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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(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, 2007

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



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WEBEX COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)



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

3979 Freedom Circle

Santa Clara, California 95054

(Address of principal executive offices)

Telephone: (408) 435-7000

(Registrant's telephone number, including area code)



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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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x    Accelerated filer ̈Non-accelerated
filer ̈

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

The number of shares of WebEx common stock outstanding
as of May 1, 2007 was 50,332,219 shares.



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WEBEX COMMUNICATIONS, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED

MARCH 31, 2007

TABLE OF CONTENTS



|                              |  |                                                                                                                |  |         
|----------------------------- |  | -------------------------------------------------------------------------------------------------------------- |  | --------
|                              |  |                                                                                                                |  | Page No.
|PART I. FINANCIAL INFORMATION |  |                                                                                                               
|                              |  |                                                                                                               
|Item 1.                       |  | Financial Statements                                                                                           |  |         
|                              |  |                                                                                                               
|                              |  | Condensed Consolidated Balance Sheets as of March 31, 2007 (Unaudited) and December 31, 2006 (Audited)         |  | 3       
|                              |  |                                                                                                               
|                              |  | Condensed Consolidated Statements of Income for the three months ended March 31, 2007 and 2006 (Unaudited)     |  | 4       
|                              |  |                                                                                                               
|                              |  | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006 (Unaudited) |  | 5       
|                              |  |                                                                                                               
|                              |  | Notes to Condensed Consolidated Financial Statements (Unaudited)                                               |  | 6       
|                              |  |                                                                                                               
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                          |  | 17      
|                              |  |                                                                                                               
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                     |  | 32      
|                              |  |                                                                                                               
|Item 4.                       |  | Controls and Procedures                                                                                        |  | 33      
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                               
|                              |  |                                                                                                               
|Item 1.                       |  | Legal Proceedings                                                                                              |  | 34      
|                              |  |                                                                                                               
|Item 1A.                      |  | Risk Factors                                                                                                   |  | 34      
|                              |  |                                                                                                               
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                    |  | 51      
|                              |  |                                                                                                               
|Item 6.                       |  | Exhibits                                                                                                       |  | 52      
|                              | 
|Signatures                    |  | 53                                                                                                            
|                              | 
|Exhibit Index                 |  | 54                                                                                                            



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PART IFINANCIAL INFORMATION

Item 1.Financial Statements

WEBEX COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)



|                                                                                                                          |  |                |         |                   |   |        
|------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | ----------------- | - | -------
|                                                                                                                          |  | March 31, 2007 |         | December 31, 2006
|                                                                                                                          |  | (Unaudited)    |         |                  
|ASSETS                                                                                                                    |  |                |         |                   |   |        
|Current assets:                                                                                                           |  |                |         |                   |   |        
|Cash and cash equivalents                                                                                                 |  | $              | 29,708  |                   | $ | 54,687 
|Short-term investments                                                                                                    |  |                | 366,140 |                   |   | 290,465
|Accounts receivable, net of allowances of $7,809 and $7,493, respectively                                                 |  |                | 56,194  |                   |   | 53,838 
|Prepaid expenses and other current assets                                                                                 |  |                | 10,496  |                   |   | 10,193 
|Deferred tax assets                                                                                                       |  |                | 14,607  |                   |   | 10,883 
|                                                                                                                          |  |                |         |                   |   |        
|Total current assets                                                                                                      |  |                | 477,145 |                   |   | 420,066
|Property and equipment, net                                                                                               |  |                | 45,816  |                   |   | 48,594 
|Goodwill                                                                                                                  |  |                | 26,109  |                   |   | 26,965 
|Intangible assets, net                                                                                                    |  |                | 12,112  |                   |   | 12,971 
|Deferred tax assets                                                                                                       |  |                | 8,176   |                   |   | 5,583  
|Other non-current assets                                                                                                  |  |                | 2,157   |                   |   | 2,078  
|                                                                                                                          |  |                |         |                   |   |        
|Total assets                                                                                                              |  | $              | 571,515 |                   | $ | 516,257
|                                                                                                                          |  |                |         |                   |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                      |  |                |         |                   |   |        
|Current liabilities:                                                                                                      |  |                |         |                   |   |        
|Accounts payable                                                                                                          |  | $              | 5,648   |                   | $ | 5,253  
|Accrued liabilities                                                                                                       |  |                | 30,996  |                   |   | 25,116 
|Deferred revenue                                                                                                          |  |                | 18,170  |                   |   | 16,429 
|Income tax payable                                                                                                        |  |                | 2,588   |                   |   | 3,042  
|                                                                                                                          |  |                |         |                   |   |        
|Total current liabilities                                                                                                 |  |                | 57,402  |                   |   | 49,840 
|                                                                                                                          |  |                |         |                   |   |        
|Non-current liabilities                                                                                                   |  |                | 6,651   |                   |   | 6,191  
|                                                                                                                          |  |               
|Commitments and contingencies                                                                                             |  |                |         |                   |   |        
|                                                                                                                          |  |               
|Stockholders equity:                                                                                                     |  |                |         |                   |   |        
|Preferred stock, $0.001 par value (5,000 shares authorized; no shares issued or outstanding)                              |  |                |        |                   |   |       
|Common stock, $0.001 par value (250,000 shares authorized; 50,199 and 49,290 shares issued and outstanding, respectively) |  |                | 50      |                   |   | 49     
|Additional paid-in capital                                                                                                |  |                | 385,926 |                   |   | 355,482
|Accumulated other comprehensive income                                                                                    |  |                | 4,482   |                   |   | 4,162  
|Accumulated earnings                                                                                                      |  |                | 117,004 |                   |   | 100,533
|                                                                                                                          |  |                |         |                   |   |        
|Total stockholders equity                                                                                                |  |                | 507,462 |                   |   | 460,226
|                                                                                                                          |  |                |         |                   |   |        
|Total liabilities and stockholders' equity                                                                                |  | $              | 571,515 |                   | $ | 516,257
|                                                                                                                          |  |                |         |                   |   |        

See accompanying notes to condensed consolidated financial statements.



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WEBEX COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data; unaudited)



|                                                              |  |                             |         |      |   |       
|------------------------------------------------------------- |  | --------------------------- | ------- | ---- | - | ------
|                                                              |  | Three months endedMarch 31,
|                                                              |  | 2007                        |         | 2006
|Net revenues                                                  |  | $                           | 107,171 |      | $ | 88,464
|Cost of revenues                                              |  |                             | 16,754  |      |   | 15,971
|                                                              |  |                             |         |      |   |       
|Gross profit                                                  |  |                             | 90,417  |      |   | 72,493
|                                                              |  |                             |         |      |   |       
|Operating expenses:                                           |  |                             |         |      |   |       
|Sales and marketing                                           |  |                             | 40,918  |      |   | 34,449
|Research and development                                      |  |                             | 13,459  |      |   | 13,506
|General and administrative                                    |  |                             | 13,228  |      |   | 9,574 
|                                                              |  |                             |         |      |   |       
|Total operating expenses                                      |  |                             | 67,605  |      |   | 57,529
|                                                              |  |                             |         |      |   |       
|Operating income                                              |  |                             | 22,812  |      |   | 14,964
|Interest and other income, net                                |  |                             | 3,359   |      |   | 1,735 
|                                                              |  |                             |         |      |   |       
|Income before income taxes                                    |  |                             | 26,171  |      |   | 16,699
|Provision for income taxes                                    |  |                             | 9,881   |      |   | 7,648 
|                                                              |  |                             |         |      |   |       
|Net income                                                    |  | $                           | 16,290  |      | $ | 9,051 
|                                                              |  |                             |         |      |   |       
|Net income per share:                                         |  |                             |         |      |   |       
|Basic                                                         |  | $                           | 0.33    |      | $ | 0.19  
|Diluted                                                       |  | $                           | 0.31    |      | $ | 0.19  
|                                                              |  |                            
|Weighted average shares used to compute net income per share: |  |                             |         |      |   |       
|Basic                                                         |  |                             | 49,776  |      |   | 46,641
|Diluted                                                       |  |                             | 52,217  |      |   | 48,129

See accompanying notes to condensed consolidated financial statements.



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WEBEX COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands; unaudited)



|                                                                                  |  |                             |          |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | --------------------------- | -------- | - | ---- | - | ------- | -
|                                                                                  |  | Three months endedMarch 31, |         
|                                                                                  |  | 2007                        |          |   | 2006 |  
|Cash flows from operating activities:                                             |  |                             |          |   |      |   |         |  
|Net income                                                                        |  | $                           | 16,290   |   |      | $ | 9,051   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                             |          |   |      |   |         |  
|Provisions for doubtful accounts and sales reserve                                |  |                             | 5,988    |   |      |   | 4,824   |  
|Depreciation and amortization                                                     |  |                             | 5,602    |   |      |   | 5,121   |  
|Loss from disposal of assets                                                      |  |                             |         |   |      |   | 72      |  
|Deferred income taxes                                                             |  |                             | (5,461   | ) |      |   | (2,847  | )
|Tax benefit of stock plans                                                        |  |                             | 7,383    |   |      |   | 4,147   |  
|Excess tax benefit from stock-based compensation                                  |  |                             | (4,591   | ) |      |   | (1,470  | )
|Stock-based compensation                                                          |  |                             | 4,932    |   |      |   | 6,629   |  
|Changes in operating assets and liabilities:                                      |  |                             |          |   |      |   |         |  
|Accounts receivable                                                               |  |                             | (8,344   | ) |      |   | (6,842  | )
|Prepaid expenses and other current assets                                         |  |                             | (303     | ) |      |   | (581    | )
|Other non-current assets                                                          |  |                             | (79      | ) |      |   | (146    | )
|Accounts payable                                                                  |  |                             | 395      |   |      |   | (3,860  | )
|Accrued liabilities                                                               |  |                             | 6,340    |   |      |   | 6,426   |  
|Income tax payable                                                                |  |                             | (273     | ) |      |   | (3,678  | )
|Deferred revenue                                                                  |  |                             | 1,741    |   |      |   | 1,939   |  
|Other                                                                             |  |                             | 956      |   |      |   | 509     |  
|                                                                                  |  |                             |          |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                             | 30,576   |   |      |   | 19,294  |  
|                                                                                  |  |                             |          |   |      |   |         |  
|Cash flows from investing activities:                                             |  |                             |          |   |      |   |         |  
|Purchases of property and equipment                                               |  |                             | (1,965   | ) |      |   | (3,749  | )
|Purchases of available-for-sale securities and other investments                  |  |                             | (124,730 | ) |      |   | (27,448 | )
|Maturities and sales of available-for-sale securities and other investments       |  |                             | 48,419   |   |      |   | 12,572  |  
|                                                                                  |  |                             |          |   |      |   |         |  
|Net cash used in investing activities                                             |  |                             | (78,276  | ) |      |   | (18,625 | )
|                                                                                  |  |                             |          |   |      |   |         |  
|Cash flows from financing activities:                                             |  |                             |          |   |      |   |         |  
|Net proceeds from issuances of common stock                                       |  |                             | 18,172   |   |      |   | 17,597  |  
|Excess tax benefit from stock-based compensation                                  |  |                             | 4,591    |   |      |   | 1,470   |  
|Repurchase of common stock                                                        |  |                             | (42      | ) |      |   |        |  
|                                                                                  |  |                             |          |   |      |   |         |  
|Net cash provided by financing activities                                         |  |                             | 22,721   |   |      |   | 19,067  |  
|                                                                                  |  |                             |          |   |      |   |         |  
|(Decrease) increase in cash and cash equivalents                                  |  |                             | (24,979  | ) |      |   | 19,736  |  
|Cash and cash equivalents at beginning of the period                              |  |                             | 54,687   |   |      |   | 18,101  |  
|                                                                                  |  |                             |          |   |      |   |         |  
|Cash and cash equivalents at end of the period                                    |  | $                           | 29,708   |   |      | $ | 37,837  |  
|                                                                                  |  |                             |          |   |      |   |         |  
|Supplemental disclosures of non-cash investing and financing activities:          |  |                             |          |   |      |   |         |  
|Goodwill adjustment recorded in conjunction with Intranets.com, Inc. acquisition  |  |                             | (856     | ) |      |   | (1,607  | )
|Cash paid for:                                                                    |  |                             |          |   |      |   |         |  
|Income taxes                                                                      |  |                             | 8,280    |   |      |   | 9,898   |  

See accompanying notes to condensed consolidated financial statements.



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WEBEX COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Basis of Presentation and
Significant Accounting Policies

The accompanying condensed consolidated financial statements of WebEx Communications (the
Company or WebEx) as of March 31, 2007 and for the three months ended March 31, 2007 and 2006 are unaudited and in the opinion of management have been prepared 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, 2006,
included in the Companys Form 10-K filed with the Securities and Exchange Commission on February 27, 2007, as amended on April 30, 2007.

Certain reclassifications have been made to prior period amounts to conform to current period presentation. The Company revised the presentation of the condensed consolidated statement of cash flows for the three
months ended March 31, 2006 to reclassify the gross purchases and sales of variable rate demand notes from cash and cash equivalents to cash flows used in investing activities. This reclassification resulted in increased cash flows used in
investing activities of $5.0 million for the three months ended March 31, 2006.

The results of operations for the three months ended
March 31, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007 or any other future period, and the Company makes no representations related thereto. The condensed consolidated
financial statements include the accounts of WebEx and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Revenue Recognition

Revenue
is derived from the sale of web collaboration services. Web collaboration services revenue is generated through a variety of contractual arrangements directly with customers and with resellers, who in turn sell the services to customers. The Company
sells web collaboration services directly to customers through service subscriptions or similar agreements and pay-per-use arrangements. Under these arrangements, customers typically access the application hosted on WebEx servers using a standard
web browser. Subscription arrangements include monthly subscriber user fees, user set-up fees and training. The subscription arrangements are considered service arrangements in accordance with Emerging Issues Task Force (EITF) Issue No. 00-3,
Application of AICPA Statement of Position 97-2, Software Revenue Recognition, to Arrangements That Include the Right to Use Software Stored on Another Entitys Hardware, and with multiple deliverables under EITF 00-21, Accounting for
Revenue Arrangements with Multiple Deliverables. In addition, because the Company provides its applications as a service, the Company follows the provisions of Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 104,
Revenue Recognition. Under EITF 00-21, all deliverables are considered one unit of accounting. During the initial term of an agreement, the Company may provide technical consulting services such as training, web-page design and custom
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 recognized ratably
(i.e. straight-line) over the current term of the contract. The Company recently began to offer professional services to train customers how to use WebExs web collaboration services to improve sales, marketing, training, and other
business activities. These professional services are recognized upon delivery of the service as prescribed in SAB No. 104.

Some minute-based subscriptions involve a quarterly, semi-annual or annual rather than monthly commitment by the customer. In these cases, all monthly billing is in arrears and monthly revenue is recognized based on actual usage during the
month. If, following the last month billed, aggregate actual usage is less than the subscription amount, then in addition to actual usage for the final month, revenue is recognized for the remaining amount of the contractual commitment not
previously billed. In addition to committed and flat-rate or subscription service revenue, WebEx derives revenue from pay-per-use services, usage in excess of commitments and other usage-based charges that are recognized as such services are
provided. WebEx refers to these forms of revenue as uncommitted revenue.



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The Company also enters into reselling arrangements with resellers, which purchase and resell the
Companys services on a discounted or pay-per-use basis. In such cases, revenue is recognized based on net amounts charged to the reseller. 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, delivery has occurred and collectibility is reasonably assured. 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. In some
cases the Companys reseller arrangements may require guaranteed minimum revenue commitments that are billed in advance to the reseller. Amounts billed in advance are deferred until the related services are provided or until otherwise earned by
WebEx. When the reseller bills the end-user, WebEx sells the services on a discounted basis to the reseller, which in turn marks up the price and sells the services to the end-user.

In certain cases, the Company enters into another type of distribution arrangementknown as a referral arrangementin which a third party
refers a potential customer to WebExs direct sales force, which in turn seeks to enter into a contract directly with the potential customer. In these situations, WebEx bills the end-user directly and WebEx pays a percentage of the proceeds
generated from the sale of WebEx services to the third party. In these cases revenue is recognized based on amounts charged to the end-user, and amounts paid to the third party are recorded as sales and marketing expense.

The Company has begun to recognize revenue related to its new business platform WebEx Connect. The Company recognizes revenue for customer use of third
party software made available through the WebEx Connect marketplace under SAB No. 104, Revenue Recognition. In these transactions, WebEx acts as a sales agent for the third party and does not take title to the product or bear the risk of
collection or returns. Thus, revenue is recognized on a net basis, which is based on the gross fees received by WebEx from the customer less a fee to the third party. Revenue for these software services related to WebEx Connect is recognized ratably
(i.e. straight-line) as the service is provided.

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

Deferred revenue includes
amounts billed to customers for which revenue has not been recognized and generally results from the following: (1) unearned portion of monthly billed subscription service fees; (2) unearned portion of annual or other period billed
subscription service fees; (3) deferred set-up fees; and (4) advances received from resellers under revenue sharing arrangements.

As of March 31, 2007 and December 31, 2006, accounts receivable includes receivables of $8.3 million and $5.0 million respectively, for unbilled per-minute-based charges that occurred during the final month of the quarter.

Recent Accounting Pronouncements

In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 159, The Fair Value Option for Financial Assets and Financial
LiabilitiesIncluding an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 expands the use of fair value accounting but does not affect existing standards, which require assets or liabilities to be carried at fair value. Under
SFAS 159, a company may elect to use fair value to measure eligible items at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date.
Eligible items include, but are not limited to, accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees, issued debt and firm commitments. SFAS 159 is effective for
fiscal years beginning after November 15, 2007 and is required to be adopted by the Company in the first quarter of 2008. WebEx is currently determining whether fair value accounting is appropriate for any of its eligible items and cannot
estimate the impact, if any, that SFAS 159 will have on its consolidated results of operations and financial condition.

In September 2006,
the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157), which provides guidance on how to measure assets and liabilities that use fair value. SFAS 157 will apply whenever another US GAAP standard requires (or permits)



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assets or liabilities to be measured at fair value but does not expand the use of fair value to any new circumstances. This standard also will require
additional disclosures in both annual and quarterly reports. SFAS 157 will be effective for financial statements issued for fiscal years beginning after November 15, 2007, and will be adopted by the Company beginning in the first quarter of
2008. WebEx is currently evaluating the potential impact this standard may have on its financial position and results of operations.

In
July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 prescribes a recognition threshold and measurement attribute for
financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and
transition. The Company adopted the provisions of FIN 48 effective January 1, 2007. The adoption of FIN 48 did not have a material impact to the Companys consolidated financial position, results of operations or cash flows. For additional
information regarding the adoption of FIN 48, see note 4.

Note 2: Pending Merger with Cisco Systems, Inc.

On March 15, 2007, WebEx entered into an Agreement and Plan of Merger (Merger Agreement) with Cisco Systems, Inc. and Wonder Acquisition Corp., a
wholly-owned subsidiary of Cisco Systems (Cisco Subsidiary). As directed by the Merger Agreement, on March 27, 2007 Cisco, through Cisco Subsidiary, commenced a tender offer to purchase all of the outstanding shares of WebEx (the WebEx Shares)
at a purchase price of $57.00 per share (the Tender Offer), net to the seller in cash without interest, less brokerage fees and less any required withholding taxes. The complete text of the Merger Agreement, together with other disclosure documents
filed by WebEx with the Securities and Exchange Commission that summarize the Tender Offer and other aspects of the proposed acquisition transaction, may be found in WebExs filings with the SEC at www.sec.gov on various dates on or
after March 15, 2007. As soon as practicable following completion of the Tender Offer, Cisco Subsidiary will merge with and into WebEx (the Merger).

The consummation of the Tender Offer and the completion of the Merger are subject to certain conditions, including the tender of a majority of the outstanding WebEx Shares, (determined on a fully diluted basis), the
expiration or termination of any waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act), and the obtainment of all approvals applicable to the Merger under the antitrust, competition or
merger control laws of certain non-U.S. jurisdictions. The Merger Agreement also contains certain termination rights of Cisco Systems and WebEx and provides that, upon the termination of the Merger Agreement under specified circumstances, WebEx will
be required to pay Cisco Systems a termination fee of $77.0 million.

On April 6, 2007, the waiting period under the HSR Act
applicable to the Tender Offer was terminated and, accordingly, the condition relating to the expiration or termination of the HSR Act waiting period has been satisfied.

Note 3: Employee Stock Benefit Plans and Stock-Based Compensation

Stock Plans

The Company has granted stock options to employees, directors and consultants under the 1998 Stock Option Plan and the 2000 Stock
Incentive Plan. Beginning in the second quarter of 2006, the Company also began to issue restricted stock units (RSUs) as well as stock-settled stock appreciation rights (SARs) as allowed under the 2000 Stock Incentive Plan. In addition, during the
fourth quarter of 2006 the Company granted performance-based restricted stock units to certain individuals, which vest based on the Company achieving certain targeted goals. Under the 1998 Stock Option Plan and the 2000 Stock Incentive Plan, the
Company has authorized a total of 26,936,769 shares available for grant. Grants to employees under these plans generally expire after 10 years or earlier in the case of termination or death. Vesting under these plans generally occurs over four
years. As of March 31, 2007, there were a total of 1,332,182 shares available for issuance under the 2000 Stock Incentive Plan and no shares under the 1998 Stock Option Plan.

WebEx also administers the 2000 Employee Stock Purchase Plan, which along with the 2000 Stock Incentive Plan was approved by the stockholders on
June 17, 2000. A total of 3,637,398 shares of common stock have been reserved for issuance under this plan. This plan allows eligible employees to purchase common stock at 85% of the lower of the fair value of common stock on either the first
day or last day of a defined participation period. In May 2005, WebEx changed the defined participation period from 24 months to 6 months. As of March 31, 2007, 731,445 shares were available for issuance under this plan.



8



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##### Table of Contents

A summary of the stock option and stock-settled stock appreciation right activity under the 1998 and 2000
stock plans for the period ended March 31, 2007 was as follows:



|                                              |  |           |   |  |                                |      |                                                   |     |                                         |   |        
|--------------------------------------------- |  | --------- | - |  | ------------------------------ | ---- | ------------------------------------------------- | --- | --------------------------------------- | - | -------
|                                              |  | Shares    |   |  | Weighted-AverageExercise Price |      | WeightedAverageRemainingContractualTerm (Inyears) |     | Aggregate IntrinsicValue (In thousands)
|Outstanding at December 31, 2006              |  | 7,094,956 |   |  | $                              | 23.2 |                                                   |     |                                         |   |        
|Granted                                       |  | 54,000    |   |  | $                              | 39.6 |                                                   |     |                                         |   |        
|Exercised                                     |  | (921,264  | ) |  | $                              | 20.2 |                                                   |     |                                         |   |        
|Forfeited/cancelled/expired                   |  | (142,177  | ) |  | $                              | 23.2 |                                                   |     |                                         |   |        
|                                              |  |           |   |  |                                |      |                                                   |     |                                         |   |        
|Outstanding at March 31, 2007                 |  | 6,085,515 |   |  | $                              | 23.8 |                                                   | 7.2 |                                         | $ | 201,384
|                                              |  |           |   |  |                                |      |                                                   |     |                                         |   |        
|Vested and expected to vest at March 31, 2007 |  | 5,230,605 |   |  | $                              | 23.2 |                                                   | 7.0 |                                         | $ | 176,120
|                                              |  |           |   |  |                                |      |                                                   |     |                                         |   |        
|Vested at March 31, 2007                      |  | 3,012,603 |   |  | $                              | 21.2 |                                                   | 6.0 |                                         | $ | 107,502
|                                              |  |           |   |  |                                |      |                                                   |     |                                         |   |        

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the
difference between WebEx's closing stock price on the last trading day of the first quarter of 2007 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders
exercised their options and SARs on March 31, 2007. This amount changes based on the fair market value of WebExs stock. Total intrinsic value of options and SARs exercised for the three months ended March 31, 2007 and 2006 was
$22.9 million and $17.6 million, respectively. The Company issues new shares of common stock upon the exercise of stock options and SARs.

A summary of nonvested restricted stock units as of March 31, 2007 and changes during the three months ended were as follows:



|                               |  |         |   |  |                                      |     
|------------------------------ |  | ------- | - |  | ------------------------------------ | ----
|                               |  | Shares  |   |  | Weighted AverageGrant Date FairValue
|Nonvested at December 31, 2006 |  | 610,659 |   |  | $                                    | 37.5
|Granted                        |  | 103,942 |   |  | $                                    | 46.5
|Vested                         |  | (2,399  | ) |  | $                                    | 36.6
|Forfeited                      |  | (22,519 | ) |  | $                                    | 37.4
|                               |  |         |   |  |                                      |     
|Nonvested at March 31, 2007    |  | 689,683 |   |  | $                                    | 38.9
|                               |  |         |   |  |                                      |     

Included within the table above, the Company has granted 76,000 performance-based restricted stock
units. Total compensation costs recognized related to these performance-based awards during the first quarter of 2007 was approximately $77,000. The fair value of the Companys restricted stock units was calculated based upon the fair market
value of the Companys closing stock price at the date of grant.

Stock-Based Compensation under SFAS 123R

Effective January 1, 2006, WebEx adopted the fair value recognition provisions of SFAS No. 123 (revised 2004), Share-Based Payment
(SFAS 123R), using the modified prospective transition method. The following table summarizes the stock-based compensation expense recognized under the provisions of SFAS 123R in the Consolidated Statements of Income for the three months ended
March 31, 2007 and 2006:



|                                                           |  |                                  |        |   |                                  |   |      
|---------------------------------------------------------- |  | -------------------------------- | ------ | - | -------------------------------- | - | -----
|                                                           |  | Three months endedMarch 31, 2007 |        |   | Three months endedMarch 31, 2006
|Cost of revenues                                           |  | $                                | 598    |   |                                  | $ | 778  
|Sales and marketing                                        |  |                                  | 1,946  |   |                                  |   | 2,702
|Research and development                                   |  |                                  | 1,236  |   |                                  |   | 1,545
|General and administrative                                 |  |                                  | 1,152  |   |                                  |   | 1,604
|                                                           |  |                                  |        |   |                                  |   |      
|Stock-based compensation expense before income tax benefit |  |                                  | 4,932  |   |                                  |   | 6,629
|Income tax benefit                                         |  |                                  | (1,098 | ) |                                  |   |     
|                                                           |  |                                  |        |   |                                  |   |      
|Stock-based compensation expense after income tax benefit  |  | $                                | 3,834  |   |                                  | $ | 6,629
|                                                           |  |                                  |        |   |                                  |   |      



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As of March 31, 2007, total unamortized stock-based compensation cost related to non-vested equity
instruments as well as the weighted average remaining vesting period was as follows:



|                                                          |  |                                       |        |                                         |    
|--------------------------------------------------------- |  | ------------------------------------- | ------ | --------------------------------------- | ---
|                                                          |  | Unamortized Stock-CompensationExpense |        | Weighted AverageRemaining VestingPeriod
|                                                          |  | (In thousands)                        |        | (In years)                             
|Stock options and stock-settled stock appreciation rights |  | $                                     | 31,027 |                                         | 1.7
|Restricted stock units                                    |  | $                                     | 25,671 |                                         | 3.6
|Employee stock purchase plan                              |  | $                                     | 217    |                                         | 0.1

The Company elected to use the long-form method, as provided in paragraph 81 of FAS
123(R) for determining the historical pool of windfall tax benefits and the tax law ordering approach for purposes of determining whether an excess tax benefit has been realized.

Stock-Based Compensation Assumptions

WebEx estimated the fair value of share-based payment awards using the Black-Scholes option pricing model with the following weighted-average assumptions and weighted-average fair values:



|                                      |  |                                         |      |   |                              |   |      |      |  |   |      |   |  |   |     |  
|------------------------------------- |  | --------------------------------------- | ---- | - | ---------------------------- | - | ---- | ---- |  | - | ---- | - |  | - | --- | -
|                                      |  | Stock Options/Stock Appreciation Rights |      |   | Employee Stock Purchase Plan |  
|                                      |  | Three months ended March 31,            |      |   | Three months ended March 31, |  
|                                      |  | 2007                                    |      |   | 2006                         |   |      | 2007 |  |   | 2006 |  
|Weighted average fair value of grants |  | $                                       | 14.0 |   |                              | $ | 14.6 |      |  | $ | 10.1 |   |  | $ | 5.5 |  
|Expected life (in years)              |  |                                         | 4.3  |   |                              |   | 4.5  |      |  |   | 0.5  |   |  |   | 0.5 |  
|Volatility                            |  |                                         | 35   | % |                              |   | 60   | %    |  |   | 37   | % |  |   | 30  | %
|Risk-free interest rate               |  |                                         | 4.4  | % |                              |   | 4.5  | %    |  |   | 5.0  | % |  |   | 4.2 | %
|Dividend yield                        |  |                                         |     |   |                              |   |     |      |  |   |     |   |  |   |    |  
|                                      |  |                                         |      |   |                              |   |      |      |  |   |      |   |  |   |     |  

Share Repurchases

WebEx repurchases shares of its common stock under a program to manage the dilution created by shares issued under employee stock plans. In July 2004, the
Board of Directors authorized WebEx to repurchase shares of its common stock in the open market up to $40.0 million over an 18-month period ending December 2005. During November 2005, the Board of Directors authorized an additional $10.0 million for
share repurchases through June 2006. During July 2006, the Companys Board of Directors authorized a share repurchase program, which authorizes up to $40.0 million for share repurchases in the discretion of management through December 2007.
WebEx has not repurchased any shares under this new share program.

Beginning in the second quarter of 2006, WebEx began issuing, pursuant
to the Companys 2000 Stock Incentive Plan, restricted stock units (RSUs) to certain of its employees. These RSUs have a net-share settlement feature in which the Company deducts, from the total number of shares of common stock
released to the RSU award recipient on each vesting date, that number of shares with a cash value on such vesting date equivalent to the employees minimum withholding obligation for applicable income and other statutory taxes. The cash value
of the shares deducted is based on the Companys closing stock price on the date of the vesting event. The Company then remits the cash to the appropriate taxing authorities. The total number of shares of common stock deducted by the Company
during the first quarter of 2007 was 991 shares. Total payments for the employees tax obligations to the taxing authorities were approximately $42,000. These net-share settlements had the effect of share repurchases by the Company as they
reduced and retired the number of shares that would have otherwise been issued as a result of each RSU vesting event and did not represent an expense to the Company.



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Note 4: Income Taxes

The Company adopted FIN 48 as of January 1, 2007. As a result of the implementation, the changes to the Companys reserve for uncertain tax positions were accounted for as an adjustment to the beginning
balance of accumulated earnings of $181,000 in the March 31, 2007 condensed consolidated balance sheet. At the beginning of 2007, the Company had approximately $7.5 million of total gross unrecognized tax benefits. Of this total, $6.2 million,
net of the federal benefit on state issues, represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods.

The Company and its subsidiaries are subject to U.S. federal income tax as well as to income tax of multiple state jurisdictions. The Company has
concluded all U.S. federal income tax matters for years through 2002. All material state and local income tax matters have been concluded for years through 2001.

The Companys continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. The Company had approximately $465,000 accrued for interest, net of tax, and $308,000
accrued for penalties as of January 1, 2007.

Note 5: Net Income per Share

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

The reconciliation of the numerators and denominators of the basic and diluted net income per share calculations was as follows:



|                                                                     |  |                                      |        |      |   |       
|-------------------------------------------------------------------- |  | ------------------------------------ | ------ | ---- | - | ------
|                                                                     |  | Three months endedMarch 31,         
|                                                                     |  | 2007                                 |        | 2006
|                                                                     |  | (In thousands, exceptper share data)
|Numerator:                                                           |  |                                      |        |      |   |       
|Net income                                                           |  | $                                    | 16,290 |      | $ | 9,051 
|                                                                     |  |                                     
|Denominator:                                                         |  |                                      |        |      |   |       
|Weighted average shares used to compute basic net income per share   |  |                                      | 49,776 |      |   | 46,641
|                                                                     |  |                                     
|Effect of dilutive securities:                                       |  |                                      |        |      |   |       
|Dilutive potential common shares                                     |  |                                      | 2,441  |      |   | 1,488 
|                                                                     |  |                                      |        |      |   |       
|Weighted average shares used to compute diluted net income per share |  |                                      | 52,217 |      |   | 48,129
|                                                                     |  |                                      |        |      |   |       
|Net income per share:                                                |  |                                      |        |      |   |       
|Basic                                                                |  | $                                    | 0.33   |      | $ | 0.19  
|                                                                     |  |                                      |        |      |   |       
|Diluted                                                              |  | $                                    | 0.31   |      | $ | 0.19  
|                                                                     |  |                                      |        |      |   |       

The following potential common shares have been excluded from the computation of diluted net
income per share for the three months ended March 31, 2007 and 2006 because their inclusion would have been anti-dilutive:



|                                                                             |  |                             |  |     
|---------------------------------------------------------------------------- |  | --------------------------- |  | ----
|                                                                             |  | Three months endedMarch 31,
|                                                                             |  | 2007                        |  | 2006
|                                                                             |  | (In thousands)             
|Restricted stock units                                                       |  | 26                          |  |    
|Outstanding common stock options and stock-settled stock appreciation rights |  | 710                         |  | 701 



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##### Table of Contents

Equity instruments are anti-dilutive when the combined exercise price, unamortized fair value and excess
tax benefit are greater than the average market price of the common shares for the period.

Note 6: Sales Reserve and Allowance for Doubtful Accounts

WebEx records an estimate of sales reserve for losses on receivables resulting from customer credits, cancellations and terminations
and records it as a reduction in revenue at the time of the sale. Net changes to the sales reserve are charged to revenue, either reducing or increasing the revenue otherwise reportable. The sales reserve estimate is based primarily on an analysis
of the historical rate of credits, cancellations and terminations. The accuracy of the estimate is dependent on the rate of future credits, cancellations and terminations being consistent with the historical rate.

WebEx records an allowance for doubtful accounts to provide for losses on accounts receivable due to customer insolvency risk. Net changes to the
allowance for doubtful accounts are charged to general and administrative expense as either an increase or decrease in bad debt expense. The allowance estimate is based primarily on an analysis of the historical rate of insolvency losses. The
accuracy of the estimate is dependent on the future rate of insolvency 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, 2007 and 2006:



|                                                            |  |                             |        |   |      |   |        |  
|----------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                            |  | Three months endedMarch 31, |       
|                                                            |  | 2007                        |        |   | 2006 |  
|                                                            |  | (In thousands)              |       
|Sales reserve:                                              |  |                             |        |   |      |   |        |  
|Beginning balance                                           |  | $                           | 6,994  |   |      | $ | 6,077  |  
|Amounts deducted from revenue                               |  |                             | 5,836  |   |      |   | 4,672  |  
|Amounts written off                                         |  |                             | (5,525 | ) |      |   | (4,221 | )
|                                                            |  |                             |        |   |      |   |        |  
|Ending balance                                              |  | $                           | 7,305  |   |      | $ | 6,528  |  
|                                                            |  |                            
|Allowance for doubtful accounts:                            |  |                             |        |   |      |   |        |  
|Beginning balance                                           |  | $                           | 499    |   |      | $ | 1,054  |  
|Amounts charged to bad debt expense                         |  |                             | 152    |   |      |   | 152    |  
|Amounts written off                                         |  |                             | (147   | ) |      |   | (143   | )
|                                                            |  |                             |        |   |      |   |        |  
|Ending balance                                              |  | $                           | 504    |   |      | $ | 1,063  |  
|                                                            |  |                            
|Total sales reserve and allowance for doubtful accounts:    |  |                             |        |   |      |   |        |  
|Beginning balance                                           |  | $                           | 7,493  |   |      | $ | 7,131  |  
|Amounts deducted from revenue / charged to bad debt expense |  |                             | 5,988  |   |      |   | 4,824  |  
|Amounts written off                                         |  |                             | (5,672 | ) |      |   | (4,364 | )
|                                                            |  |                             |        |   |      |   |        |  
|Ending balance                                              |  | $                           | 7,809  |   |      | $ | 7,591  |  
|                                                            |  |                             |        |   |      |   |        |  

Note 7: Comprehensive Income

The changes in the components of other comprehensive income, net of taxes, were as follows:



|                                         |  |                             |        |      |   |       |  
|---------------------------------------- |  | --------------------------- | ------ | ---- | - | ----- | -
|                                         |  | Three months endedMarch 31, |       
|                                         |  | 2007                        |        | 2006 |  
|                                         |  | (In thousands)              |       
|Net income                               |  | $                           | 16,290 |      | $ | 9,051 |  
|Other comprehensive income, net of tax:  |  |                             |        |      |   |       |  
|Foreign currency translation adjustments |  |                             | 255    |      |   | 159   |  
|Unrealized gain (loss) on investments    |  |                             | 65     |      |   | (50   | )
|                                         |  |                             |        |      |   |       |  
|                                         |  |                             | 320    |      |   | 109   |  
|                                         |  |                             |        |      |   |       |  
|Comprehensive income                     |  | $                           | 16,610 |      | $ | 9,160 |  
|                                         |  |                             |        |      |   |       |  



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Note 8: Investments

The following is a summary of available-for-sale investments as of March 31, 2007 and December 31, 2006:



|                               |  |                |                |                      |   |                       |  |   |                     |   |      |   |                      |  |                       |         |  |                     |    |  |   |      |   |  |   |        
|------------------------------ |  | -------------- | -------------- | -------------------- | - | --------------------- |  | - | ------------------- | - | ---- | - | -------------------- |  | --------------------- | ------- |  | ------------------- | -- |  | - | ---- | - |  | - | -------
|                               |  | March 31, 2007 |                | December 31, 2006   
|                               |  | Cost           |                | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value |   | Cost |   | GrossUnrealizedGains |  | GrossUnrealizedLosses |         |  | EstimatedFair Value
|Available-for-Sale Securities: |  |                | (In thousands)
|Corporate notes and bonds      |  | $              | 900            |                      | $ |                      |  | $ |                    |   |      | $ | 900                  |  | $                     | 13,263  |  | $                   | 1  |  | $ | (20  | ) |  | $ | 13,244 
|Municipal notes and bonds      |  |                | 355,910        |                      |   | 38                    |  |   | (134                | ) |      |   | 355,814              |  |                       | 262,576 |  |                     | 33 |  |   | (132 | ) |  |   | 262,477
|Government agencies            |  |                | 9,485          |                      |   |                      |  |   | (59                 | ) |      |   | 9,426                |  |                       | 17,861  |  |                     |   |  |   | (102 | ) |  |   | 17,759 
|Money market funds             |  |                | 16,030         |                      |   |                      |  |   |                    |   |      |   | 16,030               |  |                       | 16,504  |  |                     |   |  |   |     |   |  |   | 16,504 
|                               |  |                |                |                      |   |                       |  |   |                     |   |      |   |                      |  |                       |         |  |                     |    |  |   |      |   |  |   |        
|Total                          |  | $              | 382,325        |                      | $ | 38                    |  | $ | (193                | ) |      | $ | 382,170              |  | $                     | 310,204 |  | $                   | 34 |  | $ | (254 | ) |  | $ | 309,984
|                               |  |                |                |                      |   |                       |  |   |                     |   |      |   |                      |  |                       |         |  |                     |    |  |   |      |   |  |   |        
|Reported as:                   |  |                |                |                      |   |                       |  |   |                     |   |      |   |                      |  |                       |         |  |                     |    |  |   |      |   |  |   |        
|Cash and cash equivalents      |  |                |                |                      |   |                       |  |   |                     |   |      | $ | 16,030               |  |                       |         |  |                     |    |  |   |      |   |  | $ | 19,519 
|Short-term investments         |  |                |                |                      |   |                       |  |   |                     |   |      |   | 366,140              |  |                       |         |  |                     |    |  |   |      |   |  |   | 290,465
|                               |  |                |                |                      |   |                       |  |   |                     |   |      |   |                      |  |                       |         |  |                     |    |  |   |      |   |  |   |        
|Total                          |  |                |                |                      |   |                       |  |   |                     |   |      | $ | 382,170              |  |                       |         |  |                     |    |  |   |      |   |  | $ | 309,984
|                               |  |                |                |                      |   |                       |  |   |                     |   |      |   |                      |  |                       |         |  |                     |    |  |   |      |   |  |   |        

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



|                          |  |                |         |                   |   |        
|------------------------- |  | -------------- | ------- | ----------------- | - | -------
|                          |  | March 31, 2007 |         | December 31, 2006
|                          |  | (In thousands)
|Due in less than one year |  | $              | 251,311 |                   | $ | 214,809
|Due in 1-5 years          |  |                | 130,859 |                   |   | 95,175 
|                          |  |                |         |                   |   |        
|Total                     |  | $              | 382,170 |                   | $ | 309,984
|                          |  |                |         |                   |   |        

Realized gains and losses from sales of available securities were not material in the first
quarter of 2007 or 2006.

Note 9: Goodwill and Intangible Assets, Net

Goodwill



|                                                               |  |                |        |  
|-------------------------------------------------------------- |  | -------------- | ------ | -
|                                                               |  | Amount         |       
|                                                               |  | (In thousands) |       
|Balance, December 31, 2006                                     |  | $              | 26,965 |  
|Goodwill acquired during the period                            |  |                |       |  
|Goodwill adjustment related to Intranets.com, Inc. acquisition |  |                | (856   | )
|                                                               |  |                |        |  
|Balance, March 31, 2007                                        |  | $              | 26,109 |  
|                                                               |  |                |        |  

The goodwill adjustment during the first quarter of 2007 shown in the table above corresponds to
the Companys evaluation of the deferred tax assets and valuation allowance related to the utilization of the Companys net operating loss carryforwards. The evaluation resulted in the realization of the tax benefit of these deferred
assets, of which $856,000 reduced goodwill related to net operating loss carryforwards acquired from Intranets.com, Inc. (Intranets).



13



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Purchased Intangible Assets

Intangible assets, net as of March 31, 2007 and December 31, 2006 consisted of the following:



|                                     |  |                |        |                         |   |        |     |  |       |        |                         |   |        |     |   |        |   |  |   |       
|------------------------------------ |  | -------------- | ------ | ----------------------- | - | ------ | --- |  | ----- | ------ | ----------------------- | - | ------ | --- | - | ------ | - |  | - | ------
|                                     |  | March 31, 2007 |        | December 31, 2006      
|                                     |  | Gross          |        | AccumulatedAmortization |   |        | Net |  | Gross |        | AccumulatedAmortization |   |        | Net
|                                     |  | (In thousands)
|Developed technology                 |  | $              | 9,120  |                         | $ | (3,060 | )   |  | $     | 6,060  |                         | $ | 9,120  |     | $ | (2,611 | ) |  | $ | 6,509 
|Intellectual property rights         |  |                | 4,326  |                         |   | (2,411 | )   |  |       | 1,915  |                         |   | 4,326  |     |   | (2,326 | ) |  |   | 2,000 
|Trade names and domain names         |  |                | 1,556  |                         |   | (668   | )   |  |       | 888    |                         |   | 1,556  |     |   | (588   | ) |  |   | 968   
|Customer contracts and relationships |  |                | 5,123  |                         |   | (1,874 | )   |  |       | 3,249  |                         |   | 5,123  |     |   | (1,629 | ) |  |   | 3,494 
|                                     |  |                |        |                         |   |        |     |  |       |        |                         |   |        |     |   |        |   |  |   |       
|Total purchased intangible assets    |  | $              | 20,125 |                         | $ | (8,013 | )   |  | $     | 12,112 |                         | $ | 20,125 |     | $ | (7,154 | ) |  | $ | 12,971
|                                     |  |                |        |                         |   |        |     |  |       |        |                         |   |        |     |   |        |   |  |   |       

Amortization is recorded using the straight-line method over the estimated useful lives of these
assets, which ranges from 3-10 years. Amortization expense for the three months ended March 31, 2007 and 2006 by functional expense was as follows:



|                           |  |                             |     |      |   |    
|-------------------------- |  | --------------------------- | --- | ---- | - | ---
|                           |  | Three months endedMarch 31,
|                           |  | 2007                        |     | 2006
|                           |  | (In thousands)             
|Cost of revenues           |  | $                           | 559 |      | $ | 559
|Sales and marketing        |  |                             | 285 |      |   | 292
|Research and development   |  |                             | 13  |      |   | 31 
|General and administrative |  |                             | 2   |      |   | 1  
|                           |  |                             |     |      |   |    
|Total amortization expense |  | $                           | 859 |      | $ | 883
|                           |  |                             |     |      |   |    

Future amortization expense of existing intangibles is as follows:



|                          |  |                      |       
|------------------------- |  | -------------------- | ------
|Year:                     |  | Amortization Expense
|                          |  | (In thousands)      
|2007 (remaining 9 months) |  | $                    | 2,500 
|2008                      |  |                      | 3,269 
|2009                      |  |                      | 3,174 
|2010                      |  |                      | 2,240 
|2011                      |  |                      | 248   
|Thereafter                |  |                      | 681   
|                          |  |                      |       
|Total                     |  | $                    | 12,112
|                          |  |                      |       

Note 10: Commitments and Contingencies

Contractual Commitments

WebEx
leases certain equipment and facilities under non-cancelable operating leases expiring through 2014. Future minimum commitments by year and in the aggregate, as of March 31, 2007, were as follows:



|                             |  |                          |        |      |   |       |  |      |       |      |   |               |  |       |       |  |   |        |  |   |       
|---------------------------- |  | ------------------------ | ------ | ---- | - | ----- |  | ---- | ----- | ---- | - | ------------- |  | ----- | ----- |  | - | ------ |  | - | ------
|                             |  | Remaining9 monthsof 2007 |        | 2008 |   | 2009  |  | 2010 |       | 2011 |   | 2012 andafter |  | Total
|                             |  | (In thousands)          
|Operating leases commitments |  | $                        | 5,975  |      | $ | 7,905 |  | $    | 6,951 |      | $ | 6,285         |  | $     | 4,087 |  | $ | 10,057 |  | $ | 41,260
|Purchase commitments         |  |                          | 25,736 |      |   | 783   |  |      | 804   |      |   |              |  |       |      |  |   |       |  |   | 27,323
|                             |  |                          |        |      |   |       |  |      |       |      |   |               |  |       |       |  |   |        |  |   |       
|Total                        |  | $                        | 31,711 |      | $ | 8,688 |  | $    | 7,755 |      | $ | 6,285         |  | $     | 4,087 |  | $ | 10,057 |  | $ | 68,583
|                             |  |                          |        |      |   |       |  |      |       |      |   |               |  |       |       |  |   |        |  |   |       



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As a result of the adoption of FIN 48, the total liability for uncertain tax positions is $7.5 million
(see note 4). The Company has not included this amount in the table above because of the difficulty in making reasonably reliable estimates of the timing of cash settlements with the respective taxing authorities.

Lease Commitments

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

In April
2004, WebEx signed a lease to occupy space in a building located in Santa Clara, California, that serves as WebExs corporate headquarters. The lease term is for approximately ten years, and initial occupancy commenced in the third quarter of
2004. The Company took possession of additional space in January 2005 and is committed to occupy additional space in February 2008. The rent for all of this space is included in the future minimum rental payments. Minimum lease payments under this
lease began in January 2005 and total an aggregate of $23.8 million for the life of the lease. Under the lease agreement, the landlord provided incentives of $2.3 million including the construction of leasehold improvements for no additional
payments by the Company. These lease incentives received have been accounted for as capitalized assets and are amortized over the lease term. In addition, the Company received payment of certain operating expenses for the initial 20 months covered
by the lease valued at $786,000. The lease currently requires a security deposit of $2.4 million, which WebEx satisfied through a letter of credit issued under WebExs credit line.

Purchase Commitments

At
March 31, 2007, WebEx had purchase commitments totaling approximately $27.3 million, which primarily include commitments for the usage of telecommunication lines and data services as well as equipment and software purchases. The majority of the
purchase commitments are expected to be settled in cash within 12 months.

Other Commitments

WebEx has a revolving credit line with a bank that provides available borrowings up to $7.0 million. Amounts borrowed under the revolving credit line bear
interest at the prime rate and may be repaid and reborrowed at any time prior to the maturity date. The credit agreement expires June 15, 2007. The credit agreement is unsecured and is subject to compliance with covenants, including a minimum
quick ratio and minimum profitability, with which the Company is currently in compliance. As of March 31, 2007, the Company had no outstanding borrowings under the credit line, but did have $2.6 million in letters of credit issued to secure
leases, which decline in value over the length of the respective leases.

Indemnity and Warranty Obligations

In some of WebExs agreements with customers and resellers, WebEx agrees to indemnify the customers and resellers in the event a third party asserts
an intellectual property infringement claim against the customer or reseller based on WebEx services. Certain restrictions are placed on the indemnity obligations, including geographical limitations and limitations on the type of claims covered. In
addition, WebEx has provided certain warranties and committed to maintain certain service levels in some of its agreements with customers and resellers. These warranty and service level provisions specify limited remedies available to the customer
or reseller in the event of a breach of the warranty or a failure to maintain the specified service level. In addition, WebExs agreements contain limitation of liability provisions, which disclaim responsibility for consequential, special or
indirect damages and which generally limit WebExs liability under the agreements to the amount of fees paid to WebEx. However, any failure in a customers business interaction or other communications activity that is caused or allegedly
caused by WebExs services, could result in a claim for damages against the Company, regardless of its responsibility for the failure, and cause the Company to incur unexpected costs which could unfavorably impact its revenue. Although
customers and resellers have on a few occasions brought to WebExs attention potential third party intellectual property claims, as of March 31, 2007, WebEx had not incurred any liability with respect to its indemnification obligations.
Likewise, customers and resellers may bring claims with respect to WebExs warranty and service level obligations, but as of March 31, 2007, WebEx has not incurred a material liability with respect to such claims.



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Other

WebEx has not generally collected sales tax from customers in the United States and believes the services it provides are generally exempt from sales tax. From time to time, states have initiated, and may
initiate in the future, audits or inquiries with respect to sales, use or income taxes. For example, during the third quarter of 2006, the Company reached informal resolution of sales tax audits with two states, one verbal and one written, in which
the states concluded that the Companys services are exempt from sales tax. Thus, the Company concluded during the third quarter of 2006 that certain accruals recorded in prior periods related to this potential sales tax liability will not be
paid by the Company, and the Company accordingly reversed $810,000 related to potential sales tax liabilities during the third quarter of 2006.

In the future, federal tax authorities or tax authorities in one or more states could assert that WebEx is obligated to collect such taxes from its customers and remit those taxes to those authorities. The collection and remittance of
such taxes is not expected to have a material impact on WebExs financial statements. It is also possible, however, that such authorities could seek to collect sales taxes for sales of services by WebEx in the past. If such a claim
were to be asserted against WebEx and WebEx was found liable for such back taxes and WebEx was unable to collect such taxes from its customers, WebEx could incur an expense equal to the amount of such taxes and any associated interest and penalties.
Although from time to time WebEx may receive inquiries from states, the Company has not received any formal assessment from any state concerning sales tax.

Note 11: Litigation

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

On March 27, 2006, a lawsuit was filed in the United States District Court for the Southern District of Texas by Automated Business Companies
against a number of companies, including WebEx, alleging that the defendants services which enable individuals to remotely control their personal computers infringe three of the plaintiffs patents. The plaintiff,
Automated Business Companies, seeks damages and injunctive relief. WebEx believes that the claims being asserted in the lawsuit are without merit and that it has meritorious defenses against such claims. Accordingly, WebEx intends to vigorously
defend itself against these claims. Currently, the parties have stipulated to submit the three patents to the United States Patent and Trademark Office for re-examination as to the validity and scope of the claims. The litigation is currently stayed
pending the result of this re-examination. The Company has not recorded any accrual in connection with this matter.

On January 30,
2007, lawsuits were filed in the United States District Court for the Southern District of Texas by Accolade Systems LLC against a number of companies, including WebEx, alleging that the defendants services infringe one of the plaintiffs
patents. The plaintiff Accolade Systems seeks damages and injunctive relief. WebEx believes that the claims being asserted in the lawsuit are without merit and that it has meritorious defenses against such claims. Accordingly, WebEx intends to
vigorously defend itself against these claims. The Company has not recorded any accrual in connection with this matter.

Note 12: Segment Information

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

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



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|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, the expected completion of the acquisition
of WebEx by Cisco Systems including the tender offer, merger and related procedural steps in the acquisition transaction, obtaining a sufficient number of tendered shares of common stock and regulatory approval of the merger, statements regarding
our business focus including our new WebEx Connect offering, 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, statements about the features and benefits of our new WebEx Connect product offering, our internal and external investments related to WebEx Connect, benefits of using third-party software and hardware, sources of revenue, expected
expenses including those related to sales and marketing, research and development and general and administrative, our use of net operating loss carryforwards, our beliefs regarding the health and growth of the market for our web collaboration
services and reasons for growth, our anticipation that cash flow from operations will be sufficient to fund our current operations as well as fund future expansion, our expectation that existing cash resources and cash generated from operations will
be sufficient to fund our anticipated working capital needs and capital expenditures for at least the next twelve months and that we will continue to generate cash from operations for at least the next twelve months, our potential foreign currency
exposure and related hedging transactions, our investments and potential interest rate exposure, fluctuations in our operating results, volatility of our stock price, our tax liability exposure, our intent to license technologies from third parties
that are integrated into our services, our plans to increase headcount, relocate certain operations and the related costs, our plans to upgrade and expand our applications, our reliance on our China and India subsidiaries, statements regarding our
internal controls and disclosure controls and procedures, the effect of recent accounting pronouncements and accounting rules, and our legal proceedings. 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, failure to satisfy the conditions to the tender offer or the merger, our dependence on key products and/or services, demand for our
products and services, the degree and rate of commercial success achieved by our WebEx Connect product offering, our ability to attract and retain customers and resellers for existing and new services, the impact of reseller practices on our
business, our ability to expand and manage our operations internationally, our ability to expand and manage our infrastructure to meet both our internal corporate needs as well as the demand for our services, our ability to control our expenses, our
ability to integrate and manage acquisitions, our ability to recruit and retain employees particularly in the areas of sales, engineering, support and hosting services, the ability of resellers to successfully resell our services, the economy,
political tensions or conflict, the strength of competitive offerings, the prices being charged by those competitors, the risks discussed below and the risks discussed in Item 1A Risk Factors in Part II of this Report. 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

We Have Entered into an Agreement to be Acquired by Cisco Systems, Inc.

On March 15, 2007, we entered into an Agreement and Plan of Merger (Merger Agreement) with Cisco Systems, Inc. and Wonder Acquisition Corp., a
wholly-owned subsidiary of Cisco Systems (Cisco Subsidiary). As directed by the Merger Agreement, on March 27, 2007 Cisco, through Cisco Subsidiary, commenced a tender offer to purchase all of the outstanding shares of WebEx (the WebEx Shares)
at a purchase price of $57.00 per share (the Tender Offer), net to the seller in cash without interest, less brokerage fees and less any required withholding taxes. The complete text of the Merger Agreement, together with other disclosure documents
filed by us with the Securities and Exchange Commission that summarize the Tender Offer and other aspects of the proposed acquisition transaction, may be found in our filings with the SEC at www.sec.gov on various dates on or after
March 15, 2007.

The Merger Agreement provides that if certain conditions are met, including the tender of a majority of the
outstanding WebEx Shares (determined on a fully diluted basis), the expiration or termination of any waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act), and the obtaining of all
approvals applicable to the Merger under the antitrust, competition or merger control laws of certain non-U.S. jurisdictions, Cisco Subsidiary will be obligated to purchase the tendered shares. In that event, Cisco Subsidiary may also elect to
conduct a subsequent offering period to attempt to achieve greater ownership of the outstanding WebEx Shares. Under the Merger Agreement, WebEx has granted Cisco Subsidiary an



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option to purchase additional WebEx Shares such that if Cisco Subsidiary achieves ownership of at least 80% of the outstanding WebEx Shares through the
Tender Offer, the additional shares purchased by exercising the option would enable Cisco Subsidiary to achieve ownership of 90% of the outstanding WebEx Shares.

As soon as practicable following completion of the Tender Offer, Cisco Subsidiary will merge with and into WebEx (the Merger). Under the Merger Agreement, once Cisco Subsidiary acquires ownership of 90% of the WebEx
Shares through the Tender Offer, including any subsequent offering period, or through the Tender Offer and the exercise of the option discussed above, Cisco Subsidiary may conduct a short-form merger to complete the acquisition of WebEx without
approval of the Merger by the WebEx stockholders. Upon completion of the Merger, each WebEx Share that is outstanding and that has not been accepted for purchase pursuant to the terms of the Tender Offer will be converted into the right to receive
cash in an amount equal to $57.00, without interest and less brokerage fees and any applicable withholding taxes, other than WebEx Shares that are held by (a) Cisco Subsidiary, Cisco Systems, any Cisco Systems subsidiary, or WebEx, which will
be canceled without consideration, and (b) stockholders, if any, who properly exercise their appraisal rights under the General Corporation Law of the State of Delaware. The consummation of the Merger is also subject to customary closing
conditions in transactions of this sort.

WebEx has made various representations and warranties and agreed to specified covenants in the
Merger Agreement, including covenants relating to the conduct of WebExs business between the date of the Merger Agreement and the closing of the Tender Offer, restrictions on solicitation of proposals with respect to alternativethat is,
non-Ciscotransactions to acquire us, governmental filings and approvals, public disclosures and other matters.

The consummation of
the Tender Offer and the completion of the Merger are subject to certain conditions, including the tender of a majority of the outstanding WebEx Shares (determined on a fully diluted basis), the expiration or termination of any waiting period (and
any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act), and the obtaining of all approvals applicable to the Merger under the antitrust, competition or merger control laws of certain non-U.S. jurisdictions.
The Merger Agreement also contains certain termination rights of Cisco Systems and WebEx and provides that, upon the termination of the Merger Agreement under specified circumstances, WebEx will be required to pay Cisco Systems a termination fee of
$77.0 million.

On April 6, 2007, the waiting period under the HSR Act applicable to the Tender Offer was terminated and, accordingly,
the condition relating to the expiration or termination of the HSR Act waiting period has been satisfied.

If we consummate the Merger, we
will become a wholly-owned subsidiary of Cisco Systems. Accordingly, the remainder of the discussion in this Overview sectionwhich assumes we remain a standalone businessshould be read with the understanding that should the
Merger be completed, Cisco Systems will have the power to control the conduct of our business.

Business, Principal Products,
Locations

We offer several on-demand web collaboration services. The term on-demand web collaboration services is a
relatively new one in the software industry and can be better understood through the aid of the following explanatory paragraphs:



| |  |  | On-Demand. On-demand is a software industry term meaning that the software is hosted at the facility of a vendor, such as WebEx, and
from that source is furnished online to customers as a service. A synonym for on-demand software is software as a service (SaaS) or a hosted service. On-demand is a relatively new way to provide software to computer users.
The traditionaland currently still dominantmanner in which individual users or companies obtain access to software is through physical installation of the software at the customers facilities, which means either inserting a disc or
downloading a file onto an individual computer or onto a computer server serving multiple computers, in either case after having obtained any necessary licenses to install and use the software. This physically-installed, licensed software is
sometimes also called on premise or perpetual license model software.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Web Collaboration Services. Web collaboration services are services that allow end-users to collaborate online. Examples of web
collaboration include sharing software applications, documents, presentations and other content online, participating in large-scale events or programs, and coordinating projects, activities and tasks. Our web collaboration services permit users to
engage in these, and related, collaboration activities through the use of a standard web browser. Our web collaboration services historically have enabled both individual professional and corporate employee users to engage in rich-media,
interactive, real-time communications without the need to be in the same physical location, which we believe allows such users to be more productive and efficient.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Originally, our principal product offering consisted of a basic on-demand web collaboration
servicethe web meeting. Since then we have expanded our offerings to include more advanced web collaboration services that complement our basic web meeting service, WebEx Meeting Center. We sometimes also refer to such enhanced web
collaboration services, which are designed for specific uses such as training, events, support and sales, as web applications. Our product names for such web applications include WebEx Training Center, WebEx Event Center, WebEx Support Center and
WebEx Sales Center.

Included in our service offerings is a set of asynchronous collaboration services, such as our current WebOffice
offering, which contains both asynchronous and real-time collaboration capabilities. The term asynchronous collaboration means collaboration not occurring at the same time and includes capabilities such as shared document folders, shared
calendars, task management, shared database applications, discussion forums, contact directories and e-mail. Also our service offerings have expanded beyond web applications that are developed by us and accessed over our service delivery network.
For example, we have developed a web collaboration service offeringthe instant messaging service called AIM Pro Business Editionthat is accessed by and delivered to users through the network of internet service provider AOL, Inc. Our
current business focus is to continue to enhance and market our existing web collaboration services and to develop and deploy new web collaboration services.

A new business focus of ours is the development of a platform designed to increase the breadth and effectiveness of a customers use of on-demand software applications generally. This platform, called WebEx
Connect, was announced by us in September 2006 and is being developed in part with technology provided from our partner Cordys. WebEx Connect has been designed to address several software-usage challenges that businesses face. The key features that
WebEx Connect offers, and each such features current state of development and commercial availability, are described below:



| |  |  | Online Marketplace Where Customers Can Obtain On-Demand Applications Developed by Third Parties. One feature of WebEx Connect service is an
on-demand software marketplace, where customers can subscribe to one or more of a variety of on-demand software applications developed and offered by third partiesthat is, not by WebExthat could be useful in the customers business.
These applications may be hosted either by WebEx as part of WebExs MediaTone Network or at a third partys facility. A related planned feature is that, for the convenience of both the customer and the third-party web application vendor,
WebEx will provide the billing services for customer purchases of third-party on-demand applications made through the WebEx Connect marketplace. WebEx has begun selling third-party applications as part of the initial phase of the WebEx Connect
platform.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Middleware to Build Interoperability among On-Demand and Traditional On-Premise Applications. Currently, most on-demand software applications
that a customer can subscribe to, such as an on-demand customer relationship management (CRM) application, do not interoperate well, if at all, with a corporate users existing on-premise software applications such as a database application, or
with the customers other on-demand software applications. WebEx Connect will include software called middleware that will enable on-demand and on-premise applications to interoperate with each other. We believe that this ability of a
customers on-demand and on-premise applications to interoperate with each other will increase the overall productivity benefit a customer receives from its software investment and usage. This feature of the WebEx Connect platform is still
under development and is not part of our current WebEx Connect commercial offering.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Client Software that Provides Access to WebEx Connect Applications. Client software is software that allows a computer to access and work with
software applications running on another computer, most often a server or some form of host computer. The WebEx Connect client, called Connect Workspace, is the access pointsometimes also called a portalthrough which customers can access
the various applications to which the customer has subscribed through WebEx Connect. For example, a customer running its enterprise CRM application can, through accessing the WebEx Connect portal, pull data from an on-premise database software
application, thus enhancing the productivity of the customers use of the CRM application. This feature of the WebEx Connect platform is still under development and is not part of our current WebEx Connect commercial offering.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As certain features of WebEx Connect are still under development and are not yet commercially available, we do not know
when or to what extent we will be able to make available the platform containing all the functionalities described above. We are continuing to make investments both inside and outside of WebEx with the objective of making the WebEx Connect platform
a web application ecosystem (i) to which an increasing number of third party web application providers will be drawn to offer their services,



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and (ii) in which customers can utilize their third party on-demand web applications more efficiently and productively in their business. We believe
that this strategy of offering added value to our customers search for and use of on-demand web applications, through our new WebEx Connect service, will complement our core web meeting and web application service offerings.

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

Our corporate headquarters is located in Santa Clara, California, and we have a network operations center located in Mountain View, California. We also lease facilities in various U.S. cities and in several non-U.S.
countries for our business activities, including office space for our employees and the housing of equipment used in the operation of our MediaTone Network.

Revenue and Cash-Generation Models

We sell our services directly to customers, which in the
first quarter of 2007 accounted for approximately 83% of our revenue, or $89.0 million. We also sell our services indirectly through our resellers that buy and resell our services. These sales in the first quarter of 2007 represented approximately
17% of our revenue, or $18.2 million. With our resellers, we sell our services to and contract directly with the reseller, and revenue is recognized based on net amounts charged to the reseller. We also have another type of distribution
arrangementknown as a referral arrangementin which a third party refers a potential customer to our direct sales force, which in turn seeks to enter into a contract directly with the potential customer. When a sale is made from us to a
customer through a lead provided by a referral agent, the referral agent receives from us a percentage of the proceeds from the sale of WebEx services to the customer, and we categorize such revenue as revenue received from services sold directly to
customers.

The majority of our revenue is currently generated based on a committed-subscription pricing model. We offer several forms of
committed-subscription pricing:



| |  | Flat rate pricing, in which the customer selects a specific number of pre-identified hostscalled named hostsauthorized to start a meeting, and
based upon the number of named hosts selected the customer pays a set price per month regardless of usage. A majority of our committed-subscription customers purchase our services in this manner;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Concurrent-user or per port pricing which enables a customer to have a set number of users connected to WebEx meetings at any one time; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  | Minimum minutes pricing, in which the customer commits to pay for a certain number of people minutes of usage during a specified time period. We calculate
people minutes by multiplying the number of meeting participants by the number of minutes transpired in the meeting.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
refer to the revenue associated with our various committed subscription arrangements as committed revenue.

Currently, our most popular
flat-rate offering is the named host offering, in which a certain named individual may host meetings at which up to a certain number of attendees may participate. The named host service differs from the concurrent-user port offering in several
respects: (i) with the concurrent user offering, any employee of the customer may host a meeting, whereas with the named host service only employees who are designated as named hosts may host a meeting, (ii) the price charged for a named
host subscription is appreciably lower than the price charged for a concurrent user subscription, in part because the named host model is less flexible with respect to who can host a meeting, and (iii) unlike the concurrent user offering, with
the named host offering there are effectively no overage fees. We also offer a full-deployment offering in which all employees within a company can utilize WebEx meeting services for a flat monthly rate. We also have two new flat-rate offerings,
targeted at individuals and small businesses. The first offering, available for purchase online and called MeetMeNow, is a simple web conferencing service offered on a monthly basis. The second flat-rate offering is our WebEx WebOffice line of
collaboration services, which we offer for purchase through a variety of monthly subscription plans.



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In addition to our committed subscription offerings, there are several situations in which customers are
charged on a per-minute or usage basis, or what we call usage-based or uncommitted pricing. These include certain reseller arrangements, customer overage fees for above-the-subscribed-to use of ports or minutes, many types of telephony charges,
individual pay-per-use services purchased directly from our website, and a limited number of customers who do not have a minimum commitment obligation of any kind. A majority of revenue received from our telecommunications partner arrangements is
usage based. In addition, we sometimes obtain usage-based fees from subscription customers in the form of overage fees. Overage fees are charged when a customer subscribing to a set number of ports uses more than the subscribed number of ports, or
when a customer on a minutes pricing model uses more than its commitment. We get per-minute telephony revenue when we provide the audio conferencing component of a web conferencing session. Finally, we have per-minute web conferencing services
available through our website and payable by credit card. The revenue derived from this per minute or usage-based pricing model, measured as of the end of any month, is what we refer to as uncommitted revenue. We include in our usage-based revenue
category, in addition to the various types of per-minute revenue identified in this paragraph, certain non-recurring revenue items such as the fees we charge our customers for consulting or other forms of professional services (PSO) work we perform
for our customers.

We typically bill our customers monthly and on open account. For each of our flat rate, concurrent-user and monthly
minutes-based commitment subscription customers, the customer is billed monthly in advance based on the monthly subscription amount stated in the customer agreement. For these customers, additional usage beyond the monthly subscription quantity, or
overage, is billed in arrears based on the actual amount of such overage. For quarterly, semi-annual and annual minutes-based subscription customers, all monthly billing is in arrears and based on actual usage during the month. If, following the
last month billed, aggregate actual usage is less than the subscription amount, then in addition to actual usage for the final month, the customer is billed for the remaining amount of the contractual commitment not previously billed.

Market Opportunities, Related Challenges and Our Responses

We believe the market for on-demand web collaboration services to be healthy and growing. Various published articles have cited several trends underlying this projected market increase. One trend is the desire of many
companies to achieve cost savings in the areas of information technology (IT) spending and employee travel. We believe a cost-saving decision for businesses desiring to decrease their IT expenses is to purchase services from an on-demand web
collaboration services vendor, rather than undertaking the capital and personnel spending necessary to purchase, install and maintain their own systems to provide that type of functionality. Additionally, as a result of increasing fuel prices and
travel costs, we believe companies may decide that online collaborationthat is, web conferencing and web applicationscan reduce costs and obviate the need to travel to conduct business, perform training, provide support or participate in
large-attendee events. However, it is possible that growth in the market for web collaboration services may slow down or be less than currently projected.

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

Our primary market opportunity currently is in on-demand web collaboration services. However, there also exists a market opportunity for us in the market
for on-demand software applications generallythat is, in addition to on-demand software applications that are specifically web collaboration applications such as web conferencing. Recognizing this broader on-demand, or SaaS, opportunity, we
have developed the WebEx Connect platform, by which we intend to allow independent software vendors to offer and deliver their applications to end-users as services. Our goal is to capitalize on the trend toward on-demand software applications and
away from software that is hosted and delivered on premisethat is, hosted on a customers own premises. The WebEx Connect platform has been designed to allow us to leverage our investment in the MediaTone delivery network and
thereby, we hope, to allow us to capitalize on a broader suite of software applications to offer our customers than merely web collaboration applications.



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We expect to receive, in the immediate near-future, only a very small amount of revenue from our new
WebEx Connect offering. Our WebEx Connect strategy involves building an ecosystem of on-demand software developers around the WebEx Connect platform. At present, we are uncertain about how much expenseparticularly sales and marketing
expensewill be required to promote the platform and drive sufficient usage of the platform delivery vehicle by both developers and end-users to generate commercial success. Furthermore, as compared to the subset of SaaS applicationsweb
collaboration serviceswith which we have long been familiar, we have less experience with and understanding of the broader competitive marketplace for SaaS applications generally.

One of the primary benefits of the SaaS model of software usage, as compared to the on-premise model, is that initial implementation is quick and
inexpensive. This is a significant advantage for a SaaS vendor, such as us, when seeking new customers. However, this advantage can become a disadvantage in that, in this emerging SaaS world of software delivery, the cost to a customer to switch
SaaS vendors is vastly reduced. Since in this on-demand mode of software delivery there are no costly software license contracts to bind the customer to the software vendor, customers are more free to switch away from a certain vendors
on-demand offering to a less expensive on-demand solution. As software sales increasingly migrate from an on-premise to an on-demand commercial model, a challenge for us will be to add sufficient additional value-added functionality to our on-demand
platform to make it a value-loss proposition for customers to switch away from our solution. We believe the multi-feature functionality of our WebEx Connect offering makes our SaaS offering less a commodity than the offerings of other vendors, and
thereby will help diminish the attractiveness of their starting with, or switching to, an SaaS offering other than ours.

Another, and
continuing, challenge to broad adoption of on-demand 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, individuals may prefer
traditional solutions such as (i) the telephone or face-to-face meetings in preference to web collaboration services such as web conferencing, or (ii) on-premise software in preference to on-demand software. Broad adoption of SaaS
solutions will occur only if large numbers of users incorporate the use of this technology as part of their normal business activity.

Industry-Wide Factors Relevant to Us

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

In addition to the above competitors, certain of our resellers offer competitive web
conferencing, web application and other collaborative web communications services. One of our key resellers, Intercall, is a subsidiary of West Corporation which in April 2006 acquired our competitor Raindance. As a result of its acquisition of
Raindance, Intercall could choose to increase its emphasis on offerings competitive with ours, or cease to offer some or all of our offerings, or both.

Competition from Microsoft for the collaboration software and services markets may adversely affect us.Microsoft has a product offering which is competitive with ours and which is called Microsoft Office Live
Meeting. Microsoft also has an offering called Office Live, which consists of a set of Internet-based software services. In January 2007, Microsoft began selling its new Windows Vista operating system, which includes a real-time web meeting feature,
for up to ten persons, and related collaboration functionalities such as document sharing. Microsoft has also announced plans to offer web collaboration functionality in its Office Communications Server product scheduled for release later in 2007.
Microsofts investment of development and marketing resources in products or services that compete directly with us and Microsofts integration of competitive technologies from other companies may have an adverse impact on our business.
More generally, Microsoft may attempt to leverage its dominant market position in the operating system, productivity application or browser markets, through technical integration or bundled offerings, to expand further its presence in these web
communications markets. This expanded Microsoft presence in web collaboration markets could make it difficult for other vendors of web communications products and services, such as WebEx, to compete.

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



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In 2005, we introduced new services with lower entry prices that enable us to compete more effectively with such offerings. If our industry were to
experience a general decline in prices and there were not a sufficient increase in volume to compensate for the price reductions, we might be forced to change the extent and type of resources we deploy in the selling of our services in an effort to
maintain operating margins, such as switching to different sales practices.

Finally, some of our competitors such as IBM and Cisco Systems
offer software products or products that are a combination of software and hardware that include web collaboration functionality. This type of web collaboration offering, sometimes called a customer premise or on-premise solution, allows customers
to purchase such products, install them at their own facilities, and manage the products by themselves. If significant numbers of existing or potential customers determine that they would prefer to have their web conferencing or more advanced web
collaboration needs met with these types of products, demand for WebEx services may decrease.

Critical Accounting Policies and Estimates

General

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

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

Revenue Recognition

Revenue is derived from the sale of web collaboration services. Web collaboration services revenue is generated through a variety of contractual
arrangements directly with customers and with resellers, who in turn sell the services to customers. We sell web collaboration services directly to customers through service subscriptions or similar agreements and pay-per-use arrangements. Under
these arrangements, customers typically access the application hosted on our 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 EITF Issue No. 00-3, Application of AICPA Statement of Position 97-2, Software Revenue Recognition, to Arrangements That Include the Right to Use Software Stored on Another Entitys
Hardware, and with multiple deliverables under EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. In addition, because we provide our applications as a service, we follow the provisions of Securities and Exchange
Commission Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition. Under EITF 00-21, all deliverables are considered one unit of accounting. During the initial term of an agreement, we may provide technical consulting services such
as training, web-page design and custom set-up services. We consider 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 recognized ratably (i.e. straight-line) over the current term of the contract. We have recently began to offer professional services to train customers how to use our web collaboration services to improve sales, marketing,
training and other business activities. These professional services are recognized upon delivery of the service as prescribed in SAB No. 104.

Some minute-based subscriptions involve a quarterly, semi-annual or annual rather than monthly commitment by the customer. In these cases, all monthly billing is in arrears and monthly revenue is recognized based on
actual usage during the month. If,



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following the last month billed, aggregate actual usage is less than the subscription amount, then in addition to actual usage for the final month, revenue
is recognized for the remaining amount of the contractual commitment not previously billed. In addition to committed and flat-rate or subscription service revenue, we derive revenue from pay-per-use services, usage in excess of commitments and other
usage-based charges that are recognized as such services are provided. We refer to these forms of revenue as uncommitted revenue.

We also
enter into reselling arrangements with resellers, which purchase and resell our services on a discounted or pay-per-use basis. In such cases, revenue is recognized based on net amounts charged to the reseller. 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, delivery has occurred and collectibility is reasonably assured. 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 (i.e. straight-line) over the service period for services
provided on a subscription basis through the reseller. In some cases our reseller arrangements may require guaranteed minimum revenue commitments that are billed in advance to the reseller. Amounts billed in advance are deferred until the related
services are provided or until otherwise earned by us. When the reseller bills the end-user, we sell the services on a discounted basis to the reseller, which in turn marks up the price and sells the services to the end-user.

In certain cases, we enter into another type of distribution arrangementknown as a referral arrangementin which a third party refers a
potential customer to our direct sales force, which in turn seeks to enter into a contract directly with the potential customer. In these situations, we bill the end-user directly and we pay a percentage of the proceeds generated from the sale of
our services to the third party. In these cases revenue is recognized based on amounts charged to the end-user, and amounts paid to the third party are recorded as sales and marketing expense.

We have begun to recognize revenue related to our new business platform WebEx Connect. We recognize revenue for customer use of third party software made
available through the WebEx Connect marketplace under SAB No. 104, Revenue Recognition. In these transactions, we act as a sales agent for the third party and do not take title to the product or bear the risk of collection or returns.
Thus, revenue is recognized on a net basis, which is based on the gross fees received by us from the customer less a fee to the third party. Revenue for these software services related to WebEx Connect is recognized ratably (i.e. straight-line) as
the service is provided.

Persuasive evidence for all of our arrangements is represented by binding contracts. The fee is considered fixed
or determinable if it is not subject to refund or adjustment. Delivery has occurred when the service has been provided to the customer. Collectibility is considered reasonably assured if we expect 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 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. Net changes to the sales reserve are charged to revenue, either reducing or increasing the revenue otherwise reportable. The sales reserve estimate is based primarily on an analysis of the
historical rate of credits, cancellations and terminations. The accuracy of the estimate is dependent on the rate of future credits, cancellations and terminations being consistent with the historical rate. If the rate of actual credits,
cancellations and terminations is different than the historical rate, revenue would be different from what was reported.

Allowance
for Doubtful Accounts

We record an allowance for doubtful accounts to provide for losses on accounts receivable due to customer
insolvency risk. Net changes to the allowance for doubtful accounts are charged to general and administrative expense as either an increase or decrease to bad debt expense. The allowance estimate is based primarily on an analysis of the historical
rate of insolvency losses. The accuracy of the estimate is dependent on the future rate of insolvency losses being consistent with the historical rate. If the rate of future insolvency losses is greater than the historical rate, then the allowance
for doubtful accounts may not be sufficient to provide for actual insolvency 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.



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

The following presents the detail of the changes in the
sales reserve and allowance for doubtful accounts for the nine quarters ended March 31, 2007:



|                                                                             |  |                        |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |  |   |        |   |  |   |        |  
|---------------------------------------------------------------------------- |  | ---------------------- | ------ | - | ---------------- | - | ------ | ----------------- |  | - | ------------ | - |  | ------------- | ------ | - | ---------------- | - | ------ | ----------------- |  | - | ------------ | - |  | ------------- | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                                                             |  | March 31,2007          |        |   | December 31,2006 |   |        | September 30,2006 |  |   | June 30,2006 |   |  | March 31,2006 |        |   | December 31,2005 |   |        | September 30,2005 |  |   | June 30,2005 |   |  | March 31,2005 |       
|                                                                             |  | (Dollars in thousands) |       
|Sales reserve:                                                               |  |                        |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |  |   |        |   |  |   |        |  
|Beginning balance                                                            |  | $                      | 6,994  |   |                  | $ | 6,610  |                   |  | $ | 7,230        |   |  | $             | 6,528  |   |                  | $ | 6,077  |                   |  | $ | 5,479        |   |  | $             | 4,748  |   |  | $ | 4,387  |   |  | $ | 4,631  |  
|Amounts deducted from revenue                                                |  |                        | 5,836  |   |                  |   | 4,289  |                   |  |   | 4,503        |   |  |               | 5,851  |   |                  |   | 4,672  |                   |  |   | 3,816        |   |  |               | 4,022  |   |  |   | 3,179  |   |  |   | 2,621  |  
|Amounts written off                                                          |  |                        | (5,525 | ) |                  |   | (3,905 | )                 |  |   | (5,123       | ) |  |               | (5,149 | ) |                  |   | (4,221 | )                 |  |   | (3,218       | ) |  |               | (3,291 | ) |  |   | (2,818 | ) |  |   | (2,865 | )
|                                                                             |  |                        |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |  |   |        |   |  |   |        |  
|Ending balance                                                               |  | $                      | 7,305  |   |                  | $ | 6,994  |                   |  | $ | 6,610        |   |  | $             | 7,230  |   |                  | $ | 6,528  |                   |  | $ | 6,077        |   |  | $             | 5,479  |   |  | $ | 4,748  |   |  | $ | 4,387  |  
|                                                                             |  |                        |        |   |                  |   |        |                   | 
|Allowance for doubtful accounts:                                             |  |                        |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |  |   |        |   |  |   |        |  
|Beginning balance                                                            |  | $                      | 499    |   |                  | $ | 975    |                   |  | $ | 1,277        |   |  | $             | 1,063  |   |                  | $ | 1,054  |                   |  | $ | 880          |   |  | $             | 562    |   |  | $ | 845    |   |  | $ | 1,003  |  
|Amounts charged (credited) to bad debt expense                               |  |                        | 152    |   |                  |   | (400   | )                 |  |   | (112         | ) |  |               | 302    |   |                  |   | 152    |                   |  |   | 242          |   |  |               | 454    |   |  |   | (34    | ) |  |   | 237    |  
|Amounts written off                                                          |  |                        | (147   | ) |                  |   | (76    | )                 |  |   | (190         | ) |  |               | (88    | ) |                  |   | (143   | )                 |  |   | (68          | ) |  |               | (136   | ) |  |   | (249   | ) |  |   | (395   | )
|                                                                             |  |                        |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |  |   |        |   |  |   |        |  
|Ending balance                                                               |  | $                      | 504    |   |                  | $ | 499    |                   |  | $ | 975          |   |  | $             | 1,277  |   |                  | $ | 1,063  |                   |  | $ | 1,054        |   |  | $             | 880    |   |  | $ | 562    |   |  | $ | 845    |  
|                                                                             |  |                        |        |   |                  |   |        |                   | 
|Total sales reserve and allowance for doubtful accounts:                     |  |                        |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |  |   |        |   |  |   |        |  
|Beginning balance                                                            |  | $                      | 7,493  |   |                  | $ | 7,585  |                   |  | $ | 8,507        |   |  | $             | 7,591  |   |                  | $ | 7,131  |                   |  | $ | 6,359        |   |  | $             | 5,310  |   |  | $ | 5,232  |   |  | $ | 5,634  |  
|Amounts deducted from revenue / charged (credited) to bad debt expense       |  |                        | 5,988  |   |                  |   | 3,889  |                   |  |   | 4,391        |   |  |               | 6,153  |   |                  |   | 4,824  |                   |  |   | 4,058        |   |  |               | 4,476  |   |  |   | 3,145  |   |  |   | 2,858  |  
|Amounts written off                                                          |  |                        | (5,672 | ) |                  |   | (3,981 | )                 |  |   | (5,313       | ) |  |               | (5,237 | ) |                  |   | (4,364 | )                 |  |   | (3,286       | ) |  |               | (3,427 | ) |  |   | (3,067 | ) |  |   | (3,260 | )
|                                                                             |  |                        |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |  |   |        |   |  |   |        |  
|Ending balance                                                               |  | $                      | 7,809  |   |                  | $ | 7,493  |                   |  | $ | 7,585        |   |  | $             | 8,507  |   |                  | $ | 7,591  |                   |  | $ | 7,131        |   |  | $             | 6,359  |   |  | $ | 5,310  |   |  | $ | 5,232  |  
|                                                                             |  |                        |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |  |   |        |   |  |   |        |  
|Gross accounts receivable                                                    |  | $                      | 64,003 |   |                  | $ | 61,331 |                   |  | $ | 66,058       |   |  | $             | 65,025 |   |                  | $ | 60,840 |                   |  | $ | 58,362       |   |  | $             | 49,894 |   |  | $ | 46,296 |   |  | $ | 39,757 |  
|                                                                             |  |                        |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |  |   |        |   |  |   |        |  
|Sales reserve as a percentage of gross accounts receivable                   |  |                        | 11.4   | % |                  |   | 11.4   | %                 |  |   | 10.0         | % |  |               | 11.1   | % |                  |   | 10.7   | %                 |  |   | 10.4         | % |  |               | 11.0   | % |  |   | 10.3   | % |  |   | 11.0   | %
|                                                                             |  |                        |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |  |   |        |   |  |   |        |  
|Allowance for doubtful accounts as a percentage of gross accounts receivable |  |                        | 0.8    | % |                  |   | 0.8    | %                 |  |   | 1.5          | % |  |               | 2.0    | % |                  |   | 1.8    | %                 |  |   | 1.8          | % |  |               | 1.8    | % |  |   | 1.2    | % |  |   | 2.1    | %
|                                                                             |  |                        |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |  |   |        |   |  |   |        |  
|Total receivable reserves as a percentage of gross accounts receivable       |  |                        | 12.2   | % |                  |   | 12.2   | %                 |  |   | 11.5         | % |  |               | 13.1   | % |                  |   | 12.5   | %                 |  |   | 12.2         | % |  |               | 12.8   | % |  |   | 11.5   | % |  |   | 13.1   | %
|                                                                             |  |                        |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |                  |   |        |                   |  |   |              |   |  |               |        |   |  |   |        |   |  |   |        |  



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Income Taxes

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

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 FASB Interpretation 48, Accounting for Uncertainty in Income Taxes (FIN 48).

Impairment of Goodwill and
Intangible Assets

We assess the impairment of goodwill annually during our fourth quarter and whenever events or changes in
circumstances indicate that it is more likely than not that an impairment loss has been incurred. We assess the impairment of intangible and other long-lived assets whenever events or changes in circumstances indicate that their carrying value may
not be recoverable from the estimated future cash flows expected to result from their use and eventual disposition. Amortizable intangible assets subject to this evaluation include acquired developed technology, intellectual property rights, trade
names and domain names and customer contracts and relationships We 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 of goodwill is tested at the reporting unit level by comparing the reporting units carrying amount,
including goodwill, to the fair value of the reporting unit. The fair value of the reporting unit is estimated using a combination of the income or discounted cash flow approach and the market approach. If the carrying amount of the reporting unit
exceeds its fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss, if any. We perform our impairment review at the entity level as we have only one operating segment, which is our sole
reporting unit.

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.



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Stock-Based Compensation

Effective January 1, 2006, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123
(revised 2004), Share-Based Payment (SFAS 123R), using the modified prospective transition method and therefore have not restated results for prior periods. Under this method, we recognize compensation expense for all share-based
payments granted after January 1, 2006 and prior to but not yet vested as of January 1, 2006, in accordance with SFAS 123R. Under the fair value recognition provisions of SFAS 123R, we recognize stock-based compensation net of an
estimated forfeiture rate and only recognize compensation cost for those shares expected to vest. Prior to SFAS 123R adoption, we accounted for share-based payments under Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25), and related interpretations, and accordingly, we generally recognized compensation expense only when we granted options with a discounted exercise price or when we granted options to parties other than employees and
directors.

Determining the appropriate fair value model and calculating the fair value of share-based payment awards require the input of
highly subjective assumptions. In calculating such fair value, we make certain assumptions consisting of the expected life of the equity grant, volatility, risk-free interest rate, dividend yield and the weighted average fair value of grants. Actual
volatility, expected lives, risk-free interest rates and dividend yield may be different than our assumptions which would result in an actual value of the equity grants being different than estimated. In determining volatility, we determined that a
combination of implied volatility and historical volatility is a better indicator of expected volatility than historical volatility alone. We examined our historical pattern of option exercises and post-vesting termination behavior to determine the
expected life assumption. The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of our employee stock plans and our dividend yield assumption is based on our history and expectation of dividend
payouts. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate, the stock-based compensation
expense could be significantly different from what we have recorded in the current period.

The adoption of SFAS 123R has had a negative
effect on our reported net income, due to our use of stock options and our current practice of awarding other forms of equity compensation, such as restricted stock units and employee stock purchase plan awards. The adoption of SFAS 123R also
affects our reported amounts for pre-tax expense, tax rate, cash flow from operations and diluted shares outstanding. See Note 3 of the Consolidated Financial Statements located in Item 1 for a further discussion on stock-based
compensation.

Recent Accounting Pronouncements

See Note 1 of the Consolidated Financial Statements in Item 1 for a full description of recent accounting pronouncements, including the respective expected dates of adoption and estimated effects on results of operations and financial
condition.

Results of Operations

Net Revenues



|                                        |  |                             |         |   |      |   |       
|--------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------
|                                        |  | Three months endedMarch 31,
|                                        |  | 2007                        |         |   | 2006
|                                        |  | (Dollars in thousands)     
|Net revenues                            |  | $                           | 107,171 |   |      | $ | 88,464
|Increase, period over period            |  | $                           | 18,707  |   |      |   |       
|Percentage increase, period over period |  |                             | 21      | % |      |   |       

Net revenues increased 21% in the first quarter of 2007 as compared to the corresponding prior
year period due primarily to growth in our domestic and international subscriber base and increased usage of existing and new service products. During the first quarter of 2007, the number of customers for our core applications increased to
approximately 29,700 customers. In the first quarter of 2007, U.S. net revenues were $89.5 million, an increase of 19% from the corresponding prior year period, while international net revenues increased 33% to $17.7 million. The increase in
international revenues for the first quarter of 2007 was due to the Companys increased focus and investment outside of the U.S.



27



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##### Table of Contents

One of the measurement tools, or metrics, which we use to help forecast future revenue is what we refer
to as monthly revenue rate, or MRR. We define MRR as the sum of the following: (i) committed monthly subscriptions, or the aggregate dollar amount of minimum minutes, named hosts and ports that are contractually committed to us, as of the end
of the month, and (ii) average monthly uncommitted revenue for the quarter, or the aggregate dollar amounts of per minute or usage-based services such as reseller-related, overage, telephony and pay-per-use revenues for the quarter; divided by
three. Our monthly subscription contracts at the end of March 2007 were approximately $27.3 million and our average monthly-uncommitted revenue in the quarter ended March 31, 2007 was $10.0 million. Thus our monthly revenue rate exiting March
2007 was $37.3 million.

While the quarter-exiting MRR is used by us as a forecasting tool for the following quarters revenue, the
actual revenue in the next quarter is impacted by other factors in addition to the MRR entering that quarter. These factors include such items as (i) new customer bookings and customer cancellations, and the timing of each during the quarter,
(ii) usage-based revenues, (iii) customer credits, (iv) set up fees, fees charged for one-time customer events, fees charged for professional services or consulting services as well as other non-recurring revenues that are not
included in MRR, (v) sales reserve adjustments and (vi) revenue seasonality of our web service products. While certain items such as customer credits, which are among the factors outside of MRR that operate to reduce our revenue have
increased in recent quarters, growth of our new professional services and consulting offerings have offset in part these declines. In addition, while quarterly or semiannual minutes-based subscriptions are included in the subscription portion of
MRR, the revenue associated with them is recognized variably based on usage until the end of the quarterly or semiannual billing period.

The following table shows our MRR for the nine quarters ended March 31, 2007:



|                                                       |  |               |      |                  |   |                   |  |              |      |               |   |                  |  |                   |      |              |   |               |  |   |      |  |   |      |  |   |     
|------------------------------------------------------ |  | ------------- | ---- | ---------------- | - | ----------------- |  | ------------ | ---- | ------------- | - | ---------------- |  | ----------------- | ---- | ------------ | - | ------------- |  | - | ---- |  | - | ---- |  | - | ----
|                                                       |  | March 31,2007 |      | December 31,2006 |   | September 30,2006 |  | June 30,2006 |      | March 31,2006 |   | December 31,2005 |  | September 30,2005 |      | June 30,2005 |   | March 31,2005
|                                                       |  | (In millions)
|Uncommitted usage  monthly average during the quarter |  | $             | 10.0 |                  | $ | 9.2               |  | $            | 8.6  |               | $ | 8.9              |  | $                 | 8.7  |              | $ | 7.3           |  | $ | 7.3  |  | $ | 7.7  |  | $ | 7.0 
|Contracted subscriptions at the end of the quarter     |  |               | 27.3 |                  |   | 26.0              |  |              | 24.8 |               |   | 23.6             |  |                   | 22.1 |              |   | 21.4          |  |   | 19.2 |  |   | 18.3 |  |   | 17.4
|                                                       |  |               |      |                  |   |                   |  |              |      |               |   |                  |  |                   |      |              |   |               |  |   |      |  |   |      |  |   |     
|Total MRR                                              |  | $             | 37.3 |                  | $ | 35.2              |  | $            | 33.4 |               | $ | 32.5             |  | $                 | 30.8 |              | $ | 28.7          |  | $ | 26.5 |  | $ | 26.0 |  | $ | 24.4
|                                                       |  |               |      |                  |   |                   |  |              |      |               |   |                  |  |                   |      |              |   |               |  |   |      |  |   |      |  |   |     

We use a lost subscription MRR metric to analyze customer losses and to help forecast future
revenues. The lost subscription MRR metric covers our subscription revenues lostnot only revenues lost because of customer terminations but also revenues lost because existing customers have reduced their subscription amounts, have switched to
a lower-priced subscription offering, or have elected to terminate their subscriptions in favor of purchasing on an uncommitted basis from our partners. This lost subscription MRR metric is defined as the quotient obtained from the following:
(i) the average monthly dollar amount of lost subscription contracts (including reduced customer subscriptions and customers switching to partners) during the quarter, divided by (ii) our total subscriptions at the end of the last month of
the quarter plus the average monthly lost subscription contracts for the quarter (including reduced customer subscriptions and customers switching to partners). We have calculated and evaluated lost subscription MRR on a quarterly basis. Our lost
subscription MRR for the three months ended March 31, 2007 was 1.9% per month. The following table shows our lost subscription MRR for the nine quarters ended March 31, 2007:



|                                    |  |               |   |  |                  |   |  |                   |   |  |              |   |  |               |   |  |                  |   |  |                   |   |  |              |   |  |               |  
|----------------------------------- |  | ------------- | - |  | ---------------- | - |  | ----------------- | - |  | ------------ | - |  | ------------- | - |  | ---------------- | - |  | ----------------- | - |  | ------------ | - |  | ------------- | -
|                                    |  | March 31,2007 |   |  | December 31,2006 |   |  | September 30,2006 |   |  | June 30,2006 |   |  | March 31,2006 |   |  | December 31,2005 |   |  | September 30,2005 |   |  | June 30,2005 |   |  | March 31,2005 |  
|Percentage of subscription MRR lost |  | 1.9           | % |  | 1.6              | % |  | 1.6               | % |  | 1.7          | % |  | 2.0           | % |  | 2.3              | % |  | 2.0               | % |  | 1.7          | % |  | 2.0           | %
|                                    |  |               |   |  |                  |   |  |                   |   |  |              |   |  |               |   |  |                  |   |  |                   |   |  |              |   |  |               |  

The improvement in the subscription MRR lost percentage in the first quarter of 2007 as compared
to the corresponding prior year period is due primarily to our focus to reduce losses on smaller accounts. The lost subscription MRR percentage above includes PCNow and MeetMeNow customers beginning in the first quarter of 2007 and Intranets
customers beginning in the fourth quarter of 2005.



28



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##### Table of Contents

Cost of Revenues

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



|                                        |  |                             |        |   |      |   |        |  
|--------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                        |  | Three months endedMarch 31, |       
|                                        |  | 2007                        |        |   | 2006 |  
|                                        |  | (Dollars in thousands)      |       
|Cost of revenues                        |  | $                           | 16,754 |   |      | $ | 15,971 |  
|Percentage of net revenues              |  |                             | 16     | % |      |   | 18     | %
|Increase, period over period            |  | $                           | 783    |   |      |   |        |  
|Percentage increase, period over period |  |                             | 5      | % |      |   |        |  

Cost of revenues increased 5% during the first quarter of 2007 as compared to the corresponding
prior year period due primarily to increases in the costs for delivering existing and new services to more domestic and international customers. Our technical staff was essentially flat in the first quarter of 2007 as compared to the corresponding
prior year period. A decline in stock compensation expense during the first quarter of 2007 of $180,000 as compared to the first quarter of 2006 offset in part the increase.

Sales and Marketing

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



|                                        |  |                             |        |   |      |   |        |  
|--------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                        |  | Three months endedMarch 31, |       
|                                        |  | 2007                        |        |   | 2006 |  
|                                        |  | (Dollars in thousands)      |       
|Sales and marketing                     |  | $                           | 40,918 |   |      | $ | 34,449 |  
|Percentage of net revenues              |  |                             | 38     | % |      |   | 39     | %
|Increase, period over period            |  | $                           | 6,469  |   |      |   |        |  
|Percentage increase, period over period |  |                             | 19     | % |      |   |        |  

Sales and marketing expense increased 19% during the first quarter of 2007 as compared to the
corresponding prior year period due primarily to increased spending on sales and support personnel and additional spending on advertising and marketing related programs to build brand awareness and generate leads for our sales force. Sales and
marketing headcount increased 22% in the first quarter of 2007 as compared to the corresponding prior year period. During the first quarter of 2007, we increased our promotion of existing products and continued to promote our latest forthcoming
product releases, including WebEx Connect, which is a platform designed to increase the breadth and effectiveness of a customers use of on demand software applications. A decline in stock compensation expense during the first quarter of 2007
of $756,000 as compared to the first quarter of 2006 offset in part the increase.

Research and Development

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



|                                        |  |                             |        |    |      |   |        |  
|--------------------------------------- |  | --------------------------- | ------ | -- | ---- | - | ------ | -
|                                        |  | Three months endedMarch 31, |       
|                                        |  | 2007                        |        |    | 2006 |  
|                                        |  | (Dollars in thousands)      |       
|Research and development                |  | $                           | 13,459 |    |      | $ | 13,506 |  
|Percentage of net revenues              |  |                             | 13     | %  |      |   | 15     | %
|Increase, period over period            |  | $                           | (47    | )  |      |   |        |  
|Percentage increase, period over period |  |                             | (0.3   | )% |      |   |        |  



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##### Table of Contents

Research and development expense was essentially flat during the first quarter of 2007 as compared to the
corresponding prior year period. A decline in stock compensation expense of $309,000 as well as a decline in headcount in the U.S. contributed to the reduction in research and development expense in the first quarter of 2007 as compared to the first
quarter of 2006. These declines were offset in part by increases in equipment related expenses to develop and support existing and new products.

General and Administrative

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



|                                        |  |                             |        |   |      |   |       |  
|--------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ----- | -
|                                        |  | Three months endedMarch 31, |       
|                                        |  | 2007                        |        |   | 2006 |  
|                                        |  | (Dollars in thousands)      |       
|General and administrative              |  | $                           | 13,228 |   |      | $ | 9,574 |  
|Percentage of net revenues              |  |                             | 12     | % |      |   | 11    | %
|Increase, period over period            |  | $                           | 3,654  |   |      |   |       |  
|Percentage increase, period over period |  |                             | 38     | % |      |   |       |  

General and administrative expense increased 38% during the first quarter of 2007 as compared to
the corresponding prior year period due primarily to $2.4 million of acquisition costs related to the pending merger with Cisco Systems. In addition, an increase in employee-related expenses due primarily to an increased headcount of 20% in the
first quarter of 2007 as compared to the corresponding prior year period contributed to the increase. A decline in stock compensation expense during the first quarter of 2007 of $452,000 as compared to the first quarter of 2006 offset in part the
increase.

Interest and other income, net

Interest and other income, net consists of net investment income, interest income and expense, the effect of non-functional currency transactions of our foreign subsidiaries, and certain other expenses. Interest and
other income, net was $3.4 million and $1.7 million in the first quarter of 2007 and 2006, respectively. Interest and other income, net in the first quarter of 2007 was due primarily to interest income of $3.4 million from greater cash and
investments balances and higher interest rates. In the first quarter of 2006, interest and other income, net consisted of interest income of $1.8 million, offset in part by currency exchange losses of $115,000.

Provision for income taxes

We
recorded a provision for income taxes of $9.9 million for the three months ended March 31, 2007 based on our estimated annual effective tax rate for full year 2007 of 40.7%. During the three months ended March 31, 2007, the effective tax
rate was 37.8%, which varies from our annual effective tax rate due primarily to the discrete tax benefits of options exercised which had vested after the adoption of SFAS 123R. Our estimated annual effective tax rate for 2007 is approximately 4.0
percentage points lower than 2006 due primarily to the tax impact of stock-based compensation under SFAS 123R and the associated mix of equity instruments during the respective periods. We expect to continue to use net operating loss
carryforwards to offset U.S. taxable income in 2007; however, the utilization is limited on an annual basis based on Section 382 of the Internal Revenue Code. For the first quarter of 2007, we evaluated our deferred tax assets and valuation
allowance related to the utilization of our net operating loss carryforwards. The evaluation resulted in the realization of the tax benefit of these deferred assets of $940,000 for the balance of the year, of which $856,000 reduced goodwill related
to the acquisition of Intranets.

Liquidity and Capital Resources



|                                                     |  |                             |         |   |      |   |         |  
|---------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                     |  | Three months endedMarch 31, |        
|                                                     |  | 2007                        |         |   | 2006 |  
|                                                     |  | (In thousands)              |        
|Net cash provided by operating activities            |  | $                           | 30,576  |   |      | $ | 19,294  |  
|Net cash used in investing activities                |  |                             | (78,276 | ) |      |   | (18,625 | )
|Net cash provided by financing activities            |  |                             | 22,721  |   |      |   | 19,067  |  
|                                                     |  |                             |         |   |      |   |         |  
|Net (decrease) increase in cash and cash equivalents |  | $                           | (24,979 | ) |      | $ | 19,736  |  
|                                                     |  |                             |         |   |      |   |         |  



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##### Table of Contents

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

As of March 31, 2007, cash, cash equivalents and short-term
investments were $395.8 million, an increase of $50.6 million compared with cash, cash equivalents and short-term investments of $345.2 million as of December 31, 2006. As of March 31, 2007 and December 31, 2006, we had no debt.

Operating Activities

Net cash provided by operating activities increased $11.3 million in the first quarter of 2007 as compared to the corresponding prior year period. The increase was due primarily to an increase in earnings of $4.6 million, after adjustments
for non-cash items including stock-based compensation expense, provisions for doubtful accounts and sales reserve and depreciation and amortization. In addition, timing of payments during the period and a reduction in tax payments resulted in an
increase in cash from operations of $4.3 and $1.6 million, respectively. During the first quarter of 2007, we recorded $4.6 million related to excess tax benefits from stock-based compensation in financing activities.

Investing Activities

Net cash
used in investing activities increased $59.7 million in the first quarter of 2007 as compared to the corresponding prior year period. The increase was due primarily to an increase in net investment purchases of $61.4 million as compared to the first
quarter of 2006. Capital purchases declined $1.8 million in the first quarter of 2007 as compared to 2006.

Financing Activities

Net cash provided by financing activities increased $3.7 million in the first quarter of 2007 as compared to the corresponding
prior year period. The increase was due primarily to an increase of $3.1 million of excess tax benefits from stock-based compensation during the first quarter of 2007 as compared to the first quarter of 2006.

Other

We have a revolving
credit line with a bank that provides available borrowings up to $7.0 million. Amounts borrowed under the revolving credit line bear interest at the prime rate and may be repaid and re-borrowed at any time prior to the maturity date. The credit
agreement expires June 15, 2007. 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, 2007, we
had no outstanding borrowings under the credit line, but did have $2.6 million in letters of credit issued to secure leases, which decline in value over the length of the respective leases.

We expect that existing cash resources and cash generated from operations will be sufficient to fund our anticipated working capital and capital
expenditure needs for at least the next 12 months. We anticipate that we will continue to generate cash from operations for at least the next 12 months and that existing cash reserves will therefore be sufficient to meet our capital requirements
during this period.

Lease Commitments

We lease facilities in various U.S. cities and in several non-U.S. countries for our business activities, including office space for our employees and to house equipment used in the operation of our MediaTone Network.
In April 2004, we signed a lease to occupy space in a building located in Santa Clara, California that serves as our corporate headquarters. The lease term is for approximately ten years, and initial occupancy commenced in the third quarter of 2004.
We took possession of additional space in January 2005 and are committed to occupy additional space in February 2008. The rent for all of this space is included in the future minimum rental payments. Minimum lease payments under this lease began in
January 2005 and total an aggregate of $23.8 million for the life of the lease.



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##### Table of Contents

Purchase Commitments

As of March 31, 2007 our material purchase commitments, including those for telecommunication lines and data services, equipment and software,
totaled $27.3 million. The majority of the purchase commitments are expected to be settled in cash within 12 months.

Indemnity and
Warranty Obligations

In some of our agreements with customers and resellers, we agree to indemnify the customers and resellers in
the event a third party asserts an intellectual property infringement claim against the customer or reseller based on our services. Certain restrictions are placed on the indemnity obligations, including geographical limitations and limitations on
the type of claims covered. In addition, we have provided certain warranties and committed to maintain certain service levels in some of our agreements with customers and resellers. These warranty and service level provisions specify limited
remedies available to the customer or reseller in the event of a breach of the warranty or a failure to maintain the specified service level. In addition, our agreements contain limitation of liability provisions, which disclaim responsibility for
consequential, special or indirect damages and which generally limit our liability under the agreements to the amount of fees paid to us. However, 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 which could unfavorably impact our revenue. Although customers and
resellers have on a few occasions brought to WebExs attention potential third party intellectual property claims, as of March 31, 2007, we had not incurred any liability with respect to our indemnification obligations. Likewise, customers
and resellers may bring claims with respect to our warranty and service level obligations, but as of March 31, 2007, we had not incurred a material liability with respect to such claims.

Off-Balance-Sheet Arrangements

As of March 31, 2007, we did not have any significant off-balance-sheet arrangements, as defined in SEC Regulations.

Contractual
Obligations

The following table summarizes our significant contractual commitments at March 31, 2007, and the effect such
obligations are expected to have on our liquidity and cash flows in future periods:



|                            |  |                        |        |                  |   |           |  |           |        |                   |   |        |  |   |       
|--------------------------- |  | ---------------------- | ------ | ---------------- | - | --------- |  | --------- | ------ | ----------------- | - | ------ |  | - | ------
|                            |  | Payments due by period
|                            |  | Total                  |        | Less than 1 year |   | 1-3 years |  | 3-5 years |        | More than 5 years
|                            |  | (In thousands)        
|Operating lease commitments |  | $                      | 41,260 |                  | $ | 5,975     |  | $         | 14,856 |                   | $ | 10,372 |  | $ | 10,057
|Purchase commitments        |  |                        | 27,323 |                  |   | 25,736    |  |           | 1,587  |                   |   |       |  |   |      
|                            |  |                        |        |                  |   |           |  |           |        |                   |   |        |  |   |       
|Total                       |  | $                      | 68,583 |                  | $ | 31,711    |  | $         | 16,443 |                   | $ | 10,372 |  | $ | 10,057
|                            |  |                        |        |                  |   |           |  |           |        |                   |   |        |  |   |       

As a result of the adoption of FIN 48, the total liability for uncertain tax positions is $7.5
million (see note 4 in Item 1). We have not included this amount in the table above because of the difficulty in making reasonably reliable estimates of the timing of cash settlements with the respective taxing authorities.



|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. In the majority of non-U.S. transactions, whether they are revenue transactions or the payment of expenses or other obligations owing in the non-U.S. country, the currency involved is the local currency. In some countries we have far
more sales collections than we do payment obligations; in other countries, the reverse is true. For example, in China we have significant payment obligations that must be made in Chinese currency including employee salaries and lease payments, and
these are largely not offset by revenues in China. As a result of this imbalance between local currency collections and payments in certain non-U.S. countries, our financial results could be affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in such foreign markets.



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##### Table of Contents

During the first quarter of 2007 we began to hedge our foreign currency risk by entering into forward
foreign exchange contracts. A forward foreign exchange contract obligates us to exchange predetermined amounts of specified foreign currencies at specified exchange rates on specified dates or to make an equivalent U.S. dollar payment equal to the
value of such exchange. The gains or losses from the forward contracts are designed to approximately offset the gains or losses from revaluing certain intercompany balances. At March 31, 2007, our transaction exposures amounted to $564,000 and
were offset by foreign currency forward contracts with a net notional amount of $491,000. We do not use foreign currency contracts for speculative or trading purposes. All outstanding forward contracts are marked-to-market on a monthly basis with
gains and losses included in interest and other income, net.

Interest Rate Risk

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



|Item 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, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

(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.



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##### Table of Contents

PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

On
March 27, 2006, a lawsuit was filed in the United States District Court for the Southern District of Texas by Automated Business Companies against a number of companies, including us, alleging that the defendants services which
enable individuals to remotely control their personal computers infringe three of the plaintiffs patents. The plaintiff Automated Business Companies seeks damages and injunctive relief. We believe that the claims being
asserted in the lawsuit are without merit and that we have meritorious defenses against such claims. Accordingly, we intend to vigorously defend ourselves against these claims. Currently, the parties have stipulated to submit the three patents to
the United States Patent and Trademark Office for re-examination as to the validity and scope of the claims set forth in the patents. The litigation is currently stayed pending the result of this re-examination.

On January 30, 2007, lawsuits were filed in the United States District Court for the Southern District of Texas by Accolade Systems LLC against a
number of companies, including us, alleging that the defendants services infringe one of the plaintiffs patents. The plaintiff Accolade Systems seeks damages and injunctive relief. We believe that the claims being asserted in the
lawsuit are without merit and that we have meritorious defenses against such claims. Accordingly, we intend to vigorously defend ourselves against these claims.



|Item 1A. | Risk Factors
|-------- | ------------

The following
risk factors and other information included in this Quarterly Report should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we
deem immaterial also may impair our business operations. If any of the following risks occur, our business, financial condition, operating results, and cash flows could be materially adversely affected. As discussed above, we have entered into the
Merger Agreement pursuant to which we are to be acquired by Cisco Systems. If all of the conditions set forth in the Merger Agreement are satisfied or waived and neither we nor Cisco Systems elects to exercise our respective termination rights, the
Merger will occur and we will cease to be a standalone business. Rather, we will be a wholly-owned subsidiary of Cisco Systems as of the effective time of the Merger. Accordingly, the risk factors below, excepting the first risk factor, should be
read with the understanding that such risk factors would affect a holder of our common stock only in the event that the Merger is not consummated and we remain a standalone, publicly traded company.

Prior to the Tender Offer closing and the subsequent Merger, the trading price of our common stock will likely continue to be approximately $57 per
share which, together with the $57 cash payment that would go to all stockholders as of the closing of the subsequent Merger, could limit possible returns on any new investment in our common stock or associated derivative securities.

On March 15, 2007, we announced that we had entered into the Merger Agreement with Cisco Systems pursuant to which Cisco, through Cisco
Subsidiary, would commence a tender offer of $57 per share to acquire all of the outstanding shares of our common stock. Under the terms of the Merger Agreement, upon obtaining of a majority of our shares Cisco Subsidiary will merge with and into
WebEx and we will become a wholly-owned subsidiary of Cisco Systems, thus ending our existence as a standalone company.

Beginning with the
first trading date, March 16, 2007, following the announcement of the Merger Agreement and continuing through the date hereof, our common stock has traded within a narrow price range: from a low of $56.50 on March 16, 2007 to a high of
$57.12 on March 21, 2007. This highly constricted trading range surrounding the tender offer price is typically seen in tender offer acquisitions such as ours, where the risk of one or more competing tender offers is low and where the
likelihood of legal or regulatory impediments to the transaction also is low. We expect that this extremely narrow trading range around $57 per share is likely to continue until the closing of the Merger. Such a narrow trading range, together with
the expected $57 per share cash payment to be paid to all stockholders in connection with the acquisition as provided in the Merger Agreement, would very likely significantly limit the returns, if any, on any investment our common stock or
associated derivative securities of WebEx.



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Because the Tender Offer has not yet closed, we cannot be sure that the transactions contemplated by
the Merger Agreement will be consummated, which could have a negative effect on our financial performance and stock price.

The
obligation of Cisco Systems to consummate the Tender Offer and the Merger is subject to certain conditions, including the absence of the occurrence of any material adverse effects on our business prior to the planned Merger. If the conditions set
forth in the Merger Agreement are not met or waived, the acquisition of us by Cisco Systems may not occur. These conditions are set forth in the Merger Agreement which we filed, as an exhibit to the Current Report on Form 8-K, with the SEC on
March 15, 2007. We cannot ensure that each of the conditions set forth in the Merger Agreement will be satisfied.

Our announcement of
having entered into the Merger Agreement could cause a material disruption to our business. For example, to the extent that our announcement of the acquisition creates uncertainty among customers or resellers such that they cancel orders or
terminate their respective agreements with us, our results of operations could be negatively affected. Decreased revenue could have a variety of adverse effects, including negative consequences to our relationships with customers, resellers and
others. In addition, our earnings could be below the expectations of market analysts, which could cause a decline in our stock price.

If
the acquisition is terminated, under certain circumstances, we would be required to pay Cisco Systems a termination fee of $77.0 million. In addition to such adverse consequence and the possible adverse effects stemming from the mere announcement of
the Merger Agreement, if the acquisition is not consummated we could suffer a number of further consequences that may adversely affect our business, results of operations and stock price, including, but not limited to, the following effects:



| |  | the price of our common stock could decline to the extent that its current market price reflects a market assumption that the Merger will be completed;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | we may experience difficulties in attracting customers and resellers due to changed perceptions about our competitive position, our management, or other aspects of our business;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | we may not be able to find another buyer willing to pay an equivalent or higher price per share, in an alternative acquisition transaction, than the price offered by Cisco Systems;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | we would remain liable for significant costs related to the acquisition, such as legal, accounting and investment banking fees;
| | - | -------------------------------------------------------------------------------------------------------------------------------



| |  | activities relating to the acquisition and related uncertainties may lead to a loss of revenue and market position that we may not be able to regain;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  | we may not be able to retain key employees or attract new employees in areas of growth or need; and
| | - | ---------------------------------------------------------------------------------------------------



| |  | we may not be able to maintain effective internal control over financial reporting due to employee departures.
| | - | --------------------------------------------------------------------------------------------------------------

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

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

Our dominant pricing model has been a committed-subscription pricing model. We offer several forms of
committed-subscription pricing:



| |  | Flat rate pricing, in which the customer selects a specific number of pre-identified hostscalled named hostsauthorized to start a meeting, and
based upon the number of named hosts selected the customer pays a set price per month regardless of usage. A majority of our committed-subscription customers purchase our services in this manner;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Concurrent-user or per port pricing, which enables a customer to have a set number of users connected to WebEx meetings at any one time; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | Minimum minutes pricing, in which the customer commits to pay for a certain number of people minutes of usage during a specified time period. We calculate
people minutes by multiplying the number of meeting participants by the number of minutes transpired in the meeting.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
refer to the revenue associated with our various committed-subscription arrangements as committed revenue.

Currently, our most popular
flat-rate offering is the named host offering, in which a certain named individual may host meetings at which up to a certain number of attendees may participate. The named host service differs from the concurrent-user port offering in several
respects: (i) with the concurrent user offering, any employee of the customer may host a meeting, whereas with the named host service only employees who are designated as named hosts may host a meeting, (ii) the price charged for a named
host subscription is appreciably lower than the price charged for a concurrent user subscription, in part because the named host model is less flexible with respect to who can host a meeting, and (iii) unlike the concurrent user offering, with
the named host offering there are effectively no overage fees. We also offer a full-deployment offering in which all employees within a company can utilize WebEx meeting services for a flat monthly rate. We offer two flat-rate offerings targeted at
individuals and small businesses. The first offering, available for purchase online and called MeetMeNow, is a simple web conferencing service offered on a monthly basis. The second flat-rate offering is our WebEx WebOffice line of collaboration
services, which we offer for purchase through a variety of monthly subscription plans.

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

For the quarter ended March 31, 2007, usage-based and other non-subscription revenue was approximately 27% of our total
revenue. We include in our usage-based revenue category, in addition to the various types of per-minute revenue identified in the preceding paragraph, certain non-recurring revenue items. Examples of such non-recurring revenue items are the fees we
charge our customers for consulting or other forms of professional services (PSO) work, an example of which is the fee we charge to help a customer produce an online event. Our various usage-based revenue sources are more variable and difficult to
predict than our committed subscription revenue sources, given that customer demand may vary from month to month depending on a number of factors, such as number of business days in a month or vacation patterns. Accordingly, to the extent the
revenue derived from our various usage-based sourcesor uncommitted revenuegrows faster than the combined revenue from ports, minimum minutes and flat-rate offeringstogether called committed revenueour overall revenue becomes
more difficult to predict.

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

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

Factors outside our control include:



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



| |  | market acceptance of our services;
| | - | ----------------------------------



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| |  | our resellers degree of success in distributing our services to end-users;
| | - | ---------------------------------------------------------------------------



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



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



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

Factors within our control include:



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



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



| |  | our ability to attract and retain customers;
| | - | --------------------------------------------



| |  | as to our new WebEx Connect offering, the ability to attract and contract with third-party on-demand software providers;
| | - | ------------------------------------------------------------------------------------------------------------------------



| |  | 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, on enhancing our network infrastructure and on upgrading leased facilities in the U.S. and in China, India and Europe. An example of a substantial financial commitment
we have made is our ten-year lease for space in a Santa Clara, California building which became our corporate headquarters in January 2005. We base our expansion plans and expense levels in part on our expectations of future revenue levels. If our
revenue for a particular quarter is lower than we expect, we may be unable to reduce, proportionately, our operating expenses for that quarter, in which case our operating results for that quarter would suffer. And because our fixed expenses have
increased appreciably due to our expectations relating to future revenue levels, if our revenue is sufficiently below expectation in one or more quarters, we may be unable to effect proportionate reductions in our operating expenses in a timely
manner and, therefore, our operating results could suffer.

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

Most of our
customer contracts have initial terms of three to twelve months. These contracts are typically automatically renewed except where a customer takes action to cancel a contract prior to the end of an initial or renewal term. In a few customer
situations, including contracts with the federal government, the contract can be terminated by the customer at any time during the term of the agreement. Our monthly average lost subscription MRR, an internal measurement tool we use to evaluate
subscription-based revenues that we have lost, was 1.9% for the quarter ended March 31, 2007. 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 or from one or more of our competitors. This practice may increase as a result of the Tender Offer and the Merger. A customer may also change types of services that the customer purchases directly from us such that the overall subscription
revenue to us is lower. The reasons why



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customers have canceled use of our services have included the following: the pricing of our service offerings, the failure of a customers employees to
learn about and use our services, the failure of the services to meet a customers expectations or requirements, financial difficulties experienced by a customer, and a customers decision to use services or products offered by a
competitor. As a result of customer cancellations or reductions in purchases of our services, we may need to invest additional amounts in sales and marketing in order to compensate for increases in net customer losses, or we may need to invest in
the development or acquisition of new offerings in an attempt to increase customer retention. We may not obtain a sufficient amount of new or incremental business to compensate for any customers that we may lose. The loss of existing customers or
our failure to obtain additional customers, and the additional expense associated with acquiring new customers or developing or acquiring new products, could harm our business and operating results.

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

As of March 31, 2007, we had distribution agreements in place with telecommunications partners, software vendors, web services providers and
miscellaneous other resellers that during the first quarter of 2007 accounted for 17% of our revenue. Our revenue generally consists of initial set-up fees, commitment payments, and service fees. The majority of the payments received from these
resellers are per minute or usage-based payments. We must continue to establish, preserve and extend these distribution relationships, and perhaps especially because of having entered into the Merger Agreement. Establishing these distribution
relationships can take as long as several months or more. Our resellers are not prohibited from offering and reselling the products and services of our competitors, and a significant majority of our resellers currently do so. Such resellers
(i) may devote greater resources to marketing and supporting the products and services of our competitors including specific efforts to persuade the resellers customers to switch from our services to those of our competitors, or
(ii) may be persuaded by a competitor of ours to sever the resellers distribution arrangement with us and possibly also become the exclusive reseller of that competitor. Our resellers could also devote greater resources to the development
and deployment of their own web collaboration service offerings, which may be or become competitive with ours.

An example of a reseller
which may devote greater resources to marketing and supporting the products and services of our competitors is our distributor Intercall, whose corporate parent West Corporation in April 2006 acquired our competitor Raindance and who therefore may
increase its support of the Raindance offering, or cease offering some or all of our offerings, to our detriment. With regard to the telecommunications-provider distribution channel for web collaboration services which may prove economically
significant in the future, our web collaboration services competitors may be more successful in partnering with telecommunications providers, or telecommunications providers may independently enter the web collaboration services business, either
alone or with web conferencing vendors that do not include us. If we fail to establish new distribution relationships in a timely manner, if our resellers do not successfully distribute our services, if we lose existing resellers for whatever reason
or if we fail to maintain significant participation in the telecommunications-provider distribution channel, our ability to maintain current levels of market acceptance of our web collaboration services will suffer and our business and operating
results will be harmed.

A small number of reseller accounts was responsible for most of the 17% of our total revenue during the first
quarter of 2007 that was attributable to reseller, and if any of these resellers were to discontinue or significantly curtail a reseller arrangement with us, our operating results would be negatively affected.

Of the 17% of our total first quarter 2007 revenue that was attributable to resellers, a large majority came from five resellers. Each of these five
resellers operates in the telecommunications-provider reseller channel. If one or more of these resellers were to significantly reduce the scope of or discontinue a reseller arrangement with us, our business and operating results would suffer.

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

We sell our services directly to customers and also indirectly through our resellers which buy and resell our
services. We enter into distribution relationships so that we can obtain additional customers through third parties that we could not obtain through our direct sales efforts. Under our agreements with our resellers, we sell our services on a
discounted basis to the reseller, which in turn marks up the price and sells the services to the end-user. In such cases, we contract directly with the reseller, and revenue is



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recognized on amounts charged to the reseller. We also have another type of distribution arrangementknown as a referral arrangementin which a
third party refers a potential customer to our direct sales force, which in turn seeks to enter into a contract directly with the potential customer. When a sale is made from us to a customer through a lead provided by a referral agent, the referral
agent receives from us a percentage of the proceeds from the sale of WebEx services to the customer, we include the revenue received by us within the broad category of revenue received from services sold directly to customers, and we record the
amount paid to the referral agent as sales and marketing expense. In either the reseller or referral agent case, the profit per sale received by us when a sale is generated by a third party is not as great as it would have been had the sale been
made by us directly, for the same volume of WebEx services. To the extent that sales of our services generated by our resellers or referral agents are sales that, absent the existence of the distribution arrangement, would be made by our direct
sales force, our profit per sale may decrease. Additionally, to the extent our existing customers discontinue direct agreements with us in order to purchase our services from our resellers or through our referral agents, our profit per sale may
decrease.

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

Our standalone WebEx Meeting Center service, our first on-demand web collaboration service offering launched
several years ago accounted for approximately 35% of our revenue for the quarter ended March 31, 2007. We have developed and are selling other services, such as (i) our Enterprise Edition service consisting of a composite of our Meeting
Center, Event Center, Training Center, Sales Center and Support Center services, each of which services may also be purchased separately, (ii) our audio conferencing service called WebEx Audio; (iii) our asynchronous offering called
WebOffice, (iv) our MeetMeNow service, and (v) our PCNow service. Although the number of web collaboration services we offer other than our standalone Meeting Center offering continues to increase, we still depend on Meeting Center for a
large percentage of our revenue. Our operating results will suffer if sales of our standalone Meeting Center service decline or do not increase.

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

Our business strategy has expanded from a focus on real-time web meetings and closely-related applications to an emphasis on a more diverse product line of web collaboration services, including the asynchronous
collaborative service offerings we now offer as a result of our acquisition of Intranets. We are also expanding service offerings such as remote access, instant messaging and audio conferencing. In addition, we are developing a new platform, called
WebEx Connect, which is designed to provide customers with (i) access to an online marketplace offering a variety of third party on-demand software applications, (ii) software called middleware, which enables interoperability among
on-demand and on-premise applications, and (iii) a portal called Connect Workspace through which a customer may access WebEx Connect applications.

This product diversification strategy includes a greater emphasis on selling services provided by, or obtained through acquisition of, third parties rather than our historical practice of selling services developed
solely by us. Because the markets for certain of these web collaboration services, such as the asynchronous web collaboration services market and the market for interoperable on-demand applications to be addressed by our WebEx Connect offering, are
just emerging, it is uncertain how successful WebEx will be in these markets. We are also uncertain how much investment in sales, marketing, product development and infrastructure will be necessary to compete successfully in these markets, since we
are a relatively new participant in these markets. If our investments in these new markets do not produce or exceed our expected return, our financial results will suffer. Also, to the extent we expand our service offerings to include those
offerings, such as audio conferencing, which currently or may in the future have lower profit margins than our traditional web collaboration service offerings, our operating and profit margins may decline.

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 collaboration services.
Nevertheless, our marketing and advertising campaigns or branding efforts may not be successful. For example, certain sales promotion initiatives, such as free introductory or free trial use, may dampen short-term sales even as such initiatives
attempt to cultivate participants desire to purchase and use our services, in that a customer who might have otherwise



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purchased our services will instead receive free use of our services for the trial period of time. In addition, failure to adequately generate and develop
sales leads could negatively impact our revenue and therefore our financial results. More specifically, our inability to generate and cultivate sales leads into large organizations, where there is the potential for significant use of our services
and where any future marketplace standardization of our service might emerge, could harm our business. If our marketing, branding or lead-generation efforts are not successful, our business and operating results will be harmed.

If our services fail to function, whether because of the large number of participants or because of separate quality-related issues relating to our
network infrastructure, 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 sessions 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 data network capacity planning is to have our average
daily peak usage be less than 50% of our data network capacity. We use this capacity planning standard as it is our best effort to simultaneously balance two important business objectives: (i) having enough excess capacity to avoid service
interruptions or other service quality problems on our service delivery network on days when network usage is unusually heavy, and (ii) not wasting resources on unnecessary excess network capacity.

From time to time daily peak usage has exceeded 50% of our data network capacity. However, by monitoring and managing our data network resources we have
been able to meet our internal goal of maintaining average daily peak usage at less than 50% of our data network capacity. Whenever average daily peak usage increases to a point approaching or exceeding 50% of our data network capacity, we add
capacity so that we continue to meet our internal target of having average daily peak usage be less than 50% of our data network capacity. During the quarter ended March 31, 2007, 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 and service-level monitoring is necessary. During the quarter ended March 31, 2007, the average of our daily peak usages, as a percentage of our telephony network capacity, was less than 50% of total
capacity. From time to time, as with our data network, daily peak usage has exceeded 50% of our telephony network capacity.

Meeting our
goal of having average daily peak usage be less than 50% of capacity depends on our continuing ability to add both data network and telephony network capacity whenever we so desire. Securing such additional network capacity has not been a problem
for us to date, due to the abundance of supply available for purchase. However, there can be no assurance that such supply of data network and telephony network capacity will always be available or available at reasonable prices.

The trend in recent quarters has been that customer usage levels on our network have been growing at a rate faster than revenue growth. These increases
in network usage require us to more actively and accurately monitor not only our capacity but also the operational health of the basic computer-related hardware such as servers, personal computers and data storage equipment upon which the continuous
functioning of our network depends. Our network monitoring systems are capable of detecting equipment failure within the network, and we have redundantsometimes also called fail-overinfrastructure in place to keep our network functioning
in the event a hardware failure occurs within the network. Despite these safeguards, it is possible that we could suffer a temporary network service outage due to the quantity or critical nature of the particular disabled items of infrastructure, or
due to human operator error in dealing with a particular hardware failure or even a hardware maintenance activity. From time to time, as with capacity usage on our data and telephony networks, network device usage as a percentage of capacity has
exceeded 50%.

If we fail to invest adequately, or act quickly enough, to increase the capacity and quality of our data and telephony
networks consistent with the growth in usage of each, if there are supply constraints with respect to the acquisition of additional data network or telephony capacity, or if we improperly monitor or mishandle the hardware equipment components of our
networks, 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, including upgrades to
our network hardware. 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 or with certain hardware components of our networks, we may lose
customers and be unable to attract new customers and our operating results would be harmed.



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We operate subsidiaries in China and India, which exposes us to economic and political risks specific
to conducting offshore operations in those countries.

We continue to rely on our Asian subsidiaries, WebEx China and WebEx India, for
the performance of a variety of activities that are important to our business, including research and development, sales-support and customer-support activities. In the case of WebEx China, such activities include quality assurance testing and
software development and provisioning of customer websites. We are now selling our services to the mainland China market. In the case of WebEx India, the activities include online demonstrations of our services to potential customers, other sales
support activities such as customer prospect, or lead, development, and certain information technology (IT) support activities.

In each
country, we face foreign exchange risk in that we have significant payment obligations that must be made in local currencies including employee salaries and lease payments, which currently and for the foreseeable future are currently not offset by
sufficient revenue in such currencies, particularly in China. If the local currency in either country appreciates relative to the U.S. dollar, the cost of such countrys operations, as reflected in our financial statements, would increase.
Also, political and economic tensions between the United States and either country could harm our ability to conduct operations in such country, which could increase our operating costs and harm our business and operations.

Our reliance on WebEx China 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, travel restrictions and difficulties enforcing our intellectual property rights in China. In addition, we face risks related to possible Chinese
government requirements or activities affecting customers of WebEx located in China. The Chinese government may require, as a condition of doing business in China, that WebEx provide information related to users of our services located in China or
may otherwise seek to obtain information related to users of our services in China. Although we are not currently aware of any such activity or requirement, if such activities or requirements were to occur, this could harm our reputation, cause us
to lose customers in China and could deter potential future customers in China from signing up for our services which would damage our operating results.

Finally, we could be harmed by any disruption in the intercontinental Internet infrastructure, such as damage to undersea cables under the Pacific Ocean as recently occurred. In such a circumstance, not only would
customer use of our web collaboration services possibly be disrupted, the various IT, research and development, sales and customer support activities conducted online by our WebEx China and WebEx India employees and contractors possibly would be
disrupted as well.

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

A
small part of our sales and support activities, and a significant portion of our customer provisioning and research and development activities, are conducted outside of the United States. Customer payments to us, and payments by us to both our
foreign-based vendors and to our foreign-based employees, are generally made in the local currency. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in
foreign markets. We do not currently engage in hedging activities or other actions to decrease fluctuations in operating results due to changes in foreign currency exchange rates, although we may do so when the amount of revenue obtained from
sources outside the United States becomes significant. We conduct sales, marketing, network and customer support operations in countries outside of the United States, and we currently have subsidiaries in several non-U.S. countries. 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 and maintaining 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.



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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 which could unfavorably impact our revenue. The risk of service-related failures and claims may increase as we launch additional new services, including services developed by
third parties. Moreover, as certain of our recent and planned service offerings, such as our WebOffice service and our planned network-based-recording (NBR) offering, include storage of potentially sensitive customer content on our network as part
of the service offering, this may increase the potential for claims and liability associated with that stored content.

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.

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



| |  | damage to our reputation;
| | - | -------------------------



| |  | damage to our efforts to build brand awareness;
| | - | -----------------------------------------------



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



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



| |  | unexpected expenses and diversion of resources to remedy errors.
| | - | ----------------------------------------------------------------

If our services do not work with the many hardware and software platforms used by our customers and end-users, or if we do not successfully adapt our MediaTone on-demand delivery platform to the increasing numbers of customers and
varieties of web collaboration services we are offering including third-party web application services to be provided by our new WebEx Connect offering, our business may be harmed.

We currently serve customers and end-users that use a wide variety of constantly changing hardware and software applications and platforms. If our
services are unable to support these platforms, they may fail to gain broad market acceptance, which would cause our operating results to suffer. Our success also depends on our ability to deliver our services to multiple platforms and systems. In
addition, the success of our services depends on our ability to anticipate and support new standards, especially web standards.

Our
success also depends on our ability to modify our services and underlying technology as new versions of on-demand applications are introduced, and to manage our MediaTone platform such that it is able to handle the increasing scale and diversity of
on-demand collaboration services furnished to customers. In particular, our MediaTone Network must successfully accommodate our new WebEx Connect platform and its various customer-facing features including a user interface, tools the customer can
use to build software application interoperability and a marketplace where customers can obtain third-party applications. We could suffer damage to our reputation if third-party web applications purchased by customers from our WebEx Connect
on-demand software marketplace suffer from bugs or other service interruptions, regardless of whether such third-party applications are hosted either by WebEx as part of WebExs MediaTone Network or at a third partys facility. If we fail
to maintain the capacity and quality of our MediaTone Network across a wide variety of user computer platforms, or fail in our efforts to utilize the MediaTone Network to support new web collaboration services including those to be provided through
our new WebEx Connect platform, our business will suffer.



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

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

If we fail to adequately manage the infrastructure and operational requirements of our business as it grows, both within the U.S. and internationally, our business could suffer.

Our business continues to grow. We continue to increase our total number of employees, and we continue to increase our usage of facilities and
infrastructure. We expect that this growth will continue to place a significant strain on our resources and cause us, from time to time, to face risks associated with upgrading, moving or otherwise changing our facilities and infrastructure.

We expect to continue to increase our personnel during the remainder of 2007. Our expansion in personnel, facilities and infrastructure
has presented, and will continue to present, management and operational resource challenges. In addition to completing the physical transfer of one of our primary network operations centers from our former San Jose headquarters to a facility in
Mountain View, California, we are exploring the option of transitioning another of our network operations centers from a Denver, Colorado facility to an alternative facility, although we have not yet identified the location of such alternative
facility.

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

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

Our customers and end-users may use our services to share confidential and sensitive information,
the security of which is critical to their business. Third parties may attempt to breach our security or the security of our vendors or customers. For example, although we are not aware of any breaches to the security of our primary service delivery
infrastructure or our primary web collaboration service offerings, we have faced from time to time multiple ancillary security-related issues such as credit card payment verification problems, abuse of free trial offerings made available on our
public website, and theft of audio-conferencing services by non-contracted parties.

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 or incur additional expenses, or both. For example, in connection with customer purchases of our services and with the help



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of an outside vendor, we process tens of thousands of credit card transactions per month, and any failure in either our or the vendors security system
to safeguard customer information could result in violations of law or industry standards by us, damage to our customers or damage to our financial performance or reputation.

In addition, computers are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions,
delays or loss of data. A breach of the physical security of our facilities may endanger the safety of our employees. We may be required to expend significant capital and other resources to further protect against security breaches or to resolve
problems caused by any breach, including litigation-related expenses if we are sued.

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

From time to time there are changes in our executive management team, including the hiring and departure of
executives, and the reorganization of responsibilities and personnel. For example, during the first quarter of 2006 we had a reorganization affecting the leadership of our sales and customer care organization, our product and engineering
organization and our marketing organization, which are important areas of our business. In addition, our president and chief operating officer left the Company in the second quarter of 2006. 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. 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. In particular, we are highly dependent on the executive and leadership skills of our chief executive officer and co-founder Subrah Iyar, and his
departure for any reason would likely be disruptive to our business. 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 2007. Demand for skilled engineering and other technical personnel continues to be high among
companies in the technology sector of the U.S. economy and particularly in the Silicon Valley, and because of this we could encounter increasing difficulty hiring and retaining qualified personnel. We could encounter the same difficulty in other
countries and regions where we operate and where the demand for skilled technology workers is growing quite rapidly, such as in China and India where we have experienced a significant degree of salary pressure and turnover in our workforce. We could
also encounter difficulty in hiring due to the pending status of our acquisition by Cisco Systems and the resulting uncertainties that prospective employees might have about employment with us. In addition to these challenges, our current financial
plans depend upon substantially increasing our sales force in the coming year.

If we encounter difficulty hiring, integrating and
retaining a sufficient number of qualified personnel in the future, the quality of our web collaboration services and our ability to develop new services, obtain new customers, achieve revenue growth goals and provide a high level of customer
service could all suffer, and consequently the health of our overall business could suffer. If in our hiring we hire employees from our competitors, we face a risk that a competitor may claim that we have engaged in unfair hiring practices, which
could cause us to incur costs in defending ourselves against such claims, regardless of their merits. Also, our competitors appear to value certain specialized skills possessed by certain of our technical and sales employees, having hired or
attempted to hire such individuals in recent quarters. If the rate at which such employees are hired away increases appreciably, our business and operations could be harmed.

Interruption or malfunction of our internal business processing systems, including our comprehensive database system, or problems relating to our use
of a third party service to assist us with certain billing tasks, could result in customer invoicing delays and other disruptions to our revenue-related financial accounting processes.

Our business, which includes thousands of subscription customers and a large number of daily transactions, is substantially dependent on the continuous
and error-free functioning of our automated business processing systems covering such areas as order-entry, billing, contract management and collection activities. We currently are utilizing an internally-developed, in part, proprietary business
processing system to capture and record customer usage of our various services. Because we have to rely on our own know-



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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
system, any such malfunction could cause delays or errors in transaction processing, which could negatively affect customer relationships and could harm our business. Actual malfunction-related costs that could have negative effects on our business
include (i) delays in generating, or inability to generate, customer invoices, (ii) difficulty, or inability, to track the customer usage data needed to generate invoices, (iii) our having to deploy additional resources internally to
troubleshoot these invoice and data collection problems and to complete the processing of sales transactions, and (iv) our having to issue credits to customers due to discrepancies or disagreements with particular invoices.

During the first quarter of 2006 we completed the installation of a key upgrade to the application we use for financial reporting, human resource
management and other enterprise resource planning functions. During the remainder of 2006 we installed, and in 2007 we plan to continue to install, upgrades to other portions of the application. In addition, we are utilizing a third party billing
service to assist us in the preparation and transmission of invoices to customers. Also, in connection with our WebEx Connect offering of on-demand applications developed by third parties, we intend to provide the billing services, which will
introduce a greater load on and increased complexity to our billing systems. Any material interruption or malfunction associated with the installation of these upgrades, the functioning of our third party billing service arrangement, or the addition
of the WebEx Connect offering to our billing process could result in billing, collection, credit-issuance and other revenue-related financial accounting problems. Such interruptions or malfunctions, were they to become persistent or large-scale,
could harm our customer relationships. In addition, such interruptions or malfunctions could interfere with the accuracy of our financial reporting and could disrupt related internal control compliance activities, which could result in our violating
legal requirements applicable to public companies. Any such result could harm our business and stock price.

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

The success of our on-demand web collaboration services depends on the efficient and uninterrupted operation of our internal and outsourced computer and
communications hardware, software and services. Any system failure that causes an interruption in our web collaboration services, or a decrease in their performance, could harm our relationships with our customers and resellers. In addition, some of
our communications hardware and software are hosted at third-party co-location facilities, and we rely as well on the functional operation of connectivity infrastructure such as fiber provided by third-party service providers. These systems and
operations, including those of our third-party service providers as well as those within our service delivery network, are vulnerable to damage or interruption from human error, telecommunications failures, physical or remote break-ins, physical
damage to fiber lines or other third-party service provider infrastructure, sabotage, computer viruses and intentional acts of vandalism. In addition, third-party co-location facilities may discontinue their operations due to poor business
performance. Because a substantial part of our central computer and communications hardware and network operations are located in the San Francisco Bay Area, an earthquake or other natural disaster, or a loss of electrical power to our Bay Area
computer and communications hardware and network operations for a sustained period of time, could impair the performance of our entire network. In the event of damage to or interruption of our internal or outsourced systems, if we are unable to
implement our disaster recovery plans or our efforts to restore our services to normal levels in a timely manner are not successful, our business would be harmed. In addition, business interruption insurance may not adequately compensate us for
losses that may occur, which would harm our business.

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

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

We rely on patents to protect our software and technology, and such patents, when and if obtained, may be insufficient to protect such intellectual
property assets.

We strive to protect 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 29 issued patents. Our patents are in several areas



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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 80 patent applications pending in the United States Patent Office. We may seek additional patents in the future. Our current patent applications
cover different aspects of the technology used to deliver our services and are important to our ability to compete. However, it is possible that:



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



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



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



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



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

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

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



| |  | third parties may infringe or misappropriate our trademarks and may also infringe our copyrights 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. The holders of such patents could initiate infringement claims against us. Also, in response
to an infringement action brought by us, the defendant in such action could file counterclaims against us in the same proceeding or file a separate action against us in a different court. For example, in January 2007 lawsuits were filed in U.S.
federal district court by Accolade Systems LLC against a number of companies, including us, alleging that the defendants services infringe one of plaintiffs patents. Future intellectual property dispute proceedings such as the Accolade
Systems action can be expensive, time-consuming and may divert management attention and engineering resources from their other responsibilities.



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

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

We may acquire or invest in
complementary businesses, technologies or services. For example, in September 2005 we acquired Intranets, a company which provides web-based collaborative application services primarily to small businesses. We have changed the name of this
subsidiary to WebExOne, Inc., and the various collaboration services are now marketed and sold under the brand name WebEx WebOffice. Operating and integrating newly-acquired businesses, employees, technologies or services may be expensive and
time-consuming. We may be unable to operate any acquired businesses profitably, successfully integrate the employees, technology, products or services of any acquired businesses into our existing business, or achieve post-integration financial
targets established for specific acquisitions. To illustrate, we could fail to successfully manage the newly-acquired WebExOne portion of our business, including such key areas as WebExOne sales activity, WebExOne employee motivation and retention
including key WebExOne executives, and the WebExOne service delivery infrastructure. Also, we face possible future integration-related risks such as those associated with transferring the WebExOne billing and service delivery infrastructure from its
current platform to our proprietary MediaTone platform. Expenses associated with, and diverted WebEx employee time and energy required in connection with, the integration of a newly-acquired business such as WebExOne could further harm our operating
results. More generally, if we are unable to operate and integrate any newly-acquired entities or technologies effectively, including those related to our acquisition of the former Intranets entity now renamed WebExOne, our operating results could
suffer. Future acquisitions by us, or deterioration of the businesses we have acquired, could also result in large and immediate write-downs, any of which would harm our financial performance.

We must compete successfully in the web collaboration services market.

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

In addition to the above competitors, certain of our resellers offer competitive web conferencing, web application and other web collaboration services.
One of our key resellers, Intercall, is a subsidiary of West Corporation which in April 2006 acquired our competitor Raindance. As a result of its acquisition of Raindance, Intercall could choose to increase its emphasis on offerings competitive
with ours, or cease to offer some or all of our offerings, or both.

Other companies could choose to extend their products and services to
include competitive interactive communication offerings in the future. Many of our current and potential competitors have longer operating histories, significantly greater financial, technical and other resources and greater name recognition than we
do. Our current and future competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements. In addition, current and potential competitors have



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

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

Competition from Microsoft in the collaboration software and services markets may adversely affect us. Microsoft has a product offering which is
competitive with ours and which is called Microsoft Office Live Meeting. Microsoft also has an offering called Office Live, which consists of a set of Internet-based software services. In January 2007, Microsoft began selling its new Windows Vista
operating system, which includes a real-time web meeting feature, for up to ten persons, and related collaboration functionalities such as document sharing. Microsoft has also announced plans to offer web collaboration functionality in its Office
Communications Server product scheduled for release later in 2007. Microsofts investment of development and marketing resources in products or services that compete directly with us and Microsofts integration of competitive technologies
from other companies may have an adverse impact on our business. More generally, Microsoft may attempt to leverage its dominant market position in the operating system, productivity application or browser markets, through technical integration or
bundled offerings, to expand further its presence in these web collaboration markets. This expanded Microsoft presence in web collaboration markets could make it difficult for other vendors of web collaboration products and services, such as WebEx,
to compete.

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

Finally, some
of our competitors such as IBM offer software products or products that are a combination of software and hardware that include web collaboration functionality. This type of web collaboration offering, sometimes called a customer premise or
on-premise solution, allows customers to purchase such products, install them at their own facilities, and manage the products by themselves. If significant numbers of existing or potential customers determine that they would prefer to have their
basic web conferencing or more advanced web collaboration needs met with these types of products, demand for WebEx services may decrease.

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

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



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



| |  | the continued growth and viability of the Web as an instrument of commerce;
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| |  | the willingness of our resellers to integrate web collaboration services in their service offerings; and
| | - | --------------------------------------------------------------------------------------------------------



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

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

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

In addition to the effect of such potential future laws and regulations, existing laws and regulations in both domestic and non-U.S. jurisdictions could
be interpreted to apply to our web collaboration business, in which case our regulatory compliance obligations and associated financial burdens could increase. An example of a non-U.S. law or regulation that we are expending 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 include various U.S. state
sales tax laws and regulations, which may be held by the applicable authorities to apply to the sale of our web collaboration services, and pricing and other regulations associated with the federal government market segment of our business.

We have not generally collected sales tax from customers in the United States, and we believe that the services we provide are generally
exempt from sales tax. From time to time, states have initiated, and may initiate in the future, audits or inquiries with respect to sales, use or income taxes. For example, during the third quarter of 2006, we reached resolution of sales tax
audits with two states, one verbal and one written, in which the states concluded that our services are exempt from sales tax. Despite the results of these particular audits, federal or state tax authorities could still assert that we are obligated
to collect such taxes from our customers and remit those taxes to those authorities. The collection and remittance of such taxes could increase the cost of our services and harm our operating results. In addition, such authorities may seek to
collect sales taxes for sales of services by us that occurred in the past. If such a claim were to be asserted against us and if we were unable to collect such taxes from our customers, we may be required to pay such back taxes and any
associated interest and penalties, which would increase our costs and harm our operating results.

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

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



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We face risks associated with potential future zoning and voluntary environmental remediation activity
relating to our Mountain View network operations center property.

Since 2003 we have owned real property in Mountain View, California
on which resides a building that serves as one of our primary network operations center facilities. The Mountain View City Council is currently considering a proposal to rezone the area surrounding our facility from industrial to residential use. If
such rezoning, and the accompanying expansion of neighboring residential development, takes place, operations in our building could be impeded, interrupted or otherwise negatively affected by construction activities, the new residents, or city
ordinances relating to noise or other byproducts of our buildings operations. Because of such negative circumstances, we might be forced to re-locate to a less suitable and perhaps more expensive site for our network operations facility, which
would negatively affect our business. Having to invest additional resources and management time in the locating and fitting of the alternative network operations site would further hurt our business.

During the first quarter of 2007, the United States Environmental Protection Agency (EPA) asked us to consent to Verizon Communications, Inc. (Verizon)
conducting a pilot bio-remediation project on the groundwater beneath our Mountain View property. The bio-remediation project is an experimental, bacteria-based approach to groundwater clean-up. Verizon is the corporate successor to GTE, which for
several decades was the landowner of our property and dozens of acres of adjacent property.

The EPA has asked Verizon, on a voluntary
basis, to conduct a test of this technology on our property as part of Verizons continuing effort to clean up some residual contamination from activities of GTE many years ago. Although aware of the condition of the property for at least 15
years, the EPA has never issued an order requiring clean-up of the groundwater as it has been satisfied with voluntary clean up activity conducted by GTE/Verizon in the years prior to and concurrent with our ownership of the property.

We have consented to the conducting of this bio-remediation technology testing on our property. We, Verizon and the EPA are currently in the planning
stages with regard to the actual testing of this alternative clean-up technology. While we do not believe this activity or the condition of the property represents a material risk to WebEx for environmental liability, environmental laws can impose
strict liability on land owners for the condition of their property. As a result, we are closely monitoring the situation to ensure that we are not exposed to liability and that any liability that may arise from this activity or the condition of the
property is assumed by those responsible.

Recently adopted Financial Accounting Standards Board (FASB) rules relating to
equity-compensation programs, and changes we are making in our equity compensation programs in response to the new rules, will significantly affect our results of operations.

The Financial Accounting Standards Board (FASB) has adopted final rules which change the way companies account for equity compensation in their financial
statements. This accounting rule change requires companies to report as a compensation expense equity compensation provided to employees, including stock options, purchases of stock at a discount pursuant to an employee stock purchase plan, and
other forms of equity compensation. The adoption of SFAS 123R has had, and could continue to have, a negative effect on our reported net income, due to our use of stock options and our current practice of awarding other forms of equity compensation,
such as restricted stock units and employee stock purchase plan awards. The adoption of SFAS 123R also has negatively affected our reported amounts for pre-tax expense, tax rate, cash flow from operations and diluted shares outstanding.

The new FASB rule has added, and we believe will continue to add, complexity and uncertainty to our management of employee compensation practices, and
for the foreseeable future will continue to demand a significant amount of management attention. On the one hand, if our policy of reduced equity compensation, or our plan to switch to alternative forms of equity compensation, are believed to be
uncompetitive by our employees, either (i) we may be forced to increase cash compensation to make up for such reduced and modified stock-based compensation opportunities, which would increase our expenses, or (ii) we risk losing, or being
unable to recruit, key personnel which would hurt our business. In particular, the equity compensation packages offered by private companiesthat is, companies whose securities are not publicly tradedcould look appreciably more attractive
to current or potential employees if we reduce our equity compensation packages too much. On the other hand, if in an effort to retain competitive compensation, we fail to reduce our equity compensation expense sufficiently our results of operations
may be further negatively affected.



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

Section 404 of the Sarbanes-Oxley Act of 2002 requires our management to report on, and our independent auditors to attest to, the effectiveness of our internal control structure and procedures for financial reporting. We completed an
evaluation of the effectiveness of our internal controls for the fiscal year ended December 31, 2006, and we have an ongoing program to perform the system and process evaluation and testing supporting our legal obligation to comply with these
requirements. Our business continues to expand in size and complexity, and accordingly in 2007 we expect to incur increased expense, relative to our expenditures in 2006, and to devote additional management resources to comply with Section 404.
Any additional acquisitions we may pursue and complete will increase our Section 404-related expenses, compliance activities and resource allocation. In the event that our chief executive officer, chief financial officer or independent
registered public accounting firm determine that our internal controls over financial reporting are not effective as defined under Section 404, investor perceptions of our company may be adversely affected and could cause a decline in the
market price of our stock, and we could experience further increases in expenses and redirection of management resources in order to remedy such ineffective internal controls.

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

Our stock price has been and is likely to continue to be highly volatile. For example, between January 1, 2007 and March 14, 2007, the day preceding our announcement of Merger Agreement, our stock price has
traded as high as $48.57 on February 22, 2007, and as low as $32.42 on January 3, 2007. 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 Global Select Market and the market for Internet
technology companies in particular, continue to experience significant price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. These broad market and industry
factors may decrease the market price of our common stock, regardless of our actual operating performance. In the past, companies that have experienced volatility in the market prices of their stock have been the objects of securities class action
litigation. If we were to be the object of securities class action litigation, we could face substantial costs and a diversion of managements attention and resources, which could harm our business.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

(c) Issuer Purchases of Equity Securities.

Our Board of Directors on July 31, 2006 approved a
repurchase program authorizing the repurchase of, at the discretion of WebEx management, up to $40,000,000 of the Companys common stock through December 31, 2007. During the quarter ended March 31, 2007, we did not make any
repurchases under this repurchase program, nor did we make any other repurchases of our equity securities.



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Beginning in the second quarter of 2006, we began issuing, pursuant to our 2000 Stock Incentive Plan,
restricted stock units (RSUs) to certain of our employees. These RSUs have a net-share settlement feature in which we deduct, from the total number of shares of common stock released to the RSU award recipient on each vesting date, that
number of shares with a cash value on such vesting date equivalent to the employees minimum withholding obligation for applicable income and other statutory taxes. The cash value of the shares deducted is based on our closing stock price on
the date of the vesting event. We then remit the cash to the appropriate taxing authorities. The total number of shares of common stock deducted by us during the first quarter of 2007 was 991 shares. Total payments for the employees tax
obligations to the taxing authorities were approximately $42,000. These net-share settlements had the effect of share repurchases by us as they reduced and retired the number of shares that would have otherwise been issued as a result of each RSU
vesting event and did not represent an expense to us.



|Item 6. | Exhibits
|------- | --------

Exhibits:



|               |  |                                                                                                                                                  
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                      
|2.1*           |  | Agreement and Plan of Merger by and among Registrant, Cisco Systems, Inc. and Wonder Acquisition Corp.                                           
|               | 
|3.1**          |  | Amended and Restated Certificate of Incorporation                                                                                                
|               | 
|3.2***         |  | Amended and Restated Bylaws                                                                                                                      
|               | 
|4.1**          |  | Form of Common Stock Certificate                                                                                                                 
|               | 
|10.1#          |  | Summary of Performance Measures Established for Registrants Executive Cash Bonus Plan                                                           
|               | 
|31.1           |  | Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)                                                                
|               | 
|31.2           |  | Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)                                                                
|               | 
|32.1+          |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002
|               | 
|32.2+          |  | 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
|               | 
|99.1*          |  | Tender and Voting Agreement by and among Cisco Systems, Wonder Acquisition Corp. and Subrah Iyar.                                                

---

|* | Incorporated by reference from Exhibits 2.1 and 99.1 of Registrants Current Report on Form 8-K (File No. 0-30849) filed with the Securities and Exchange Commission on
March 15, 2007.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | 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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|# | Denotes a management contract or compensatory plan or arrangement.
|- | ------------------------------------------------------------------

|+ | 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.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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 9, 2007 |  |  |  | By:                        |  | /s/ MICHAEL T. EVERETT                                     |  | 
|                  |  |  |  |                            |  | Michael T. Everett                                         |  | 
|                  |  |  |  |                            |  | Chief Financial Officer                                    |  | 
|                  |  |  |  |                            |  | (Duly Authorized Officer and Principal Financial Officer)  |  | 
|                  |  |  |  |                           
|                  |  |  |  | By:                        |  | /s/ KELLY STECKELBERG                                      |  | 
|                  |  |  |  |                            |  | Kelly Steckelberg                                          |  | 
|                  |  |  |  |                            |  | Vice President, Finance                                    |  | 
|                  |  |  |  |                            |  | (Duly Authorized Officer and Principal Accounting Officer) |  | 



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##### Table of Contents

EXHIBIT INDEX



|               |  |                                                                                                                                                  
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                      
|2.1*           |  | Agreement and Plan of Merger by and among Registrant, Cisco Systems, Inc. and Wonder Acquisition Corp.                                           
|               | 
|3.1**          |  | Amended and Restated Certificate of Incorporation                                                                                                
|               | 
|3.2***         |  | Amended and Restated Bylaws                                                                                                                      
|               | 
|4.1**          |  | Form of Common Stock Certificate                                                                                                                 
|               | 
|10.1#          |  | Summary of Performance Measures Established for Registrants Executive Cash Bonus Plan                                                           
|               | 
|31.1           |  | Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)                                                                
|               | 
|31.2           |  | Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)                                                                
|               | 
|32.1+          |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002
|               | 
|32.2+          |  | 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
|               | 
|99.1*          |  | Tender and Voting Agreement by and among Cisco Systems, Wonder Acquisition Corp. and Subrah Iyar                                                 

---

|* | Incorporated by reference from Exhibits 2.1 and 99.1 of Registrants Current Report on Form 8-K (File No. 0-30849) filed with the Securities and Exchange Commission on
March 15, 2007.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | 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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|# | Denotes a management contract or compensatory plan or arrangement.
|- | ------------------------------------------------------------------

|+ | 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.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



54