**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





___________________




**FORM
      10-Q**


___________________




**(Mark
      One)**





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


**SECURITIES EXCHANGE ACT OF 1934**





**For
      the quarterly period ended June 30, 2005**





**OR**





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


**SECURITIES EXCHANGE
      ACT OF 1934**





**For
      the transition period from ____________ to ____________ .**





**Commission
      File No.: 0-30849**





**WEBEX
      COMMUNICATIONS, INC**


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





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





**3979
      Freedom Circle**


**Santa
      Clara, California 95054**


**(Address
      of principal executive offices)**





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


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





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





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





On
      August
      1, 2005, 46,275,034 shares
      of Registrant's Common Stock, $0.001 par value were outstanding.










**WEBEX
      COMMUNICATIONS, INC.**


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


**JUNE
      30, 2005**





**TABLE
      OF CONTENTS**





**Page
                No.****PART
                I.   FINANCIAL INFORMATION****Item
                1**.Financial
                Statements
            3Condensed Consolidated Balance Sheets at
                June 30,
                2005 andDecember
                31, 2004
            3Condensed Consolidated Statements of Income for
                the three and six months ended June 30, 2005 and 2004
            4Condensed Consolidated Statements of Cash Flows
                for
                the six monthsended June 30, 2005 and 2004
            5Notes to Condensed Consolidated Financial
                Statements
            6**Item 2**.Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            14**Item
                3**.Quantitative
                and Qualitative Disclosures About Market Risk
            39**Item
                4.**Controls
                and Procedures
            39**PART
                II.  OTHER INFORMATION****Item
                2**.Unregistered
                Sales of Equity Securities and Use of Proceeds
            40**Item
                4**.Submission
                of Matters to a Vote of Security Holders
            40**Item
                6**.Exhibits
            41**Signatures**
            42**Exhibit Index**
            43








PART
      I -
      FINANCIAL INFORMATION


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





**CONDENSED
      CONSOLIDATED BALANCE
      SHEETS**


**(In
      thousands; unaudited)**





ASSETS





**June
                30,**
              ******2005**
            
            
            **December
                31,**
              **2004**Current
                assets:Cash
                and cash equivalents
            
            $
            112,272
            
            $
            110,552Short-term investments
            
            
            108,564
            
            
            74,586Accounts receivable, net of allowances of $5,310 and $5,634, respectively
            
            
            40,986
            
            
            32,438Prepaid
                expenses and other current assets
            
            
            5,187
            
            
            4,817Prepaid
                income taxes
            
            
            —
            
            
            1,739Deferred tax assets
            
            
            4,483
            
            
            4,665Total
                current assets
            
            
            271,492
            
            
            228,797Property
                and equipment, net
            
            
            47,037
            
            
            44,783Goodwill
            
            
            2,284
            
            
            1,822Intangible
                assets, net
            
            
            3,173
            
            
            3,410Deferred
                tax assets
            
            
            5,129
            
            
            5,724Other
                non-current assets
            
            
            1,120
            
            
            1,257Total
                assets
            
            $
            330,235
            
            $
            285,793LIABILITIES
                AND STOCKHOLDERS’ EQUITYCurrent
                liabilities:Accounts payable
            
            $
            5,758
            
            $
            8,685Accrued liabilities
            
            
            21,917
            
            
            20,179Deferred revenue
            
            
            11,098
            
            
            9,867Income
                tax payable
            
            
            2,561
            
            
            —Total liabilities
            
            
            41,334
            
            
            38,731Commitments
                and contingenciesStockholders'
                equity:Preferred
                stock, $0.001 par value, 5,000,000 shares authorized; no shares issued
                or
                outstanding
            
            
            —
            
            
            —Common stock
            
            
            46
            
            
            45Additional paid-in capital
            
            
            260,694
            
            
            245,807Deferred equity-based compensation
            
            
            (5
            )
            
            (15
            )Accumulated other comprehensive income
            
            
            2,479
            
            
            2,268Accumulated earnings/(deficit)
            
            
            25,687
            
            
            (1,043
            )Total stockholders' equity
            
            
            288,901
            
            
            247,062Total liabilities and stockholders' equity
            
            $
            330,235
            
            $
            285,793







See
      accompanying notes to condensed consolidated financial
      statements.





**WEBEX
      COMMUNICATIONS, INC.**





**CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME
      STATEMENTS**


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





**Three Months
      Ended                                                  
          Six Months Ended** **June
                  30,**
                **2005**
              
              
              **June
                  30,**
                **2004**
              
              
              **June
                  30,**
                **2005**
              
              
              **June
                  30,**
                **2004**Net
                  revenues
              
              $
              75,329
              
              $
              61,128
              
              $
              146,183
              
              $
              117,472Cost
                  of revenues
              
              
              12,804
              
              
              10,384
              
              
              24,661
              
              
              19,909Gross profit
              
              
              62,525
              
              
              50,744
              
              
              121,522
              
              
              97,563Operating
                  expenses:Sales and marketing
              
              
              24,745
              
              
              21,377
              
              
              48,848
              
              
              41,301Research and development
              
              
              10,982
              
              
              8,265
              
              
              21,048
              
              
              15,480General and administrative
              
              
              5,293
              
              
              5,030
              
              
              11,075
              
              
              8,437Equity-based compensation*
              
              
              6
              
              
              (130
              )
              
              7
              
              
              381Total operating expenses
              
              
              41,026
              
              
              34,542
              
              
              80,978
              
              
              65,599Operating income
              
              
              21,499
              
              
              16,202
              
              
              40,544
              
              
              31,964Interest
                  and other income, net
              
              
              1,502
              
              
              433
              
              
              3,239
              
              
              545Net
                  income before income tax
              
              
              23,001
              
              
              16,635
              
              
              43,783
              
              
              32,509Provision
                  for income tax
              
              
              9,121
              
              
              6,350
              
              
              17,053
              
              
              12,223Net
                  income
              
              $
              13,880
              
              $
              10,285
              
              $
              26,730
              
              $
              20,286Net
                  income per share:Basic
              
              $
              0.31
              
              $
              0.23
              
              $
              0.59
              
              $
              0.47Diluted
              
              
              0.29
              
              
              0.22
              
              
              0.57
              
              
              0.44Shares
                  used in per share calculations:Basic
              
              
              45,479
              
              
              43,807
              
              
              45,223
              
              
              43,380Diluted
              
              
              47,518
              
              
              46,499
              
              
              47,183
              
              
              46,479*Equity-based
                  compensation:Sales and marketing
              
              $
              —
              
              $
              (11
              )
              $
              —
              
              $
              40Research and development
              
              
              —
              
              
              11
              
              
              —
              
              
              38General and administrative
              
              
              6
              
              
              (130
              )
              
              7
              
              
              303$
              6
              
              $
              (130
              )
              $
              7
              
              $
              381





See
      accompanying notes to condensed consolidated financial
      statements.





**WEBEX
      COMMUNICATIONS, INC.**





**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH
      FLOWS**


**(In
      thousands; unaudited)**





**Six
                Months Ended****June
              30, 2005**
            
            
            **June
                30, 2004**Cash
                flows from operating activities:Net income
            
            $
            26,730
            
            $
            20,286Adjustments to reconcile net income to net cash provided by operating
                activities:Provisions for doubtful accounts and sales allowance
            
            
            6,003
            
            
            3,850Depreciation and amortization
            
            
            7,252
            
            
            5,400Loss from disposal of assets
            
            
            241
            
            
            —Deferred income tax benefit
            
            
            777
            
            
            —Tax benefit of stock plans
            
            
            7,460
            
            
            4,300Equity-based compensation
            
            
            6
            
            
            381Changes
                in operating assets and liabilities, net of acquisitions:Accounts receivable
            
            
            (14,551
            )
            
            (9,093
            )Prepaid expenses and other current assets
            
            
            (370
            )
            
            (464
            )Other non-current assets
            
            
            137
            
            
            496Accounts payable
            
            
            (2,927
            )
            
            4,888Accrued liabilities
            
            
            (557
            )
            
            841Income tax payable
            
            
            3,838
            
            
            5,412Deferred revenue
            
            
            1,231
            
            
            940Other
            
            
            211
            
            
            1,238Net cash provided by operating activities
            
            
            35,481
            
            
            38,475Cash
                flows from investing activities:Purchases of property and equipment
            
            
            (7,215
            )
            
            (26,409
            )Business and asset acquisition
            
            
            —
            
            
            (1,944
            )Net purchases of short-term investments
            
            
            (33,978
            )
            
            (57,602
            )Net
                cash used in investing activities
            
            
            (41,193
            )
            
            (85,955
            )Cash
                flows from financing activities:Net proceeds from issuances of common stock
            
            
            19,478
            
            
            17,496Repurchase of common stock
            
            
            (12,046
            )
            
            —Net cash provided by financing activities
            
            
            7,432
            
            
            17,496Net
                change in cash and cash equivalents
            
            
            1,720
            
            
            (29,984
            )Cash
                and cash equivalents at beginning of the period
            
            
            110,552
            
            
            70,996Cash
                and cash equivalents at end of the period
            
            $
            112,272
            
            $
            41,012Supplemental
                disclosures of non-cash investing and financing
                activities:Decrease in deferred equity-based compensation
            
            $
            (10
            )
            $
            (99
            )Unrealized gain on investments
            
            $
            (139
            )
            $
            59Capitalization of lease incentives
            
            $
            2,295
            
            $
            —Liabilities recorded in conjunction with business
                acquisitions
            
            $
            462
            
            $
            336Cash
                paid for:Income taxes
            
            $
            4,879
            
            $
            2,591





See
      accompanying notes to condensed consolidated financial
      statements.





**WEBEX
      COMMUNICATIONS, INC.**


**June
      30, 2005 and 2004**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**1.
      Basis of Presentation**





The
      accompanying condensed consolidated financial statements of WebEx Communications
      (the “Company” or “WebEx”) as of June 30, 2005 and for the three and six months
      ended June 30, 2005 and 2004 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, 2004, included in the Company's Form 10-K filed with the Securities
      and Exchange Commission on March 16, 2005.




The
      results of operations for the three and six months ended June 30, 2005 are
      not
      necessarily indicative of the results that may be expected for the year ending
      December 31, 2005 or any other future period, and the Company makes no
      representations related thereto.




The
      consolidated financial statements include the accounts of WebEx and its wholly
      owned subsidiaries. All significant intercompany accounts and transactions
      have
      been eliminated in consolidation. Certain amounts reported in previous periods
      have been reclassified to conform to the current period
      presentation.







**2.
      Revenue Recognition**





Revenue
      is derived from the sale of web communications services. Web communications
      services revenue is generated through a variety of contractual arrangements
      directly with customers and with distribution partners, who in turn sell the
      services to customers. The Company sells web communications services directly
      to
      customers through service subscriptions or similar agreements and pay-per-use
      arrangements. Under these arrangements, customers access the application hosted
      on WebEx servers using a standard web browser. Subscription arrangements include
      monthly subscriber user fees, user set-up fees and training. The subscription
      arrangements are considered service arrangements in accordance with Emerging
      Issues Task Force (“EITF”) Issue No. 00-3, *Application
      of AICPA Statement of Position 97-2, Software Revenue Recognition, to
      Arrangements That Include the Right to Use Software Stored on Another Entity’s
      Hardware* ,
      and
      with multiple deliverables under EITF 00-21, *Accounting
      for Revenue Arrangements with Multiple Deliverables.* Under
      EITF 00-21, all deliverables are considered one unit of accounting. During
      the
      initial term of an agreement, the Company may provide training services,
      web-page design and set-up services. WebEx considers all such deliverables
      to be
      combined with service revenues into one unit of accounting, as individual
      delivered items do not have stand-alone value to the customer; therefore, such
      revenue is recognized ratably (i.e. straight-line) over the initial term of
      the
      contract. Committed and fixed fee subscription service revenue is also
      recognized ratably (i.e. straight-line) over the current term of the
      contract. 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 fixed-fee or subscription service revenue, WebEx
      derives revenue from pay-per-use services, usage in excess of commitments and
      other per-minute-based charges that are recognized as such services are
      provided. WebEx refers to these forms of revenue as uncommitted revenue.




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




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




Deferred
      revenue includes amounts billed to customers for which revenue has not been
      recognized and generally results from the following: (1) unearned portion of
      monthly billed subscription service fees; (2) unearned portion of annual or
      other period billed subscription service fees; (3) deferred set-up fees;
      and (4) advances received from distribution partners under revenue sharing
      arrangements. As of June 30, 2005 and December 31, 2004, accounts receivable
      includes unbilled receivables of $5.2 million and $2.8 million respectively,
      for
      unbilled per-minute-based charges that occurred during the final month of the
      respective quarter.







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





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




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




The
      following presents the detail of the changes in the sales reserve and allowance
      for doubtful accounts for the three months ended June 30, 2005 and 2004 (in
      thousands):




**Quarter
                Ended**June
                30,
              2005
            
            
            June
                30,
              2004Total
                sales reserve and allowance for doubtful accounts balance at
                beginning
              of quarter
            
            $
            5,232
            
            $
            6,331Sales
                reserveBalance at beginning of quarter
            
            
            4,387
            
            
            4,682Deducted
                from revenue
            
            
            3,179
            
            
            2,309Amounts
                written off
            
            
            (2,818
            )
            
            (1,996
            )Change
            
            
            361
            
            
            313Balance
                at end of quarter
            
            
            4,748
            
            
            4,995Allowance
                for doubtful accountsBalance at beginning of quarter
            
            
            845
            
            
            1,649Credited
                to bad debt expense
            
            
            (34
            )
            
            (135
            )Amounts
                written off.....................................
            
            
            (249
            )
            
            (248
            )Change
            
            
            (283
            )
            
            (383
            )****Balance
                at end of quarter
            
            
            562
            
            
            1,266Total
                sales reserve and allowance for doubtful accounts balance at end
                of
                quarter.
            
            $
            5,310
            
            $
            6,261





**WEBEX
          COMMUNICATIONS, INC.**
 **June
          30, 2005 and 2004**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**


**4.
      Net Income Per Share**





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




The
      following table sets forth the computation of basic and diluted net income
      per
      common share for the three and six months ended June 30, 2005 and 2004 (in
      thousands except per share amounts):








**Three
                Months Ended**
              **June
                30,**
            **Six
                Months Ended**
              **June
                30**,**2005**
            
            
            **2004**
            
            
            **2005**
            
            
            **2004**Numerator:Net
                income
            
            $
            13,880
            
            $
            10,285
            
            $
            26,730
            
            $
            20,286Denominator:Denominator
                for basic net income per share
            
            
            45,479
            
            
            43,807
            
            
            45,223
            
            
            43,380Effect
                of dilutive securities:Weighted
                average options outstanding
            
            
            2,039
            
            
            2,692
            
            
            1,960
            
            
            3,099Denominator
                for diluted net income per share
            
            
            47,518
            
            
            46,499
            
            
            47,183
            
            
            46,479Basic
                net income per common share
            
            $
            0.31
            
            $
            0.23
            
            $
            0.59
            
            $
            0.47Diluted
                net income per common share
            
            $
            0.29
            
            $
            0.22
            
            $
            0.57
            
            $
            0.44











**WEBEX
            COMMUNICATIONS, INC.**
 **June
            30, 2005 and 2004**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**


The
      following potential common shares have been excluded from the computation of
      diluted net income per share for the six months ended June 30, 2005 and 2004
      because their inclusion would have been antidilutive (in thousands):








**June
                30,****2005**
            **2004**Shares
                issuable under stock options
            2,403
            2,179





The
      exercise price of antidilutive stock options outstanding as of June 30, 2005
      range from $23.95 to $55.38 and as of June 30, 2004 the range was from $24.02
      to
      $55.38.








**5.
      Comprehensive Income**





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


**Three
      Months
      Ended                                           Six
      Months Ended**


**June
      30,                                                              June 30,**


**2005                            2004                            
      2005                               2004**


Net
              income
            
            $
            13,880
            
            $
            10,285
            
            $
            26,730
            
            $
            20,286Other
              comprehensive income (loss), net of tax:Foreign
              currency translation adjustments
            
            
            (348
            )
            
            1,744
            
            
            40
            
            
            1,179Unrealized
              gain on investments
            
            
            141
            
            
            18
            
            
            14
            
            
            59(207
            )
            
            1,762
            
            
            54
            
            
            1,238Comprehensive
              income
            
            $
            13,673
            
            $
            12,047
            
            $
            26,784
            
            $
            21,524










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




The
      goodwill resulted from the April 2004 acquisition of CyberBazaar of Bangalore
      India, an audio conferencing company, which was acquired to pursue directly
      the
      web conferencing market in India. The Company renamed
      the CyberBazaar entity WebEx Communications India Pvt. Ltd. The
      carrying amount of goodwill as of June 30, 2005 was $2.3 million. Subsequent
      to the acquisition of WebEx India, certain pre-acquisition tax contingencies
      of
      $433,000 were determined to be both probable and estimable in the fourth quarter
      of 2004. Accordingly, an income tax liability was recorded and goodwill related
      to the WebEx India acquisition was increased from $1.4 million to $1.8 million.
      In the second quarter of 2005, additional pre-acquisition tax contingencies
      of
      $462,000 were determined to be both probable and estimable. These contingencies
      are now reserved in the full amount of the asserted and unasserted claims.
      An additional income tax liability was recorded and goodwill related to the
      WebEx India acquisition was increased from $1.8 million to $2.3 million. In
      accordance with SFAS No. 142, the Company does not amortize goodwill but
      evaluates it at least on an annual basis for impairment. The Company completed
      its annual goodwill impairment test during the fourth quarter of 2004 and
      determined that the carrying amount of goodwill was not impaired.




Intangible
      assets, net, as of June 30, 2005 and December 31, 2004 consisted of the
      following (in thousands):





**June
                30, 2005**
            
            
            **December
                31, 2004**Intellectual
                property rights
            
            $
            4,326
            
            $
            4,326Trade
                name and domain name
            
            
            630
            
            
            630Customer
                related intangibles
            
            
            672
            
            
            6725,628
            
            
            5,628Less
                accumulated amortization
            
            
            (2,455
            )
            
            (2,218
            )Intangible
                assets, net
            
            $
            3,173
            
            $
            3,410








**WEBEX
        COMMUNICATIONS, INC.**
 **June
        30, 2005 and 2004**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**


Amortization
      expense for the six months ended June 30, 2005 and 2004 was $237,000 and
      $40,000, respectively.




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




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





**Period ending December 31,**
            
            
            **Amortization**
              **expense**2005
                (remaining 6 months)
            
            $
            3162006
            
            
            5832007
            
            
            4632008
            
            
            3732009
            
            
            278Thereafter
            
            
            1,160Total
                amortization expense
            
            $
            3,173








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





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




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




Had
      all
      awards been accounted for under the fair value method of SFAS 123, reported
      net
      income would have been adjusted to the pro-forma net income amounts appearing
      below (in thousands except per share amounts).








**Three
                Months Ended**
              **June
                30,**
            **Six
                Months Ended**
              **June
                30**,**2005**
            
            
            **2004**
            
            
            **2005**
            
            
            **2004**Net
                income as reported
            
            $
            13,880
            
            $
            10,285
            
            $
            26,730
            
            $
            20,286Add
                Back: Stock-based compensation included in determination of net income,
                net of tax
            
            
            (6
            )
            
            4
            
            
            (7
            )
            
            21Deduct:
                Stock-based compensation including employees determined under the
                fair-value based method, net of tax
            
            
            (3,762
            )
            
            (5,420
            )
            
            (11,099
            )
            
            (7,941
            )Pro-forma
                net income as if the fair value based method had been applied to
                all
                awards
            
            $
            10,112
            
            $
            4,869
            
            $
            15,624
            
            $
            12,366Pro-forma
                net income (loss) per share as if the fair value based method had
                been
                applied to all awards:Basic
            
            $
            0.22
            
            $
            0.11
            
            $
            0.35
            
            $
            0.29Diluted
            
            $
            0.21
            
            $
            0.10
            
            $
            0.33
            
            $
            0.27








**WEBEX
        COMMUNICATIONS, INC.**
 **June
        30, 2005 and 2004**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**


The
      fair
      value of each option granted during periods subsequent to the effective date
      of
      the Company's registration statement on Form S-1 with the Securities and
      Exchange Commission on July 27, 2000 and the fair value of employee stock
      purchase rights granted under the 2000 Employee Stock Purchase Plan was
      estimated on the date of grant using the Black-Scholes option-pricing model.
      The
      assumptions used to value the option grants and purchase rights for the three
      and six-month periods ended June 30, 2005 and 2004 are as follows:








**Three
      Months Ended** **** **Six
      Months Ended**


**** **June
      30** **** **June
      30**


**Stock
                Options**
            **2005**
            **2004**
            **2005**
            **2004**Expected
                life of options
            3.5
                years
            3.5
                years
            3.5
                years
            3.5
                yearsVolatility
            76%
            86%
            74%
            86%Risk-free
                interest rate
            3.80%
            3.37%
            3.75%
            2.94%Dividend
                yield
            zero
            zero
            zero
            zero







**Three
        Months Ended** **** **Six
        Months Ended**
 **** **June
        30** **** **June
        30**


**Employee
                Stock Purchase Plan**
            **2005**
            **2004**
            **2005**
            **2004**Expected
                life of options
            6
                months
            24
                months
            6
                months
            24
                monthsVolatility
            34%
            92%
            55%
            96%Risk-free
                interest rate
            3.23%
            1.28%
            2.26%
            1.22%Dividend
                yield
            zero
            zero
            zero
            zero








**8.
      Commitments and Contingencies**





*Contractual
      Obligations*




WebEx
      leases certain equipment and facilities under non-cancelable operating leases
      expiring through 2014. Future minimum lease payments and purchase obligations
      by
      year and in the aggregate, as of June 30, 2005, are as follows (in thousands):





Payments
                due by periodContractual
                Obligations
            
            
            Remaining
                six months of
              2005
            
            
            2006
            
            
            2007
            
            
            2008
            
            
            2009
            
            
            2010
                and after
            
            
            TotalOperating
                leases obligations
            
            $
            2,469
            
            $
            4,922
            
            $
            4,835
            
            $
            5,296
            
            $
            4,807
            
            $
            18,257
            
            $
            40,586Purchase
                obligations
            
            
            8,902
            
            
            1,151
            
            
            729
            
            
            —
            
            
            —
            
            
            —
            
            
            10,782Other
                commitments
            
            
            598
            
            
            458
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,056Total
            
            $
            11,969
            
            $
            6,531
            
            $
            5,564
            
            $
            5,296
            
            $
            4,807
            
            $
            18,257
            
            $
            52,424








**WEBEX
        COMMUNICATIONS, INC.**
 **June
        30, 2005 and 2004**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**


In
      April
      2004, WebEx signed a lease to occupy space in a building located in Santa Clara,
      California, that serves as WebEx’s corporate headquarters. The lease term is for
      approximately ten years, and initial occupancy commenced in the third quarter
      of
      2004. The Company took possession of additional space in January 2005 and is
      committed to occupy additional space in 2008, which is included in the future
      minimum rental payments. Future minimum lease payments under this lease began
      in
      January 2005 and total an aggregate of $23.8 million for the life of the lease.
      Under the lease agreement, the landlord provided incentives of $2.2 million
      including the construction of leasehold improvements for no additional payments
      by the Company, and payment of certain operating expenses for the initial 20
      months covered by the lease valued at $786,000. Lease incentives received have
      been accounted for as capitalized assets and are being amortized over the lease
      term. The lease requires a security deposit of $4.0 million, which WebEx
      satisfied through a letter of credit issued under WebEx’s credit line. The
      Company's credit line is currently being renewed.  Rent expense is being
      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
      the incentives provided by the lessor, and results in the same amount of rent
      expense per square foot occupied in all periods during the lease term. Total
      future minimum lease payments under other operating leases amount to
      approximately $16.8 million.




Rent
      expense under operating leases was $3.9 million and $2.7 million for the six
      months ended June 30, 2005 and 2004, respectively. Rent expense was reduced
      by
      rental income of $59,000 and $36,000 for the six months ended June 30, 2005
      and
      2004, respectively.




At
      June
      30, 2005, WebEx had purchase commitments totaling approximately $10.8 million
      for the usage of telecommunication lines and data services, equipment and
      software purchases and the construction of leasehold improvements at new leased
      facilities. The majority of the purchase commitments are expected to be settled
      in cash within 12 months with the longest commitment expiring August 2007.




In
      December 2004, the Company entered into an agreement with the government of
      Hong
      Kong and Hong Kong University of Science and Technology (HKUST) pursuant to
      which WebEx and the government of Hong Kong were each to pay equal amounts
      to
      fund certain research and development projects to be managed jointly by WebEx
      and HKUST. In December 2004 and April 2005, WebEx paid $500,000 and $318,000,
      respectively, in cash pursuant to the agreement, which was fully expensed to
      research and development expense, and has future payment obligations under
      the
      agreement totaling $1.1 million. The future payment obligations are included
      in
“Other commitments” in the table above. WebEx will obtain sole ownership of any
      intellectual property resulting from the projects, provided, however that WebEx
      and HKUST may agree that some of the proceeds of products and services arising
      from the projects will be paid to HKUST. The parties have not yet entered into
      any such agreement regarding proceeds. The agreement provides for termination
      of
      the agreement and modification of the projects, schedule and funding under
      certain circumstances.





*Other*




WebEx
      does not currently collect sales tax from customers in the United States and
      believes the services it provides are exempt from sales tax.  No tax
      authorities are attempting to collect such taxes from WebEx.  However,
      it
      is possible in the future that tax authorities in one or more states could
      assert that WebEx is obligated to collect such taxes from its customers and
      remit those taxes to those authorities.  The collection and remittance
      of
      such taxes is not expected to have a material impact on WebEx's financial
      statements.  It is also possible, however, that such authorities could
      seek
      to collect sales taxes for sales of services by WebEx in the past. 
      If such
      a claim were to be asserted against WebEx and WebEx were found liable for such
      back taxes and WebEx was unable to collect such taxes from its customers, WebEx
      could incur an expense equal to the amount of such taxes and any associated
      interest and penalties.  WebEx believes that such taxes, interest and
      penalties, if any, are not estimable at this time.




In
      April
      2004, WebEx acquired CyberBazaar of Bangalore India, an audio conferencing
      company, in order to directly pursue the web conferencing market in India.
      In
      the fourth quarter of 2004 and second quarter of 2005, income tax contingencies
      outstanding at the date of acquisition were determined to be both probable
      and
      estimable and an income tax liability was recorded and goodwill related to
      the
      acquisition was increased accordingly. These tax contingencies are now reserved
      in the full amount of the asserted and unasserted claims .








**9.
      Significant Customer Information and Segment Reporting**





SFAS
      No.
      131, “ *Disclosure
      about Segments of an Enterprise and Related Information”* ,
      establishes standards for the reporting by business enterprises of information
      about operating segments, products and services, geographic areas, and major
      customers. The method for determining what information to report is based on
      the
      way that management organizes the operating segments within WebEx for making
      operational decisions and assessments of financial performance. **




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











**WEBEX
        COMMUNICATIONS, INC.**
 **June
        30, 2005 and 2004**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**


**10.
      Recent Accounting Pronouncements**





In
      December 2004, the FASB issued SFAS 123R, “ *Share-Based
      Payment”* ,
      which
      requires the measurement of all share-based payments to employees, including
      grants of employee stock options, using a fair value based method and the
      recording of such expense in the Company’s consolidated income statement. The
      accounting provisions of SFAS 123R are effective for fiscal years beginning
      after June 15, 2005. The Company is required to adopt SFAS 123R in the first
      quarter of 2006. The pro forma disclosures previously permitted under SFAS
      123
      will no longer be an alternative to financial statement recognition. Although
      the Company has not yet determined whether the adoption of SFAS 123R will result
      in amounts that are similar to the current pro forma disclosures under SFAS
      123,
      the Company is evaluating the requirements under SFAS 123R and expects the
      adoption to have a significant adverse impact on its consolidated income
      statement and net income per share.




In
      December 2004, the FASB issued SFAS 153, “ *Exchanges
      of Nonmonetary Assets—an amendment to APB Opinion No. 29* ”.
      This
      statement amends APB 29 to eliminate the exception for nonmonetary exchanges
      of
      similar productive assets and replaces it with a general exception for exchanges
      of nonmonetary assets that do not have commercial substance. A nonmonetary
      exchange has commercial substance if the future cash flows of the entity are
      expected to change significantly as a result of the exchange. Adoption of this
      statement is not expected to have a material impact on our results of operations
      or financial condition .




In
      May
      2005, the FASB issued SFAS 154, “ *Accounting
      Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB
      Statement No. 3* ”.
      SFAS
      154 changes the requirements for the accounting for and reporting of a change
      in
      accounting principle, and applies to all voluntary changes in accounting
      principle. It also applies to changes required by an accounting pronouncement
      in
      the unusual instance that the pronouncement does not include specific transition
      provisions. This statement requires retrospective application to prior periods’
      financial statements of changes in accounting principle, unless it is
      impracticable to determine either the period-specific effects or the cumulative
      effect of the change. SFAS 154 is effective for accounting changes made in
      fiscal years beginning after December 15, 2005. We do not expect that adoption
      of this statement will have a material impact on our results of operations
      or
      financial condition.








**11.
      Subsequent Events**





On
      August
      1, 2005, WebEx entered into a definitive agreement to acquire all of the capital
      stock of Intranets.com of Burlington, Massachusetts, which will become a wholly
      owned subsidiary. Under terms of the agreement, WebEx will pay approximately
      $45
      million in cash, subject to certain adjustments.











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




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








**Overview**




*Business,
      Principal Products, Locations.* We offer
      several real-time, interactive, multimedia web communications services. These
      services allow end-users to conduct meetings and share software applications,
      documents, presentations and other content on the Internet using a standard
      web
      browser. Integrated telephony and web-based audio and video services are also
      available using standard devices such as telephones, computer web-cameras and
      microphones. Because our services enable users to share voice, data and video
      with others in remote locations, we believe we can enhance the quality and
      variety of real-time communications compared to traditional telephone
      communications. Our services enable users to engage in media-rich, interactive,
      real-time communications without the need to be in the same physical location,
      which we believe allows users to be more productive and efficient.




Our
      current business focus is to continue to enhance and market our various web
      communications services, to develop and deploy new services, to expand our
      sales
      and marketing organizations, and to expand our WebEx MediaTone Network. We
      offer
      the following services: WebEx Meeting Center, WebEx Meeting Center Pro, WebEx
      Training Center, WebEx Support Center, WebEx Event Center, WebEx Enterprise
      Edition, WebEx Sales Center, WebEx SMARTtech, WebEx Presentation Studio and
      our
      newest service, MyWebExPC, which was launched in January 2005 . In
      August
      2005, we signed an agreement to acquire Intranets.com, a privately-held company
      which has developed and sells a suite of collaboration services primarily to
      small businesses. The acquisition is subject to customary closing conditions
      and
      is expected to close in the third quarter of 2005.




Our
      corporate headquarters is located in Santa Clara, California, and we have
      network operations facilities located in the cities of Mountain View,
      California, Denver, Colorado and Ashburn, Virginia. In addition, we have ten
      non-U.S. subsidiaries through which we conduct various operating activities
      related to our business. In each of the non-U.S. jurisdictions in which we
      have
      subsidiaries, China, Hong Kong, Japan, Australia, India, the United Kingdom,
      France, Germany and the Netherlands, we have employees or consultants engaged
      in
      sales and, in some cases, network maintenance activities. In several of these
      countries, we have established network operations facilities. In the case of
      our
      China subsidiary, our largest subsidiary, our employees perform activities
      including quality assurance testing and software development activities,
      creation of technical documentation, background research for our sales
      personnel, preparation of marketing materials and the provisioning of customer
      web sites. In 2004, we acquired CyberBazaar of Bangalore India, an audio
      conferencing company, in order to directly pursue the web conferencing market
      in
      India. We renamed the CyberBazaar entity WebEx Communications India Pvt. Ltd.
      The results of WebEx India are included in our consolidated financial statements
      subsequent to April 30, 2004, the effective date of the acquisition.







*Revenue
      and Cash-Generation Models.* We sell
      our services directly to customers, which in the second quarter of 2005
      accounted for approximately 86% of our revenue, or $64.8 million. We also sell
      our services indirectly to customers through those of our distribution partners
      that buy and resell our services, which sales in the second quarter of 2005
      accounted for approximately 14% of our revenue, or $10.5 million. With these
      types of distribution partners, whom we also generally refer to as resellers,
      w e
      sell to
      and contract directly with the distribution partner, and revenue is recognized
      based on net amounts charged to the distribution partner. We also have another
      type of distribution partner—a distribution partner that acts as our sales or
      referral agent. When a sale is made from us to a customer through the efforts
      of
      this kind of distribution partner, the distribution partner receives from us a
      percentage of the proceeds from the sale of WebEx services to the customer,
      and
      we include the revenue received by us within the broad category of revenue
      received from services sold directly to customers. We enter into distribution
      relationships, either reseller or referral agent, so that we can increase total
      revenue by obtaining customers that we could not obtain through our direct
      sales
      efforts.




The
      majority of our revenue is currently generated based on a fixed-fee subscription
      pricing model. A customer may subscribe to a certain number of concurrent-user
      ports per month, which enables the customer to have that set number of users
      connected to WebEx meetings at any one time, or to a minimum minutes commitment,
      which in the typical case enables the customer to have up to a set number of
      total minutes within the month to utilize our services. For minutes-based
      subscriptions, we have expanded our customer offering from the monthly
      minutes-based commitment offerings to include quarterly, semi-annual and annual
      minutes-based commitment offerings. Another
      of our fixed-fee offerings is the named host offering, in which a certain named
      individual may host meetings at which up to a certain number of attendees may
      participate. We
      refer
      to the revenue associated with these monthly, fixed-fee subscription
      arrangements, measured as of the end of any month, as committed
      revenue .




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




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




*Market
      Opportunities, Related Challenges and Our Responses.* **** We
      believe the market for web conferencing services to be healthy and growing.
      Various published articles have cited several trends underlying this projected
      market increase. One trend is the desire of many companies to achieve cost
      savings in the areas of information technology, or IT, spending and employee
      travel. In light of increased IT budget constraints reportedly faced by many
      companies, we believe a cost-saving decision is to hire an external web
      conferencing vendor to meet a company’s web conferencing needs, rather than
      undertaking the capital and personnel spending necessary to construct and
      maintain an internal company web conferencing network. Additionally, companies
      may perceive that web conferencing usage can reduce costs to the extent that
      web
      conferencing displaces the need for individuals within companies to travel
      in
      order to conduct business, conduct training, provide support or participate
      in
      large-attendee events.







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




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




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




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




*Industry-Wide
      Factors Relevant to Us.* The web
      communications services market is intensely competitive, subject to rapid change
      and is significantly affected by new product and service introductions and
      other
      market activities of industry participants. Although we do not currently compete
      against any one entity with respect to all aspects of our services, we do
      compete with various companies in regards to specific elements of our web
      communications services. For example, we compete with providers of traditional
      communications technologies such as teleconferencing and videoconferencing,
      applications software and tools companies, and web conferencing services such
      as
      Centra Software, Cisco Systems, Citrix Systems, Genesys, IBM, Microsoft,
      Netviewer, NTR, Oracle, Raindance, and Macromedia, which in April 2005 announced
      that it had signed a definitive agreement to be acquired by Adobe Systems.
      In
      addition to the above competitors, certain of our distribution partners offer
      competitive web conferencing services.




Competition
      from Microsoft for the general web conferencing market, or from other vendors
      specifically targeted at the low-end market, may adversely affect us. Microsoft
      has become a more active participant in this web communications services market
      since its acquisition of our competitor Placeware in 2003. Microsoft has a
      current product offering which is competitive with ours and which is called
      Microsoft Office Live Meeting. Microsoft Office Live Meeting is being marketed
      together with other Microsoft software products and services under the name
      Microsoft Office System. If Microsoft chose to deploy greater resources toward
      the marketing of the Live Meeting service, Microsoft could become a more
      significant competitor in the web communications market in which we operate.
      Microsoft may attempt to leverage its dominant market position in the operating
      system, productivity application or browser markets, through technical
      integration or bundled offerings, to expand its presence in the web
      communications market, which could make it difficult for other vendors of web
      communications products and services, such as WebEx, to compete.





In
      addition, some competitors offer web communications products and services
      targeted at customers who are more price-conscious and are less concerned about
      functionality, scalability, integration and security features. Such offerings
      may make it more difficult for us to compete in that segment of the market
      and
      may cause some of our existing customers to switch to these competitors. Also,
      such lower-cost offerings may force us to reduce the prices of our services
      in
      order to attract or retain customers. If we are forced to reduce prices, we
      may
      be forced to change the extent and type of resources we deploy in the selling
      of
      our services in an effort to maintain operating margins, such as switching
      to
      different and less expensive sales practices. Finally, some of our competitors
      offer software products or products that are a combination of software and
      hardware that include web communications functionality, and which allow
      customers to purchase such products, install them at their own facilities,
      and
      manage the products by themselves. If significant numbers of existing or
      potential customers determine that they would prefer to have their web
      conferencing needs met with these types of products, demand for WebEx services
      may decrease.








An
      increasing percentage of our subscription-based customers are selecting our
      named host offering, in which a 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 two respects: (i) with the concurrent
      user offering, any employee of the customer may host the meeting, whereas with
      the named host service only employees who are designated as named hosts may
      host
      a meeting, and (ii) the price charged for a named host subscription is
      appreciably lower than the price charged for a concurrent user subscription,
      in
      part because of the reduced flexibility the named host model affords with
      respect to who can host a meeting. Because an increasing percentage of our
      subscription-based customers are selecting the named host offering and because
      the number of named hosts per customer initially being subscribed to may not
      be
      not significantly higher than the number of concurrent users per customer that
      are being subscribed to under that pricing model, we may likely experience
      a
      decline in revenue per subscription-based customer. This loss of revenue may
      be
      offset if customers increase the number of named hosts they subscribe to over
      time or if the number of customers increases due to the availability of this
      lower-priced model. If neither of these trends occurs, our operating results
      could be negatively affected, which could harm our business. Also, we are likely
      to receive less overage revenue from customers who are named host subscribers
      than from other types of subscribers because the pricing structure for named
      host subscribers does not result in an overage charge to the customer in some
      situations where the pricing structures for our other types of subscribers
      do.  Accordingly, an increase in the percentage of our subscription-based
      customers selecting our named host offering may result in a decrease in overall
      overage revenue per subscription customer, which would hurt our operating
      results.







**Critical
      Accounting Policies**





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




*Revenue
      Recognition.* Revenue
      is derived from the sale of web communications services. Web communications
      services revenue is generated through a variety of contractual arrangements
      directly with customers and with distribution partners, who in turn sell the
      services to customers. We sell web communications services directly to customers
      through service subscriptions and pay-per-use arrangements. Under these
      arrangements, customers access the application hosted on our servers using
      a
      standard web browser. Subscription arrangements include monthly subscriber
      user
      fees and user set-up fees. The subscription arrangements are considered service
      arrangements in accordance with EITF Issue No. 00-3, “ *Application
      of AICPA Statement of Position 97-2, Software Revenue Recognition, to
      Arrangements That Include the Right to Use Software Stored on Another Entity’s
      Hardware”* ,
      and
      with multiple deliverables under EITF 00-21, *“Accounting
      for Revenue Arrangements with Multiple Deliverables”* ,
      which
      became effective during 2003. Under EITF 00-21, all deliverables are considered
      one unit of accounting; therefore, committed revenue is recognized ratably
      (straight-line) over the current term of the contract and variable usage-based
      fees are recognized as usage occurs. During the initial term, we provide
      training services, web-page design and set-up services. Some
      minute based subscriptions involve a quarterly, semi-annual or annual rather
      than monthly commitment by the customer. In these cases, all
      monthly billing is in arrears and monthly revenue is recognized based on actual
      usage during the month. If, following the last month billed, aggregate actual
      usage is less than the subscription amount, then in addition to actual usage
      for
      the final month the customer is billed and revenue is recognized for the
      remaining amount of the contractual commitment not previously billed. In
      addition to subscription services revenue, we derive revenue from pay-per-use
      services and telephony charges that are recognized as the related services
      are
      provided.




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







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





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




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




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




The
      following presents the detail of the changes in the sales reserve and allowance
      for doubtful accounts for the last eight quarters ended June 30, 2005 (in
      thousands):








**Quarter
                Ended**June
                30,
              2005
            
            
            March
                31,
              2005
            
            
            December
                31,
              2004
            
            
            September
                30,
              2004
            
            
            June
                30,
              2004
            
            
            March
                31,
              2004
            
            
            December
                31,
              2003
            
            
            September
                30,
              2003Total
                sales reserve and allowance for doubtful accounts balance at beginning
                of
                quarter
            
            $
            5,232
            
            $
            5,634
            
            $
            5,363
            
            $
            6,261
            
            $
            6,331
            
            $
            6,837
            
            $
            7,351
            
            $
            7,934Sales
                reserveBalance
                at beginning of quarter
            
            
            4,387
            
            
            4,631
            
            
            4,447
            
            
            4,995
            
            
            4,682
            
            
            4,571
            
            
            4,618
            
            
            4,866Deducted
                from revenues
            
            
            3,179
            
            
            2,621
            
            
            2,518
            
            
            1,331
            
            
            2,309
            
            
            2,115
            
            
            1,919
            
            
            2,657Amounts
                written off
            
            
            (2,818
            )
            
            (2,865
            )
            
            (2,334
            )
            
            (1,897
            )
            
            (1,996
            )
            
            (2,004
            )
            
            (1,966
            )
            
            (2,905
            )Change
            
            
            361
            
            
            (244
            )
            
            184
            
            
            (548
            )
            
            313
            
            
            111
            
            
            (47
            )
            
            (248
            )Balance
                at end of quarter
            
            
            4,748
            
            
            4,387
            
            
            4,631
            
            
            4,447
            
            
            4,995
            
            
            4,682
            
            
            4,571
            
            
            4,618Sales
                reserve as a percentage of gross accounts receivable
            
            
            10.2
            %
            
            11.0
            %
            
            12.2
            %
            
            12.8
            %
            
            15.2
            %
            
            16.1
            %
            
            16.2
            %
            
            16.7
            %Allowance
                for doubtful accountsBalance
                at beginning of quarter
            
            
            845
            
            
            1,003
            
            
            916
            
            
            1,266
            
            
            1,649
            
            
            2,266
            
            
            2,733
            
            
            3,068Charged
                (credited) to bad debt expense
            
            
            (34
            )
            
            237
            
            
            231
            
            
            (258
            )
            
            (135
            )
            
            (439
            )
            
            (268
            )
            
            364Amounts
                written off
            
            
            (249
            )
            
            (395
            )
            
            (144
            )
            
            (92
            )
            
            (248
            )
            
            (178
            )
            
            (199
            )
            
            (699
            )Change
            
            
            (283
            )
            
            (158
            )
            
            87
            
            
            (350
            )
            
            (383
            )
            
            (617
            )
            
            (467
            )
            
            (335
            )****Balance
                at end of quarter
            
            
            562
            
            
            845
            
            
            1,003
            
            
            916
            
            
            1,266
            
            
            1,649
            
            
            2,266
            
            
            2,733Allowance
                for doubtful accounts
              as
                a percentage of gross accounts receivable
            
            
            1.2
            %
            
            2.1
            %
            
            2.6
            %
            
            2.6
            %
            
            3.8
            %
            
            5.6
            %
            
            8.0
            %
            
            9.9
            %Total
                sales reserve and allowance for doubtful accounts
              balance at end of quarter.
            
            $
            5,310
            
            $
            5,232
            
            $
            5,634
            
            $
            5,363
            
            $
            6,261
            
            $
            6,331
            
            $
            6,837
            
            $
            7,351Gross
                accounts receivable
            
            $
            46,296
            
            $
            39,757
            
            $
            38,072
            
            $
            34,694
            
            $
            32,918
            
            $
            29,198
            
            $
            28,251
            
            $
            27,651Total
                receivable reserves as a percentage of accounts
              receivable
            
            
            11.5
            %
            
            13.1
            %
            
            14.8
            %
            
            15.4
            %
            
            19.0
            %
            
            21.7
            %
            
            24.2
            %
            
            26.6
            %








*Income
      Taxes.* We
      determine deferred tax assets and liabilities at the end of each year based
      on
      the future tax consequences that can be attributed to net operating loss and
      credit carryovers. Deferred tax assets and liabilities are also determined
      based
      on the differences between the financial statement carrying amounts of existing
      assets and liabilities and their respective tax bases, using the tax rate
      expected to be in effect when the taxes are actually paid or recovered. The
      recognition of deferred tax assets is reduced by a valuation allowance if it
      is
      more likely than not that the tax benefits will not be realized. The ultimate
      realization of deferred tax assets depends upon the generation of future taxable
      income during the periods in which those temporary differences become
      deductible. We consider past performance, expected future taxable income and
      prudent and feasible tax planning strategies in assessing the amount of the
      valuation allowance. Our forecast of expected future taxable income is based
      over such future periods that we believe can be reasonably estimated. Changes
      in
      market conditions that differ materially from our current expectations and
      changes in future tax laws in the U.S. and in international jurisdictions may
      cause us to change our judgments of future taxable income. These changes, if
      any, may require us to adjust our existing tax valuation allowance higher or
      lower than the amount we have recorded. For the six months ended June 30, 2005,
      we evaluated our deferred tax assets and valuation allowance related to the
      utilization of our net operating loss carryforwards. The evaluation resulted
      in
      the realization of the tax benefit of these deferred assets of $0.4 million
      for
      the balance of the year, which was accounted for as a credit to additional
      paid-in capital .




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




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




-  Significant
      decrease in
      the market value of an asset;





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





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










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





-      
      Current period operating losses or negative cash flow combined with a history
      of
      similar losses or a forecast that indicates


continuing losses associated with the use of an asset.





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




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










**Results
      of Operations**





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




**Three
        Months
        Ended    
        **Six
        Months Ended**** **June
          30,** **June
          30,**


**2005**
            **2004**
            **2005**
            **2004**Net
                revenues
            100%
            100%
            100%
            100%Cost
                of revenues
            17
            17
            17
            17Gross
                profit
            83
            83
            83
            83Operating
                expenses:Sales
                and marketing
            33
            35
            33
            35Research
                and development
            14
            14
            15
            13General
                and administrative
            7
            8
            8
            7Equity-based
                compensation
            --
            --
            --
            --Total
                operating expenses
            54
            57
            56
            56Operating
                income
            29
            26
            27
            27Interest
                and other income, net
            1
            1
            2
            --Provision
                for income tax
            12
            10
            11
            10Net
                income
            18%
            17%
            18%
            17%





*Net
      revenues.* Net
      revenues increased $14.2 million to $75.3 million for the three months ended
      June 30, 2005 from $61.1 million for the three months ended June 30, 2004,
      representing a 23% increase from 2004 to 2005. Net revenues increased $28.7
      million to $146.2 million for the six months ended June 30, 2005 from $117.5
      million for the six months ended June 30, 2004, representing a 24% increase
      from
      2004 to 2005. The increases for the three and six months ended June 30, 2005
      were primarily due to growth in our domestic and international subscriber
      customer base and increased usage of existing and new service products. By
      the
      end of June 2005, the number of customers in our subscriber base had grown
      by
      more than 21% from the end of June 2004 .




One
      of
      the measurement tools, or metrics, which we use to help forecast future revenues
      is what we refer to as our monthly revenue rate, or what we sometimes call
      MRR.
      We define our monthly revenue rate as the sum of the following: (i) committed
      monthly subscriptions, or the aggregate dollar amount of minimum minutes, named
      hosts and ports that are contractually committed to us, as of the end of the
      month, and (ii) average monthly uncommitted revenue for the quarter, or the
      aggregate dollar amounts of per minute or usage-based services such as overage,
      telephone, reseller-related and pay-per-use revenues for the quarter; divided
      by
      three. Our monthly subscription contracts at the end of June 2005 were
      approximately $18.3 million and our average monthly-uncommitted revenue in
      the
      quarter ended June 30, 2005 was $7.7 million, and thus our monthly revenue
      rate
      exiting June 2005 was $26.0 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 many
      factors in addition to the MRR entering that quarter. These factors include
      such
      items as (i) new customer bookings and customer cancellations, and the timing
      of
      each during the quarter, (ii) usage-based revenues, (iii) customer credits,
      (iv)
      set up fees, fees charged for one-time customer events and other non-recurring
      revenues that are not included in MRR, (v) partner commitment fees in deferred
      revenue and (vi) sales reserve adjustments. Certain revenue elements not
      included in MRR have been declining in recent quarters due to changes in our
      business practices. For example, due to recent changes in our sales compensation
      plans, our sales employees, where permitted to give customer discounts, have
      been more apt than previously to give discounts on the set up fee portion of
      a
      customer’s payment obligation and less apt than previously to give discounts on
      the monthly subscription, or MRR, portion of the customer’s payment obligation.
      Also, we now less frequently require a prepaid commitment from a distribution
      partner than we formerly did. On the other hand, customer credits, which are
      among the factors outside of MRR which operate to reduce our revenue, have
      increased in the most recent two quarters. Also, quarterly minutes-based
      subscriptions have been increasing. While quarterly 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
      billing period .




Another
      metric we use to analyze customer losses and to help forecast future revenues
      is
      monthly average lost subscription MRR. Our lost subscription MRR metric is
      somewhat analogous to customer churn in the telecommunications business, except
      that our lost subscription MRR is more inclusive than the churn metric used
      in
      the telecommunications business. Whereas the telecommunications churn metric
      typically includes only revenues lost because of customer terminations, our
      lost
      subscription MRR includes not only revenues lost because of customer
      terminations but also revenues lost because existing customers either have
      reduced their subscription amounts or have elected to terminate their
      subscriptions in favor of purchasing on an uncommitted basis from our partners.
      We define our lost subscription MRR as the quotient obtained from the following:
      (i) the average monthly dollar amount of lost subscription contracts (including
      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 calculate and evaluate lost subscription MRR on a quarterly basis. Our lost
      subscription MRR for the three months ended June 30, 2005 was 1.7% per month.
      The following table shows our MRR, and lost subscription MRR, for the five
      quarters ended June 30, 2005 (in millions):





Quarter
                EndedJune
                30,
              2005
            
            
            March
                31,
              2005
            
            
            December
                31, 2004
            
            
            September
                30, 2004
            
            
            June
                30,
              2004Uncommitted
                usage - monthly average during the quarter
            
            $
            7.7
            
            $
            7.0
            
            $
            6.2
            
            $
            6.0
            
            $
            5.9Contracted
                subscriptions at the end of the quarter
            
            
            18.3
            
            
            17.4
            
            
            16.8
            
            
            15.9
            
            
            15.1Total
                MRR
            
            $
            26.0
            
            $
            24.4
            
            $
            23.0
            
            $
            21.9
            
            $
            21.0%
                of subscription MRR lost
            
            
            1.7
            %
            
            2.0
            %
            
            1.9
            %
            
            1.8
            %
            
            1.8
            %








*Cost
      of revenues.* Our
      cost
      of revenues consists primarily of costs related to user set-up, network and
      data
      center operations, technical support and training activities, including Internet
      access and telephony communication costs, personnel, licensed software and
      equipment costs and depreciation. Cost of revenues increased $2.4 million to
      $12.8 million for the three months ended June 30, 2005 from $10.4 million for
      the three months ended June 30, 2004. As a percent of revenue, cost of revenues
      remained constant at 17% for the three months ended June 30, 2004 and 2005.
      Cost
      of revenues increased $4.8 million to $24.7 million for the six months ended
      June 30, 2005 from $19.9 million for the six months ended June 30, 2004. As
      a
      percentage of revenues, cost of revenues remained constant at 17% for the six
      months ended June 30, 2004 and 2005. The increase in absolute dollars for the
      three months ended June 30, 2005 was primarily due to increases in the costs
      for
      delivering existing and new services to more domestic and international
      customers, additions to our technical staff to support our installed base of
      customers, and expenditures to expand and improve our worldwide network. In
      February 2004, we purchased land and a building containing approximately 125,000
      square feet of commercial grade facility, of which 25,000 square feet consists
      of data infrastructure facility floor space, for $15.9 million. Land totaling
      $9.7 million is not depreciated, and the building totaling $6.2 million is
      being
      depreciated over 10 years. As part of the purchase, we also acquired certain
      items of data infrastructure equipment previously installed and situated on
      the
      property. During 2004 and the six months ended June 30, 2005, we used this
      facility as one of our network operating centers to accommodate growing usage
      requirements on our WebEx MediaTone Network .







*Sales
      and marketing.* Our
      sales
      and marketing expense consists of personnel costs, including commissions, as
      well as costs of public relations, advertising, marketing programs, lead
      generation, travel and trade shows. Sales and marketing expense increased $3.3
      million to $24.7 million for the three months ended June 30, 2005 from $21.4
      million for the three months ended June 30, 2004. Sales and marketing expense
      increased $7.5 million to $48.8 million for the six months ended June 30, 2005
      from $41.3 million for the six months ended June 30, 2004. The increases for
      the
      three and six months ended June 30, 2005 were primarily due to increased
      spending on sales and support personnel, increased commission expenses
      associated with our increased revenue and additional spending on advertising
      and
      marketing related programs to build brand awareness and generate leads for
      our
      sales force. For the six months ended June 30, 2005, we also incurred $1.1
      million in additional expenses resulting from a fire at our Amsterdam
      headquarters in February 2005. We anticipate recovery of some or all of this
      loss from our insurance carrier in either the third or fourth quarter of this
      year as the claim procedures are completed. Any amounts we do recover will
      be
      recorded as a reduction to sales and marketing expense in the period
      received .




*Research
      and development.* Our
      research and development expense consists primarily of salaries and other
      personnel-related expenses, depreciation of equipment and supplies, and
      consulting engineering services. Research and development expense increased
      $2.7
      million to $11.0 million for the three months ended June 30, 2005 from $8.3
      million for the three months ended June 30, 2004. Research and development
      expense increased $5.5 million to $21.0 million for the six months ended June
      30, 2005 from $15.5 million for the six months ended June 30, 2004. The
      increases for the three and six months ended June 30, 2005 were primarily
      related to increases in personnel and equipment related expenses resulting
      from
      an increase in headcount to develop and support existing and new products
      including increases in the number of such personnel in WebEx China .




*General
      and administrative.* Our
      general and administrative expense consists primarily of personnel costs for
      finance, human resources, legal and general management, bad debt expense and
      professional services, such as legal, tax and accounting. General and
      administrative expense increased $0.3 million to $5.3 million for the three
      months ended June 30, 2005 from $5.0 million for the three months ended June
      30,
      2004. General and administrative expense increased $2.7 million to $11.1 million
      for the six months ended June 30, 2005 from $8.4 million for the six months
      ended June 30, 2004. The increase for the three months ended June 30, 2005
      was
      primarily due to increased spending on employee-related expenses and a decrease
      in amounts credited to bad debt expense. The increase for the six months ended
      June 30, 2005 was primarily due to increased spending on employee-related
      expenses, increased professional service expenses to help us comply with the
      new
      regulations imposed by the Sarbanes-Oxley Act of 2002, and an increase in bad
      debt expense. These increases were offset by the cost of the implementation
      in
      the three months ended June 30, 2004 of a new order entry, customer management
      and billing software. Bad debt expense increased $0.1 million to immaterial
      expense in the three months ended June 30, 2005 from a credit of $0.1 million
      in
      the three months ended June 30, 2004. Bad debt expense increased $0.8 million
      to
      an expense of $0.2 million in the six months ended June 30, 2005 from a credit
      of $0.6 million in the six months ended June 30, 2004. These increases were
      due
      to higher calculated
      potential future credit losses based on historical losses. The
      small
      expense in 2005 was due to an increase in revenue offset by a slight decrease
      in
      the calculated potential percentage of future credit losses. In 2004, the trend
      in historical loss percentage decreased sharply compared to prior quarters,
      resulting in a credit to expense from the bad debt allowance to adjust the
      reserve to the calculated potential future credit loss
      requirements.




*Equity-based
      compensation.* Our
      equity-based compensation expense represents the amortization of deferred
      equity-based compensation over the vesting period of incentive stock options
      granted to employees and expenses related to issuance of common stock options
      to
      non-employees. Deferred equity-based compensation represents the difference
      between the exercise price of the stock options granted to employees and the
      fair value of common stock at the time of those grants. Equity-based
      compensation expense increased $0.1 million to immaterial expense for the three
      months ended June 30, 2005 from a credit of $0.1 million for the three months
      ended June 30, 2004. Equity-based compensation expense decreased $0.4 million
      to
      immaterial expense for the six months ended June 30, 2005 from a charge of
      $0.4
      million for the six months ended June 30, 2004. The relative increase for the
      three months ended June 30, 2005 was due to the effects of the fluctuations
      in
      our stock price on the recognition of expense on options granted to
      non-employees. The relative decrease for the six months ended June 30, 2005
      was
      due to the vesting of employee awards. Equity-based compensation expense related
      to the unvested portion of non-employee options is impacted by changes in our
      stock price and will fluctuate accordingly. In connection with the calculation
      of equity-based compensation expense, members of our Board of Directors are
      treated the same as employees of WebEx .




*Interest
      and other income, net.* Interest
      and other income, net is comprised of net investment income, interest income
      and
      expense, and other expenses. Interest and other income, net increased $1.1
      million to $1.5 million for the three months ended June 30, 2005 from $0.4
      million for the three months ended June 30, 2004. Interest and other income,
      net
      increased by $2.7 million to $3.2 million for the six months ended June 30,
      2005
      from $0.5 million for the six months ended June 30, 2004. The increases for
      the
      three and six months ended June 30, 2005 were primarily due to increased
      interest income from greater cash and investments balances and higher interest
      rates, and from gains from currency exchange as a result of currency
      transactions in other than the functional currency of our foreign subsidiaries.
      In the six months ended June 30, 2005 and 2004, respectively, other expenses
      included a gain from currency exchange of $0.8 million and a loss from currency
      exchange of $0.3 million, where the currency exchange gain or loss amount during
      the period consists of the net aggregate effect of currency transactions in
      each
      of our foreign subsidiaries during the period that occur in other than such
      subsidiary’s functional currency .







*Provision
      for income taxes.* We
      recorded a provision for income taxes of $9.1 million for the three months
      ended
      June 30, 2005 and a provision for income taxes of $17.1 million for the six
      months ended June 30, 2005 based on our estimated effective tax rate for full
      year 2005 of 38.9%. The three months ended June 30, 2005 contained a $0.2
      million adjustment as the estimated annual rate was increased from 38.2% to
      38.9% in the second quarter. Our effective tax rate for 2005 is higher than
      2004
      primarily because the 2004 rate included a component for valuation allowance
      and
      the benefit of equity based compensation. We expect to continue to use net
      operating loss carryforwards to offset U.S. taxable income in 2005; however,
      the
      utilization is now limited on an annual basis based on Section 382 of the
      Internal Revenue Code. For the six months ended June 30, 2005, we evaluated
      our
      deferred tax assets and valuation allowance related to the utilization of our
      net operating loss carryforwards. The evaluation resulted in the realization
      of
      the tax benefit of these deferred assets of $0.4 million, which was accounted
      for as a credit to additional paid-in capital .




*Net
      income.* As
      a
      result of the foregoing, net income increased $3.6 million to $13.9 million
      for
      the three months ended June 30, 2005 from $10.3 million for the three months
      ended June 30, 2004. Net income increased $6.4 million to $26.7 million in
      the
      six months ended June 30, 2005 from $20.3 million in the six months ended June
      30, 2004 .







**Liquidity
      and Capital Resources**





We
      have
      generated net positive cash flow from operations since the third quarter of
      2002. We anticipate cash flow from operations will be sufficient to fund our
      current operations as well as fund future expansion.




As
      of
      June 30, 2005, cash, cash equivalents and short-term investments were $220.8
      million, an increase of $35.7 million compared to $185.1 million at December
      31,
      2004 .




Net
      cash
      provided by operating activities was $35.5 million for the six months ended
      June
      30, 2005, as compared to $38.5 million for the six months ended June 30, 2004.
      The decrease in net cash provided by operating activities was primarily the
      result of increases in accounts receivable and decreases
      in accounts payable and income taxes payable, offset by increases in net
      income adjusted for non-cash components. Accounts receivable as of June 30,
      2005
      reflected unexpected billing system and operational database problems, a change
      in the method of recording cash in transit, a delay in collecting from one
      large
      customer account, and increases of quarterly
      minutes-based subscriptions which are billed in arrears.




Net
      cash
      used in investing activities was $41.2 million for the six months ended June
      30,
      2005, as compared to $86.0 million for the six months ended June 30, 2004.
      The
      decrease in net cash used in investing activities related primarily to decreased
      purchases of short-term investments for the six months ended June 30, 2005
      and
      decreased purchases of property and equipment as compared to the six months
      ended June 30, 2004, during which we acquired land and building for our new
      network operating center. The purchase of property and equipment primarily
      relates to capital expenditures for equipment, hardware and software used in
      our
      MediaTone Network .




Net
      cash
      provided by financing activities was $7.4 million for the six months ended
      June
      30, 2005, as compared to $17.5 million for the six months ended June 30, 2004.
      The decrease in net cash was primarily the result of cash used in our share
      repurchase program totaling $12.0 million in 2005. Under the share repurchase
      program, which our board of directors authorized in July 2004 for an 18 month
      duration and which leaves to management discretion whether and to what extent
      shares are repurchased during that period, a maximum of $40.0 million in shares
      of our common stock may be repurchased. As of June 30, 2005, approximately
      $17.9
      million has been used to repurchase approximately 853,000 shares of our common
      stock .




As
      of
      June 30, 2005, our material purchase commitments, including those for
      telecommunication lines and data services, equipment and software and
      construction of leasehold improvements at new leased facilities, totaled $10.8
      million. The
      majority of the purchase commitments are expected to be settled in cash within
      12 months, with the
      longest commitment expiring in August 2007 .




On
      August
      1, 2005, we entered into a definitive agreement to acquire all of the capital
      stock of Intranets.com of Burlington, Massachusetts, which will become a wholly
      owned subsidiary. Under terms of the agreement, we will pay approximately $45
      million in cash, subject to certain adjustments .




We
      lease
      office facilities under various operating leases that expire through 2014.
      In
      April 2004, we signed a lease to occupy space in a building located in Santa
      Clara, California, that serves as our corporate headquarters. The lease term
      is
      for approximately ten years, and initial occupancy commenced in the third
      quarter of 2004. We took possession of additional space in January 2005 and
      are
      committed to occupy additional space in 2008, the lease payments concerning
      which are included in the future minimum rental payments. Future minimum lease
      payments under this lease began in January 2005 and total an aggregate of $23.8
      million for the life of the lease .







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







**Long
      Term Contracts**





The
      following table summarizes our significant contractual obligations at June
      30,
      2005, and the effect such obligations are expected to have on our liquidity
      and
      cash flows in future periods (in thousands):







Payments
                due by periodContractual
                Obligations
            
            
            Remaining
                six months of
              2005
            
            
            2006
            
            
            2007
            
            
            2008
            
            
            2009
            
            
            2010
              and
              after
            
            
            TotalOperating
                leases obligations
            
            $
            2,469
            
            $
            4,922
            
            $
            4,835
            
            $
            5,296
            
            $
            4,807
            
            $
            18,257
            
            $
            40,586Purchase
                obligations
            
            
            8,902
            
            
            1,151
            
            
            729
            
            
            —
            
            
            —
            
            
            —
            
            
            10,782Other
                commitments
            
            
            598
            
            
            458
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,056Total
            
            $
            11,969
            
            $
            6,531
            
            $
            5,564
            
            $
            5,296
            
            $
            4,807
            
            $
            18,257
            
            $
            52,424








**Factors
      That May Affect Results**





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







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




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




From
      a
      revenue standpoint, our dominant pricing model has been a fixed-fee subscription
      model. Under this model, a customer may subscribe to a certain number of
      concurrent-user ports per month, which enables the customer to have up to that
      number of users connected to WebEx meetings at any one time, or to a monthly
      minimum minutes commitment which in the typical case enables the customer to
      have up to a set number of minutes per month with which to utilize our services. For
      minutes-based subscriptions, we have expanded our customer offering from the
      monthly minutes-based commitment offering to include quarterly, semi-annual
      and
      annual minutes-based commitment offerings. Another
      of our fixed-fee offerings is the named host offering, in which a certain named
      individual may host meetings at which up to a certain number of attendees may
      participate.







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




Historically,
      the majority of our revenue has been fixed fee, but the percentage of our
      revenue which is derived from usage-based pricing models is greater than it
      has
      been in the past. For the quarter ended June 30, 2005, usage-based revenue
      was
      approximately 31% of our total revenue. The various usage-based revenue sources
      are more variable and difficult to predict than our fixed-fee subscription
      revenue sources, given that customer demand may vary from month to month
      depending on a number of factors, such as number of business days in a month
      or
      vacation patterns. Accordingly, to the extent the percent of our revenue derived
      from the various per-minute or usage-based sources increases, our overall
      revenue becomes more difficult to predict. Since fixed-fee revenue is what
      we
      refer to as committed revenue, and the usage-based revenue is what we call
      uncommitted revenue, another way to describe this increasing unpredictability
      is
      that our uncommitted revenue has grown faster than our committed revenue.





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




Factors
      outside our control include:




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




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




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




-
            market
                acceptance of our services;




-
            the
                growth rate of the market for web communications services; and




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




Factors
      within our control include:




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




-
            the
                mix of services we offer, and our introduction of new and enhanced
                services;




-
            our
                ability to attract and retain customers;




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




-
            changes
                in our pricing policies.




If
      any of
      these factors impact our business in an unplanned and negative manner during
      a
      particular period, our operating results may be below market expectations,
      in
      which case the market price of our common stock would likely decline. Also,
      factors such as the growth rate of the market for our services, our ability
      to
      maintain and enhance our network services and platform, and our competitors’
      success could impact our longer-term financial performance by reducing demand
      for our services, which would harm our business.





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




An
      increasing percentage of our subscription-based customers are selecting our
      named host offering, in which a 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 two respects: (i) with the concurrent
      user offering, any employee of the customer may host the meeting, whereas with
      the named host service only employees who are designated as named hosts may
      host
      a meeting, and (ii) the price charged for a named host subscription is
      appreciably lower than the price charged for a concurrent user subscription,
      in
      part because of the reduced flexibility the named host model affords with
      respect to who can host a meeting. Because an increasing percentage of our
      subscription-based customers are selecting the named host offering and because
      the number of named hosts per customer initially being subscribed to may not
      be
      not significantly higher than the number of concurrent users per customer that
      are being subscribed to under that pricing model, we may likely experience
      a
      decline in revenue per subscription-based customer. This loss of revenue may
      be
      offset if customers increase the number of named hosts they subscribe to over
      time or if the number of customers increases due to the availability of this
      lower-priced model. If neither of these trends occurs, our operating results
      could be negatively affected, which could harm our business. Also, we are likely
      to receive less overage revenue from customers who are named host subscribers
      than from other types of subscribers because the pricing structure for named
      host subscribers does not result in an overage charge to the customer in some
      situations where the pricing structures for our other types of subscribers
      do.  Accordingly, an increase in the percentage of our subscription-based
      customers selecting our named host offering may result in a decrease in overall
      overage revenue per subscription customer, which would hurt our operating
      results.








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




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







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




Almost
      all of our customer contracts have initial terms of three to 12 months. These
      contracts are typically automatically renewed except where a customer takes
      action to cancel a contract prior to the end of an initial or renewal term.
      In a
      few customer situations including contracts with the federal government, 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 we have lost, was 1.7%
      for
      the quarter ended June 30, 2005. In addition to cancellation, a customer may
      stop buying our services directly from us and instead start purchasing our
      services from one of our resellers. A customer may also change the number of
      ports or types of services that the customer purchases directly from us such
      that the overall subscription revenue to us is lower. The
      reasons why a customer would cancel use of our services have included the
      failure of the customer’s employees to learn about and use our services, the
      failure of the services to meet the customer’s expectations or requirements,
      financial difficulties experienced by the customer, or the customer’s decision
      to use services or products offered by a competitor. We may not obtain a
      sufficient amount of new or incremental business to compensate for any customers
      that we may lose. The loss of existing customers or our failure to obtain
      additional customers would harm our business and operating results.










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




As
      of
      June 30, 2005, we had distribution agreements in place with telecommunications
      partners and software vendors and service providers that during the second
      quarter of 2005 accounted for 14% of our revenue, which revenue generally
      consists of initial set-up fees, commitment payments, and service fees. The
      majority of the payments received from these distribution partners are per
      minute or usage-based payments. The remainder of payments are fixed-fee payments
      and are initially recorded as deferred revenue because we defer revenue related
      to initial set-up fees received at the beginning of the relationship and record
      revenue from subscription services over the course of the service period as
      the
      distribution partner resells our services. We also do not recognize commitment
      fees as revenue until the commitment fee is paid and fully earned by the use
      of
      services by the reseller’s end user customers or forfeiture of the commitment at
      the end of the commitment period. We cannot anticipate the amount of revenue
      we
      will derive from these relationships in the future. We must continue to
      establish and extend these distribution partnerships. Establishing these
      distribution relationships can take as long as several months or more. It
      typically also takes several months before our distribution arrangements
      generate significant revenue. Our distribution partners are not prohibited
      from
      offering and reselling the products and services of our competitors, and a
      significant majority of our distribution partners currently do so. Such
      distribution partners (i) may choose to devote insufficient resources to
      marketing and supporting our services, (ii) may devote greater resources to
      marketing and supporting the products and services of our competitors including
      specific efforts to persuade the partner’s customers to switch from our services
      to those of our competitors, or (iii) may be persuaded by a competitor of ours
      to sever the partner’s distribution arrangement with us and possibly also become
      the exclusive distribution partner of that competitor. Specifically with regard
      to the telecommunications-provider distribution channel for web conferencing
      services which may prove economically significant in the future, our web
      conferencing competitors may be more successful in partnering with
      telecommunications providers, or telecommunications providers may independently
      enter the web conferencing business, either alone or with web conferencing
      vendors that do not include us. If we fail to establish new distribution
      relationships in a timely manner, if our distribution partners do not
      successfully distribute our services, if we lose existing distribution partners
      for whatever reason or if we fail to become a significant participant in the
      telecommunications-provider distribution channel, our ability to maintain
      current levels of market acceptance of our web communications services will
      suffer and our business and operating results will be harmed.







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




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







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




Our
      standalone WebEx Meeting Center service, the service which generates our largest
      sales revenue, accounted for approximately 42% of our revenue for the quarter
      ended June 30, 2005. We have developed and are selling other services, such
      as
      our Event Center, Training Center, Support Center, Sales Center and Enterprise
      Edition services, our SMARTtech service, and our audio conferencing service
      offered through our subsidiary in India. We currently offer our newest service,
      MyWebExPC, for free on an introductory and limited usage basis, although in
      the
      future we intend to offer two versions of this service and to charge a fee
      for
      use of the current version at that time. Our services other than Meeting Center
      may not provide significant revenue in the future. If we are not successful
      in
      developing, deploying and selling services other than our standalone Meeting
      Center service, and if sales of our standalone Meeting Center service decline
      or
      do not increase, our operating results will suffer.










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




Our
      business strategy requires that our services be able to accommodate large
      numbers of meetings and users at any one time. Our data network monitoring
      system measures the capacity of our data network by bandwidth use. The goal
      of
      our network capacity planning is to have our average daily peak usage be less
      than 50% of our data network capacity. From time to time daily peak usage
      exceeds 50% of data network capacity. However, since mid-2002 we have been
      able
      to maintain average daily peak usage at under 50% of our data network capacity
      by adding capacity whenever there is a trend toward increased average daily
      peak
      usage. During the quarter ended June 30, 2005, the average of our daily peak
      usages, as a percentage of our data network capacity, was less than 50% of
      our
      total capacity. In addition to our data network, we also maintain an integrated
      telephony network for which capacity planning is necessary. If we fail to
      increase capacity in our data and telephony networks consistent with the growth
      in usage of each, the performance of these networks could be adversely impacted.
      In addition, we may encounter performance or other service-quality problems
      when
      making upgrades and modifications to either or both of these networks. If our
      services do not perform adequately because of capacity-related or other
      quality-related problems with either or both of our data and telephony networks,
      particularly our data network, we may lose customers and be unable to attract
      new customers and our operating results would be harmed.







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




We
      believe that continued marketing and brand recognition efforts will be critical
      to achieve widespread acceptance of our web communications services. Our
      marketing and advertising campaigns or branding efforts may not be successful
      given the expense required. For example, certain sales promotion initiatives,
      such as free introductory or free trial use, may dampen short-term sales even
      as
      such initiatives attempt to cultivate participants’ desire to purchase and use
      our services, in that a customer who might have otherwise purchased our services
      will instead receive free use of our services for the trial period of time.
      In
      addition, failure to adequately generate and develop sales leads could cause
      our
      future revenue growth to decrease. Also, our inability to generate and cultivate
      sales leads into large organizations, where there is the potential for
      significant use of our services and where any future marketplace standardization
      of our service might emerge, could harm our business. There is no assurance
      that
      we will identify, and if we identify be able to secure, the number of strategic
      sales leads necessary to help generate standardized marketplace acceptance
      of
      our services, or to maintain rates of revenue growth we have experienced in
      the
      past. If our marketing, branding or lead-generation efforts are not successful,
      our business and operating results will be harmed.







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




We
      have
      relied, and for the foreseeable future we plan to continue to rely, on our
      subsidiary WebEx China to conduct a significant portion of our quality assurance
      testing and software development activities, and also a number of other
      activities including lead research for our sales personnel, creation of
      technical documentation, preparation of marketing materials and the provisioning
      of customer websites. We have five facilities in China, located in each of
      Hefei, Hangzhou, Shanghai, Shenzhen and Suzhou. Our China subsidiary employed,
      as of June 30, 2005, approximately 816 of our worldwide employees. Our reliance
      on WebEx China for a significant portion of our quality assurance, software
      development and other activities exposes us to a variety of economic and
      political risks including, but not limited to, technology-development
      restrictions, potentially costly and pro-employee labor laws and regulations
      governing our employees in China, and travel restrictions. Further, our
      per-employee productivity is lower in China than it is the United States.







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




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








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




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




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




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




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




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




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




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








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




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





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




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




-
            damage
                to our reputation;




-
            damage
                to our efforts to build brand awareness;




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




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




-
            unexpected
                expenses and diversion of resources to remedy errors.







*If
      our services do not work with the many hardware and software platforms used
      by
      our customers and end-users, our business may be harmed.*




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







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




We
      intend
      to continue to license technologies from third parties, including applications
      used in our research and development activities and technology, which is
      integrated into our services. For example, we license database, operating
      system, server and enterprise marketing automation software, billing software,
      font-rendering technology and voice-over-Internet protocol (VOIP) technology.
      These third-party technologies, and any that we may utilize in the future,
      may
      not continue to be available to us on commercially reasonable terms. In
      addition, we may fail to successfully integrate any licensed technology into
      our
      services, our marketing communications operations or our online sales
      operations. This in turn could increase our costs and harm our business and
      operating results .







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




We
      have
      experienced a period of rapid expansion in our personnel, facilities, and
      infrastructure that has placed a significant strain on our resources. For
      example, our worldwide headcount increased from 1,889 at March 31, 2005 to
      1,926
      at June 30, 2005. We expect to continue to increase our personnel during the
      remainder of 2005. Our expansion has placed, and we expect that it will continue
      to place, a significant strain on our management, operational and financial
      resources. In addition 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 will during the next few months be
      transitioning another of our network operations centers from a Denver, Colorado
      facility to a co-location facility located in Ashburn, Virginia. Separately,
      we
      are continuing periodically to update our information technology infrastructure
      to meet increased requirements for capacity, flexibility and efficiency
      resulting from the growth of our business. In the event these recently
      re-deployed or recently-updated systems or technologies do not meet our
      requirements or are not deployed in a successful or timely manner, our business
      may suffer. Any failure by us to manage our personnel, facility, or
      infrastructure growth effectively, or any significant mismanagement by us of
      resource re-deployment, could disrupt our operations or delay execution of
      our
      business plan and could consequently harm our business.







*Breaches
      of our physical or technical security systems may result in violations of our
      confidentiality and security obligations to our customers, damage to our systems
      and our reputation, and may endanger the safety of our
      employees* *.*








Our
      customers and end-users may use our services to share confidential and sensitive
      information, the security of which is critical to their business. Third parties
      may attempt to breach our security or that of our customers. We may be liable
      to
      our customers for any breach in security, and any breach could harm our
      reputation and cause us to lose customers. In addition, computers are vulnerable
      to computer viruses, physical or electronic break-ins and similar disruptions,
      which could lead to interruptions, delays or loss of data. A breach of the
      physical security of our facilities may endanger the safety of our employees.
      We
      may be required to expend significant capital and other resources to further
      protect against security breaches or to resolve problems caused by any breach,
      including litigation-related expenses if we are sued .






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





From
      time
      to time there are changes in our executive management team, including the hiring
      and departure of executives, and the reorganization of responsibilities and
      personnel. For example, in recent months we have had executive management
      replacements in our marketing and product management organizations, two
      important areas of our business. Such changes may be disruptive to our business,
      because the executives and employees reporting to them require time to become
      fully productive in their new roles and new organizations. Planned changes
      in
      the company’s organization or management may not achieve the expected benefits.
      In addition, the departure of executives may create temporary voids in
      leadership in critical areas of the company. Because of these risks,
      organizational and management changes may have an adverse impact on our
      financial performance. We do not have long-term employment agreements or life
      insurance policies on any of our senior executives.






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




Our
      future success will depend on our ability to attract, train, retain and motivate
      highly skilled engineering, technical, managerial, sales and marketing and
      customer support personnel. We expect to continue to increase our personnel
      during the remainder of 2005. As the U.S. economy in general and the technology
      sector in particular continue to grow, we could encounter increasing difficulty
      hiring qualified personnel. We could encounter the same difficulty in other
      countries where we operate and where the demand for skilled technology workers
      is growing quite rapidly, such as in China and India where we have experienced
      a
      significant degree of salary pressure and turnover in our workforce. If we
      encounter difficulty hiring, integrating and retaining a sufficient number
      of
      qualified personnel in the future, the quality of our web communications
      services and our ability to develop new services, obtain new customers and
      provide a high level of customer service could all suffer, and consequently
      the
      health of our overall business could suffer. If in our hiring we hire employees
      from our competitors, we face a risk that a competitor may claim that we have
      engaged in unfair hiring practices, which could cause us to incur costs in
      defending ourselves against such claims, regardless of their merits. Also,
      our
      competitors appear to value certain specialized skills possessed by certain
      of
      our technical and sales employees, having hired or attempted to hire such
      individuals in recent quarters. If the rate at which such employees are hired
      away increases appreciably, our business and operations could be harmed.







*Interruption
      or malfunction of our internal business processing systems, including a new
      system we installed during 2004 and a comprehensive database system upgrade
      to
      be implemented during 2005, could result in customer invoicing delays and other
      disruptions to our revenue-related financial accounting
      processes* *.*




Our
      business, with its approximately 12,200 subscription customers and large number
      of daily transactions, is substantially dependent on the continuous and
      error-free functioning of our automated business processing systems covering
      such areas as order-entry, billing, contract management and collection
      activities. During 2004, we completed deployment of and are now utilizing an
      internally-developed, proprietary business processing system to capture and
      record, for billing and financial statement generation purposes, customer usage
      of our various services. Because
      we have to rely on our own know-how and experience, rather than that of an
      outside vendor, to identify, diagnose and repair any bugs,
      start-up problems or other malfunctions relating to the new system, any such
      malfunction could cause delays or errors in transaction processing, which could
      negatively affect customer relationships and could harm our business .
      Actual
      malfunction-related costs that could have negative effects on our business
      include (i) delays in generating, or inability to generate, customer invoices,
      (ii) difficulty, or inability, to track the customer usage data needed to
      generate invoices, (iii) our having to deploy additional resources internally
      to
      troubleshoot these invoice and data collection problems and to complete the
      processing of sales transactions, and (iv) our having to issue credits to
      certain customers due to discrepancies or disagreements with particular
      invoices. During the second quarter of 2005, we experienced actual malfunctions
      of our new business processing system that resulted in an inability to capture
      certain customer usage data we need to prepare invoices and also resulted in
      delays in the issuing of invoices to customers. In addition to having installed
      the business processing system installation in 2004, during 2005 we will be
      installing an enhanced version of our internal database system for financial
      reporting, human resource management and other enterprise resource planning
      functions. Any
      material interruption or malfunction associated with the installation or
      operation of the new database system, including bugs or start-up problems
      relating to the new system, could result in similar
      billing, collection, credit-issuance and other revenue-related financial
      accounting problems. Such interruptions or malfunctions, if they become
      persistent or large-scale, could harm our customer relationships and,
      additionally, have a negative effect on our
      financial reporting and other internal control activities, which could cause
      us
      to fail to meet legal and compliance requirements applicable to public
      companies, which in turn could harm our business .










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




The
      success of our web communications services depends on the efficient and
      uninterrupted operation of our internal and outsourced computer and
      communications hardware, software and services. In 2004 we completed
      installation of an updated version of our server management system, which system
      monitors and reports on the status of our various servers through which our
      real-time web communications services are delivered to customers. Any system
      failure, including the malfunction of the new server management system, that
      causes an interruption in our web communications services or a decrease in
      their
      performance, could harm our relationships with our customers and distribution
      partners. In addition, some of our communications hardware and software are
      hosted at third-party co-location facilities. These systems and operations
      are
      vulnerable to damage or interruption from human error, telecommunications
      failures, physical or remote break-ins, sabotage, computer viruses and
      intentional acts of vandalism. In addition, third party co-location facilities
      may discontinue their operations due to poor business performance. Because
      a
      substantial part of our central computer and communications hardware and network
      operations are located in the San Francisco Bay Area, an earthquake or other
      natural disaster could impair the performance of our entire network. In the
      event of damage to or interruption of our internal or outsourced systems, if
      we
      are unable to implement our disaster recovery plans or our efforts to restore
      our services to normal levels in a timely manner are not successful, our
      business would be harmed. In addition, business interruption insurance may
      not
      adequately compensate us for losses that may occur, which would harm our
      business.







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




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







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




Our
      success and ability to compete depend to a significant degree upon the
      protection of our underlying software and our proprietary technology through
      patents. We regard the effective protection of patentable inventions as
      important to our future opportunities. We currently have 23 issued patents,
      including eight we acquired in connection with our 2003 acquisition of certain
      assets of Presenter, Inc. and five we purchased in 2004 from NCR Corporation.
      Our patents are in several areas including peer-to-peer connections to
      facilitate conferencing, document annotation, optimizing data transfer,
      graphical user interface for extracting video presentations, and remote
      collaboration systems involving multiple computers. We currently have over
      40
      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. Our trademarks include:
      WebEx
      (word and design), WebEx bifurcated ball logo design, WebEx.com, MyWebEx,
      MyWebExPC, Bringing the Meeting to You, MediaTone, Meeting Center, WebEx Meeting
      Center, Event Center, WebEx Event Center, We’ve Got To Start Meeting Like This,
      Presentation Studio, WebEx Connect, WebEx Global Watch, WebEx Contact Center,
      WebEx Access Anywhere, Power Panels, All Time Collaboration, and Collaboration
      Without Limitation. Federal trademark applications acquired from Presenter
      consist of the trademarks iPresenter, iPresentation and Instant Presentation.
      We
      also refer to trademarks of other corporations and organizations in this
      document. Also, our software is automatically protected by copyright law. These
      forms of intellectual property protection are critically important to our
      ability to establish and maintain our competitive position. However,




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




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




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




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




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





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







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




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







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







We
      may
      acquire or invest in complementary businesses, technologies or services. For
      example, in 2004 we acquired an audio conferencing company in India that is
      now
      operating as WebEx Communications India Pvt. Ltd., and on August 1, 2005 we
      signed an agreement to acquire Intranets.com, a privately-held company which
      develops and sells a variety of web-based collaborative application services
      primarily to small businesses. If and when the Intranets.com transaction closes,
      we intend to operate Intranets.com as a wholly-owned subsidiary. Operating
      and
      integrating newly-acquired businesses, employees, technologies or services
      may
      be expensive and time-consuming. To finance any material acquisitions in the
      future, it may be necessary for us to significantly deplete our cash reserves
      or
      to raise additional funds through public or private financings. Additional
      funds
      may not be available on terms that are favorable to us and, in the case of
      equity financings as with acquisitions made with our stock, may result in
      dilution to our stockholders. We may be unable to complete any acquisitions
      or
      investments on commercially reasonable terms, if at all. Even if completed,
      we
      may be unable to operate any acquired businesses profitably, 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 new Intranets.com portion of our business, including
      such key areas as Intranets.com sales activity, Intranets.com employee
      motivation and retention, and the Intranets.com service delivery infrastructure.
      Also, we face possible future integration-related risks such as those associated
      with transferring the Intranets.com service delivery infrastructure from its
      current platform to our platform which is hostable as part of our MediaTone
      network. More generally, if we are unable to operate and integrate any newly
      acquired entities or technologies effectively, including those related to our
      Intranets.com acquisition, our operating results could suffer. Future
      acquisitions by us, or deterioration of the businesses we have acquired, could
      also result in large and immediate write-downs, or incurrence of debt and
      contingent liabilities, any of which would harm our operating
      results .







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




The
      market for web communications services is intensely competitive, subject to
      rapid change and is significantly affected by new product and service
      introductions and other market activities of industry participants. Although
      we
      do not currently compete against any one entity with respect to all aspects
      of
      our services, we do compete with various companies in regards to specific
      elements of our web communications services. For example, we compete with
      providers of traditional communications technologies such as teleconferencing
      and videoconferencing, applications software and tools companies, and web
      conferencing services such as Centra Software, Cisco Systems, Citrix Systems,
      Genesys, IBM, Microsoft, Netviewer, NTR, Oracle, Raindance, and Macromedia,
      which in April 2005 announced that it had signed a definitive agreement to
      be
      acquired by Adobe Systems. In addition to the above competitors, certain of
      our
      distribution partners offer competitive web conferencing services. Other
      companies could choose to extend their products and services to include
      competitive interactive communication offerings in the future. Many of our
      current and potential competitors have longer operating histories, significantly
      greater financial, technical and other resources and greater name recognition
      than we do. Our current and future competitors may be able to respond more
      quickly to new or emerging technologies and changes in customer requirements.
      In
      addition, current and potential competitors have established, and may in the
      future establish, cooperative relationships with third parties and with each
      other to increase the availability of their products and services to the
      marketplace. Competitive pressures could reduce our market share or require
      us
      to reduce the price of our services, either of which could harm our business
      and
      operating results. For example, we offer VOIP to customers seeking that option
      for the audio portion of their web conferencing service activity, which puts
      us
      in competition with increasing numbers of low cost providers of VOIP products
      and services of ever-increasing quality. One or more of these competitors may
      offer a sufficiently low-cost, feature-attractive, audio-centric VOIP offering
      that, though not a web conferencing offering, might divert business away from
      us, or one or more of these competitors might themselves leverage their
      experience in the VOIP segment of web communications to develop and market
      a
      web-conferencing product or service of their own. Finally, our revenues and
      market share could also be reduced if, during this time period where the market
      is still relatively new and competitors are still emerging, we do not capitalize
      on our current market leadership by timely developing and executing corporate
      strategies that will increase the likelihood that our services will be accepted
      as the market standard in preference to the offerings of our current and future
      competitors .







*Competition
      from Microsoft for the general web conferencing market, from other vendors
      specifically targeted at the low-end market, or customers offering customer
      premises products may adversely affect our operating results.*




Microsoft
      has become a more active participant in the web communications services market
      since its acquisition of our competitor Placeware in 2003. Microsoft has a
      current product offering which is competitive with ours and which is called
      Microsoft Office Live Meeting. Microsoft Office Live Meeting is being marketed
      together with other Microsoft software products and services under the name
      Microsoft Office System. Microsoft in March 2005 announced certain improvements
      to the Live Meeting service and other product developments, and also an
      acquisition related to the areas of communication and collaboration. Microsoft’s
      investment of development and marketing resources in products or services that
      compete directly with us and Microsoft’s integrations of competitive
      functionality with other communication and collaboration offerings may have
      an
      adverse impact on our business. Microsoft may attempt to leverage its dominant
      market position in the operating system, productivity application or browser
      markets, through technical integration or bundled offerings, to expand its
      presence in the web communications market, which could make it difficult for
      other vendors of web communications products and services, such as WebEx, to
      compete.








In
      addition some competitors offer web communications products and services
      targeted at customers who are more price-conscious and are less concerned about
      functionality, scalability, integration and security features. Such offerings
      may make it more difficult for us to compete in that segment of the market
      and
      may cause some of our existing customers to switch to these competitors. If
      we
      are unable to deliver competitive offerings for that segment of the market,
      our
      operating results may suffer. Also, such lower-cost offerings may force us
      to
      reduce the prices of our services in order to attract or retain customers,
      which
      in turn also may affect the extent and type of resources we deploy in the
      selling of our services in an effort to maintain operating margins. Such forced
      price reductions, as well as costs or lost sales associated with a transitioning
      to different and less expensive sales practices, could have a negative effect
      on
      our operating results. Finally, some of our competitors offer software products
      or products that are a combination of software and hardware that include web
      communications functionality, and which allow customers to purchase such
      products, install them at their own facilities, and manage the products by
      themselves. If significant numbers of existing or potential customers determine
      that they would prefer to have their web conferencing 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
      communications services.*




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




-
            willingness
                of businesses and end-users to use web communications services for
                websites;




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




-
            the
                willingness of our distribution partners to integrate web communications
                services for websites in their service offerings; and




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







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




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







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







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





In
      addition to the effect of such potential future laws and regulations, existing
      laws and regulations in both domestic and non-U.S. jurisdictions could be
      interpreted to apply to our web communications business, in which case our
      regulatory compliance obligations and associated financial burdens could
      increase. An example of a non-U.S. law or regulation that we are expending
      resources, both infrastructure-related and legal-related, to comply with are
      the
      various privacy statutes enacted by the European Union. Examples of U.S. laws
      and regulations that we may have to expend greater resources to comply with
      are
      various U.S. state sales tax laws and regulations that may be held by the
      applicable authorities to apply to the sale of our web communications services We
      do not
      currently collect sales tax from customers in the United States. 
      Currently, no tax authorities are attempting to collect such taxes from us,
      however, in the future federal tax authorities or the tax authorities in one
      or
      more states could assert that we are obligated to collect such taxes from our
      customers and remit those taxes to those authorities.  The collection
      and
      remittance of such taxes could increase the cost of our services and harm our
      operating results. In addition, such authorities may seek to collect sales
      taxes
      for sales of services by us that occurred in the past.  If such a claim
      were to be asserted against us and if we were unable to collect such taxes
      from
      our customers, we may be required to pay such back taxes and any associated
      interest and penalties, which would increase our costs and harm our operating
      results .







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




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







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




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










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





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







*New* *Financial
      Accounting Standards Board (FASB) rules relating to equity-compensation
      programs, and any changes in current accounting standards that may be enacted
      in
      the future,* *may
      affect our results of operations and cause us to change our business
      practices* *.*




The
      Financial Accounting Standards Board (FASB) during the fourth quarter of 2004
      adopted final rules which will change the way companies account for equity
      compensation in their financial statements. FASB has stated that the new
      accounting standard would become effective for fiscal years that begin after
      December 15, 2005. This change in accounting standards will require us to report
      as a compensation expense options granted to and shares purchased by our
      employees pursuant to our stock option and employee stock purchase plans. If
      we
      do not change our current equity compensation practices, the new accounting
      rule
      could have a negative effect on our reported net income. Accordingly, we have
      begun to change our equity compensation practices. In March 2005 we amended
      our
      employee stock purchase plan to reduce the length of the offering period and
      the
      maximum number of shares that can be purchased during an offering period. Also
      because of the pending FASB rule, we are evaluating our existing stock option
      grant program in relation to its future effect on our reported net income,
      including in that evaluation the possibility of reducing the number of stock
      options we grant in the future to employees. The new FASB rule, we believe,
      will
      add complexity and uncertainty to our management of employee compensation
      practices. On the one hand, if we underestimate the effect of the new rule
      on
      the technology labor market and reduce equity-based compensation too much,
      we
      may be forced to increase cash compensation to make up for our having reduced
      equity-based compensation opportunities, which would increase our expenses.
      Also, if we reduce equity-based compensation too much and thereby fail to offer
      compensation packages that are competitive with those being offered by other
      public or privately-held technology companies, we may have trouble retaining
      or
      recruiting key technical or management talent. On the other hand, if we
      overestimate the effect of the new FASB rule on the technology labor market
      and
      do not sufficiently curtail our current equity compensation practices, our
      compensation expense will increase appreciably and our stock price may be
      negatively affected, thus depriving us of an equity-related motivation to
      attract and keep workers which in turn would hurt our business. In addition
      to
      the new FASB equity compensation rule, other significant accounting rules may
      be
      enacted in the future by FASB, or existing rules may be subject to revised
      interpretation by the
      American Institute of Certified Public Accountants, the Securities and Exchange
      Commission, or one or more of various bodies formed to interpret accounting
      rules and policies. Any significant change in accounting rules, policies or
      interpretations could adversely affect our reported financial results or the
      way
      we conduct our business. ******







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




Section
      404 of the Sarbanes-Oxley Act of 2004 requires our management to report on,
      and
      our independent auditors to attest to, the effectiveness of our internal control
      structure and procedures for financial reporting. We completed an evaluation
      of
      the effectiveness of our internal controls for the fiscal year ended December
      31, 2004, and we have an ongoing program to perform the system and process
      evaluation and testing necessary to continue to comply with these requirements.
      We expect to continue to incur increased expense and to devote additional
      management resources to Section 404 compliance. In the event that our chief
      executive officer, chief financial officer or independent registered public
      accounting firm determine that our internal controls over financial reporting
      are not effective as defined under Section 404, investor perceptions of our
      company may be adversely affected and could cause a decline in the market price
      of our stock .










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




Our
      stock
      price has been and is likely to continue to be highly volatile. For example,
      between April 1, 2005 and July 29, 2005, our stock price has traded as high
      as
      $29.81 on July 28, 2005 and as low as $19.25 on April 15, 2005. Our stock price
      could fluctuate significantly due to a number of factors, including:




-
            variations
                in our actual or anticipated operating results;




-
            sales
                of substantial amounts of our stock;




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




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




-
            conditions
                in the Internet industry;




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




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




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












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





*Foreign
      Currency Risk.* A small
      part of our sales activities are conducted outside the United States. An
      increasing percentage of our international revenue activity is denominated
      in
      the local currency. Also, a significant percentage of our worldwide workforce
      is
      located outside the United States, and these employees are paid in the local
      currency. A high percentage of these foreign-based employees are located in
      China, where we currently have virtually no revenue activity. As a result,
      our
      financial results could be affected by factors such as changes in foreign
      currency exchange rates, particularly in China, or weak economic conditions
      in
      foreign markets. When the amount of revenue obtained from sources outside the
      United States becomes significant, we may engage in hedging activities or other
      actions to decrease fluctuations in operating results due to changes in foreign
      currency exchange rates.




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









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




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





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




(b) *Changes
      in internal control over financial reporting* .
      There
      was no significant change in our internal control over financial reporting
      (as
      defined in Rule 13a-15(f) under the Exchange Act) identified in connection
      with
      the evaluation described in Item 4(a) above that occurred during our last fiscal
      quarter that has materially affected, or is reasonably likely to materially
      affect, our internal control over financial reporting.





**PART
      II — OTHER INFORMATION**








**Item
      2.  Unregistered Sales of Equity Securities and Use of
      Proceeds**





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





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








**ISSUER
      PURCHASES OF EQUITY SECURITIES**




**(a)**
            **(b)**
            **(c)**
            **(d)****Total
                Number of Shares (or Units)**
            **Average
                Price Per**
            **Total
                Number of Shares (or Units) Purchased as Part of Publicly Announced**
            **Maximum
                Number (or Approximate Dollar Value) of Shares (or Units) that May
                Yet Be
                Purchased Under the****Period**
            **Purchased (#)(1)**
            **Share
                (or Unit) ($)**
            **Plans
                Or Programs (#)**
            **Plans
                Or Programs**April
                1, 2005 to April 30, 2005
            125,000
            $21.899
            125,000
            $27,837,000May
                1, 2005 to May 31, 2005
            263,236
            $21.726
            263,236
            $22,118,000June
                1, 2005 to June 30, 2005
            --
            --
            --
            $22,118,000Total
                ............
            388,236
            $21.782
            388,236
            $22,118,000




(1)  Consists
      of repurchases of shares pursuant to the Company’s share repurchase program
      publicly announced on July 29, 2004 pursuant to which the Company’s Board of


Directors
      authorized the
      repurchase of up to $40,000,000 of the Company’s common stock over a 12 month
      period ending July 22, 2005, which ending date was extended to


December
      31, 2005 by the WebEx
      Board of Directors on May 11, 2005.










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





On
      May
      11, 2005, we held our annual stockholders’ meeting at our headquarters, 3979
      Freedom Circle, Santa Clara, California 95054. At such meeting, the following
      actions were voted upon:





(a)
            To
                elect the following individuals to the board of directors to serve
                a three
                year term expiring at WebEx’s 2008 annual meeting of stockholders or until
                their successors have been elected and
                qualified:





Director    The
      Votes for each Director   The
      Votes Withheld from each Director


Anthony
      R.
      Muller 32,494,295     456,400


Alfred
      R.
      Berkeley
      III 32,495,545     455,150








(b)
            To
                ratify the appointment of KPMG LLP as WebEx’s independent public
                accountants for the period ending December 31,
                2005:





Votes
      For    Votes
      Against    Abstain


32,601,320    256,098     93,277














**Item
      6. Exhibits**








**Exhibit**
              **Number**
            **Description**3.1*
            Amended
                and Restated Certificate of Incorporation3.2**
            Amended
                and Restated Bylaws4.1*
            Form
                of Common Stock Certificate31.1
            Certification
                of the Chief Executive Officer Pursuant to Rule
                13a-14(a)/15d-14(a)31.2
            Certification
                of the Chief Financial Officer Pursuant to Rule
                13a-14(a)/15d-14(a)32.1+
            Certification
                of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As
                Adopted
                Pursuant To Section 906 of The Sarbanes-Oxley Act of
                200232.2+
            Certification
                of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As
                Adopted
                Pursuant To Section 906 of The Sarbanes-Oxley Act of
                2002


__________





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





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





+  The
      certifications filed as Exhibits 32.1 and 32.2 are not deemed “filed” for
      purpose of Section 18 of the Exchange Act and are not to be incorporated by
      reference into any filing of the Company under the Securities Act of 1933 or
      the
      Securities Exchange Act of 1934, whether made before or after the date hereof
      irrespective of any general incorporation language contained in any such filing,
      except to the extent that the registrant specifically incorporates it by
      reference.























**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: August
                9, 2005
              By:
              /s/ MICHAEL
                T. EVERETTMichael
                T. Everett*Chief
                  Financial Officer*
                (Duly
                  Authorized Officer and Principal Financial
                  Officer)




**WEBEX
              COMMUNICATIONS, INC.**Date: August
              9, 2005
            By:
            /s/ DEAN
              MACINTOSHDean
              MacIntosh*Vice
                President, Finance*
              (Duly
                Authorized Officer and Principal Accounting Officer)and
                Principa








**EXHIBIT
      INDEX**


**Exhibit**
              **Number**
            **Description**3.1*
            Amended
                and Restated Certificate of Incorporation3.2**
            Amended
                and Restated Bylaws4.1*
            Form
                of Common Stock Certificate31.1
            Certification
                of the Chief Executive Officer
                Pursuant to Rule 13a-14(a)/15d-14(a)31.2
            Certification
                of the Chief Financial Officer
                Pursuant to Rule 13a-14(a)/15d-14(a)32.1+
            Certification
                of Chief Executive Officer Pursuant
                to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of
                The
                Sarbanes-Oxley Act of 200232.2+
            Certification
                of Chief Financial Officer Pursuant
                to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of
                The
                Sarbanes-Oxley Act of 2002


__________





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





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





+  The
      certifications filed as Exhibits 32.1 and 32.2 are not deemed “filed” for
      purpose of Section 18 of the Exchange Act and are not to be incorporated by
      reference into any filing of the Company under the Securities Act of 1933 or
      the
      Securities Exchange Act of 1934, whether made before or after the date hereof
      irrespective of any general incorporation language contained in any such filing,
      except to the extent that the registrant specifically incorporates it by
      reference.