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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ ]
On May 1, 2003, 41,209,600 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
MARCH 31, 2003
TABLE OF CONTENTS
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Unaudited Condensed Consolidated Balance Sheets at
March 31, 2003 and December 31, 2002 3
Unaudited Condensed Consolidated Statements of
Operations for the three months ended March 31,
2003 and 2002 4
Unaudited Condensed Consolidated Statements of Cash
Flows for the three months ended March 31, 2003
and 2002 5
Notes to Unaudited Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 24
Item 4. Controls and Procedures 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 27
Certifications 28
Exhibit Index 30
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WEBEX COMMUNICATIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
March 31, December 31,
2003 2002
------------ ------------
Current assets:
Cash and cash equivalents $ 39,874 $ 32,597
Short-term investments 42,895 36,355
Accounts receivable, net of allowances of
$7,286 and $7,332, respectively 19,110 19,465
Prepaid expenses and other current assets 2,862 2,694
------------ ------------
Total current assets 104,741 91,111
Property and equipment, net 19,301 21,563
Other non-current assets 1,595 1,650
------------ ------------
Total assets $125,637 $114,324
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LIABILITES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,927 $ 7,879
Accrued liabilities 12,634 9,102
Deferred revenue 9,339 8,734
Current portion of capital lease obligation 235 489
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Total liabilities 30,135 26,204
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock 41 41
Additional paid-in capital 197,603 197,115
Deferred equity-based compensation (648) (1,092)
Accumulated other comprehensive income 948 781
Accumulated deficit (102,442) (108,725)
------------ ------------
Total stockholders' equity 95,502 88,120
------------ ------------
Total liabilities and stockholders' equity $125,637 $114,324
============ ============
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
---------------------------
March 31, March 31,
2003 2002
------------ ------------
Net revenue $41,808 $29,569
Cost of revenue 7,406 6,014
------------ ------------
Gross profit 34,402 23,555
Operating expenses:
Sales and marketing 18,396 13,235
Research and development 6,058 5,224
General and administrative 2,802 3,307
Equity-based compensation* 319 622
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Total operating expenses 27,575 22,388
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Operating income 6,827 1,167
Interest and other income (expense), net 396 (2)
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Net income before income tax 7,223 1,165
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Provision for income tax 940 35
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Net income $ 6,283 $ 1,130
============ ============
Net income per share:
Basic $ 0.15 $ 0.03
Diluted 0.15 0.03
Shares used in per share calculations:
Basic 40,800 38,976
Diluted 42,246 42,649
*Equity-based compensation:
Sales and marketing $ 99 $ 198
Research and development 107 125
General and administrative 113 299
------------ ------------
$ 319 $ 622
============ ============
See accompanying notes to unaudited condensed consolidated financial
statements.
WEBEX COMMUNICATIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
---------------------------
March 31, March 31,
2003 2002
------------ ------------
Cash flows from operating activities:
Net income $ 6,283 $ 1,130
Adjustments to reconcile net income to net
cash provided by operating activities:
Provisions for doubtful accounts and
sales allowance 2,311 4,267
Depreciation and amortization 3,190 2,901
Other than temporary declines in equity
Investments -- 125
Equity-based compensation 319 622
Changes in operating assets and liabilities:
Accounts receivable (1,956) (5,157)
Prepaid expenses and other current assets (168) 830
Other non-current assets 43 (8)
Accounts payable 48 (67)
Accrued liabilities 3,532 799
Deferred revenue 605 (14)
Other 167 11
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Net cash provided by operating activities 14,374 5,439
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Cash flows from investing activities:
Payments from related party 45 1,100
Refund (payments) of security deposits 8 (203)
Purchases of property and equipment (724) (1,932)
Related party asset acquisition (199) --
Net short-term investments activity (6,540) --
------------ ------------
Net cash used in investing activities (7,410) (1,035)
------------ ------------
Cash flows from financing activities:
Net proceeds from issuances of common stock 573 1,194
Repurchase of restricted stock (6) --
Principal payments on capital lease obligation (254) (476)
Borrowings under debt agreement -- 5,500
Repayments under debt agreement -- (5,500)
------------ ------------
Net cash provided by financing activities 313 718
------------ ------------
Net change in cash and cash equivalents 7,277 5,122
Cash and cash equivalents at beginning of the period 32,597 42,146
------------ ------------
Cash and cash equivalents at end of the period $39,874 $47,268
============ ============
Supplemental disclosures of non-cash investing and financing activities:
Decrease in deferred equity-based compensation $ (68) $ (864)
============ ============
Unrealized gain on investments $ 182 --
============ ============
Cash paid for:
Interest $ 25 $ 7
============ ============
See accompanying notes to unaudited condensed consolidated financial
statements.
WEBEX COMMUNICATIONS, INC.
March 31, 2003 and 2002
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 in conjunction with the Company's audited
consolidated financial statements and notes thereto as of and for the year
ended December 31, 2002, included in the Company's Form 10-K filed with the
Securities and Exchange Commission on March 27, 2003.
The results of operations for the three months ended March 31, 2003 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2003 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 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, 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 subscription services revenue,
WebEx derives revenue from pay-per-use services and telephony charges that 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. 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.
WebEx contracts directly with the distribution partner and revenue is
recognized based on amounts charged to the distribution partner.
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 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 end of the commitment period and paid by the reseller.
Deferred revenue includes amounts billed to customers for which revenue has not
been recognized that generally results from the following: (1) unearned portion
of monthly billed subscription service fees; (2) deferred subscription and
distribution partner set-up fees; and (3) advances received from distribution
partners under revenue sharing arrangements.
3. Sales Reserves and Allowance for Doubtful Accounts
WebEx records an estimate of sales reserve for losses on receivables resulting
from customer credits, cancellations and 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 and terminations. Increases to sales
reserve are charged to revenue. The accuracy of the estimate is dependent on
the rate of future credits, cancellations and terminations being consistent
with the historical rate. WebEx records an allowance for doubtful accounts to
provide for losses on 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 quarter ended March 31, 2003 and 2002:
March 31,
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2003 2002
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Balance at beginning of quarter $7,332 $6,825
Sales reserve
Deducted from revenue 1,678 2,867
Amounts written off (1,917) (3,066)
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(239) (199)
Allowance for doubtful accounts
Charged to bad debt expense 633 1,400
Amounts written off (440) (1,181)
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193 219
Balance at end of quarter $7,286 $6,845
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4. Net Income Per Share
Basic net income per common share is computed using the weighted-average number
of common shares outstanding for the period excluding restricted common shares
subject to repurchase. Diluted net income per common share reflects the
dilution of restricted common stock subject to repurchase and incremental
shares of common stock issuable upon the exercise of stock options computed
using the treasury stock method.
The following table sets forth the computation of basic and diluted net income
per common share for the three months ended March 31, 2003 and 2002:
March 31,
----------------------
2003 2002
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Numerator:
Net income $ 6,283 $ 1,130
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Denominator:
Denominator for basic net income
per common share 40,800 38,976
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Effect of dilutive securities:
Weighted-average restricted shares
subject to repurchase 249 1,145
Weighted-average options outstanding 1,197 2,528
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Denominator for diluted net income per
common share 42,246 42,649
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Basic net income per common share $ 0.15 $ 0.03
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Diluted net income per common share $ 0.15 $ 0.03
========== ==========
The following potential common shares have been excluded from the computation
of diluted net loss per share for the three months ended March 31, 2003 and
2002 because their inclusion would have been antidilutive:
March 31,
----------------------
2003 2002
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Shares issuable under stock options 6,371 2,727
The exercise price of antidilutive stock options outstanding as of March 31,
2003 range from $12.37 to $55.38 and as of March 31, 2002 the range was from
$19.13 to $55.38.
5. Comprehensive Income
Comprehensive income includes net income and foreign currency translation
adjustments as follows:
Three Months Ended
---------------------------
March 31, March 31,
2003 2002
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Net income $6,283 $1,130
Foreign currency translation adjustments 167 10
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$6,450 $1,140
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6. Related Party Transactions
WebEx historically contracted for engineering services with three companies in
China owned by our President and Chief Technical Officer, who is also a major
stockholder, and his spouse. WebEx contracted with these companies to perform
development projects, assign ownership of the work performed to WebEx, and
invoiced WebEx for services rendered based on a monthly fee per employee
working on WebEx projects. These companies provided a significant amount of
quality assurance testing and software development activities for WebEx.
Research and development expenses for engineering services pursuant to these
arrangements for the three-month period ending March 31, 2003 and March 31,
2002 were $300 and $750, respectively.
In February 2003, WebEx completed the purchase of substantially all the assets
of these companies, consisting primarily of computers and equipment for cash of
$199. The purchase price of the assets was based on the fair value of the
assets as determined by an independent appraisal. In addition, WebEx hired a
majority of the employees and contractors of these affiliates to continue to
provide engineering services as employees of WebEx. The purchase price was
allocated to the tangible assets acquired.
In April 2000, WebEx loaned $3,600 to its CEO. The loan had a term of two years
accrued interest at a rate of 6.5% per annum, and the loan was secured by the
personal residence of the CEO and 1,000,000 shares of WebEx stock. The CEO
paid the remaining principal and outstanding interest on March 26, 2002 and the
loan was retired.
7. Equity-Based Compensation
The Company accounts for stock awards to employees and directors in accordance
with the intrinsic value method of Accounting Principles Board Opinion No. 25
(APB 25), Accounting for Stock Issued to Employees, and related
interpretations. Under this method, compensation expense for fixed plan stock
options is recorded on the date of the grant only if the current fair value of
the underlying stock exceeds the exercise price. Deferred stock-based
compensation is amortized over the vesting period using the method described in
FASB Interpretation No. 28 (FIN 28).
The Company accounts for stock awards to non-employees in accordance with the
provisions of SFAS 123, Accounting for stock-based compensation, and Emerging
Issues Task Force (EITF) Issue No. 96-18, Accounting for Equity Instruments
That are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling Goods or Services. The equity-based compensation expense for options
granted to non-employees is re-measured for changes in their fair value until
the underlying options vest.
Had all awards been accounted for under the fair value method of SFAS 123,
reported net income would have been adjusted to the pro-forma net loss amounts
appearing below.
March 31,
----------------------
2003 2002
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Net income as reported $6,283 $1,130
Add Back: Stock-based compensation included
in determination of net income 319 622
Deduct: Stock-based compensation including
employees determined under the fair-value
based method (8,085) (8,346)
Pro-forma net loss as if the fair value based
method had been applied to all awards ($1,483) ($6,594)
Pro-forma basic and diluted net loss per share
as if the fair value based method had been
applied to all awards ($0.04) ($0.17)
8. Commitments and Contingencies
At March 31, 2003, WebEx has material purchase commitments, including usage of
telecommunication lines and data services, equipment and software purchases and
construction of leasehold improvements at new leased facilities, of $7,275
million. The majority of the purchase commitments are expected to be settled
in cash within 12 months with the longest commitment expiring August 2007.
WebEx leases office facilities under various operating leases that expire
through 2008. Total future minimum lease payments under these leases amount to
approximately $17,751.
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. In March 2003, we entered into a settlement agreement with the
plaintiff pursuant to which the plaintiff released us from all claims asserted
in the lawsuit and agreed to dismiss the lawsuit with prejudice.
9. Significant Customer Information and Segment Reporting
SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information, establishes standards for the reporting by business enterprises of
information about operating segments, products and services, geographic areas,
and major customers. The method for determining what information to report is
based on the way that management organizes the operating segments within WebEx
for making operational decisions and assessments of financial performance.
WebEx's chief operating decision-maker is considered to be the chief executive
officer (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.
10. Recent Accounting Pronouncements
In August 2001, Statement of Financial Accounting Standards No. 143, Accounting
for Asset Retirement Obligations ("SFAS 143") was issued. SFAS No. 143
addresses financial accounting and reporting for obligations associated with
retirement of tangible long-lived assets and the associated retirement costs.
SFAS 143 is effective for the Company beginning in 2003 and the adoption of
this statement did not have a material effect on the Company's financial
position, results of operations or cash flows.
In June 2002, Statement of Financial Accounting Standards No. 146, Accounting
for Costs Associated with Exit or Disposal Activities, ("SFAS 146") was
issued. This statement provides guidance on the recognition and measurement of
liabilities associated with disposal activities and was effective on January 1,
2003. Under SFAS 146, companies will record the fair value of exit or disposal
costs when they are incurred rather than at the date of a commitment to an exit
or disposal plan. The Company adopted SFAS 146 on January 1, 2003, and the
adoption did not have a material effect on the Company's financial position,
results of operations or cash flows.
In December 2002, Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation -Transition and Disclosure, ("SFAS
148") was issued. SFAS 148 amends Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation, ("SFAS 123") to provide
alternative methods of transition for a voluntary change to the fair value
method of accounting for stock-based employee compensation. In addition, SFAS
148 amends the disclosure requirements of SFAS 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on the reported results. The provisions of SFAS 148 are effective for
financial statements for fiscal years ending after December 15, 2002 and
interim periods beginning after December 15, 2002. The adoption of the
disclosure requirements of this statement did not impact the Company's
financial position, results of operations or cash flows.
In December 2002, the Emerging Issues Task Force reached a consensus on Issue
No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables (EITF
Issue 00-21). EITF Issue 00-21 mandates how to identify whether goods or
services or both that are to be delivered separately in a bundled sales
arrangement should be accounted for as separate units of accounting. The
consensus is effective prospectively for the Company's third quarter of 2003.
The Company has not yet determined the impact this new standard will have on
its consolidated results of operations, cash flows or financial position, if
any.
In January 2003, the Financial Accounting Standards Board issued Interpretation
No. 46, Consolidation of Variable Interest Entities, ("FIN 46"). The
interpretation provides guidance for determining when a primary beneficiary
should consolidate a variable interest entity or equivalent structure, that
functions to support the activities of the primary beneficiary. The
interpretation is effective as of the beginning of the first interim or annual
reporting period beginning after June 15, 2003 for variable interest entities
created before February 1, 2003. The adoption of this statement is not expected
to impact the Company's financial position, results of operations or cash
flows.
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 achieve profitable operations in 2003, our ability to meet the more-
likely-than-not criteria for recognition of deferred tax assets and reduce the
deferred tax valuation allowance, expected expenses including those related to
sales and marketing, research and development and general and administrative,
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, 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. 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, 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, 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.
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, and our business at that time was
focused on licensing software to end-users. 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. With WebEx Meeting Center, our business focus became providing
customers and distribution partners access to our hosted services under
subscription and other service arrangements, and we discontinued licensing
software to end-users. 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 Services and our WebEx Multimedia Switching
Platform, developing and deploying new services, expanding our sales and
marketing organizations, and deploying our global WebEx Media Tone Network. We
currently sell the following services: WebEx Meeting Center, WebEx Meeting
Center Pro, WebEx Training Center, WebEx Support Center, WebEx OnStage and
WebEx Enterprise Edition. In addition, we currently provide to existing
customers, though no longer offer for sale generally, a service called WebEx
Business Exchange.
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 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. 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 that 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 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, 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. We contract directly with the distribution
partner, 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 sold by the reseller to an end-user
customer or until the end of the commitment period and forfeited by the
reseller.
Sales Reserve. An estimate of the sales reserve for losses on receivables
resulting from customer credits, cancellations and terminations is recorded as
a reduction in revenue at the time of the sale. The sales reserve is estimated
based on an analysis of the historical rate of credits, cancellations and
terminations. The accuracy of the estimate is dependent on the rate of future
credits, cancellations and terminations being consistent with the historical
rate. If the rate of actual credits, cancellations and terminations is
different than the historical rate, revenue would be different from what was
reported.
Allowance for Doubtful Accounts. We record an allowance for doubtful
accounts to provide for losses on accounts receivable due to customer credit
risk. Increases to the allowance for doubtful accounts are charged to general
and administrative expense as bad debt expense. Losses on accounts receivable
due to financial distress or failure of the customer are charged to the
allowance for doubtful accounts. The allowance 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 different than the
historical rate, bad debt expense would be different from what was reported in
general and administrative expenses.
Results of Operations
The following table sets forth, for the periods indicated, the statements of
operations data as a percentage of net revenue.
Three Months Ended
---------------------------
March 31, March 31,
2003 2002
------------ ------------
Net revenue 100% 100%
Cost of revenue 18 20
------------ ------------
Gross profit 82 80
Operating expenses:
Sales and marketing 44 45
Research and development 14 18
General and administrative 7 11
Equity-based compensation 1 2
------------ ------------
Total operating expenses 66 76
------------ ------------
Operating income 16 4
Interest and other income (expense), net 1 (0)
------------ ------------
Net income before income tax 17 4
------------ ------------
Provision for income tax 2 0
------------ ------------
Net income 15% 4%
============ ============
Net revenue. Net revenue increased $12.2 million to $41.8 million for the three
months ended March 31, 2003 from $29.6 million for the three months ended March
31, 2002, representing a 41% increase from 2002 to 2003. This increase was
primarily due to growth in our domestic and international subscribing customer
base and increased usage of existing and new products.
Cost of revenue. Our cost of revenue consists primarily of costs related to
user set-up, network and data center operations, technical support and training
activities, including Internet access and telephony communication costs,
personnel, licensed software and equipment costs and depreciation. Cost of
revenue increased $1.4 million to $7.4 million for the three months ended March
31, 2003 from $6.0 million for the three months ended March 31, 2002. As a
percent of revenue, cost of revenue decreased from 20% in 2002 to 18% in 2003.
The increase in absolute dollars for the three months ended March 31, 2003 was
primarily due to increases in the costs for delivering existing and new
services to more customers domestically and internationally, additional
technical staff to support our installed base of customers, and expanding and
improving our worldwide network. The decrease in the cost of revenue as a
percentage of revenue was primarily due to cost efficiency gained as a result
of spreading existing cost over incremental customers.
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 $5.2 million to $18.4 million for the three
months ended March 31, 2003 from $13.2 million for the three months ended March
31, 2002. This increase was primarily the result of increased spending on
sales and support personnel and commission expenses associated with our
increased sales volume and spending on advertising and marketing related
programs to build brand awareness and generate leads for our sales force.
Research and development. Our research and development expense consists
primarily of salaries and other personnel-related expenses, and depreciation of
equipment and supplies. Research and development expense increased $0.9
million to $6.1 million for the three months ended March 31, 2003 from $5.2
million for the three months ended March 31, 2002. This increase was
primarily related to personnel and equipment related expenses resulting from an
increase in headcount to develop and support existing and new products.
During the first quarter of 2003, we transitioned the cost of development
activities conducted in China from contract-based to employee based.
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 decreased $0.5 million to $2.8
million for the three months ended March 31, 2003 from $3.3 million for the
three months ended March 31, 2002. This decrease was primarily due to the
reduction in bad debt expenses offset by increased spending on employee related
expenses. Bad debt expense decreased $0.8 million to $0.6 million in the
three months ended March 31, 2003 from $1.4 million in the three months ended
March 31, 2002. This decrease was due to calculated potential future credit
losses based on historical losses.
Equity-based compensation. Our equity-based compensation expense represents the
amortization of deferred equity-based compensation over the vesting period of
options granted to employees and expenses related to issuance of 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 $0.3 million to $0.3 million for the three
months ended March 31, 2003 from $0.6 million for the three months ended March
31, 2002. This decrease was due the vesting of options granted and
forfeitures related to 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. 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 (expense), net. Interest and other income (expense),
net is comprised of net investment income, interest income and expense, and
other expenses. Interest and other income (expense), net increased $0.4
million to $0.4 million for the three months ended March 31, 2003 from ($0.0)
million for the three months ended March 31, 2002. This increase was primarily
due to interest earned on a higher cash balance in 2003 and the recognition of
a $0.1 million impairment loss in 2002.
Provision for income taxes. We realized net operating income in the three
months ended March 31, 2002 and 2001. We recorded a provision for income taxes
of $0.9 million for the three months ended March 31, 2003 based on our
estimated effective tax rate for full year 2003 of 13%, which primarily
reflects expected state and foreign income tax expense. Our effective tax rate
does not include a component for U.S. federal tax because we have net operating
loss carryforwards available to offset U.S. taxable income. The net operating
loss carryforwards and other deferred tax assets as of March 31, 2003 are fully
reserved by a valuation allowance. If we continue to achieve profitable
operations in 2003, we may be able to meet the more likely-than-not criteria
for recognition of deferred tax assets and reduce the valuation allowance.
Net income. As a result of the foregoing, net income increased $5.2 million to
$6.3 million for the three months ended March 31, 2003 from $1.1 million for
the three months ended March 31, 2002.
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 two million shares of
common stock resulting in net proceeds of $20.5 million.
As of March 31, 2003, cash, cash equivalents and short-term investments were
$82.8 million, an increase of $13.8 million compared to $69.0 million as of
December 31, 2002.
Net cash provided by operating activities was $14.4 million for the three
months ended March 31, 2003, as compared to $5.4 million for the three months
ended March 31, 2002. The increase in net cash provided by operating
activities was primarily the result of net income adjusted for non-cash
components and increases in accrued liabilities and deferred revenue.
Net cash used in investing activities was $7.4 million for the three months
ended March 31, 2003, as compared to $1.0 million for the three months ended
March 31, 2002. The increase in net cash used in investing activities related
primarily to the purchase of short-term investments and capital expenditures
for equipment, hardware and software used in our MediaTone network.
Net cash provided by financing activities was $0.3 million for the three months
ended March 31, 2003, as compared to $0.7 million for the three months ended
March 31, 2002. The decrease in net cash provided by financing was primarily
the result of cash received on stock options exercised offset by principal
payments on capital lease obligations.
As of March 31, 2003, our material purchase commitments, including usage of
telecommunication lines and data services, equipment and software purchases and
construction of leasehold improvements at new leased facilities, totaled $7.3
million. The majority of the purchase commitments are expected to be settled in
cash within 12 months with the longest commitment expiring August 2007.
We lease office facilities under various operating leases that expire through
2008. Total future minimum lease payments under these leases amount to
approximately $17.8 million.
We lease capital equipment under various capital lease obligations that expire
through 2003. Total future minimum lease payments amount to approximately $0.2
million.
We have a revolving credit line with a bank that provides available borrowings
of up to $7.5 million. Amounts borrowed under the revolving credit line bear
interest at the prime rate plus 0.75% and may be repaid and reborrowed at any
time prior to the maturity date. The credit agreement expires on June 30,
2003. The credit agreement is collateralized by all tangible and intangible
assets of WebEx and is subject to compliance with covenants, including a
minimum liquidity ratio, minimum cash balance, minimum tangible net worth,
maximum quarterly operating losses adjusted for equity-based compensation
charges, and minimum quarterly revenue. As of March 31, 2003, we have no
outstanding borrowings under the credit line.
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 generated positive cash flow from operations in the current
quarter and each quarter of 2002. We anticipate that we will continue to
generate positive cash flow 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.
Factors That May Affect Results
The risks and uncertainties described below are not the only ones we face. If
an adverse outcome of any of the following risks actually occurs, our business,
financial condition or results of operations could suffer.
Although we realized net earnings for each of the five consecutive quarters
ending March 31, 2003, we incurred net losses in 1998, 1999, 2000 and 2001, and
there is no assurance that we will be able to achieve comparable results in the
future, and we may experience net losses in future quarters.
Although we realized net earnings of for each of the five consecutive quarters
ending March 31, 2003, we incurred net losses of approximately $27.6 million
for the year ended December 31, 2001 and $80.4 million for the year ended
December 31, 2000. We may experience net losses in future quarters if the web
communications market softens significantly, or if existing or future
competitors reduce our current market share in the web communications market.
If we incur net losses in the future, we may not be able to maintain or
increase the number of our employees, our investment in expanding our services
and network, or our sales, marketing and research and development programs in
accordance with our present plans, each of which is critical to our long-term
success. As of March 31, 2003, we had an accumulated deficit of approximately
$102.4 million.
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. We now offer several web communications services in
addition to Meeting Center, though a few of these services have been launched
only in recent months. Because of our limited operating history of 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 offerings or 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 web communications
network 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, such as converting customers from
subscription-based pricing to pay-per-use pricing, or vice versa, or the
introduction of alternative pricing models.
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 spend substantial financial and other resources on
developing and introducing new services, and on expanding our sales and
marketing organization and our 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 suffer.
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 30 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
12 months. For the quarter ended March 31, 2003, over 95% of the contracts
entered into in the quarter ended December 31, 2002 were renewed beyond their
initial term. We terminate customers who fail to pay for our services. In 2002,
we terminated approximately 250 customers who had failed to pay for our
services on a timely basis. We anticipate that termination of non-paying
customers will continue for the foreseeable future. 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, or the
customer's decision to use services or products offered by a competitor. We may
not obtain a sufficient amount of business to compensate for any customers that
we may lose. The loss of existing customers or our failure to obtain additional
customers would harm our business and operating results.
Our business and operating results may suffer if we fail to establish
distribution relationships 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. As of March 31, 2003, we had distribution agreements in place with
approximately 150 distribution partners. For the quarter ended March 31, 2003,
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
been initially recorded as deferred revenue because we defer revenue related to
initial set-up fees received at the beginning of the relationship and record
revenue from subscription services over the course of the service period as the
distribution partner resells our services. We also do not recognize commitment
fees as revenue until the commitment fee is 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, we lose existing distribution partners, or if our distribution
partners do not successfully distribute our services, our ability to achieve
market acceptance of our web communications services will suffer and our
business and operating results will be harmed.
Our total revenue may suffer if we are unable to successfully manage our
distribution relationships 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
increase total revenue by acquiring customers through distribution partners
that we could not acquire through our direct sales efforts. Under our
agreements with our distribution partners, either WebEx or the distribution
partner bills the end user customers. When WebEx bills the end user, a
percentage of the proceeds generated from the distribution partner's sale of
WebEx services is paid to the distribution partner and the remainder is
retained by WebEx. When the distribution partner bills the end user, WebEx
sells the services on a discounted basis to the distribution partner, which in
turn marks up the price and sells the services to the end user. In either
case, WebEx realizes less revenue for the same volume of service than it would
if the sale were made by WebEx directly, without the contribution of the
distribution partner, due to the revenue sharing arrangement or purchase
discount given to the distribution partner. 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. Also, to the extent our existing customers
discontinue direct agreements with WebEx in order to purchase our services from
distribution partners, our revenue may decrease.
We expect to depend on sales of our WebEx Meeting Center service for the
majority of our revenue for the foreseeable future.
Our WebEx Meeting Center service accounted for more than 65% of our revenue for
the quarter ended March 31, 2003. Although we have recently experienced growth
in sales of our newer services, primarily our OnStage, Training Center and
Support Center services, 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 and users at any one time. Our network monitoring measures the
capacity of our services by bandwidth use, and during the first quarter of 2003
our average peak usage ran 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. 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. Our sales
cycle varies depending on the size and type of customer contemplating a
purchase. Potential customers frequently need to obtain approvals from multiple
decision makers within their organization 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. This difficulty,
in turn, affects our ability to predict future quarterly operating results.
The existence of significant equity-based compensation, along with possible
future regulatory action or standard setting requiring the reporting of
employee stock options as an expense item, will negatively impact earnings.
As of March 31, 2003 we had approximately $0.6 million in deferred equity-based
compensation. This expense will generally be amortized 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 our
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. Regulatory authorities
are currently reviewing various proposals that would change the way stock
options are reported by public companies. If there were a change in the law or
in accounting standards 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 web communications services.
Our marketing and advertising campaigns or 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 our China subsidiary, which exposes us to risks of economic
instability in China and risks related to political tension between China and
the United States.
Prior to February 2003, a significant portion of our development and testing
activity was conducted by three companies in China, which are owned by our
President and Chief Technical Officer, Min Zhu, and his spouse. In February
2003, our subsidiary WebEx China purchased substantially all of the assets of
these three companies and hired from these companies a substantial percentage
of their employees. As of February 2003, we rely on WebEx China to conduct a
significant portion of our quality assurance testing and software development
activities, and also a number of other activities including lead research for
our sales personnel, creation of technical documentation, preparation of
marketing materials and the provisioning of customer web sites. There are four
WebEx China facilities, located in each of Hefei, HongZhou, Shanghai and
Suzhou. 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. In
addition, we face uncertain economic and other risks related to the outbreak of
Severe Acute Respiratory Syndrome or "SARS" in China and its potential effects
on our employees in China. The loss of our WebEx China development, testing
and other support activities may cause our costs to increase. 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.
A significant spread of the current "SARS" outbreak could adversely affect our
subsidiary WebEx China's operational activities, and a future SARS epidemic in
the San Francisco and Sacramento regions of California could adversely affect
our business.
In the first quarter of 2003, the world became aware of the existence of a
highly contagious disease known as Severe Acute Respiratory Syndrome or "SARS".
According to reputable media reports, current medical knowledge about SARS is
that SARS has no cure, can significantly debilitate its victims for several
days or weeks and is estimated to cause death in approximately five to fifteen
percent of cases. The same media reports have indicated that SARS originated
in China and continues to have its greatest impact in China. Because, however,
of the incompleteness of SARS-related data gathering and reporting in China, it
is currently unclear how widespread the SARS outbreak is in China including in
the cities of Hefei, HongZhou, Shanghai and Suzhou where WebEx China offices
and employees are located. It is also unclear to what extent the disease will
spread regionally or internationally in the coming months. If a number of our
WebEx China employees contracted SARS, or if a concern about contracting SARS
kept employees from coming to work, WebEx China's business operations could
suffer and our business could be harmed. In addition, were the SARS outbreak
to expand to the metropolitan San Francisco and Sacramento areas of California,
where a majority of WebEx employees reside and where, respectively, WebEx's
corporate headquarters and customer service organizations are located, WebEx's
overall business operations could be negatively affected, though the effect
might be ameliorated by a possible increase in use of web conferencing services
by entities or individuals wishing to avoid travel or face-to-face meetings.
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. 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. We
may be liable to our customers for any breach in security, and any breach could
harm our reputation and cause us to lose customers. In addition, computers are
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions, which could lead to interruptions, delays or loss of data. 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 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 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 real-time
database replication 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 outside of China increased from 522 employees at March
31, 2002 to 690 at March 31, 2003. In addition we hired 346 employees from
three companies in China owned by our President and Chief Technical Officer Min
Zhu and his spouse and from which our wholly-owned subsidiary WebEx China
acquired substantially all of the assets and hired substantially all of the
employees. We expect continued increases in our personnel during the remainder
of 2003. Our expansion has placed, and we expect that it will continue to
place, a significant strain on our management, operational and financial
resources. In addition, we are in the process of updating some of our
information technology infrastructure to meet increased requirements for
capacity and flexibility resulting from the growth of our business. In the
event these updated systems do not meet our requirements or are not deployed in
a timely manner, our business may suffer. Any failure by us to manage our
growth effectively could disrupt our operations or delay execution of our
business plan and could consequently harm our business.
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. During the 12 months ended March 31, 2003, we
hired approximately 270 new employees and added 346 employees from the three
companies in China owned by Min Zhu and his spouse. We expect to continue to
increase our personnel in 2003. 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 2002 and in the first
quarter of 2003 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 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. 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 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 web 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,
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 suffer. In addition, business interruption insurance may not
adequately compensate us for losses that may occur.
We might have liability for content or information transmitted through our
communications services.
Claims may be asserted against us for defamation, negligence, copyright, patent
or trademark infringement and other legal theories based on the nature and
content of the materials transmitted through our web communications services.
Defending against such claims could be expensive, could be time-consuming and
could divert management's attention away from running our business. In
addition, any imposition of liability could harm our reputation and our
business and operating results, or could result in the imposition of criminal
penalties.
Our success depends upon the patent protection of our software and technology.
Our success and ability to compete depend to a significant degree upon the
protection of our underlying software and our proprietary technology through
patents. We regard the 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 we currently have 25 patent applications pending
in the United States. 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;
- 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, MyWebEx, 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. 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 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, 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 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 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. In March 2003, we entered into a settlement agreement with the
plaintiff pursuant to which the plaintiff released us from all claims asserted
in the lawsuit and agreed to dismiss the lawsuit with prejudice. Although this
lawsuit was settled, other intellectual property claims may be asserted against
us in the future. 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.
As of March 31, 2003, we had not entered into any agreements with respect to
any acquisitions or investments, other than the agreement of our subsidiary
WebEx China to acquire substantially all of the assets of three companies in
China owned by our President and Chief Technical Officer, Min Zhu and his
spouse, which asset purchase took place in February 2003. Integrating any newly
acquired businesses, employees, 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 would harm our operating results.
We must compete successfully in the web communications services market.
The market for web communications services is intensely competitive, subject to
rapid change and is significantly affected by new product and service
introductions and other market activities of industry participants. Although we
do not currently compete against any one entity with respect to all aspects of
our services, we do compete with various companies in regards to specific
elements of our web communications services. For example, we compete with
providers of traditional communications technologies such as teleconferencing
and videoconferencing, applications software and tools companies, and web
conferencing services such as Centra Software, Genesys, Raindance, IBM/Lotus
(SameTime), Microsoft (NetMeeting), Oracle (i-meeting) and Placeware. In April
2003, Microsoft announced that had completed its acquisition of Placeware.
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.
Microsoft may become a formidable competitor in the web communications market,
which may be enhanced by its recent acquisition of Placeware.
In April 2003, Microsoft announced that it had completed its acquisition of our
competitor Placeware. As a result of its acquisition of Placeware, Microsoft
could become a far more active and significant competitor in the specific
interactive communications markets that we currently serve. Microsoft's
acquisition of Placeware could mean Microsoft will devote greater resources to
the web communications market than it has in the past. For example, Microsoft
could invest a significant amount of financial and technical resources in
improving the Placeware web conferencing offering or Microsoft's own NetMeeting
offering, or Microsoft could develop entirely new web communications
technologies. Additionally, Microsoft could vastly increase the marketing
resources devoted to the Placeware's web conferencing offerings, Microsoft's
own NetMeeting or other web communications technologies Microsoft may be
developing. In addition, Microsoft could seek to leverage its dominant market
position in the operating system, productivity application or browser market to
expand its presence in the web communications market, which may make it
difficult for other vendors, such as WebEx, to compete. While we believe that
our current market leadership over Placeware and NetMeeting in web conferencing
is in part due to the technologies and strategies we have employed in building
our web communications network, we may not be able to continue to maintain our
market leadership in the web conferencing market if Microsoft aggressively
pursues this market. Microsoft's competitive activity in the web communications
market could have a significantly harmful effect on our business.
Our future success depends on the broad market adoption and acceptance of web
communications services.
The market for web communications services is relatively new and rapidly
evolving. Market demand for communications services over the Web is uncertain.
If the market for web communications services does not 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 web communications services
for websites;
- the growth of the Web and commercial on-line services;
- the willingness of our distribution partners to integrate web
communications services for websites in their service offerings; and
- the ongoing level of security and reliability for conducting business over
the Web.
Our success depends on the continued growth of Web usage and the continued
growth in reliability and capacity of the Internet.
Because customers access our network through the Web, our revenue growth
depends on the continued development and maintenance of the Internet
infrastructure. This continued development of the Web would include maintenance
of a reliable network with the necessary speed, data capacity and security, as
well as timely development of complementary products and services, including
high-speed modems and other high bandwidth communications technologies, for
providing reliable, high-performance Internet access and services. 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 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 suffer.
We face risks associated with government regulation of the Internet, and
related legal uncertainties.
Currently, few existing laws or regulations specifically apply to the Internet,
other than laws generally applicable to businesses. Many Internet-related laws
and regulations, however, are pending and may be adopted in the United States,
in individual states and local jurisdictions and in other countries. These laws
may relate to many areas that impact our business, including encryption,
network and information security, the convergence of traditional communication
services, such as telephone services, with Internet communications, taxes and
wireless networks. These types of regulations are likely to differ between
countries and other political and geographic divisions. 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 costs
associated with our products and services. The adoption of such laws and
regulations may harm our business.
Current and future economic and political conditions may adversely affect our
business.
Economic growth in the United States and throughout most of the world continues
to be slow, and it is uncertain when economic conditions may improve. In
addition, the residual effects of war in Iraq, uncertainty about Iraq's
political future and continuing tensions throughout the Middle East are having
a net negative effect on the economy and may impact the supply and price of
petroleum products, which may in turn negatively impact the world economy.
Moreover, the prospect of future terrorists attacks in the United States and
elsewhere may have a further negative impact on the economy. In particular, the
technology and telecommunications sectors appear to have been particularly
affected by the recent slowdown in the economy. If poor economic conditions
continue or 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 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 ("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 because of
stock market fluctuations that affect the prices of technology stocks. A
decline in our stock price could result in securities class action litigation
against us that could divert management's attention and harm our business.
Our stock price has been and is likely to continue to be highly volatile. For
example, between January 1, 2003 and March 31, 2003, our stock price has traded
as high as $17.09 on January 9, 2003, and as low as $10.00 on February 7, 2003.
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;
- 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 experienced extreme price and volume fluctuations
recently. 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 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, but growing, part of our business is conducted
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.
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-14(c)
under the Securities Exchange Act of 1934 (the "Exchange Act"), that are
designed to ensure that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in Securities and
Exchange Commission rules and forms, and that such information is accumulated
and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating our disclosure controls and
procedures, management recognized that disclosure controls and procedures, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the disclosure controls and
procedures are met. Additionally, in designing disclosure controls and
procedures, our management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible disclosure controls and
procedures. The design of any disclosure controls and procedures also is based
in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions.
Based on their evaluation as of a date within 90 days prior to the filing date
of 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 controls. There were no significant changes in our
internal controls or, to our knowledge, in other factors that could
significantly affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
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. The complaint alleged that the defendants, including WebEx,
manufactured, marketed and sold products and services that infringed several
claims of the Hamilton Patent. In March 2003, WebEx entered into a settlement
agreement with the plaintiff pursuant to which the plaintiff released WebEx
from all claims asserted in the lawsuit and agreed to dismiss the lawsuit with
prejudice.
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:
On February 4, 2003, the Company filed a current report on Form 8-K under Item
5 reporting that the Company entered into an agreement to acquire certain
assets and hire employees from three companies in China, each of which had been
performing engineering and other services for the Company and each of which is
owned by the Company's President and Chief Technical Officer, Min Zhu, and his
wife.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEBEX COMMUNICATIONS, INC.
Date: May 14, 2003 By:/s/Craig Klosterman
----------------------------
Craig Klosterman
Chief Financial Officer
(Duly Authorized Officer,
Principal Financial and
Principal Accounting Officer)
Certifications
I, Subrah S. Iyar, certify that:
1. I have reviewed this quarterly report on Form 10-Q of WebEx Communications,
Inc;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ SUBRAH S. IYAR
- -----------------------------
Subrah S. Iyar
Chief Executive Officer
I, Craig Klosterman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of WebEx Communications,
Inc;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Craig Klosterman
- -------------------------
Craig Klosterman
Chief Financial 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.