications, Inc. as of December 31, 2005,
      based
      on criteria established in *Internal
      Control-Integrated*  *Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
      and our report dated March 9, 2006 expressed an unqualified opinion on
      management’s assessment of, and the effective operation of, internal control
      over financial reporting.




/s/
      KPMG LLP




Mountain
      View, California


March
      9,
      2006















**WEBEX
      COMMUNICATIONS, INC.**


**CONSOLIDATED
      BALANCE SHEETS**








ASSETS


December
                31,**2005**
            
            
            **2004**(In
                thousands, except par value)Current
                assets:Cash
                and cash equivalents
            
            $
            68,416
            
            $
            110,552Short-term
                investments
            
            
            128,795
            
            
            74,586Accounts
                receivable, net of allowances of $7,131 and $5,634,
                respectively
            
            
            51,231
            
            
            32,438Prepaid
                expenses and other current assets
            
            
            7,231
            
            
            4,817Prepaid
                income taxes
            
            
            —
            
            
            1,739Deferred
                tax assets
            
            
            6,326
            
            
            4,665Total
                current assets
            
            
            261,999
            
            
            228,797Property
                and equipment, net
            
            
            51,592
            
            
            44,783Goodwill
            
            
            28,224
            
            
            1,822Intangible
                assets, net
            
            
            16,453
            
            
            3,410Deferred
                tax assets
            
            
            2,930
            
            
            5,724Other
                non-current assets
            
            
            1,579
            
            
            1,257Total
                assets
            
            $
            362,777
            
            $
            285,793LIABILITIES
                AND STOCKHOLDERS’ EQUITYCurrent
                liabilities:Accounts
                payable
            
            $
            9,011
            
            $
            8,685Accrued
                liabilities
            
            
            24,737
            
            
            20,179Deferred
                revenue
            
            
            12,652
            
            
            9,867Income
                tax payable
            
            
            4,348
            
            
            —Total
                liabilities
            
            
            50,748
            
            
            38,731Commitments
                and contingenciesStockholders'
                equity:Preferred
                stock, $0.001 par value (5,000 shares authorized; no shares issued
                or
                outstanding)
            
            
            —
            
            
            —Common
                stock, $0.001 par value (250,000 shares authorized; 46,143 and 44,953
                shares issued and outstanding, respectively)
            
            
            46
            
            
            45Additional
                paid-in capital
            
            
            258,002
            
            
            245,807Deferred
                equity-based compensation
            
            
            —
            
            
            (15
            )Accumulated
                other comprehensive income
            
            
            2,022
            
            
            2,268Accumulated
                earnings (deficit)
            
            
            51,959
            
            
            (1,043
            )Total
                stockholders' equity
            
            
            312,029
            
            
            247,062Total
                liabilities and stockholders' equity
            
            $
            362,777
            
            $
            285,793





See
      accompanying notes to consolidated financial statements.







**WEBEX
      COMMUNICATIONS, INC.**


**CONSOLIDATED
      STATEMENTS OF INCOME**








Year
                ended December 31,**2005**
            
            
            **2004**
            
            
            **2003**(In
                thousands, except per share data)Net
                revenues
            
            $
            308,422
            
            $
            249,133
            
            $
            189,341Cost
                of revenues
            
            
            53,893
            
            
            41,854
            
            
            31,798Gross
                profit
            
            
            254,529
            
            
            207,279
            
            
            157,543Operating
                expenses:Sales
                and marketing
            
            
            102,707
            
            
            84,192
            
            
            74,249Research
                and development
            
            
            45,713
            
            
            34,342
            
            
            24,769General
                and administrative
            
            
            26,171
            
            
            18,713
            
            
            13,575Equity-based
                compensation*
            
            
            13
            
            
            571
            
            
            1,849Total
                operating expenses
            
            
            174,604
            
            
            137,818
            
            
            114,442Operating
                income
            
            
            79,925
            
            
            69,461
            
            
            43,101Interest
                and other income, net
            
            
            6,613
            
            
            308
            
            
            1,074Income
                before income taxes
            
            
            86,538
            
            
            69,769
            
            
            44,175Provision
                for income taxes (benefit)
            
            
            33,536
            
            
            21,889
            
            
            (15,627
            )Net
                income
            
            $
            53,002
            
            $
            47,880
            
            $
            59,802Net
                income per share:Basic
            
            $
            1.16
            
            $
            1.09
            
            $
            1.44Diluted
            
            $
            1.11
            
            $
            1.03
            
            $
            1.37Weighted
                average shares used to compute net income per share:Basic
            
            
            45,819
            
            
            43,817
            
            
            41,554Diluted
            
            
            47,775
            
            
            46,451
            
            
            43,619*Equity-based
                compensation:Sales
                and marketing
            
            $
            —
            
            $
            43
            
            $
            699Research
                and development
            
            
            —
            
            
            52
            
            
            245General
                and administrative
            
            
            13
            
            
            476
            
            
            905$
            13
            
            $
            571
            
            $
            1,849







See
      accompanying notes to consolidated financial statements












**WEBEX
      COMMUNICATIONS, INC.**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE
      INCOME**





**Common
                Stock****Number
                of shares**
            ****
            
            **Par
                Value**
            
            
            **Additional
                Paid -in Capital**
            
            
            **Note
                Receivable from Stockholder**
            
            
            **Deferred
                Equity Based Comp-ensation**
            
            
            **Comprehensive
                Income**
            
            
            **Accumulated
                Other Comprehensive Income**
            
            
            **Accum-**
              **ulated****(Deficit) Earnings**
            
            
            **Total
                Stockholders’****Equity**(In
                thousands, except  number of shares)**Balance
                December 31, 2002**
            
            
            41,021,899
            
            $
            41
            
            $
            197,160
            
            $
            (45
            )
            $
            (1,092
            )
            
            
            
            $
            781
            
            $
            (108,725
            )
            $
            88,120Net
                income
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            59,802
            
            
            —
            
            
            59,802
            
            
            59,802Foreign
                currency translation adjustment
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            935
            
            
            935
            
            
            —
            
            
            935Unrealized
                loss on investments, net of reclassifications for realized
                gains
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (143
            )
            
            (143
            )
            
            —
            
            
            (143
            )Comprehensive
                income
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            60,594
            
            
            —
            
            
            —
            
            
            —Repurchase
                of common shares
            
            
            (26,717
            )
            
            —
            
            
            (25
            )
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            (25
            )Forfeitures
                of stock options
            
            
            —
            
            
            —
            
            
            (364
            )
            
            —
            
            
            364
            
            
            
            
            
            —
            
            
            —
            
            
            —Issuance
                of common stock in connection with employee stock plans
            
            
            1,776,419
            
            
            2
            
            
            15,309
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            15,311Repayment
                of note
            
            
            —
            
            
            —
            
            
            —
            
            
            45
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            45Amortization
                of equity-based compensation to employees
            
            
            —
            
            
            —
            
            
            413
            
            
            —
            
            
            654
            
            
            
            
            
            —
            
            
            —
            
            
            1,067Equity-based
                compensation to non-employees
            
            
            —
            
            
            —
            
            
            782
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            782**Balance
                December 31, 2003**
            
            
            42,771,601
            
            $
            43
            
            $
            213,275
            
            $
            —
            
            $
            (74
            )
            
            
            
            $
            1,573
            
            $
            (48,923
            )
            $
            165,894Net
                income
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            47,880
            
            
            —
            
            
            47,880
            
            
            47,880Foreign
                currency translation adjustment
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            833
            
            
            833
            
            
            —
            
            
            833Unrealized
                loss on investments, net of reclassifications for realized
                gains
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (138
            )
            
            (138
            )
            
            —
            
            
            (138
            )Comprehensive
                income
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            48,575
            
            
            —
            
            
            —
            
            
            —Repurchase
                of common shares
            
            
            (308,100
            )
            
            —
            
            
            (5,826
            )
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            (5,826
            )Forfeitures
                of stock options
            
            
            —
            
            
            —
            
            
            (13
            )
            
            —
            
            
            13
            
            
            
            
            
            —
            
            
            —
            
            
            —Issuance
                of common stock in connection with employee stock plans
            
            
            2,489,303
            
            
            2
            
            
            29,250
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            29,252Stock
                option income tax benefit
            
            
            —
            
            
            —
            
            
            8,596
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            8,596Amortization
                of equity-based compensation to employees
            
            
            —
            
            
            —
            
            
            8
            
            
            —
            
            
            46
            
            
            
            
            
            —
            
            
            —
            
            
            54Equity-based
                compensation to non-employees
            
            
            —
            
            
            —
            
            
            517
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            517**Balance
                December 31, 2004**
            
            
            44,952,804
            
            $
            45
            
            $
            245,807
            
            $
            —
            
            $
            (15
            )
            
            
            
            $
            2,268
            
            $
            (1,043
            )
            $
            247,062Net
                income
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            53,002
            
            
            —
            
            
            53,002
            
            
            53,002Foreign
                currency translation adjustment
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            138
            
            
            138
            
            
            —
            
            
            138Unrealized
                loss on investments, net of reclassifications for realized
                gains
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (384
            )
            
            (384
            )
            
            —
            
            
            (384
            )Comprehensive
                income
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            52,756
            
            
            —
            
            
            —
            
            
            —Repurchase
                of common shares
            
            
            (1,458,436
            )
            
            (1
            )
            
            (34,138
            )
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            (34,139
            )Forfeitures
                of stock options
            
            
            —
            
            
            —
            
            
            (21
            )
            
            —
            
            
            21
            
            
            
            
            
            —
            
            
            —
            
            
            —Issuance
                of common stock in connection with employee stock plans
            
            
            2,648,193
            
            
            2
            
            
            35,874
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            35,876Stock
                option income tax benefit
            
            
            —
            
            
            —
            
            
            10,459
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            10,459Amortization
                of equity-based compensation to employees
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (6
            )
            
            
            
            
            —
            
            
            —
            
            
            (6
            )Equity-based
                compensation to non-employees
            
            
            —
            
            
            —
            
            
            21
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            21**Balance
                December 31, 2005**
            
            
            46,142,561
            
            $
            46
            
            $
            258,002
            
            $
            —
            
            $
            —
            
            
            
            
            $
            2,022
            
            $
            51,959
            
            $
            312,029





See
      accompanying notes to consolidated financial statements





**WEBEX
      COMMUNICATIONS, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**








Year
                ended December 31,**2005**
            
            
            **2004**
            
            
            **2003**(In
                thousands)Cash
                flows from operating activities:Net
                income
            
            $
            53,002
            
            $
            47,880
            
            $
            59,802Adjustments
                to reconcile net income to net cash provided by operating
                activities:Provisions
                for doubtful accounts and sales reserve
            
            
            14,537
            
            
            7,672
            
            
            10,690Depreciation
                and amortization
            
            
            15,989
            
            
            12,368
            
            
            11,947Loss
                from disposal of assets
            
            
            464
            
            
            —
            
            
            —Deferred
                income taxes
            
            
            583
            
            
            11,622
            
            
            (21,432
            )Tax
                benefit of stock plans
            
            
            10,459
            
            
            8,596
            
            
            —Equity-based
                compensation
            
            
            13
            
            
            571
            
            
            1,849In-process
                research and development charge
            
            
            307
            
            
            —
            
            
            —Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (32,159
            )
            
            (18,696
            )
            
            (12,639
            )Prepaid
                expenses and other current assets
            
            
            (2,303
            )
            
            (2,312
            )
            
            230Other
                non-current assets
            
            
            (36
            )
            
            437
            
            
            (92
            )Accounts
                payable
            
            
            (884
            )
            
            4,037
            
            
            (1,275
            )Accrued
                liabilities
            
            
            545
            
            
            1,226
            
            
            8,103Income
                tax payable
            
            
            5,625
            
            
            (5,510
            )
            
            1,838Deferred
                revenue
            
            
            2,152
            
            
            219
            
            
            914Other
            
            
            298
            
            
            695
            
            
            836Net
                cash provided by operating activities
            
            
            68,592
            
            
            68,805
            
            
            60,771Cash
                flows from investing activities:Purchases
                of property and equipment
            
            
            (17,691
            )
            
            (37,193
            )
            
            (9,249
            )Purchases
                of available-for-sale securities
            
            
            (119,322
            )
            
            (157,512
            )
            
            (63,461
            )Maturities
                and sales of available-for-sale securities
            
            
            64,571
            
            
            146,565
            
            
            36,178Payments
                of security deposits
            
            
            —
            
            
            —
            
            
            4Payments
                made in connection with business acquisitions, net of cash
                acquired
            
            
            (40,023
            )
            
            (4,535
            )
            
            (686
            )Net
                cash used in investing activities
            
            
            (112,465
            )
            
            (52,675
            )
            
            (37,214
            )Cash
                flows from financing activities:Net
                proceeds from issuances of common stock
            
            
            35,876
            
            
            29,252
            
            
            15,356Repurchase
                of common stock
            
            
            (34,139
            )
            
            (5,826
            )
            
            (25
            )Principal
                payments of capital lease obligations
            
            
            —
            
            
            —
            
            
            (489
            )Net
                cash provided by financing activities
            
            
            1,737
            
            
            23,426
            
            
            14,842(Decrease)
                increase in cash and cash equivalents
            
            
            (42,136
            )
            
            39,556
            
            
            38,399Cash
                and cash equivalents at beginning of the year
            
            
            110,552
            
            
            70,996
            
            
            32,597Cash
                and cash equivalents at end of the year
            
            $
            68,416
            
            $
            110,552
            
            $
            70,996Supplemental
                disclosures of non-cash investing and financing
                activities:Deferred
                equity-based compensation
            
            
            (21
            )
            
            (13
            )
            
            (364
            )Unrealized
                loss on investments
            
            
            (384
            )
            
            (138
            )
            
            (143
            )Capitalization
                of lease incentives
            
            
            2,295
            
            
            —
            
            
            —Adjustments
                recorded in conjunction with business acquisitions
            
            
            101
            
            
            433
            
            
            —Cash
                paid for:Interest
            
            
            —
            
            
            2
            
            
            12Income
                taxes
            
            
            16,358
            
            
            7,180
            
            
            4,113





See
      accompanying notes to consolidated financial statements










**WEBEX
      COMMUNICATIONS, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**







**Note
      1: Organization and Summary of Significant Accounting Policies**




***Company
      Background***




WebEx
      commenced operations under the name Silver Computing, Inc. in February 1995.
      WebEx changed its name to Stellar Computing Corporation in June 1997,
      ActiveTouch Systems, Inc. in December 1997, ActiveTouch, Inc. in May 1998,
      and
      WebEx, Inc. in December 1999. In July 2000, WebEx reincorporated in Delaware
      under the name WebEx Communications, Inc. WebEx released interactive
      communications software built on its technology in early 1998, and its business
      at that time was focused on licensing software to end-users. WebEx began
      offering WebEx Meeting Center, its first real-time, interactive multimedia
      collaboration service, in February 1999 and began selling the service to
      customers and resellers. With WebEx Meeting Center, WebEx’s business focus
      became providing customers and resellers access to its hosted services under
      subscription and other service arrangements, and WebEx discontinued licensing
      software to end-users.




WebEx
      currently develops and markets web collaboration services that allow end-users
      to conduct meetings and share software applications, documents, presentations
      and other content on the Internet using a standard web browser. Integrated
      telephony and web-based audio and video services are also available using
      standard devices such as telephones, computer web-cameras and microphones.





**  ***Basis
      of Presentation***




The
      accompanying consolidated financial statements include the accounts of WebEx
      and
      its wholly owned subsidiaries. All significant intercompany accounts and
      transactions have been eliminated in consolidation. Certain reclassifications
      have been made to the prior years’ financial statements to conform to the
      current year presentation.





***Use
      of Estimates***




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America (“U.S. GAAP”) requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities and disclosure of contingent assets and liabilities
      at
      the date of the financial statements and the reported amounts of revenue and
      expenses during the reporting period. Despite the Company’s best effort to make
      these good faith efforts and assumptions, actual results may
      differ.





***Revenue
      Recognition***




Revenue
      is derived from the sale of web collaboration services. Web collaboration
      services revenue is generated through a variety of contractual arrangements
      directly with customers and with resellers, who in turn sell the services to
      customers. The Company sells web collaboration services directly to customers
      through service subscriptions or similar agreements and pay-per-use
      arrangements. Under these arrangements, customers typically access the
      application hosted on WebEx servers using a standard web browser. Subscription
      arrangements include monthly subscriber user fees, user set-up fees and
      training. The subscription arrangements are considered service arrangements
      in
      accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-3, *Application
      of AICPA Statement of Position 97-2, Software Revenue Recognition, to
      Arrangements That Include the Right to Use Software Stored on Another Entity’s
      Hardware* ,
      and
      with multiple deliverables under EITF 00-21, *Accounting
      for Revenue Arrangements with Multiple Deliverables.* In
      addition, because the Company provides its applications as a service, the
      Company follows the provisions of Securities and Exchange Commission Staff
      Accounting Bulletin No. 104, *Revenue
      Recognition* .
      Under
      EITF 00-21, all deliverables are considered one unit of accounting. During
      the
      initial term of an agreement, the Company may provide training services,
      web-page design and set-up services. WebEx considers all such deliverables
      to be
      combined with service revenues into one unit of accounting, as individual
      delivered items do not have stand-alone value to the customer; therefore, such
      revenue is recognized ratably (i.e. straight-line) over the initial term of
      the
      contract. Committed and fixed fee subscription service revenue is also
      recognized ratably (i.e. straight-line) over the current term of the
      contract. Some minute-based subscriptions involve a quarterly, semi-annual
      or
      annual rather than monthly commitment by the customer. In these cases, all
      monthly billing is in arrears and monthly revenue is recognized based on actual
      usage during the month. If, following the last month billed, aggregate actual
      usage is less than the subscription amount, then in addition to actual usage
      for
      the final month, revenue is recognized for the remaining amount of the
      contractual commitment not previously billed. In
      addition to committed and flat-rate or subscription service revenue, WebEx
      derives revenue from pay-per-use services, usage in excess of commitments and
      other per-minute-based charges that are recognized as such services are
      provided. WebEx refers to these forms of revenue as uncommitted revenue.




The
      Company also enters into reselling arrangements with resellers, which purchase
      and resell the Company’s services on a revenue sharing, discounted or
      pay-per-use basis. Revenue under these arrangements is derived from services
      provided to end-





users
      and
      is recognized over the service period provided that evidence of the arrangement
      exists, the fee is fixed or determinable and collectibility is reasonably
      assured. Initial set up fees received in connection with these arrangements
      are
      recognized ratably (i.e. straight-line) over the initial term of the contract.
      During the initial term, the Company provides training services, web-page design
      and set-up services. Service fees are recognized as the services are provided
      for pay-per-use service arrangements and ratably (i.e. straight-line) over
      the
      service period for services provided on a subscription basis through the
      reseller. The Company’s reseller arrangements may require guaranteed minimum
      revenue commitments that are billed in advance to the reseller. Advance payments
      received from resellers are deferred until the related services are provided
      or
      until otherwise earned by WebEx. When the reseller bills the end-user, WebEx
      sells the services on a discounted basis to the reseller, which in turn marks
      up
      the price and sells the services to the end-user. In such cases, WebEx contracts
      directly with the reseller and revenue is recognized based on discounted amounts
      charged to the reseller. A significant majority of the revenue derived from
      the
      Company’s resellers comes from distribution agreements of this type. In a small
      minority of cases, WebEx bills the end-user directly. In these situations,
      a
      percentage of the proceeds generated from the sale of WebEx services are paid
      to
      the reseller. In these cases revenue is recognized based on amounts charged
      to
      the end-user, and amounts paid to the reseller are recorded as sales and
      marketing expense.




Persuasive
      evidence for each arrangement is represented by a signed contract. The fee
      is
      considered fixed or determinable if it is not subject to refund or adjustment.
      Collectibility is considered reasonably assured if WebEx expects that the
      customer will be able to pay amounts under the arrangement as they become due.
      Collectibility of guaranteed minimum revenue commitments by resellers is not
      reasonably assured; thus, revenue from guaranteed minimum commitments is
      deferred until services are provided to an end-user customer or until collected
      from the reseller and forfeited at the end of the commitment period.




Deferred
      revenue includes amounts billed to customers for which revenue has not been
      recognized and generally results from the following: (1) unearned portion of
      monthly billed subscription service fees; (2) unearned portion of annual or
      other period billed subscription service fees; (3) deferred set-up fees;
      and (4) advances received from resellers under revenue sharing arrangements.
      As
      of December 31, 2005 and December 31, 2004, accounts receivable includes
      receivables of $6.4 million and $2.6 million respectively, for unbilled
      per-minute-based charges that occurred during the final month of the respective
      quarter.





***Advertising
      Costs***




Advertising
      costs are expensed as incurred. WebEx’s advertising and promotion expense was
      $18.6 million, $13.6 million, and $14.0 million for the years ended December
      31,
      2005, 2004 and 2003, respectively.





***Income
      Taxes***




Income
      taxes are accounted for under the asset and liability method. Deferred tax
      assets and liabilities are recognized for the future tax consequences
      attributable to operating loss and tax credit carryforwards and differences
      between the financial statement carrying amounts of existing assets and
      liabilities and their respective tax bases. Deferred tax assets and liabilities
      are measured using enacted tax rates expected to apply to taxable income in
      the
      years in which those temporary differences are expected to be recovered or
      settled. The effect on deferred tax assets and liabilities of a change in tax
      rates is recognized in income in the period that includes the enactment date.
      A
      valuation allowance is recorded against deferred tax assets if it is more likely
      than not that all or a portion of the deferred tax assets will not be realized.





***Cash
      Equivalents, Short-term Investments and Other
      Investments***




Cash
      equivalents consist of highly liquid investments with remaining maturities
      of
      less than three months at date of purchase. Highly liquid investments with
      maturities greater than three months are classified as short-term investments.
      The Company’s debt and marketable equity securities have been classified and
      accounted for as available-for-sale. Management determines the appropriate
      classification of its investments in debt and marketable equity securities
      at
      the time of purchase and reevaluates available-for-sale designation as of each
      balance sheet date. These securities are carried at fair value, with the
      unrealized gains and losses, net of taxes, reported as a component of
      shareholders’ equity. The cost of securities sold is based upon the specific
      identification method.





Investments
      in nonpublic companies are carried at cost. WebEx monitors these investments
      for
      impairment and records appropriate reductions in carrying values when there
      are
      identified events or changes in circumstances that may have a significant
      adverse effect on the fair value of the investment. The Company’s investment
      holdings in nonpublic companies are not material to the consolidated balance
      sheets.





***Sales
      Reserve and Allowance for Doubtful Accounts***




WebEx
      records an estimate of sales reserve for losses on receivables resulting from
      customer credits, cancellations or terminations as a reduction in revenue at
      the
      time of sale. The sales reserve is estimated based primarily on an analysis
      of
      the





historical
      rate of credits, cancellations or terminations. The accuracy of the estimate
      is
      dependent on the rate of future credits, cancellations or terminations being
      consistent with the historical rate .




WebEx
      records an allowance for doubtful accounts to provide for losses on receivables
      due to customer credit risk. Increases to the allowance for doubtful accounts
      are charged to general and administrative expense as bad debt expense. Losses
      on
      accounts receivable resulting from customers’ financial distress or failure are
      charged to the allowance for doubtful accounts. The allowance is estimated
      based
      primarily on an analysis of the historical rate of credit losses. The accuracy
      of the estimate is dependent on the future rate of credit losses being
      consistent with the historical rate .





***Property
      and Equipment***




Property
      and equipment are recorded at cost less accumulated depreciation and
      amortization. Depreciation is calculated using the straight-line method over
      the
      estimated useful lives of the respective assets. Leasehold improvements are
      amortized over the shorter of the estimated useful lives of the improvements
      or
      the remaining lease term. Land is not depreciated. Depreciation and amortization
      are based on the following useful lives:





**Useful
                Life****(In
                years)**Computer
                equipment and purchased software
            3Building
            10Office
                furniture and fixtures
            3Leasehold
                improvements
            3-10





***Restricted
      Cash***




With
      the
      acquisition of Intranets.com, Inc. (“Intranets”) in September 2005, WebEx
      assumed a lease obligation for office space in Burlington, Massachusetts. The
      lease requires a letter of credit of $260,000, which is collateralized by cash
      on deposit at a commercial bank. The cash on deposit and related interest is
      treated as restricted cash and included in other non-current assets in the
      consolidated balance sheet as of December
      31, 2005. During 2004, WebEx had $204,000 of restricted cash pledged to support
      a letter of credit provided as a security deposit on one of WebEx’s leased
      facilities. The deposit was required for the full term of the lease, which
      expired in 2004, and the related restricted cash has been released.





***Goodwill***





WebEx
      evaluates goodwill, at a minimum, on an annual basis and whenever events and
      changes in circumstances suggest that the carrying amount may not be
      recoverable. Impairment of goodwill is tested at the reporting unit level by
      comparing the reporting unit’s carrying amount, including goodwill, to the fair
      value of the reporting unit. The fair value of the reporting unit is estimated
      using a combination of the income or discounted cash flow approach and the
      market approach. If the carrying amount of the reporting unit exceeds its fair
      value, goodwill is considered impaired and a second step is performed to measure
      the amount of impairment loss, if any. The Company performs its impairment
      review at the entity level as it has only one operating segment, which is its
      sole reporting unit. The Company conducted its annual impairment test during
      the
      fourth quarter of 2005 and 2004 and determined there to be no impairment.





***Software
      Development Costs*** ******




Development
      costs incurred in the research and development of new software products are
      expensed as incurred until technological feasibility of the product has been
      established. Software development costs incurred after technological feasibility
      has been established are capitalized up to the time the product is available
      for
      general release to customers. At December 31, 2005 and 2004, costs qualifying
      for capitalization have been insignificant as WebEx’s current development
      process is essentially completely concurrent with the establishment of
      technological feasibility.





WebEx
      also capitalizes certain internal and external costs incurred to acquire and
      create internal use software in accordance with AICPA Statement of Position
      98-1, *Accounting
      for the Costs of Computer Software Developed or Obtained for Internal
      Use* .
      Capitalized software is included in property and equipment and is depreciated
      over the life of the project when development is complete.




***Impairment
      of Long-Lived Assets*** ******




WebEx
      evaluates its long-lived assets and certain identifiable intangibles for
      impairment whenever events or changes in circumstances indicate that the
      carrying amount of an asset may not be recoverable. Recoverability of assets
      to
      be held and used is measured by a comparison of the carrying amount of an asset
      to future undiscounted net cash flows expected to be generated by





the
      asset
      and its eventual disposition. If the carrying value exceeds the cash flows,
      such
      assets are considered to be impaired, and the impairment loss to be recognized
      is measured by the amount by which the carrying amount of the assets exceeds
      the
      fair value of the assets. Assets held for sale are reported at the lower of
      the
      carrying amount of the assets or fair value less costs to sell.





***Equity-Based
      Compensation***




The
      Company accounts for stock awards to employees and directors in accordance
      with
      the intrinsic value method of Accounting Principles Board Opinion No. 25 (APB
      25), *Accounting
      for Stock Issued to Employees,* and
      related interpretations. Under this method, compensation expense for fixed
      plan
      stock options is recorded on the date of the grant only if the current fair
      value of the underlying stock exceeds the exercise price. Deferred equity-based
      compensation is amortized over the vesting period using the method described
      in
      FASB Interpretation No. 28 (FIN 28), *Accounting
      for Stock Appreciation Rights and Other Variable Stock Option or Award
      Plans* .





The
      Company accounts for stock awards to parties other than employees and directors
      in accordance with the provisions of SFAS 123, *Accounting
      for Stock-Based Compensation* ,
      and
      EITF Issue No. 96-18, *Accounting
      for Equity Instruments That are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction with Selling, Goods or Services.* The
      equity-based compensation expense for options granted to non-employees is
      re-measured for changes in the fair value of the underlying shares until the
      underlying shares vest .





The
      fair
      value of each option granted during periods subsequent to the effective date
      of
      the Company's registration statement on Form S-1 with the Securities and
      Exchange Commission on July 27, 2000 and the fair value of employee stock
      purchase rights granted under the 2000 Employee Stock Purchase Plan was
      estimated on the date of grant using the Black-Scholes option-pricing model.
      The
      assumptions used to value the option grants and purchase rights for the years
      ended December 31, 2005, 2004 and 2003 were as follows:





Stock
                options
            **Employee
                stock purchase plan****2005**
            
            
            **2004**
            
            
            **2003**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**Weighted
                average fair value of grants
            
            $
            12.70
            
            $
            13.15
            
            $
            9.39
            
            $
            5.50
            
            $
            5.75
            
            $
            4.81Expected
                life (in years)
            
            
            4.1
            
            
            3.5
            
            
            3.5
            
            
            0.5-2.0
            
            
            0.5-2.0
            
            
            0.5-2.0Volatility
            
            
            66
            %
            
            86
            %
            
            99
            %
            
            32
            %
            
            86
            %
            
            99
            %Risk-free
                interest rate
            
            
            4.13
            %
            
            3.21
            %
            
            2.37
            %
            
            3.76
            %
            
            1.47
            %
            
            1.14
            %Dividend
                yield
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —





In
      light
      of new accounting guidance under SFAS 123R, beginning in the fourth quarter
      of
      2005, WebEx reevaluated its assumptions used in estimating the fair value of
      employee options granted. Based on this assessment, management determined that
      a
      combination of implied volatility and historical volatility is a better
      indicator of expected volatility than historical volatility alone. In
      addition, WebEx modified its assumption of the expected life of stock options
      granted during the fourth quarter of 2005 to 4.9 years based on further analysis
      performed. The Company believes that these refinements will generate more
      representative estimates of fair value.





Had
      all
      awards been accounted for under the fair value method of SFAS 123, reported
      net
      income would have been adjusted to the pro-forma net income amounts appearing
      below:





Year
                ended December 31,**2005**
            
            
            **2004**
            
            
            **2003**(In
                thousands, except per share data)Net
                income as reported
            
            $
            53,002
            
            $
            47,880
            
            $
            59,802Add:
                Equity-based employee compensation expense included in determination
                of
                net income, net of tax
            
            
            (4
            )
            
            (1,937
            )
            
            1,067Deduct:
                Equity-based employee compensation expense determined under the fair-value
                based method, net of tax
            
            
            (19,783
            )
            
            (20,539
            )
            
            (30,298
            )Pro-forma
                net income
            
            $
            33,215
            
            $
            25,404
            
            $
            30,571Net
                income per share:
              Basic:
              As
                reported
            
            $
            1.16
            
            $
            1.09
            
            $
            1.44








Pro
                forma
            
            $
            0.72
            
            $
            0.58
            
            $
            0.74Diluted:
              As
                reported
            
            $
            1.11
            
            $
            1.03
            
            $
            1.37Pro
                forma
            
            $
            0.70
            
            $
            0.55
            
            $
            0.70








***Financial
      Instruments and Concentrations of Credit Risk***




The
      carrying values of WebEx’s financial instruments, including cash equivalents,
      accounts receivable and accounts payable, approximate fair value due to the
      short-term nature of these instruments. Financial instruments that subject
      WebEx
      to concentration of credit risk consist primarily of cash, cash equivalents,
      short-term investments and trade accounts receivable. WebEx is exposed to credit
      risk related to cash, cash equivalents, and short-term investments in amounts
      greater than the federally insured limits in the event of default by the
      financial institutions or the issuers of these investments. WebEx performs
      ongoing credit evaluations of its customers’ financial condition, and generally
      requires no collateral from its customers. The Company maintains an allowance
      for doubtful accounts based on the expected collectibility of all accounts
      receivable, which are concentrated in the United States.





***Foreign
      Currency Translation***




The
      functional currency of WebEx’s foreign subsidiaries is the local currency of the
      country in which the respective subsidiary operates. Assets
      and liabilities recorded in foreign currencies are translated at year-end
      exchange rates; revenues and expenses are translated at average exchange rates
      during the year. The effects of foreign currency translation adjustments are
      included in stockholders’ equity as a component of “Accumulated other
      comprehensive income” in the accompanying consolidated balance sheets. The
      effects of foreign currency transactions are included in “Interest and other
      income, net” in the determination of net income. In 2005 gains from foreign
      currency transactions were $911,000. In 2004 and 2003, losses from foreign
      currency transactions totaled $1.9 million and $300,000,
      respectively.





***Litigation***




In
      accordance with SFAS No. 5, *Accounting
      for Contingencies* ,
      the
      Company records a provision for a liability when management believes that it
      is
      both probable that a liability has been incurred and WebEx can reasonably
      estimate the amount of the loss. The Company reviews any provisions at least
      quarterly and adjusts these provisions to reflect the impact of negotiations,
      settlements, rulings, advice of legal counsel and other information and events
      pertaining to a particular case. The Company believes it has adequate provisions
      for any such matters.





On
      September 27, 2005, WebEx sued Raindance Communications, Inc., a competitor,
      for
      patent infringement. The complaint was filed in the U.S. District Court for
      the
      Northern District of California. There are no other parties to the action.
      In
      the action, the Company alleges that Raindance has infringed, and is continuing
      to infringe, nine of WebEx's U.S. patents. The Company is seeking
      both
      monetary damages from Raindance and an injunction against Raindance enjoining
      further acts WebEx claims to be infringing the Company's
      patents.





On
      October 14, 2005, Raindance filed a complaint against WebEx for patent
      infringement. The complaint was filed in the U.S. District Court for the Eastern
      District of Texas. There are no other parties to the action. In the action,
      Raindance alleges that the Company has infringed, and is continuing
      to
      infringe, two of Raindance's patents. Raindance is seeking both monetary damages
      from WebEx and an injunction against the Company enjoining further acts
      Raindance claims to be infringing its patents.





***Recent
      Accounting Pronouncements***





In
      December 2004, the FASB issued SFAS 123R, *Share-Based
      Payments* ,
      which
      requires the measurement of all share-based payments to employees, including
      grants of employee stock options, using a fair value based method and the
      recording of such expense in the Company’s consolidated income statement. The
      accounting provisions of SFAS 123R are effective for fiscal years beginning
      after June 15, 2005. The Company is required to adopt SFAS 123R in the first
      quarter of 2006. The pro forma disclosures previously permitted under SFAS
      123
      will no longer be an alternative to financial statement recognition. WebEx
      will
      apply the Black-Scholes valuation model in determining the fair value of
      share-based payments to employees, which will then be amortized on a
      straight-line basis over the requisite service period. WebEx will apply the
      modified prospective approach, which requires that compensation expense be
      recorded for all unvested stock options upon adoption of SFAS 123R. The Company
      expects the adoption of this statement will have a material impact on its
      consolidated results of operations in 2006.





In
      May
      2005, the FASB issued SFAS 154, *Accounting
      Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB
      Statement No. 3* .
      SFAS
      154 changes the requirements for the accounting for and reporting of a change
      in





accounting
      principle, and applies to all voluntary changes in accounting principles. It
      also applies to changes required by an accounting pronouncement in the unusual
      instance that the pronouncement does not include specific transition provisions.
      This statement requires retrospective application to prior periods’ financial
      statements of changes in accounting principles, unless it is impracticable
      to
      determine either the period-specific effects or the cumulative effect of the
      change. SFAS 154 is effective for accounting changes made in fiscal years
      beginning after December 15, 2005. The Company does not expect that adoption
      of
      this statement will have a material impact on its consolidated results of
      operations or financial condition.





**Note
      2: Net Income per Share**




Basic
      net
      income per share is calculated using net income and the weighted-average number
      of shares outstanding during the reporting period excluding
      restricted common shares subject to repurchase. Diluted
      net income per share includes the effect from potential issuance of common
      stock, such as common stock issuable pursuant to the exercise of stock options.




The
      reconciliation of the numerators and denominators of the basic and diluted
      net
      income per share calculations was as follows for the following years ended
      December 31:





**2005**
            
            
            **2004**
            
            
            **2003**(In
                thousands, except per share data)Numerator:Net
                income
            
            $
            53,002
            
            $
            47,880
            
            $
            59,802Denominator:Weighted
                average shares used to compute basic net income per share
            
            
            45,819
            
            
            43,817
            
            
            41,554Effect
                of dilutive securities:Restricted
                common shares subject to repurchase
            
            
            —
            
            
            —
            
            
            27Dilutive
                potential common shares
            
            
            1,956
            
            
            2,634
            
            
            2,038Weighted
                average shares used to compute diluted net income per
                share
            
            
            47,775
            
            
            46,451
            
            
            43,619Net
                income per share:
              Basic
            
            $
            1.16
            
            $
            1.09
            
            $
            1.44Diluted
            
            $
            1.11
            
            $
            1.03
            
            $
            1.37




The
      following potential common shares have been excluded from the computation of
      diluted net income per share for the years ended December 31, 2005, 2004 and
      2003 because their inclusion would have been anti-dilutive:




**2005**
            **2004**
            **2003****(In
                thousands, except price range)**Outstanding
                common stock options
            2,390
            2,479
            6,721Price
                range
            $24.22-$55.38
            $23.25-$55.38
            $15.44-$55.38




Stock
      options are antidilutive when the exercise price of the options is greater
      than
      the average market price of the common shares for the period.





**Note 3:**  **Financial
      Statement Details**





***Property
      and Equipment***


December
                31,**2005**
            
            
            **2004**(In
                thousands)Land
            
            $
            9,732
            
            $
            9,732Building
            
            
            6,200
            
            
            6,200Computer
                equipment and purchased software
            
            
            75,346
            
            
            65,656Office
                furniture and fixtures
            
            
            3,664
            
            
            1,040Leasehold
                improvements
            
            
            15,836
            
            
            10,624110,778
            
            
            93,252Less
                accumulated depreciation and amortization
            
            
            (59,186
            )
            
            (48,469
            )








Property
                and equipment, net
            
            $
            51,592
            
            $
            44,783





Depreciation
      expense for the years ended December 31, 2005, 2004 and 2003 was $14.5 million,
      $11.9 million and $11.8 million, respectively.




***Accrued
      Liabilities***


December
                31,**2005**
            
            
            **2004**(In
                thousands)Accrued
                compensation and benefits
            
            $
            11,111
            
            $
            9,212Accrued
                rent
            
            
            5,851
            
            
            1,230Accrued
                employee stock purchase plan
            
            
            1,215
            
            
            1,174Other
            
            
            6,560
            
            
            8,563Total
                accrued liabilities
            
            $
            24,737
            
            $
            20,179





***Interest
      and Other Income, Net***





Year
                ended December 31,**2005**
            
            
            **2004**
            
            
            **2003**(In
                thousands)





Interest
                income
            
            $
            5,730
            
            $
            2,278
            
            $
            1,849Interest
                expense
            
            
            (28
            )
            
            (14
            )
            
            (12
            )Other
                expense, net
            
            
            911
            
            
            (1,956
            )
            
            (763
            )Interest
                and
                other income, net
            
            $
            6,613
            
            $
            308
            
            $
            1,074




**Note
      4: Acquisitions**





WebEx
      has
      recorded acquisitions using the purchase method of accounting and, accordingly,
      included the results of operations in WebEx’s consolidated results as of the
      date of each acquisition. WebEx allocates the purchase price of its acquisitions
      to the tangible assets, liabilities and intangible assets acquired, including
      in-process research and development (“IPR&D”), based on their estimated fair
      values. The excess purchase price over those fair values is recorded as
      goodwill. The fair value assigned to assets acquired is based on valuations
      using management’s estimates and assumptions.





***Intranets.com,
      Inc.***





On
      September 9, 2005, WebEx acquired all of the outstanding stock of Intranets
      of
      Burlington, Massachusetts. This acquisition is intended to expand WebEx’s
      offerings into the small to medium business market as well as enhance cross
      selling of Intranets asynchronous services into the WebEx marketplace. The
      purchase consideration was approximately $42.7 million, paid in cash, and
      includes direct transaction costs. The preliminary purchase consideration was
      allocated as follows:




Amount
            
            
            **Estimated
                life**(In
                thousands)
            
            
            **(In
                years)**Net
                tangible assets acquired
            
            $
            2,173
            
            
            N/ADeferred
                tax liability, net
            
            
            (550
            )
            
            N/AGoodwill
            
            
            26,301
            
            
            N/AIn-process
                research and development charge
            
            
            307
            
            
            N/ACustomer
                relationships
            
            
            4,452
            
            
            5Developed
                technology
            
            
            8,807
            
            
            5Trade
                names
            
            
            1,201
            
            
            5$
            42,691





WebEx
      recognized a charge for in-process research and development of $307,000, which
      is included in the purchase price. This charge was expensed in the third quarter
      of 2005 and included in research and development expense in the consolidated
      statements of income. The project related to an email offering had not yet
      reached technological feasibility and had no alternative





future
      use because of the platform in which it was based. The estimated fair value
      of
      this project was determined based on the income approach, where the fair value
      of the subject asset is equal to the present value of the operating income
      associated with assets adjusted for returns on capital assets employed in
      production of the operating income, discounted to present value at a
      risk-adjusted discount rate appropriate for each asset.





Additional
      payments of approximately $2.7 million are to be paid after one year, subject
      to
      continued employment of certain senior managers of Intranets and to the extent
      paid will be expensed ratably over the one-year period as additional
      compensation expense. This amount therefore is not included in the total
      purchase price. Pro-forma financial information for this acquisition is not
      presented because the results of operations of Intranets are not material to
      the
      results of operations of WebEx prior to the date of acquisition. The results
      of
      Intranets are included in the consolidated financial statements of WebEx
      prospectively from the closing date of the transaction. Certain adjustments
      to
      goodwill may be made to the purchase consideration in the future to adjust
      original estimates to actual costs incurred. During the fourth quarter of 2005,
      WebEx adjusted estimated costs related to the acquisition of Intranets to actual
      costs incurred and adjusted goodwill by $361,000 to reflect the actual costs
      incurred related to the transaction.





***CyberBazaar***





In
      April
      2004, WebEx acquired CyberBazaar of Bangalore, India, an audio conferencing
      company, in order to directly pursue the web conferencing market in India.
      WebEx
      renamed the CyberBazaar entity WebEx Communications India Pvt. Ltd. WebEx
      Communications India will endeavor to maintain the CyberBazaar offices,
      management team and employees. The total purchase price for net assets acquired
      was $2.7 million, paid in cash, and was allocated as follows:







Amount
            
            
            Estimated
                life(In
                thousands)
            
            
            (In
                years)Net
                tangible assets acquired
            
            $
            885
            
            
            N/ADeferred
                tax liability, net
            
            
            (391
            )
            
            N/AGoodwill
            
            
            1,389
            
            
            N/ACustomer
                contracts
            
            
            70
            
            
            1Customer
                relationships
            
            
            450
            
            
            5Developed
                technology
            
            
            100
            
            
            3Trade
                name
            
            
            160
            
            
            3$
            2,663





Subsequent
      to the acquisition of CyberBazaar, certain pre-acquisition tax contingencies
      of
      $462,000 and $433,000 were recorded in the second quarter of 2005 and fourth
      quarter of 2004, respectively, as they were determined to be both probable
      and
      estimable. Accordingly, in the second quarter of 2005 and fourth quarter of
      2004, an income tax liability was recorded and goodwill related to the
      CyberBazaar acquisition was increased.





The
      results of CyberBazaar are included in the consolidated financial statements
      of
      WebEx subsequent to April 30, 2004, the effective date of the acquisition.
      Additional payments of $1.4 million were accrued in 2004 and paid in 2005 based
      on the performance of CyberBazaar in 2004. The additional payments were tied
      to
      continued employment by the former owners of CyberBazaar and accordingly were
      expensed as compensation. The compensation agreement with the former owners
      of
      CyberBazaar continues through December 31, 2006. Pro-forma financial information
      for this acquisition is not presented because the results of operations of
      CyberBazaar were not material to the results of operations of WebEx prior to
      the
      date of acquisition.





***NCR
      Patents***





In
      September 2004, WebEx entered into an agreement with NCR Corporation, a
      technology company, which included the acquisition from NCR of certain
      intangible assets and a release from any past liability associated with those
      assets. The terms of the agreement included WebEx acquiring five of NCR patents
      issued in the U.S. together with the foreign counterparts of those patents,
      obtaining licenses to certain other NCR patents for the life of those patents,
      and mutually agreeing with NCR not to commence legal actions against each other
      on other patents in the companies’ respective portfolios for a period of three
      years. The acquired patents were filed between 1993 and 1997. The amount paid
      in
      cash by WebEx under the agreement which was allocated to the acquired intangible
      assets was $2.6 million and was allocated based on the relative fair value
      as
      follows:





Amount
            
            **Estimated
                life**(In
                thousands)
            
            **(In
                years)**










Patents
                purchased and licensed
            
            $
            2,441
            
            
            10Covenants
                not to sue
            
            
            150
            
            
            3$
            2,591





The
      remainder of the consideration under the agreement consisted of $309,000, which
      was allocated to the fair value of releases from any liability that might have
      accrued prior to the effective date of the agreement and which was charged
      to
      cost of revenues in the three months ended September 30, 2004.





***Presenter,
      Inc.***





In
      June
      2003, WebEx completed the acquisition of the net assets of Presenter, Inc.,
      a
      provider of software for authorizing, managing and delivering multimedia web
      presentations. The acquisition of the assets of Presenter, Inc. was intended
      to
      enable WebEx to enhance the features of its services. The total purchase price
      for assets acquired was $686,000 and was allocated as follows:





Amount
            
            
            **Estimated
                life**(In
                thousands)
            
            
            **(In
                years)**Net
                tangible assets acquired
            
            $
            117
            
            
            N/APatents
            
            
            235
            
            
            5Customer
                relationships
            
            
            84
            
            
            3Developed
                technology
            
            
            214
            
            
            3Backlog
            
            
            36
            
            
            0.5$
            686





**Note
      5:**  **Cash
      Equivalents and Short-term Investments**





The
      following is a summary of available-for-sale investments as of December 31,
      2005
      and 2004:





**2005**
            **2004**Cost
            
            
            **Gross
                Unrealized Gains**
            
            
            **Gross
                Unrealized Losses**
            
            
            **Estimated
                Fair Value**
            
            
            **Cost**
            
            
            **Gross
                Unrealized Gains**
            
            
            **Gross
                Unrealized Losses**
            
            
            **Estimated
                Fair Value**Available-for-Sale
                Securities:
            
            **(In
                thousands)**Corporate
                notes and bonds
            
            $
            83,244
            
            $
            2
            
            $
            (405
            )
            $
            82,841
            
            $
            34,091
            
            $
            37
            
            $
            (98
            )
            $
            34,030Government
                agencies
            
            
            96,641
            
            
            —
            
            
            (371
            )
            
            96,270
            
            
            57,500
            
            
            3
            
            
            (18
            )
            
            57,485Money
                market funds
            
            
            1,537
            
            
            —
            
            
            —
            
            
            1,537
            
            
            76,241
            
            
            —
            
            
            —
            
            
            76,241Total
            
            $
            181,422
            
            $
            2
            
            $
            (776
            )
            $
            180,648
            
            $
            167,832
            
            $
            40
            
            $
            (116
            )
            $
            167,756Reported
                as:Cash
                and cash equivalents
            
            
            
            
            
            
            
            
            
            
            $
            51,853
            
            
            
            
            
            
            
            
            
            
            $
            93,170Short-term
                investments
            
            
            
            
            
            
            
            
            
            
            
            128,795
            
            
            
            
            
            
            
            
            
            
            
            74,586Total
            
            
            
            
            
            
            
            
            
            
            $
            180,648
            
            
            
            
            
            
            
            
            
            
            $
            167,756





The
      following tables provide the breakdown of investments segregated by those
      investments that have been in a continuous unrealized loss position for less
      than twelve months and those that have been in a continuous unrealized loss
      position for twelve months or longer at December 31, 2005 and December 31,
      2004:





Less
                than 12 months
            **12
                Months or Greater**
            **Total**Fair
                Value
            
            
            **Gross
                Unrealized Losses**
            
            
            **Fair
                Value**
            
            
            **Gross
                Unrealized Losses**
            
            
            **Fair
                Value**
            
            
            **Gross
                Unrealized Losses****December
                31,
                2005**
            
            **(In
                thousands)**Corporate
                notes and bonds
            
            $
            76,205
            
            $
            (401
            )
            $
            2,733
            
            $
            (4
            )
            $
            78,938
            
            $
            (405
            )Government
                agencies
            
            
            34,077
            
            
            (269
            )
            
            11,878
            
            
            (102
            )
            
            45,955
            
            
            (371
            )Total
            
            $
            110,282
            
            $
            (670
            )
            $
            14,611
            
            $
            (106
            )
            $
            124,893
            
            $
            (776
            )





Less
                than 12 Months
            **12
                Months or Greater**
            **Total**Fair
                Value
            
            
            **Gross
                Unrealized Losses**
            
            
            **Fair
                Value**
            
            
            **Gross
                Unrealized Losses**
            
            
            **Fair
                Value**
            
            
            **Gross
                Unrealized Losses****December
                31, 2004**
            
            **(In
                thousands)**Corporate
                notes and bonds
            
            $
            28,036
            
            $
            (98
            )
            $
            —
            
            $
            —
            
            $
            28,036
            
            $
            (98
            )Government
                agencies
            
            
            3,482
            
            
            (18
            )
            
            —
            
            
            —
            
            
            3,482
            
            
            (18
            )Total
            
            $
            31,518
            
            $
            (116
            )
            $
            —
            
            $
            —
            
            $
            31,518
            
            $
            (116
            )





The
      gross
      unrealized losses related to fixed income securities in 2005 were due to changes
      in interest rates. The Company’s management determined that the gross unrealized
      losses on its investment securities at December 31, 2005 are temporary in
      nature. The Company reviews its investments to identify and evaluate investments
      that have indications of possible impairment. Factors considered in determining
      whether a loss is temporary include the length of time and extent to which
      fair
      value has been less than the cost basis, the financial condition and near-term
      prospects of the investee, and the Company’s intent and ability to hold the
      investment for a period of time sufficient to allow for any anticipated recovery
      in market value. Substantially all of the Company’s fixed income securities are
      rated investment grade or better.





The
      fair
      value of the Company’s investment in available-for-sale securities, by
      contractual maturity, was as follows:




**2005**
            
            
            **2004**(In
                thousands)Due
                in less than one year
            
            $
            88,150
            
            $
            127,206Due
                in 1-5 years
            
            
            92,498
            
            
            40,550Total
            
            $
            180,648
            
            $
            167,756





Realized
      gains and losses from sales of available securities were not material in 2005,
      2004 and 2003 .








**Note
      6: Sales Reserve and Allowance for Doubtful Accounts**





The
      following presents the detail of the changes in the sales reserve and allowance
      for doubtful accounts for the years ended December 31, 2005, 2004 and
      2003:





Year
                ended December 31,**2005**
            
            
            **2004**
            
            
            **2003**(In
                thousands)Sales
                reserve:Beginning
                balance
            
            $
            4,631
            
            $
            4,571
            
            $
            3,948Amounts
                deducted from revenue
            
            
            13,638
            
            
            8,273
            
            
            9,840Amounts
                written off
            
            
            (12,192
            )
            
            (8,213
            )
            
            (9,217
            )Ending
                balance
            
            $
            6,077
            
            $
            4,631
            
            $
            4,571Allowance
                for doubtful accounts:Beginning
                balance
            
            $
            1,003
            
            $
            2,266
            
            $
            3,384Amounts
                charged (credited) to bad debt expense
            
            
            899
            
            
            (601
            )
            
            850Amounts
                written off
            
            
            (848
            )
            
            (662
            )
            
            (1,968
            )Ending
                balance
            
            $
            1,054
            
            $
            1,003
            
            $
            2,266Total
                sales reserve and allowance for doubtful accounts:Beginning
                balance
            
            $
            5,634
            
            $
            6,837
            
            $
            7,332Amounts
                deducted from revenue / charged (credited) to bad debt
                expense
            
            
            14,537
            
            
            7,672
            
            
            10,690Amounts
                written off
            
            
            (13,040
            )
            
            (8,875
            )
            
            (11,185
            )Ending
                balance
            
            $
            7,131
            
            $
            5,634
            
            $
            6,837





WebEx
      assesses the adequacy of the sales reserve account balance and the allowance
      for
      doubtful accounts account balance based primarily on historical experience.
      Any
      adjustments to these accounts are reflected in the income statement for the
      current period, as an adjustment to revenue in the case of the sales reserve
      and
      as a general and administrative expense in the case of the allowance for
      doubtful accounts.





**Note
      7: Goodwill and Intangibles, Net**





***Goodwill***
            
            
            **Amount**(In
                thousands)Balance,
                December 31, 2003
            
            $
            —Goodwill
                acquired during the period
            
            
            1,389Goodwill
                adjustment related to CyberBazaar acquisition
            
            
            433Balance,
                December 31, 2004
            
            
            1,822Goodwill
                acquired during the period
            
            
            26,301Goodwill
                adjustments
            
            
            101Balance,
                December 31, 2005
            
            $
            28,224





During
      the third quarter of 2005, WebEx acquired Intranets, which resulted in the
      Company recording $26.3 million of goodwill. During the second quarter of 2004,
      WebEx acquired CyberBazaar , which resulted in the Company recording $1.4
      million of goodwill. See note 4 for further details. WebEx does not expect
      goodwill recorded on these transactions to be deductible for tax purposes.





The
      goodwill adjustments during 2005 shown in the table above relate to
      pre-acquisition tax contingencies of $462,000 related to the acquisition of
      CyberBazaar, offset in part by adjustments of estimated costs to actual costs
      related to the acquisition of Intranets. The goodwill adjustments in 2004 shown
      in the table above also relate to pre-acquisition tax contingencies of $433,000
      related to CyberBazaar. The tax contingencies recorded in 2005 and 2004 were
      recorded in the second quarter of 2005 and fourth quarter of 2004, as they
      were
      determined to be both probable and estimable and are
      now
      reserved in the full amount of the asserted and unasserted claims.





In
      accordance with SFAS No. 142, the Company does not amortize goodwill but
      evaluates it at least on an annual basis for impairment. The Company completed
      annual goodwill impairment tests during the fourth quarter of 2005 and 2004
      and
      determined that the carrying amount of goodwill was not impaired. However,
      future goodwill impairment tests could result in a charge to earnings. WebEx
      will continue to evaluate goodwill on an annual basis during the fourth quarter
      and whenever changes in circumstances indicate there may be a potential
      impairment.




***Purchased
      Intangible Assets***





Intangible
      assets, net as of December 31, 2005 and December 31, 2004 consisted of the
      following:





December
                31, 2005
            **December
                31, 2004**Gross
            
            
            **Accumulated**
              **Amortization**
            
            
            **Net**
            
            
            **Gross**
            
            
            **Accumulated**
              **Amortization**
            
            
            **Net**(In
                thousands)Developed
                technology
            
            $
            9,120
            
            $
            (780
            )
            $
            8,340
            
            $
            312
            
            $
            (143
            )
            $
            169Intellectual
                property rights
            
            
            4,326
            
            
            (1,987
            )
            
            2,339
            
            
            4,326
            
            
            (1,644
            )
            
            2,682Trade
                names and domain names
            
            
            1,556
            
            
            (271
            )
            
            1,285
            
            
            318
            
            
            (149
            )
            
            169Customer
                contracts and relationships
            
            
            5,123
            
            
            (634
            )
            
            4,489
            
            
            672
            
            
            (282
            )
            
            390Total
                purchased intangible assets
            
            $
            20,125
            
            $
            (3,672
            )
            $
            16,453
            
            $
            5,628
            
            $
            (2,218
            )
            $
            3,410





Amortization
      expense for the years ended December 31, 2005, 2004 and 2003 was $1.5 million,
      $501,000 and $157,000, respectively. Amortization is recorded using the
      straight-line method over the estimated useful lives of these assets, which
      ranges from 3-10 years.





Future
      amortization expense of existing intangibles will be as follows:





**Year:**
            
            
            **Amortization**
              **Expense**(In
              thousands)2006
            
            $
            3,4792007
            
            
            3,3592008
            
            
            3,269





2009
            
            
            3,1742010
            
            
            2,240Thereafter
            
            
            932Total
            
            $
            16,453







**Note
      8:**  **Stockholders’
      Equity**




***Stock
      Plans***




The
      Company has granted stock options to employees, directors and consultants under
      the 1998 Stock Option Plan and the 2000 Stock Incentive Plan. Under the 1998
      Stock Option Plan and the 2000 Stock Incentive Plan, the Company has authorized
      a total of 26,936,769 shares available for grant. Incentive stock options and
      non-qualified stock options granted to employees under these plans generally
      expire after 10 years or earlier in the case of termination or death. Vesting
      terms under these plans are generally over four years, and include certain
      grants vesting based on 2.08% per month and certain grants vesting based on
      a
      one year cliff for 25% of the shares and 2.08% monthly thereafter. As of
      December 31, 2005, there were a total of 1,368,043 shares available for issuance
      under the 2000 Stock Incentive Plan and no shares under the 1998 Stock Option
      Plan.




WebEx
      also administers the 2000 Employee Stock Purchase Plan, which along with the
      2000 Stock Incentive Plan was approved by the stockholders on June 17, 2000.
      A
      total of 3,137,398 shares of common stock have been reserved for issuance under
      this plan. This plan allows eligible employees to purchase common stock at
      85%
      of the lower of the fair value of common stock on either the first day or last
      day of a defined participation period. In May 2005, WebEx changed the defined
      participation period from 24 months to 6 months. As of December 31, 2005,
      580,360 shares were available for issuance under this plan.




A
      summary
      of the option activity under the 1998 and 2000 stock plans for the years ended
      December 31, 2005, 2004 and 2003, was as follows:


**2005**
            **2004**
            **2003**Shares
            
            
            **Weighted-Average
                Exercise Price**
            
            
            **Shares**
            
            
            **Weighted-Average
                Exercise Price**
            
            
            **Shares**
            
            
            **Weighted-Average
                Exercise Price**Outstanding
                at beginning of year
            
            
            10,970,344
            
            $
            18.38
            
            
            10,708,567
            
            $
            16.06
            
            
            9,347,796
            
            $
            15.70Granted
            
            
            3,589,102
            
            
            23.82
            
            
            3,415,919
            
            
            21.82
            
            
            3,673,432
            
            
            14.31Exercised
            
            
            (2,127,263
            )
            
            13.51
            
            
            (1,849,664
            )
            
            12.43
            
            
            (1,240,400
            )
            
            8.55Canceled
            
            
            (1,969,608
            )
            
            21.14
            
            
            (1,304,478
            )
            
            16.79
            
            
            (1,072,261
            )
            
            15.57Outstanding
                at end of year
            
            
            10,462,575
            
            
            20.72
            
            
            10,970,344
            
            
            18.38
            
            
            10,708,567
            
            
            16.06Options
                vested at end of year
            
            
            4,282,690
            
            $
            19.41
            
            
            4,663,634
            
            $
            17.73
            
            
            4,078,446
            
            $
            15.65





As
      of
      December 31, 2005, the exercise prices and the weighted average remaining
      contractual life of outstanding options were as follows:


**Options
                Outstanding**
            **Options
                Vested****Range
                of Exercise Prices**
            **Shares
                Outstanding**
            **Weighted-Average
                Remaining Contractual Life in Years**
            **Weighted-Average
                Exercise Price**
            **Shares
                Exercisable**
            **Weighted-Average
                Exercise Price**$0.35
                to $1.50
            102,510
            4.14
            $1.06
            102,510
            $1.06$3.00
                to $8.25
            189,512
            5.46
            $7.84
            175,470
            $7.81$8.51
                to $15.55
            1,649,378
            6.68
            $12.04
            1,099,686
            $12.11$15.66
                to $20.14
            1,793,545
            7.38
            $17.70
            880,698
            $17.59$20.72
                to $25.57
            5,669,229
            8.75
            $23.24
            1,437,741
            $23.54$25.58
                to $34.06
            910,301
            7.73
            $28.05
            438,485
            $29.01$35.00
                to $55.38
            148,100
            4.76
            $42.29
            148,100
            $42.29Total
            10,462,575
            7.94
            $20.72
            4,282,690
            $19.41





WebEx
      uses the intrinsic-value method in accounting for its employee equity-based
      compensation plans. In 2000 and 1999, WebEx recorded deferred equity-based
      compensation for the difference at the grant date between the exercise price
      of
      each stock option granted and the fair value of the underlying common stock.
      In
      addition, in 2005, 2004 and 2003, WebEx recognized





additional
      equity-based compensation expense of $0, $8,000 and $413,000, respectively,
      for
      vesting modifications to existing awards primarily related to terminated
      employees.





***Share
      Repurchases***




In
      July
      2004, the Board of Directors authorized WebEx to repurchase shares of its common
      stock in the open market up to $40.0 million over an 18-month period ending
      December 2005. During November 2005, the Board of Directors authorized an
      additional $10.0 million for share repurchases through June 2006.





Share
      repurchases for the years ended December 31, 2005 and 2004 were as
      follows:




**2005**
            
            
            **2004**(In
                thousands)Number
                of shares of common stock repurchased
            
            
            1,458
            
            
            308Total
                cost of repurchase
            
            $
            34,139
            
            $
            5,826







**Note
      9:**  **Income
      Taxes**




Income
      before income taxes was attributable to the following geographic locations
      for
      the following years ended December 31:





**2005**
            
            
            **2004**
            
            
            **2003**(In
                thousands)




United
                States
            
            $
            84,058
            
            $
            70,766
            
            $
            43,455Foreign
            
            
            2,480
            
            
            (997
            )
            
            720Income
                before income tax
            
            $
            86,538
            
            $
            69,769
            
            $
            44,175





Income
      tax expense (benefit) attributable to operations for the years ended December
      31, 2005, 2004 and 2003 was as follows:





**2005**
            
            
            **2004**
            
            
            **2003**(In
                thousands)





**Current:**Federal
            
            $
            27,088
            
            $
            8,076
            
            $
            699State
                and Local
            
            
            6,177
            
            
            1,797
            
            
            4,631Foreign
            
            
            871
            
            
            394
            
            
            475Total
                current income tax expense
            
            
            34,136
            
            
            10,267
            
            
            5,805**Deferred:**Federal
            
            
            (993
            )
            
            7,097
            
            
            (17,999
            )State
                and Local
            
            
            393
            
            
            4,525
            
            
            (3,433
            )Total
                deferred income tax expense (benefit)
            
            
            (600
            )
            
            11,622
            
            
            (21,432
            )Total
                income tax expense (benefit)
            
            $
            33,536
            
            $
            21,889
            
            $
            (15,627
            )





In
      2005,
      an income tax benefit of $10.5 million was allocated to stockholders’ equity
      related to compensation expense for tax purposes in excess of amounts recognized
      for financial reporting purposes. In 2004, an income tax liability of $433,000
      was recorded and goodwill was increased for a pre-acquisition tax contingency
      of
      an acquired business. In 2005, additional pre-acquisition tax contingencies
      of
      $462,000 for the acquired business were determined to be both probable and
      estimable. These contingencies are now reserved in the full amount of
      the asserted and unasserted claims. An additional income tax liability
      was
      recorded and goodwill related to the acquired business was increased from $1.8
      million to $2.3 million.





Income
      tax expense (benefit) for year ended 2005, 2004 and 2003 differed from the
      amounts computed by applying the U.S. federal income tax rate of 35% to pretax
      income as a result of the following:





**2005**
            **2004**
            **2003**











**(In
                thousands)**





Expected
                income tax provision at statutory rate
            
            $
            30,289
            
            $
            24,419
            
            $
            15,639State
                and local income taxes, net of federal benefit
            
            
            4,270
            
            
            3,863
            
            
            3,260Equity-based
                compensation related
            
            
            —
            
            
            (1,681
            )
            
            (4,896
            )Foreign
                tax differential
            
            
            3
            
            
            —
            
            
            198Alternative
                minimum tax
            
            
            —
            
            
            —
            
            
            699Net
                change in valuation allowance
            
            
            (28
            )
            
            (3,755
            )
            
            (29,641
            )Research
                and development credit
            
            
            (908
            )
            
            (653
            )
            
            —Other
            
            
            (90
            )
            
            (304
            )
            
            (886
            )Total
                tax expense (benefit)
            
            $
            33,536
            
            $
            21,889
            
            $
            (15,627
            )





The
      tax
      effects of temporary differences that give rise to significant portions of
      the
      deferred tax assets and liabilities as of December 31, 2005 and 2004 were as
      follows:




**2005**
            
            
            **2004****Deferred
                tax assets:**
            
            **(In
                thousands)**Allowances
                and accruals
            
            $
            4,414
            
            $
            3,577Equity-based
                compensation
            
            
            493
            
            
            950Property
                and equipment
            
            
            2,258
            
            
            2,499Intangible
                assets
            
            
            —
            
            
            353Equity
                investment
            
            
            887
            
            
            218Deferred
                revenue
            
            
            —
            
            
            308Net
                operating loss carryforwards
            
            
            9,211
            
            
            2,823Tax
                credit carryforwards
            
            
            823
            
            
            1,052State
                Taxes
            
            
            406
            
            
            —Gross
                deferred tax assets
            
            
            18,492
            
            
            11,780Less
                valuation allowance
            
            
            (3,440
            )
            
            (1,391
            )Total
                deferred tax assets
            
            
            15,052
            
            
            10,389**Deferred
                tax liabilities:**Intangible
                assets
            
            
            (5,381
            )
            
            —Deferred
                revenue
            
            
            (415
            )
            
            —Gross
                deferred tax liabilities
            
            
            (5,796
            )
            
            —Net
                deferred tax assets
            
            $
            9,256
            
            $
            10,389





In
      assessing the realizability of deferred tax assets, management considers whether
      it is more likely than not that some portion or all of deferred tax assets
      will
      not be realized. The ultimate realization of deferred tax assets is dependent
      upon the generation of future taxable income during the periods in which those
      temporary differences become deductible. In 2004, the provision for income
      taxes
      includes a release of $4.7 million of valuation allowance primarily related
      to
      remaining net operating loss carryforwards, which resulted in a tax benefit
      of
      $3.8 million and a $900,000 increase to additional paid-in capital attributable
      to the tax benefit of stock options. In 2005, a release of $415,000 of valuation
      allowance primarily relating to net operating loss carryforwards resulted in
      a
      tax benefit of $28,000 and an increase of $387,000 to additional paid-in capital
      attributable to the tax benefit of stock options. The release of the valuation
      allowance was recorded in the fourth quarter of 2004 and 2005, respectively,
      when the Company updated its forecast of projected income. With the acquisition
      of Intranets, the Company recorded a valuation allowance of $2.5 million for
      the
      net operating loss carryforwards and research and development credits recorded
      as part of the acquisition. The utilization of the net operating loss
      carryforwards and research and development credits will be subject to an annual
      limitation under Internal Revenue Code (“IRC”) Section 382. The net change in
      the total valuation allowance for the years ended December 31, 2005 and 2004
      was
      an increase of $2.0 million and a decrease of $4.7 million, respectively.




The
      valuation allowance against deferred tax assets of $3.4 million as of December
      31, 2005 includes $976,000 relating to net operating loss carryforwards
      resulting from the exercise of stock options and $2.4 million for the net
      operating loss carryforwards and research and development credits recorded
      as
      part of the Intranets acquisition. When and if realized, the tax benefit of
      the
      net operating loss carryforwards resulting from the exercise of stock options
      will be accounted for as a credit to additional paid-in capital rather than
      a
      reduction of income tax expense. When and if realized, the tax benefit of the
      net operating loss carryforwards and research and development credits recorded
      as part of the acquisition will be accounted for as a credit to goodwill rather
      than a reduction of income tax expense.








Deferred
      taxes have not been recognized on undistributed earnings from foreign
      subsidiaries because the Company does not intend to repatriate such
      earnings.





As
      of
      December 31, 2005, the Company has research credit carryforwards for federal
      and
      state income tax purposes of approximately $825,000 that were acquired through
      the Intranets acquisition. The Company has recorded a valuation allowance
      against the federal and state research credits due to the annual restriction
      under IRC Section 382 on the utilization of such credits. The federal research
      credit carryforwards will expire at various times through the year 2024. The
      state research credit carryforwards will expire at various times through the
      year 2019.





Federal
      and state tax laws impose substantial restrictions on the utilization of net
      operating loss and credit carryforwards in the event of an “ownership change”
      for tax purposes, as defined in Section 382 of the Internal Revenue Code. Based
      on an IRC Section 382 study completed in 2002, the Company determined that
      there
      were ownership changes during 1998, 1999, and 2000. Consequently, a portion
      of
      the Company’s tax carryforwards will expire before they can be fully utilized.
      Therefore, in 2002, the Company reduced its reported available federal and
      state
      net operating loss carryforwards by $4.5 million and $3.3 million, respectively.
      With the acquisition of Intranets, the Company acquired additional federal
      and
      state net operating loss carryforwards that were restricted by ownership changes
      under IRC Section 382 in 1998, 1999 and 2005. Therefore, the Company reduced
      its
      reported available federal net operating loss carryforwards for Intranets by
      $13.3 million.





As
      of
      December 31, 2005, after the application of IRC Section 382, the Company has
      approximately $22.2 million and $450,000 of net operating loss carryforwards
      for
      federal and state purposes, respectively, available to offset income in future
      years. The federal net operating loss carryforwards will expire at various
      times
      through the year 2022, and the state net operating loss carryforwards will
      expire at various times through the year 2007. WebEx has approximately $4.3
      million of net operating loss carryforwards for foreign income tax purposes.





**Note
      10:**  **Commitments
      and Contingencies**




***Contractual
      Commitments***




WebEx
      leases certain equipment and facilities under non-cancelable operating leases
      expiring through 2014. Future minimum lease payments and purchase commitments
      by
      year and in the aggregate, as of December 31, 2005, were as
      follows:








**2006**
            
            
            **2007**
            
            
            **2008**
            
            
            **2009**
            
            
            **2010**
            
            
            **2011
                and after**
            
            
            **Total**(In
                thousands)Operating
                leases commitments
            
            $
            6,403
            
            $
            6,014
            
            $
            6,515
            
            $
            5,889
            
            $
            5,477
            
            $
            13,441
            
            $
            43,739Purchase
                commitments
            
            
            15,446
            
            
            592
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            16,038Other
                commitments
            
            
            110
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            110Total
            
            $
            21,959
            
            $
            6,606
            
            $
            6,515
            
            $
            5,889
            
            $
            5,477
            
            $
            13,441
            
            $
            59,887





***Lease
      Commitments***





Leases
      are accounted for under the provisions of SFAS No. 13, *Accounting
      for Leases* ,
      which
      requires that leases be evaluated and classified as operating or capital for
      financial reporting purposes. All rented office space that the Company currently
      occupies is classified as an operating lease. Rent expense is recognized based
      on an effective rate of rent per square foot, which takes into account scheduled
      rent increases, the amount of space occupied at any time and certain incentives
      provided by the lessor. This results in the same amount of rent expense per
      square foot occupied in all periods during the lease term.





During
      the fourth quarter of 2005, WebEx began occupancy of new facilities located
      in
      Amsterdam, the Netherlands and Laguna Hills, California. The lease terms for
      these facilities are 60 and 64 months, respectively and each commenced in
      October 2005. Future minimum lease payments under the life of both of theses
      lease total $2.5 million.





With
      the
      acquisition of Intranets in September 2005, WebEx assumed a lease obligation
      for
      office space in Burlington, Massachusetts. The lease term is for approximately
      66 months which commenced in January 2005. Future minimum lease payments under
      the life of the lease total $2.6 million. The lease requires a letter of credit
      of $260,000, which is collateralized by cash on deposit at a commercial bank.
      The cash on deposit and related interest is treated as restricted cash and
      is
      included in other non-current assets in the consolidated balance sheets.








In
      April
      2004, WebEx signed a lease to occupy space in a building located in Santa Clara,
      California, that serves as WebEx’s corporate headquarters. The lease term is for
      approximately ten years, and initial occupancy commenced in the third quarter
      of
      2004. The Company took possession of additional space in January 2005 and is
      committed to occupy additional space in February 2008. The rent for all of
      this
      space is included in the future minimum rental payments. Minimum lease payments
      under this lease began in January 2005 and total an aggregate of $23.8 million
      for the life of the lease. Under the lease agreement, the landlord provided
      incentives of $2.3 million including the construction of leasehold improvements
      for no additional payments by the Company, and payment of certain operating
      expenses for the initial 20 months covered by the lease valued at $786,000.
      Lease incentives received have been accounted for as capitalized assets and
      are
      amortized over the lease term. The lease requires a security deposit of $4.0
      million, which WebEx satisfied through a letter of credit issued under WebEx’s
      credit line.




Rent
      expense under operating leases was $9.5 million, $5.4 million and $4.7 million
      for the years ended December 31, 2005, 2004 and 2003, respectively. Rent expense
      was reduced by rental income of $106,000, $77,000 and $893,000 in 2005, 2004
      and
      2003, respectively.




***Purchase
      Commitments***





At
      December 31, 2005, WebEx had purchase commitments totaling approximately $16.0
      million for the usage of telecommunication lines and data services, equipment
      and software purchases and the construction of leasehold improvements at new
      leased facilities. The majority of the purchase commitments are expected to
      be
      settled in cash within 12 months.




***Other
      Commitments***





In
      December 2004, the Company entered into an agreement with the government of
      Hong
      Kong and Hong Kong University of Science and Technology (HKUST) pursuant to
      which WebEx and the government of Hong Kong were each to pay equal amounts
      to
      fund certain research and development projects to be managed jointly by WebEx
      and HKUST. In December 2004 and April 2005, WebEx paid $500,000 and $318,000,
      respectively, in cash pursuant to the agreement, which was fully expensed to
      research and development. WebEx will obtain sole ownership of any intellectual
      property resulting from the projects, provided, however that WebEx and HKUST
      may
      agree that some of the proceeds of products and services arising from the
      projects will be paid to HKUST. Under this arrangement, WebEx will provide
      one
      final payment of approximately $110,000 due in April 2006. This future payment
      obligation is included in “Other commitments” in the table above.





WebEx
      has
      a revolving credit line with a bank that provides available borrowings up to
      $7.0 million. Amounts borrowed under the revolving credit line bear interest
      at
      the prime rate and may be repaid and reborrowed at any time prior to the
      maturity date. The credit agreement expires June 15, 2006. The credit agreement
      is unsecured and is subject to compliance with covenants, including a minimum
      quick ratio and minimum profitability, with which the Company is currently
      in
      compliance. As of December 31, 2005, the Company had no outstanding borrowings
      under the credit line, but did have a $4.0 million letter of credit issued
      under
      the line as security for the headquarters lease.





***Indemnity
      and Warranty Obligations***




In
      WebEx’s agreements with customers and resellers, WebEx agrees to indemnify the
      customers and resellers in the event a third party asserts an intellectual
      property infringement claim against the customer or reseller based on WebEx
      services. Certain restrictions are placed on the indemnity obligations,
      including geographical limitations and limitations on the type of claims
      covered. In addition, WebEx has provided certain warranties and committed to
      maintain certain service levels in some of its agreements with customers and
      resellers. These warranty and service level provisions specify limited remedies
      available to the customer or reseller in the event of a breach of the warranty
      or a failure to maintain the specified service level. In addition, WebEx’s
      agreements contain limitation of liability provisions, which disclaim
      responsibility for consequential, special or indirect damages and which
      generally limit WebEx’s liability under the agreements to the amount of fees
      paid to WebEx. As of December 31, 2005, WebEx had incurred no liability with
      respect to its indemnification obligations and had not incurred any material
      liability with respect to its warranty and service level obligations.




***Other***




WebEx
      does not currently collect sales tax from customers in the United States and
      believes the services it provides are exempt from sales tax.  However,
      one
      state and one city have indicated that they intend to audit us in connection
      with potential sales tax liability. Moreover, in the future federal tax
      authorities or tax authorities in one or more states could assert that WebEx
      is
      obligated to collect such taxes from its customers and remit those taxes to
      those authorities.  The collection and remittance of such taxes is not
      expected to have a material impact on WebEx's financial statements. 
      It is
      also possible, however, that such authorities could seek to collect sales taxes
      for sales of services by WebEx in the past.  If such a claim were to
      be
      asserted against WebEx and WebEx was found liable for such back taxes and WebEx
      was unable to collect such taxes from its customers, WebEx could





incur
      an
      expense equal to the amount of such taxes and any associated interest and
      penalties. The Company believes that it has taken an appropriate reserve for
      such contingencies.





**Note
      11:**  **Segment
      Reporting**




SFAS
      No.
      131, *Disclosure
      about Segments of an Enterprise and Related Information* ,
      establishes standards for the reporting by business enterprises of information
      about operating segments, products and services, geographic areas, and major
      customers. The standard for determining what information to report is based
      on
      operating segments within WebEx that are regularly reviewed and used by the
      chief operating decision maker in evaluating financial performance and resource
      allocation.




WebEx’s
      chief operating decision-maker is considered to be the chief executive officer
      (“CEO”). Based on the financial information reviewed by the CEO, the Company has
      determined that it operates in a single operating segment, specifically, web
      collaboration services.




The
      composition of the Company’s sales to customers between those in the United
      States of America and those in other locations for the year ended 2005, 2004
      and
      2003 is set forth below. Revenue is attributed to a specific geographic location
      based on the billing address for services since the location of actual use
      cannot be determined.





**2005**
            
            
            **2004**
            
            
            **2003**(In
                thousands)





United
                States
            
            $
            268,823
            
            $
            219,945
            
            $
            176,786Canada
            
            
            11,732
            
            
            10,057
            
            
            3,033North
                America
            
            $
            280,555
            
            $
            230,002
            
            $
            179,819Europe
            
            
            19,133
            
            
            13,922
            
            
            7,283Other
            
            
            8,734
            
            
            5,209
            
            
            2,239$
            308,422
            
            $
            249,133
            
            $
            189,341





Long-lived
      assets located in countries outside the Untied States of America totaled $5.2
      million and $3.1 million as of December 31, 2005 and 2004, respectively.




















**Note
      12: Quarterly Results of Operations (unaudited)**





The
      following tables set forth the quarterly results of operations data for each
      of
      the eight quarters ended December 31, 2005 and 2004:




Three
                months endedDec.
                31,
            
            
            **Sept.
                30,**
            
            
            **June
                30,**
            
            
            **Mar.
                31,**(In
                thousands, except per share data)**2005
                Income Statement Data:**Net
                revenues
            
            $
            83,685
            
            $
            78,553
            
            $
            75,329
            
            $
            70,855Cost
                of revenues
            
            
            14,740
            
            
            14,491
            
            
            12,804
            
            
            11,858Gross
                profit
            
            
            68,945
            
            
            64,062
            
            
            62,525
            
            
            58,997Operating
                expenses:Sales
                and marketing
            
            
            28,219
            
            
            25,640
            
            
            24,745
            
            
            24,103Research
                and development
            
            
            12,099
            
            
            12,565
            
            
            10,982
            
            
            10,067General
                and administrative
            
            
            8,368
            
            
            6,728
            
            
            5,293
            
            
            5,782Equity-based
                compensation*
            
            
            3
            
            
            3
            
            
            6
            
            
            1Total
                operating expenses
            
            
            48,689
            
            
            44,936
            
            
            41,026
            
            
            39,953Operating
                income
            
            
            20,256
            
            
            19,126
            
            
            21,499
            
            
            19,044Interest
                and other income, net
            
            
            1,726
            
            
            1,648
            
            
            1,502
            
            
            1,737Income
                before income taxes
            
            
            21,982
            
            
            20,774
            
            
            23,001
            
            
            20,781Provision
                for income taxes
            
            
            8,385
            
            
            8,099
            
            
            9,121
            
            
            7,931Net
                income
            
            $
            13,597
            
            $
            12,675
            
            $
            13,880
            
            $
            12,850Net
                income per share:Basic
            
            $
            0.29
            
            $
            0.27
            
            $
            0.31
            
            $
            0.29Diluted
            
            $
            0.28
            
            $
            0.26
            
            $
            0.29
            
            $
            0.27Weighted
                average shares used to compute net income per share:Basic
            
            
            46,204
            
            
            46,208
            
            
            45,479
            
            
            44,968Diluted
            
            
            47,803
            
            
            48,428
            
            
            47,518
            
            
            46,848____________
              *
                Equity-based compensation:Sales
                and marketing
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —Research
                and development
            
            
            —
            
            
            —
            
            
            —
            
            
            —General
                and administrative
            
            
            3
            
            
            3
            
            
            6
            
            
            1$
            3
            
            $
            3
            
            $
            6
            
            $
            1










Three
                months endedDec.
                31,
            
            
            **Sept.
                30,**
            
            
            **June
                30,**
            
            
            **Mar.
                31,**(In
                thousands, except per share data)**2004
                Income Statement Data:**Net
                revenues
            
            $
            67,693
            
            $
            63,968
            
            $
            61,128
            
            $
            56,344Cost
                of revenues
            
            
            10,927
            
            
            11,018
            
            
            10,384
            
            
            9,525Gross
                profit
            
            
            56,766
            
            
            52,950
            
            
            50,744
            
            
            46,819Operating
                expenses:Sales
                and marketing
            
            
            21,691
            
            
            21,200
            
            
            21,377
            
            
            19,924Research
                and development
            
            
            9,740
            
            
            9,122
            
            
            8,265
            
            
            7,215General
                and administrative
            
            
            5,857
            
            
            4,419
            
            
            5,030
            
            
            3,407Equity-based
                compensation*
            
            
            124
            
            
            66
            
            
            (130
            )
            
            511Total
                operating expenses
            
            
            37,412
            
            
            34,807
            
            
            34,542
            
            
            31,057Operating
                income
            
            
            19,354
            
            
            18,143
            
            
            16,202
            
            
            15,762Interest
                and other (expense) income, net
            
            
            (409
            )
            
            172
            
            
            433
            
            
            112Income
                before income taxes
            
            
            18,945
            
            
            18,315
            
            
            16,635
            
            
            15,874Provision
                for income taxes
            
            
            3,169
            
            
            6,497
            
            
            6,350
            
            
            5,873Net
                income
            
            $
            15,776
            
            $
            11,818
            
            $
            10,285
            
            $
            10,001Net
                income per share:Basic
            
            $
            0.35
            
            $
            0.27
            
            $
            0.23
            
            $
            0.23Diluted
            
            $
            0.34
            
            $
            0.26
            
            $
            0.22
            
            $
            0.22Weighted
                average shares used to compute net income per share:Basic
            
            
            44,477
            
            
            44,220
            
            
            43,807
            
            
            42,954Diluted
            
            
            47,012
            
            
            46,027
            
            
            46,499
            
            
            46,459____________
              *
                Equity-based compensation:Sales
                and marketing
            
            $
            4
            
            $
            (1
            )
            $
            (11
            )
            $
            51Research
                and development
            
            
            8
            
            
            6
            
            
            11
            
            
            27General
                and administrative
            
            
            112
            
            
            61
            
            
            (130
            )
            
            433$
            124
            
            $
            66
            
            $
            (130
            )
            $
            511



















**Item
      9.** ***Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure*** ****




Not
      applicable.








******Item****** **9A.** ***Controls
      and Procedures*** ****




*Evaluation
      of disclosure controls and procedures.* We
      maintain “disclosure controls and procedures,” as such term is defined in Rule
      13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that
      are designed to ensure that information required to be disclosed by us in
      reports that we file or submit under the Exchange Act is recorded, processed,
      summarized, and reported within the time periods specified in Securities and
      Exchange Commission rules and forms, and that such information is accumulated
      and communicated to our management, including our Chief Executive Officer and
      Chief Financial Officer, as appropriate, to allow timely decisions regarding
      required disclosure. In designing and evaluating our disclosure controls and
      procedures, management recognizes that disclosure controls and procedures,
      no
      matter how well conceived and operated, can provide only reasonable, not
      absolute, assurance that the objectives of the disclosure controls and
      procedures are met. Our disclosure controls and procedures have been designed
      to
      meet reasonable assurance standards. Additionally, in designing disclosure
      controls and procedures, our management necessarily is required to apply its
      judgment in evaluating the cost-benefit relationship of possible disclosure
      controls and procedures. The design of any disclosure controls and procedures
      also is based in part upon certain assumptions about the likelihood of future
      events, and there can be no assurance that any design will succeed in achieving
      its stated goals under all potential future conditions .




Based
      on
      their evaluation as of the end of the period covered by this Annual Report
      on
      Form 10-K, our Chief Executive Officer and Chief Financial Officer have
      concluded that, as of such date, our disclosure controls and procedures were
      effective at the reasonable assurance level .




*Limitations
      on the Effectiveness of Controls and Permitted Omission from Management’s
      Assessment.* Our
      internal control over financial reporting is designed to provide reasonable
      assurance regarding the reliability of financial reporting and the preparation
      of financial statements for external purposes in accordance with generally
      accepted accounting principles. All internal control systems, no matter how
      well
      designed, have inherent limitations, including the possibility of human error
      and the circumvention or overriding of controls. Accordingly, even effective
      internal controls can only provide reasonable assurance with respect to
      financial statement preparation. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate .
      In
      connection with management’s evaluation discussed in its report below, we
      excluded an evaluation of our wholly-owned subsidiary, WebExOne, Inc. (formerly
      known as Intranets.com), which we acquired in September 2005. Such exclusion
      was
      in accordance with Securities and Exchange Commission guidance that an
      assessment of a recently-acquired business may be omitted in management’s report
      on internal controls over financial reporting, provided the acquisition took
      place within twelve months of management’s evaluation.




*Management’s
      Annual Report on Internal Control Over Financial Reporting.* Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting, as such term is defined in Exchange Act
      Rules 13a-15(f).





Under
      the
      supervision and with the participation of our management, including our
      principal executive officer and principal financial officer, we conducted an
      evaluation of the effectiveness of our internal control over financial reporting
      based on the framework in *Internal
      Control - Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission. Not
      included in this evaluation of our internal control over financial reporting
      was
      an evaluation of our wholly-owned operating subsidiary WebExOne, which is
      headquartered in Burlington, Massachusetts. We acquired this company in
      September 2005, at which time its name was Intranets.com.





Based
      on
      this evaluation, our management believes that, as of December 31, 2005, our
      internal control over financial reporting was effective based on those
      criteria. Our management’s assessment of the effectiveness of our internal
      control over financial reporting as of December 31, 2005 has been audited by
      KPMG LLP, an independent registered public accounting firm, as stated in their
      report which is included herein .




*Attestation
      Report of the Registered Public Accounting Firm.*





**Report
      of Independent Registered Public Accounting Firm**








The
      Board
      of Directors and Stockholders


WebEx
      Communications, Inc.:




We
      have
      audited management’s assessment, included in the accompanying Management’s
      Report on Internal Control over Financial Reporting appearing under Item 9A,
      that WebEx Communications, Inc. maintained effective internal control over
      financial reporting as of December 31, 2005, based on criteria established
      in *Internal
      Control—Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
      Management of WebEx Communications, Inc. is responsible for maintaining
      effective internal control over financial reporting and for its assessment
      of
      the effectiveness of internal control over financial reporting. Our
      responsibility is to express an opinion on management’s assessment and an
      opinion on the effectiveness of the Company’s internal control over financial
      reporting based on our audit.




We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether effective
      internal control over financial reporting was maintained in all material
      respects. Our audit included obtaining an understanding of internal control
      over
      financial reporting, evaluating management’s assessment, testing and evaluating
      the design and operating effectiveness of internal control, and performing
      such
      other procedures as we considered necessary in the circumstances. We believe
      that our audit provides a reasonable basis for our opinion.




A
      company’s internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles. A company’s internal control over
      financial reporting includes those policies and procedures that (1) pertain
      to
      the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company; (2)
      provide reasonable assurance that transactions are recorded as necessary to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (3) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use, or disposition of the company’s
      assets that could have a material effect on the financial
      statements.




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.




In
      our
      opinion, management’s assessment that WebEx Communications, Inc. maintained
      effective internal control over financial reporting as of December 31, 2005,
      is
      fairly stated, in all material respects based on criteria established in
*Internal Control—Integrated Framework* issued by the Committee of
      Sponsoring Organizations of the Treadway Commission (COSO). Also, in our
      opinion, WebEx Communications, Inc. maintained, in all material respects,
      effective internal control over financial reporting as of December 31, 2005,
      based on criteria established in *Internal Control—Integrated Framework*
      issued by the Committee of Sponsoring Organizations of the Treadway Commission
      (COSO).




During
      2005, WebEx Communications, Inc. acquired Intranets.com, Inc., which was
      subsequently renamed WebExOne, Inc. Management excluded from its assessment
      of
      the effectiveness of internal control over financial reporting of WebEx
      Communications, Inc. as of December 31, 2005, WebExOne, Inc.'s internal control
      over financial reporting associated with total assets of $4.2 million and total
      revenue of $3.9 million included in the consolidated financial statements of
      WebEx Communications, Inc. and subsidiaries as of and for the year ended
      December 31, 2005. Our audit of internal control over financial reporting of
      WebEx Communications, Inc. also excluded an evaluation of the internal control
      over financial reporting of WebExOne, Inc.




We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated balance sheets of WebEx
      Communications, Inc. and subsidiaries as of December 31, 2004 and 2005, and
      the
      related consolidated statements of income, stockholders’ equity and
      comprehensive income, and cash flows for each of the years in the three-year
      period ended December 31, 2005, and our report dated March 9, 2006 expressed
      an
      unqualified opinion on those consolidated financial statements.




/s/
      KPMG
      LLP




Mountain
      View, California


March
      9,
      2006







*Changes
      in internal control over financial reporting.* There
      was no significant change in our internal control over financial reporting
      (as
      defined in Rule 13a-15(f) under the Exchange Act) identified in connection
      with
      management’s evaluation during our last fiscal quarter that has materially
      affected, or is reasonably likely to materially affect, our internal control
      over financial reporting .





**Item
      9B.** ***Other
      Information***




None.





**PART
      III**





**Item
      10.** ***Directors
      and Executive Officers of the Registrant*** ****




The
      information required by Item 10 of Form 10-K with respect to directors is
      incorporated herein by reference to the information contained in the section
      entitled “Election of Directors” in the Company’s definitive Proxy Statement to
      be filed with the Securities and Exchange Commission in connection with the
      solicitation of proxies for the Company’s 2006 Annual Meeting of Stockholders to
      be held on May 9, 2006 (the “Proxy Statement”). For information with respect to
      the executive officers of the Company, see “Executive Officers of the
      Registrant” at the end of Part I of this report.




Item
      405
      of Regulation S-K calls for disclosure of any known late filings or failure
      by
      an insider to file a report required by Section 16(a) of the Securities Act.
      This information is contained in the Section entitled “Section 16(a) Beneficial
      Ownership Reporting Compliance” in the Proxy Statement and is incorporated
      herein by reference.





Item
      401
      of Regulation S-K calls for disclosure of whether or not the Company has a
      financial expert serving on the audit committee of its Board of Directors,
      and
      if so who that individual is. This information is contained in the Section
      entitled “Audit Committee Financial Expert” in the Proxy Statement and is
      incorporated herein by reference.





WebEx
      has
      adopted a code of ethics that applies to all WebEx employees, including WebEx’s
      principal executive officer, its principal financial officer, its principal
      accounting officer and persons performing similar functions. This code of
      ethics, called a Code of Conduct, is available free of charge on the WebEx
      public website (www.webex.com) on the investor relations webpage. Future
      amendments or waivers relating to the Code of Conduct will be disclosed on
      the
      webpage referenced in this paragraph within five (5) business days following
      the
      date of such amendment or waiver .








**Item
      11.** ***Executive
      Compensation*** ****




The
      information required by Item 11 of Form 10-K is incorporated herein by reference
      to the information contained in the sections entitled “Election of
      Directors—Compensation of Directors”, “Executive Compensation and Related
      Information” and “Election of Directors—Compensation Committee Interlocks and
      Insider Participation” in the Proxy Statement .








**Item 12** ***.***  ***Security
      Ownership of Certain Beneficial Owners and Management and Related Stockholder
      Matters***




The
      information required by Item 12 of Form 10-K is incorporated herein by reference
      to the information contained in the sections entitled “Security


Ownership
      of Certain Beneficial Owners and Management” in the Proxy Statement. Equity
      compensation plan information is provided immediately below:




The
      following table sets forth certain information as of December 31, 2005 with
      respect to compensation plans of the Company under which equity securities
      of
      the Company are authorized for issuance.







**EQUITY
      COMPENSATION PLAN INFORMATION**




**Number of securities to**
              **be issued upon exercise**
              **of outstanding
                options,**
              **warrants
                and rights**
            **Weighted-average**
              **exercise
                price of**
              **outstanding options,**
              **warrants
                and rights**
            **Number of securities**
              **remaining available for**
              **future
                issuance under**
              **equity compensation plans**
              **(excluding securities**
              **reflected
                in column (a))****Plan
                category**
            **(a)**
            **(b)**
            **(c)**Equity
                compensation plans approved by security holders (1)
            10,462,575
            $20.72
            1,368,043(2)Equity
                compensation plans not approved by security
                holders
            -
            -
            -Total
            10,462,575
            $20.72
            1,948,403(3)





____________


(1)  Includes
      our 1998 Stock Plan and our 2000 Stock Incentive Plan.





(2)  Includes
      the number of shares reserved under our 2000 Stock Incentive Plan. The number
      of
      shares reserved for issuance under our 2000 Stock Incentive Plan will be
      increased on the first day of each of the Company’s calendar years from 2006 to
      2010 by the lesser of (i) 5,500,000 shares, (ii) eight percent (8%) of the
      number of outstanding shares of our common stock on that date, or (iii) a lesser
      amount determined by our Board of Directors.





(3)  Includes
      580,360 shares available for purchase pursuant to our 2000 Employee Stock
      Purchase Plan. The 2000 Employee Stock Purchase Plan provides that shares of
      common stock will be purchased by plan participants at a price equal to 85%
      of
      the fair market value per share of common stock on either the first day
      preceding the offering period or the last day of the offering period, on
      whichever day the closing price per share is less. The number of shares reserved
      for issuance under our 2000 Employee Stock Purchase Plan will be increased
      on
      the first day of each of the Company’s current and future calendar years from
      2006 to 2010 by the lesser of (i) 1,500,000 shares, (ii) two
      percent (2%) of the number of outstanding shares of our common stock on that
      date, or (iii) a lesser amount determined by our Board of Directors.






**Item
      13.** ***Certain
      Relationships and Related Transactions*** ****




The
      information required by Item 13 of Form 10-K is incorporated herein by reference
      to the information contained in the section entitled “Certain Relationships and
      Related Transactions” in the Proxy Statement.








**Item
      14.** ***Principal
      Accountant Fees and Services*** ****




The
      information required by Item 14 of Form 10-K is incorporated herein by reference
      to the information contained in the section entitled “Ratification of
      Independent Auditors—Audit and Non-Audit Fees” and “Ratification of Independent
      Auditors - Pre-Approval Policies and Procedures” in the Proxy Statement.





**PART
      IV**





**Item** **15.** ***Exhibits
      and Financial Statement Schedules***




(a)  The
      following documents are filed as part of this Report:




(1)  Financial
      Statements—See Index to the Consolidated Financial Statements in Item 8 of this
      Report.




(2)  Financial
      Statement Schedules—Schedules not listed have been omitted because they are not
      applicable or required, or the information required to be set forth therein
      is
      included in the Consolidated Financial Statements or the Notes thereto.




(3)  Exhibits—See
      Exhibit Index in Item 15(b) of this Report.




(b)  Exhibit
      Index:




**Exhibit Number**
            **Description
                of Document**2.1(1)
            Agreement
                and Plan of Merger, dated August 1, 2005, by and among WebEx
                Communications, Inc., Atlantic Acquisition Subsidiary, Intranets.com,
                Inc.
                and W Capital Partners, L.P., as Stockholder Agent.3(i)(2)
            Amended
                and Restated Certificate of Incorporation.3(ii)(3)
            Amended
                and Restated Bylaws.4.1(2)
            Form
                of Common Stock Certificate.4.2(4)
            Amended
                and Restated Investors’ Rights Agreement, dated March 30, 2000 by and
                among the registrant and the parties who are signatories
                thereto.10.1(4)*
            Registrant’s
                Amended and Restated 1998 Stock Plan.10.2(5)*
            Registrant’s
                Amended and Restated 2000 Stock Incentive Plan.10.3(6)*
            Registrant’s
                Amended and Restated 2000 Employee Stock Purchase Plan.10.4(2)*
            Form
                of Directors and Officers’ Indemnification Agreement.







**Exhibit Number**
            **Description
                of Document**10.8(7)
            Agreement
                of Purchase and Sale of 364 Ferguson Drive, Mountain View, California
                by
                and between Granum Limited and the Company dated February 1, 2004,
                and
                First Amendment thereto dated February 17, 2004.10.9(8)
            Office
                Lease by and between Mission Towers LLC and Registrant dated April
                21,
                2004.21.1
            Subsidiaries
                of the
                Registrant.23.1
            Consent
                of Independent Registered Public
                Accounting Firm.24.1
            Power
                of Attorney (see page 74 of this Form
                10-K).31.1
            Certification
                of the Chief Executive Officer
                Pursuant to Rule 13a-14(a)/15d-14(a)31.2
            Certification
                of the Chief Financial
                Officer Pursuant to Rule 13a-14(a)/15d-14(a)32.1+
            Certification
                of Chief Executive Officer
                Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section
                906 of
                The Sarbanes-Oxley Act of 200232.2+
            Certification
                of Chief Financial Officer
                Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section
                906 of
                The Sarbanes-Oxley Act of 2002




____________


*  Denotes
      a
      management contract or compensatory plan or arrangement.


+  In
      accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos.
      33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over
      Financial Reporting and Certification of Disclosure in Exchange Act Periodic
      Reports, the certification furnished in Exhibits 32.1 and Exhibit 32.2 are
      deemed to accompany this Form 10-K and will not be deemed “filed” for purpose of
      Section 18 of the Exchange Act. Such certifications will not be deemed to be
      incorporated by reference into any filing under the Securities Act or the
      Exchange Act, whether made before or after the date hereof irrespective of
      any
      general incorporation language contained in any such filing, except to the
      extent that the registrant specifically incorporates it by reference .





(1)  Incorporated
      by reference to Exhibit 2.01 of Registrant’s Report on Form 8-K (File No.
      000-30849) filed on September 15, 2005.




(2)  Incorporated
      by reference to Exhibits 3.3, 4.1 and 10.4, respectively, of Amendment No.
      1 to
      Registrant’s Registration Statement on Form S-1 (File No. 333-33716) filed with
      the Securities and Exchange Commission on June 21, 2000.




(3)  Incorporated
      by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for
      the year ending December 31, 2001.




(4)  Incorporated
      by reference to Exhibits 4.2 and 10.1, respectively, of Registrant’s
      Registration Statement on Form S-1 (File No. 333-33716) filed with the
      Securities and Exchange Commission on March 31, 2000.




(5)  Incorporated
      by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K for
      the year ending December 31, 2003.




(6)  Incorporated
      by reference to Exhibit 10.1 of Registrant’s Quarterly Report on Form 10-Q
      for the quarter ended March 31, 2005.




(7)  Incorporated
      by reference to Exhibit 10.1 of Registrant’s Quarterly Report on Form 10-Q
      for the quarter ended March 31, 2004.




(8)  Incorporated
      by reference to Exhibit 10.1 of Registrant’s Quarterly Report on Form 10-Q
      for the quarter ended June 30, 2004.




(c)  See
      the
      Consolidated Financial Statements and Supplementary Data beginning on page
      44 of
      this Report. Schedules not listed have been omitted because they are not
      applicable or required, or the information required to be set forth therein
      is
      included in the Consolidated Financial Statements or the Notes
      thereto.









**SIGNATURES**




Pursuant
      to the requirements of the Section 13 or 15(d) of the Securities Exchange Act
      of
      1934, the Registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized, on this 14th day of March 2006.




**WEBEX
                COMMUNICATIONS, INC.**Date: March
              14, 2006
            By:
            /s/ SUBRAHS.
              IYARSubrah
                S. IyarChief
              Executive Officer









**POWER
      OF ATTORNEY**




KNOW
      ALL
      PERSONS BY THESE PRESENTS, that each person whose signature appears below
      constitutes and appoints Subrah S. Iyar, Michael T. Everett and David
      Farrington, and each of them individually, as his or her attorney-in-fact,
      each
      with full power of substitution, for him or her in any and all capacities,
      to
      sign any and all amendments to this Report on Form 10-K, and to file the same,
      with exhibits thereto and other documents in connection therewith, with the
      Securities and Exchange Commission, hereby ratifying and confirming all that
      said attorney-in-fact, or his or her substitute, may do or cause to be done
      by
      virtue hereof.




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant in the
      capacities and on the dates indicated:




**Name**
            
            **Title**
            
            **Date**/s/    SUBRAH
                S. IYAR
              Subrah
                S. Iyar
            
            Chief
                Executive Officer (Principal Executive Officer) and
                Director
            
            March
                14, 2006/s/    MICHAEL
                T. EVERETT
              Michael
                T. Everett
            
            Chief
                Financial Officer (Principal Financial Officer)
            
            March
                14, 2006/s/    DEAN
                MACINTOSH
              Dean
                MacIntosh
            
            Principal
                Accounting Officer
            
            March
                14, 2006/s/    ALFRED
                R. BERKELEY
              Alfred
                R. Berkeley
            
            Director
            
            March
                14, 2006/s/    MICHAEL
                T. FLYNN
              Michael
                Flynn
            
            Director
            
            March
                14, 2006/s/    ANTHONY
                R. MULLER
              Anthony
                R. Muller
            
            Director
            
            March
                14, 2006/s/    CASIMIR
                SKRZYPCZAK
              Casimir
                Skrzypczak
            
            Director
            
            March
                14, 2006







**EXHIBIT
      INDEX**






**Exhibit Number**
            **Description
                of Document**2.1(1)
            Agreement
                and Plan of Merger, dated August 1, 2005, by and among WebEx
                Communications, Inc., Atlantic Acquisition Subsidiary, Intranets.com,
                Inc.
                and W Capital Partners, L.P., as Stockholder Agent.3(i)(2)
            Amended
                and Restated Certificate of Incorporation.3(ii)(3)
            Amended
                and Restated Bylaws.4.1(2)
            Form
                of Common Stock Certificate.4.2(4)
            Amended
                and Restated Investors’ Rights Agreement, dated March 30, 2000 by and
                among the registrant and the parties who are signatories
                thereto.10.1(4)*
            Registrant’s
                Amended and Restated 1998 Stock Plan.10.2(5)*
            Registrant’s
                Amended and Restated 2000 Stock Incentive Plan.10.3(6)*
            Registrant’s
                Amended and Restated 2000 Employee Stock Purchase Plan.10.4(2)*
            Form
                of Directors and Officers’ Indemnification Agreement.









**Exhibit Number**
            **Description
                of Document**10.8(7)
            Agreement
                of Purchase and Sale of 364 Ferguson Drive, Mountain View, California
                by
                and between Granum Limited and the Company dated February 1, 2004,
                and
                First Amendment thereto dated February 17, 2004.10.9(8)
            Office
                Lease by and between Mission Towers LLC and Registrant dated April
                21,
                2004.21.1
            Subsidiaries
                of the
                Registrant.23.1
            Consent
                of Independent Registered Public
                Accounting Firm.24.1
            Power
                of Attorney (see page 60 of this Form
                10-K).31.1
            Certification
                of the Chief Executive Officer
                Pursuant to Rule 13a-14(a)/15d-14(a)31.2
            Certification
                of the Chief Financial
                Officer Pursuant to Rule 13a-14(a)/15d-14(a)32.1+
            Certification
                of Chief Executive Officer
                Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section
                906 of
                The Sarbanes-Oxley Act of 200232.2+
            Certification
                of Chief Financial Officer
                Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section
                906 of
                The Sarbanes-Oxley Act of 2002




____________


*  Denotes
      a
      management contract or compensatory plan or arrangement.


+  In
      accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos.
      33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over
      Financial Reporting and Certification of Disclosure in Exchange Act Periodic
      Reports, the certification furnished in Exhibits 32.1 and Exhibit 32.2 are
      deemed to accompany this Form 10-K and will not be deemed “filed” for purpose of
      Section 18 of the Exchange Act. Such certifications will not be deemed to be
      incorporated by reference into any filing under the Securities Act or the
      Exchange Act, whether made before or after the date hereof irrespective of
      any
      general incorporation language contained in any such filing, except to the
      extent that the registrant specifically incorporates it by reference .







(1) Incorporated
      by reference to Exhibit 2.01 of Registrant’s Report on Form 8-K (File No.
      000-30849) filed on September 15, 2005.




(2)  Incorporated
      by reference to Exhibits 3.3, 4.1 and 10.4, respectively, of Amendment No.
      1 to
      Registrant’s Registration Statement on Form S-1 (File No. 333-33716) filed with
      the Securities and Exchange Commission on June 21, 2000.




(3)  Incorporated
      by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for
      the year ending December 31, 2001.




(4)  Incorporated
      by reference to Exhibits 4.2 and 10.1, respectively, of Registrant’s
      Registration Statement on Form S-1 (File No. 333-33716) filed with the
      Securities and Exchange Commission on March 31, 2000.




(5)  Incorporated
      by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K for
      the year ending December 31, 2003.




(6)  Incorporated
      by reference to Exhibit 10.1 of Registrant’s Quarterly Report on Form 10-Q
      for the quarter ended March 31, 2005.




(7)  Incorporated
      by reference to Exhibit 10.1 of Registrant’s Quarterly Report on Form 10-Q
      for the quarter ended March 31, 2004.




(8)  Incorporated
      by reference to Exhibit 10.1 of Registrant’s Quarterly Report on Form 10-Q
      for the quarter ended June 30, 2004.




(c)  See
      the
      Consolidated Financial Statements and Supplementary Data beginning on page
      44 of
      this Report. Schedules not listed have been omitted because they are not
      applicable or required, or the information required to be set forth therein
      is
      included in the Consolidated Financial Statements or the Notes
      thereto.