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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 0-17932
 Web.com, Inc.
 (Exact name of registrant as specified in its charter)
 Minnesota
    
    41-1404301(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)
 303 Peachtree Center Avenue, Suite 500, Atlanta, GA 30303
(Address, including Zip Code, of principal executive offices)
 (404) 260-2477
(Registrants telephone number, including area code)
 þ o
  o þ o
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Web.com, Inc.
Form 10-Q
For the Quarter Ended March 31, 2007
Index
 PagePart I. Financial InformationItem 1. Financial Statementsa) Consolidated Statements of Operations for the Three Months Ended March 31, 2007 and 2006
    
    
    3b) Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006
    
    
    4c) Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2007 and 2006
    
    
    5d) Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 4. Controls and Procedures
    
    
    17Part II. Other InformationItem 1.
    
    Legal Proceedings
    
    
    19Item 1A.
    
    Risk Factors
    
    
    19Item 6.
    
    Exhibits
    
    
    26Signatures
    
    
    27EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
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Part I. Financial Information
 
 Item 1. Financial Statements
 Web.com, Inc.
 
 Consolidated Statements of Operations
  For the Three Months Ended March 31,2007
    
    
    2006Revenues
    
    $
    13,032
    
    
    $
    12,262Operating costs and expenses:Network operating costs, exclusive of depreciation and amortization(1)
    
    
    2,154
    
    
    
    2,384Sales and marketing
    
    
    4,699
    
    
    
    3,150Technical support
    
    
    1,289
    
    
    
    1,722General and administrative
    
    
    5,078
    
    
    
    9,911Bad debt expense
    
    
    562
    
    
    
    277Depreciation and amortization
    
    
    1,072
    
    
    
    1,134Restructuring costs
    
    
    
    
    
    
    43Total operating costs and expenses
    
    
    14,854
    
    
    
    18,621Operating loss
    
    
    (1,822
    )
    
    
    (6,359
    )Interest income (expense), net
    
    
    255
    
    
    
    261Loss from continuing operations before income taxes
    
    
    (1,567
    )
    
    
    (6,098
    )Income tax benefit
    
    
    915
    
    
    
    854Net loss from continuing operations
    
    
    (652
    )
    
    
    (5,244
    )Gain
(loss) from discontinued operations, net of tax of $1,201
    
    
    2,211
    
    
    
    (259
    )Net income (loss)
    
    $
    1,559
    
    
    $
    (5,503
    )Net income (loss) per share, basic and diluted:Continuing operations
    
    $
    (0.04
    )
    
    $
    (0.32
    )Discontinued operations
    
    
    0.13
    
    
    
    (0.02
    )$
    0.09
    
    
    $
    (0.34
    )Number of shares used in per share calculation:Basic and diluted
    
    
    16,703
    
    
    
    16,395(1)  Excludes depreciation and amortization as follows:Network operating costs
    
    $
    752
    
    
    $
    813
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Web.com, Inc.
 
 Consolidated Balance Sheets
  As ofMarch 31, 2007
    
    
    December 31, 2006ASSETSCurrent assetsCash and cash equivalents
    
    $
    16,000
    
    
    $
    13,288Trade receivables, net of allowance of $189 and $160, respectively
    
    
    1,170
    
    
    
    2,074Other receivables
    
    
    380
    
    
    
    525Prepaids and other current assets
    
    
    1,052
    
    
    
    1,154Restricted investments
    
    
    166
    
    
    
    162Total current assets
    
    
    18,768
    
    
    
    17,203Restricted investments
    
    
    7,405
    
    
    
    7,666Property, plant and equipment, net
    
    
    4,074
    
    
    
    4,128Goodwill
    
    
    1,003
    
    
    
    1,003Intangibles, net
    
    
    4,900
    
    
    
    5,233Other assets
    
    
    3,237
    
    
    
    3,195Total assets
    
    $
    39,387
    
    
    $
    38,428LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    1,425
    
    
    $
    1,623Accrued expenses
    
    
    4,281
    
    
    
    4,709Accrued restructuring charges
    
    
    2,091
    
    
    
    2,345Current portion of long-term debt and capital lease obligations
    
    
    1,725
    
    
    
    1,703Deferred revenue
    
    
    4,633
    
    
    
    4,687Deferred tax liability  short term
    
    
    286
    
    
    
    Total current liabilities
    
    
    14,441
    
    
    
    15,067Long-term debt and capital lease obligations
    
    
    1,511
    
    
    
    1,971Deferred revenue
    
    
    264
    
    
    
    314Other liabilities
    
    
    70
    
    
    
    120Total liabilities
    
    
    16,286
    
    
    
    17,472Contingencies (Note 8)
    
    
    
    
    
    
    Shareholders equityCommon stock, $0.01 par value, authorized 26 million shares,
issued and outstanding 16.8 and 16.8 million shares, respectively
    
    
    168
    
    
    
    168Additional capital
    
    
    332,535
    
    
    
    331,949Warrants
    
    
    2,128
    
    
    
    2,128Note receivable from shareholder
    
    
    (735
    )
    
    
    (735
    )Accumulated deficit
    
    
    (310,995
    )
    
    
    (312,554
    )Total shareholders equity
    
    
    23,101
    
    
    
    20,956Total liabilities and shareholders equity
    
    $
    39,387
    
    
    $
    38,428
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Web.com, Inc.
 
 Consolidated Statements of Cash Flows
  For the Three Months Ended March 31,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    1,559
    
    
    $
    (5,503
    )Adjustments to reconcile net income (loss) to net cash provided
by operating activities from continuing operations:(Gain) loss from discontinued operations
    
    
    (3,412
    )
    
    
    259Depreciation and amortization
    
    
    1,072
    
    
    
    1,134Bad debt expense
    
    
    562
    
    
    
    277Stock-based compensation
    
    
    543
    
    
    
    5,337Restructuring costs
    
    
    
    
    
    
    43Changes in operating assets and liabilities:Receivables
    
    
    487
    
    
    
    450Other current and long term assets
    
    
    60
    
    
    
    313Accounts payable, accrued expenses and deferred revenue
    
    
    (994
    )
    
    
    (2,048
    )Deferred tax liability
    
    
    286
    
    
    
    Net cash provided by operating activities of continuing operations
    
    
    163
    
    
    
    262CASH FLOWS FROM INVESTING ACTIVITIES:Expenditures for property, plant and equipment
    
    
    (685
    )
    
    
    (931
    )Net change in restricted investments
    
    
    257
    
    
    
    446Acquisition, net of cash acquired
    
    
    
    
    
    
    14Net cash used in investing activities of continuing operations
    
    
    (428
    )
    
    
    (471
    )CASH FLOWS FROM FINANCING ACTIVITIES:Repayments of debt and capital lease obligations
    
    
    (439
    )
    
    
    (450
    )Proceeds from issuance of common stock
    
    
    43
    
    
    
    103Net cash used in financing activities of continuing operations
    
    
    (396
    )
    
    
    (347
    )Net cash used in continuing operations
    
    
    (661
    )
    
    
    (556
    )Net cash provided by (used in) discontinued operations:Operating cash flows
    
    
    3,373
    
    
    
    (24
    )Investing cash flows
    
    
    
    
    
    
    Financing cash flows
    
    
    
    
    
    
    Total cash provided by (used in) discontinued operations
    
    
    3,373
    
    
    
    (24
    )Net increase (decrease) in cash and cash equivalents
    
    
    2,712
    
    
    
    (580
    )Cash and cash equivalents, beginning of period
    
    
    13,288
    
    
    
    17,370Cash and cash equivalents, end of period
    
    $
    16,000
    
    
    $
    16,790
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Web.com, Inc.
 
   Note 1  General
 Business
 History of operating losses
 Note 2  Summary of Significant Accounting Policies
 Interim Unaudited Financial Information 
 Basis of Presentation 
 Use of Estimates 
 Basic and diluted income (loss) per share 
  Stock-Based Compensation 
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Web.com, Inc.   Unaudited
    Recently Issued Accounting Standards
 Fair
Value Measurements
 Accounting for
Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109  Accounting for Income
Taxes
 Note 3  Acquisition and Impairment of WebSource Media, LLC
  ex parte
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Web.com, Inc.   Unaudited
    Note 4  Restructuring and Facility Exit Costs
  2005 Plan 
 2001 Plan 
 Note 5  Purchase Business Combination Liabilities
   Note 6  Income Taxes
 Accounting for Uncertainty in Income Taxes
 an interpretation of FASB Statement No. 109  Accounting for Income Taxes (FIN 48)
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Web.com, Inc.   Unaudited
       Note 7  Discontinued Operations
   Note 8  Contingencies
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Web.com, Inc.   Unaudited
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Web.com, Inc.   Unaudited
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Web.com, Inc.   Unaudited
    Note 9  Subsequent Events
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Special Note About Forward-Looking Statements
  Overview
   Key Metrics
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Results of Continuing Operations
 Comparison of the Three Months Ended March 31, 2007 and March 31, 2006
  Revenues.
 For the Three Months Ended March 31,2007
    
    
    2006Hosting revenue
    
    $
    12,477
    
    
    $
    11,482Other revenue
    
    
    555
    
    
    
    780Total revenue
    
    $
    13,032
    
    
    $
    12,262
   Operating Costs and Expenses
  For the Three Months Ended March 31,2007
    
    
    2006Network operating costs
    
    
    2,154
    
    
    
    2,384Sales and marketing
    
    
    4,699
    
    
    
    3,150Technical support
    
    
    1,289
    
    
    
    1,722General and administrative
    
    
    5,078
    
    
    
    9,911Bad debt expense
    
    
    562
    
    
    
    277Depreciation and amortization
    
    
    1,072
    
    
    
    1,134Restructuring costs
    
    
    
    
    
    
    43Total operating costs and expenses
    
    $
    14,854
    
    
    $
    18,621
 Network Operating Costs.
 Sales and Marketing.
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Technical Support.
 General and Administrative.
   Bad Debt Expense.
 Depreciation and Amortization.
 Interest Income (Expense), Net.
 Income Taxes.
  Results of Discontinued Operations
  Certain Underwriters/Lloyds Settlement .
 PC Systems.
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Liquidity and Capital Resources
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Off-Balance Sheet Arrangements
  Related Party Transactions
  Critical Accounting Policies and Estimates
  FIN 48 
 Recently Issued Accounting Standards
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
 Disclosure controls and Procedures.
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Internal Control over Financial Reporting.
 Inherent Limitations
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Part II. Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 You should carefully consider the following factors and all other information contained in this
Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2006 before you make
any investment decisions with respect to our securities. The risks and uncertainties described
below may not be the only risks that we face.
 We have incurred losses since inception and could incur losses in the future.
  
    
    Adapting network infrastructure and administrative resources to accommodate additional
customers and future growth;
    
    Developing products, distribution, marketing, and management for the broadest-possible market;
    
    Broadening customer technical support capabilities;
    
    Developing or acquiring new products and associated technical infrastructure;
    
    Developing additional indirect distribution partners;
    
    Increased costs from third party service providers;
    
    Improving network security features; and
    
    Legal fees and settlements associated with litigation and contingencies.
 Ours is a recurring-revenue subscriber business and as such the effects of a net loss of monthly
recurring revenue is magnified.
  We operate in a new and evolving market with uncertain prospects for growth and may not be able to
generate and sustain growth in our customer base.
 .
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Because our target markets are volatile, we may face a loss of customers or a high level of
non-collectible accounts.
  
    
    Capitalizing on infrastructure efficiencies to become a profitable provider at the
lowest sustainable price;
    
    Automating customer care and technical support to reduce the cost per call, and to
minimize the time spent by our customer service and technical support personnel;
    
    Intensive training and supervision of customer care and technical support personnel to
maximize customer satisfaction; and
    
    Increasing the number and breadth of services to differentiate ourselves from the
competition.
  We depend on reseller and affiliate sales channels to market and sell many of services. We do not
control these resellers and affiliates, and if we fail to develop or maintain good relations with
our resellers and affiliates, we may not achieve growth in customers and revenues .
  If we are not able to attract and retain key personnel, we may not be able to compete effectively
in our markets .
  Because we face intense competition, we may not be able to operate profitably in our markets .
  
    
    Develop and expand their network infrastructures and service offerings more rapidly;
    
    Adapt to new or emerging technologies and changes in customer requirements more quickly;
    
    Devote greater resources to the marketing and sale of their services; and
    
    Adopt more aggressive pricing policies than we can.
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Impairment of our intellectual property rights could negatively affect our business or could allow
competitors to minimize any advantage that our proprietary technology provides.
    We are vulnerable to system failures, which could harm our reputation, cause our customers to seek
reimbursement for services paid for and not received, and cause our customers to seek another
provider for services .
  
    
    Cause customers or end users to seek damages for losses incurred;
    
    Require us to replace existing equipment or add redundant facilities;
    
    Damage our reputation for reliable service;
    
    Cause existing customers to cancel their contracts, or
    
    Make it more difficult for us to attract new customers.
 Our data centers are maintained by third parties.
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Data centers and communications networks are vulnerable to security breaches that could cause
disruptions in service, liability to third parties, or loss of customers.
  Disruption of our services caused by unknown software or hardware defects could harm our business
and reputation.
  Providing services to customers with critical websites and web services could potentially expose us
to lawsuits for customers lost profits or other damages.
  We could face liability for information distributed through our network.
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Our business operates in an uncertain legal environment where future government regulation and
lawsuits could restrict our business or cause unexpected losses .
  Quarterly and annual operating results may fluctuate, which could cause our stock price to be
volatile.
  
    
    Demand for and market acceptance of our services and products;
    
    Introduction of new services or enhancements by us or by our competitors;
    
    Costs of implementing new network security features, CRM systems, and billing modules;
    
    Technical difficulties or system downtime affecting the Internet generally or hosting operations specifically;
    
    Customer retention;
    
    Increased competition and consolidation within the web hosting and applications hosting markets;
    
    Changes in our pricing policies and the pricing policies of our competitors;
    
    Gains or losses of key strategic partner relationships;
    
    Impairment charges;
    
    Restructuring charges;
    
    Merger and integration costs;
    
    Litigation expenses;
    
    Insurance expenses; and
    
    Marketing expenses.
   Our stock price may be volatile which could cause an investment in our common stock to decrease
significantly.
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
    
    Variations in operating results and analyst earnings estimates;
    
    The volatility of stock within the sectors within which we conduct business;
    
    Announcements by us or by our competitors regarding introduction of new services;
    
    General changes in economic conditions;
    
    Changes in trading volume, and
    
    Our inability to reduce the rate of account cancellations, or to increase the rate of account additions, or both.
  We could face liability and expense in connection with our acquisition of WebSource Media and
related litigation.
     Unfavorable results of existing litigation may cause us to have additional expenses or operating
losses that exceed our ability to pay.
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Substantial future sales of shares by shareholders could negatively affect our stock price.
  We could lose our ability to process credit card transactions.
  We could incur liabilities in the future relating to our discontinued PC Systems business, which
could cause additional operating losses.
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Item 6. Exhibits
 Exhibit
    
    Description3.01
    
    Unofficial Restated Articles of Incorporation of Registrant (as amended through April
24, 2002) (incorporated by reference to the Registrants Quarterly Report on Form 10-Q for
the quarter ended May 31, 2002).3.01(b)
    
    Articles of Amendment to Articles of Incorporation of Registrant (incorporated by
reference to the Registrants Annual Report on Form 10-K for the year ended August 31,2003).3.01(c)
    
    Articles of Merger effective as of March 20, 2006 (incorporated by reference to
Exhibit 3.01(c) to the Registrants Current Report on Form 8-K filed on March 21, 2006).3.01(d)
    
    Articles of Amendment to Articles of Incorporation of Registrant dated March 31, 2006
(incorporated by reference to Exhibit 3.01(d) to Registrants Form 8-K filed April 3,
2006).3.01(e)
    
    Certificate of Designation, Rights and Preferences of the Series A Junior Participating
Preferred Stock, as filed with the Secretary of State of Minnesota on August 7, 2006
(incorporated by reference to Exhibit 3.1 to Registrants Form 8-K filed August 7, 2006).3.01(f)
    
    Statement of Cancellation of the Statement Fixing the Rights and Preferences of the
Series A Junior Participating Preferred Stock, as filed with the Secretary of State of
Minnesota on April 3, 2007 (incorporated by reference to Exhibit 3.01(f) to Registrants
Form 8-K filed April 6, 2007).4.11
    
    Rights Agreement Amendment dated as of March 12, 2007 (incorporated by reference to
the Registrants Form 8-K filed on March 13, 2007).31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.32.1
    
    Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of
2002.32.2
    
    Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of
2002.
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Signatures
  Web.com, Inc.

(Registrant)Dated: May 10, 2007
    
    /s/ Gonzalo Troncoso

Gonzalo TroncosoExecutive Vice President and Chief Financial Officer(Principal Financial Officer)
 27