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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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)
307 West Tasman Drive
San Jose, California 95134
(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 [ ]
On July 31, 2002, 40,589,977 shares of Registrant's Common Stock, $0.001 par
value were outstanding.
WEBEX COMMUNICATIONS, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
JUNE 30, 2002
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets at
June 30, 2002 and December 31, 2001 3
Unaudited Condensed Consolidated Statements of Operations
for the three months and six months ended June 30, 2002
and 2001 4
Unaudited Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 2002 and 2001 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 25
Exhibit Index 26
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WEBEX COMMUNICATIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
June 30, December 31,
2002 2001
------------ ------------
Current assets:
Cash and cash equivalents $ 43,117 $ 42,146
Short-term investments 9,572 --
Accounts receivable, net of allowances
of $6,910 and $6,825, respectively 19,219 17,938
Prepaid expenses and other current assets 1,048 1,830
Due from related party -- 1,100
------------ ------------
Total current assets 72,956 63,014
Property and equipment, net 25,848 25,362
Other non-current assets 1,661 1,920
------------ ------------
Total assets $100,465 $ 90,296
============ ============
LIABILITES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,012 $ 9,156
Accrued liabilities 7,291 6,695
Deferred revenue 8,344 8,136
Current portion of capital lease obligations 1,092 1,410
Short-term debt 5,000 5,500
------------ ------------
Total current liabilities 31,739 30,897
Capital lease obligations less current portion 50 572
------------ ------------
Total liabilities 31,789 31,469
------------ ------------
Commitments
Stockholders' equity:
Common stock 40 40
Additional paid-in capital 191,835 189,649
Notes receivable from stockholder (45) (45)
Deferred equity-based compensation (2,557) (5,724)
Accumulated deficit (120,714) (125,120)
Accumulated other comprehensive income 117 27
------------ ------------
Total stockholders' equity 68,676 58,827
------------ ------------
Total liabilities and stockholders' equity $100,465 $ 90,296
============ ============
See accompanying notes to unaudited condensed consolidated
financial statements.
WEBEX COMMUNICATIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended Six Months Ended
------------------ ------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
-------- -------- -------- --------
Net revenues $33,242 $18,430 $62,811 $33,191
Cost of revenues 5,926 5,342 11,940 9,961
-------- -------- -------- --------
Gross profit 27,316 13,088 50,871 23,230
-------- -------- -------- --------
Operating expenses:
Sales and marketing 14,224 12,053 27,460 23,859
Research and development 5,625 3,649 10,849 7,375
General and administrative 3,497 2,669 6,803 4,755
Equity-based compensation* 612 4,227 1,234 7,749
-------- -------- -------- --------
Total operating expenses 23,958 22,598 46,346 43,738
-------- -------- -------- --------
Operating income (loss) 3,358 (9,510) 4,525 (20,508)
Interest and other income, net 19 232 17 531
-------- -------- -------- --------
Net income (loss) before income tax 3,377 (9,278) 4,542 (19,977)
Provision for income tax (101) -- (136) --
-------- -------- -------- --------
Net income (loss) $ 3,276 ($ 9,278) $ 4,406 ($19,977)
======== ======== ======== ========
Net income (loss) per share:
Basic $ 0.08 $ (0.26) $ 0.11 $ (0.57)
Diluted 0.08 (0.26) 0.10 (0.57)
Shares used in per share calculations:
Basic 39,511 35,859 39,244 34,965
Diluted 42,389 35,859 42,520 34,965
*Equity-based compensation:
Sales and marketing $ 11 $ 2,321 $ 209 $ 4,480
Research and development 161 678 286 1,168
General and administrative 440 1,228 739 2,101
-------- -------- -------- --------
$ 612 $ 4,227 $ 1,234 $ 7,749
======== ======== ======== ========
See accompanying notes to unaudited condensed consolidated
financial statements.
WEBEX COMMUNICATIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
----------------------
June 30, June 30,
2002 2001
---------- ----------
Cash flows from operating activities:
Net income (loss) $ 4,406 $(19,977)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Provisions for doubtful accounts and sales allowance 8,551 4,382
Depreciation and amortization 5,938 4,011
Other than temporary declines in equity investments 250 --
Equity-based compensation 1,234 7,749
Changes in operating assets and liabilities:
Accounts receivable (9,832) (10,177)
Prepaid expenses and other current assets 782 2,088
Other non-current assets (19) (130)
Accounts payable 856 (2,434)
Accrued liabilities 596 1,918
Deferred revenue 208 (215)
Other 91 34
---------- ----------
Net cash provided by (used in) operating
activities 13,061 (12,751)
---------- ----------
Cash flows from investing activities:
Payments from related party 1,100 1,200
Payments of security deposits (233) --
Purchases of short-term investments (9,572) (9,869)
Purchases of property and equipment (6,166) (7,157)
---------- ----------
Net cash used in investing activities (14,871) (15,826)
---------- ----------
Cash flows from financing activities:
Net proceeds from issuances of common stock 4,187 22,897
Repurchase of restricted stock (66) (23)
Principal payments on capital lease obligations (840) (434)
Borrowings under debt agreement 10,500 5,500
Repayments under debt agreement (11,000) --
---------- ----------
Net cash provided by financing activities 2,781 27,940
---------- ----------
Net change in cash and cash equivalents 971 (637)
Cash and cash equivalents at beginning of the period 42,146 28,214
---------- ----------
Cash and cash equivalents at end of the period $ 43,117 $ 27,577
========== ==========
Supplemental disclosures of non-cash investing
and financing activities:
Acquisition of property and equipment under
capital leases $ -- $ 260
========== ==========
Reduction in equity-based compensation due to
forfeitures of stock options $ 2,310 $ 543
========== ==========
See accompanying notes to unaudited condensed consolidated
financial statements.
WEBEX COMMUNICATIONS, INC.
June 30, 2002 and 2001
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared by WebEx Communications, Inc. (the "Company" or "WebEx") in
accordance with the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted in accordance
with such rules and regulations. In the opinion of management, the
accompanying unaudited financial statements reflect all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
the financial position of the Company, and its results of operations and cash
flows. These financial statements should be read together with the Company's
audited consolidated financial statements and notes thereto as of and for the
year ended December 31, 2001, included in the Company's Form 10-K filed with
the Securities and Exchange Commission on March 28, 2002.
The results of operations for the three months and six months ended June 30,
2002 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2002 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.
2. Revenue Recognition
Revenue is derived from the sale of web communication services. Web
communication 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 communication
services directly to customers through service subscriptions and pay-per-use
arrangements. Under these arrangements, customers access the application
hosted on WebEx servers using a standard web browser. Subscription
arrangements include monthly subscriber user fees, user set-up fees and
hosting fees in limited cases of customer-dedicated hosted software. 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, accordingly revenue is
recognized ratably 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, the company provides training services, web-page
design and set-up services. In addition to the subscription services
revenue, WebEx derives revenue from pay-per-use services and telephony
charges which are recognized as the related services are provided.
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 hosted 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, 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 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
distribution partners are deferred until the related services are provided or
until otherwise earned by WebEx. In cases where WebEx collects from the
end-user, revenue is recognized at the gross amount received from end users
with payments made to distribution partners recorded as a commission expense.
In cases where the end-user contracts directly with the distribution partner,
revenue is recognized at the net amount earned from the distribution partner.
During 2000, we entered into a distribution agreement with a partner whereby
we received $1,000 in equity securities of the distribution partner in
consideration for services to be provided over the term of the agreement. We
have accounted for this agreement in accordance with the provisions of EITF
Issue No. 00-8, "Accounting by a Grantee for an Equity Instrument to be
Received in Conjunction with Providing Goods or Services." In the six months
ended June 30, 2002 and 2001 we recognized $520 and $30 in revenue,
respectively, under this agreement. As of June 30, 2002, we have earned the
total revenue of $1,000 related to the equity consideration completing this
part of the agreement.
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 sold by the
reseller to an end-user customer or until the guaranteed minimum commitment
is both forfeited and paid by the reseller. For all other arrangements, an
estimate of the sales reserve for losses on receivables due to customer
cancellations or terminations is recorded as a reduction in revenues at the
time of sale. The sales reserve is estimated based on an analysis of the
historical rate of cancellations or terminations. The accuracy of the
estimate is dependent on the rate of future cancellations or terminations
being consistent with the historical rate.
WebEx records an allowance for doubtful accounts to reduce accounts
receivable to amounts expected to be received from customers. Increases to
the allowance for doubtful accounts are charged to general and administrative
expense as bad debt expense. Losses on accounts receivable due to financial
distress or failure of the customer are charged to the allowance for doubtful
accounts. The allowance 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.
Deferred revenue includes amounts billed to customers for which revenue has
not been recognized, which generally result from the following: (1) unearned
portion of monthly billed subscription service fees; (2) deferred
subscription and distribution partner set-up fees; and (3) advances received
from distribution partners under revenue sharing arrangements.
3. Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted-average
number of common shares outstanding for the period excluding restricted
common shares subject to repurchase. Diluted net income (loss) per share
reflects the dilution of restricted common stock subject to repurchase and
incremental shares of common stock issuable upon the exercise of warrants and
stock options computed using the treasury stock method.
The following table sets forth the components used in the computation of
basic and diluted net income (loss) per common share for the three and six
months ended June 30, 2002 and 2001:
Three Months Ended Six Months Ended
------------------ ------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
-------- -------- -------- --------
Numerator:
Net income (loss) $3,276 ($9,278) $4,406 ($19,977)
-------- -------- -------- --------
Denominator:
Denominator for basic net income
(loss) per common share 39,511 35,859 39,244 34,965
Effect of dilutive securities:
Restricted common shares subject
to repurchase 932 -- 981 --
Stock options outstanding 1,946 -- 2,295 --
-------- -------- -------- --------
Denominator for diluted net
income (loss) per common share 42,389 35,859 42,520 34,965
======== ======== ======== ========
Basic net income (loss) per
common share $ 0.08 $(0.26) $ 0.11 $ (0.57)
======== ======== ======== ========
Diluted net income (loss) per
common share $ 0.08 $(0.26) $ 0.10 $ (0.57)
======== ======== ======== ========
The following potential common shares have been excluded from the computation
of diluted net income (loss) per share for the six months ended June 30, 2002
and June 30, 2001 because their effect would have been antidilutive:
2002 2001
------- -------
Shares issuable under stock options 2,295 5,925
Shares of restricted common stock
subject to repurchase -- 4,087
Shares issuable pursuant to warrants -- 340
The exercise price of antidilutive stock options outstanding as of June 30,
2002 range from $17.15 to $55.38 and as of June 30, 2001 the weighted-average
exercise price range from $0.05 and $55.38. The weighted-average exercise
price of warrants outstanding as of June 30, 2001 was $12.50. The weighted-
average repurchase price of restricted common shares outstanding as of June
30, 2001 was $0.81.
4. Related Party Transactions
WebEx has contracts for engineering services with three companies in China
owned by the spouse of one of our founding executives, who is also a major
stockholder. WebEx has received representation from Mr. Zhu and believes
that neither Mr. Zhu nor his wife receive any compensation or income from
these companies in the form of salaries, bonuses, dividends, profits or
otherwise. WebEx has contracts with these companies under which they perform
development projects, assign ownership of the work performed to WebEx, and
invoice WebEx for services rendered based on a monthly fee per employee
working on WebEx projects. These companies provide a significant amount of
quality assurance testing and software development activities for WebEx.
Expenses for engineering services pursuant to these arrangements for the
three months ended June 30, 2002 and June 30, 2001 were $750 and $650,
respectively, and for the six months ended June 30, 2002 and June 30, 2001
were $1,500 and $1,220, respectively. These expenses are included in
research and development. As of June 30, 2002, total amounts due to the
three companies in China were $500.
In April 2000, WebEx loaned $3,600 to its chief executive officer (CEO). The
loan matured in April 2002, bore interest at a rate of 6.5% per annum, and
was secured by the personal residence of the CEO and 1,000,000 shares of
WebEx stock. The loan was originally secured by 3,000,000 shares of WebEx
stock. The CEO paid the remaining principal and outstanding interest on
March 26, 2002 and the loan was retired.
5. Commitments
As of June 30, 2002, our material purchase commitments, including usage of
telecommunication lines and data services, hardware support services,
equipment and software purchases, totaled $4.4 million.
WebEx leases office facilities under various operating leases that expire
through 2008. Total future minimum lease payments, net of sublease rental
income, under these leases amount to approximately $19.2 million.
6. Segment Reporting
Statement of Financial Accounting Standards 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 operating decision-maker is considered to be the CEO. 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.
7. Recent Accounting Pronouncements
In June 2001, the FASB issued SFAS 142, Goodwill and Other Intangible Assets,
which requires that goodwill no longer be amortized but rather tested for
impairment regularly. The Company adopted SFAS 142 in the first quarter of
2002, and the adoption did not have a material effect on our financial
condition or results of operations.
In August 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations. SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated retirement costs. The Company will adopt SFAS 143 for our
first quarter of 2003, and the adoption is not expected to have a material
effect on our financial condition or results of operations.
In October 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 supersedes SFAS 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of, and certain provisions of APB Opinion No. 30, Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions
(APB 30). SFAS 144 establishes standards for long-lived assets to be
disposed of, and redefines the valuation and presentation of discontinued
operations. The Company adopted SFAS 144 in the first quarter of 2002, and
the adoption did not have a material effect on our financial condition or
results of operations.
In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
This Statement eliminates extraordinary accounting treatment for reporting
gain or loss on debt extinguishment, and amends other existing authoritative
pronouncements to make various technical corrections, clarifies meanings, or
describes their applicability under changed conditions. The provisions of
this Statement related to the rescission of Statement 4 are applicable in
fiscal years beginning after May 15, 2002, the provisions related to
Statement 13 are effective for transactions occurring after May 15, 2002, and
all other provisions are effective for financial statements issues on or
after May 15, 2002; however, early application of the Statement is
encouraged. Debt extinguishments reported as extraordinary items prior to
scheduled or early adoption of this Statement would be reclassified in most
cases following adoption. The impact of the adoption of SFAS 145 is not
expected to have a material effect on the Company's financial position or
results of operations.
In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities. This Statement requires recording costs
associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan, which is generally
before an actual liability has been incurred. The requirements of this
statement are effective prospectively for exit or disposal activities
initiated after December 31, 2002; however, early application of the
statement is encouraged. The Company has not yet determined what impact the
adoption of Statement 146 will have on its financial position or results of
operations.
8. Subsequent Event - Legal Matter
In July 2002, a lawsuit was filed by Eric Hamilton, an individual, in U.S.
District Court for the District of Maryland alleging infringement of U.S.
patent number 5,176,520 (the "Hamilton Patent") against us and several other
companies. We have not yet been served in connection with the action. The
complaint alleges that the defendants manufacture, market and sell products
and services that infringe several claims of the Hamilton Patent. The
complaint seeks injunctive relief, damages, treble damages for alleged
willful infringement, and costs and attorneys fees. We believe that the
plaintiff's claims are not valid and we have meritorious defenses to these
claims, and we intend to defend ourselves vigorously against the allegations
made in the complaint. However, there can be no assurance that we will be
successful in the defense of this suit and we cannot reasonably estimate the
possible range of any loss that might result from this suit due to
uncertainty regarding its outcome.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates" and similar expressions identify such forward-looking statements.
These forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from those indicated in the
forward-looking statements. These are statements that relate to future
periods and include, but are not limited to statements as to expected
benefits of our products and services, expected expenses, including those
related to sales and marketing, research and development, general and
administrative and equity-based compensation, anticipated increase in our
customer base, expansion of our service offerings and service
functionalities, ability to reduce operating expenses, expected revenue
levels and sources of revenue, strategies and potential outcomes of
litigation against us, strategies and potential outcomes of litigation
against us, expected impact, if any, of legal proceedings, expected increases
in headcount, the adequacy of liquidity and capital resources, the
sufficiency of our cash reserves to meet our capital requirements, expected
improvement of our cash flow and our ability to maintain a positive cash
flow, expected growth in business and operations, our ability to realize
positive cash flow from operations, the ability of cash generated from
operations to satisfy our liquidity requirements, our ability to realize net
earnings, and the effect of recent accounting pronouncements. Factors that
could cause actual results to differ materially from those stated in the
forward-looking statement, 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, our ability to expand our operations
internationally, our ability to expand our infrastructure to meet the demand
for our services, our ability to control our expenses, our ability to recruit
and retain employees particularly in the areas of sales, engineering, support
and hosting services, the ability of distribution partners to successfully
resell our services, the economy and the strength of competitive offerings,
the prices being charged by those competitors, and the outcome and impact of
litigation against us.
Additional factors, which could cause actual results to differ materially,
include those set forth in the following discussion, and, in particular, the
risks discussed in "Factors that May Affect Results". These forward-looking
statements speak only as of the date hereof. Unless required by law, the
Company undertakes no obligation to update publicly any forward-looking
statements.
This Management's Discussion and Analysis of Financial Condition and Results
of Operations should be read together with our Condensed Consolidated
Financial Statements and notes thereto included elsewhere in this report.
Overview
We develop and market services that allow end-users to conduct meetings and
share software applications, documents, presentations and other content on
the Internet using a standard web browser. Integrated telephony and web-
based audio and video services are also available using standard devices such
as telephones, computer web-cameras and microphones.
We commenced operations under the name Silver Computing, Inc. in February
1995. We changed our name to Stellar Computing Corporation in June 1997,
ActiveTouch Systems, Inc. in December 1997, ActiveTouch, Inc. in May 1998,
and WebEx, Inc. in December 1999. In July 2000, we reincorporated in
Delaware under the name WebEx Communications, Inc. We released interactive
communications software built on our technology in early 1998. We began
offering WebEx Meeting Center, our first real-time, interactive multimedia
communications service, in February 1999 and began selling the service to
customers and distribution partners. We also made available a subset of our
service for free at www.webex.com. Since February 1999, our activities have
been focused on continuing to enhance and market our WebEx Interactive
Platform and our WebEx Meeting Center service, developing and deploying new
services, expanding our sales and marketing organizations, and deploying our
global WebEx Interactive Network. We currently provide the following five
services: WebEx Meeting Center, WebEx Training Center, WebEx Business
Exchange, WebEx OnCall and WebEx OnStage.
In February 1999, with the introduction of WebEx Meeting Center, we began
providing our customers and distribution partners access to our hosted
services under subscription and other service arrangements and discontinued
selling software licenses to end-users.
Critical Accounting Policies
We believe that there are a number of accounting policies that are critical
to understanding our historical and future performance, as these policies
affect the reported amounts of revenue and the more significant areas
involving management's judgments and estimates. These significant accounting
policies relate to revenue recognition, sales reserves, and the allowance for
doubtful accounts. The policies, and our procedures related to these
policies, are described in detail below.
Revenue Recognition. Revenue is derived from web communication services.
Web communication 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
communication services directly to customers through service subscriptions
and pay-per-use arrangements. Under these arrangements, customers access the
application hosted on WebEx servers using a standard web browser.
Subscription arrangements include monthly subscriber user fees, user set-up
fees and hosting fees in limited cases of customer-dedicated hosted software.
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, accordingly
revenue is recognized ratably 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. In addition to the subscription
services revenue, we derive revenue from pay-per-use services and telephony
charges which are recognized as the related services are provided.
We also enter into reselling arrangements with distribution partners, which
purchase and resell our services on a revenue sharing, discounted or pay-per-
use basis. Revenue under these arrangements are derived from hosted
services provided to end users and are 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 distribution partners are deferred until the
related services are provided or until otherwise earned by us. In cases
where we collect from the end-user, revenue is recognized at the gross amount
received from end users with payments made to distribution partners recorded
as a commission expense. In cases where the end-user contracts directly with
the distribution partner, revenue is recognized at the net amount earned from
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 sold by the
reseller to an end-user customer or until the guaranteed minimum commitment
is both paid and forfeited by the reseller.
Sales Reserves. An estimate of the sales reserve for losses on receivables
resulting from customer cancellations or terminations is recorded as a
reduction in revenues at the time of the sale. The sales reserve is estimated
based on an analysis of the historical rate of cancellations or terminations.
The accuracy of the estimate is dependent on the rate of future cancellations
or terminations being consistent with the historical rate. If the rate of
actual cancellations or terminations is greater than the historic rate, then
the sales reserve may not be sufficient to provide for actual losses.
Allowance for Doubtful Accounts. We record an allowance for doubtful
accounts to reduce accounts receivable to amounts expected to be received
from customers. Increases to the allowance for doubtful accounts are charged
to general and administrative expense as bad debt expense. Losses on
accounts receivable due to financial distress or failure of the customer are
charged to the allowance for doubtful accounts. The allowance 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. If the rate of future credit losses is
greater than the historic rate, then the allowance for doubtful accounts may
not be sufficient to provide for actual credit losses.
Results of Operations
The following table sets forth, for the periods indicated, the statements of
operations data as a percentage of net revenues.
Three Months Ended Six Months Ended
------------------ ------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
-------- -------- -------- --------
Net revenues 100% 100% 100% 100%
Cost of revenues 18 29 19 30
-------- -------- -------- --------
Gross profit 82 71 81 70
Operating expenses:
Sales and marketing 43 65 44 72
Research and development 17 20 17 22
General and administrative 10 14 11 15
Equity-based compensation 2 23 2 23
-------- -------- -------- --------
Total operating expenses 72 122 74 132
-------- -------- -------- --------
Operating income (loss) 10 (51) 7 (62)
Interest and other income, net 0 1 0 2
Provision for income tax 0 -- 0 --
-------- -------- -------- --------
Net income (loss) 10% (50)% 7% (60)%
======== ======== ======== ========
Net revenues. Net revenues increased $14.8 million to $33.2 million for the
three months ended June 30, 2002 from $18.4 million for the three months
ended June 30, 2001. Net revenues increased $29.6 million to $62.8 million
for the six months ended June 30, 2002 from $33.2 million for the six months
ended June 30, 2001. The increases for the three and six months ended June
30, 2002 were primarily due to growth in our direct subscribing customer
base, increased usage by existing customers and increased usage by the
customers of our distribution partners.
Cost of revenues. Our cost of revenues consists of costs related to user set-
up, network and data center operations, technical support and training
activities, including Internet and telephony communication access costs,
personnel, licensed software and equipment costs and depreciation. Cost of
revenues increased $0.6 million to $5.9 million for the three months ended
June 30, 2002 from $5.3 million for the three months ended June 30, 2001.
Cost of revenues increased $1.9 million to $11.9 million for the six months
ended June 30, 2002 from $10.0 million for the six months ended June 30,
2001. The increases for the three and six months ended June 30, 2002 were
primarily due to increases in the costs for delivering our services to more
customers and increased usage by existing customers, additional technical
staff to support our growing installed base of customers, and expanding and
improving our worldwide network.
Sales and marketing. Our sales and marketing expense consists of personnel
costs, including commissions, as well as costs of public relations,
advertising, marketing programs, lead generation, travel and trade shows.
Sales and marketing expense increased $2.1 million to $14.2 million for the
three months ended June 30, 2002 from $12.1 million for the three months
ended June 30, 2001. Sales and marketing expense increased $3.6 million to
$27.5 million for the six months ended June 30, 2002 from $23.9 million for
the six months ended June 30, 2001. The increases for the three and six
months ended June 30, 2002 were primarily due to increases in spending on
marketing related programs and spending on sales and support personnel and
commission expenses associated with our increased revenue.
Research and development. Our research and development expense consists
primarily of salaries and other personnel-related expenses, depreciation of
equipment, supplies and consulting engineering services. Research and
development expense increased $2.0 million to $5.6 million for the three
months ended June 30, 2002 from $3.6 million for the three months ended June
30, 2001. Research and development expense increased $3.4 million to $10.8
million for the six months ended June 30, 2002 from $7.4 million for the six
months ended June 30, 2001. The increases for the three and six months ended
June 30, 2002 were primarily related to personnel and equipment related
expenses resulting from an increase in headcount and new product
introduction.
General and administrative. Our general and administrative expense consists
primarily of personnel costs for finance, human resources, legal and general
management, bad debt expense and professional services, such as legal and
accounting. General and administrative expense increased $0.8 million to $3.5
million for the three months ended June 30, 2002 from $2.7 million for the
three months ended June 30, 2001. General and administrative expense
increased $2.0 million to $6.8 million for the six months ended June 30,
2002 from $4.8 million for the six months ended June 30, 2001. The increases
for the three and six months ended June 30, 2002 were primarily due to bad
debt expenses and personnel related spending.
Bad debt expense increased $0.7 million to $1.5 million in the three months
ended June 30, 2002 from $0.8 million in the three months ended June 30,
2001. Bad debt expense increased $1.7 million to $3.0 million in the six
months ended June 30, 2002 from $1.3 million in the six months ended June
30, 2001. The increases for the three and six months ended June 30, 2002 were
primarily related to the increase in accounts receivable which was the result
of our increased revenue generated by our growing installed base of
customers.
Equity-based compensation. Our equity-based compensation expense represents
the amortization of deferred equity-based compensation over the vesting
period of options granted to employees and expenses related to issuance of
common stock warrants and 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 $3.6
million to $0.6 million for the three months ended June 30, 2002 from $4.2
million for the three months ended June 30, 2001. Equity-based compensation
expense decreased $6.5 million to $1.2 million for the six months ended June
30, 2002 from $7.7 million for the six months ended June 30, 2001. The
decreases for the three and six months ended June 30, 2002 were due to the
vesting of options granted, forfeitures of unvested options by terminated
employees 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.
Interest and other income, net. Interest and other income, net is comprised
of net investment income, interest income and expense, and other expenses.
Interest and other income, net decreased $0.2 million to $0.0 million for
the three months ended June 30, 2002 from $0.2 million for the three months
ended June 30, 2001. Interest and other income, net decreased $0.5 million
to $0.0 million for the six months ended June 30, 2002 from $0.5 million for
the six months ended June 30, 2001. The decreases for the three and six
months ended June 30, 2002 were primarily due to the recognition of an
impairment loss on an investment in Tonbu, Inc., a privately-held
distribution partner, less interest earned due to repayment of the loan to
our CEO and the reduction in interest rates earned on cash equivalents. The
impairment loss on the investment resulted from a determination that an other
than temporary decline in its value occurred after the evaluation of several
factors, including recent capital raising and operating activities undertaken
by Tonbu, Inc.
Provision for income taxes. We realized net operating income in the three and
six months ended June 30, 2002 and a net operating loss in the three and six
months ended June 30, 2001. We paid no federal, state and foreign income
taxes in those periods and did not recognize any tax benefits for the related
tax operating loss carryforwards. During 2002, we realized pre-tax earnings
and we have net operating loss carryforwards available to offset taxable
income in the U.S. Based on our cumulative losses, we do not believe a
conclusion can be made that it is more likely than not that we will realize
the tax benefits of net operating loss carryforwards for which a valuation
allowance was recorded. We recorded a provision for income taxes in the
three and six months ended June 30, 2002 based on our estimated effective tax
rate of 3%, which primarily reflects expected foreign income tax expense.
Net income (loss). As a result of the foregoing, we reported net income of
$3.3 million for the three months ended June 30, 2002 as compared to a net
loss of $9.3 million for the three months ended June 30, 2001. We reported
net income of $4.4 million in the six months ended June 30, 2002 as compared
to a net loss of $20.0 million in the six months ended June 30, 2001.
Liquidity and Capital Resources
Prior to our initial public offering, we financed our operations primarily
from the private sales of preferred equity securities. Upon completion of our
initial public offering of common stock, a total of 4,025,000 shares were
sold to the public, which resulted in net proceeds to the Company of $50.7
million. In May and June 2001, we concluded a private placement of 2 million
shares of common stock resulting in net proceeds of $20.5 million.
As of June 30, 2002, cash and cash equivalents and short-term investments
were $52.7 million, an increase of $10.6 million compared with cash and cash
equivalents of $42.1 million as of December 31, 2001.
Net cash provided by operating activities was $13.1 million for the six
months ended June 30, 2002, as compared to net cash used in operating
activities of $12.8 million for the six months ended June 30, 2001. Cash
provided by operating activities for the six months ended June 30, 2002 was
primarily due to net income adjusted for non-cash expenses, increased
accounts payable and accrued liabilities offset by increased accounts
receivable. For the six months ended June 30, 2001, net cash used in
operating activities of $12.8 million was primarily the result of our net
loss.
Net cash used in investing activities was $14.9 million for the six months
ended June 30, 2002, as compared to $15.8 million for the six months ended
June 30, 2001. Net cash used in investing activities for the six months
ended June 30, 2002 related primarily to purchases of short-term investments
and capital expenditures for equipment, hardware and software used in
operations and research and development. This was partially offset by the
repayment of the remaining principal and interest outstanding on a loan to
our CEO. For the six months ended June 30, 2001, net cash used in investing
activities of $15.8 million was primarily related to the capital expenditures
for equipment, hardware and software and the purchase of short-term
investments.
Net cash provided by financing activities was $2.8 million for the six months
ended June 30, 2002, as compared to $27.9 million for the six months ended
June 30, 2001. Net cash provided by financing activities for the six months
ended June 30, 2002 was primarily the result of cash received on stock
purchased in our employee stock purchase plan and on stock options exercised,
offset by principal payments on lease obligations and net repayments on our
debt arrangement. Net cash provided by financing activities of $27.9 million
for the six months ended June 30, 2001, resulted primarily from the private
placement of 2 million shares of common stock and borrowings under a loan
agreement.
As of June 30, 2002, our material purchase commitments, including usage of
telecommunication lines and data services, hardware support services,
equipment and software purchases, totaled $4.4 million.
We lease office facilities under various operating leases that expire through
2008. Total future minimum lease payments, net of sublease rental income,
under these leases amount to approximately $19.2 million.
We lease capital equipment under various capital lease obligations that
expire through 2003. Total future minimum lease payments amount to
approximately $1.4 million.
We borrow funds under a revolving credit line that expired on July 31, 2002.
As of June 30, 2002, we had borrowed $5.0 million under this arrangement and
$2.5 million remained available. We are currently renegotiating this
arrangement to maintain the availability of these funds.
We expect that existing cash resources will be sufficient to fund our
anticipated working capital and capital expenditure needs for at least the
next 12 months. We expect to experience positive cash flow 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.
Factors That May Affect Results
The risks and uncertainties described below are not the only ones we face.
To the extent any of the following risks actually materialize, our business,
financial condition or results of operations could be materially and
adversely affected.
WE INCURRED NET LOSSES IN 1998, 1999, 2000 AND 2001. WHILE WE REALIZED NET
EARNINGS IN THE FIRST AND SECOND QUARTERS OF 2002, THERE IS NO ASSURANCE THAT
WE WILL BE ABLE TO ACHIEVE THESE RESULTS IN THE FUTURE, AND WE MAY EXPERIENCE
NET LOSSES IN FUTURE QUARTERS.
As of June 30, 2002, we had an accumulated deficit of approximately $120.7
million. We reported net earnings of approximately $4.4 million for the six
months ended June 30, 2002 compared to net losses of approximately $20.0
million for the six months ended June 30, 2001. Our net earnings were
approximately 7% of revenue for the six months ended June 30, 2002. While we
realized net earnings in the first and second quarter of 2002, we may
experience net losses in future quarters. If we incur net losses in the
future, we may not be able to maintain or increase the number of our
employees, our investment in expanding our network services and application
platform or our sales, marketing and research and development programs in
accordance with our present plans, each of which is critical to our long-term
success.
BECAUSE OUR QUARTERLY RESULTS VARY AND ARE DIFFICULT TO PREDICT, WE MAY FAIL
TO MEET QUARTERLY FINANCIAL EXPECTATIONS, WHICH MAY CAUSE OUR STOCK PRICE TO
DECLINE.
We commenced operations in February 1995 and our business originally
consisted of consulting services. In early 1998, we licensed an interactive
communications product to a small number of customers. We began offering
WebEx Meeting Center in February 1999, our first real-time, interactive
multimedia communications service, and began selling this service to
customers and distribution partners. Because of our limited operating
history in providing services and other factors, our quarterly revenue and
operating results are difficult to predict. In addition, because of the
emerging nature of the market for web communications services, our quarterly
revenue and operating results may fluctuate from quarter to quarter. A
number of other factors could 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 pricing policies of our competitors; and
- - the growth rate of the market for web communications services.
Factors within our control include:
- - our ability to develop, enhance and maintain our network services and
application platform in a timely manner;
- - the mix of services we offer;
- - 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;
- - the announcement, introduction and market acceptance of new or enhanced
services or products by us; and
- - changes in our pricing policies.
If any of these factors impact our business in 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.
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 invest substantial financial and other resources on
developing and introducing new services, and expanding our sales and
marketing organization and network infrastructure. We base our 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 be adversely affected.
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.
Our customers do not have long-term obligations to purchase services from us.
Most of our subscription agreements have an initial term of three months.
Although automatically renewed unless terminated, our contracts can be
terminated on thirty days notice at the end of the initial term or any
renewal term. Over 95% of our customers have agreements with initial terms
of three to twelve months. For the quarter ended June 30, 2002, over 95% of
the contracts entered into in the quarter ended March 31, 2002 were renewed
beyond their initial term. We may terminate customers who have failed to pay
for our services. In addition, some customers may voluntarily discontinue
use of our services for a variety of reasons including 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, and the customer's decision to use
services or products offered by a competitor. We may not obtain a sufficient
number of additional customers to compensate for any customers that we may
lose. The loss of existing customers or our failure to obtain additional
customers would harm our business and operating results.
OUR BUSINESS AND OPERATING RESULTS MAY SUFFER IF WE FAIL TO ESTABLISH
DISTRIBUTION RELATIONSHIPS OR IF OUR DISTRIBUTION PARTNERS DO NOT
SUCCESSFULLY MARKET AND SELL OUR SERVICES.
To date, we have generated more than 90% of our revenue from direct sales to
customers. For the six months ended June 30, 2002, we had distribution
agreements in place with approximately 190 distribution partners. For the
six months ended June 30, 2002, we generated less than 10% of our revenue
from our distribution partners, which revenue consisted of initial set-up
fees, commitment payments, and service fees. The majority of the payments
received from our distribution partners have initially been recorded as
deferred revenue because we defer revenue related to initial set-up fees
received at the beginning of the relationship and record revenue from
subscription services over the course of the service period as the
distribution partner resells our services. We also do not recognize
commitment fees as revenue until the commitment fee is fully earned at the
end of the commitment period and paid. 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 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 may choose to devote insufficient resources to marketing and
supporting our services or to devote greater resources to marketing and
supporting the products and services of other companies. If we fail to
establish new distribution relationships in a timely manner or if our
distribution partners do not successfully distribute our services, our
ability to achieve market acceptance of our web communications services for
websites will suffer and our business and operating results will be harmed.
IF WE ARE NOT SUCCESSFUL IN DEVELOPING, DEPLOYING AND SELLING NEW SERVICES,
OUR OPERATING RESULTS MAY SUFFER.
Our WebEx Meeting Center service integrates data, audio and video to allow
end-users to participate in meetings online. Our WebEx Meeting Center service
accounted for more than 60% of our revenue for the six months ended June 30,
2002. Although we have recently experienced growth in sales of our newer
services, primarily our On Stage and Training Center services, these services
have been available only a short time and these newer services may not
provide significant revenue in the future. If we are not successful in
developing, deploying and selling new services, our operating results will
suffer.
IF OUR SERVICES FAIL TO FUNCTION WHEN USED BY LARGE NUMBERS OF PARTICIPANTS,
WE MAY LOSE CUSTOMERS AND OUR BUSINESS AND REPUTATION MAY BE HARMED.
Our strategy requires that our services be able to accommodate large numbers
of meetings at any one time. Our network monitoring measures the capacity of
our services by bandwidth use, and during the second quarter of 2002, our
average peak usage has been running at less than 50% of our capacity.
However, if we fail to increase our capacity consistent with our growth in
usage, it could impact system performance adversely. In addition, we may
encounter performance problems when making upgrades and modifications to our
network. If our services do not perform adequately, we may lose customers
and be unable to attract new customers and our operating results could
suffer.
OUR SALES CYCLE MAKES IT DIFFICULT TO PREDICT OUR QUARTERLY OPERATING
RESULTS.
We sometimes have a long sales cycle because of the need to educate potential
customers regarding the benefits of web communications services for websites.
Our sales cycle varies depending on the size and type of customer
contemplating a purchase. Potential customers frequently must obtain
approvals from multiple decision makers within their organizations and may
evaluate competing products and services prior to deciding to use our
services. Our sales cycle, which can range from several weeks to several
months or more, makes it difficult to predict the quarter in which use of our
services may begin.
THE EXISTENCE OF SIGNIFICANT EQUITY-BASED COMPENSATION WILL NEGATIVELY IMPACT
EARNINGS.
As of June 30, 2002, we had approximately $2.6 million in deferred equity-
based compensation. This will generally be expensed over a two-year period
and will result in a decrease in earnings or an increase in losses. We
expect the amount of equity-based compensation expense to decrease over time
as a result of the vesting of options granted prior to our initial public
offering. However, the amount of future equity-based compensation expense
related to the unvested portion of option grants to non-employees will
fluctuate with the stock price and accordingly the amount of future equity-
based compensation expense is difficult to predict. In 1999 and 2000, we
granted stock options at exercise prices significantly lower than the deemed
fair value, which has contributed to our equity-based compensation expense.
Congress is currently reviewing various proposals that would change the way
stock options are reported by public companies. If there is a change in the
law that would require us to report stock options for employees as an
expense, our net income would be negatively impacted.
IF OUR BRANDING AND MARKETING 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 interactive communications
services. Our marketing, advertising campaigns and other branding efforts
may not be successful or consumers may not find our marketing efforts
compelling. If our marketing efforts are not successful, our business and
operating results will be harmed.
WE RELY ON RELATED COMPANIES IN CHINA WHICH EXPOSES US TO RISKS OF ECONOMIC
INSTABILITY IN CHINA AND RISKS RELATED TO POLITICAL TENSION BETWEEN CHINA AND
THE UNITED STATES.
We currently rely on three related companies located in China, WebEx Haifei,
WebEx Suzhou, and WebEx Hangzhou, to conduct quality assurance testing and
software development activities. These companies are owned by the spouse of
Min Zhu, one of our executive officers. Mr. Zhu has represented and we
believe that neither Mr. Zhu nor his wife receive any compensation or income
from these companies in the form of salaries, bonuses, dividends, profits or
otherwise. We have contracts with these companies under which they perform
development projects, assign ownership of the work performed to us, and
invoice us for services rendered based on a monthly fee per employee working
on WebEx projects. Most of the personnel who conduct these activities are
contract engineers to these companies. Although our transactions with these
companies are approved by our disinterested directors, because these
companies are owned by the spouse of one of our executive officers, there may
be a perception that the terms of those arrangements are influenced by that
relationship. Our reliance on independent contractors located in China for
quality assurance and software development activities exposes us to a variety
of economic and political risks including but not limited to, trade
restrictions, tariffs and travel restrictions. The loss of these
arrangements may cause our costs to increase. In addition, current 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.
WE COULD INCUR UNEXPECTED COSTS RESULTING FROM CLAIMS FOR DAMAGES RELATING TO
USE OF OUR SERVICES.
Many of the business interactions supported by our services are critical to
our customers' businesses. Any failure in a customer's business interaction
or other communications activity 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.
OUR CUSTOMERS AND END-USERS MAY USE OUR SERVICES TO SHARE CONFIDENTIAL AND
SENSITIVE INFORMATION AND IF OUR SYSTEM SECURITY IS BREACHED, OUR REPUTATION
COULD BE HARMED AND WE MAY LOSE CUSTOMERS.
Our customers and end-users may use our services to share confidential and
sensitive information, the security of which is critical to their business.
Third parties may attempt to breach our security or that of our customers.
Customers may assert claims against us for any breach in security and any
breach could harm our reputation and cause us to lose customers. In
addition, computers are vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions, which could lead to
interruptions, delays or loss of data. 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.
THE SOFTWARE UNDERLYING OUR SERVICES IS COMPLEX AND OUR BUSINESS AND
REPUTATION COULD SUFFER IF OUR SERVICES FAIL TO PERFORM PROPERLY DUE TO
UNDETECTED ERRORS OR SIMILAR PROBLEMS WITH OUR UNDERLYING SOFTWARE.
Complex software, such as the software underlying our services, often
contains undetected errors. We may be forced to delay commercial release of
our services until problems are corrected and, in some cases, may need to
implement enhancements to correct errors that we do not detect until after
deployment of our services. If we do detect an error 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 address 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 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 who use a wide variety of
constantly changing hardware and software applications and networking
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
software and font rendering 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. This in turn could 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, 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 personnel increased from 461 employees at June 30, 2001 to 571
at June 30, 2002, and we expect continued increases in our personnel in the
second half of 2002. Our expansion has placed, and we expect that it will
continue to place, a significant strain on our management, operational and
financial resources. Any failure by us to manage our growth effectively
could disrupt our operations or delay execution of our business plan and
could consequently harm our business.
IF WE LOSE THE SERVICES OF SUBRAH S. IYAR, OUR CHIEF EXECUTIVE OFFICER, OR
MIN ZHU, OUR PRESIDENT AND CHIEF TECHNICAL OFFICER, OUR BUSINESS MAY BE
HARMED.
Our success will depend on our senior executives. In particular, the loss of
the services of our Chief Executive Officer and co-founder, Subrah S. Iyar,
or our President, Chief Technical Officer and co-founder, Min Zhu, would harm
our business. We do not have long-term employment agreements with or life
insurance policies on any of our senior management.
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 hired approximately 200 people
during the 12 months ended June 30, 2002, and we expect to continue to
increase our personnel throughout the remainder of 2002. In the past, we have
had difficulty hiring qualified personnel as quickly as we have desired. In
particular, we have had difficulty hiring a sufficient number of qualified
technical, development and support personnel. Although economic conditions in
2001 and the first half of 2002 have made hiring of personnel easier, we do
not know what future labor market conditions will be. If we encounter
difficulty hiring, integrating and retaining a sufficient number of qualified
personnel in the future, the quality of our services may be adversely
affected. If we fail to retain and recruit necessary sales, technical,
marketing or other personnel, our ability to develop new services, to sell
our services, and to provide a high level of customer service, and
consequently our business, could suffer. In addition, if we hire employees
from our competitors, these competitors may claim that we have engaged in
unfair hiring practices. We could incur substantial costs in defending
ourselves against any of these claims, regardless of their merits.
INTERRUPTIONS IN EITHER OUR INTERNAL OR OUTSOURCED COMPUTER AND
COMMUNICATIONS SYSTEMS COULD REDUCE OUR ABILITY TO PROVIDE OUR SERVICES AND
COULD HARM OUR BUSINESS AND REPUTATION.
The success of our web communications services for websites depends on the
efficient and uninterrupted operation of our internal and outsourced computer
and communications hardware and software systems. Any system failure that
causes an interruption in our interactive communications services or a
decrease in their performance could harm our relationships with our customers
and distribution partners. In this regard, some of our communications
hardware and software are hosted at third-party co-location facilities. These
systems and operations are vulnerable to damage or interruption from human
error, telecommunications failures, physical or remote break-ins, sabotage,
computer viruses and intentional acts of vandalism. In addition, third party
co-location facilities may discontinue their operations due to poor business
performance. Because a substantial part of our central computer and
communications hardware and network operations are located in the San
Francisco Bay Area, an earthquake or other natural disaster could impair the
performance of our entire network. In the event of damage to or interruption
of our internal or outsourced systems, our efforts to implement our disaster
recovery plans or restore our services to normal levels in a timely manner
are not successful, our business would be adversely affected. In addition,
business interruption insurance may not adequately compensate us for losses
that may occur.
CLAIMS MAY BE ASSERTED AGAINST US FOR CONTENT OR INFORMATION TRANSMITTED
THROUGH OUR WEB 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. Any imposition of liability could harm our reputation and our
business and operating results, or could result in the imposition of criminal
penalties.
OUR SUCCESS DEPENDS UPON THE PATENT PROTECTION OF OUR SOFTWARE AND
TECHNOLOGY.
Our success and ability to compete depend to a significant degree upon the
protection of our underlying software and our proprietary technology through
patents. We regard the protection of patentable inventions as important to
our future opportunities. We currently have three issued patents in the areas
of peer-to-peer connections to facilitate conferencing, document annotation
and optimizing data transfer and 23 patent applications pending in the United
States and we may seek additional patents in the future. These 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;
- - 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 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: ActiveTouch, WebEx (word and design), WebEx bifurcated ball design,
WebEx power button design, WebEx.com, Bringing the Meeting to You, MediaTone,
Meeting Center, WebEx Meeting Center, WebEx sound mark, Meeting-Enable Your
Web Site, We've Got To Start Meeting Like This, Powering Real Time Business
Meetings, and One Button, Infinite Power. 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 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 may be
unavailable or limited in foreign countries;
- - other companies may claim common law trademark rights based upon state or
foreign laws that precede the federal registration of our marks; and
- - policing unauthorized use of our services and trademarks is difficult,
expensive and time-consuming, and we may be unable to determine the
extent of any unauthorized use.
Reverse engineering, unauthorized copying or other misappropriation of our
proprietary technology could enable third parties to benefit from our
technology without paying us for it, which would significantly harm our
business.
WE MAY FACE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT COULD BE COSTLY TO
DEFEND AND RESULT IN OUR LOSS OF SIGNIFICANT RIGHTS.
We may be subject to legal proceedings and claims, including claims of alleged
infringement of the copyrights, trademarks and patents of third parties. Our
services may infringe issued patents. In addition, because the contents of
patent applications in the United States are not publicly disclosed until the
patent is issued, we may be unaware of filed patent applications relating to
our services. From time to time we receive notices alleging that we infringe
intellectual property rights of third parties. In such cases, we typically
investigate and respond to the allegations. We are currently not aware of any
such allegations that we believe represent a risk of material liability to the
company. In addition, in July 2002, a complaint was filed by Eric Hamilton in
the U.S. District Court for the District of Maryland against us and several
other companies alleging that our and the other defendants' products and
services infringe the plaintiff's patent. We believe that the plaintiff's
claims are not valid and we have meritorious defenses to these claims and we
intend to defend ourselves vigorously against these allegations. However,
there can be no assurance that we will be successful in the defense of this
action and we cannot reasonably estimate the possible range of any loss that
might result from this suit due to uncertainty regarding its outcome.
Moreover, 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 OR HARM OUR OPERATING RESULTS.
We may acquire or invest in complementary businesses, technologies or
services. We invested $1 million in Tonbu, Inc., a privately held
distribution partner, in January 2001. We wrote-down $750,000 of this
investment in the three months ended September 30, 2001, wrote-down an
additional $125,000 in the three months ended March 31, 2002, and wrote-down
the remaining $125,000 in the three months ended June 30, 2002. As of June
30, 2002, we had no other specific agreements or commitments with respect to
any acquisitions or investments. Integrating any newly acquired businesses,
technologies or services may be expensive and time-consuming. To finance any
acquisitions, it may be necessary for us 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, may result in
dilution to our stockholders. We may be unable to complete any acquisitions
or investments on commercially reasonable terms, if at all. Even if
completed, we may be unable to operate any acquired businesses profitably or
successfully integrate the employees, technology, products or services of any
acquired businesses into our existing business. If we are unable to integrate
any newly acquired entities or technologies effectively, our operating
results could suffer. Future acquisitions by us could also result in large
and immediate write-downs, or incurrence of debt and contingent liabilities,
any of which could harm our operating results.
WE MUST COMPETE SUCCESSFULLY IN THE INTERACTIVE COMMUNICATIONS SERVICES
MARKET.
The market for interactive 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 interactive communications services. For example,
we compete with providers of traditional communications technologies such as
teleconferencing and videoconferencing, applications software and tools
companies, and web conferencing services, such as Centra Software, Genesys,
Raindance, IBM/Lotus (SameTime), Microsoft (NetMeeting) and Placeware. Other
software vendors, such as Oracle, have announced the availability of
competitive offerings. Other companies could choose to extend their products
and services to include interactive communications 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 maybe able to
respond more quickly to new or emerging technologies and changes in customer
requirements. In addition, current and potential competitors have
established, and may in the future establish, cooperative relationships with
third parties and with each other to increase the availability of their
products and services to the marketplace. Competitive pressures could reduce
our market share or require us to reduce the price of our services, either of
which could harm our business and operating results.
OUR FUTURE SUCCESS DEPENDS ON THE BROAD MARKET ADOPTION AND ACCEPTANCE OF
INTERACTIVE WEB COMMUNICATIONS SERVICES.
The market for interactive web communications services is relatively new and
rapidly evolving. Market demand for communications services over the Web is
uncertain. If the market for interactive communications services does not
grow, our business and operating results will be harmed. Factors that might
influence market acceptance of our services include the following, all of
which are beyond our control:
- - willingness of businesses and end-users to use interactive web
communications services;
- - the growth of the Web and commercial on-line services;
- - the willingness of our distribution partners to integrate interactive web
communications 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, for providing reliable Internet access
and services. Because global commerce on the Web and the on-line exchange of
information is new and evolving, we cannot predict whether the Web will
continue to be a viable commercial marketplace over the long term. The
success of our business will rely on the continued improvement of the Web as
a convenient 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 suffer.
MANY OF OUR CUSTOMERS AND DISTRIBUTION PARTNERS ARE HIGH TECHNOLOGY COMPANIES
OR IN THE INTERNET INDUSTRY WHICH MAY FACE FINANCIAL PROBLEMS IN A SLOWING OR
DOWN ECONOMY.
Economic growth has been slow and future economic conditions in the United
States and internationally are uncertain. In addition, the recent terrorists
attacks in the United States, the threat of such attacks in the future, and
the unstable conditions in the Middle East and elsewhere may further weaken
the economy in the United States and internationally. In particular, some of
the companies that buy or resell or that are likely to buy or resell our
services are high technology companies or are in the Internet industry which
may face financial problems related to economic conditions or other factors.
If economic conditions deteriorate as a result of economic, political or
social turmoil, 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 POWER BLACKOUTS AND HIGHER ELECTRICITY PRICES AS A RESULT
OF ENERGY SHORTAGES OR ELECTRICAL SYSTEM FAILURES, WHICH COULD DISRUPT OUR
OPERATIONS AND INCREASE OUR EXPENSES.
In 2001, California experienced increased energy prices, energy shortages,
and blackouts. We rely on the major Northern California public utility,
Pacific Gas & Electric Company, or PG&E, to supply electric power to our
headquarters in Northern California. PG&E has filed for protection under
Chapter 11 of the Bankruptcy Act. If power outages or energy price increases
occur in the future in 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.
OUR STOCK PRICE HAS BEEN AND WILL LIKELY CONTINUE TO BE VOLATILE, AND YOU MAY
BE UNABLE TO RESELL YOUR SHARES AT OR ABOVE THE PRICE YOU PAID.
Our stock price has been and is likely to continue to be highly volatile. For
example, between January 1, 2002 and June 30, 2002, our stock price has
traded as high as $29.12 on January 4, 2002, and as low as $11.30 on February
28, 2002. 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 about us or about our competitors, including technological
innovation or new products or services;
- - litigation and other developments relating to our patents or other
proprietary rights or those of our competitors;
- - conditions in the Internet industry;
- - governmental regulation and legislation; 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, have not only experienced extreme price
and volume fluctuations recently but have experienced significant declines.
These fluctuations and declines in some instances 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 object of securities class action litigation. If we were the object
of securities class action litigation, it could result in substantial costs
and a diversion of management's attention and resources, which could affect
our financial performance.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Risk. We sell a limited amount of our services outside the
United States. These services are generally priced in the local currency. As
a result, our financial results could be affected by factors such as changes
in foreign currency exchange rates or weak economic conditions in foreign
markets. 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. To date, we have not used derivative
instruments to manage foreign currency risks.
Interest Rate Risk. We do not use derivative financial instruments or market
risk sensitive instruments. Instead, we invest in highly liquid investments
such as money market funds with maturities of less than three months at date
of purchase, available for sale commercial paper and government agency
securities with maturities of nine months or less at date of purchase.
Accordingly, we do not expect any material loss from these investments and
believe that our potential interest rate exposure is not material.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In July 2002, a lawsuit was filed by Eric Hamilton, an individual, in U.S.
District Court for the District of Maryland alleging infringement of U.S.
patent number 5,176,520 (the "Hamilton Patent") against us and several other
companies. We have not yet been served in connection with the action. The
complaint alleges that the defendants, including WebEx, manufacture, market
and sell products and services that infringe several claims of the Hamilton
Patent. The complaint seeks injunctive relief, damages, treble damages for
alleged willful infringement, and costs and attorneys fees. We believe that
the plaintiff's claims are not valid and we have meritorious defenses to
these claims, and we intend to defend ourselves vigorously against the
allegations made in the complaint. However, there can be no assurance that
we will be successful in the defense of this suit and we cannot reasonably
estimate the possible range of any loss that might result from this suit due
to uncertainty regarding its outcome.
Item 4. Submission of matters to a vote of security holders
On May 15, 2002, we held our annual stockholders' meeting at our
headquarters, 307 West Tasman Drive, San Jose, CA 95134. At such meeting,
the following actions were voted upon:
(a) The following individuals were elected to the board of directors to
serve a three year term expiring at WebEx's 2005 annual meeting of
stockholder or until their successors have been elected and
qualified:
The Votes for The Votes Withheld
Director each Director from each Director
--------------------------------------------------------------
Jan Baan 27,463,579 106,246
Anthony Muller 27,447,225 122,600
Mark Leslie 27,447,325 122,500
(b) To ratify the appointment of KPMG LLP as WebEx's independent public
accountants for the period ending December 31, 2002:
Votes For Votes Against Abstain
--------------------------------------------------------------
26,337,690 469,622 3,878
Item 5. Other Information
As of July 1, 2002, the following executive officers and members of the
Company's Board of Directors maintained "plans" under Rule 10b5-1 of the
Securities Exchange Act of 1934, as amended, for trading in shares of the
Company's common stock and/or exchangeable shares:
Subrah Iyar
Min Zhu
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit
Number Description
-------- ----------------------------------------------------
3.1* Amended and Restated Certificate of Incorporation
3.2** Amended and Restated Bylaws
4.1* Form of Common Stock Certificate
99.1 Certification of the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350
99.2 Certification of the Chief Financial Officer Pursuant to 18
U.S.C. Section 1350
- -------------
* 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.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended June 30,
2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEBEX COMMUNICATIONS, INC.
Date: August 14, 2002 By: /s/ CRAIG KLOSTERMAN
-------------------------------
Craig Klosterman
Chief Financial Officer
(Duly Authorized Officer,
Principal Financial and
Principal Accounting Officer)
EXHIBIT INDEX
Exhibit
Number Description
-------- ----------------------------------------------------
3.1* Amended and Restated Certificate of Incorporation
3.2** Amended and Restated Bylaws
4.1* Form of Common Stock Certificate
99.1 Certification of the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350
99.2 Certification of the Chief Financial Officer Pursuant to 18
U.S.C. Section 1350
- -------------
* 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.