**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 September 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  ̈





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





On
      November 1, 2005, 46,333,178 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**


**SEPTEMBER
      30, 2005**





**TABLE
      OF CONTENTS**





**Page
                No.****PART
                I. FINANCIAL INFORMATION****Item
                1**.Financial
                Statements
            3Condensed
                Consolidated Balance Sheets at September 30,
                2005 (Unaudited) and
              December
                31, 2004
            3Condensed
                Consolidated Statements of Income for the three
                and nine months ended September 30, 2005 and 2004
                (Unaudited)
            4Condensed
                Consolidated Statements of Cash Flows for the
                nine months
              ended
                September 30, 2005 and 2004
                (Unaudited)
            5Notes
                to Condensed Consolidated Financial Statements
                (Unaudited)
            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
            42**Item
                4.**Controls
                and Procedures
            42**PART
                II. OTHER INFORMATION****Item
                1**.Legal
                Proceedings
            43**Item
                2**.Unregistered
                Sales of Equity Securities and Use of Proceeds
            43**Item
                5**.Other
                Information
            43**Item
                6**.Exhibits
            44**Signatures**
            45**Exhibit
                Index**
            46








TOC


PART
      I -
      FINANCIAL INFORMATION


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





**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(In
      thousands, except par value)**





ASSETS


**September
                30,**
              **2005**
            
            
            **December
                31,**
              **2004****(Unaudited)**Current
                assets:Cash
                and cash equivalents
            
            $
            56,237
            
            $
            110,552Short-term
                investments
            
            
            138,543
            
            
            74,586Accounts
                receivable, net of allowances of $6,359 and $5,634,
                respectively
            
            
            43,535
            
            
            32,438Prepaid
                expenses and other current assets
            
            
            6,609
            
            
            4,817Prepaid
                income taxes
            
            
            —
            
            
            1,739Deferred
                tax assets
            
            
            4,758
            
            
            4,665Total
                current assets
            
            
            249,682
            
            
            228,797Property
                and equipment, net
            
            
            49,273
            
            
            44,783Goodwill
            
            
            28,585
            
            
            1,822Intangible
                assets, net
            
            
            17,335
            
            
            3,410Deferred
                tax assets
            
            
            5,443
            
            
            5,724Other
                non-current assets
            
            
            1,412
            
            
            1,257Total
                assets
            
            $
            351,730
            
            $
            285,793LIABILITIES
                AND STOCKHOLDERS’ EQUITYCurrent
                liabilities:Accounts
                payable
            
            $
            7,498
            
            $
            8,685Accrued
                liabilities
            
            
            25,528
            
            
            20,179Deferred
                revenue
            
            
            11,546
            
            
            9,867Income
                tax payable
            
            
            2,655
            
            
            —Total
                liabilities
            
            
            47,227
            
            
            38,731Commitments
                and contingenciesStockholders'
                equity:Preferred
                stock, $0.001 par value (5,000 shares authorized; no shares issued
                or
                outstanding)
            
            
            —
            
            
            —Common
                stock, $0.001 par value (250,000 shares authorized; 46,247 and 44,953
                shares issued and outstanding, respectively)
            
            
            46
            
            
            45Additional
                paid-in capital
            
            
            264,011
            
            
            245,807Deferred
                equity-based compensation
            
            
            (3
            )
            
            (15
            )Accumulated
                other comprehensive income
            
            
            2,086
            
            
            2,268Accumulated
                earnings/(deficit)
            
            
            38,363
            
            
            (1,043
            )Total
                stockholders' equity
            
            
            304,503
            
            
            247,062Total
                liabilities and stockholders' equity
            
            $
            351,730
            
            $
            285,793














See
      accompanying notes to condensed consolidated financial
      statements.





**WEBEX
      COMMUNICATIONS, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF
      INCOME**


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








**Three
                months ended**
              **September
                30,**
            **Nine months
                ended**
              **September
                30,**


**2005**
            
            **2004**
            
            **2005**
            
            **2004**Net
                revenues
            
            $
            78,553
            
            $
            63,968
            
            $
            224,736
            
            $
            181,440Cost
                of revenues
            
            
            14,491
            
            
            11,018
            
            
            39,152
            
            
            30,927Gross
                profit
            
            
            64,062
            
            
            52,950
            
            
            185,584
            
            
            150,513Operating
                expenses:Sales
                and marketing
            
            
            25,640
            
            
            21,200
            
            
            74,487
            
            
            62,501Research
                and development
            
            
            12,565
            
            
            9,122
            
            
            33,614
            
            
            24,602General
                and administrative
            
            
            6,728
            
            
            4,419
            
            
            17,803
            
            
            12,856Equity-based
                compensation*
            
            
            3
            
            
            66
            
            
            10
            
            
            447Total
                operating expenses
            
            
            44,936
            
            
            34,807
            
            
            125,914
            
            
            100,406Operating
                income
            
            
            19,126
            
            
            18,143
            
            
            59,670
            
            
            50,107Interest
                and other income, net
            
            
            1,648
            
            
            172
            
            
            4,887
            
            
            717Net
                income before income tax
            
            
            20,774
            
            
            18,315
            
            
            64,557
            
            
            50,824Provision
                for income tax
            
            
            8,099
            
            
            6,497
            
            
            25,151
            
            
            18,720Net
                income
            
            $
            12,675
            
            $
            11,818
            
            $
            39,406
            
            $
            32,104Net
                income per share:Basic
            
            $
            0.27
            
            $
            0.27
            
            $
            0.86
            
            $
            0.73Diluted
            
            $
            0.26
            
            $
            0.26
            
            $
            0.82
            
            $
            0.69Weighted
                average shares used to compute net income per share:Basic
            
            
            46,208
            
            
            44,220
            
            
            45,680
            
            
            43,806Diluted
            
            
            48,428
            
            
            46,027
            
            
            47,770
            
            
            46,474*Equity-based
                compensation:Sales
                and marketing
            
            
            —
            
            $
            (1
            )
            
            —
            
            $
            39Research
                and development
            
            
            —
            
            
            6
            
            
            —
            
            
            44General
                and administrative
            
            
            3
            
            
            61
            
            
            10
            
            
            364$
            3
            
            $
            66
            
            $
            10
            
            $
            447





See
      accompanying notes to condensed consolidated financial statements.








**WEBEX
      COMMUNICATIONS, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH
      FLOWS**


**(In
      thousands; unaudited)**








**Nine
                months ended**
              **September 30,****2005**
            
            
            **2004**Cash
                flows from operating activities:Net
                income
            
            $
            39,406
            
            $
            32,104Adjustments
                to reconcile net income to net cash provided by operating
                activities:Provisions
                for doubtful accounts and sales reserve
            
            
            10,479
            
            
            4,924Depreciation
                and amortization
            
            
            11,363
            
            
            8,410Loss
                from disposal of assets
            
            
            420
            
            
            —Deferred
                income tax benefit
            
            
            (362
            )
            
            —Tax
                benefit of stock plans
            
            
            10,058
            
            
            5,600Equity-based
                compensation
            
            
            10
            
            
            447In-process
                research and development charge
            
            
            307
            
            
            —Changes
                in operating assets and liabilities, net of acquisitions:Accounts
                receivable
            
            
            (20,405
            )
            
            (12,266
            )Prepaid
                expenses and other current assets
            
            
            (1,681
            )
            
            (2,591
            )Other
                non-current assets
            
            
            131
            
            
            755Accounts
                payable
            
            
            (2,397
            )
            
            3,755Accrued
                liabilities
            
            
            975
            
            
            549Income
                tax payable
            
            
            3,932
            
            
            6,087Deferred
                revenue
            
            
            1,046
            
            
            663Other
            
            
            (181
            )
            
            321Net
                cash provided by operating activities
            
            
            53,101
            
            
            48,758Cash
                flows from investing activities:Purchases
                of property and equipment
            
            
            (11,585
            )
            
            (28,096
            )Payments
                made in connection with business acquisitions, net of cash
                acquired
            
            
            (40,023
            )
            
            (5,254
            )Net
                purchases of short-term investments
            
            
            (63,957
            )
            
            (27,292
            )Net
                cash used in investing activities
            
            
            (115,565
            )
            
            (60,642
            )Cash
                flows from financing activities:Net
                proceeds from issuances of common stock
            
            
            28,139
            
            
            20,354Repurchase
                of common stock
            
            
            (19,990
            )
            
            (5,831
            )Net
                cash provided by financing activities
            
            
            8,149
            
            
            14,523Net
                change in cash and cash equivalents
            
            
            (54,315
            )
            
            2,639Cash
                and cash equivalents at beginning of the period
            
            
            110,552
            
            
            70,996Cash
                and cash equivalents at end of the period
            
            $
            56,237
            
            $
            73,635Supplemental
                disclosures of non-cash investing and financing
                activities:Deferred
                equity-based compensation
            
            
            (12
            )
            
            (54
            )Unrealized
                (loss) gain on investments
            
            
            (540
            )
            
            125Capitalization
                of lease incentives
            
            
            2,295
            
            
            —Adjustments
                recorded in conjunction with business acquisitions
            
            
            462
            
            
            —Cash
                paid for:Interest
            
            
            —
            
            
            2Income
                taxes
            
            
            11,386
            
            
            7,106





See
      accompanying notes to condensed consolidated financial
      statements.





**WEBEX
      COMMUNICATIONS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**


**(Unaudited)**





**1.
      Basis of Presentation and Significant Accounting Policies**





The
      accompanying condensed consolidated financial statements of WebEx Communications
      (the “Company” or “WebEx”) as of September 30, 2005 and for the three and nine
      months ended September 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 nine months ended September 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 .




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




The
      Company also enters into reselling arrangements with 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.





TOC




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 the Company’s 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 September 30, 2005 and December 31, 2004, accounts
      receivable includes unbilled receivables of $5.8 million and $2.6 million
      respectively, for unbilled per-minute-based charges that occurred during the
      final month of the respective quarter.





***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 equity-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 the fair value of the underlying shares until the
      underlying shares 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**
              **September
                30,**
            **Nine
                months ended**
              **September
                30,****2005**
            
            
            **2004**
            
            
            **2005**
            
            
            **2004**Net
                income as reported
            
            $
            12,675
            
            $
            11,818
            
            $
            39,406
            
            $
            32,104Add:
                Equity-based employee compensation expense included in determination
                of
                net income, net of tax
            
            
            1
            
            
            3
            
            
            (6
            )
            
            24Deduct:
                Equity-based employee compensation expense determined under the fair-value
                based method, net of tax
            
            
            (2,065
            )
            
            (6,432
            )
            
            (13,165
            )
            
            (14,373
            )Pro-forma
                net income
            
            $
            10,611
            
            $
            5,389
            
            $
            26,235
            
            $
            17,755Net
                income per share:Basic:
              As
                reported
            
            $
            0.27
            
            $
            0.27
            
            $
            0.86
            
            $
            0.73Pro
                forma
            
            $
            0.23
            
            $
            0.23
            
            $
            0.57
            
            $
            0.41









Diluted:
              As
                reported
            
            $
            0.26
            
            $
            0.26
            
            $
            0.82
            
            $
            0.69Pro
                forma
            
            $
            0.22
            
            $
            0.12
            
            $
            0.55
            
            $
            0.38





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 nine-month periods ended September 30, 2005 and 2004 are as
      follows:





**Stock
                options**
            **Employee
                stock purchase plan****Three
                months ended**
              **September
                30,**
            **Nine
                months ended September 30,**
            **Three
                months ended September 30,**
            **Nine
                months ended**
              **September
                30,****2005**
            **2004**
            **2005**
            **2004**
            **2005**
            **2004**
            **2005**
            **2004**Expected
                life of options (in years)
            3.5
            3.5
            3.5
            3.5
            0.5
            0.5-2.0
            0.5
            0.5-2.0Volatility
            66%
            87%
            70%
            87%
            34%
            88%
            34%
            88%Risk-free
                interest rate
            4.11%
            3.25%
            3.92%
            3.17%
            3.23%
            1.15%
            3.23%
            1.15%Dividend
                yield
            —
            —
            —
            —
            —
            —
            —
            —








***Recent
      Accounting Pronouncements***





In
      December 2004, the FASB issued SFAS 123R, “ *Share-Based
      Payments”* ,
      which
      requires the measurement of all share-based payments to employees, including
      grants of employee stock options, using a fair value based method and the
      recording of such expense in the Company’s consolidated income statement. The
      accounting provisions of SFAS 123R are effective for fiscal years beginning
      after June 15, 2005. The Company is required to adopt SFAS 123R in the first
      quarter of 2006. The pro forma disclosures previously permitted under SFAS
      123
      will no longer be an alternative to financial statement recognition. 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
      March
      2005, the FASB issued FIN 47, "Accounting for Conditional Asset Retirement
      Obligations, an interpretation of FASB Statement No. 143" ("FIN 47"), which
      requires an entity to recognize a liability for the fair value of a conditional
      asset retirement obligation when incurred if the liability's fair value can
      be
      reasonably estimated. FIN 47 is effective no later than the end of fiscal years
      ending after December 15, 2005. The Company is currently evaluating
      the
      impact of FIN 47 and does not expect this statement will have a material impact
      on its consolidated 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
      principles. It also applies to changes required by an accounting pronouncement
      in the unusual instance that the pronouncement does not include specific
      transition provisions. This statement requires retrospective application to
      prior periods’ financial statements of changes in accounting principles, unless
      it is impracticable to determine either the period-specific effects or the
      cumulative effect of the change. SFAS 154 is effective for accounting changes
      made in fiscal years beginning after December 15, 2005. The Company does not
      expect that adoption of this statement will have a material impact on its
      consolidated results of operations or financial condition.





**2.
      Net Income Per Share**





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




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











**Three
                months ended**
              **September
                30,**
            **Nine
                months ended**
              **September
                30,****2005**
            
            
            **2004**
            
            
            **2005**
            
            
            **2004**Numerator:Net
                income
            
            $
            12,675
            
            $
            11,818
            
            $
            39,406
            
            $
            32,104Denominator:Weighted
                average shares used to compute basic net income per share
            
            
            46,208
            
            
            44,220
            
            
            45,680
            
            
            43,806Effect
                of dilutive securities:Dilutive
                potential common shares
            
            
            2,220
            
            
            1,807
            
            
            2,090
            
            
            2,668Weighted
                average shares used to compute diluted net income per
                share
            
            
            48,428
            
            
            46,027
            
            
            47,770
            
            
            46,474


Net
      income per share:


Basic
            
            $
            0.27
            
            $
            0.27
            
            $
            0.86
            
            $
            0.73Diluted
            
            $
            0.26
            
            $
            0.26
            
            $
            0.82
            
            $
            0.69





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





Three
                months ended
              September
                30,
            **Nine
                months ended**
              **September
                30,****2005**
            
            
            **2004**
            
            
            **2005**
            
            
            **2004**Outstanding
                common stock options
            
            
            898
            
            
            4,808
            
            
            2,226
            
            
            2,483







The
      exercise price of antidilutive stock options outstanding for the three and
      nine
      months ended September 30, 2005 range from $26.62 to $55.38 and $24.22 to
      $55.38, respectively, and for the three and nine months ended September 30,
      2004
      range from $20.00 to $55.38
      and $23.09 to $55.38, respectively. Stock options are antidilutive when the
      exercise price of the options is greater than the average market price of the
      common shares for the period.







**3.
      Acquisition**





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




September
                9,
              2005
            
            
            **Estimated
                life (years)**Net
                tangible assets acquired
            
            
            2,173
            
            
            N/ADeferred
                tax liability, net
            
            
            (550
            )
            
            N/AGoodwill
            
            
            26,301
            
            
            N/AIn-process
                research and development charge
            
            
            307
            
            
            N/ACustomer
                relationships
            
            
            4,452
            
            
            5Developed
                technology
            
            
            8,807
            
            
            5Trade
                names
            
            
            1,201
            
            
            5$
            42,691





WebEx
      recognized a charge for in-process research and development (“IPR&D”) of
      $307,000, which is included in the purchase price. This charge was expensed
      in
      the third quarter of 2005 and included in research and development expense
      in
      the condensed consolidated statements of income. The project related to an
      email
      offering had not yet reached technological feasibility







and
      had
      no alternative future use because of the platform in which it was based. The
      estimated fair value of this project was determined based on the income
      approach, where the fair value of the subject asset is equal to the present
      value of the operating income associated with assets adjusted for returns on
      capital assets employed in production of the operating income, discounted to
      present value at a risk-adjusted discount rate appropriate for each asset.





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





**4.** **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 and nine months ended September 30, 2005
      and
      2004 (in thousands):





Three
                months ended
              September
                30,
            **Nine
                months ended**
              **September
                30,****2005**
            
            
            **2004**
            
            
            **2005**
            
            
            **2004**Sales
                reserve:Beginning
                balance
            
            $
            4,748
            
            $
            4,995
            
            $
            4,631
            
            $
            4,571Amounts
                deducted from revenue
            
            
            4,022
            
            
            1,331
            
            
            9,822
            
            
            5,756Amounts
                written off
            
            
            (3,291
            )
            
            (1,879
            )
            
            (8,974
            )
            
            (5,880
            )Ending
                balance
            
            $
            5,479
            
            $
            4,447
            
            $
            5,479
            
            $
            4,447Allowance
                for doubtful accounts:Beginning
                balance
            
            $
            562
            
            $
            1,266
            
            $
            1,003
            
            $
            2,266Amounts
                charged (credited) to bad debt expense
            
            
            454
            
            
            (258
            )
            
            657
            
            
            (832
            )Amounts
                written off
            
            
            (136
            )
            
            (92
            )
            
            (780
            )
            
            (518
            )Ending
                balance
            
            $
            880
            
            $
            916
            
            $
            880
            
            $
            916Total
                sales reserve and allowance for doubtful accounts:Beginning
                balance
            
            $
            5,310
            
            $
            6,261
            
            $
            5,634
            
            $
            6,837Amounts
                deducted from revenue / charged (credited) to bad debt expense
            
            
            4,476
            
            
            1,073
            
            
            10,479
            
            
            4,924Amounts
                written off
            
            
            (3,427
            )
            
            (1,971
            )
            
            (9,754
            )
            
            (6,398
            )Ending
                balance
            
            $
            6,359
            
            $
            5,363
            
            $
            6,359
            
            $
            5,363





**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
              September
                30,
            **Nine
                months ended**
              **September
                30,****2005**
            
            
            **2004**
            
            
            **2005**
            
            
            **2004**Net
                income
            
            $
            12,675
            
            $
            11,818
            
            $
            39,406
            
            $
            32,104Other
                comprehensive income (loss), net of tax:Foreign
                currency translation adjustments
            
            
            83
            
            
            (982
            )
            
            358
            
            
            197Unrealized
                (loss) gain on investments
            
            
            (476
            )
            
            66
            
            
            (540
            )
            
            125(393
            )
            
            (916
            )
            
            (182
            )
            
            322Comprehensive
                income
            
            $
            12,282
            
            $
            10,902
            
            $
            39,224
            
            $
            32,426





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





Amounts
      booked to goodwill during the period are as follows (in thousands):




AmountBalance,
                December 31, 2004
            
            $
            1,822Goodwill
                acquired during the period
            
            
            26,301Goodwill
                adjustments related to CyberBazaar acquisition
            
            
            462Balance,
                September 30, 2005
            
            $
            28,585





During
      the third quarter of 2005, WebEx acquired Intranets, which resulted in the
      Company recording $26.3 million of goodwill. See note 3 for further details.





The
      goodwill adjustments shown in the table above relate to pre-acquisition tax
      contingencies of $462,000 related to the acquisition in April 2004 of
      CyberBazaar, which WebEx later renamed WebEx
      Communications India Pvt. Ltd. These
      tax contingencies were recorded in the second quarter of 2005, as they were
      determined to be both probable and estimable and 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 September 30, 2005 and December 31, 2004 consisted of the
      following (in thousands):








September
                30, 2005
            **December
                31, 2004**Gross
            
            
            **Accumulated**
              **Amortization**
            
            
            **Net**
            
            
            **Gross**
            
            
            **Accumulated**
              **Amortization**
            
            
            **Net**Developed
                technology
            
            $
            9,120
            
            $
            (314
            )
            $
            8,806
            
            $
            312
            
            $
            (143
            )
            $
            169Intellectual
                property rights
            
            
            4,326
            
            
            (1,900
            )
            
            2,426
            
            
            4,326
            
            
            (1,644
            )
            
            2,682Trade
                names and domain names
            
            
            1,556
            
            
            (194
            )
            
            1,362
            
            
            318
            
            
            (149
            )
            
            169Customer
                related intangibles
            
            
            5,123
            
            
            (382
            )
            
            4,741
            
            
            672
            
            
            (282
            )
            
            390Total
                purchased intangible assets
            
            $
            20,125
            
            $
            (2,790
            )
            $
            17,335
            
            $
            5,628
            
            $
            (2,218
            )
            $
            3,410





Amortization
      expense of intangible assets was $335,000 and $572,000 for the three and nine
      months ended September 30, 2005 and $185,000 and $225,000 for the three and
      nine
      months ended September 30, 2004. Amortization is recorded using the
      straight-line method over the estimated useful lives of these assets, which
      ranges from 3-10 years.








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





**Fiscal
                year:**
            
            
            **Amortization**
              **Expense**2005
                (Remaining 3 months)
            
            $
            8822006
            
            
            3,4792007
            
            
            3,3592008
            
            
            3,2692009
            
            
            3,173Thereafter
            
            
            3,173Total
            
            $
            17,335








**7.
      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 September 30, 2005, are as follows (in
      thousands):








Remaining
                three months of 2005
            
            
            **2006**
            
            
            **2007**
            
            
            **2008**
            
            
            **2009**
            
            
            **2010
                and after**
            
            
            **Total**Operating
                leases obligations
            
            $
            1,634
            
            $
            5,932
            
            $
            5,701
            
            $
            6,317
            
            $
            5,891
            
            $
            19,047
            
            $
            44,522Purchase
                obligations
            
            
            8,692
            
            
            1,333
            
            
            633
            
            
            35
            
            
            —
            
            
            —
            
            
            10,693Other
                commitments
            
            
            —
            
            
            458
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            458Total
            
            $
            10,326
            
            $
            7,723
            
            $
            6,334
            
            $
            6,352
            
            $
            5,891
            
            $
            19,047
            
            $
            55,673





With
      the
      acquisition of Intranets in September 2005, WebEx assumed a lease obligation
      for
      office space occupied by Intranets in Burlington, Massachusetts. The lease
      term
      is for approximately 66 months which commenced in January 2005. Future minimum
      lease payments under the life of the lease total $2.7 million. The lease
      requires a letter of credit of $260,000, which is collateralized by cash on
      deposit at a commercial bank. The cash on deposit is treated as restricted
      cash
      and included in other non-current assets in the condensed consolidated balance
      sheets.





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




At
      September 30, 2005, WebEx had purchase commitments totaling approximately $10.7
      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.





TOC




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 $458,000. 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. WebEx has entered into discussions regarding future
      funding of this agreement.





WebEx
      has
      a revolving credit line with a bank that provides available borrowings up to
      $7.0 million. Amounts borrowed under the revolving credit line bear interest
      at
      the prime rate and may be repaid and reborrowed at any time prior to the
      maturity date. The credit agreement expires June 15, 2006. The credit agreement
      is unsecured and is subject to compliance with covenants, including a minimum
      quick ratio and minimum profitability, with which the Company is currently
      in
      compliance. As of September 30, 2005, the Company had no outstanding borrowings
      under the credit line, but did have a $4.0 million letter of credit issued
      under
      the line as security for the headquarters lease.





*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.  Although
      WebEx has had communications with state tax authorities relating to the subject
      of sales tax, no tax authorities are currently 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.





**8.
      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.








**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 additional 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 integrate and
      manage acquisitions, our ability to recruit and retain employees particularly
      in
      the areas of sales, engineering, support and hosting services, the ability
      of
      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, collaborative multimedia web communications
      services. These services allow end-users to conduct online meetings, share
      software applications, documents, presentations and other content online, and
      participate in large-scale events or programs over the Internet using a standard
      web browser. 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 rich-media, interactive,
      real-time communications without the need to be in the same physical location,
      which we believe allows users to be more productive and efficient.




Historically
      and currently, our principal product offering has been real-time web
      conferencing and various related and enhanced collaborative web communications
      services. We also refer to our web communication services which are designed
      for
      specific uses, such as training, events, support and sales uses, as web
      applications.




Our
      web
      applications run on our underlying WebEx
      MediaTone Network. The WebEx
      MediaTone Network is a private, switched, web-based network that is designed
      to
      deliver scalable, secure and managed real-time communications services by
      capturing screen data from a meeting presenter’s computer, translating that
      information into a proprietary format, and routing that information over the
      Web
      through WebEx switching clusters to the meeting session participants. The WebEx
      MediaTone Network is based on MediaTone, our proprietary information switching
      technology. Our MediaTone technology allows the WebEx MediaTone Network to
      handle high-speed data, voice and video communications, manage complex media
      types, and deliver advanced communications capabilities to hundreds or even
      thousands of computers simultaneously regardless of location across a wide
      variety of platforms, computer operating systems, devices, browsers—in both
      wired and wireless configurations.




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 Event Center, WebEx Enterprise Edition, WebEx Sales
      Center, WebEx Support Center, WebEx SMARTtech, WebEx Presentation Studio, WebEx
      PCNow (formerly known as MyWebExPC) and our newest service, WebEx MeetMeNow,
      which was launched in October 2005 . For
      many
      of our
      services, i ntegrated
      telephony and web-based audio and video services are also available using
      standard devices such as telephones, computer web-cameras and microphones.







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




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. We also have a wholly-owned,
      U.S.-based subsidiary located in Burlington, Massachusetts as a result of the
      Intranets acquisition. We have changed the name of this subsidiary to WebExOne,
      Inc .




In
      addition to our WebExOne subsidiary, which itself has a subsidiary in Japan,
      we
      have several 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. Our India subsidiary, WebEx Communications India Pvt.
      Ltd., was primarily an audio conferencing company prior to our acquiring it
      in
      2004, but it also sold WebEx services as a WebEx distribution partner. Since
      the
      acquisition, we have continued to operate the legacy audio conferencing business
      while also pursuing the web conferencing market in India.




*Revenue
      and Cash-Generation Models.* We sell
      our services directly to customers, which in the third quarter of 2005 accounted
      for approximately 84% of our revenue, or $65.6 million. We also sell our
      services indirectly through our distribution partners that buy and resell our
      services, which sales in the third quarter of 2005 accounted for approximately
      16% of our revenue, or $13.0 million. With these types of distribution partners,
      whom we also generally refer to as resellers, w e
      sell to
      and contract directly with the distribution partner, and revenue is recognized
      based on net amounts charged to the distribution partner. We also have another
      type of distribution partner—a distribution partner that acts as our sales or
      referral agent. When a sale is made from us to a customer through the efforts
      of
      this kind of distribution partner, the distribution partner receives from us a
      percentage of the proceeds from the sale of WebEx services to the customer,
      and
      we include the revenue received by us within the broad category of revenue
      received from services sold directly to customers. We enter into distribution
      relationships, either reseller or referral agent, so that we can increase total
      revenue by obtaining more customers than we could obtain through our direct
      sales efforts alone.




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





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








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




In
      addition to our committed subscription offerings, there are several situations
      in which customers are charged per minute or usage-based pricing. These include:
      certain distribution partner arrangements, customer overage fees for
      above-the-contract-limit use of ports or minutes, most types of telephony
      charges, and individual pay-per-use services purchased directly from our
      website. A majority of revenue received from our telecommunications partner
      arrangements is usage based. As previously discussed, overage fees are charged
      when a customer subscribing to a set number of ports uses more than the
      subscribed number of ports, or when a customer on a minutes pricing model uses
      more than its commitment. We get per-minute telephony revenue when we provide
      the audio conferencing component of a web conferencing session. Finally, we
      have
      per-minute web conferencing services available through our website and payable
      by credit card. We refer to the revenue derived from this per minute or
      usage-based pricing model, measured as of the end of any month, as uncommitted
      revenue .




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




Another
      trend favoring the projected growth of the web conferencing and related web
      applications market is the relative infancy of the market. The adoption of
      this
      market 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, the web conferencing and related web applications
      market 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 and web applications 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 and web application services. One is a concern, actual or
      perceived, about security. As the universe of corporate activities that can
      be
      conducted in a web conference or with a web application expands, more and more
      of these activities will embrace sensitive corporate or government financial
      data, plans, projects or other proprietary information. If web conferencing
      and
      web application technologies do not have embedded within them adequate security
      protections so that the contents of a web conference or application will remain
      private among the participants, usage may not grow as projected. Moreover,
      to
      the extent that there occur publicized incidents of security breaches associated
      with usage of a web conferencing or web application 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 or web application 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 products and
      services such as Cisco Systems, Citrix Systems, Genesys, IBM, Microsoft,
      Netviewer, NTR, Oracle, PC Visit, Raindance, Macromedia, which in April 2005
      announced that it had signed a definitive agreement to be acquired by Adobe
      Systems, and Centra Software, which in October 2005 announced that it had signed
      a definitive agreement to be acquired by Saba. In addition to the above
      competitors, certain of our distribution partners offer competitive web
      conferencing, web application and other collaborative web communications
      services.




Competition
      from Microsoft for the web conferencing and web applications markets may
      adversely affect us. Microsoft has become a more active participant in these
      web
      communications services markets 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.





In
      the
      software services segment of the web applications market, Microsoft in mid-2005
      announced the acquisition of collaboration software provider Groove Networks.
      In
      November 2005, Microsoft introduced its Microsoft Office Live offering,
      described in the preview announcement as a set of Internet-based software
      services. 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, including the contributions of the former Groove Networks entity’s
      communication and collaboration-related intellectual property assets, may have
      an adverse impact on our business. More generally, Microsoft may attempt to
      leverage its dominant market position in the operating system, productivity
      application or browser markets, through technical integration or bundled
      offerings, to expand further its presence in these web communications markets,
      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.










**Critical
      Accounting Policies** ****





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





An
      accounting policy is deemed to be critical if it requires an accounting estimate
      to be made based on assumptions about matters that are highly uncertain at
      the
      time the estimate is made, and if different estimates that reasonably could
      have
      been used or if changes in the accounting estimate that are reasonably likely
      to
      occur, could materially change the financial statements. We believe that there
      are a number of accounting policies that are critical to understanding our
      historical and future performance. These significant accounting policies relate
      to revenue recognition, sales reserves, allowance for doubtful accounts, income
      taxes 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 September 30, 2005
      (Dollars in thousands):





September
              30, 2005
            
            
            **June**
              
              **30,
                2005**
            
            
            **March**
              
              **31,
                2005**
            
            
            **December
                31, 2004**
            
            
            **September
                30, 2004**
            
            
            **June**
              
              **30,
                2004**
            
            
            **March**
              
              **31,
                2004**
            
            
            **December
                31, 2003**Sales
                reserve:Beginning
                balance
            
            $
            4,748
            
            $
            4,387
            
            $
            4,631
            
            $
            4,447
            
            $
            4,995
            
            $
            4,682
            
            $
            4,571
            
            $
            4,618Amounts
                deducted from revenue
            
            
            4,022
            
            
            3,179
            
            
            2,621
            
            
            2,518
            
            
            1,331
            
            
            2,309
            
            
            2,115
            
            
            1,919Amounts
                written off
            
            
            (3,291
            )
            
            (2,818
            )
            
            (2,865
            )
            
            (2,334
            )
            
            (1,879
            )
            
            (1,996
            )
            
            (2,004
            )
            
            (1,966
            )Ending
                balance
            
            $
            5,479
            
            $
            4,748
            
            $
            4,387
            
            $
            4,631
            
            $
            4,447
            
            $
            4,995
            
            $
            4,682
            
            $
            4,571Allowance
                for doubtful accounts:Beginning
                balance
            
            
            562
            
            $
            845
            
            $
            1,003
            
            $
            916
            
            $
            1,266
            
            $
            1,649
            
            $
            2,266
            
            $
            2,733Amounts
                charged (credited) to bad debt expense
            
            
            454
            
            
            (34
            )
            
            237
            
            
            231
            
            
            (258
            )
            
            (135
            )
            
            (439
            )
            
            (268
            )Amounts
                written off
            
            
            (136
            )
            
            (249
            )
            
            (395
            )
            
            (144
            )
            
            (92
            )
            
            (248
            )
            
            (178
            )
            
            (199
            )Ending
                balance
            
            $
            880
            
            $
            562
            
            $
            845
            
            $
            1,003
            
            $
            916
            
            $
            1,266
            
            $
            1,649
            
            $
            2,266Total
                sales reserve and allowance for doubtful accounts:Beginning
                balance
            
            $
            5,310
            
            $
            5,232
            
            $
            5,634
            
            $
            5,363
            
            $
            6,261
            
            $
            6,331
            
            $
            6,837
            
            $
            7,351Amounts
                deducted from revenue / charged (credited) to bad debt
                expense
            
            
            4,476
            
            
            3,145
            
            
            2,858
            
            
            2,749
            
            
            1,073
            
            
            2,174
            
            
            1,676
            
            
            1,651Amounts
                written off
            
            
            (3,427
            )
            
            (3,067
            )
            
            (3,260
            )
            
            (2,478
            )
            
            (1,971
            )
            
            (2,244
            )
            
            (2,182
            )
            
            (2,165
            )Ending
                balance
            
            $
            6,359
            
            $
            5,310
            
            $
            5,232
            
            $
            5,634
            
            $
            5,363
            
            $
            6,261
            
            $
            6,331
            
            $
            6,837Gross
                accounts receivable
            
            $
            49,894
            
            $
            46,296
            
            $
            39,757
            
            $
            38,072
            
            $
            34,694
            
            $
            32,918
            
            $
            29,198
            
            $
            28,251Sales
                reserve as a percentage of gross accounts receivable
            
            
            11.0
            %
            
            10.2
            %
            
            11.0
            %
            
            12.2
            %
            
            12.8
            %
            
            15.2
            %
            
            16.1
            %
            
            16.2
            %Allowance
                for doubtful accounts
              as
                a percentage of gross accounts receivable
            
            
            1.8
            %
            
            1.2
            %
            
            2.1
            %
            
            2.6
            %
            
            2.6
            %
            
            3.8
            %
            
            5.6
            %
            
            8.0
            %Total
                receivable reserves as a percentage of gross accounts
                receivable
            
            
            12.7
            %
            
            11.5
            %
            
            13.1
            %
            
            14.8
            %
            
            15.4
            %
            
            19.0
            %
            
            21.7
            %
            
            24.2
            %











*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 nine months ended September
      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 $438,000
      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**





*Net
      Revenues* (Dollars
      in thousands):




**Three
                months ended**
              **September
                30,**
            **Nine
                months ended**
              **September
                30,****2005**
            
            
            **2004**
            
            
            **2005**
            
            
            **2004**Net
                revenues
            
            $
            78,553
            
            $
            63,968
            
            $
            224,736
            
            $
            181,440Increase,
                period over period
            
            $
            14,585
            
            
            
            
            $
            43,296Percentage
                increase, period over period
            
            
            23
            %
            
            
            
            
            24
            %





Net
      revenues increased 23% and 24% in the third quarter and first nine months of
      2005, respectively, compared to the corresponding prior year periods due
      primarily to growth in our domestic and international subscriber customer base
      and increased usage of existing and new service products. By the end of
      September 2005, the number of customers in our subscriber base had grown by
      more
      than 20% from the end of September 2004 .
      D uring
      the
      third quarter of 2005, we recorded non-recurring revenue from a project with
      the
      U.S. Department of Defense (“DOD”). This revenue is in addition to our
      commercial managed service contract with the DOD. We recorded revenue of $1.35
      million related to this arrangement. In addition, we recorded $704,000 of
      revenue related to Intranets, which was acquired during the third quarter of
      2005.





One
      of
      the measurement tools, or metrics, which we use to help forecast future revenue
      is what we refer to as monthly revenue rate (“MRR”). We define MRR as the sum of
      the following: (i) committed monthly subscriptions, or the aggregate dollar
      amount of minimum minutes, named hosts and ports that are contractually
      committed to us, as of the end of the month, and (ii) average monthly
      uncommitted revenue for the quarter, or the aggregate dollar amounts of per
      minute or usage-based services such as reseller-related, overage, telephony
      and
      pay-per-use revenues for the quarter; divided by three. Our monthly subscription
      contracts at the end of September 2005, excluding Intranets, were approximately
      $19.2 million and our average monthly-uncommitted revenue in the quarter ended
      September 30, 2005, excluding Intranets, was $7.3 million. Thus our monthly
      revenue rate exiting September 2005 was $26.5 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 previously 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 three 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 have been using to analyze customer losses and to help forecast future
      revenues is monthly average lost subscription MRR. The lost subscription MRR
      metric covers our subscription revenues lost--not only revenues lost because
      of
      customer terminations but also revenues lost because existing customers have
      reduced their subscription amounts, have switched to a lower-priced subscription
      offering of ours such as a flat-rate offering, or have elected to terminate
      their subscriptions in favor of purchasing on an uncommitted basis from our
      partners. This lost subscription MRR metric is defined as the quotient obtained
      from the following: (i) the average monthly dollar amount of lost subscription
      contracts (including reduced customer subscriptions and customers switching
      to
      partners) during the quarter, divided by (ii) our total subscriptions at the
      end
      of the last month of the quarter plus the average monthly lost subscription
      contracts for the quarter (including reduced customer subscriptions and
      customers switching to partners). We have calculated and evaluated lost
      subscription MRR on a quarterly basis. Our lost subscription MRR for the three
      months ended September 30, 2005 excluding Intranets was 2.0% per month. The
      following table shows our MRR, and lost subscription MRR, for the five quarters
      ended September 30, 2005 (in millions):








September
                30, 2005
            
            
            **June
                30,**
              **2005**
            
            
            **March
                31,**
              **2005**
            
            
            **December
                31,**
              **2004**
            
            
            **September
                30,**
              **2004**Uncommitted
                usage - monthly average during the quarter
            
            $
            7.3
            
            $
            7.7
            
            $
            7.0
            
            $
            6.2
            
            $
            6.0Contracted
                subscriptions at the end of the quarter
            
            
            19.2
            
            
            18.3
            
            
            17.4
            
            
            16.8
            
            
            15.9Total
                MRR
            
            $
            26.5
            
            $
            26.0
            
            $
            24.4
            
            $
            23.0
            
            $
            21.9%
                of subscription MRR lost
            
            
            2.0
            %
            
            1.7
            %
            
            2.0
            %
            
            1.9
            %
            
            1.8
            %





Beginning
      in the third quarter of 2005, we are using a new metric to calculate customer
      losses. We are calling this new metric our lost subscription customer ratio.
      This metric is somewhat analogous to customer churn in the telecommunications
      business. This lost customer ratio will be based on customer count and will
      be
      calculated as the quotient obtained from the following: (i) the average monthly
      number of lost customers (including customers who have switched their purchases
      of our services from us directly to our partners) during the quarter, divided
      by
      (ii) our total number of customers at the end of the last month of the quarter
      plus the average monthly number of lost customers during the quarter (including
      customers who have switched their purchases of our services from us directly
      to
      our partners). Like lost subscription MRR, we will be calculating and evaluating
      lost customer ratio on a quarterly basis. Our lost subscription customer ratio
      for the three months ended September 30, 2005 excluding Intranets was 1.9%
      per
      month. The following table shows our lost customer ratio for the five quarters
      ended September 30, 2005:





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





*Cost
      of Revenues*





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





Three
                months ended
              September
                30,
            **Nine
                months ended**
              **September
                30,****2005**
            
            
            **2004**
            
            
            **2005**
            
            
            **2004**Cost
                of revenues
            
            $
            14,491
            
            $
            11,018
            
            $
            39,152
            
            $
            30,927Percentage
                of net revenues
            
            
            18
            %
            
            17
            %
            
            17
            %
            
            17
            %Increase,
                period over period
            
            $
            3,473
            
            
            
            
            $
            8,225Percentage
                increase, period over period
            
            
            32
            %
            
            
            
            
            27
            %





Cost
      of
      revenues increased 32% and 27% during the third quarter and first nine months
      of
      2005, respectively, as compared to the corresponding prior year periods due
      primarily to increases in the costs for delivering existing and new services
      to
      more domestic and international customers, additions to our technical staff
      to
      support our installed base of customers, and expenditures to expand and improve
      our worldwide network. During the third quarter of 2005, we recognized costs
      related to the non-recurring DOD arrangement in the amount of $1.2 million.
      Also, during the third quarter of 2005 we acquired Intranets, which resulted
      in
      the recording of purchased intangible assets including developed technology,
      which is amortized into cost of revenues. In the third quarter, the amortization
      related to the developed technology from Intranets was approximately $108,000.





*Sales
      and Marketing*





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 expenses for the periods reported
      were as follows (Dollars in thousands):








Three
                months ended
              September
                30,
            **Nine
                months ended**
              **September
                30,****2005**
            
            
            **2004**
            
            
            **2005**
            
            
            **2004**Sales
                and marketing
            
            $
            25,640
            
            $
            21,200
            
            $
            74,487
            
            $
            62,501Percentage
                of net revenues
            
            
            33
            %
            
            33
            %
            
            33
            %
            
            34
            %Increase,
                period over period
            
            $
            4,440
            
            
            
            
            $
            11,986Percentage
                increase, period over period
            
            
            21
            %
            
            
            
            
            19
            %





Sales
      and
      marketing expense increased 21% and 19% during the third quarter and first
      nine
      months of 2005, respectively, as compared to the corresponding prior year
      periods due primarily ** to
      increased spending on sales and support personnel and additional spending on
      advertising and marketing related programs to build brand awareness and generate
      leads for our sales force. In February 2005, we experienced a fire at out
      Amsterdam headquarters, which resulted in additional expenses of $1.1 million.
      During the third quarter of 2005, we received $549,000 from our insurance
      carrier in connection with this loss, which is recorded as a reduction to sales
      and marketing expense in the third quarter. We anticipate additional recovery
      from our insurer during either the fourth quarter of 2005 or first quarter
      of
      2006. This amount will be recorded as a reduction to sales and marketing expense
      during the period in which the recovery occurs.





*Research
      and Development*





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





Three
                months ended
              September
                30,
            **Nine
                months ended**
              **September
                30,****2005**
            
            
            **2004**
            
            
            **2005**
            
            
            **2004**Research
                and development
            
            $
            12,565
            
            $
            9,122
            
            $
            33,614
            
            $
            24,602Percentage
                of net revenues
            
            
            16
            %
            
            14
            %
            
            15
            %
            
            14
            %Increase,
                period over period
            
            $
            3,443
            
            
            
            
            $
            9,012Percentage
                increase, period over period
            
            
            38
            %
            
            
            
            
            37
            %





Research
      and development expense increased 38% and 37% during the third quarter and
      first
      nine months of 2005, respectively, as compared to the corresponding prior year
      periods due primarily ** to
      increases in personnel and equipment related expenses resulting from an increase
      in headcount to develop and support existing and new products including
      increases in the number of such personnel in WebEx China .
      To a
      lesser extent, in connection with the acquisition of Intranets in the third
      quarter of 2005, we recorded $307,000 to in-process research and development
      (“IPR&D”). The IPR&D balance was immediately expensed in the period the
      acquisition was completed as the project associated with the IPR&D had not
      yet reached technological feasibility and no future alternative uses existed
      for
      the technology.





*General
      and Administrative*





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








Three
                months ended
              September
                30,
            **Nine
                months ended**
              **September
                30,****2005**
            
            
            **2004**
            
            
            **2005**
            
            
            **2004**General
                and administrative
            
            $
            6,728
            
            $
            4,419
            
            $
            17,803
            
            $
            12,856Percentage
                of net revenues
            
            
            9
            %
            
            7
            %
            
            8
            %
            
            7
            %Increase,
                period over period
            
            $
            2,309
            
            
            
            
            $
            4,947Percentage
                increase, period over period
            
            
            52
            %
            
            
            
            
            38
            %








General
      and administrative expense increased 52% and 38% during the third quarter and
      first nine months of 2005, respectively, as compared to the corresponding prior
      year periods due primarily to increased spending on employee-related expenses,
      increased professional service expenses, and an increase in bad debt expense.
      Bad debt expense was $454,000 in the three months ended September 30, 2005
      compared to a credit of $258,000 in the three months ended September 30, 2004.
      Bad debt expense was $657,000 in the nine months ended September 30, 2005
      compared to a credit of $832,000 in the nine months ended September 30, 2004.
      The expense in 2005 was due to an increase in revenue coupled with a relatively
      flat calculated potential percentage of future credit losses. Future credit
      losses are based on trended historical 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*





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 decreased $63,000 and $437,000 to an immaterial expense
      for
      the three and nine months ended September 30, 2005, respectively, as compared
      to
      the corresponding periods ended September 30, 2004. The relative decrease for
      the three and nine months ended September 30, 2005 was due to the vesting of
      employee awards and the effects of the fluctuations in our stock price on the
      recognition of expense on options granted to non-employees. Equity-based
      compensation expense related to the unvested portion of non-employee options
      is
      impacted by changes in our stock price and will fluctuate accordingly. In
      connection with the calculation of equity-based compensation expense, members
      of
      our Board of Directors are treated the same as employees of WebEx .




*Interest
      and other income, net*





Interest
      and other income, net consists of net investment income, interest income and
      expense, and other expenses. Interest and other income, net was $1.6 million
      and
      $4.9 million for the third quarter and first nine months of 2005, respectively,
      and $172,000 and $717,000 for the third quarter and first nine months of 2004.
      The increase in interest and other income, net in both periods is due primarily
      to increased interest income from greater cash and investments balances and
      higher interest rates. To a lesser extent, in the first nine months of 2005,
      gains from currency exchange as a result of currency transactions in other
      than
      the functional currency of our foreign subsidiaries also contributed to the
      increase.




*Provision
      for income taxes*





We
      recorded a provision for income taxes of $8.1 million for the three months
      ended
      September 30, 2005 and a provision for income taxes of $25.2 million for the
      nine months ended September 30, 2005 based on our estimated effective tax rate
      for full year 2005 of 39.0%. 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 nine months ended September 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 $438,000 for
      the
      balance of the year, which was accounted for as a credit to additional paid-in
      capital .




*Net
      income*





As
      a
      result of the foregoing, net income increased $857,000 to $12.7 million for
      the
      three months ended September 30, 2005 and $7.3 million to $39.4 million in
      the
      first nine months of 2005 as compared to the corresponding prior year periods.




**Liquidity
      and Capital Resources**




Nine
                months ended
              September
                30,**2005**
            
            
            **2004**Net
                cash provided by operating activities
            
            $
            53,101
            
            $
            48,758Net
                cash used in investing activities
            
            
            (115,565
            )
            
            (60,642
            )Net
                cash provided by financing activities
            
            
            8,149
            
            
            14,523Net
                (decrease) increase in cash and cash equivalents
            
            $
            (54,315
            )
            $
            2,639





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
      September 30, 2005, cash, cash equivalents and short-term investments were
      $194.8 million .




*Operating
      Activities*





Net
      cash
      provided by operating activities increased $4.3 million in the first nine months
      of 2005 as compared to the corresponding prior year period. Net cash provided
      by
      operating activities increased due primarily to increased net income of $7.3
      million, adjusted for non-cash reconciling items of $12.9 million in provisions
      for doubtful accounts and sales reserve, tax benefits on stock plans and
      depreciation and amortization. Cash provided by operations was offset in part
      by
      increases in accounts receivable of $8.1 million and declines in accounts
      payable of $6.2 million. Accounts receivable increases are due primarily to
      continued growth in sales, a change in the method of recording cash in transit,
      and to a lesser extent the acquisition of Intranets in September 2005.




*Investing
      Activities*





Net
      cash
      used in investing activities increased $54.9 million in the first nine months
      of
      2005 as compared to the corresponding prior year period. Net cash used in
      investing activities increased due primarily to cash used for the acquisition
      of
      Intranets in the third quarter of 2005 in the amount of $40.0 million, net
      of
      cash acquired, as well as an increase in net investment purchases of $36.7
      million compared to the corresponding prior period. Cash used in investing
      activities was offset in part by decreases in capital purchases of $16.5 million
      during the first nine months of 2005. The purchase of property and equipment
      during the first nine months of 2005 are due primarily to capital expenditures
      for equipment, hardware and software used in our MediaTone Network . During
      the first nine months of 2004, we acquired land and building for our new network
      operating center.




*Financing
      Activities*





Net
      cash
      provided by financing activities decreased $6.4 million in the first nine months
      of 2005 as compared to the corresponding prior year period. Net cash provided
      by
      financing activities decreased due primarily to increased share repurchases
      of
      $14.2 million, offset in part by an increase in proceeds received from issuances
      of common stock under employee stock programs of $7.8 million. 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 September 30, 2005,
      approximately $25.8 million had been used to repurchase approximately 1,157,000
      shares of our common stock .





In
      September 2005, we acquired all of the outstanding stock of Intranets, a
      privately held company. This acquisition is intended to expand the WebEx
      offering into the small to medium business market as well as enhance cross
      selling of Intranets asynchronous services into the WebEx marketplace. The
      purchase consideration was approximately $42.7 million, paid in cash, and
      includes direct transaction costs. We paid $40.0 million, net of cash acquired,
      related to the acquisition during the third quarter of 2005 and additional
      payments of approximately $2.7 million are to be paid after one year, subject
      to
      continued employment of certain senior managers of Intranets. See note 3 to
      our
      condensed consolidated financial statements for further
      information.





We
      have a
      revolving credit line with a bank that provides available borrowings up to
      $7.0
      million. Amounts borrowed under the revolving credit line bear interest at
      the
      prime rate and may be repaid and re-borrowed at any time prior to the maturity
      date. The credit agreement expires June 15, 2006. The credit agreement is
      unsecured and is subject to compliance with covenants, including a minimum
      quick
      ratio and minimum profitability, with which we are currently in compliance.
      As
      of September 30, 2005, we had no outstanding borrowings under the credit line,
      but we did have a $4.0 million letter of credit issued under the line as
      security for our headquarters lease.





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





With
      the
      acquisition of Intranets in September 2005, we assumed a lease obligation for
      office space occupied by Intranets in Burlington, Massachusetts. The lease
      term
      is for approximately 66 months which commenced in January 2005. Future minimum
      lease payments under the life of the lease total $2.7 million. The lease
      requires a letter of credit of $260,000, which is collateralized by
      cash
      on deposit at a commercial bank. The cash on deposit is treated as restricted
      cash and included in the condensed consolidated balance sheets in other
      non-current assets.








In
      December 2004, we entered into an agreement with the government of Hong Kong
      and
      Hong Kong University of Science and Technology (HKUST) pursuant to which WebEx
      and the government of Hong Kong were each to pay equal amounts to fund certain
      research and development projects to be managed jointly by WebEx and HKUST.
      In
      December 2004 and April 2005, we paid $500,000 and $318,000, respectively,
      in
      cash pursuant to the agreement, which was fully expensed to research and
      development expense, and we have future payment obligations under the agreement
      totaling $458,000. The future payment obligations are included in “Other
      commitments” in the table below. We will obtain sole ownership of any
      intellectual property resulting from the projects, provided, however that WebEx
      and HKUST may agree that some of the proceeds of products and services arising
      from the projects will be paid to HKUST. 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. We have entered into discussions regarding future funding
      of this agreement.





As
      of
      September 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 $10.7
      million. The
      majority of the purchase commitments are expected to be settled in cash within
      12 months.





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 since
      the
      third quarter of 2002 .
      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 September
      30, 2005, and the effect such obligations are expected to have on our liquidity
      and cash flows in future periods (in thousands):




Remaining
                three months of 2005
            
            
            **2006**
            
            
            **2007**
            
            
            **2008**
            
            
            **2009**
            
            
            **2010
                and after**
            
            
            **Total**Operating
                leases obligations
            
            $
            1,634
            
            $
            5,932
            
            $
            5,701
            
            $
            6,317
            
            $
            5,891
            
            $
            19,047
            
            $
            44,522Purchase
                obligations
            
            
            8,692
            
            
            1,333
            
            
            633
            
            
            35
            
            
            —
            
            
            —
            
            
            10,693Other
                commitments
            
            
            —
            
            
            458
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            458Total
            
            $
            10,326
            
            $
            7,723
            
            $
            6,334
            
            $
            6,352
            
            $
            5,891
            
            $
            19,047
            
            $
            55,673








**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, a
      significant percentage of our total revenue is derived from usage-based pricing which
      varies with the amount of services our customers use. Because that portion
      of
      our revenue varies depending on customer usage, it is more difficult to predict
      than our subscription-based pricing.







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





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




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




In
      addition to our committed subscription offerings, there are several situations
      in which customers are charged per minute or usage-based pricing. These include:
      certain distribution partner arrangements, customer overage fees for
      above-the-contract-limit use of ports or minutes, most types of telephony
      charges, and individual pay-per-use services purchased directly from our
      website. A majority of revenue received from our telecommunications partner
      arrangements is usage based. As previously discussed, overage fees are charged
      when a customer subscribing to a set number of ports uses more than the
      subscribed number of ports, or when a customer on a minutes pricing model uses
      more than its commitment. We get per-minute telephony revenue when we provide
      the audio conferencing component of a web conferencing session. Finally, we
      have
      per-minute web conferencing services available through our website and payable
      by credit card. We refer to the revenue derived from this per minute or
      usage-based pricing model, measured as of the end of any month, as uncommitted
      revenue .




For
      the
      quarter ended September 30, 2005, usage-based revenue was approximately 28%
      of
      our total revenue. The various usage-based revenue sources are more variable
      and
      difficult to predict than our committed subscription revenue sources, given
      that
      customer demand may vary from month to month depending on a number of factors,
      such as number of business days in a month or vacation patterns. Accordingly,
      to
      the extent the revenue derived from our various usage-based sources—or
      uncommitted revenue—grows faster than the combined revenue from ports, minimum
      minutes and flat-rate offerings—together called committed revenue—our overall
      revenue becomes more difficult to predict. Although the uncommitted revenue
      percentage of our overall revenue was lower in the third quarter of 2005 than
      in
      recent quarters, in the quarters immediately preceding the third quarter of
      2005
      the uncommitted revenue percentage of total revenue had been rising, a trend
      that if it resumes in future quarters would increase the unpredictability of
      our
      total revenue.





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 generally
                and
                particularly for web conferencing and web application 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
                web
                conferencing and web application 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, both new and
      existing, because of its lower price relative to our other committed
      subscription offerings. This customer purchasing trend could reduce our revenue
      unless and until the volume of additional customers makes up the difference.*




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








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




We
      expect
      to continue to spend substantial financial and other resources on developing
      and
      introducing new services, on expanding our sales and marketing organization,
      on
      our network infrastructure and on upgrading leased facilities such as our
      European headquarters. Examples of substantial financial outlays and commitments
      made during the past eighteen 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.*




Most
      of
      our customer contracts have initial terms of three to twelve months. These
      contracts are typically automatically renewed except where a customer takes
      action to cancel a contract prior to the end of an initial or renewal term.
      In a
      few customer situations, including contracts with the federal government, the
      contract can be terminated by the customer at any time during the term of the
      agreement. Our monthly average lost subscription MRR, a measurement tool we
      have
      used historically as a measure of subscription-based revenues we have lost,
      was
      2.0% for the quarter ended September 30, 2005. Another measurement of customer
      losses which we have begun using, lost subscription customer ratio, was 1.9%
      for
      the quarter ended September 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, such as switching from
      a
      concurrent user or minimum minutes offering to a named host offering. The
      reasons why a customer would cancel use of our services have included the
      pricing of our service offerings, the failure of the customer’s employees to
      learn about and use our services, the failure of the services to meet the
      customer’s expectations or requirements, financial difficulties experienced by
      the customer, or the customer’s decision to use services or products offered by
      a competitor. Because our installed base of customers has grown larger each
      quarter, if our lost subscription MRR stays at a constant percentage rate,
      the
      actual revenue loss in terms of dollars will increase over time. As a result,
      it
      may be necessary to invest additional dollars in sales and marketing in order
      to
      compensate for this increase in lost revenue or to invest in the development
      or
      acquisition of new offerings with which we experience less MRR loss. We may
      not
      obtain a sufficient amount of new or incremental business to compensate for
      any
      customers that we may lose. The loss of existing customers or our failure to
      obtain additional customers and the additional expense associated with acquiring
      new customers or developing or acquiring new products could harm our business
      and operating results.







*Our
      business and operating results may suffer if we fail to establish distribution
      relationships, if our distribution partners struggle in their businesses or
      otherwise 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
      September 30, 2005, we had distribution agreements in place with
      telecommunications partners, software vendors, web services providers and
      miscellaneous other resellers that during the third quarter of 2005 accounted
      for 16% of our revenue. Our revenue generally consists of initial set-up fees,
      commitment payments, and service fees. The majority of the payments received
      from these distribution partners are per minute or usage-based payments. 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 be forced for
      financial hardship reasons, or may choose, to devote insufficient resources
      to
      marketing and supporting our services, (ii) may devote greater resources to
      marketing and supporting the products and services of our competitors including
      specific efforts to persuade the 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.













*If
      one or more of our large distribution partners, particularly one or more of
      our
      telecommunications resellers who are in the process of being acquired, were
      to
      discontinue a reseller arrangement with us, we may fail to meet quarterly
      financial expectations.* **




Our
      various distribution partner relationships accounted for 16% of our total
      revenue in the third quarter of 2005. Two of our large distribution partners,
      telecommunications providers AT&T and MCI, have announced that they are in
      the process of being acquired by, respectively, SBC Communications and Verizon
      Communications. If one, or both, or other of our large distribution partners
      were to discontinue a reseller arrangement with us whether as a result of being
      acquired by another entity or otherwise, the resulting loss of revenue could
      cause us to miss, or contribute to our missing, quarterly financial targets.







*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 refer to as 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 38% of our revenue for the quarter
      ended September 30, 2005. We have developed and are selling other services,
      such
      as our Event Center, Training Center, Sales Center, Support Center and
      Enterprise Edition services, our SMARTtech service, our newly-launched WebEx
      WebOffice brand of on-demand collaborative web application services, our
      newly-launched MeetMeNow service, our PCNow service, and our audio conferencing
      service. Our services other than Meeting Center may not provide significant
      revenue in the future. If we are not successful in developing, deploying and
      selling services other than our standalone Meeting Center service, and if sales
      of our standalone Meeting Center service decline or do not increase, our
      operating results will suffer.







*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 September 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, as well as a number of other
      activities including lead research for our sales personnel, creation of
      technical documentation, preparation of marketing materials and the provisioning
      of customer websites. We have five facilities in China, located in each of
      Hefei, Hangzhou, Shanghai, Shenzhen and Suzhou. Our China subsidiary employed,
      as of September 30, 2005, approximately 852 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. Customer payments to us, and payments by us to
      both our foreign-based vendors and to our foreign-based employees, are generally
      made in the local currency. As a result, our financial results could be affected
      by factors such as changes in foreign currency exchange rates or weak economic
      conditions in foreign markets. We do not currently engage in hedging activities
      or other actions to decrease fluctuations in operating results due to changes
      in
      foreign currency exchange rates, although we may do so when the amount of
      revenue obtained from sources outside the United States becomes significant. We
      conduct sales, marketing, network and customer support operations in countries
      outside of the United States, and we currently have subsidiaries in each of
      the
      following 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, we may need
      to implement enhancements to correct defects or bugs that we do not detect
      until
      after deployment of our services. If we do detect a defect or bug in our
      software before we introduce new versions of our services, we might have to
      limit our services for an extended period of time while we resolve the problem.
      In addition, problems with the software underlying our services could result
      in:




-
            damage
                to our reputation;




-
            damage
                to our efforts to build brand awareness;




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




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




-
            unexpected
                expenses and diversion of resources to remedy errors.








*If
      our services do not work with the many hardware and software platforms used
      by
      our customers and end-users, 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 1,926 at June 30, 2005 to 2,075
      at September 30, 2005. This September 30, 2005 total includes 80 former
      Intranets employees who have remained with Intranets, now known as WebExOne,
      following the acquisition. 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, during the next few months we will
      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, or the security systems of our
      vendors who partner with us in the delivery of services to customers, may result
      in violations of our confidentiality and security obligations to our customers,
      damage to our systems and our reputation, and may endanger the safety of our
      employees.*





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








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





From
      time
      to time there are changes in our executive management team, including the hiring
      and departure of executives, and the reorganization of responsibilities and
      personnel. For example, in recent months we have had reorganizations and have
      hired new executives in our sales, marketing, engineering and product management
      organizations, which are 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
      we
      plan to implement during 2006, could result in customer invoicing delays and
      other disruptions to our revenue-related financial accounting
      processes* *.*




Our
      business, which includes thousands of subscription customers and a large number
      of daily transactions is substantially dependent on the continuous and
      error-free functioning of our automated business processing systems covering
      such areas as order-entry, billing, contract management and collection
      activities. 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 in 2004, during 2006 we plan to install 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, and we rely as well on the
      functional operation of connectivity infrastructure such as fiber provided
      by
      third party service providers. These systems and operations, including those
      of
      our third party service providers, are vulnerable to damage or interruption
      from
      human error, telecommunications failures, physical or remote break-ins, physical
      damage to fiber lines or other third party service provider infrastructure,
      sabotage, computer viruses and intentional acts of vandalism. In addition,
      third
      party co-location facilities may discontinue their operations due to poor
      business performance. Because a substantial part of our central computer and
      communications hardware and network operations are located in the San Francisco
      Bay Area, an earthquake or other natural disaster could impair the performance
      of our entire network. In the event of damage to or interruption of our internal
      or outsourced systems, if we are unable to implement our disaster recovery
      plans
      or our efforts to restore our services to normal levels in a timely manner
      are
      not successful, our business would be harmed. In addition, business interruption
      insurance may not adequately compensate us for losses that may occur, which
      would harm our
      business.







*We
      might have liability for content or information transmitted through our
      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, could harm our business
      and
      operating results, or could result in the imposition of criminal penalties.







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




Our
      success and ability to compete depend to a significant degree upon the
      protection of our underlying software and our proprietary technology through
      patents. We regard the effective protection of patentable inventions as
      important to our future opportunities. We currently have 25 issued patents,
      including eight we acquired in connection with our 2003 acquisition of certain
      assets of Presenter, Inc., five we purchased in 2004 from NCR Corporation and
      one that we own as a result of our acquisition of Intranets, now known as
      WebExOne. 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, Collaboration
      Without Limitation, WebExOne, Web Touch, MeetMeNow, PCNow, iPresenter and
      iPresentation. In addition to these, trademarks owned by our wholly-owned
      subsidiary WebExOne consist of the following: Web-Enable Your Sales Force,
      Field.First, Conjoin, and Get Everyone On The Same Page. 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. The holders of such patents could initiate
      infringement claims against us. Also, in response to an infringement action
      brought by us, the defendant in such action could file counterclaims against
      us
      in the same proceeding or file a separate action against us in a different
      court. For example, in September 2005, we sued our competitor Raindance in
      federal district court in the Northern District of California, alleging that
      Raindance’s web conferencing services infringe nine of our patents. In October
      2005, Raindance filed a separate suit against us in federal district court
      in
      the Eastern District of Texas, alleging that our services infringe two of
      Raindance’s patents. We believe Raindance’s claims in the Texas-filed lawsuit
      are without merit and we intend to vigorously defend ourselves against these
      claims. The defense of Raindance’s claims and the prosecution of our own claims
      can be expensive, time-consuming and may divert management attention and
      engineering resources from their other responsibilities.





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










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




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







*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 Cisco Systems, Citrix Systems, Genesys, IBM,
      Microsoft, Netviewer, NTR, Oracle, PC Visit, Raindance, Macromedia, which in
      April 2005 announced that it had signed a definitive agreement to be acquired
      by
      Adobe Systems, and Centra Software, which in October 2005 announced that it
      had
      signed a definitive agreement to be acquired by Saba. In addition to the above
      competitors, certain of our distribution partners offer competitive web
      conferencing, web application and other collaborative web communications
      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
      in the marketplace. Competitive pressures could reduce our market share or
      require us to reduce the price of our services, either of which could harm
      our
      business and operating results. For example, we offer VOIP to customers seeking
      that option for the audio portion of their web conferencing service activity,
      which puts us in competition with increasing numbers of low cost providers
      of
      VOIP products and services of ever-increasing quality. One or more of these
      competitors may offer a sufficiently low-cost, feature-attractive, audio-centric
      VOIP offering that, though not a web conferencing offering, might divert
      business away from us, or one or more of these competitors might themselves
      leverage their experience in the VOIP segment of web communications to develop
      and market a webconferencing or web application product or service of their
      own.
      Finally, our revenues and market share could also be reduced if, during this
      time period where the market is still relatively new and competitors are still
      emerging, we do not capitalize on our current market leadership by timely
      developing and executing corporate strategies that will increase the likelihood
      that our services will be accepted as the market standard in preference to
      the
      offerings of our current and future competitors .







*Competition
      from Microsoft for the web conferencing and web application markets, 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 the certain
      improvements to the Live Meeting service and other product
      developments.





In
      the
      software services segment of the web applications market, Microsoft in mid-2005
      announced the acquisition of collaboration software provider Groove Networks.
      In
      November 2005, Microsoft previewed by press announcement its Microsoft Office
      Live offering, described in the preview announcement as a set of Internet-based
      software services. 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, including the contributions of the former Groove
      Networks entity’s communication and collaboration-related intellectual property
      assets, may have an adverse impact on our business. More generally, Microsoft
      may attempt to leverage its dominant market position in the operating system,
      productivity application or browser markets, through technical integration
      or
      bundled offerings, to expand further its presence in these web communications
      markets, 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, and particularly web conferencing and
      web application services, is relatively new and rapidly evolving. Growth in
      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, and
                particularly web conferencing and web application services;




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




-
            the
                willingness of our distribution partners to integrate web communications
                services, and particularly web conferencing and web application services,
                in their service offerings; and




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







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




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





TOC




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




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





In
      addition to the effect of such potential future laws and regulations, existing
      laws and regulations in both domestic and non-U.S. jurisdictions could be
      interpreted to apply to our web 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.  Although
      we have had communications with state tax authorities related to sales tax,
      no
      tax authorities are currently 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
      June 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. The new
      accounting rule will have a negative effect on our reported net income, and
      if
      we fail to change our equity compensation practices this negative impact will
      increase. Accordingly, we have begun to change our equity compensation
      practices. In March 2005 we amended our employee stock purchase plan to reduce
      the length of the offering period and the maximum number of shares that can
      be
      purchased during an offering period. Also because of the 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 overestimate 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 underestimate 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 harming our shareholders and
      depriving us of an equity-related motivation to attract and keep workers which
      in turn would hurt our business. In addition to the new FASB equity compensation
      rule, other significant accounting rules may be enacted in the future by FASB,
      or existing rules may be subject to revised interpretation by the
      American Institute of Certified Public Accountants, the Securities and Exchange
      Commission, or one or more of various bodies formed to interpret accounting
      rules and policies. Any significant change in accounting rules, policies or
      interpretations could adversely affect our reported financial results or the
      way
      we conduct our business. ******











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




Section
      404 of the Sarbanes-Oxley Act of 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 supporting our legal obligation to comply with these
      requirements. Our business continues to expand in size and complexity, and
      accordingly in fiscal year 2006 we expect to incur increased expense, relative
      to our expected total expenditures in fiscal year 2005, and to devote additional
      management resources to comply with Section 404. In the event that our chief
      executive officer, chief financial officer or independent registered public
      accounting firm determine that our internal controls over financial reporting
      are not effective as defined under Section 404, investor perceptions of our
      company may be adversely affected and could cause a decline in the market price
      of our stock, and we could experience further increases in expenses and
      redirection of management resources in order to remedy such ineffective internal
      controls .







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




Our
      stock
      price has been and is likely to continue to be highly volatile. For example,
      between July 1, 2005 and November 1, 2005, our stock price has traded as high
      as
      $29.81 on July 28, 2005 and as low as $22.51 on October 28, 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. Our disclosure controls and procedures have been designed
      to
      meet, and management believes they meet, reasonable assurance standards.
      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
      1. Legal Proceedings**





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





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








**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
      third 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**July
                1, 2005 to July 31,
              2005....................
            --
            --
            --
            $22,118,000August
                1, 2005 to August
              30,
                2005................
            289,300
            $26.1414
            289,300
            $14,555,293September
                1, 2005 to
              September
                30, 2005...
            15,000
            $25.4239
            15,000
            $14,173,935Total
                ............
            304,300
            $25.783
            304,300
            $14,173,935




(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
      5. Other Information**





*Stockholder
      Proposals for 2006 Annual Meeting.* To be
      considered for inclusion in the Company's proxy statement and form of proxy
      for
      its 2006 Annual Meeting of Stockholders, a stockholder proposal must be received
      at the principal executive offices of the Company not later than December 7,
      2005.





A
      stockholder proposal not included in the Company's proxy statement for the
      2006
      Annual Meeting will be ineligible for presentation at the meeting unless the
      stockholder gives timely notice of the proposal in writing to the Secretary
      of
      the Company at the





TOC




principal
      executive offices of the Company and otherwise complies with the provisions
      of
      the Company's Bylaws. To be timely, the Company's Bylaws provide that the
      Company must have received the stockholder's notice not less than 50 days nor
      more than 75 days prior to the scheduled date of such meeting. However, if
      notice or prior public disclosure of the date of the annual meeting is given
      or
      made to stockholders less than 65 days prior to the meeting date, the Company
      must receive the stockholder's notice by the earlier of (i) the close of
      business on the 15 th day
      after the earlier of the day the Company mailed notice of the annual meeting
      date or provided such public disclosure of the meeting date and (ii) two days
      prior to the scheduled date of the annual meeting. For the Company's 2006 Annual
      Meeting of Stockholders, which is scheduled to be held on May 9, 2006,
      stockholders must submit written notice to the Secretary in accordance with
      the
      foregoing Bylaw provisions no later than March 21, 2006 but not prior to
      February 24, 2006.














**Item
      6. Exhibits**








**Exhibit**
              **Number**
            **Description**2.1*
            Agreement
                and Plan of Merger, dated August 1, 2005, by and among WebEx
                Communications, Inc., Atlantic Acquisition Subsidiary, Intranets.com,
                Inc.
                and W Capital Partners, L.P., as Stockholder Agent.3.1**
            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 Exhibit 2.1 of Registrant's Report on Form 8-K
      (File No. 0-30849) filed with the Securities and Exchange Commission on
      September 15, 2005.





**  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: November
                8, 2005
              By:
              /s/ MICHAEL
                T. EVERETTMichael
                T. Everett*Chief
                  Financial Officer*
                (Duly
                  Authorized Officer and Principal Financial Officer)




**WEBEX
                COMMUNICATIONS, INC.**Date: November
                8, 2005
              By:
              /s/ DEAN
                MACINTOSHDean
                Macintosh*Vice
                  President, Finance*
                (Duly
                  Authorized Officer and Principal Accounting
                  Officer)










**EXHIBIT
      INDEX**


**Exhibit**
              **Number**
            **Description**2.1*
            Agreement
                and Plan of Merger, dated August 1, 2005, by and among WebEx
                Communications, Inc., Atlantic Acquisition Subsidiary, Intranets.com,
                Inc.
                and W Capital Partners, L.P., as Stockholder Agent.3.1**
            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 Exhibit 2.1 of Registrant's Report on Form 8-K
      (File No. 0-30849) filed with the Securities and Exchange Commission on
      September 15, 2005.





**  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.