**UNITED
STATES**


**SECURITIES
AND EXCHANGE COMMISSION**


**Washington,
D.C. 20549**





___________________




**FORM
10-Q**


___________________




**(Mark
One)**


**[X]**  **QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**


**SECURITIES
EXCHANGE ACT OF 1934**





**For
the quarterly period ended March 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 No.: 0-30849**





**WEBEX
COMMUNICATIONS, INC.**


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





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





**3979
Freedom Circle**


**Santa
Clara, California 95054**


**(Address
of principal executive offices)**





**Telephone:
(408) 435-7000**


**(Registrant's
telephone number, including area code)**





Indicate
by check mark whether the registrant (l) 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
at least the past 90 days. Yes [X] No [   ]





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





On May 2,
2005, 45,544,959 shares of Registrant's Common Stock, $0.001 par value, were
outstanding.













Form 10-Q
for quarter ended March 31, 2005





**WEBEX
COMMUNICATIONS, INC.**


**QUARTERLY
REPORT ON FORM 10-Q FOR THE PERIOD ENDED**


**MARCH
31, 2005**





**TABLE OF CONTENTS**





**Page
      No.****PART
      I. FINANCIAL INFORMATION****Item
      1**.Financial
      Statements
    3Condensed
      Consolidated Balance Sheets at March 31, 2005 and December 31, 2004
      (Unaudited)
    3Condensed
      Consolidated Income Statements for the three months ended March 31, 2005
      and 2004 (Unaudited)
    4Condensed
      Consolidated Statements of Cash Flows for the three
months
      ended March 31, 2005
      and 2004 (Unaudited)
    5Notes to Condensed
      Consolidated Financial Statements
    6**Item 2**.Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
    13**Item
      3**.Quantitative and
      Qualitative Disclosures About Market Risk
    35**Item
      4.**Controls
      and Procedures
    36**PART II. OTHER
      INFORMATION**
    37**Item
      2**.Changes
      in Securities, Use of Proceeds and Issuer Purchases of Equity
      Securities
    37**Item
      6**.Exhibits
    37**Signatures**
    39**Exhibit Index**
    40








Form 10-Q
for quarter ended March 31, 2005


TOC


PART I -
FINANCIAL INFORMATION


**Item
1.*****Financial
Statements***


**WEBEX
COMMUNICATIONS, INC.**





**CONDENSED CONSOLIDATED BALANCE
SHEETS**


(In
thousands; unaudited)





ASSETS





March
      31,
      2005
    
    
    December
      31,
      2004Current
      assets:Cash
      and cash equivalents
    
    $
    113,859
    
    $
    110,552Short-term
      investments
    
    
    93,390
    
    
    74,586Accounts
      receivable, net of allowances of $5,232 and $5,634, respectively
    
    
    34,525
    
    
    32,438Prepaid
      expenses and other current assets
    
    
    5,139
    
    
    4,817Prepaid
      income taxes
    
    
    —
    
    
    1,739Deferred tax
      assets
    
    
    4,666
    
    
    4,665Total
      current assets
    
    
    251,579
    
    
    228,797Property and
      equipment, net
    
    
    47,209
    
    
    44,783Goodwill
    
    
    1,822
    
    
    1,822Intangible
      assets, net
    
    
    3,338
    
    
    3,410Deferred tax
      assets
    
    
    5,320
    
    
    5,724Other
      non-current assets
    
    
    1,196
    
    
    1,257Total
      assets
    
    $
    310,464
    
    $
    285,793LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
    
    $
    6,672
    
    $
    8,685Accrued
      liabilities
    
    
    23,453
    
    
    20,179Deferred
      revenue
    
    
    11,601
    
    
    9,867Income
      tax payable
    
    
    1,682
    
    
    —Total
      liabilities
    
    
    43,408
    
    
    38,731Commitments
      and contingenciesStockholders'
      equity:Preferred
      stock, $0.001 par value, 5,000,000 shares authorized; no shares issued or
      outstanding
    
    
    —
    
    
    —Common
      stock
    
    
    45
    
    
    45Additional
      paid-in capital
    
    
    252,527
    
    
    245,807Deferred
      equity-based compensation
    
    
    (10
    )
    
    (15
    )Accumulated
      other comprehensive income
    
    
    2,687
    
    
    2,268Accumulated
      earnings/(deficit)
    
    
    11,807
    
    
    (1,043
    )Total
      stockholders' equity
    
    
    267,056
    
    
    247,062Total
      liabilities and stockholders' equity
    
    $
    310,464
    
    $
    285,793





See
accompanying notes to condensed consolidated financial statements.





Form 10-Q
for quarter ended March 31, 2005
 
 TOC


**WEBEX
COMMUNICATIONS, INC.**





**CONDENSED CONSOLIDATED INCOME STATEMENTS**


**(In
thousands, except per share data; unaudited** )





March
      31,
      2005
    
    
    March
      31,
      2004Net
      revenues
    
    $
    70,855
    
    $
    56,344Cost
      of revenues
    
    
    11,858
    
    
    9,525Gross
      profit
    
    
    58,997
    
    
    46,819Operating
      expenses:Sales and marketing
    
    
    24,103
    
    
    19,924Research and development
    
    
    10,067
    
    
    7,215General and administrative
    
    
    5,782
    
    
    3,407Equity-based compensation*
    
    
    1
    
    
    511Total operating expenses
    
    
    39,953
    
    
    31,057Operating
      income
    
    
    19,044
    
    
    15,762Interest
      and other income, net
    
    
    1,737
    
    
    112Net
      income before income tax
    
    
    20,781
    
    
    15,874Provision
      for income tax
    
    
    7,931
    
    
    5,873Net
      income
    
    $
    12,850
    
    $
    10,001Net
      income per share:Basic
    
    $
    0.29
    
    $
    0.23Diluted
    
    
    0.27
    
    
    0.22Shares
      used in per share calculations:Basic
    
    
    44,968
    
    
    42,954Diluted
    
    
    46,848
    
    
    46,459*Equity-based
      compensation:Sales and marketing
    
    $
    —
    
    $
    51Research and development
    
    
    —
    
    
    27General and administrative
    
    
    1
    
    
    433$
    1
    
    $
    511





See
accompanying notes to condensed consolidated financial statements.





Form 10-Q
for quarter ended March 31, 2005


TOC


**WEBEX
COMMUNICATIONS, INC.**





**CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS**


**(In
thousands; unaudited)**





**Three
      Months Ended****March
      31, 2005**
    
    
    **March
      31, 2004**Cash
      flows from operating activities:Net
      income
    
    $
    12,850
    
    $
    10,001Adjustments
      to reconcile net income to net cash provided by operating
      activities:Provisions for doubtful accounts and sales allowance
    
    
    2,858
    
    
    1,676Depreciation and amortization
    
    
    3,521
    
    
    2,554Loss from disposal of assets
    
    
    241
    
    
    —Deferred income taxes
    
    
    403
    
    
    —Tax benefit of stock plans
    
    
    2,667
    
    
    2,100Equity-based compensation
    
    
    1
    
    
    511Changes in operating assets and liabilities, net of
      acquisitions:Accounts
      receivable
    
    
    (4,946
    )
    
    (3,129
    )Prepaid
      expenses and other current assets
    
    
    (322
    )
    
    (1,133
    )Other
      non-current assets
    
    
    61
    
    
    554Accounts
      payable
    
    
    (2,013
    )
    
    2,408Accrued
      liabilities
    
    
    979
    
    
    (547
    )Income
      tax payable
    
    
    3,421
    
    
    3,425Deferred
      revenue
    
    
    1,734
    
    
    875Other
    
    
    420
    
    
    (524
    )Net cash provided by operating activities
    
    
    21,875
    
    
    18,771Cash
      flows from investing activities:Purchases
      of property and equipment
    
    
    (3,821
    )
    
    (19,717
    )Net
      purchases of short-term investments
    
    
    (18,804
    )
    
    (41,909
    )Net
      cash used in investing activities
    
    
    (22,625
    )
    
    (61,626
    )Cash
      flows from financing activities:Net
      proceeds from issuances of common stock
    
    
    7,647
    
    
    9,784Repurchase
      of common stock
    
    
    (3,590
    )
    
    —Net
      cash provided by financing activities
    
    
    4,057
    
    
    9,784Net
      change in cash and cash equivalents
    
    
    3,307
    
    
    (33,071
    )Cash
      and cash equivalents at beginning of the period
    
    
    110,552
    
    
    70,996Cash
      and cash equivalents at end of the period
    
    $
    113,859
    
    $
    37,925Supplemental
      disclosures of non-cash investing and financing
activities:Decrease in deferred equity-based compensation
    
    $
    (5
    )
    $
    (42
    )Unrealized gain on investments
    
    $
    (205
    )
    $
    41Capitalization of lease incentives
    
    $
    2,295
    
    $
    -Cash
      paid for:Income taxes
    
    $
    1,189
    
    $
    -





See
accompanying notes to condensed consolidated financial statements.







Form 10-Q
for quarter ended March 31, 2005
 
 **WEBEX
COMMUNICATIONS, INC.**
 **March
31, 2005 and 2004**
 **NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**


TOC


**1. Basis of Presentation**





The
accompanying unaudited condensed consolidated financial statements have been
prepared by WebEx Communications, Inc. (the "Company" or "WebEx") in accordance
with the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in accordance with such rules and
regulations. In the opinion of management, the accompanying unaudited financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position of the Company,
and its results of operations and cash flows. These financial statements should
be read in conjunction with the Company's audited consolidated financial
statements and notes thereto as of and for the year ended December 31, 2004,
included in the Company's Form 10-K filed with the Securities and Exchange
Commission on March 16, 2005 .





The
results of operations for the three months ended March 31, 2005 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2005 or any other future period, and the Company makes no
representations related thereto .





The
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 amounts reported in previous periods
have been reclassified to conform to the current period
presentation.








**2.
Revenue Recognition**





Revenue
is derived from the sale of web communications services. Web communications
services revenue is generated through a variety of contractual arrangements
directly with customers and with distribution partners, who in turn sell the
services to customers. The Company sells web communications services directly to
customers through service subscriptions or similar agreements and pay-per-use
arrangements. Under these arrangements, customers 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.* 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. In addition to committed and fixed fee 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 distribution partners,
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
distribution partners are deferred until the related services are provided or
until otherwise earned by WebEx. When the distribution partner bills the
end-user, WebEx sells the services on a discounted basis to the distribution
partner, which in turn marks up the price and sells the services to the
end-user. In such cases, WebEx contracts directly with the distribution partner
and revenue is recognized based on discounted amounts charged to the
distribution partner. A significant majority of the revenue derived from our
distribution partners comes from distribution agreements of this type. When
WebEx bills the end-user directly, a percentage of the proceeds generated from
the sale of WebEx services are paid to the distribution partner. In these cases
revenue is recognized based on amounts charged to the end-user, and amounts paid
to the distribution partner are recorded as sales and marketing expense.





**WEBEX
COMMUNICATIONS, INC.**
 **March
31, 2005 and 2004**
 **NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**


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 that 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 distribution partners under revenue sharing
arrangements. As of March 31, 2005 and December 31, 2004, accounts receivable
includes unbilled receivables of $4.2 million and $2.8 million respectively, for
unbilled per-minute-based charges that occurred during the final month of the
respective quarter.





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





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





The
following presents the detail of the changes in the sales reserve and allowance
for doubtful accounts for the three months ended March 31, 2005 and 2004 (in
thousands):








**Three
      Months****March
      31,**
      **2005**
    
    
    **March
      31,**
      **2004**Balance
      at beginning of quarter
    
    $
    5,634
    
    $
    6,837Sales
      reserveBalance at beginning of quarter
    
    
    4,631
    
    
    4,571Deducted from
      revenue
    
    
    2,621
    
    
    2,115Amounts
      written off
    
    
    (2,865
    )
    
    (2,004
    )Change
    
    
    (244
    )
    
    111****Balance
      at end of quarter
    
    
    4,387
    
    
    4,682Allowance
      for doubtful accountsBalance at beginning of quarter
    
    
    1,003
    
    
    2,266Charged
      (credited) to bad debt expense
    
    
    237
    
    
    (439
    )Amounts
      written off.
    
    
    (395
    )
    
    (178
    )Change
    
    
    (158
    )
    
    (617
    )Balance
      at end of quarter
    
    
    845
    
    
    1,649Balance
      at end of quarter.
    
    $
    5,232
    
    $
    6,331








**WEBEX
COMMUNICATIONS, INC.**
 **March
31, 2005 and 2004**
 **NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**


**4.
Net Income Per Share**





Basic net
income per common share is computed using the weighted-average number of common
shares outstanding for the period excluding restricted common shares subject to
repurchase, if any. Diluted net income per common share reflects the dilution of
restricted common stock subject to repurchase, if any, and incremental shares of
common stock issuable upon the exercise of stock options computed using the
treasury stock method.





The
following table sets forth the computation of basic and diluted net income per
common share for the three months ended March 31, 2005 and 2004 (in thousands
except per share amounts):








**Three
      Months Ended**
      **March
      31,******
    
    
    **2005**
    
    
    **2004**Numerator:Net
      income
    
    $
    12,850
    
    $
    10,001Denominator:Denominator for
      basic net income per share
    
    
    44,968
    
    
    42,954Effect
      of dilutive securities:Weighted average options outstanding
    
    
    1,880
    
    
    3,505Denominator for
      diluted net income per share
    
    
    46,848
    
    
    46,459Basic
      net income per common share
    
    $
    0.29
    
    $
    0.23Diluted
      net income per common share
    
    $
    0.27
    
    $
    0.22














Form 10-Q
for quarter ended March 31, 2005
 
 **WEBEX
COMMUNICATIONS, INC.**
 **March
31, 2005 and 2004**
 **NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**





The
following potential common shares have been excluded from the computation of
diluted net income per share for the three months ended March 31, 2005 and 2004
because their inclusion would have been antidilutive (in thousands):








****
    
    **March
      31,******
    
    
    **2005**
    
    
    **2004**Shares
      issuable under stock options
    
    
    4,105
    
    
    1,763





The
exercise price of antidilutive stock options outstanding as of March 31, 2005
range from $21.80 to $55.38 and as of March 31, 2004 the range was from $24.79
to $55.38.








**5.
Comprehensive Income**





Comprehensive
income/(loss) includes net income, foreign currency translation adjustments and
unrealized gains on investments as follows (in thousands):





**Three
      Months Ended****March
      31,****2005**
    
    
    **2004**Net
      income
    
    $
    12,850
    
    $
    10,001Other
      comprehensive income (loss), net of tax:Foreign
      currency translation adjustments
    
    
    388
    
    
    (565
    )Unrealized
      gain (loss) on investments
    
    
    (127
    )
    
    41261
    
    
    (524
    )Comprehensive
      income
    
    $
    13,111
    
    $
    9,477








**6.
Goodwill and Intangible Assets, net**


****


The
carrying amount of goodwill as of March 31, 2005 was $1.8 million. In accordance
with SFAS No. 142, the Company does not amortize goodwill but evaluates it at
least on an annual basis for impairment. The goodwill resulted from the April
2004 acquisition of CyberBazaar of Bangalore India, an audio conferencing
company, which was acquired to pursue directly the web conferencing market in
India. The Company completed its annual goodwill impairment test during the
fourth quarter of 2004 and determined that the carrying amount of goodwill was
not impaired.





Intangible
assets, net, as of March 31, 2005 and December 31, 2004 consisted of the
following (in thousands):





**March
      31, 2005**
    
    
    **December
      31, 2004**Intellectual
      property rights
    
    $
    4,326
    
    $
    4,326Trade
      name and domain name
    
    
    630
    
    
    630Customer
      related intangibles
    
    
    672
    
    
    6725,628
    
    
    5,628Less
      accumulated amortization
    
    
    (2,290
    )
    
    (2,218
    )Intangible
      assets, net
    
    $
    3,338
    
    $
    3,410





Amortization
expense for the three months ended March 31, 2005 and 2004 was $72,000 and
$40,000, respectively.





**WEBEX
COMMUNICATIONS, INC.**
 **March
31, 2005 and 2004**
 **NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**


Intangible
assets, net consist of purchased intellectual property rights, trade and domain
names and customer related intangibles. Amortization is recorded using the
straight-line method over the estimated useful lives of these assets. The
purchased intellectual property rights have separate components of $1.7 million,
$0.2 million and $2.4 million that are amortized over three, five and ten years,
respectively. The trademarks and domain names are amortized over ten years, and
the customer related intangibles have separate components of $0.2 million and
$0.5 million that are amortized over three and five years, respectively.





Future
amortization expense of existing intangibles will be as follows (in
thousands):





**Period
      ending March 31,**
    
    
    **Amortization**
      **expense**2005
      (remaining 9 months)
    
    $
    4802006
    
    
    5832007
    
    
    4632008
    
    
    3732009
    
    
    278Thereafter
    
    
    1,161Total
      amortization expense
    
    $
    3,338








**7.** **Equity-Based
Compensation** **net**


****


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 stock-based
compensation is amortized over the vesting period using the method described in
FASB Interpretation No. 28 (FIN 28) .





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 their fair value until the underlying options
vest .





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 (in thousands except per share amounts).








**Three
      Months Ended**
      **March
      31,******
    
    
    **2005**
    
    
    **2004**Net
      income as reported
    
    $
    12,850
    
    $
    10,001Add
      back: Stock-based compensation included in determination of net income,
      net of tax
    
    
    (1
    )
    
    301Deduct:
      Stock-based compensation including employees determined under the
      fair-value based method, net of tax
    
    
    (7,338
    )
    
    (6,717
    )Pro-forma
      net income as if the fair value based method had been applied to all
      awards
    
    $
    5,511
    
    $
    3,585Pro-forma
      net income per share as if the fair value based method had been applied to
      all awards:Basic
    
    $
    0.12
    
    $
    0.08Diluted
    
    $
    0.12
    
    $
    0.08








**WEBEX
COMMUNICATIONS, INC.**
 **March
31, 2005 and 2004**
 **NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**





**8.
Commitments and Contingencies**





*Contractual
Obligations*





WebEx
leases certain equipment and facilities under non-cancelable operating leases
expiring through 2014. Future minimum lease payments and purchase obligations by
year and in the aggregate, as of March 31, 2005, are as follows (in thousands):








**Contractual
      Obligations**
    
    
    **Remaining
      nine months of 2005**
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
      and thereafter
    
    
    TotalOperating
      lease obligations
    
    $
    3,982
    
    $
    4,750
    
    $
    4,659
    
    $
    5,116
    
    $
    4,623
    
    $
    17,973
    
    $
    41,103Purchase
      obligations
    
    
    13,080
    
    
    79
    
    
    8
    
    
    -
    
    
    -
    
    
    -
    
    
    13,167Other
      commitments
    
    
    917
    
    
    458
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    1,375Total
    
    $
    17,979
    
    $
    5,287
    
    $
    4,667
    
    $
    5,116
    
    $
    4,623
    
    $
    17,973
    
    $
    55,645


WebEx
leases office facilities under various operating leases that expire through
2014. 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 2008, which is included in the future
minimum rental payments. Future 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 $2.2 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 being 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 is being recognized based on an effective rate of rent per square foot,
which takes into account scheduled rent increases and the incentives provided by
the lessor, and results in the same amount of rent expense per square foot
occupied in all periods during the lease term. Total
future minimum lease payments under other operating leases amount to
approximately $17.3 million.





Rent
expense under operating leases was $1.7 million and $1.3 million for the three
months ended March 31, 2005 and 2004, respectively. Rent expense was reduced by
rental income of $29,000 and $8,000 for the three months ended March 31, 2005
and 2004, respectively.





At March
31, 2005, WebEx has purchase commitments totaling approximately $13.2 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 with the longest commitment expiring August 2007.





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, WebEx paid $500,000 in cash pursuant to the
agreement, which was fully expensed to research and development expense, and has
future payment obligations under the agreement totaling $1.4 million. The future
payment obligations are included in other commitments in the table above. WebEx
will obtain sole ownership of the 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. The parties have not yet entered into any such agreement regarding
proceeds. The agreement provides for termination of the agreement and
modification of the projects, schedule and funding under certain
circumstances.





**WEBEX
COMMUNICATIONS, INC.**
 **March
31, 2005 and 2004**
 **NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**


*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.  No tax
authorities are attempting to collect such taxes from WebEx.  However, it
is possible in the future that 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.  WebEx believes that such taxes, interest and
penalties, if any, are not estimable at this time.





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. In the
fourth quarter of 2004, income tax contingencies outstanding at the date of
acquisition were determined to be both probable and estimable and an income tax
liability was recorded and goodwill related to the acquisition was increased
accordingly. Any additional pre-acquistion and post-acquisition tax
contingencies determined to be both probable and estimable will be recorded as
either an addition to goodwill or income tax expense, respectively.











**9.
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 method for determining what information to report is based on the
way that management organizes the operating segments within WebEx for making
operational decisions and assessments of financial performance **





WebEx's
chief executive officer (CEO) is considered to be the chief operating
decision-maker. The CEO reviews financial information presented on a
consolidated basis for purposes of making operating decisions and assessing
financial performance. WebEx has determined that it operates in a single
operating segment, specifically; web communication services and has no
significant customers.








**10.
Recent Accounting Pronouncements**





In
December 2004, the FASB issued SFAS 123R, *Share-Based
Payment* , 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
no longer will be an alternative to financial statement recognition. Although
the Company has not yet determined whether the adoption of SFAS 123R will result
in amounts that are similar to the current pro forma disclosures under SFAS 123,
the Company is evaluating the requirements under SFAS 123R and expects the
adoption to have a significant adverse impact on its consolidated income
statement and net income per share.













Form 10-Q
for quarter ended March 31, 2005
 
 TOC


**Item 2.** ***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 as to our ability to
enhance the quality and variety of real-time communications, 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, our ability to introduce new product offerings and
increase revenue from existing products, our ability to integrate current and
emerging technology into our service offerings and our ability to find
replacements for third party technologies, expected expenses including those
related to sales and marketing, research and development and general and
administrative, our ability to collect insurance proceeds from our carrier
relating to losses from a fire at our Amsterdam headquarters in Europe, our
beliefs regarding the health and growth of the market for our web conferencing
services, anticipated increase in our customer base, expansion of our service
offerings and service functionalities, ability to reduce operating expenses,
expected revenue levels and sources of revenue, expected impact, if any, of
legal proceedings or changes in laws or regulations relating to our business,
expected increases in headcount, the adequacy of liquidity and capital
resources, the sufficiency of our cash reserves to meet our capital
requirements, expected growth in business and operations, our ability to realize
positive cash flow from operations, the ability of cash generated from
operations to satisfy our liquidity requirements, our ability to continue to
realize net earnings, 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 distribution partners for existing and new services,
the impact of distribution partner 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
recruit and retain employees particularly in the areas of sales, engineering,
support and hosting services, the ability of distribution partners 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 “Factors that
May Affect Results” 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 real-time, interactive, multimedia web communications services. These
services 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. Because our services enable users to share voice, data and video
with others in remote locations, we believe we can enhance the quality and
variety of real-time communications compared to traditional telephone
communications. Our services enable users to engage in media-rich, 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.





Our
current business focus is to continue to enhance and market our various web
communications services, to develop and deploy new services, to expand our sales
and marketing organizations, and to expand our WebEx MediaTone Network. We offer
the following services: WebEx Meeting Center, WebEx Meeting Center Pro, WebEx
Training Center, WebEx Support Center, WebEx Event Center, WebEx Enterprise
Edition, WebEx Sales Center, WebEx SMARTtech, WebEx Presentation Studio and our
newest service, MyWebExPC, which was launched in January 2005 .





Our
corporate and technical operations headquarters are each located in Santa Clara
County, California, in the cities of Santa Clara and Mountain View,
respectively. In addition, we have ten non-U.S. subsidiaries through which we
conduct various operating activities related to our business. In each of the
non-U.S. jurisdictions in which we have subsidiaries, China, Hong Kong, Japan,
Australia, India, the United Kingdom, France, Germany and the Netherlands, we
have employees or consultants engaged in sales and, in some cases, network
maintenance activities. 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. In 2004, we acquired CyberBazaar of
Bangalore India, an audio conferencing company, in order to directly pursue the
web conferencing market in India. We renamed the CyberBazaar entity WebEx
Communications India Pvt. Ltd. WebEx Communications India Pvt. Ltd, which we
sometimes refer to as WebEx India, has maintained the CyberBazaar offices and a
significant portion of the CyberBazaar management team and employees present at
the time of the acquisition. The results of WebEx India are included in the
consolidated financial statements of WebEx subsequent to April 30, 2004, the
effective date of the acquisition.








*Revenue
and Cash-Generation Models.* We sell
our services directly to customers, which in the first quarter of 2005 accounted
for approximately 86% of our revenue, or $60.9 million. We also sell our
services indirectly to customers through those of our distribution partners that
buy and resell our services, which sales in the first quarter of 2005 accounted
for approximately 14% of our revenue, or $10.0 million. With these types of
distribution partners, whom we also generally refer to as resellers,
w e sell to
and contract directly with the distribution partner, and revenue is recognized
based on net amounts charged to the distribution partner. We also have another
type of distribution partner—a distribution partner that acts as our sales or
referral agent. When a sale is made from us to a customer through the efforts of
this kind of distribution partner, the distribution partner receives from us a
percentage of the proceeds from the sale of WebEx services to the customer, and
we include the revenue received by us within the broad category of revenue
received from services sold directly to customers. We enter into distribution
relationships, either reseller or referral agent, so that we can increase total
revenue by obtaining customers that we could not obtain through our direct sales
efforts.





Historically,
revenue has been generated based on a monthly, fixed-fee subscription pricing
model. A customer may subscribe to a certain number of concurrent-user ports per
month, which would enable the customer to have that set number of users
connected to WebEx meetings at any one time, or to a minimum minutes commitment,
which would enable the customer to have up to a set number of total minutes
within the month to utilize our services. Another
of our fixed-fee 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. We refer
to the revenue associated with these monthly, fixed-fee subscription
arrangements, measured as of the end of any month, as committed
revenue .





In
addition, there are several situations in which customers are charged per minute
or usage-based pricing. These include: customer overage fees for port customers,
usage of minutes in excess of the minimum commitment, most types of telephony
charges, certain distribution partner arrangements and individual pay-per-use
services purchased directly from our website. Overage fees are charged when a
customer subscribing to a set number of ports uses more than the subscribed
number of ports in one or more web conference sessions. Per minute fees are
assessed when a customer on a minutes pricing model uses more than its monthly
commitment. Per minute telephone revenue comes when a customer in a web
conference session elects to have us set up and run the audio portion of the
conference, rather than the customer conducting its telephone usage
independently of us. A majority of revenue received from our telecommunications
partner arrangements is usage, or per-minute, based. Finally, when a customer
wants to use our services on a one-time basis by visiting our website,
purchasing the service and paying online by credit card, the pricing is
per-minute or usage based, except in instances where the online customer instead
purchases a one-month subscription for a fixed fee. 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 .
Uncommitted revenue is increasing as a percentage of our total
revenue.





*Market
Opportunities, Related Challenges and Our Responses.* **** We
believe the market for web conferencing 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, we believe a cost-saving decision is to hire an external web
conferencing vendor to meet a company’s web conferencing needs, rather than
undertaking the capital and personnel spending necessary to construct and
maintain an internal company web conferencing network. Additionally, companies
may perceive that web conferencing usage can reduce costs to the extent that web
conferencing displaces the need for individuals within companies to travel in
order to conduct business, conduct training or participate in large-attendee
events.





Another
trend favoring the projected growth of the web conferencing market is the
relative infancy of the web conferencing market. The adoption of web
conferencing may follow a pattern similar to that which has been observed with
other computer-related technologies. According to this pattern, the first users
can be grouped into a category called early adopters—a relatively small
percentage of potential users who first discover and are able to understand and
make use of a new technology. If the product seems useful, a second wave of
users may arise which is often many times larger than the number of early
adopters. In the usual case, this larger number of users materializes because of
workplace usefulness: employers start to understand the utility of the
technology in the workplace and encourage or require employee usage of the
technology. Eventually, if the utility of the technology is compelling enough,
the technology may become a staple of most workplaces and the technology is
deemed mainstream. Under this adoption pattern, the greatest growth in the
market occurs during this migration from second wave to mainstream usage. One
such example of this adoption pattern is usage of the desktop computer during
the 1980s. Another example is usage of word processing software associated with
the desktop computer during the 1990s. In each instance, time required to
migrate from the early adoption phase to the mainstream phase exceeded ten
years.








With some
technologies, the adoption pattern described above does not materialize fully.
If a technology has experienced early-adopter or second wave usage but then
proves not as useful as first believed or touted, or if an alternative
technology emerges, that technology may never progress to mainstream use. We
believe that, at present, web conferencing appears to be in either a very late
early adopter or an early second wave phase. Usage of the technology has
penetrated many worldwide corporations, but with many of these customers, this
penetration is in only one or a few divisions or departments of the corporation
and thus the percentage of employee users is still fairly low. So, there may
remain ahead for web conferencing the critical transition period from second
wave to mainstream adoption, where we believe the annual rate of growth of usage
would exceed previous rates of growth. However, there can be no assurance that
web conferencing will progress to mainstream use, and in fact usage of web
conferencing could regress.





There
exist a number of challenges to the projected market growth scenario for web
conferencing. One is a concern, actual or perceived, about security. As the
universe of corporate activities that can be conducted in a web conference
expands, more and more of these activities will embrace sensitive corporate or
government financial data, plans, projects or other proprietary information. If
web conferencing technologies do not have embedded within them adequate security
protections so that the contents of a web conference 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 conferencing technology, no matter who the vendor, 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 web conferencing 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 conferencing will require users to incorporate the use of this
technology as part of their normal business activity.





*Industry-Wide
Factors Relevant to Us.* The web
communications 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 web
communications services. For example, we compete with providers of traditional
communications technologies such as teleconferencing and videoconferencing,
applications software and tools companies, and web conferencing services such as
Centra Software, Cisco Systems, Citrix Systems, Genesys, IBM, Microsoft,
Oracle, Raindance and Macromedia, which in April 2005 announced that it had
signed a definitive agreement to be acquired by Adobe Systems. In addition to
the above competitors, certain of our distribution partners offer competitive
web conferencing services.





Competition
from Microsoft for the general web conferencing market, or from other vendors
specifically targeted at the low-end market, may adversely affect us. Microsoft
has become a more active participant in this web communications services market
since its acquisition of our competitor Placeware in 2003. Microsoft has a
current product offering which is competitive with ours and which is called
Microsoft Office Live Meeting. Microsoft Office Live Meeting is being marketed
together with other Microsoft software products and services under the name
Microsoft Office System. If Microsoft chose to deploy greater resources toward
the marketing of the Live Meeting service, Microsoft could become a more
significant competitor in the web communications market in which we operate.
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 its presence in the web
communications market, which 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 WebEx to compete in that segment of the market
and may cause some of our existing customers to switch to these competitors.
Also, such lower-cost offerings may force us to reduce the prices of our
services in order to attract or retain customers. If we are forced to reduce
prices, we may 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 and less expensive sales practices.








**Critical
Accounting Policies** ****





We
believe that there are a number of accounting policies that are critical to
understanding our historical and future performance, as these policies affect
the reported amounts of revenue and the more significant areas involving
management’s judgments and estimates. These significant accounting policies
relate to revenue recognition, sales reserves, allowance for doubtful accounts,
income taxes and goodwill and intangible assets. The policies, and our
procedures related to these policies, are described in detail below.








*Revenue
Recognition.* Revenue
is derived from the sale of web communications services. Web communications
services revenue is generated through a variety of contractual arrangements
directly with customers and with distribution partners, who in turn sell the
services to customers. We sell web communications 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”* , which
became effective during 2003. 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. 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 distribution partners, 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 reseller distribution
partners are deferred until the related services are provided or until otherwise
earned by us. We contract directly with distribution partners who are resellers,
and revenue is recognized based on net amounts charged to the distribution
partner.





Persuasive
evidence for all of our arrangements is represented by a signed contract. 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 sales reserve are charged to
revenue, reducing the revenue otherwise reportable. The sales reserve estimate
is based 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 financial
distress or failure of the customer are charged to the allowance for doubtful
accounts. The allowance estimate is based 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 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 last eight quarters ended March 31, 2005 (in
thousands):




****
    
    **Quarter
      Ended****March
      31,**
      **2005**
    
    
    **December
      31,**
      **2004**
    
    
    **September
      30,**
      **2004**
    
    
    **June
      30,**
      **2004**
    
    
    **March
      31,**
      **2004**
    
    
    **December
      31,**
      **2003**
    
    
    **September
      30,**
      **2003**
    
    
    **June
      30,**
      **2003**Balance
      at beginning of quarter
    
    $
    5,634
    
    $
    5,363
    
    $
    6,261
    
    $
    6,331
    
    $
    6,837
    
    $
    7,351
    
    $
    7,934
    
    $
    7,286Sales
      reserveBalance at beginning of quarter
    
    
    4,631
    
    
    4,447
    
    
    4,995
    
    
    4,682
    
    
    4,571
    
    
    4,618
    
    
    4,866
    
    
    3,710Deducted
      from revenues
    
    
    2,621
    
    
    2,518
    
    
    1,331
    
    
    2,309
    
    
    2,115
    
    
    1,919
    
    
    2,657
    
    
    3,585Amounts
      written off
    
    
    (2,865
    )
    
    (2,334
    )
    
    (1,879
    )
    
    (1,996
    )
    
    (2,004
    )
    
    (1,966
    )
    
    (2,905
    )
    
    (2,429
    )Change
    
    
    (244
    )
    
    184
    
    
    (548
    )
    
    313
    
    
    111
    
    
    (47
    )
    
    (248
    )
    
    1,156Balance at end of quarter
    
    
    4,387
    
    
    4,631
    
    
    4,447
    
    
    4,995
    
    
    4,682
    
    
    4,571
    
    
    4,618
    
    
    4,866Sales reserve as a
      percentage of
      gross accounts receivable
    
    
    11.0
    %
    
    12.2
    %
    
    12.8
    %
    
    15.2
    %
    
    16.1
    %
    
    16.2
    %
    
    16.7
    %
    
    17.8
    %Allowance
      for doubtful accountsBalance
      at beginning of quarter
    
    
    1,003
    
    
    916
    
    
    1,266
    
    
    1,649
    
    
    2,266
    
    
    2,733
    
    
    3,068
    
    
    3,576Charged
      (credited) to bad debt  expense
    
    
    237
    
    
    231
    
    
    (258
    )
    
    (135
    )
    
    (439
    )
    
    (268
    )
    
    364
    
    
    122Amounts
      written off
    
    
    (395
    )
    
    (144
    )
    
    (92
    )
    
    (248
    )
    
    (178
    )
    
    (199
    )
    
    (699
    )
    
    (630
    )Change
    
    
    (158
    )
    
    87
    
    
    (350
    )
    
    (383
    )
    
    (617
    )
    
    (467
    )
    
    (335
    )
    
    (508
    )Balance at end of quarter
    
    
    845
    
    
    1,003
    
    
    916
    
    
    1,266
    
    
    1,649
    
    
    2,266
    
    
    2,733
    
    
    3,068Allowance for doubtful accounts as a    percentage of gross
      accounts receivable
    
    
    2.1
    %
    
    2.6
    %
    
    2.6
    %
    
    3.8
    %
    
    5.6
    %
    
    8.0
    %
    
    9.9
    %
    
    11.2
    %Balance at end of
      quarter.
    
    $
    5,232
    
    $
    5,634
    
    $
    5,363
    
    $
    6,261
    
    $
    6,331
    
    $
    6,837
    
    $
    7,351
    
    $
    7,934Gross accounts
      receivable
    
    $
    39,757
    
    $
    38,072
    
    $
    34,694
    
    $
    32,918
    
    $
    29,198
    
    $
    28,251
    
    $
    27,651
    
    $
    27,336Reserve as a
      percentage of accounts  receivable
    
    
    13.1
    %
    
    14.8
    %
    
    15.4
    %
    
    19.0
    %
    
    21.7
    %
    
    24.2
    %
    
    26.6
    %
    
    29.0
    %





*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 and 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.





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, patents, customer contracts
and relationships, trade name and covenant not to sue. We assess the impairment
of goodwill annually
in 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 charges for goodwill impairment, which
could have material adverse effect on our income statement.





Form 10-Q
for quarter ended March 31, 2005





**Results
of Operations**





The
following table sets forth, for the periods indicated, the statements of
operations data as a percentage of net revenues.





**Three
      Months Ended**
      **March
      31,******
    
    
    **2005**
    
    
    **2004**Net
      revenues
    
    
    100
    %
    
    100
    %Cost
      of revenues
    
    
    17
    
    
    17Gross
      profit
    
    
    83
    
    
    83Operating
      expenses:Sales and marketing
    
    
    34
    
    
    35Research and development
    
    
    14
    
    
    13General and administrative
    
    
    8
    
    
    6Equity-based compensation
    
    
    -
    
    
    1Total
      operating expenses
    
    
    56
    
    
    55Operating
      income
    
    
    27
    
    
    28Interest
      and other income, net
    
    
    2
    
    
    0Provision
      for income tax
    
    
    11
    
    
    10Net
      income
    
    
    18
    %
    
    18
    %





*Net
revenues.* Net
revenues increased $14.5 million to $70.9 million for the three months ended
March 31, 2005 from $56.4 million for the three months ended March 31, 2004,
representing a 26% increase from 2004 to 2005. The increase for the three months
ended March 31, 2005 was primarily due to growth in our domestic and
international subscriber customer base and increased usage of existing and new
products. By the end of March 2005, the number of customers in our subscriber
base had grown by more than 23% from the end of March 2004.





One of
the measurement tools, or metrics, which we use to help forecast future
revenues, is what we refer to as our monthly revenue rate, or what we sometimes
call MRR. We define our monthly revenue rate 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
overage, telephone, reseller-related and pay-per-use revenues for the quarter;
divided by three. Our monthly subscription contracts at the end of March 2005
were approximately $17.5 million and our average monthly-uncommitted revenue in
the quarter ended March 31, 2005 was $7.4 million, and thus our monthly revenue
rate exiting March 2005 was $24.9 million. Certain one-time revenues, such as
set up fees, and the impact to revenue from changes in the sales reserve balance
are not included in MRR.





Another
metric we use to analyze customer losses and to help forecast future revenues is
monthly average lost subscription MRR. Our lost subscription MRR metric is
somewhat analogous to customer churn in the telecommunications business, except
that our lost subscription MRR is more inclusive than the churn metric used in
the telecommunications business. Whereas the telecommunications churn metric
typically includes only revenues lost because of customer terminations, our lost
subscription MRR includes not only revenues lost because of customer
terminations but also revenues lost because existing customers either have
reduced their subscription amounts or have elected to terminate their
subscriptions in favor of purchasing from our partners. We define our lost
subscription MRR as the quotient obtained from the following: (i) the average
monthly dollar amount of lost subscription contracts (including in that amount
reductions in subscription amounts and subscription amounts lost to the partner
channel) during the quarter, divided by (ii) our total subscriptions at the end
of the last month of the quarter plus the average monthly lost (including
reduced customer subscriptions and switches to partners) subscription contracts
for the quarter. We calculate and evaluate lost subscription MRR on a quarterly
basis. Our lost subscription MRR for the three months ended March 31, 2005 was
2.0% per month. The following table shows our MRR, and lost subscription MRR,
for the five quarters ended March 31, 2005 (in millions):





**Quarter
      Ended******
    
    
    **March
      31, 2005**
    
    
    **December
      31, 2004**
    
    
    **September
      30, 2004**
    
    
    **June
      30,**
      **2004**
    
    
    **March
      31, 2004**Uncommitted
      usage - monthly average during the quarter
    
    $
    7.4
    
    $
    6.6
    
    $
    6.0
    
    $
    5.9
    
    $
    5.1Contracted
      subscriptions at the end of the quarter
    
    
    17.5
    
    
    16.7
    
    
    15.9
    
    
    15.1
    
    
    14.1Total
      MRR
    
    $
    24.9
    
    $
    23.3
    
    $
    21.9
    
    $
    21.0
    
    $
    19.2%
      of subscription MRR lost per month
    
    
    2.0
    %
    
    1.9
    %
    
    1.8
    %
    
    1.8
    %
    
    1.8
    %











*Cost
of revenues.* Our 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, depreciation, and amortization of acquired patents. Cost of
revenues increased $2.3 million to $11.9 million for the three months ended
March 31, 2005 from $9.5 million for the three months ended March 31, 2004. As a
percent of revenue, cost of revenues remained constant at 17% for the three
months ended March 31, 2005 and 2004. The increase in absolute dollars for the
three months ended March 31, 2005 was primarily due to increases in the costs
for delivering existing and new services to more customers domestically and
internationally, additions to our technical staff to support our installed base
of customers, and expenditures to expand and improve our worldwide network. In
February 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 and the three months ended March 31, 2005, 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.* Our sales
and marketing expense consists of personnel costs, including commissions, as
well as costs of public relations, advertising, marketing programs, lead
generation, travel and trade shows. Sales and marketing expense increased $4.2
million to $24.1 million for the three months ended March 31, 2005 from $19.9
million for the three months ended March 31, 2004. The increase for the three
months ended March 31, 2005 was primarily due to the result of increased
spending on sales and support personnel, commission expenses associated with our
increased sales volume and additional spending on advertising and marketing
related programs to build brand awareness and generate leads for our sales
force. For the three months ended March 31, 2005, we also incurred $1.1 million
in additional expenses resulting from a fire at our Amsterdam headquarters in
February 2005. We anticipate recovery of some or all of this loss from our
insurance carrier in either the second or third quarter of this year as the
claim procedures are completed. Any amounts we do recover will be recorded as a
reduction to sales and marketing expense in the period received.





*Research
and development.* Our
research and development expense consists primarily of salaries and other
personnel-related expenses, depreciation of equipment and supplies. Research and
development expense increased $2.9 million to $10.1 million for the three months
ended March 31, 2005 from $7.2 million for the three months ended March 31,
2004. The increase for the three months ended March 31, 2005 was primarily
related 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.





*General
and administrative.* Our
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 and accounting. General and administrative
expense increased $2.4 million to $5.8 million for the three months ended March
31, 2005 from $3.4 million for the three months ended March 31, 2004. The
increase for the three months ended March 31, 2005 was primarily due to
increased spending on employee-related expenses, increased professional service
expenses to help us comply with the new regulations imposed by the
Sarbanes-Oxley Act of 2002, and an increase in bad debt expense. Bad debt
expense increased $0.6 million to an expense of $0.2 million in the three months
ended March 31, 2005 from a credit of $0.4 million in the three months ended
March 31, 2004. This increase was due to higher projected future credit losses
based on historical losses.





*Equity-based
compensation* . Our
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 warrants
and options to individuals who are not employees or directors. 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 decreased $0.5 million to immaterial expense for the three
months ended March 31, 2005 from $0.5 million for the three months ended March
31, 2004. This








d ecrease
was due to the vesting of employee awards and the effects of the fluctuations in
our stock price on the recognition of expense on options granted to
non-employees. Equity-based compensation expense related to the unvested portion
of non-employee options is impacted by changes in our stock price and will
fluctuate accordingly. 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 is comprised of net investment income, interest
income and expense, and other expenses. Interest and other income, net increased
$1.6 million to $1.7 million for the three months ended March 31, 2005 from $0.1
million for the three months ended March 31, 2004. The increase for the three
months ended March 31, 2005 compared to March 31, 2004 was primarily due to
increased interest income from greater cash and investments balances and from
gains from currency exchange as a result of non-functional currency transactions
of our foreign subsidiaries. In the three months ended March 31, 2005, other
expenses included a gain from foreign currency exchange of $0.8 million, about
$0.6 million of which related to prior periods, compared to a loss of $0.3
million in the three months ended March 31, 2004.





*Income
taxes* .
    We recorded a provision for income taxes of $7.9 million
for the three months ended March 31, 2005 based on our estimated effective tax
rate for full year 2005 of 38.2%. Our effective tax rate for 2005 is higher than
2004 primarily because the 2004 rate included a component for valuation
allowance and the benefit of equity based compensation. We will continue to use
net operating loss carryforwards to offset U.S. taxable income in 2005; however,
the utilization is now limited on an annual basis based on Section 382 of the
Internal Revenue Code. In the fourth quarter of 2005, we will evaluate our
deferred tax assets and valuation allowance related to the utilization of our
net operating loss carryforwards. When and if realized, the tax benefit of these
deferred assets will be accounted for as a credit to additional paid-in capital
rather than a reduction of income tax expense.





*Net
income* . As a
result of the foregoing, net income increased $2.8 million to $12.9 million for
the three months ended March 31, 2005 from $10.1 million for the three months
ended March 31, 2004.








**Liquidity
and Capital Resources**





As of
March 31, 2005, cash, cash equivalents and short-term investments were $207.2
million, an increase of $22.1 million compared to $185.1 million as of December
31, 2004.





Net cash
provided by operating activities was $21.9 million for the three months ended
March 31, 2005, as compared to $18.8 million for the three months ended March
31, 2004. The increase in net cash provided by operating activities was
primarily the
result of net income adjusted for non-cash components, increases in taxes
payable and deferred revenue , offset
in part by growth in accounts receivable and decreases in accounts payable.





Net cash
used in investing activities was $22.6 million for the three months ended March
31, 2005, as compared to $61.6 million for the three months ended March 31,
2004. The decrease in net cash used in investing activities related primarily to
decreased purchases of short-term investments for the three months ended March
31, 2005 and decreased spending on purchases of property and equipment as
compared to the quarter ended March 31, 2004, during which we acquired land and
building for our new switching center. The purchase of property and equipment
primarily relates to capital expenditures for equipment, hardware and software
used in our MediaTone Network.





Net cash
provided by financing activities was $4.1 million for the three months ended
March 31, 2005, as compared to $9.8 million for the three months ended March 31,
2004. The decrease in net cash provided by financing activities was primarily
the result of lower cash received from stock option exercises and employee stock
purchase plan purchases, offset in part by cash used in our share repurchase
program totaling $3.6 million. Under the share repurchase program, which our
board of directors authorized in July 2004 for a one-year duration and which
leaves to management discretion whether and to what extent shares are
repurchased during that one-year period, a maximum of $40 million in shares of
our common stock may be repurchased on the open market. To date, approximately
$9.4 million has been used to repurchase our common stock.





As of
March 31, 2005, our material purchase commitments, including usage of
telecommunication lines and data services, equipment and software purchases, and
construction of leasehold improvements at new leased facilities, totaled $13.2
million. The
majority of the purchase commitments are expected to be settled in cash within
12 months with the
longest commitment expiring in August 2007.





We lease
office facilities under various operating leases that expire through 2014. 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 2008, which is included in the future
minimum rental payments. Future minimum lease payments under this lease began in
January 2005 and total an aggregate of $23.8 million for the life of the lease.








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 reborrowed at any time prior to the maturity
date. The credit agreement expires June 15, 2005. 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 March 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 generated cash from operations in the most
recent quarter and each of the previous fourteen quarters. 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.








**Long
Term Contracts**





*The
following table summarizes our significant contractual obligations at March 31,
2005, and the effect such obligations are expected to have on our liquidity and
cash flows in future periods (in thousands).*




**Payments
due by period**
 **Contractual
      Obligations**
    
    
    **Remaining
      nine months of 2005**
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
      and thereafter
    
    
    TotalOperating
      lease obligations
    
    $
    3,982
    
    $
    4,750
    
    $
    4,659
    
    $
    5,116
    
    $
    4,623
    
    $
    17,973
    
    $
    41,103Purchase
      obligations
    
    
    13,080
    
    
    79
    
    
    8
    
    
    -
    
    
    -
    
    
    -
    
    
    13,167Other
      commitments
    
    
    917
    
    
    458
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    1,375Total
    
    $
    17,979
    
    $
    5,287
    
    $
    4,667
    
    $
    5,116
    
    $
    4,623
    
    $
    17,973
    
    $
    55,645





**Factors
That May Affect Results**





The risks
and uncertainties described below are not the only ones we face. If an adverse
outcome of any of the following risks actually occurs, our business, financial
condition or results of operations could suffer.








*Although
we realized net earnings for each of the fiscal quarters in 2002, 2003 and 2004,
and the first fiscal quarter in 2005, there is no assurance that we will be able
to achieve comparable results in the future, and we may experience net losses in
future years or quarters.*





We
realized net earnings in each of the fiscal quarters in 2002, 2003 and 2004 and
the first fiscal quarter in 2005. However, we may experience net losses in
future years or quarters if the web communications market softens significantly,
or if existing or future competitors reduce our current market share of the web
communications market or require us to reduce our prices substantially to remain
competitive. If we incur net losses in the future, we may not be able to
maintain or increase the number of our employees, our investment in expanding
our services and network, or our sales, marketing and research and development
programs in accordance with our present plans, each of which is critical to our
long-term success.











*Because
our quarterly results vary and are difficult to predict, we may fail to meet
quarterly financial expectations, which may cause our stock price to decline.*





Because
of the emerging nature of the market for web communications services, and
because of the uncertain impact of competition, our quarterly revenue and
operating results may fluctuate from quarter to quarter and may vary from
publicly announced quarterly or annual financial guidance. In addition, because
we have two different pricing models and the less predictable of the two
currently represents a greater percentage of our revenue than it has in the
past, our revenue and operating results will be more difficult to predict. The
two pricing models are what we refer to as, respectively, subscription-based and
usage-based, and the less predictable of the two is the usage-based pricing
model.





From a
revenue standpoint, our dominant pricing model has been a monthly, fixed-fee
subscription model. Under this model, a customer may subscribe to a certain
number of concurrent-user ports per month, which would enable the customer to
have up to that number of users connected to WebEx meetings at any one time, or
to a monthly minimum minutes commitment which would provide the customer with up
to a set number of people minutes per month with which to utilize our services.
Another of our fixed-fee 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.





In
addition, there are several situations in which customers are charged per
minute, or usage-based pricing. These include: customer overage fees, most types
of telephony charges, certain distribution partner arrangements and individual
pay-per-use purchased directly from our website. 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 pricing model uses more than its monthly commitment. Per
minute telephone revenue comes when a customer in a web conference session
elects to have us set up and run the audio portion of the conference, rather
than the customer conducting its telephone usage independent of us. The vast
majority of revenue received from our telecommunications partner arrangements is
usage, or per-minute, based. Finally, we make available on our website, for
purchase online by credit card and on a usage-based basis, certain of our
services.





Historically,
the majority of our revenue has been fixed fee, but the percentage of our
revenue which is derived from usage-based pricing models is greater than it has
been in the past. For the quarter ended March 31, 2005, usage-based revenue
exceeded 30% of our total revenue. The various usage-based revenue sources are
more variable and difficult to predict than our fixed-fee 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 percent of our revenue derived from the
various per-minute or usage-based sources increases, our overall revenue becomes
more difficult to predict. Since fixed-fee revenue is what we refer to as
committed revenue, and the usage-based revenue is what we call uncommitted
revenue, another way to describe this increasing unpredictability is that our
uncommitted revenue has grown faster than our committed revenue.





A number
of other factors could also cause fluctuations in our operating results.





Factors
outside our control include:





-
    our
      distribution partners’ 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;





-
    market
      acceptance of our services;





-
    the
      growth rate of the market for web communications services; 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 services we offer, and our introduction of new and enhanced
      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 platform, and our competitors’
success could impact our longer-term financial performance by reducing demand
for our services, which would harm our business.








*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 and
our network infrastructure, and on upgrading leased facilities such as our
corporate headquarters. For example, in 2004 we purchased a building in Mountain
View, California which now serves as our primary network switching facility, and
also in 2004 we entered into a ten-year lease for space in a building located in
Santa Clara, California 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.*





Almost
all of our customer contracts have initial terms of three to 12 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,
customer contracts can be terminated by the customer during the term of the
agreement. Our monthly average lost subscription MRR, an internal measurement
tool we use to evaluate subscription-based revenues we have lost, for the
quarter ended March 31, 2005 was 2.0%. 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. The
reasons why a customer would cancel use of our services have included 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. 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 would harm our business and operating results.








*Our
business and operating results may suffer if we fail to establish distribution
relationships, if our distribution partners 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.*





As of
March 31, 2005, we had distribution agreements in place with telecommunications
partners and software vendors and service providers that during the first
quarter of 2005 accounted for 14% of our revenue, which revenue generally
consists of initial set-up fees, commitment payments, and service fees. The
majority of the payments received from these distribution partners are per
minute or usage-based payments. The minority of payments are fixed-fee payments
and are initially recorded as deferred revenue because we defer








revenue
related to initial set-up fees received at the beginning of the relationship and
record revenue from subscription services over the course of the service period
as the distribution partner resells our services. We also do not recognize
commitment fees as revenue until the commitment fee is paid and fully earned by
the use of services by the reseller’s end user customers or forfeiture of the
commitment at the end of the commitment period. We cannot anticipate the amount
of revenue we will derive from these relationships in the future. We must
continue to establish and extend these distribution partnerships. 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 distribution partners are not prohibited from
offering and reselling the products and services of our competitors, and a
significant majority of our distribution partners currently do so. Such
distribution partners (i) 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 partner’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 partner’s distribution arrangement with us and possibly also become
the exclusive distribution partner of that competitor. Specifically with regard
to the telecommunications-provider distribution channel for web conferencing
services which may prove economically significant in the future, our web
conferencing competitors may be more successful in partnering with
telecommunications providers, or telecommunications providers may independently
enter the web conferencing 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 distribution partners do not
successfully distribute our services, if we lose existing distribution partners
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 communications services will
suffer and our business and operating results will be harmed.








*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 distribution
partners. We enter into distribution relationships so that we can obtain
additional customers through distribution partners that we could not obtain
through our direct sales efforts. Under our agreements with our distribution
partners, either the distribution partner or WebEx bills the end-user customers.
When the distribution partner bills the end-user, we sell the services on a
discounted basis to the distribution partner, which in turn marks up the price
and sells the services to the end-user. In such cases, we contract directly with
the distribution partner, whom in this type of distribution arrangement we refer
to as a reseller, and revenue is recognized on amounts charged to the
distribution partner. A significant majority of the revenue derived from our
distribution partners comes from distribution agreements of this type. We also
have distribution arrangements where we, rather than the distribution partner,
bill the end user. When we bill the end-user, a percentage of the proceeds
generated from the sale of WebEx services is paid to the distribution partner,
whom in this type of distribution arrangement we sometimes call a referral
agent. Revenue is recognized based on amounts charged to the end-user and
amounts paid to the distribution partner are recorded as sales expense. In
either case, the revenue received by us when a sale is made by a distribution
partner 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 by our distribution partners are sales that, absent the existence of
the distribution arrangement, would be made by our direct sales force, our sales
revenue may decrease. Additionally, to the extent our existing customers
discontinue direct agreements with us in order to purchase our services from
distribution partners who are resellers, our revenue 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.*





Our
standalone WebEx Meeting Center service, the service which generates our largest
sales revenue, accounted for less than 45% of our revenue for the quarter ended
March 31, 2005. We have developed and are selling other services, such as our
Event Center, Training Center, Support Center, Sales Center and Enterprise
Edition services, our SMARTtech service, and our audio conferencing service
offered through our subsidiary in India. We currently offer our newest service,
MyWebExPC, for free on an introductory and limited usage basis, although in the
future we intend to offer two versions of this service and to charge a fee for
use of the current version at that time. 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.









*If
our services fail to function when used by large numbers of participants,
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, since mid-2002 we have been able
to maintain average daily peak usage at under 50% of our data network capacity
by adding capacity whenever there is a trend toward increased average daily peak
usage. During the quarter ended March 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
increase capacity in 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,
particularly our data network, we may lose customers and be unable to attract
new customers and our operating results would be harmed.








*If
our marketing, branding and lead-generation efforts are not successful, our
business may be harmed.*





We
believe that continued marketing and brand recognition efforts will be critical
to achieve widespread acceptance of our web communications services. Our
marketing and advertising campaigns or branding efforts may not be successful
given the expense required. 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 cause our
future revenue growth to decrease. Also, 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. There is no assurance that
we will identify, and if we identify be able to secure, the number of strategic
sales leads necessary to help generate standardized marketplace acceptance of
our services, or to maintain rates of revenue growth we have experienced in the
past. If our marketing, branding or lead-generation efforts are not successful,
our business and operating results will be harmed.








*We
rely on our China subsidiary, which exposes us to risks of economic instability
in China, risks related to political tension between China and the United
States, and risks arising from an inability to enforce our intellectual property
rights.*





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, and also 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 each of
Hefei, Hangzhou, Shanghai, Shenzhen and Suzhou. Our China subsidiary employed,
as of March 31, 2005, approximately 804 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 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 any removal of that control could
result in a significant appreciation of the yuan relative to the U.S. dollar and
thereby increase the negative effect of the foreign exchange risk we face in
China. In addition, 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,
but growing, 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. These services are generally priced 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 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;





-
    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, 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, 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
depends on our ability to deliver our services to multiple platforms and
existing, or legacy, systems and to modify our services and underlying
technology as new versions of applications are introduced. In addition, the
success of our services depends on our ability to anticipate and support new
standards, especially web standards.








*We
license third-party technologies, and if we cannot continue to license these or
alternate technologies in a timely manner and on commercially reasonable terms,
our business could suffer.*





We intend to continue to license technologies from third parties, including
applications used in our research and development activities and technology,
which is integrated into our services. For example, we license database,
operating system, server and enterprise marketing automation software, billing
software, font-rendering technology and voice-over-Internet protocol (VOIP)
technology. These 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 into
our services, our marketing communications operations or our online sales
operations. 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. For
example, our worldwide headcount increased from 1,334 at March 31, 2004 to 1,889
at March 31, 2005. We expect to continue to increase our personnel during the
remainder of 2005. 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, we have recently completed the physical transfer of our
network switching operations center to a new building and, 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-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. Any failure
by us to manage our growth effectively could disrupt our operations or delay
execution of our business plan and could consequently harm our business.








*Breaches
of our physical or technical security systems 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 that of our 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. 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, in recent months we have had executive management
replacements in our marketing and product management organizations, two
important areas of our business. 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 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 the remainder of 2005. As the U.S. economy in general and the technology
sector in particular continue to grow, we could encounter increasing difficulty
hiring qualified personnel. If we encounter difficulty hiring, integrating and
retaining a sufficient number of qualified personnel in the future, the quality
of our web communications 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. In addition, the recent Financial Accounting
Standards Board (FASB) rule announcement concerning equity compensation
accounting for financial reporting purposes will add, we believe, complexity and
uncertainty to our efforts to attract and retain qualified personnel. If, in an
effort to attract and retain personnel, we do not undertake sufficient
reductions in our current equity compensation practices, our compensation
expense will increase appreciably under the new FASB rule and our stock price
may be negatively affected, thus depriving us of an equity-related motivation to
attract and keep workers, which would hurt our business. On the other hand, if
due to the FASB rule change we curtail our equity compensation practices too
much and fail to continue 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 technical or management talent
or we may have to pay higher salaries to obtain or retain such talent, which
would also hurt our business.








*Interruption
or malfunction of our internal business processing systems, including a new
system we installed during 2004 and a comprehensive database system upgrade to
be implemented during 2005, could disrupt the services we provide our customers
and could harm our business* *.*





Our
business, with its approximately 11,600 subscription customers and 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. During 2004, we completed deployment of and are now 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 likely would 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) a modestly longer collection cycle as a result of delayed invoicing
or invoice presentation issues, and (ii) our having to deploy additional
resources internally to complete the processing of certain sales transactions.
In addition, during 2005 we will be installing an enhanced version of our
internal database system 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 new database system, including bugs or start-up problems
relating to the new system, could result in delays or errors in our financial
accounting, 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 web communications 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 communications services are delivered to customers. Any system
failure, including the malfunction of the new server management system, that
causes an interruption in our web communications services or a decrease in their
performance, could harm our relationships with our customers and distribution
partners. In








addition,
some of our communications hardware and software are hosted at third-party
co-location facilities. These systems and operations are vulnerable to damage or
interruption from human error, telecommunications failures, physical or remote
break-ins, 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. Finally,
in 2004 we purchased approximately nine acres of real property in Mountain View,
California on which resides a building which we use primarily as a switching
center facility to accommodate growing usage requirements on our WebEx MediaTone
Network. Any malfunction or service interruption we suffer relating to our
network switching operations to the new building could disrupt our
communications services, could harm our relationships with our customers and
distribution partners, and could harm our business.








*We
might have liability for content or information transmitted through our
communications 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 communications 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 and 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 23 issued patents,
including eight we acquired in connection with our 2003 acquisition of certain
assets of Presenter, Inc. and five we purchased in 2004 from NCR Corporation.
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 30
patent applications pending in the United States including eight patent
applications assigned to us in the Presenter asset acquisition transaction. 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. 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 and All Time Collaboration. Federal trademark applications acquired from
Presenter consist of the trademarks iPresenter, iPresentation and Instant
Presentation. We also refer to trademarks of other corporations and
organizations in this document. 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;





-
    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. 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
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 2004 we acquired CyberBazaar, an audio conferencing company in India
which we have since renamed WebEx Communications India Pvt. Ltd. Integrating any
newly acquired businesses, employees, technologies or services may be expensive
and time-consuming. To finance any material acquisitions, it may be necessary
for us to significantly deplete 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 or successfully integrate the employees,
technology, products or services of any acquired businesses into our existing
business. To illustrate, in connection with the CyberBazaar acquisition in 2004,
we added the former CyberBazaar workforce to our worldwide employee headcount,
we continue to offer the former CyberBazaar audio conferencing services and we
plan to eventually integrate our WebEx audio conferencing and network technology
into the WebEx India operation. However, if we fail to integrate the








former
CyberBazaar employees and other employees hired after the acquisition into our
company, or otherwise fail to successfully manage these new operations as our
new WebEx India subsidiary in India, or if we fail to successfully upgrade the
former CyberBazaar audio conferencing assets or expand our worldwide network
into India, the acquisition may not meet our financial expectations. If we are
unable to integrate any newly acquired entities or technologies effectively,
including those related to our CyberBazaar acquisition, our operating results
could suffer. Future acquisitions by us, or deterioration of the businesses we
have acquired, could also result in large and immediate write-downs, or
incurrence of debt and contingent liabilities, any of which would harm our
operating results.








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





The
market for web communications 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 web communications services. For example, we compete with
providers of traditional communications technologies such as teleconferencing
and videoconferencing, applications software and tools companies, and web
conferencing services such as Centra Software, Cisco Systems, Citrix Systems,
Genesys, IBM, Microsoft, Oracle, Raindance and Macromedia, which in April 2005
announced that it had signed a definitive agreement to be acquired by Adobe
Systems. In addition to the above competitors, certain of our distribution
partners offer competitive web conferencing services. 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 to 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
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 for the general web conferencing market or from other vendors
specifically targeted at the low-end market may adversely affect our operating
results.*





Microsoft
has become a more active participant in the web communications services market
since its acquisition of our competitor Placeware in 2003. Microsoft has a
current product offering which is competitive with ours and which is called
Microsoft Office Live Meeting. Microsoft Office Live Meeting is being marketed
together with other Microsoft software products and services under the name
Microsoft Office System. Microsoft in March 2005 announced certain improvements
to the Live Meeting service and other product developments, and also an
acquisition related to the areas of communication and collaboration. Microsoft’s
investment of development and marketing resources in products or services that
compete directly with WebEx and Microsoft’s integrations of competitive
functionality with other communication and collaboration offerings may have an
adverse impact on WebEx’s business. 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
its presence in the web communications market, which 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. If we are unable to deliver competitive offerings for that segment
of the market, our operating results may suffer. Also, such lower-cost offerings
may force us to reduce the prices of our services in order to attract or retain
customers, which in turn also may affect the extent and type of resources we
deploy in the selling of our 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 and less expensive sales practices, could have
a negative effect on our operating results.











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





The
market for web communications services is relatively new and rapidly evolving.
Market demand for communications services over the Web is uncertain. If the
market for web communications 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 communications services for
      websites;





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





-
    the
      willingness of our distribution partners to integrate web communications
      services for websites 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 and 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 communications
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 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
communications services.








*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. Any
sustained increase in the price of petroleum products above present levels would
likely 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 distribution partners 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 which
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.








*Changes
to financial accounting standards may affect our results of operations and cause
us to change our business practices* *.*





We
prepare our financial statements to conform with generally accepted accounting
principles, or GAAP, in the United States. These accounting principles are
subject to interpretation by the American Institute of Certified Public
Accountants, the Securities and Exchange Commission and various bodies formed to
interpret and create appropriate accounting policies. A change in those policies
can have a significant effect on our reported results and may affect our
reporting of transactions completed before a change is announced. Changes to
those rules or the questioning of current practices may adversely affect our
reported financial results or the way we conduct our business. For example,
accounting policies affecting many aspects of our business, including rules
relating to employee equity compensation programs, have recently been revised or
are under review. ****** The
Financial Accounting Standards Board (FASB) during the fourth quarter of 2004
adopted final rules which will change the way companies account for equity
compensation in their financial statements. FASB has stated that the new
accounting standard would become effective for fiscal years that commence after
June 2005. This change in accounting standards will require us to report as a
compensation expense options granted to and shares purchased by our employees
pursuant to our stock option and employee stock purchase plans. If we do not
change our current equity compensation practices, the new accounting rule could
have a negative effect on our reported net income. 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 pending 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 number of stock options we
grant in the future to employees. The new FASB rule, we believe, will add
complexity and uncertainty to our management of employee compensation practices.
On the one hand, if we underestimate the effect of the new rule on the
technology labor market and 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 technical or management talent. On the other hand, if we
overestimate the effect of the new FASB rule on the technology labor market and
do not sufficiently curtail our current equity compensation practices, our
compensation expense will increase appreciably and our stock price may be
negatively affected, thus depriving us of an equity-related motivation to
attract and keep workers which in turn would hurt our business.











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





Section
404 of the Sarbanes-Oxley Act of 2004 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, 2004, and we have an ongoing program to perform the system and process
evaluation and testing necessary to continue to comply with these requirements.
We expect to continue to incur increased expense and to devote additional
management resources to Section 404 compliance. 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 .








*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 April 30, 2005, our stock price has traded as high
as $23.75 on March 3, 2005 and as low as $19.25 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;





-
    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.








TOC





**Item
3.*****Quantitative
and Qualitative Disclosures About Market Risk***





*Foreign
Currency Risk.* A small,
but growing, part of our business is conducted outside the United States. An
increasing percentage of this international business is priced 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. When the amount of revenue or expense from sources outside the
United States becomes more 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.














TOC





**Item
4.*****Controls and Procedures*******





(a) *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 recognized 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. Additionally, in designing disclosure controls and
procedures, our management necessarily was 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 the end of the period covered by this Quarterly Report on
Form 10-Q, our Chief Executive Officer and Chief Financial Officer have
concluded that, subject to the limitations noted above, our disclosure controls
and procedures were effective to ensure that material information relating to
us, including our consolidated subsidiaries, is made known to them by others
within those entities, particularly during the period in which this Quarterly
Report on Form 10-Q was being prepared.





(b) *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
the evaluation described in Item 4(a) above that occurred during our last fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.





Form 10-Q
for quarter ended March 31, 2005


TOC





**PART
II — OTHER INFORMATION**








**Item
2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities*****.***





**(c)**  **Issuer
Purchases of Equity Securities.**





The
following table sets forth purchases of WebEx securities by WebEx during the
first 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**January
      1, 2005 to January 31, 2005
    
    
    --
    
    
    --
    
    
    --
    
    $
    34,174,000February
      1, 2005 to February 28, 2005
    
    
    156,400
    
    $
    22.954
    
    
    156,400
    
    $
    30,584,000March
      1, 2005 to March 31, 2005
    
    
    --
    
    
    --
    
    
    --
    
    $
    30,584,000Total
    
    
    156,400
    
    $
    22.954
    
    
    156,400
    
    $
    30,584,000




(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 authorized the repurchase of up to $40,000,000 of the Company’s common
stock over a 12 month period ending July 22, 2005.










TOC





**Item 6. Exhibits** ***.***





**Exhibits:**





**Exhibit**
      **Number**
    ****
      **Description**3.1*
    Amended
      and Restated Certificate of Incorporation3.2**
    Amended
      and Restated Bylaws4.1*
    Form
      of Common Stock Certificate10.1
    Registrant’s
      2000 Employee Stock Purchase Plan (as amended on March 31,
      2005)10.2
    Registrant’s
      2005 Executive Cash Bonus Plan Summary31.1
    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








__________




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





**  Incorporated
by reference from Exhibit 3.2 of Registrant's Annual Report on Form 10-K (File
No. 0-30849) for the fiscal year ended December 31, 2000 filed with the
Securities   and Exchange Commission on April 2, 2001.





+  The
certifications filed as Exhibits 32.1 and 32.2 are not deemed “filed” for
purpose of Section 18 of the Exchange Act and are not to be incorporated by
reference into any filing of the Company under the Securities Act of 1933 or the
Securities Exchange Act of 1934, 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.














Form 10-Q
for quarter ended March 31, 2005


TOC





**SIGNATURES**





Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.


**WEBEX
      COMMUNICATIONS, INC.**Date: May 10, 2005
    By:
    /s/ MICHAEL T. EVERETTMichael
      T. EverettChief Financial
      Officer
      (Duly Authorized Officer and
      Principal Financial officer)
  **WEBEX
      COMMUNICATIONS, INC.**Date: May 10, 2005
    By:
    /s/ DEAN MACINTOSHDean
      MacIntoshVice President,
      Finance
      (Duly Authorized Officer and
      Principal Financial
officer)







Form 10-Q
for quarter ended March 31, 2005


TOC





**EXHIBIT INDEX**


**Exhibit**
      **Number**
    ****
      **Description**3.1*
    Amended
      and Restated Certificate of Incorporation3.2**
    Amended
      and Restated Bylaws4.1*
    Form
      of Common Stock Certificate10.1
    Registrant’s 2000 Employee Stock Purchase Plan (as
      amended on March 31, 2005)10.2
    Registrant’s 2005 Executive Cash Bonus Plan
      Summary31.1
    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


__________





*  Incorporated
by reference from Exhibits 3.3 and 4.1 of Amendment No. 1 to the Registrant's
Registration Statement on Form S-1 (File No. 333-33716) filed with the
Securities and Exchange Commission on September 21, 2000.





**  Incorporated
by reference from Exhibit 3.2 of Registrant's Annual Report on Form 10-K (File
No. 0-30849) for the fiscal year ended December 31, 2000 filed with the
Securities and Exchange Commission on April 2, 2001.





+  The
certifications filed as Exhibits 32.1 and 32.2 are not deemed “filed” for
purpose of Section 18 of the Exchange Act and are not to be incorporated by
reference into any filing of the Company under the Securities Act of 1933 or the
Securities Exchange Act of 1934, 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.