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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 September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________ .
Commission File No.: 0-30849
WEBEX COMMUNICATIONS, INC
(Exact name of registrant as specified in its charter)
Delaware 77-0548319
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
307 West Tasman Drive
San Jose, California 95134
(Address of principal executive offices)
Telephone: (408) 435-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days. Yes [X] No [ ]
On October 31, 2002, 40,756,944 shares of Registrant's Common Stock, $0.001
par value, were outstanding.
WEBEX COMMUNICATIONS, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
SEPTEMBER 30, 2002
TABLE OF CONTENTS
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets at
September 30, 2002 and December 31, 2001 3
Unaudited Condensed Consolidated Statements of Operations
for the three months and nine months ended September 30, 2002
and 2001 4
Unaudited Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 2002 and 2001 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
Item 4. Evaluation of Disclosure Controls and Procedures 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
Form 10-Q Certifications 26
Exhibit Index 28
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WEBEX COMMUNICATIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
September 30, December 31,
2002 2001
------------- -------------
Current assets:
Cash and cash equivalents $ 28,603 $42,146
Short-term investments 28,167 --
Accounts receivable, net of allowances of
$6,911and $6,825, respectively 17,737 17,938
Prepaid expenses and other current assets 2,369 1,830
Due from related party -- 1,100
------------- -------------
Total current assets 76,876 63,014
Property and equipment, net 23,664 25,362
Other non-current assets 1,625 1,920
------------- -------------
Total assets $102,165 $90,296
============= =============
LIABILITES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,944 $ 9,156
Accrued liabilities 9,015 6,695
Deferred revenue 8,417 8,136
Current portion of capital lease obligations 770 1,410
Short-term debt -- 5,500
------------- -------------
Total current liabilities 26,146 30,897
Capital lease obligations less current portion -- 572
------------- -------------
Total liabilities 26,146 31,469
------------- -------------
Commitments and contingency
Stockholders' equity:
Common stock 40 40
Additional paid-in capital 193,138 189,649
Notes receivable from stockholder (45) (45)
Deferred equity-based compensation (1,759) (5,724)
Accumulated deficit (115,665) (125,120)
Accumulated other comprehensive income 310 27
------------- -------------
Total stockholders' equity 76,019 58,827
------------- -------------
Total liabilities and stockholders' equity $102,165 $90,296
============= =============
See accompanying notes to unaudited condensed consolidated financial
statements.
WEBEX COMMUNICATIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
------- ------- ------- --------
Net revenues $36,757 $22,134 $99,568 $55,325
Cost of revenues 6,303 5,693 18,243 15,654
------- ------- ------- --------
Gross profit 30,454 16,441 81,325 39,671
------- ------- ------- --------
Operating expenses:
Sales and marketing 14,658 11,710 42,118 35,569
Research and development 5,622 4,218 16,471 11,593
General and administrative 3,819 2,406 10,622 7,161
Equity-based compensation* 1,225 3,704 2,459 11,453
------- ------- ------- --------
Total operating expenses 25,324 22,038 71,670 65,776
------- ------- ------- --------
Operating income (loss) 5,130 (5,597) 9,655 (26,105)
Interest and other income
(expense), net 83 (515) 100 16
------- ------- ------- --------
Net income (loss) before income tax 5,213 (6,112) 9,755 (26,089)
Provision for income tax (164) -- (300) --
------- ------- ------- --------
Net income (loss) $5,049 ($6,112) $9,455 ($26,089)
======= ======= ======= ========
Net income (loss) per share:
Basic $0.13 $(0.16) $0.24 $(0.73)
Diluted 0.12 (0.16) 0.22 (0.73)
Shares used in per share calculations:
Basic 39,857 37,558 39,453 35,848
Diluted 42,100 37,558 42,278 35,848
*Equity-based compensation:
Sales and marketing $ 830 $1,595 $1,038 $ 6,076
Research and development 176 1,052 462 2,219
General and administrative 219 1,057 959 3,158
------- ------- ------- --------
$1,225 $3,704 $2,459 $11,453
======= ======= ======= ========
See accompanying notes to unaudited condensed consolidated financial
statements.
WEBEX COMMUNICATIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
September 30,
2002 2001
------- --------
Cash flows from operating activities:
Net income (loss) $ 9,455 $(26,089)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Provisions for doubtful accounts and sales reserve 11,219 7,993
Depreciation and amortization 9,299 6,409
Other than temporary declines in equity investments 250 750
Equity-based compensation 2,459 11,453
Changes in operating assets and liabilities:
Accounts receivable (11,018) (16,5316)
Prepaid expenses and other current assets (539) 1,446
Other non-current assets (107) (175)
Accounts payable (1,212) (1,656)
Accrued liabilities 2,320 4,379
Deferred revenue 281 393
Other 121 16
------- --------
Net cash provided by (used in) operating
Activities 22,528 (11,597)
------- --------
Cash flows from investing activities:
Loan repayments from related party 1,100 1,200
Payments of security deposits (235) --
Purchases of short-term investments (37,691) (9,869)
Sales of short-term investments 9,629 9,869
Purchases of property and equipment (7,157) (9,702)
------- --------
Net cash used in investing activities (34,354) (8,502)
------- --------
Cash flows from financing activities:
Net proceeds from issuances of common stock 5,064 23,602
Repurchase of restricted stock (69) (55)
Principal payments on capital lease obligations (1,212) (705)
Borrowings under debt agreement 10,500 16,500
Repayments under debt agreement (16,000) (11,000)
------- --------
Net cash (used in) provided by financing
Activities (1,717) 28,342
------- --------
Net change in cash and cash equivalents (13,543) 8,243
Cash and cash equivalents at beginning of the period 42,146 28,214
------- --------
Cash and cash equivalents at end of the period $28,603 $36,457
======= ========
Supplemental disclosures of non-cash
investing and financing activities:
Acquisition of property and equipment under
capital leases $ -- $ 583
======= ========
Reduction in equity-based compensation due to
forfeitures of stock options $ 2,545 $ 879
======= ========
See accompanying notes to unaudited condensed consolidated financial
statements.
WEBEX COMMUNICATIONS, INC.
September 30, 2002 and 2001
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared by WebEx Communications, Inc. (the "Company" or "WebEx") in
accordance with the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted in accordance
with such rules and regulations. In the opinion of management, the accompanying
unaudited financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
position of the Company, and its results of operations and cash flows. These
financial statements should be read together with the Company's audited
consolidated financial statements and notes thereto as of and for the year
ended December 31, 2001, included in the Company's Form 10-K filed with the
Securities and Exchange Commission on March 28, 2002.
The results of operations for the three months and nine months ended September
30, 2002 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2002 or any other future period, and the Company
makes no representations related thereto.
The consolidated financial statements include the accounts of WebEx and its
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
2. Revenue Recognition
Revenue is derived from the sale of web communication services. Web
communication services revenue is generated through a variety of contractual
arrangements directly with customers and with distribution partners, who in
turn sell the services to customers. The Company sells web communication
services directly to customers through service subscriptions and pay-per-use
arrangements. Under these arrangements, customers access the application
hosted on WebEx servers using a standard web browser. Subscription
arrangements include monthly subscriber user fees, user set-up fees and hosting
fees in limited cases of customer-dedicated hosted software. The subscription
arrangements are considered service arrangements in accordance with EITF Issue
No. 00-3, Application of AICPA Statement of Position 97-2, Software Revenue
Recognition, to Arrangements That Include the Right to Use Software Stored on
Another Entity's Hardware, and, accordingly revenue is recognized ratably over
the service period provided that evidence of the arrangement exists, the fee is
fixed or determinable and collectibility is reasonably assured. Initial set up
fees received in connection with these arrangements are recognized ratably over
the initial term of the contract. During the initial term, the company
provides training services, web-page design and set-up services. In addition
to the subscription services revenue, WebEx derives revenue from pay-per-use
services and telephony charges 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. Our reseller arrangements may require guaranteed
minimum revenue commitments that are billed in advance to the reseller.
Advance payments received from distribution partners are deferred until the
related services are provided or until otherwise earned by WebEx. In cases
where WebEx collects from the end-user, revenue is recognized at the gross
amount received from end users with payments made to distribution partners
recorded as a commission expense. In cases where the end-user contracts
directly with the distribution partner, revenue is recognized at the net amount
earned from the distribution partner.
During 2000, the Company entered into a distribution agreement with a partner
whereby we received $1,000 in equity securities of the distribution partner in
consideration for services to be provided over the term of the agreement. We
have accounted for this agreement in accordance with the provisions of EITF
Issue No. 00-8, "Accounting by a Grantee for an Equity Instrument to be
Received in Conjunction with Providing Goods or Services."
Persuasive evidence for all of our arrangements is represented by a signed
contract. The fee is considered fixed or determinable if it is not subject to
refund or adjustment. Collectibility of guaranteed minimum revenue commitments
by resellers is not reasonably assured; thus revenue from guaranteed minimum
commitments is deferred until services are sold by the reseller to an end-user
customer or until the guaranteed minimum commitment is both forfeited and paid
by the reseller. For all other arrangements, an estimate of the sales reserve
for losses on receivables due to customer cancellations or terminations is
recorded as a reduction in revenues at the time of sale. The sales reserve is
estimated based on an analysis of the historical rate of cancellations or
terminations. The accuracy of the estimate is dependent on the rate of future
cancellations or terminations being consistent with the historical rate.
WebEx records an allowance for doubtful accounts to 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 due to financial distress or failure of
the customer are charged to the allowance for doubtful accounts. The allowance
is estimated based on an analysis of the historical rate of credit losses. The
accuracy of the estimate is dependent on the future rate of credit losses being
consistent with the historical rate.
Deferred revenue includes amounts billed to customers for which revenue has not
been recognized, which generally result from the following: (1) unearned
portion of monthly billed subscription service fees; (2) deferred subscription
and distribution partner set-up fees; and (3) advances received from
distribution partners under revenue sharing arrangements.
3. Net Income (Loss) Per Share
Basic net income (loss) per 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 (loss) per common share
reflects the dilution of restricted common stock subject to repurchase and
incremental shares of common stock issuable upon the exercise of warrants and
stock options computed using the treasury stock method.
The following table sets forth the components used in the computation of basic
and diluted net income (loss) per common share for the three and nine months
ended September 30, 2002 and 2001:
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
------- ------- ------- --------
Numerator:
Net income (loss) $5,049 ($6,112) $9,455 ($26,089)
------- ------- ------- --------
Denominator:
Denominator for basic net
income (loss) per common share 39,857 37,558 39,453 35,848
Effect of dilutive securities:
Restricted common shares
subject to repurchase 658 -- 740 --
Stock options outstanding 1,585 -- 2,085 --
------- ------- ------- --------
Denominator for diluted
net income (loss) per
common share 42,100 37,558 42,278 35,848
======= ======= ======= ========
Basic net income (loss)
per common share $ 0.13 $ (0.16) $ 0.24 $ (0.73)
======= ======= ======= ========
Diluted net income (loss)
per common share $ 0.12 $ (0.16) $ 0.22 $ (0.73)
======= ======= ======= ========
The following potential common shares have been excluded from the computation
of diluted net income (loss) per share for the three months ended September 30,
2002 and September 30, 2001 because their effect would have been antidilutive:
2002 2001
------- -------
Shares issuable under stock options 4,938 6,962
Shares of restricted common stock
subject to repurchase -- 1,663
Shares issuable pursuant to warrants -- 340
The exercise prices of antidilutive stock options outstanding as of September
30, 2002 range from $13.44 to $55.38 and as of September 30, 2001 the exercise
prices ranged from $0.05 and $55.38. The exercise price of warrants
outstanding as of September 30, 2001 was $12.50. The weighted-average
repurchase price of restricted common shares outstanding as of September 30,
2001 was $0.86.
4. Comprehensive Income (Loss)
Comprehensive income (loss) includes net income (loss) and foreign currency
translation adjustments as follows (in thousands):
Three Months Ended
September 30,
2002 2001
------- -------
Net income (loss) $5,049 $(6,112)
Foreign currency translation
Adjustments 193 (18)
------- -------
$5,242 $(6,130)
5. Related Party Transactions
WebEx has contracts for engineering services with three companies in China, one
of which is owned by Mr. Min Zhu, one of the founding executives, who is also a
major stockholder, and the other two of which are owned by his wife. WebEx has
received representation from Mr. Zhu and believes that neither Mr. Zhu nor his
wife receive any compensation or income from these companies in the form of
salaries, bonuses, dividends, or profits. WebEx has contracts with these
companies under which they perform development projects, assign ownership of
the work performed to WebEx, and invoice WebEx for services rendered based on a
monthly fee per employee working on WebEx projects. These companies provide a
significant amount of quality assurance testing and software development
activities for WebEx. Expenses for engineering services pursuant to these
arrangements for the three months ended September 30, 2002 and September 30,
2001 were $750 and $750, respectively, and for the nine months ended September
30, 2002 and September 30, 2001 were $2,250 and $2,150, respectively. These
expenses are included in research and development. As of September 30, 2002,
total amounts due to the three companies in China included in accounts payable
were $500.
6. Commitments
As of September 30, 2002, our material purchase commitments, including usage of
telecommunication lines and data services, hardware support services, equipment
and software purchases, totaled $4.7 million.
WebEx leases office facilities under various operating leases that expire
through 2008. Total future minimum lease payments under these leases amount to
approximately $19.6 million.
7. Segment Reporting
Statement of Financial Accounting Standards No. 131, Disclosure about Segments
of an Enterprise and Related Information, establishes standards for the
reporting by business enterprises of information about operating segments,
products and services, geographic areas, and major customers. The method for
determining what information to report is based on the way that management
organizes the operating segments within WebEx for making operational decisions
and assessments of financial performance.
WebEx's chief operating decision-maker is considered to be the CEO. The CEO
reviews financial information presented on a consolidated basis for purposes of
making operating decisions and assessing financial performance. WebEx has
determined that it operates in a single operating segment, specifically, web
communication services.
8. Recent Accounting Pronouncements
In June 2001, the FASB issued SFAS 142, Goodwill and Other Intangible Assets,
which requires that goodwill no longer be amortized but rather tested for
impairment regularly. The Company adopted SFAS 142 in the first quarter of
2002, and the adoption did not have a material effect on its financial
condition or results of operations.
In August 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations. SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated retirement costs. The Company will adopt SFAS 143 in the first
quarter of 2003, and the adoption is not expected to have a material effect on
its financial condition or results of operations.
In October 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 supersedes SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
and certain provisions of APB Opinion No. 30, Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions (APB
30). SFAS 144 establishes standards for long-lived assets to be disposed of,
and redefines the valuation and presentation of discontinued operations. The
Company adopted SFAS 144 in the first quarter of 2002, and the adoption did not
have a material effect on its financial condition or results of operations.
In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
This Statement eliminates extraordinary accounting treatment for reporting gain
or loss on debt extinguishment, and amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The provisions of this
Statement related to the rescission of Statement 4 are applicable in fiscal
years beginning after May 15, 2002, the provisions related to Statement 13 are
effective for transactions occurring after May 15, 2002, and all other
provisions are effective for financial statements issues on or after May 15,
2002; however, early application of the Statement is encouraged. Debt
extinguishments reported as extraordinary items prior to scheduled or early
adoption of this Statement would be reclassified in most cases following
adoption. The impact of the adoption of SFAS 145 is not expected to have a
material effect on the Company's financial position or results of operations.
In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities. This Statement requires recording costs associated
with exit or disposal activities at their fair values when a liability has been
incurred. Under previous guidance, certain exit costs were accrued upon
management's commitment to an exit plan, which is generally before an actual
liability has been incurred. The requirements of this statement are effective
prospectively for exit or disposal activities initiated after December 31,
2002; however, early application of the statement is encouraged. The Company
has not yet determined what impact the adoption of Statement 146 will have on
its financial position or results of operations.
9. Legal Contingency
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 WebEx and several other
companies. The complaint alleges that the defendants manufacture, market and
sell products and services that infringe several claims of the Hamilton Patent.
The complaint seeks injunctive relief, damages, treble damages for alleged
willful infringement, and costs and attorneys fees. The Company believes that
the plaintiff's claims are not valid and it has meritorious defenses to these
claims, and the Company intends to defend itself vigorously against the
allegations made in the complaint. However, there can be no assurance that the
Company will be successful in the defense of this suit and it cannot reasonably
estimate the possible range of any loss that might result from this suit due to
uncertainty regarding its outcome.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions identify such forward-looking statements. These forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those indicated in the forward-looking
statements. These are statements that relate to future periods and include,
but are not limited to statements as to expected benefits of our products and
services, expected expenses, including those related to sales and marketing,
research and development, general and administrative and equity-based
compensation, anticipated increase in our customer base, expansion of our
service offerings and service functionalities, ability to reduce operating
expenses, expected revenue levels and sources of revenue, strategies and
potential outcomes of litigation against us, expected impact,
if any, of legal proceedings, expected increases in headcount, the adequacy of
liquidity and capital resources, the sufficiency of our cash reserves to meet
our capital requirements, expected improvement of our cash flow and our ability
to maintain a positive cash flow, expected growth in business and operations,
our ability to realize positive cash flow from operations, the ability of cash
generated from operations to satisfy our liquidity requirements, our ability to
realize net earnings, and the effect of recent accounting pronouncements.
Factors that could cause actual results to differ materially from those stated
in the forward-looking statement, include but are not limited to, our
dependence on key products and/or services, demand for our products and
services, our ability to attract and retain customers and distribution partners
for existing and new services, our ability to expand our operations
internationally, our ability to expand our infrastructure to meet the demand
for our services, our ability to control our expenses, our ability to recruit
and retain employees particularly in the areas of sales, engineering, support
and hosting services, the ability of distribution partners to successfully
resell our services, the economy and the strength of competitive offerings, the
prices being charged by those competitors, and the outcome and impact of
litigation against us.
Additional factors, which could cause actual results to differ materially,
include those set forth in the following discussion, and, in particular, the
risks discussed in "Factors that May Affect Results". These forward-looking
statements speak only as of the date hereof. Unless required by law, we
undertake no obligation to update publicly any forward-looking statements.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read together with our Condensed Consolidated Financial
Statements and notes thereto included elsewhere in this report.
Overview
We develop and market services that allow end-users to conduct meetings and
share software applications, documents, presentations and other content on the
Internet using a standard web browser. Integrated telephony and web-based
audio and video services are also available using standard devices such as
telephones, computer web-cameras and microphones.
We commenced operations under the name Silver Computing, Inc. in February 1995.
We changed our name to Stellar Computing Corporation in June 1997, ActiveTouch
Systems, Inc. in December 1997, ActiveTouch, Inc. in May 1998, and WebEx, Inc.
in December 1999. In July 2000, we reincorporated in Delaware under the name
WebEx Communications, Inc. We released interactive communications software
built on our technology in early 1998, 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 Platform and our WebEx Meeting Center service,
developing and deploying new services, expanding our sales and marketing
organizations, and deploying our global WebEx Interactive Network. We
currently sell the following five services: WebEx Meeting Center, WebEx Meeting
Center Pro, WebEx Training Center, WebEx Support Center and WebEx OnStage. In
addition, we currently provide to existing customers, though no longer offer
for sale generally, a sixth 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, user set-up fees and hosting
fees in limited cases of customer-dedicated hosted software. The subscription
arrangements are considered service arrangements in accordance with EITF Issue
No. 00-3, Application of AICPA Statement of Position 97-2, Software Revenue
Recognition, to Arrangements That Include the Right to Use Software Stored on
Another Entity's Hardware, and, accordingly revenue is recognized ratably over
the service period provided that evidence of the arrangement exists, the fee is
fixed or determinable and collectibility is reasonably assured. Initial set up
fees received in connection with these arrangements are recognized ratably over
the initial term of the contract. During the initial term, we provide training
services, web-page design and set-up services. In addition to the subscription
services revenue, we derive revenue from pay-per-use services and telephony
charges 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. In cases where we collect from the end-user,
revenue is recognized at the gross amount received from end users with payments
made to distribution partners recorded as a commission expense. In cases where
the end-user contracts directly with the distribution partner, revenue is
recognized at the net amount earned from the distribution partner.
Persuasive evidence for all of our arrangements is represented by a signed
contract. The fee is considered fixed or determinable if it is not subject to
refund or adjustment. Collectibility of guaranteed minimum revenue commitments
by resellers is not reasonably assured; thus revenue from guaranteed minimum
commitments is deferred until services are sold by the reseller to an end-user
customer or until the guaranteed minimum commitment is both paid and forfeited
by the reseller.
Sales Reserves. An estimate of the sales reserve for losses on receivables
resulting from customer cancellations or terminations is recorded as a
reduction in revenues at the time of the sale. The sales reserve is estimated
based on an analysis of the historical rate of cancellations or terminations.
The accuracy of the estimate is dependent on the rate of future cancellations
or terminations being consistent with the historical rate. If the rate of
actual cancellations or terminations is greater than the historic rate, then
the sales reserve may not be sufficient to provide for actual losses.
Allowance for Doubtful Accounts. We record an allowance for doubtful accounts
to 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 greater than the historic rate, then the
allowance for doubtful accounts may not be sufficient to provide for actual
credit losses.
Results of Operations
The following table sets forth, for the periods indicated, the statements of
operations data as a percentage of net revenues.
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
------- ------- ------- --------
Net revenues 100% 100% 100% 100%
Cost of revenues 17 26 18 28
------- ------- ------- --------
Gross profit 83 74 82 72
Operating expenses:
Sales and marketing 40 53 42 64
Research and development 15 19 17 21
General and administrative 11 11 11 13
Equity-based compensation 3 17 2 21
------- ------- ------- --------
Total operating expenses 69 100 72 119
------- ------- ------- --------
Operating income (loss) 14 (26) 10 (47)
Interest and other income
(expense), net 0 (2) 0 0
Provision for income tax 0 -- 0 --
------- ------- ------- --------
Net income (loss) 14% (28)% 10% (47)%
======= ======= ======= ========
Net revenues. Net revenues increased $14.7 million to $36.8 million for the
three months ended September 30, 2002 from $22.1 million for the three months
ended September 30, 2001. Net revenues increased $44.3 million to $99.6
million for the nine months ended September 30, 2002 from $55.3 million for the
nine months ended September 30, 2001. The increases for the three and nine
months ended September 30, 2002 were primarily due to growth in our direct
subscribing customer base, increased usage by existing customers and increased
usage by the customers of our distribution partners.
Cost of revenues. Our cost of revenues consists of costs related to user set-
up, network and data center operations, technical support and training
activities, including Internet access and telephony communication costs,
personnel, licensed software and equipment costs and depreciation. Cost of
revenues increased $0.6 million to $6.3 million for the three months ended
September 30, 2002 from $5.7 million for the three months ended September 30,
2001. Cost of revenues increased $2.5 million to $18.2 million for the nine
months ended September 30, 2002 from $15.7 million for the nine months ended
September 30, 2001. The increases for the three and nine months ended
September 30, 2002 were primarily due to increases in the costs for delivering
our services to more customers and increased usage by existing customers,
additional technical and account management staff to support our growing
installed base of customers, and expanding and improving our worldwide network.
Sales and marketing. Our sales and marketing expense consists of personnel
costs, including commissions, as well as costs of public relations,
advertising, marketing programs, lead generation, travel and trade shows. Sales
and marketing expense increased $3.0 million to $14.7 million for the three
months ended September 30, 2002 from $11.7 million for the three months ended
September 30, 2001. Sales and marketing expense increased $6.5 million to
$42.1 million for the nine months ended September 30, 2002 from $35.6 million
for the nine months ended September 30, 2001. The increases for the three and
nine months ended September 30, 2002 were primarily due to increases in
spending on marketing programs and spending on sales and support personnel and
commission expenses associated with our increased revenue.
Research and development. Our research and development expense consists
primarily of salaries and other personnel-related expenses, depreciation of
equipment, supplies and consulting engineering services. Research and
development expense increased $1.4 million to $5.6 million for the three months
ended September 30, 2002 from $4.2 million for the three months ended September
30, 2001. Research and development expense increased $4.9 million to $16.5
million for the nine months ended September 30, 2002 from $11.6 million for the
nine months ended September 30, 2001. The increases for the three and nine
months ended September 30, 2002 were primarily related to personnel and
equipment related expenses resulting from an increase in headcount and new
product introduction.
General and administrative. Our general and administrative expense consists
primarily of personnel costs for finance, human resources, legal and general
management, bad debt expense and professional services, such as legal and
accounting. General and administrative expense increased $1.4 million to $3.8
million for the three months ended September 30, 2002 from $2.4 million for the
three months ended September 30, 2001. General and administrative expense
increased $3.4 million to $10.6 million for the nine months ended September
30, 2002 from $7.2 million for the nine months ended September 30, 2001. The
increases for the three and nine months ended September 30, 2002 were primarily
due to bad debt expenses and personnel-related spending.
Bad debt expense increased $1.1 million to $1.8 million in the three months
ended September 30, 2002 from $0.7 million in the three months ended September
30, 2001. Bad debt expense increased $2.7 million to $4.7 million in the nine
months ended September 30, 2002 from $2.0 million in the nine months ended
September 30, 2001. The increases for the three and nine months ended September
30, 2002 were primarily related to the increased size of our installed customer
base which is used to calculate 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 common stock
warrants and options to non-employees. Deferred equity-based compensation
represents the difference between the exercise price of the stock options
granted to employees and the fair value of common stock at the time of those
grants. Equity-based compensation expense decreased $2.5 million to $1.2
million for the three months ended September 30, 2002 from $3.7 million for the
three months ended September 30, 2001. Equity-based compensation expense
decreased $9.0 million to $2.5 million for the nine months ended September 30,
2002 from $11.5 million for the nine months ended September 30, 2001. The
decreases for the three and nine months ended September 30, 2002 were primarily
due to the vesting of options granted, forfeitures of unvested options by
terminated employees and the effects of the fluctuations in our stock price on
the recognition of expense on options granted to non-employees offset by
compensation recorded by the Company in connection with the modification of
awards of terminated employees. Equity-based compensation expense related to
the unvested portion of non-employee options is impacted by changes in our
stock price and will fluctuate accordingly.
Interest and other income (expense), net. Interest and other income (expense),
net is comprised of interest income and expense, and other expenses. Interest
and other income (expense), net increased $0.6 million to $0.1 million for the
three months ended September 30, 2002 from ($0.5) million for the three months
ended September 30, 2001. Interest and other income (expense), net increased
$0.1 million to $0.1 million for the nine months ended September 30, 2002 from
$0.0 million for the nine months ended September 30, 2001. For the three
months ended September 30, 2002 this amount consists of $0.1 million interest
income. For the nine months ended September 30, 2002 this amount consists of
$0.5 million interest income offset by $0.1 million interest expense and $0.3
million impairment loss on equity investment.
Provision for income taxes. We realized net operating income in the three and
nine months ended September 30, 2002 and a net operating loss in the three and
nine months ended September 30, 2001. We paid no federal, state and foreign
income taxes in 2001 and prior periods and did not recognize any tax benefits
for the related tax operating loss carryforwards. During 2002, we realized pre-
tax earnings and we have net operating loss carryforwards available to offset
taxable income in the U.S. Based on our cumulative losses, we do not believe a
conclusion can be made that it is more likely than not that we will realize the
tax benefits of net operating loss carryforwards for which a valuation
allowance was recorded. We recorded a provision for income taxes in the three
and nine months ended September 30, 2002 based on our estimated effective tax
rate of 3%, which primarily reflects expected foreign and state income tax
expense.
Net income (loss). As a result of the foregoing, we reported net income of $5.0
million for the three months ended September 30, 2002 as compared to a net loss
of $6.1 million for the three months ended September 30, 2001. We reported net
income of $9.5 million in the nine months ended September 30, 2002 as compared
to a net loss of $26.1 million in the nine months ended September 30, 2001.
Liquidity and Capital Resources
As of September 30, 2002, cash and cash equivalents and short-term investments
were $56.8 million, an increase of $14.7 million compared with cash and cash
equivalents of $42.1 million as of December 31, 2001.
Net cash provided by operating activities was $22.5 million for the nine months
ended September 30, 2002, as compared to net cash used in operating activities
of $11.6 million for the nine months ended September 30, 2001. Net cash
provided by operating activities for the nine months ended September 30, 2002
was primarily due to net income adjusted for non-cash expenses, increased
accrued liabilities offset by increased accounts receivable. For the nine
months ended September 30, 2001, net cash used in operating activities of $11.6
million was primarily the result of our net loss, increases in accounts
receivable and decreases in accounts payable offset by decreases in prepaid
expenses and increases in accrued liabilities.
Net cash used in investing activities was $34.4 million for the nine months
ended September 30, 2002, as compared to $8.5 million for the nine months ended
September 30, 2001. Net cash used in investing activities for the nine months
ended September 30, 2002 related primarily to purchases of short-term
investments and capital expenditures for equipment, hardware and software used
in operations and research and development. This was partially offset by the
repayment in full of a loan to our CEO. For the nine months ended September
30, 2001 net cash used in investing activities of $8.5 million was primarily
related to capital expenditures for equipment, hardware and software partially
offset by the repayment of a loan to our CEO.
Net cash used in financing activities was $1.7 million for the nine months
ended September 30, 2002, as compared to net cash provided of $28.3 million for
the nine months ended September 30, 2001. Net cash used in financing
activities for the nine months ended September 30, 2002 was primarily the
result of principal payments on lease obligations and net repayments on our
loan agreement, offset by cash received on stock purchased through our employee
stock purchase plan and stock option exercises. Net cash provided by financing
activities of $28.3 million for the nine months ended September 30, 2001,
resulted primarily from the private placement of 2 million shares of common
stock and net borrowings under a loan agreement.
As of September 30, 2002, our material purchase commitments, including usage of
telecommunication lines and data services, hardware support services, equipment
and software purchases, totaled $4.7 million.
We lease office facilities under various operating leases that expire through
2008. Total future minimum lease payments, net of sublease rental income,
under these leases amount to approximately $19.6 million.
We lease capital equipment under various capital lease obligations that expire
through 2003. Total future minimum lease payments amount to approximately $0.8
million.
We borrow funds under a revolving credit line that expires on June 30, 2003.
As of September 30, 2002, no borrowing is outstanding under this arrangement
and $7.5 million remained available.
We expect that existing cash resources will be sufficient to fund our
anticipated working capital and capital expenditure needs for at least the next
12 months. We expect to experience positive cash flow for at least the next 12
months and that existing cash reserves will therefore be sufficient to meet our
capital requirements during this period. We base our expense levels in part on
our expectations of future revenue levels. If our revenue for a particular
period is lower than we expect, we may take steps to reduce our operating
expenses accordingly. If cash generated from operations is insufficient to
satisfy our liquidity requirements, we may seek to sell additional public or
private equity securities or obtain additional debt financing. There can be no
assurance that additional financing will be available at all or, if available,
will be obtainable on terms favorable to us. If we are unable to obtain
additional financing, we may be required to reduce the scope of our planned
technology and product development and sales and marketing efforts, which could
harm our business, financial condition and operating results. Additional
financing may also be dilutive to our existing stockholders.
Factors That May Affect Results
The risks and uncertainties described below are not the only ones we face. To
the extent any of the following risks actually materialize, our business,
financial condition or results of operations could be materially and adversely
affected.
WE INCURRED NET LOSSES IN 1998, 1999, 2000 AND 2001. WHILE WE REALIZED NET
EARNINGS IN THE FIRST, SECOND AND THIRD QUARTERS OF 2002, THERE IS NO ASSURANCE
THAT WE WILL BE ABLE TO ACHIEVE THESE RESULTS IN THE FUTURE, AND WE MAY
EXPERIENCE NET LOSSES IN FUTURE QUARTERS.
As of September 30, 2002, we had an accumulated deficit of approximately $115.7
million. We reported net earnings of approximately $9.5 million for the nine
months ended September 30, 2002 compared to net losses of approximately $26.1
million for the nine months ended September 30, 2001. Our net earnings were
approximately 10% of revenue for the nine months ended September 30, 2002.
While we realized net earnings in the first, second and third quarters of 2002,
we may experience net losses in future quarters. If we incur net losses in the
future, we may not be able to maintain or increase the number of our employees,
our investment in expanding our network services and application platform or
our sales, marketing and research and development programs in accordance with
our present plans, each of which is critical to our long-term success.
BECAUSE OUR QUARTERLY RESULTS VARY AND ARE DIFFICULT TO PREDICT, WE MAY FAIL TO
MEET QUARTERLY FINANCIAL EXPECTATIONS, WHICH MAY CAUSE OUR STOCK PRICE TO
DECLINE.
We commenced operations in February 1995 and our business originally consisted
of consulting services. In early 1998, we licensed an interactive
communications product to a small number of customers. We began offering WebEx
Meeting Center in February 1999, our first real-time, interactive multimedia
communications service, and began selling this service to customers and
distribution partners. Because of our limited operating history in providing
services and other factors, our quarterly revenue and operating results are
difficult to predict. In addition, because of the emerging nature of the
market for web communications services, our quarterly revenue and operating
results may fluctuate from quarter to quarter. A number of other factors could
cause fluctuations in our operating results.
Factors outside our control include:
- our distribution partners' degree of success in distributing our
services to end-users;
- the announcement, introduction and market acceptance of new or enhanced
services or products by our competitors;
- changes in pricing policies of our competitors; and
- the growth rate of the market for web communications services.
Factors within our control include:
- our ability to develop, enhance and maintain our network services and
application platform in a timely manner;
- the mix of services we offer;
- our ability to attract and retain customers;
- the amount and timing of operating costs and capital expenditures
relating to expansion of our business and network infrastructure;
- the announcement, introduction and market acceptance of new or enhanced
services or products by us; and
- changes in our pricing policies, such as converting customers from
subscription-based pricing to pay-per-use pricing, or vice versa.
If any of these factors impact our business in a particular period, our
operating results may be below market expectations, in which case the market
price of our common stock would likely decline. Also, factors such as the
growth rate of the market for our services, our ability to maintain and enhance
our network services and platform and our competitors' success could impact our
longer-term financial performance by reducing demand for our services.
WE EXPECT THAT OUR OPERATING EXPENSES WILL CONTINUE TO INCREASE AND IF OUR
REVENUE DOES NOT CORRESPONDINGLY INCREASE, OUR BUSINESS AND OPERATING RESULTS
WILL SUFFER.
We expect to continue to invest substantial financial and other resources on
developing and introducing new services, and expanding our sales and marketing
organization and network infrastructure. We base our expense levels in part on
our expectations of future revenue levels. If our revenue for a particular
quarter is lower than we expect, we may be unable to reduce proportionately our
operating expenses for that quarter, in which case our operating results for
that quarter would be adversely affected.
OUR CUSTOMERS DO NOT HAVE LONG-TERM OBLIGATIONS TO PURCHASE OUR SERVICES;
THEREFORE OUR REVENUE AND OPERATING RESULTS COULD DECLINE IF OUR CUSTOMERS DO
NOT CONTINUE TO USE OUR SERVICES.
Our customers do not have long-term obligations to purchase services from us.
Most of our subscription agreements have an initial term of three months.
Although automatically renewed unless terminated, our contracts can be
terminated on thirty days notice at the end of the initial term or any renewal
term. Over 95% of our customers have agreements with initial terms of three to
twelve months. For the quarter ended September 30, 2002, over 95% of the
contracts entered into in the quarter ended June 30, 2002 were renewed beyond
their initial term. We may terminate customers who have failed to pay for our
services. In addition, some customers may voluntarily discontinue use of our
services for a variety of reasons including the failure of the customer's
employees to learn about and use our services, the failure of the services to
meet the customer's expectations or requirements, financial difficulties
experienced by the customer, and the customer's decision to use services or
products offered by a competitor. We may not obtain a sufficient number of
additional customers to compensate for any customers that we may lose. The loss
of existing customers or our failure to obtain additional customers would harm
our business and operating results.
OUR BUSINESS AND OPERATING RESULTS MAY SUFFER IF WE FAIL TO ESTABLISH
DISTRIBUTION RELATIONSHIPS OR IF OUR DISTRIBUTION PARTNERS DO NOT SUCCESSFULLY
MARKET AND SELL OUR SERVICES.
To date, we have generated more than 90% of our revenue from direct sales to
customers. For the nine months ended September 30, 2002, we had distribution
agreements in place with approximately 190 distribution partners. For the nine
months ended September 30, 2002, we generated less than 10% of our revenue from
our distribution partners, which revenue consisted of initial set-up fees,
commitment payments, and service fees. The majority of the payments received
from our distribution partners have initially been recorded as deferred revenue
because we defer revenue related to initial set-up fees received at the
beginning of the relationship and record revenue from subscription services
over the course of the service period as the distribution partner resells our
services. We also do not recognize commitment fees as revenue until the
commitment fee is fully earned at the end of the commitment period and paid.
We cannot anticipate the amount of revenue we will derive from these
relationships in the future. We must continue to establish and extend these
distribution partnerships. Establishing these distribution relationships can
take as long as several months or more. It typically takes several months
before our distribution arrangements generate significant revenue. Our
distribution partners are not prohibited from offering and reselling the
products and services of our competitors and may choose to devote insufficient
resources to marketing and supporting our services or to devote greater
resources to marketing and supporting the products and services of other
companies. If we fail to establish new distribution relationships in a timely
manner or if our distribution partners do not successfully distribute our
services, our ability to achieve market acceptance of our web communications
services will suffer and our business and operating results will be harmed.
IF WE ARE NOT SUCCESSFUL IN DEVELOPING, DEPLOYING AND SELLING NEW SERVICES, OUR
OPERATING RESULTS MAY SUFFER.
Our WebEx Meeting Center service integrates data, audio and video to allow end-
users to participate in meetings online. Our WebEx Meeting Center service
accounted for more than 60% of our revenue for the nine months ended September
30, 2002. Although we have recently experienced growth in sales of our newer
services, primarily our OnStage and Training 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 OR
FAIL TO ACCOMMODATE LARGE NUMBERS OF MEETINGS, 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
participants and meetings at any one time. Our network monitoring measures the
capacity of our services by bandwidth use, and during the third quarter of
2002, our average peak usage was running at less than 50% of our capacity.
However, if we fail to increase our capacity consistent with our growth in
usage, it could impact system performance adversely. In addition, we may
encounter performance problems when making upgrades and modifications to our
network. If our services do not perform adequately, we may lose customers and
be unable to attract new customers and our operating results could suffer.
OUR SALES CYCLE MAKES IT DIFFICULT TO PREDICT OUR QUARTERLY OPERATING RESULTS.
We sometimes have a long sales cycle because of the need to educate potential
customers regarding the benefits of web communications services. Our sales
cycle varies depending on the size and type of customer contemplating a
purchase. Potential customers frequently must obtain approvals from multiple
decision makers within their organizations and may evaluate competing products
and services prior to deciding to use our services. Our sales cycle, which can
range from several weeks to several months or more, makes it difficult to
predict the quarter in which use of our services may begin.
THE EXISTENCE OF SIGNIFICANT EQUITY-BASED COMPENSATION WILL NEGATIVELY IMPACT
EARNINGS.
As of September 30, 2002, we had approximately $1.8 million in deferred equity-
based compensation. This will generally be expensed over a two-year period and
will result in a decrease in earnings or an increase in losses. We expect the
amount of equity-based compensation expense to decrease over time as a result
of the vesting of options granted prior to our initial public offering.
However, the amount of future equity-based compensation expense related to the
unvested portion of option grants to non-employees will fluctuate with the
stock price and accordingly the amount of future equity-based compensation
expense is difficult to predict. In 1999 and 2000, we granted stock options at
exercise prices significantly lower than the deemed fair value, which has
contributed to our equity-based compensation expense. Congress is currently
reviewing various proposals that would change the way stock options are
reported by public companies. If there were a change in the law that would
require us to report stock options for employees as an expense, our net income
would be negatively impacted.
IF OUR BRANDING AND MARKETING EFFORTS ARE NOT SUCCESSFUL, OUR BUSINESS MAY BE
HARMED.
We believe that continued spending on marketing to increase brand recognition
will be critical to achieve widespread acceptance of our interactive
communications services. Our marketing, advertising campaigns and other
branding efforts may not be successful or consumers may not find our marketing
efforts compelling. If our marketing efforts are not successful, our business
and operating results will be harmed.
WE RELY ON RELATED COMPANIES IN CHINA, WHICH EXPOSES US TO RISKS OF ECONOMIC
INSTABILITY IN CHINA AND RISKS RELATED TO POLITICAL TENSION BETWEEN CHINA AND
THE UNITED STATES.
We currently rely on three related companies located in China, WebEx Haifei,
WebEx Suzhou, and WebEx Hanghou, to conduct quality assurance testing and
software development activities. One of these companies is owned by Min Zhu,
one of our executive officers and the other two are owned by his wife. Mr. Zhu
has represented and we believe that neither Mr. Zhu nor his wife receive any
compensation or income from these companies in the form of salaries, bonuses,
dividends, profits or otherwise. We have contracts with these companies under
which they perform development projects, assign ownership of the work performed
to us, and invoice us for services rendered based on a monthly fee per employee
working on WebEx projects. Most of the personnel who conduct these activities
are contract engineers to these companies. Although our transactions with
these companies are approved by our disinterested directors, because these
companies are owned by one of our executive officers and the spouse of one of
our executive officers, there may be a perception that the terms of those
arrangements are influenced by that relationship. Our reliance on independent
contractors located in China for quality assurance and software development
activities exposes us to a variety of economic and political risks including
but not limited to, trade restrictions, tariffs and travel restrictions. The
loss of these arrangements may cause our costs to increase. In addition,
political and economic tensions between the United States and China could harm
our ability to conduct operations in China, which could increase our operating
costs and harm our business and operations.
WE COULD INCUR UNEXPECTED COSTS RESULTING FROM CLAIMS FOR DAMAGES RELATING TO
USE OF OUR SERVICES.
Many of the business interactions supported by our services are critical to our
customers' businesses. Any failure in a customer's business interaction or
other communications activity caused or allegedly caused by our services could
result in a claim for damages against us, regardless of our responsibility for
the failure, and cause us to incur unexpected costs.
OUR CUSTOMERS AND END-USERS MAY USE OUR SERVICES TO SHARE CONFIDENTIAL AND
SENSITIVE INFORMATION AND IF OUR SYSTEM SECURITY IS BREACHED, OUR REPUTATION
COULD BE HARMED AND WE MAY LOSE CUSTOMERS.
Our customers and end-users may use our services to share confidential and
sensitive information, the security of which is critical to their business.
Third parties may attempt to breach our security or that of our customers.
Customers may assert claims against us for any breach in security and any
breach, whether real or alleged, 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 errors in our software before we introduce new
versions of our services, we might have to limit our services for an extended
period of time while we address the problem. In addition, problems with the
software underlying our services could result in:
- damage to our reputation;
- damage to our efforts to build brand awareness;
- loss of or delay in revenue;
- loss of customers;
- 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 networking
platforms. If our services are unable to support these platforms, they may
fail to gain broad market acceptance, which would cause our operating results
to suffer. Our success depends on our ability to deliver our services to
multiple platforms and existing, or legacy systems and to modify our services
and underlying technology as new versions of applications are introduced. In
addition, the success of our services depends on our ability to anticipate and
support new standards, especially web standards.
IF WE FAIL TO DELIVER LOCALIZED VERSIONS OF OUR SERVICES FOR USE OUTSIDE THE
UNITED STATES IN A TIMELY MANNER, OUR ABILITY TO EXPAND INTERNATIONALLY WILL BE
HARMED AND OUR BUSINESS COULD SUFFER.
We currently offer our services to customers in a number of countries around
the world. To meet the requirements of these international customers, it is
necessary to localize our services for different languages. If we fail to
deliver localized versions for our services in a timely manner, our ability to
meet the demands of existing customers and recruit new customers
internationally will be harmed and our business could suffer.
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
that is integrated into our services. For example, we license database
software and font rendering technology. These third-party technologies and any
that we may utilize in the future may not continue to be available to us on
commercially reasonable terms. In addition, we may fail to successfully
integrate any licensed technology into our services. This in turn could harm
our business and operating results.
OUR RECENT GROWTH HAS PLACED A STRAIN ON OUR INFRASTRUCTURE AND RESOURCES AND
IF WE FAIL TO MANAGE OUR FUTURE GROWTH TO MEET CUSTOMER AND DISTRIBUTION
PARTNER REQUIREMENTS, OUR BUSINESS COULD SUFFER.
We have experienced a period of rapid expansion in our personnel, facilities,
and infrastructure that has placed a significant strain on our resources. For
example, our personnel increased from 471 employees at September 30, 2001 to
607 at September 30, 2002, and we expect continued increases in our personnel
in the fourth quarter of 2002. Our expansion has placed, and we expect that it
will continue to place, a significant strain on our management, operational and
financial resources. Any failure by us to manage our growth effectively could
disrupt our operations or delay execution of our business plan and could
consequently harm our business.
IF WE LOSE THE SERVICES OF SUBRAH S. IYAR, OUR CHIEF EXECUTIVE OFFICER, OR MIN
ZHU, OUR PRESIDENT AND CHIEF TECHNICAL OFFICER, OUR BUSINESS MAY BE HARMED.
Our success will depend on our senior executives. In particular, the loss of
the services of our Chief Executive Officer and co-founder, Subrah S. Iyar, or
our President, Chief Technical Officer and co-founder, Min Zhu, would harm our
business. We do not have long-term employment agreements with or life insurance
policies on any of our senior management.
IF WE ARE UNABLE TO ATTRACT, INTEGRATE AND RETAIN QUALIFIED PERSONNEL, OUR
BUSINESS COULD SUFFER.
Our future success will depend on our ability to attract, train, retain and
motivate highly skilled engineering, technical, managerial, sales and marketing
and customer support personnel. We hired approximately 225 people during the 12
months ended September 30, 2002, and we expect to continue to increase our
personnel throughout the remainder of 2002. In the past, we have had difficulty
hiring qualified personnel as quickly as we have desired. In particular, we
have had difficulty hiring a sufficient number of qualified technical,
development and support personnel. Although economic conditions in 2001 and the
first three quarters of 2002 have made hiring of personnel easier, we do not
know what future labor market conditions will be. If we encounter difficulty
hiring, integrating and retaining a sufficient number of qualified personnel in
the future, the quality of our services may be adversely affected. If we fail
to retain and recruit necessary sales, technical, marketing or other personnel,
our ability to develop new services, to sell our services, and to provide a
high level of customer service, and consequently our business, could suffer. In
addition, if we hire employees from our competitors, these competitors may
claim that we have engaged in unfair hiring practices. We could incur
substantial costs in defending ourselves against any of these claims,
regardless of their merits.
INTERRUPTIONS IN EITHER OUR INTERNAL OR OUTSOURCED COMPUTER AND COMMUNICATIONS
SYSTEMS COULD REDUCE OUR ABILITY TO PROVIDE OUR SERVICES AND COULD HARM OUR
BUSINESS AND REPUTATION.
The success of our web communications services depends on the efficient and
uninterrupted operation of our internal and outsourced computer and
communications hardware and software systems. Any system failure that causes an
interruption in our interactive communications services or a decrease in their
performance could harm our relationships with our customers and distribution
partners. In this regard, some of our communications hardware and software are
hosted at third-party co-location facilities. These systems and operations are
vulnerable to damage or interruption from human error, telecommunications
failures, physical or remote break-ins, sabotage, computer viruses and
intentional acts of vandalism. In addition, third party co-location facilities
may discontinue their operations due to poor business performance. Because a
substantial part of our central computer and communications hardware and
network operations are located in the San Francisco Bay Area, an earthquake or
other natural disaster could impair the performance of our entire network. In
the event of damage to or interruption of our internal or outsourced systems,
our efforts to implement our disaster recovery plans or restore our services to
normal levels in a timely manner are not successful, our business would be
adversely affected. In addition, business interruption insurance may not
adequately compensate us for losses that may occur.
CLAIMS MAY BE ASSERTED AGAINST US FOR CONTENT OR INFORMATION TRANSMITTED
THROUGH OUR WEB COMMUNICATIONS SERVICES.
Claims may be asserted against us for defamation, negligence, copyright, patent
or trademark infringement and other legal theories based on the nature and
content of the materials transmitted through our web communications services.
Defending against such claims could be expensive, time-consuming and could
divert management's attention away from running our business. In additions,
any imposition of liability could harm our reputation and our business and
operating results, or could result in the imposition of criminal penalties.
OUR SUCCESS DEPENDS UPON THE PATENT PROTECTION OF OUR SOFTWARE AND TECHNOLOGY.
Our success and ability to compete depend to a significant degree upon the
protection of our underlying software and our proprietary technology through
patents. We regard the protection of patentable inventions as important to our
future opportunities. We currently have three issued patents in the areas of
peer-to-peer connections to facilitate conferencing, document annotation and
optimizing data transfer and 23 patent applications pending in the United
States and we may seek additional patents in the future. These patent
applications cover different aspects of the technology used to deliver our
services and are important to our ability to compete. However, it is possible
that:
- any patents acquired by or issued to us may not be broad enough to
protect us;
- any issued patent could be successfully challenged by one or more third
parties, which could result in our loss of the right to prevent others
from exploiting the inventions claimed in those patents;
- current and future competitors may independently develop similar
technology, duplicate our services or design around any of our patents;
- our pending patent applications may not result in the issuance of
patents; and
- effective patent protection may not be available in every country in
which we do business.
WE ALSO RELY UPON TRADEMARKS, COPYRIGHTS AND TRADE SECRETS TO PROTECT OUR
TECHNOLOGY, WHICH MAY NOT BE SUFFICIENT TO PROTECT OUR INTELLECTUAL PROPERTY.
We also rely on a combination of laws, such as copyright, trademark and trade
secret laws, and contractual restrictions, such as confidentiality agreements
and licenses, to establish and protect our technology. Our trademarks include:
ActiveTouch, WebEx (word and design), WebEx bifurcated ball design, WebEx power
button design, WebEx.com, Bringing the Meeting to You, MediaTone, Meeting
Center, WebEx Meeting Center, WebEx sound mark, Meeting-Enable Your Web Site,
We've Got To Start Meeting Like This, Powering Real Time Business Meetings, and
One Button, Infinite Power. Also, our software is automatically protected by
copyright law. These forms of intellectual property protection are critically
important to our ability to establish and maintain our competitive position.
However,
- third parties may infringe or misappropriate our copyrights, trademarks
and similar proprietary rights;
- laws and contractual restrictions may not be sufficient to prevent
misappropriation of our technology or to deter others from developing
similar technologies;
- effective trademark, copyright and trade secret protection may be
unavailable or limited in foreign countries;
- other companies may claim common law trademark rights based upon state
or foreign laws that precede the federal registration of our marks; and
- policing unauthorized use of our services and trademarks is difficult,
expensive and time-consuming, and we may be unable to determine the
extent of any unauthorized use.
Reverse engineering, unauthorized copying or other misappropriation of our
proprietary technology could enable third parties to benefit from our
technology without paying us for it, which would significantly harm our
business.
WE MAY FACE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT COULD BE COSTLY TO
DEFEND AND RESULT IN OUR LOSS OF SIGNIFICANT RIGHTS.
We may be subject to legal proceedings and claims, including claims of alleged
infringement of the copyrights, trademarks and patents of third parties. Our
services may infringe issued patents. In addition, because the contents of
patent applications in the United States are not publicly disclosed until the
patent is issued, we may be unaware of filed patent applications relating to
our services. From time to time we receive notices alleging that we infringe
intellectual property rights of third parties. In such cases, we typically
investigate and respond to the allegations. We are currently not aware of any
such allegations that we believe represent a risk of material liability to the
company. In addition, in July 2002, a complaint was filed by Eric Hamilton in
the U.S. District Court for the District of Maryland against us and several
other companies alleging that our and the other defendants' products and
services infringe the plaintiff's patent. We believe that the plaintiff's
claims are not valid and we have meritorious defenses to these claims and we
intend to defend ourselves vigorously against these allegations. However,
there can be no assurance that we will be successful in the defense of this
action and we cannot reasonably estimate the possible range of any loss that
might result from this suit due to uncertainty regarding its outcome.
Moreover, intellectual property litigation is expensive and time-consuming and
could divert management's attention away from running our business.
Intellectual property litigation could also require us to develop non-
infringing technology or enter into royalty or license agreements. These
royalty or license agreements, if required, may not be available on acceptable
terms, if at all, in the event of a successful claim of infringement. Our
failure or inability to develop non-infringing technology or license
proprietary rights on a timely basis would harm our business.
WE MAY ENGAGE IN FUTURE ACQUISITIONS OR INVESTMENTS THAT COULD DILUTE THE
OWNERSHIP OF OUR EXISTING STOCKHOLDERS, CAUSE US TO INCUR SIGNIFICANT EXPENSES
OR HARM OUR OPERATING RESULTS.
We may acquire or invest in complementary businesses, technologies or services.
As of September 30, 2002, we had no specific agreements or commitments with
respect to any acquisitions or investments. Integrating any newly acquired
businesses, technologies or services may be expensive and time-consuming. To
finance any acquisitions, it may be necessary for us to raise additional funds
through public or private financings. Additional funds may not be available on
terms that are favorable to us and, in the case of equity financings, may
result in dilution to our stockholders. We may be unable to complete any
acquisitions or investments on commercially reasonable terms, if at all. Even
if completed, we may be unable to operate any acquired businesses profitably or
successfully integrate the employees, technology, products or services of any
acquired businesses into our existing business. If we are unable to integrate
any newly acquired entities or technologies effectively, our operating results
could suffer. Future acquisitions by us could also result in large and
immediate write-downs, or incurrence of debt and contingent liabilities, any of
which could harm our operating results.
WE MUST COMPETE SUCCESSFULLY IN THE INTERACTIVE COMMUNICATIONS SERVICES MARKET.
The market for interactive communications services is intensely competitive,
subject to rapid change and is significantly affected by new product and
service introductions and other market activities of industry participants.
Although we do not currently compete against any one entity with respect to all
aspects of our services, we do compete with various companies in regards to
specific elements of our interactive communications services. For example, we
compete with providers of traditional communications technologies such as
teleconferencing and videoconferencing, applications software and tools
companies, and web conferencing services, such as Centra Software, Genesys,
Raindance, IBM/Lotus (SameTime), Microsoft (NetMeeting) and Placeware. Other
software vendors, such as Oracle, have announced the availability of
competitive offerings. Other companies could choose to extend their products
and services to include interactive communications in the future. Many of our
current and potential competitors have longer operating histories,
significantly greater financial, technical and other resources and greater name
recognition than we do. Our current and future competitors maybe able to
respond more quickly to new or emerging technologies and changes in customer
requirements. In addition, current and potential competitors have established,
and may in the future establish, cooperative relationships with third parties
and with each other to increase the availability of their products and services
to the marketplace. Competitive pressures could reduce our market share or
require us to reduce the price of our services, either of which could harm our
business and operating results.
OUR FUTURE SUCCESS DEPENDS ON THE BROAD MARKET ADOPTION AND ACCEPTANCE OF
INTERACTIVE WEB COMMUNICATIONS SERVICES.
The market for interactive web communications services is relatively new and
rapidly evolving. Market demand for communications services over the Web is
uncertain. If the market for interactive communications services does not grow,
our business and operating results will be harmed. Factors that might influence
market acceptance of our services include the following, all of which are
beyond our control:
- willingness of businesses and end-users to use interactive web
communications services;
- the growth of the Web and commercial on-line services;
- the willingness of our distribution partners to integrate interactive
web communications services in their service offerings; and
- the ongoing level of security and reliability for conducting business
over the Web.
OUR SUCCESS DEPENDS ON THE CONTINUED GROWTH OF WEB USAGE AND THE CONTINUED
GROWTH IN RELIABILITY AND CAPACITY OF THE INTERNET.
Because customers access our network through the Web, our revenue growth
depends on the continued development and maintenance of the Internet
infrastructure. This continued development of the Web would include maintenance
of a reliable network with the necessary speed, data capacity and security, as
well as timely development of complementary products and services, including
high-speed modems, for providing reliable Internet access and services. Because
global commerce on the Web and the on-line exchange of information is new and
evolving, we cannot predict whether the Web will continue to be a viable
commercial marketplace over the long term. The success of our business will
rely on the continued improvement of the Web as a convenient means of customer
interaction and commerce, as well as an efficient medium for the delivery and
distribution of information by businesses to their employees. If increases in
Web usage or the continued growth in reliability and capacity of the Internet
fail to materialize, our ability to deliver our services may be adversely
affected and our operating results could suffer.
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, 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.
MANY OF OUR CUSTOMERS AND DISTRIBUTION PARTNERS ARE HIGH TECHNOLOGY COMPANIES
OR IN THE INTERNET INDUSTRY WHICH MAY FACE FINANCIAL PROBLEMS IN A SLOWING OR
DOWN ECONOMY.
Economic growth has been slow and future economic conditions in the United
States and internationally are uncertain. In addition, the recent terrorists
attacks in the United States, the threat of such attacks in the future, and the
unstable conditions in the Middle East and elsewhere may further weaken the
economy in the United States and internationally. In particular, some of the
companies that buy or resell or that are likely to buy or resell our services
are high technology companies or are in the Internet industry which may face
financial problems related to economic conditions or other factors. If economic
conditions deteriorate as a result of economic, political or social turmoil, or
if there are further terrorist attacks in the United States or elsewhere, our
customers may not be able to pay for our services and our distribution partners
may cease operations, which may harm our operating results.
WE MAY EXPERIENCE POWER BLACKOUTS AND HIGHER ELECTRICITY PRICES AS A RESULT OF
ENERGY SHORTAGES OR ELECTRICAL SYSTEM FAILURES, WHICH COULD DISRUPT OUR
OPERATIONS AND INCREASE OUR EXPENSES.
In 2001, California experienced increased energy prices, energy shortages and
blackouts. We rely on the major Northern California public utility, Pacific
Gas & Electric Company ("PG&E") to supply electric power to our headquarters in
Northern California. PG&E has filed for protection under Chapter 11 of the
Bankruptcy Act. If power outages or energy price increases occur in the future
in California or other locations where we maintain operations, such events
could disrupt our operations, prevent us from providing our services, harm our
reputation, and result in a loss of revenue and increase in our expenses, all
of which could substantially harm our business and results of operations.
OUR STOCK PRICE HAS BEEN AND WILL LIKELY CONTINUE TO BE VOLATILE, AND YOU MAY
BE UNABLE TO RESELL YOUR SHARES AT OR ABOVE THE PRICE YOU PAID.
Our stock price has been and is likely to continue to be highly volatile. For
example, between January 1, 2002 and September 30, 2002, our stock price has
traded as high as $29.12 on January 4, 2002, and as low as $10.86 on September
24, 2002. Our stock price could fluctuate significantly due to a number of
factors, including:
- variations in our actual or anticipated operating results;
- sales of substantial amounts of our stock;
- announcements about us or about our competitors, including
technological innovation or new products or services;
- litigation and other developments relating to our patents or other
proprietary rights or those of our competitors;
- conditions in the Internet industry;
- governmental regulation and legislation; and
- changes in securities analysts' estimates of our performance, or our
failure to meet analysts' expectations.
Many of these factors are beyond our control. In addition, the stock markets
in general, and the Nasdaq National Market and the market for Internet
technology companies in particular, have not only experienced extreme price and
volume fluctuations recently but have experienced significant declines. These
fluctuations and declines in some instances have been unrelated or
disproportionate to the operating performance of these companies. These broad
market and industry factors may decrease the market price of our common stock,
regardless of our actual operating performance. In the past, companies that
have experienced volatility in the market prices of their stock have been the
object of securities class action litigation. If we were the object of
securities class action litigation, it could result in substantial costs and a
diversion of management's attention and resources, which could adversely affect
our financial performance.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Risk. We sell a limited amount of our services outside the
United States. These services are generally priced in the local currency. As a
result, our financial results could be affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
When the amount of revenue obtained from sources outside the United States
becomes significant, we may engage in hedging activities or other actions to
decrease fluctuations in operating results due to changes in foreign currency
exchange rates. To date, we have not used derivative instruments to manage
foreign currency risks.
Interest Rate Risk. We do not use derivative financial instruments or market
risk sensitive instruments. Instead, we invest in highly liquid investments
such as money market funds with maturities of less than three months at date of
purchase, available for sale commercial paper and government agency securities
with maturities of nine months or less at date of purchase. Accordingly, we do
not expect any material loss from these investments and believe that our
potential interest rate exposure is not material.
Item 4. Evaluation of Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures. The Company's chief
executive officer and chief financial officer, after reviewing and evaluating
the effectiveness of the Company's "disclosure controls and procedures" (as
defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c))
as of a date within 90 days before the filing date of this quarterly report
(the "Evaluation Date"), have concluded that as of the Evaluation Date, the
Company's disclosure controls and procedures were adequate and designed to
timely provide them with material information relating to the Company required
to be disclosed in the reports the Company files or submits under the
Securities Exchange Act.
Changes in Internal Controls. There have not been any significant changes in
the Company's internal controls or in other factors that could significantly
affect these controls subsequent to the Evaluation Date. There were no
significant deficiencies or material weakness, and therefore no corrective
actions were taken.
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 alleges that the defendants, including WebEx,
manufacture, market and sell products and services that infringe several claims
of the Hamilton Patent. The complaint seeks injunctive relief, damages, treble
damages for alleged willful infringement, and costs and attorneys fees. We
believe that the plaintiff's claims are not valid and we have meritorious
defenses to these claims, and we intend to defend ourselves vigorously against
the allegations made in the complaint. However, there can be no assurance that
we will be successful in the defense of this suit and we cannot reasonably
estimate the possible range of any loss that might result from this suit due to
uncertainty regarding its outcome.
Item 5. Other Information
Change in Board of Directors. Effective August 14, 2002, David Ure resigned
from the Board of WebEx and Casimir Skrzypczak was elected as a new member of
the Board.
Stockholder Proposals for 2003 Annual Meeting. To be considered for inclusion
in the Company's proxy statement and form of proxy for its 2003 Annual Meeting
of Stockholders, a stockholder proposal
must be received at the principal executive offices of the Company not later
than December 16, 2002.
A stockholder proposal not included in the Company's proxy statement for the
2003 Annual Meeting will be ineligible for presentation at the meeting unless
the stockholder gives timely notice of the proposal in writing to the Secretary
of the Company at the principal executive offices of the Company and otherwise
complies with the provisions of the Company's Bylaws. To be timely, the
Company's Bylaws provide that the Company must have received the stockholder's
notice not less than 50 days nor more than 75 days prior to the scheduled date
of such meeting. However, if notice or prior public disclosure of the date of
the annual meeting is given or made to stockholders less than 65 days prior to
the meeting date, the Company must receive the stockholder's notice by the
earlier of (i) the close of business on the 15th day after the earlier of the
day the Company mailed notice of the annual meeting date or provided such
public disclosure of the meeting date and (ii) two days prior to the scheduled
date of the annual meeting. For the Company's 2003 Annual Meeting of
Stockholders, which is scheduled to be held on May 14, 2003, stockholders must
submit written notice to the Secretary in accordance with the foregoing Bylaw
provisions no later than March 24, 2003 but not prior to February 28, 2003.
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
10.1 Registrant's 2000 Stock Incentive Plan, (as amended August 14, 2002)
99.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350
99.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350
- -----------------------
* Incorporated by reference from Exhibits 3.3 and 4.1 of Amendment No. 1
to the Registrant's Registration Statement on Form S-1 (File No. 333-33716)
filed with the Securities and Exchange Commission on June 21, 2000.
** Incorporated by reference from Exhibit 3.2 of Registrant's Annual Report
on Form 10-K (File No. 0-30849), for the fiscal year ended December 31, 2000
filed with the Securities and Exchange Commission on April 2, 2001.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended September 30,
2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEBEX COMMUNICATIONS, INC.
Date: November 14, 2002 By:/s/ Craig Klosterman
-----------------------
Craig Klosterman
Chief Financial Officer
(Duly Authorized Officer,
Principal Financial and
Principal Accounting Officer)
FORM 10-Q CERTIFICATION
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: November 14, 2002
/s/ Subrah S. Iyar
- ------------------------
Subrah S. Iyar
Chief Executive Officer
FORM 10-Q CERTIFICATION
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: November 14, 2002
/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
10.1 Registrant's 2000 Stock Incentive Plan, (as amended August 14, 2002)
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.
1