##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM
10-K/A
 (Amendment No. 1)
 FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the year ended December 31, 2004
  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: 0-31613
 WEBSIDESTORY, INC.
  Delaware
    
    33-0072173(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 10182 Telesis Court, 6th Floor, San Diego, CA
    
    92121(Address of principal executive offices)
    
    (Zip Code)
 (858) 546-0040
  Title of Each Class
    
    Name of Each Exchange on Which RegisteredNone
    
    None
 Common Stock, par value $0.001 per
share
 þ o
 þ
 o þ
 o þ
    DOCUMENTS INCORPORATED BY REFERENCE




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Explanatory Note




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##### 



WEBSIDESTORY, INC.
 FORM 10-K/A  ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
 TABLE OF CONTENTS
 PagePART IIItem 6 Selected Financial Data
    
    2Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    2Item 8 Financial Statements and Supplementary Data
    
    10Item 9A Controls and Procedures
    
    11PART IVItem 15 Exhibits and Financial Statement Schedules
    
    13SIGNATURES
    
    17EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32




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Item 6. Selected Consolidated Financial Data.
  . , .
 Condensed Consolidated Statement of Operations Data (in thousands, except share and per share data)
 Year Ended December 31,2000
    
    2001
    
    2002
    
    2003
    
    2004Restated
    
    Restated
    
    Restated
    
    Restated
    
    RestatedRevenues
    
    $
    14,251
    
    
    $
    14,447
    
    
    $
    13,570
    
    
    $
    16,360
    
    
    $
    22,602(Loss) income from operations
    
    
    (19,971
    )
    
    
    (3,780
    )
    
    
    (1,887
    )
    
    
    (2,608
    )
    
    
    1,642Net (loss) income
    
    
    (21,145
    )
    
    
    (4,663
    )
    
    
    (2,625
    )
    
    
    (2,078
    )
    
    
    1,768Net loss attributable to common stockholders
    
    
    (24,834
    )
    
    
    (6,317
    )
    
    
    (3,992
    )
    
    
    (3,644
    )
    
    
    (947
    )Net loss per share attributable to common
stockholders  basic and diluted
    
    $
    (7.84
    )
    
    $
    (1.67
    )
    
    $
    (1.05
    )
    
    $
    (0.91
    )
    
    $
    (0.13
    )Weighted-average shares used in computing
per share amount  basic and diluted
    
    
    3,166,127
    
    
    
    3,784,319
    
    
    
    3,806,550
    
    
    
    4,001,979
    
    
    
    7,300,809
 Condensed Consolidated Balance Sheet Data (in thousands)
 As of December 31,2000
    
    2001
    
    2002
    
    2003
    
    2004Restated
    
    Restated
    
    Restated
    
    Restated
    
    RestatedCash, cash equivalents and short-term
marketable securities
    
    $
    5,355
    
    
    $
    4,704
    
    
    $
    4,563
    
    
    $
    5,690
    
    
    $
    22,033Working capital
    
    
    5,327
    
    
    
    4,210
    
    
    
    2,740
    
    
    
    2,679
    
    
    
    17,664Total assets
    
    
    24,307
    
    
    
    20,685
    
    
    
    8,605
    
    
    
    9,917
    
    
    
    37,618Redeemable preferred stock
    
    
    10,000
    
    
    
    11,181
    
    
    
    12,519
    
    
    
    14,056
    
    
    
    Convertible redeemable preferred stock
    
    
    29,357
    
    
    
    31,266
    
    
    
    30,008
    
    
    
    28,837
    
    
    
    Accumulated deficit
    
    
    (46,670
    )
    
    
    (51,333
    )
    
    
    (53,958
    )
    
    
    (56,036
    )
    
    
    (54,268
    )Total stockholders (deficit) equity
    
    $
    (32,527
    )
    
    $
    (35,945
    )
    
    $
    (38,273
    )
    
    $
    (39,179
    )
    
    $
    28,145
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 The following discussion contains forward-looking statements, which involve risks and
uncertainties. Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set forth above under
Business  Risk Factors. The financial statements and this Managements Discussion and Analysis
of Financial Condition and Results of Operations should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 2004, which are contained in this
annual report.
 Restatement
of Financial Statements
      Overview
   2




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Sources of Revenues
   Cost of Revenues and Operating Expenses
 Cost of Revenues
   3




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Sales and Marketing Expenses
  Research and Development Expenses
  General and Administrative Expenses
  Stock-Based Compensation Expenses
  Critical Accounting Policies and Estimates
   Allowance for Doubtful Accounts
  4




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Accounting for Stock-Based Compensation
   Results of Operations
  Year EndedDecember 31,2002
    
    
    2003
    
    
    2004Restated
    
    
    Restated
    
    
    RestatedRevenues:Subscription
    
    
    89
    %
    
    
    96
    %
    
    
    99
    %Advertising
    
    
    11
    
    
    
    4
    
    
    
    1Total revenues
    
    
    100
    
    
    
    100
    
    
    
    100Cost of revenues:Cost of revenues
    
    
    26
    
    
    
    20
    
    
    
    15Stock-based compensation expenses
    
    
    
    
    
    
    
    
    
    
    Total cost of revenues
    
    
    26
    
    
    
    20
    
    
    
    15Gross profit
    
    
    74
    
    
    
    80
    
    
    
    85Operating expenses:Sales and marketing
    
    
    42
    
    
    
    44
    
    
    
    43Research and development
    
    
    22
    
    
    
    21
    
    
    
    16General and administrative
    
    
    22
    
    
    
    23
    
    
    
    15IPO expenses
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expenses(1)
    
    
    2
    
    
    
    8
    
    
    
    4Total operating expenses
    
    
    88
    
    
    
    96
    
    
    
    78Income (loss) from operations
    
    
    (14
    )
    
    
    (16
    )
    
    
    7Interest expense
    
    
    (7
    )
    
    
    
    
    
    
    Interest income
    
    
    
    
    
    
    
    
    
    
    1Other income
    
    
    1
    
    
    
    3
    
    
    
    Net income (loss) before provision for (benefit from) income taxes
    
    
    (20
    )
    
    
    (13
    )
    
    
    8Provision for (benefit from) income taxes
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    (20
    )%
    
    
    (13
    )%
    
    
    8
    %
 5




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##### Table of Contents



Year EndedDecember 31,2002
    
    
    2003
    
    
    2004(1)
Stock-based compensation expenses:Sales and marketing
    
    
    1
    %
    
    
    2
    %
    
    
    1
    %Research and development
    
    
    1
    
    
    
    
    
    
    
    General and administrative
    
    
    
    
    
    
    6
    
    
    
    32
    %
    
    
    8
    %
    
    
    4
    %
 Years Ended December 31, 2003 and 2004
 Revenues
  Subscription Revenues.
 Advertising Revenues.
 Cost of Revenues and Operating Expenses
 Cost of Revenues.
 Sales and Marketing Expenses.
 Research and Development Expenses.
 6




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General
and Administrative Expenses.
 Stock-Based Compensation Expenses
  Other Income, Net
  Provision for (Benefit from) Income Taxes
  7




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##### Table of Contents



Years Ended December 31, 2002 and 2003
 Revenues
  Subscription Revenues.
 Advertising Revenues.
 Operating Expenses
 Cost of Revenues.
 Sales and Marketing Expenses.
 Research and Development Expenses.
 General and Administrative Expenses.
 Stock-Based Compensation Expenses
  Other Income, Net
  Provision for (Benefit from) Income Taxes
  Net Operating Losses and Tax Credit Carryforwards
  8




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Liquidity and Capital Resources
   . .
  Cash Flows
    9




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Factors That May Affect Future Financial Condition And Liquidity
  Payments Due by Period
    
    MoreLess than
    
    1-3
    
    4-5
    
    thanContractual Obligations
    
    Total
    
    1 Year
    
    Years
    
    Years
    
    5 Years(in thousands)Capital lease obligations
    
    $
    135
    
    
    $
    27
    
    
    $
    55
    
    
    $
    53
    
    
    $
    Operating lease obligations
    
    
    3,631
    
    
    
    1,779
    
    
    
    1,852
    
    
    
    
    
    
    
    Notes Payable
    
    
    27
    
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    Purchase Obligations
    
    $
    220
    
    
    $
    220
    
    
    $
    
    
    
    $
    
    
    
    $
    
  
    
    the costs of serving more customers;
    
    the costs of our network infrastructure;
    
    the costs of our research and development activities to improve our service offerings; and
    
    the extent to which we acquire or invest in other technologies and businesses.
   
 Item 8. Financial Statements and Supplementary Data.
 .
 10




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Selected Condensed Consolidated Quarterly Data (unaudited, in thousands, except share and per share
data)
 Three Months EndedMarch 31,
    
    
    March 31,
    
    
    June 30,
    
    
    June 30,
    
    
    Sept. 30
    
    
    Sept. 30
    
    
    Dec 31,
    
    
    Dec 31,2003
    
    
    2003
    
    
    2003
    
    
    2003
    
    
    2003
    
    
    2003
    
    
    2003
    
    
    2003As Previously
    
    
    
    
    
    
    As Previously
    
    
    
    
    
    
    As Previously
    
    
    
    
    
    
    As PreviouslyQuarterly Consolidated
    
    Reported
    
    
    As Restated
    
    
    Reported
    
    
    As Restated
    
    
    Reported
    
    
    As Restated
    
    
    Reported
    
    
    As RestatedStatement of OperationsRevenues
    
    $
    3,789
    
    
    $
    3,789
    
    
    $
    3,936
    
    
    $
    3,936
    
    
    $
    4,077
    
    
    $
    4,077
    
    
    $
    4,558
    
    
    $
    4,558Cost of revenues
    
    
    818
    
    
    
    810
    
    
    
    828
    
    
    
    820
    
    
    
    778
    
    
    
    771
    
    
    
    823
    
    
    
    816Gross profit
    
    
    2,971
    
    
    
    2,979
    
    
    
    3,108
    
    
    
    3,116
    
    
    
    3,299
    
    
    
    3,306
    
    
    
    3,735
    
    
    
    3,742Operating expenses
    
    
    4,025
    
    
    
    3,995
    
    
    
    3,774
    
    
    
    3,734
    
    
    
    3,871
    
    
    
    3,836
    
    
    
    3,867
    
    
    
    4,186Operating (loss) profit
    
    
    (1,054
    )
    
    
    (1,016
    )
    
    
    (666
    )
    
    
    (618
    )
    
    
    (572
    )
    
    
    (530
    )
    
    
    (132
    )
    
    
    (444
    )Net (loss) income
    
    
    (1,053
    )
    
    
    (1,021
    )
    
    
    (657
    )
    
    
    (613
    )
    
    
    (561
    )
    
    
    (525
    )
    
    
    404
    
    
    
    81Net (loss) income
attributable to common
stockholders
    
    
    (1,425
    )
    
    
    (1,393
    )
    
    
    (1,045
    )
    
    
    (1,002
    )
    
    
    (961
    )
    
    
    (923
    )
    
    
    (2
    )
    
    
    (326
    )Net (loss) income per
share attributable to
common stockholdersBasic
    
    $
    (0.37
    )
    
    $
    (0.37
    )
    
    $
    (0.26
    )
    
    $
    (0.25
    )
    
    $
    (0.24
    )
    
    $
    (0.23
    )
    
    $
    
    
    
    $
    (0.08
    )Diluted
    
    $
    (0.37
    )
    
    $
    (0.37
    )
    
    $
    (0.26
    )
    
    $
    (0.25
    )
    
    $
    (0.24
    )
    
    $
    (0.23
    )
    
    $
    
    
    
    $
    (0.08
    )Weighted-average
number of shares used
in per share amounts:Basic*
    
    
    3,808
    
    
    
    3,808
    
    
    
    3,975
    
    
    
    3,975
    
    
    
    4,073
    
    
    
    4,073
    
    
    
    4,158
    
    
    
    4,158Diluted*
    
    
    3,808
    
    
    
    3,808
    
    
    
    3,975
    
    
    
    3,975
    
    
    
    4,073
    
    
    
    4,073
    
    
    
    4,158
    
    
    
    4,158
 Three Months EndedMarch 31,
    
    
    March 31,
    
    
    June 30,
    
    
    June 30,
    
    
    Sept. 30
    
    
    Sept. 30
    
    
    Dec 31,
    
    
    Dec 31,2004
    
    
    2004
    
    
    2004
    
    
    2004
    
    
    2004
    
    
    2004
    
    
    2004
    
    
    2004As Previously
    
    
    
    
    
    
    As Previously
    
    
    
    
    
    
    As Previously
    
    
    
    
    
    
    As PreviouslyQuarterly Consolidated
    
    Reported
    
    
    As Restated
    
    
    Reported
    
    
    As Restated
    
    
    Reported
    
    
    As Restated
    
    
    Reported
    
    
    As RestatedStatement of OperationsRevenues
    
    $
    5,040
    
    
    $
    5,040
    
    
    $
    5,293
    
    
    $
    5,293
    
    
    $
    5,735
    
    
    $
    5,735
    
    
    $
    6,534
    
    
    $
    6,534Cost of revenues
    
    
    755
    
    
    
    751
    
    
    
    793
    
    
    
    787
    
    
    
    855
    
    
    
    849
    
    
    
    912
    
    
    
    928Gross profit
    
    
    4,285
    
    
    
    4,289
    
    
    
    4,500
    
    
    
    4,506
    
    
    
    4,880
    
    
    
    4,886
    
    
    
    5,622
    
    
    
    5,606Operating expenses
    
    
    4,144
    
    
    
    4,101
    
    
    
    4,322
    
    
    
    4,302
    
    
    
    4,260
    
    
    
    4,244
    
    
    
    4,963
    
    
    
    4,998Operating (loss) profit
    
    
    141
    
    
    
    188
    
    
    
    193
    
    
    
    204
    
    
    
    620
    
    
    
    642
    
    
    
    659
    
    
    
    608Net (loss) income
    
    
    128
    
    
    
    165
    
    
    
    198
    
    
    
    215
    
    
    
    614
    
    
    
    628
    
    
    
    818
    
    
    
    760Net (loss) income
attributable to common
stockholders
    
    
    (270
    )
    
    
    (233
    )
    
    
    (272
    )
    
    
    (255
    )
    
    
    
    
    
    
    
    
    
    
    (571
    )
    
    
    (629
    )Net (loss) income per
share attributable to
common stockholdersBasic
    
    $
    (0.06
    )
    
    $
    (0.05
    )
    
    $
    (0.06
    )
    
    $
    (0.06
    )
    
    $
    
    
    
    $
    
    
    
    $
    (0.04
    )
    
    $
    (0.04
    )Diluted
    
    $
    (0.06
    )
    
    $
    (0.05
    )
    
    $
    (0.06
    )
    
    $
    (0.06
    )
    
    $
    
    
    
    $
    
    
    
    $
    (0.04
    )
    
    $
    (0.04
    )Weighted-average
number of shares used
in per share amounts:Basic*
    
    
    4,463
    
    
    
    4,463
    
    
    
    4,614
    
    
    
    4,614
    
    
    
    4,663
    
    
    
    4,663
    
    
    
    15,402
    
    
    
    15,402Diluted*
    
    
    4,463
    
    
    
    4,463
    
    
    
    4,614
    
    
    
    4,614
    
    
    
    11,603
    
    
    
    11,603
    
    
    
    15,402
    
    
    
    15,402
 
 *
    
    Due to rounding and the use of quarterly weighted-average share data, the summation of the
quarterly data presented may not agree to the annual net loss per share attributable to common
stockholders. 
 Item 9A. Controls and Procedures.
 (a) Evaluation of Disclosure Controls and Procedures
    Material Weaknesses in Internal Control Over Financial Reporting
  11




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Insufficient Staffing in Our Accounting and Financial Reporting Functions
 Application of Lease-Related Generally Accepted Accounting Principles.
 Managements
Remediation Initiatives
  
    
    We have initiated a search for a qualified individual to support our
financial accounting and reporting functions. We have not completed
the hiring process, as we continue to assess our staffing needs. We
need, at a minimum, a strong accountant to ensure compliance with all
current and future accounting rules. Currently, the existing staff is
addressing our application of generally accepted accounting
principles. We have applied additional resources and improved the
documentation of our job descriptions within the financial accounting
and reporting functions, but more is needed in this area and will be
enhanced with the addition of a technical accountant. We are and have
been actively recruiting for the accountant position for several
months. We have experienced difficulty in finding qualified applicants
as this appears to be a high demand area. We will strive to fill the
position as soon as possible.
    
    We have engaged a financial consulting firm to assist in the
accounting and financial reporting function as we continue to actively
search for a permanent hire. As deemed necessary, we will leverage
their resources and expertise to help ensure compliance with
accounting principles generally accepted in the United States of
America.
  
    
    We reviewed the terms of our leases and sublease, together with the applicable accounting literature relating to lease
accounting, to determine the proper accounting treatment for our headquarters lease and sub-lease and to confirm the
accounting treatment for our other leases;
    
    We changed our internal control over financial reporting to identify the procedures to follow for appropriate lease and
sublease accounting;
    
    We educated accounting department personnel regarding correct lease and sublease accounting procedures; and
    
    We expanded the procedures in our internal control over financial reporting related to periodic reviews of non-routine
transactions.
 12




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(b) Changes in Internal Control Over Financial Reporting
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
 Documents filed as part of this report:
  
    
    Report of Independent Registered Public Accounting Firm;
    
    Restated consolidated balance sheets as of December 31, 2003 and 2004;
    
    Restated consolidated statements of operations for the fiscal years ended December 31, 2002, 2003 and 2004;
    
    Restated consolidated statements of stockholders equity (deficit) and other comprehensive income (loss)
for the fiscal years ended December 31, 2002, 2003 and 2004;
    
    Restated consolidated statements of cash flows for the fiscal years ended December 31, 2002, 2003 and
2004; and
    
    Notes to consolidated financial statements.
 13




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ExhibitNumber
    
    Description3.1(1)
    
    Amended and Restated Certificate of Incorporation.3.2(1)
    
    Amended and Restated Bylaws.4.1(1)
    
    Form of Common Stock Certificate.4.2(1)
    
    Registration Rights Agreement, as amended, by and among the Company and certain investors set forth
therein, dated June 18, 1999.4.3(1)
    
    Warrant to Purchase Common Stock by and between the Company and Imperial Bancorp, dated March 27, 2000.4.4(1)
    
    Warrant to Purchase Common Stock by and between the Company and Imperial Bancorp, dated February 2, 2001.4.5(1)
    
    Warrant to Purchase Common Stock by and between the Company and Imperial Creditcorp, dated April 30, 2001.4.6(1)+
    
    Warrant to Purchase Series D Convertible Preferred Stock by and between the Company and Jeffrey W.
Lunsford, dated April 1, 2003.10.1(1)+
    
    Amended and Restated 2000 Equity Incentive Plan.10.2(2)+
    
    2004 Equity Incentive Award Plan and Form of Option Grant Agreement.10.3(1)+
    
    Common Stock Purchase Agreement between the Company and Jeffrey W. Lunsford, dated April 1, 2003.10.4(1)+
    
    Common Stock Purchase Agreement between the Company and Michael S. Christian, dated July 29, 2003.10.5(1)+
    
    Amended and Restated Employment Agreement between the Company and Jeffrey W. Lunsford, dated July 21,
2004.10.6(1)+
    
    Offer Letter between the Company and Thomas D. Willardson, dated March 23, 2004.10.7(1)+
    
    Offer Letter between the Company and Rand Schulman, dated May 15, 2003.10.8(1)+
    
    Transition Agreement between the Company and John J. Hentrich, dated March 31, 2003.10.9(1)+
    
    Offer Letter between the Company and Christopher Reid, dated February 12, 2003.10.10(1)+
    
    Amendment to Employment Agreement between WebSideStory Holding B.V. and Daniel Guilloux, dated November
15, 2002.10.11(1)+
    
    Employment Agreement between WebSideStory Holding B.V. and Daniel Guilloux, dated as of July 1, 2000.10.12(1)+
    
    Confidentiality Agreement and Terms of Employment between the Company and Michael S. Christian, dated
April 25, 2000.10.13(1)+
    
    Form of Indemnification Agreement between the Company and the persons listed on Schedule A thereto.
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##### Table of Contents



ExhibitNumber
    
    Description10.14(1)+
    
    Form of Change of Control Agreement between the Company and the persons listed on Schedule A thereto.10.15(1)+
    
    Change of Control Agreement between the Company and Thomas D. Willardson, dated July 21, 2004.10.16(1)
    
    Terms for Delivery of Service and Customer Order Summary between the Company and Level (3)
Communications, Inc., dated November 20, 2001.10.17(1)
    
    Addendum to Terms for Delivery of Service between the Company and Level (3) Communications, Inc.,
dated November 20, 2001.10.18(1)
    
    Office Lease between the Company and LNR Seaview, Inc., dated August 23, 1999.10.19(1)
    
    First Amendment to Office Lease between the Company and LNR Seaview, Inc., dated July 3, 2001.10.20(1)
    
    Sublease between the Company and RF Magic, Inc., dated July 3, 2001.10.21(1)
    
    Sublease between the Company and Avexus, Inc., dated July 6, 2001.10.22(1)
    
    Addendum to Sublease between the Company and Avexus, Inc., dated April 18, 2002.10.23(1)
    
    Amendment to Sublease between the Company and RF Magic, Inc., dated September 10, 2003.10.24(1) 
    
    Revised Master Service Agreement among the Company, Buena Vista Internet Group, ESPN Internet
Ventures, ABCNews Internet Ventures, Infoseek Corporation, ABC Multimedia, Inc. and Walt Disney
Parks & Resorts Online dated August 29, 2003.10.25(1) 
    
    Amendment to Revised Master Service Agreement among the Company, Buena Vista Internet Group, ESPN
Internet Ventures, ABCNews Internet Ventures, Infoseek Corporation, ABC Multimedia, Inc. and Walt
Disney Parks & Resorts Online dated March 31, 2004.10.26(1)
    
    Patent Cross-License Agreement between the Company and NetIQ Corporation dated December 12, 2003.10.27(1)
    
    Salesforce.com JoinForces Product Alliance Program Agreement, dated May 21, 2004, between the
Company and Salesforce.com, Inc.10.28(1)
    
    Second Addendum to Terms for Delivery of Service between the Company and Level (3) Communications,
Inc., dated April 4, 2003.21.1(1)
    
    List of Subsidiaries.23.1*
    
    Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.31.1*
    
    Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 promulgated under the
Securities Exchange Act of 1934.31.2*
    
    Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 promulgated under the
Securities Exchange Act of 1934.32**
    
    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 (1)
    
    Incorporated by reference to the Registration Statement on Form S-1 of
WebSideStory, Inc. (Registration No. 333-115916) filed with the
Securities and Exchange Commission on September 17, 2004. 15




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##### Table of Contents



(2)
    
    Incorporated by reference to the Registration
Statement on Form S-8 of WebSideStory, Inc.
(Registration No. 333-119350) filed with the
Securities and Exchange Commission on September
28, 2004.
    
    WebSideStory, Inc. has been granted confidential
treatment with respect to certain portions of this
exhibit (indicated by asterisks), which have been
separately filed with the Securities and Exchange
Commission.+
    
    Indicates management contract or compensatory plan.*
    
    Filed herewith**
    
    These certifications are being furnished solely to
accompany this annual report pursuant to 18 U.S.C.
Section 1350, and are not being filed for purposes
of Section 18 of the Securities Exchange Act of
1934 and are not to be incorporated by reference
into any filing of WebSideStory, Inc., whether
made before or after the date hereof, regardless
of any general incorporation language in such
filing.
 16




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##### Table of Contents



SIGNATURES
  WEBSIDESTORY, INC.Dated:
December 15, 2005
    
    By:
    
    /s/ THOMAS D. WILLARDSONThomas D. WillardsonChief Financial Officer
 17




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##### Table of Contents



Table of Contents
 WebSideStory, Inc.
 Index To Financial Statements
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Restated Consolidated Balance Sheets as of December 31, 2003 and 2004
    
    
    F-3Restated
Consolidated Statements of Operations for the fiscal years ended
December 31, 2002, 2003 and 2004
    
    
    F-4Restated Consolidated Statements of Stockholders Equity (Deficit) and Other Comprehensive Income (Loss)
for the fiscal years ended December 31, 2002, 2003 and 2004
    
    
    F-5Restated Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2002, 2003 and 2004
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7
 F-1




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##### Table of Contents



REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    
 F-2




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##### Table of Contents



WEBSIDESTORY, INC.
 
 CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 December
31,2003
    
    
    2004Restated
    
    
    RestatedAssetsCurrent assetsCash and cash equivalents
    
    $
    5,690
    
    
    $
    5,710Investments
    
    
    
    
    
    
    16,323Accounts receivable, net
    
    
    2,257
    
    
    
    3,704Prepaid expenses and other current assets
    
    
    500
    
    
    
    980Total current assets
    
    
    8,447
    
    
    
    26,717Property and equipment, net
    
    
    1,244
    
    
    
    1,884Investments
    
    
    
    
    
    
    8,676Other assets
    
    
    226
    
    
    
    341$
    9,917
    
    
    $
    37,618Liabilities, Redeemable Preferred Stock and Stockholders Equity (Deficit)Current liabilitiesAccounts payable
    
    $
    618
    
    
    $
    307Accrued liabilities
    
    
    1,197
    
    
    
    2,337Deferred revenue
    
    
    3,934
    
    
    
    6,364Capital lease short term
    
    
    19
    
    
    
    18Note payable
    
    
    
    
    
    
    27Total current liabilities
    
    
    5,768
    
    
    
    9,053Deferred rent
    
    
    86
    
    
    
    115Capital lease long term
    
    
    
    
    
    
    100Other liabilities
    
    
    349
    
    
    
    205Total liabilities
    
    
    6,203
    
    
    
    9,473Commitments and Contingencies
Redeemable preferred stock, 30,434,235 shares authorized at December 31,
2003 and 10,000,000 shares of preferred stock authorized at December 31,
2004:Series D convertible redeemable preferred stock, $0.001 par value; 48
shares designated at December 31, 2003; no shares issued and outstanding
at December 31, 2003; and December 31, 2004. (Note 5)
    
    
    
    
    
    
    Redeemable preferred stock, $0.001 par value; 112 shares designated,
111.66667 shares issued and outstanding at December 31, 2003 and 0 shares
issued and outstanding as of December 31, 2004. (Note 5)
    
    
    14,056
    
    
    
    Series A convertible redeemable preferred stock, $0.001 par value;
16,788,746 shares designated. 16,788,746 issued and outstanding at
December 31, 2003; and 0 shares issued and outstanding at December 31,
2004. (Note 5)
    
    
    18,378
    
    
    
    Series B convertible redeemable preferred stock, $0.001 par value;
11,590,535 shares designated. 11,590,535 issued and outstanding at
December 31, 2003, and 0 shares issued and outstanding at December 31,
2004. (Note 5)
    
    
    7,473
    
    
    
    Series C convertible redeemable preferred stock, $0.001 par value;
2,054,794 shares designated. 2,054,794 issued and outstanding at December
31, 2003 and 0 shares issued and outstanding at December 31, 2004. (Note
5)
    
    
    2,986
    
    
    
    42,893
    
    
    
    Stockholders equity (deficit)Common stock, $0.001 par value; 43,128,211 shares authorized at December
31, 2003 and 75,000,000 shares authorized at December 31, 2004. Common
stock shares of 4,577,437 and 15,624,856 issued and outstanding at
December 31, 2003 and December 31, 2004, respectively. (Note 5)
    
    
    5
    
    
    
    16Additional paid-in capital
    
    
    17,733
    
    
    
    82,895Unearned stock-based compensation
    
    
    (1,157
    )
    
    
    (779
    )Accumulated other comprehensive income
    
    
    276
    
    
    
    281Accumulated deficit
    
    
    (56,036
    )
    
    
    (54,268
    )Total
stockholders (deficit) equity
    
    
    (39,179
    )
    
    
    28,145$
    9,917
    
    
    $
    37,618
  F-3




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##### Table of Contents



WEBSIDESTORY, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
 December 31,2002
    
    
    2003
    
    
    2004Restated
    
    
    Restated
    
    
    RestatedRevenuesSubscriptions
    
    $
    12,126
    
    
    $
    15,678
    
    
    $
    22,476Advertising
    
    
    1,444
    
    
    
    682
    
    
    
    126Total revenues
    
    
    13,570
    
    
    
    16,360
    
    
    
    22,602Cost of revenuesCost of
revenues
    
    
    3,459
    
    
    
    3,206
    
    
    
    3,300Stock-based compensation
    
    
    32
    
    
    
    11
    
    
    
    15Total cost of revenues
    
    
    3,491
    
    
    
    3,217
    
    
    
    3,315Gross profit
    
    
    10,079
    
    
    
    13,143
    
    
    
    19,287Operating expensesSales and marketing
    
    
    5,723
    
    
    
    7,258
    
    
    
    9,713Technology development
    
    
    2,967
    
    
    
    3,398
    
    
    
    3,755General and administrative
    
    
    3,013
    
    
    
    3,761
    
    
    
    3,310Stock-based compensation(*)
    
    
    263
    
    
    
    1,334
    
    
    
    867Total operating expenses
    
    
    11,966
    
    
    
    15,751
    
    
    
    17,645(Loss) income from operations
    
    
    (1,887
    )
    
    
    (2,608
    )
    
    
    1,642Interest expense
    
    
    (896
    )
    
    
    (46
    )
    
    
    (38
    )Interest income
    
    
    40
    
    
    
    56
    
    
    
    205Other income
    
    
    99
    
    
    
    489
    
    
    
    5Loss before (benefit from) provision for income taxes
    
    
    (2,644
    )
    
    
    (2,109
    )
    
    
    1,814Provision for (benefit from) income taxes
    
    
    (19
    )
    
    
    (31
    )
    
    
    46Net (loss) income
    
    $
    (2,625
    )
    
    $
    (2,078
    )
    
    $
    1,768Constructive dividend on redemption of redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    (1,389
    )Accretion of discount on redeemable preferred stock
    
    
    (1,367
    )
    
    
    (1,566
    )
    
    
    (1,326
    )Net (loss) attributable to common stockholders
    
    $
    (3,992
    )
    
    $
    (3,644
    )
    
    $
    (947
    )Net
(loss) per share attributable to common stockholders:Basic
    
    $
    (1.05
    )
    
    $
    (0.91
    )
    
    $
    (0.13
    )Diluted
    
    $
    (1.05
    )
    
    $
    (0.91
    )
    
    $
    (0.13
    )Weighted-average number of shares used in per share amounts:Basic
    
    
    3,806,550
    
    
    
    4,001,979
    
    
    
    7,300,809Diluted
    
    
    3,806,550
    
    
    
    4,001,979
    
    
    
    7,300,809(*)
Stock-based compensation:Sales and marketing
    
    $
    193
    
    
    $
    330
    
    
    $
    209Technology development
    
    
    129
    
    
    
    76
    
    
    
    37General and administrative
    
    
    (59
    )
    
    
    928
    
    
    
    621$
    263
    
    
    $
    1,334
    
    
    $
    867
  F-4




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##### Table of Contents



WEBSIDESTORY, INC.
 
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) AND OTHER
COMPREHENSIVE INCOME (LOSS)
For the three years ended December 31, 2004
(in thousands, except share data)
 AccumulatedAdditional
    
    
    Unearned
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Stock-Based
    
    
    Comprehensive
    
    
    Accumulated
    
    
    Stockholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Income
    
    
    Deficit
    
    
    (Deficit) Equity
    
    
    (Loss) IncomeRestated
    
    
    Restated
    
    
    RestatedBalance at December
31, 2001
    
    
    3,805,136
    
    
    $
    4
    
    
    $
    16,014
    
    
    $
    (668
    )
    
    $
    38
    
    
    $
    (51,333
    )
    
    $
    (35,945
    )
    
    $
    (4,625
    )Exercise of stock options
    
    
    1,982
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    Unearned Stock based
compensation
    
    
    
    
    
    
    
    
    
    
    (77
    )
    
    
    77
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of
stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    295
    
    
    
    
    
    
    
    
    
    
    
    295
    
    
    
    Accretion of discount on
redeemable preferred
stock
    
    
    
    
    
    
    
    
    
    
    (1,339
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,339
    )
    
    
    Amortization of premium
on Series A convertible
redeemable preferred
stock
    
    
    
    
    
    
    
    
    
    
    1,286
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,286
    
    
    
    Accretion of discount on
Series B and Series C
convertible redeemable
preferred stock
    
    
    
    
    
    
    
    
    
    
    (29
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29
    )
    
    
    Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82
    
    
    
    
    
    
    
    82
    
    
    
    82Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,625
    )
    
    
    (2,625
    )
    
    
    (2,625
    )Balance at December 31,
2002
    
    
    3,807,118
    
    
    $
    4
    
    
    $
    15,857
    
    
    $
    (296
    )
    
    $
    120
    
    
    $
    (53,958
    )
    
    $
    (38,273
    )
    
    $
    (2,543
    )Restricted stock purchases
    
    
    729,609
    
    
    
    1
    
    
    
    1,113
    
    
    
    (1,111
    )
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    Exercise of stock options
    
    
    40,710
    
    
    
    0
    
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34
    
    
    
    Unearned Stock based
compensation
    
    
    
    
    
    
    
    
    
    
    1,094
    
    
    
    (1,094
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of
stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,344
    
    
    
    
    
    
    
    
    
    
    
    1,344
    
    
    
    Accretion of discount on
redeemable preferred
stock
    
    
    
    
    
    
    
    
    
    
    (1,537
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,537
    )
    
    
    Amortization of premium
on Series A convertible
redeemable preferred
stock
    
    
    
    
    
    
    
    
    
    
    1,202
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,202
    
    
    
    Accretion of discount on
Series B and Series C
convertible redeemable
preferred stock
    
    
    
    
    
    
    
    
    
    
    (30
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )
    
    
    Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    156
    
    
    
    
    
    
    
    156
    
    
    
    156Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,078
    )
    
    
    (2,078
    )
    
    
    (2,078
    )Balance at December 31,
2003
    
    
    4,577,437
    
    
    $
    5
    
    
    $
    17,733
    
    
    $
    (1,157
    )
    
    $
    276
    
    
    $
    (56,036
    )
    
    $
    (39,179
    )
    
    $
    (1,922
    )Issuance of common stock
for cash net of $4.4
million issuance costs
    
    
    5,000,000
    
    
    $
    5
    
    
    $
    38,082
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    38,087
    
    
    $
    Conversion of convertible
redeemable preferred
stock
    
    
    5,634,131
    
    
    
    6
    
    
    
    28,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,006
    
    
    
    Exercise of stock options
and warrants
    
    
    413,288
    
    
    
    
    
    
    
    439
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    439
    
    
    
    Unearned Stock based
compensation
    
    
    
    
    
    
    
    
    
    
    504
    
    
    
    (504
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of
stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    882
    
    
    
    
    
    
    
    
    
    
    
    882
    
    
    
    Accretion of discount on
redeemable preferred
stock
    
    
    
    
    
    
    
    
    
    
    (1,305
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,305
    )
    
    
    Amortization of premium
on Series A convertible
redeemable preferred
stock
    
    
    
    
    
    
    
    
    
    
    852
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    852
    
    
    
    Accretion of discount on
Series B and Series C
convertible redeemable
preferred stock
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    Constructive dividend on
redemption of redeemable
preferred stock
    
    
    
    
    
    
    
    
    
    
    (1,389
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,389
    )
    
    
    Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    5Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,768
    
    
    
    1,768
    
    
    
    1,768Balance at December 31,
2004
    
    
    15,624,856
    
    
    $
    16
    
    
    $
    82,895
    
    
    $
    (779
    )
    
    $
    281
    
    
    $
    (54,268
    )
    
    $
    28,145
    
    
    $
    1,773
  F-5




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##### Table of Contents



WEBSIDESTORY, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Year Ended December 31,2002
    
    2003
    
    2004Restated
    
    Restated
    
    RestatedCash flows from operating activitiesNet (loss) income
    
    $
    (2,625
    )
    
    $
    (2,078
    )
    
    $
    1,768Adjustments to reconcile net (loss) income to net cash
provided by operating activitiesDepreciation and amortization
    
    
    2,134
    
    
    
    1,210
    
    
    
    1,009Bad debt provision
    
    
    330
    
    
    
    274
    
    
    
    28Stock-based compensation
    
    
    295
    
    
    
    1,345
    
    
    
    882(Gain) on equipment disposal


(3
)






Changes in operating assets and liabilitiesAccounts receivable
    
    
    (745
    )
    
    
    (576
    )
    
    
    (1,475
    )Prepaid expenses and other assets
    
    
    (105
    )
    
    
    (398
    )
    
    
    (653
    )Accounts payable and accrued liabilities
    
    
    257
    
    
    
    464
    
    
    
    829Deferred revenue
    
    
    1,678
    
    
    
    1,812
    
    
    
    2,430Deferred rent
    
    
    (22
    )
    
    
    85
    
    
    
    29Other liabilities
    
    
    67
    
    
    
    214
    
    
    
    (144
    )Net cash provided by operating activities
    
    
    1,261
    
    
    
    2,352
    
    
    
    4,703Cash flows from investing activitiesPurchase of investments
    
    
    
    
    
    
    
    
    
    
    (34,156
    )Proceeds from the sale of investments
    
    
    
    
    
    
    
    
    
    
    9,157Purchase of property and equipment
    
    
    (322
    )
    
    
    (739
    )
    
    
    (1,438
    )Disposal of property


10,644







Net cash
provided by (used in) investing activities
    
    
    10,322
    
    
    
    (739
    )
    
    
    (26,437
    )Cash flows from financing activitiesExercise of stock options and warrants
    
    
    2
    
    
    
    34
    
    
    
    439Principal payments on note payable to former stockholder
    
    
    (77
    )
    
    
    
    
    
    
    Payments on line of credit
    
    
    
    
    
    
    3
    
    
    
    Payments on equipment term loan
    
    
    (508
    )
    
    
    (679
    )
    
    
    Payments on capital lease
    
    
    
    
    
    
    
    
    
    
    (27
    )Redemption of redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    (16,750
    )Payments of construction debt


(11,224
)






Proceeds from sale of common stock
    
    
    
    
    
    
    
    
    
    
    38,087Net cash (used in) provided by financing activities
    
    
    (11,807
    )
    
    
    (642
    )
    
    
    21,749Effect of exchange rate changes on cash
    
    
    83
    
    
    
    156
    
    
    
    5Net increase in cash and cash equivalents
    
    
    (141
    )
    
    
    1,127
    
    
    
    20Cash and cash equivalents at beginning of year
    
    
    4,704
    
    
    
    4,563
    
    
    
    5,690Cash and cash equivalents at end of year
    
    $
    4,563
    
    
    $
    5,690
    
    
    $
    5,710Supplemental cash flow information:Cash paid for interest
    
    $
    57
    
    
    $
    19
    
    
    $
    4Cash paid for taxes
    
    $
    
    
    
    $
    
    
    
    $
    22Refund of income taxes
    
    $
    (21
    )
    
    $
    
    
    
    $
    Supplemental disclosure of noncash investing and financing activities:Equipment acquired under capital lease obligation
    
    $
    
    
    
    $
    
    
    
    $
    126Equipment acquired under note payable
    
    $
    
    
    
    $
    
    
    
    $
    27
  F-6




---



##### Table of Contents



WEBSIDESTORY, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. The Company
 Nature of Business
   2. Restatement of Financial Statements
     F-7




---



##### Table of Contents



WEBSIDESTORY,
INC.
 CONSOLIDATED BALANCE SHEETS  (in thousands, except share and per share data)  (Unaudited)
 December 31,
2003As
 PreviouslyReported
    
    

Adjustments
    
    

AsRestatedAssetsCurrent assetsCash and cash equivalents
    
    $
    5,690
    
    
    $
    
    
    
    $
    5,690Investments
    
    
    
    
    
    
    
    
    
    
    Accounts receivable, net
    
    
    2,257
    
    
    
    
    
    
    
    2,257Prepaid expenses and other current assets
    
    
    433
    
    
    
    67
    
    
    
    500Total current assets
    
    
    8,380
    
    
    
    67
    
    
    
    8,447Property and equipment, net
    
    
    1,244
    
    
    
    
    
    
    
    1,244Investments
    
    
    
    
    
    
    
    
    
    
    Other assets
    
    
    226
    
    
    
    
    
    
    
    226$
    9,850
    
    
    $
    67
    
    
    $
    9,917Current liabilitiesAccounts payable
    
    $
    618
    
    
    $
    
    
    
    $
    618Accrued liabilities
    
    
    1,054
    
    
    
    143
    
    
    
    1,197Deferred revenue
    
    
    3,934
    
    
    
    
    
    
    
    3,934Capital lease short term
    
    
    19
    
    
    
    
    
    
    
    19Note payable
    
    
    
    
    
    
    
    
    
    
    Total current liabilities
    
    
    5,625
    
    
    
    143
    
    
    
    5,768Deferred rent
    
    
    393
    
    
    
    (307
    )
    
    
    86Capital lease long term
    
    
    
    
    
    
    
    
    
    
    Other liabilities
    
    
    54
    
    
    
    295
    
    
    
    349Total liabilities
    
    
    6,072
    
    
    
    131
    
    
    
    6,203Convertible
Redeemable Preferred Stock
    
    
    42,893
    
    
    
    
    
    
    
    42,893Stockholders (deficit) equityCommon stock
    
    
    5
    
    
    
    
    
    
    
    5Additional paid-in capital
    
    
    17,733
    
    
    
    
    
    
    
    17,733Unearned stock-based compensation
    
    
    (1,157
    )
    
    
    
    
    
    
    (1,157
    )Accumulated other comprehensive income
    
    
    276
    
    
    
    
    
    
    
    276Accumulated deficit
    
    
    (55,972
    )
    
    
    (64
    )
    
    
    (56,036
    )Total
stockholders (deficit) equity
    
    
    (39,115
    )
    
    
    (64
    )
    
    
    (39,179
    )$
    9,850
    
    
    $
    67
    
    
    $
    9,917
 F-8




---



##### Table of Contents



WEBSIDESTORY, INC.
 CONSOLIDATED BALANCE SHEETS  (in thousands, except share and per share data)  (Unaudited)
 December 31,
2004As
PreviouslyReported
    
    

Adjustments
    
    

AsRestatedAssetsCurrent assetsCash and cash equivalents
    
    $
    5,710
    
    
    $
    
    
    
    $
    5,710Investments
    
    
    16,323
    
    
    
    
    
    
    
    16,323Accounts receivable, net
    
    
    3,704
    
    
    
    
    
    
    
    3,704Prepaid expenses and other current assets
    
    
    834
    
    
    
    146
    
    
    
    980Total current assets
    
    
    26,571
    
    
    
    146
    
    
    
    26,717Property and equipment, net
    
    
    1,884
    
    
    
    
    
    
    
    1,884Investments
    
    
    8,676
    
    
    
    
    
    
    
    8,676Other assets
    
    
    341
    
    
    
    
    
    
    
    341$
    37,472
    
    
    $
    146
    
    
    $
    37,618Current liabilitiesAccounts payable
    
    $
    307
    
    
    $
    
    
    
    $
    307Accrued liabilities
    
    
    2,083
    
    
    
    254
    
    
    
    2,337Deferred revenue
    
    
    6,364
    
    
    
    
    
    
    
    6,364Capital lease short term
    
    
    18
    
    
    
    
    
    
    
    18Note payable
    
    
    27
    
    
    
    
    
    
    
    27Total current liabilities
    
    
    8,799
    
    
    
    254
    
    
    
    9,053Deferred rent
    
    
    320
    
    
    
    (205
    )
    
    
    115Capital lease long term
    
    
    100
    
    
    
    
    
    
    
    100Other liabilities
    
    
    54
    
    
    
    151
    
    
    
    205Total liabilities
    
    
    9,273
    
    
    
    200
    
    
    
    9,473Convertible
Redeemable Preferred Stock
    
    
    
    
    
    
    
    
    
    
    Stockholders equity (deficit)Common stock
    
    
    16
    
    
    
    
    
    
    
    16Additional paid-in capital
    
    
    82,895
    
    
    
    
    
    
    
    82,895Unearned stock-based compensation
    
    
    (779
    )
    
    
    
    
    
    
    (779
    )Accumulated other comprehensive income
    
    
    281
    
    
    
    
    
    
    
    281Accumulated deficit
    
    
    (54,214
    )
    
    
    (54
    )
    
    
    (54,268
    )Total stockholders equity (deficit)
    
    
    28,199
    
    
    
    (54
    )
    
    
    28,145$
    37,472
    
    
    $
    146
    
    
    $
    37,618
 F-9




---



##### Table of Contents



WEBSIDESTORY,
INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS  (in thousands, except share and per share data)  (Unaudited)
 December 31, 2002As Previously Reported
    
    
    Adjustments
    
    

As RestatedRevenuesSubscriptions
    
    $
    12,126
    
    
    $
    
    
    
    $
    12,126Advertising
    
    
    1,444
    
    
    
    
    
    
    
    1,444Total revenues
    
    
    13,570
    
    
    
    
    
    
    
    13,570Cost of revenuesCost of revenues
    
    
    3,773
    
    
    
    (314
    )
    
    
    3,459Stock-based expenses
    
    
    32
    
    
    
    
    
    
    
    32Total cost of revenues
    
    
    3,805
    
    
    
    (314
    )
    
    
    3,491Gross profit
    
    
    9,765
    
    
    
    314
    
    
    
    10,079Operating expensesSales and marketing
    
    
    6,094
    
    
    
    (371
    )
    
    
    5,723Technology development
    
    
    3,178
    
    
    
    (211
    )
    
    
    2,967General and administrative
    
    
    2,870
    
    
    
    143
    
    
    
    3,013Stock-based expenses
    
    
    263
    
    
    
    
    
    
    
    263Total operating expenses
    
    
    12,405
    
    
    
    (439
    )
    
    
    11,966(Loss) income from operations
    
    
    (2,640
    )
    
    
    753
    
    
    
    (1,887
    )Interest expense
    
    
    (57
    )
    
    
    (839
    )
    
    
    (896
    )Interest income
    
    
    40
    
    
    
    
    
    
    
    40Other income
    
    
    96
    
    
    
    3
    
    
    
    99Loss before (benefit from) provision for income taxes
    
    
    (2,561
    )
    
    
    (83
    )
    
    
    (2,644
    )(Benefit
from) provision for income taxes
    
    
    (19
    )
    
    
    
    
    
    
    (19
    )Net (loss)
    
    $
    (2,542
    )
    
    $
    (83
    )
    
    $
    (2,625
    )Constructive dividend on redemption of redeemable preferred stockAccretion of discount on redeemable preferred stock
    
    
    (1,367
    )
    
    
    
    
    
    
    (1,367
    )Net (loss) attributable to common stockholders
    
    $
    (3,909
    )
    
    $
    (83
    )
    
    $
    (3,992
    )Net
(loss) per share attributable to common stockholders:Basic
    
    $
    (1.03
    )
    
    $
    (0.02
    )
    
    $
    (1.05
    )Diluted
    
    $
    (1.03
    )
    
    $
    (0.02
    )
    
    $
    (1.05
    )
 F-10




---



##### Table of Contents



WEBSIDESTORY,
INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS  (in thousands, except share and per share data)  (Unaudited)
 December 31, 2003As PreviouslyReported
    
    
    Adjustments
    
    
    AsRestatedRevenuesSubscriptions
    
    $
    15,678
    
    
    $
    
    
    
    $
    15,678Advertising
    
    
    682
    
    
    
    
    
    
    
    682Total revenues
    
    
    16,360
    
    
    
    
    
    
    
    16,360Cost of revenuesCost of revenues
    
    
    3,236
    
    
    
    (30
    )
    
    
    3,206Stock-based expenses
    
    
    11
    
    
    
    
    
    
    
    11Total cost of revenues
    
    
    3,247
    
    
    
    (30
    )
    
    
    3,217Gross profit
    
    
    13,113
    
    
    
    30
    
    
    
    13,143Operating expensesSales and marketing
    
    
    7,355
    
    
    
    (97
    )
    
    
    7,258Technology development
    
    
    3,417
    
    
    
    (19
    )
    
    
    3,398General and administrative
    
    
    3,431
    
    
    
    330
    
    
    
    3,761Stock-based expenses
    
    
    1,334
    
    
    
    
    
    
    
    1,334Total operating expenses
    
    
    15,537
    
    
    
    214
    
    
    
    15,751(Loss) from operations
    
    
    (2,424
    )
    
    
    (184
    )
    
    
    (2,608
    )Interest expense
    
    
    (19
    )
    
    
    (27)
    
    
    
    (46
    )Interest income
    
    
    56
    
    
    
    
    
    
    
    56Other income
    
    
    489
    
    
    
    
    
    
    
    489Loss before (benefit from) income taxes
    
    
    (1,898
    )
    
    
    (211
    )
    
    
    (2,109
    )(Benefit from) income taxes
    
    
    (31
    )
    
    
    
    
    
    
    (31
    )Net (loss)
    
    $
    (1,867
    )
    
    $
    (211
    )
    
    $
    (2,078
    )Constructive dividend on redemption of redeemable preferred stockAccretion of discount on redeemable preferred stock
    
    
    (1,566
    )
    
    
    
    
    
    
    (1,566
    )Net (loss) attributable to common stockholders
    
    $
    (3,433
    )
    
    $
    (211
    )
    
    $
    (3,644
    )Net (loss) per share attributable to common stockholders:Basic
    
    $
    (0.86
    )
    
    $
    (0.05
    )
    
    $
    (0.91
    )Diluted
    
    $
    (0.86
    )
    
    $
    (0.05
    )
    
    $
    (0.91
    )
 F-11




---



##### Table of Contents



WEBSIDESTORY, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(Unaudited)
 December 31, 2004As PreviouslyReported
    
    Adjustments
    
    AsRestatedRevenuesSubscriptions
    
    $
    22,476
    
    
    $
    
    
    
    $
    22,476Advertising
    
    
    126
    
    
    
    
    
    
    
    126Total revenues
    
    
    22,602
    
    
    
    
    
    
    
    22,602Cost of revenuesCost of revenues
    
    
    3,300
    
    
    
    
    
    
    
    3,300Stock-based expenses
    
    
    15
    
    
    
    
    
    
    
    15Total cost of revenues
    
    
    3,315
    
    
    
    
    
    
    
    3,315Gross profit
    
    
    19,287
    
    
    
    
    
    
    
    19,287Operating expensesSales and marketing
    
    
    9,739
    
    
    
    (26
    )
    
    
    9,713Technology development
    
    
    3,774
    
    
    
    (19
    )
    
    
    3,755General and administrative
    
    
    3,309
    
    
    
    1
    
    
    
    3,310Stock-based expenses
    
    
    867
    
    
    
    
    
    
    
    867Total operating expenses
    
    
    17,689
    
    
    
    (44
    )
    
    
    17,645Income from operations
    
    
    1,598
    
    
    
    44
    
    
    
    1,642Interest expense
    
    
    (4
    )
    
    
    (34
    )
    
    
    (38
    )Interest income
    
    
    205
    
    
    
    
    
    
    
    205Other income
    
    
    5
    
    
    
    
    
    
    
    5Income before provision for income taxes
    
    
    1,804
    
    
    
    10
    
    
    
    1,814Provision for income taxes
    
    
    46
    
    
    
    
    
    
    
    46Net income
    
    $
    1,758
    
    
    $
    10
    
    
    $
    1,768Constructive dividend on redemption of redeemable preferred stock
    
    
    (1,389
    )
    
    
    
    
    
    
    (1,389
    )Accretion of discount on redeemable preferred stock
    
    
    (1,326
    )
    
    
    
    
    
    
    (1,326
    )Net (loss) income attributable to common stockholders
    
    $
    (957
    )
    
    $
    10
    
    
    $
    (947
    )Net (loss) per share attributable to common stockholders:Basic
    
    $
    (0.13
    )
    
    $
    
    
    
    $
    (0.13
    )Diluted
    
    $
    (0.13
    )
    
    $
    
    
    
    $
    (0.13
    )
 F-12




---



##### Table of Contents



WEBSIDESTORY, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 Year Ended December 31, 2002As
previouslyreported
    
    
    Adjustments
    
    

As
restatedCash flows from operating activitiesNet (loss)
    
    $
    (2,542
    )
    
    $
    (83
    )
    
    $
    (2,625
    )Adjustments to reconcile net (loss)  to net cash
provided by operating activitiesDepreciation and amortization
    
    
    1,674
    
    
    
    460
    
    
    
    2,134Bad debt provision
    
    
    330
    
    
    
    
    
    
    
    330Stock-based compensation
    
    
    295
    
    
    
    
    
    
    
    295(Gain) on
equipment disposal
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )Changes in operating assets and liabilitiesAccounts receivable
    
    
    (745
    )
    
    
    
    
    
    
    (745
    )Prepaid expenses and other assets
    
    
    (105
    )
    
    
    
    
    
    
    (105
    )Accounts payable and accrued expenses
    
    
    86
    
    
    
    171
    
    
    
    257Deferred revenue
    
    
    1,678
    
    
    
    
    
    
    
    1,678Deferred rent
    
    
    37
    
    
    
    (59
    )
    
    
    (22
    )Other liabilities
    
    
    (27
    )
    
    
    94
    
    
    
    67Net cash provided by operating activities
    
    
    681
    
    
    
    580
    
    
    
    1,261Cash
flows from investing activitiesPurchase of
property and equipment
    
    
    (322
    )
    
    
    
    
    
    
    (322
    )Disposal of
property
    
    
    
    
    
    
    10,644
    
    
    
    10,644Net cash
(used in) provided by investing activities
    
    
    (322
    )
    
    
    10,644
    
    
    
    10,322Cash flows from financing activitiesExercise of stock options and warrants
    
    
    2
    
    
    
    
    
    
    
    2Principal payments on note payable to former stockholder
    
    
    (77
    )
    
    
    
    
    
    
    (77
    )Payments on equipment term loan
    
    
    (508
    )
    
    
    
    
    
    
    (508
    )Payments of
construction debt
    
    
    
    
    
    
    (11,224
    )
    
    
    (11,224
    )Net cash
used in  financing activities
    
    
    (583
    )
    
    
    (11,224
    )
    
    
    (11,807
    )Effect of exchange rate changes on cash
    
    
    83
    
    
    
    
    
    
    
    83Net increase in cash and cash equivalents
    
    
    (141
    )
    
    
    
    
    
    
    (141
    )Cash and cash equivalents at beginning of year
    
    
    4,704
    
    
    
    
    
    
    
    4,704Cash and cash equivalents at end of year
    
    $
    4,563
    
    
    $
    
    
    
    $
    4,563
 F-13




---



##### Table of Contents



WEBSIDESTORY, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 Year Ended December 31, 2003As
previouslyreported
    
    

Adjustments
    
    

As
restatedCash flows from operating activitiesNet (loss)
    
    $
    (1,867
    )
    
    $
    (211
    )
    
    $
    (2,078
    )Adjustments to reconcile net (loss) to net cash
provided by operating activitiesDepreciation and amortization
    
    
    1,210
    
    
    
    
    
    
    
    1,210Bad debt provision
    
    
    274
    
    
    
    
    
    
    
    274Stock-based compensation
    
    
    1,345
    
    
    
    
    
    
    
    1,345Changes in operating assets and liabilitiesAccounts receivable
    
    
    (576
    )
    
    
    
    
    
    
    (576
    )Prepaid expenses and other assets
    
    
    (287
    )
    
    
    (111
    )
    
    
    (398
    )Accounts payable and accrued expenses
    
    
    477
    
    
    
    (13
    )
    
    
    464Deferred revenue
    
    
    1,812
    
    
    
    
    
    
    
    1,812Deferred rent
    
    
    (17
    )
    
    
    102
    
    
    
    85Other liabilities
    
    
    (19
    )
    
    
    233
    
    
    
    214Net cash provided by operating activities
    
    
    2,352
    
    
    
    
    
    
    
    2,352Cash flows from investing activitiesPurchase of property and equipment
    
    
    (739
    )
    
    
    
    
    
    
    (739
    )Disposal of
property
    
    
    0
    
    
    
    
    
    
    
    0Net cash used in investing activities
    
    
    (739
    )
    
    
    
    
    
    
    (739
    )Cash flows from financing activitiesExercise of stock options and warrants
    
    
    34
    
    
    
    
    
    
    
    34Payments on line of credit
    
    
    3
    
    
    
    
    
    
    
    3Payments on equipment term loan
    
    
    (679
    )
    
    
    
    
    
    
    (679
    )Net cash
used in financing activities
    
    
    (642
    )
    
    
    
    
    
    
    (642
    )Effect of exchange rate changes on cash
    
    
    156
    
    
    
    
    
    
    
    156Net increase in cash and cash equivalents
    
    
    1,127
    
    
    
    
    
    
    
    1,127Cash and cash equivalents at beginning of year
    
    
    4,563
    
    
    
    
    
    
    
    4,563Cash and cash equivalents at end of year
    
    $
    5,690
    
    
    $
    
    
    
    $
    5,690
 F-14




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##### Table of Contents



WEBSIDESTORY, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 Year Ended December 31, 2004As previouslyreported
    
    
    Adjustments
    
    

As
RestatedCash flows from operating activitiesNet income
    
    $
    1,758
    
    
    $
    10
    
    
    $
    1,768Adjustments
to reconcile net income to net cash provided by operating activitiesDepreciation and amortization
    
    
    1,009
    
    
    
    
    
    
    
    1,009Bad debt provision
    
    
    28
    
    
    
    
    
    
    
    28Stock-based compensation
    
    
    882
    
    
    
    
    
    
    
    882Changes in operating assets and liabilitiesAccounts receivable
    
    
    (1,475
    )
    
    
    
    
    
    
    (1,475
    )Prepaid expenses and other assets
    
    
    (574
    )
    
    
    (79
    )
    
    
    (653
    )Accounts payable and accrued expenses
    
    
    718
    
    
    
    111
    
    
    
    829Deferred revenue
    
    
    2,430
    
    
    
    
    
    
    
    2,430Deferred rent
    
    
    (73
    )
    
    
    102
    
    
    
    29Other liabilities
    
    
    
    
    
    
    (144
    )
    
    
    (144
    )Net cash provided by operating activities
    
    
    4,703
    
    
    
    
    
    
    
    4,703Cash flows from investing activitiesPurchase of investments
    
    
    (34,156
    )
    
    
    
    
    
    
    (34,156
    )Proceeds from the sale of investments
    
    
    9,157
    
    
    
    
    
    
    
    9,157Purchase of property and equipment
    
    
    (1,438
    )
    
    
    
    
    
    
    (1,438
    )Net cash used in investing activities
    
    
    (26,437
    )
    
    
    
    
    
    
    (26,437
    )Cash flows from financing activitiesExercise of stock options and warrants
    
    
    439
    
    
    
    
    
    
    
    439Payments on capital lease
    
    
    (27
    )
    
    
    
    
    
    
    (27
    )Redemption of redeemable preferred stock
    
    
    (16,750
    )
    
    
    
    
    
    
    (16,750
    )Proceeds from sale of common stock
    
    
    38,087
    
    
    
    
    
    
    
    38,087Net cash provided by financing activities
    
    
    21,749
    
    
    
    
    
    
    
    21,749Effect of exchange rate changes on cash
    
    
    5
    
    
    
    
    
    
    
    5Net increase in cash and cash equivalents
    
    
    20
    
    
    
    
    
    
    
    20Cash and cash equivalents at beginning of year
    
    
    5,690
    
    
    
    
    
    
    
    5,690Cash and cash equivalents at end of year
    
    $
    5,710
    
    
    $
    
    
    
    $
    5,710
 3. Summary of Significant Accounting Policies
 Use of Estimates
  Principles of Consolidation
  Foreign Currency
  Concentration of Risk
    Year Ended December 31,2002
    
    
    2003
    
    
    2004United States
    
    $
    12,434
    
    
    $
    14,585
    
    
    $
    18,983Europe
    
    
    1,136
    
    
    
    1,775
    
    
    
    3,619$
    13,570
    
    
    $
    16,360
    
    
    $
    22,602
 F-15




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##### Table of Contents



WEBSIDESTORY, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
  Revenue Recognition
 Revenue Recognition in Financial Statements Accounting For Revenue Arrangements with Multiple Deliverables
    Cash and Cash Equivalents
  Investments
   Accounts Receivable
  F-16




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##### Table of Contents



WEBSIDESTORY, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 Deferred Commissions
   Property and Equipment
  Computers, equipment and software
    
    3 yearsFurniture and fixtures
    
    5 yearsLeasehold improvements
    
    Shorter of the estimated useful life of 7 years or the remaining
lease term
   Impairment of Long-Lived Assets
  Software and Website Development Costs
  Comprehensive Income (Loss)
  F-17




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##### Table of Contents



WEBSIDESTORY, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 Accounting for Stock-Based Compensation
 Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award
Plan
  Year Ended December 31,2002
    
    
    2003
    
    
    2004Restated
    
    

Restated
    
    

RestatedNet (loss) income  as reported
    
    $
    (2,625
    )
    
    $
    (2,078
    )
    
    $
    1,768Add: Stock-based employee compensation as reported in the statements of operations
    
    
    295
    
    
    
    1,345
    
    
    
    882Deduct: Total stock-based employee compensation expense determined under fair
value based method for all awards
    
    
    (357
    )
    
    
    (1,359
    )
    
    
    (1,046
    )Pro forma net (loss) income
    
    $
    (2,687
    )
    
    $
    (2,092
    )
    
    $
    1,604Pro forma net (loss) attributable to common stockholders
    
    $
    (4,054
    )
    
    $
    (3,658
    )
    
    $
    (1,111
    )Net (loss), per share attributable to common stockholders  basic and diluted:As reported
    
    $
    (1.05
    )
    
    $
    (0.91
    )
    
    $
    (0.13
    )Pro forma
    
    $
    (1.07
    )
    
    $
    (0.91
    )
    
    $
    (0.15
    )
  Year Ended December 31,2002
    
    2003
    
    2004Expected Life
    
    3.5 years
    
    
    3.3 years
    
    
    3.9 yearsRisk-free interest rate
    
    
    3.50
    %
    
    
    1.90
    %
    
    
    2.95
    %Expected volatility
    
    
    0
    %
    
    
    0
    %
    
    
    16.31
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 Earnings (Loss) Per Share
  F-18




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##### Table of Contents



WEBSIDESTORY, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 Year Ended December 31,2002
    
    2003
    
    2004Potential common shares excluded from diluted loss per share:Unvested common stock
    
    
    
    
    
    
    307,227
    
    
    
    285,200Convertible redeemable preferred stock
    
    
    5,634,131
    
    
    
    5,634,131
    
    
    
    4,225,598Options and warrants
    
    
    76,823
    
    
    
    490,783
    
    
    
    1,084,220Total
    
    
    5,710,954
    
    
    
    6,432,141
    
    
    
    5,595,018
  Year Ended December 31,2002
    
    2003
    
    2004Restated
    
    Restated
    
    RestatedNumerator:Net loss attributable to common stockholders
    
    $
    (3,992
    )
    
    $
    (3,644
    )
    
    $
    (947
    )Denominator:Basic and diluted loss per share  adjusted weighted average shares outstanding
    
    
    3,806,550
    
    
    
    4,001,979
    
    
    
    7,300,809Loss per share  basic and diluted:
    
    $
    (1.05
    )
    
    $
    (0.91
    )
    
    $
    (0.13
    )
  Income Taxes
  Warranties and Indemnification
    Advertising Expenses
 ,
 F-19




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##### Table of Contents



WEBSIDESTORY, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 Stock Split
  Reclassifications
  Recent Accounting Pronouncements
  4. Composition of Certain Balance Sheet Captions
 Investments
  Current
    
    
    Long Term2003
    
    
    2004
    
    
    2003
    
    
    2004Held to maturityCertificates of Deposits
    
    $
    
    
    
    $
    3,014
    
    
    $
    
    
    
    $
    1,244Federal Agencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,432$
    
    
    
    $
    3,014
    
    
    $
    
    
    
    $
    8,676Available for saleAuction rate securities
    
    $
    
    
    
    $
    13,309
    
    
    $
    
    
    
    $
    Total investments
    
    $
    
    
    
    $
    16,323
    
    
    $
    
    
    
    $
    8,676
  F-20




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##### Table of Contents



WEBSIDESTORY, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 Accounts Receivable
  December 31,
    
    
    December 31,2003
    
    
    2004Accounts receivable:Trade accounts receivable
    
    $
    2,810
    
    
    $
    4,111Allowance for doubtful accounts
    
    
    (553
    )
    
    
    (407
    )$
    2,257
    
    
    $
    3,704
  December 31,
    
    
    December 31,
    
    
    December 31,2002
    
    
    2003
    
    
    2004Allowance for doubtful accounts:Beginning Balance
    
    $
    581
    
    
    $
    597
    
    
    $
    553Bad Debt Provision
    
    
    330
    
    
    
    274
    
    
    
    28Write Off
    
    
    (314
    )
    
    
    (325
    )
    
    
    (192
    )Write Off Recoveries
    
    
    
    
    
    
    7
    
    
    
    18Ending Balance
    
    $
    597
    
    
    $
    553
    
    
    $
    407
 Prepaid expenses and other current assets
  December 31,
    
    
    December 31,2003
    
    
    2004Restated
    
    
    RestatedPrepaid expenses and other current assets:Deferred tax assets
    
    $
    101
    
    
    $
    37Deferred commissions
    
    
    229
    
    
    
    459Other prepaid expenses
    
    
    170
    
    
    
    484$
    500
    
    
    $
    980
 F-21




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##### Table of Contents



WEBSIDESTORY, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 Fixed Assets
  December 31,
    
    
    December 31,2003
    
    
    2004Property and equipment:Computers and office equipment
    
    $
    6,383
    
    
    $
    7,777Furniture and fixtures
    
    
    859
    
    
    
    1,042Leasehold improvements
    
    
    452
    
    
    
    4667,694
    
    
    
    9,285Accumulated depreciation and amortization
    
    
    (6,450
    )
    
    
    (7,401
    )$
    1,244
    
    
    $
    1,884
  Other Assets
  December 31,
    
    
    December 31,2003
    
    
    2004Other assets:Capitalized software and website
development costs, net of accumulated
amortization of $23 and $81, respectively
    
    $
    82
    
    
    $
    210Long-term deposits
    
    
    144
    
    
    
    131Total
    
    $
    226
    
    
    $
    341
 Accrued Expenses and Other Current Liabilities
  December 31,
    
    
    December 31,2003
    
    
    2004Accrued liabilities:
    
    Restated
    
    
    RestatedAccrued bonuses and commissions
    
    $
    554
    
    
    $
    917Accrued payroll and vacation
    
    
    285
    
    
    
    501Accrued sales tax
    
    
    114
    
    
    
    262Other accrued expenses
    
    
    101
    
    
    
    513Accrued sublease liability
    
    
    143
    
    
    
    144$
    1,197
    
    
    $
    2,337
 Other liabilities
  December 31,
    
    
    December 31,2003
    
    
    2004Other liabilities:
    
    Restated
    
    
    RestatedLong-term sublease liability
    
    $
    295
    
    
    $
    151Long-term deposits
    
    
    54
    
    
    
    54Total
    
    $
    349
    
    
    $
    205
 5. Initial Public Offering
  F-22




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##### Table of Contents



WEBSIDESTORY, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
  
    
    The Companys 2004 equity incentive plan came into effect on the first trading day of the Companys common stock, September 28, 2004.
    
    On October 1, 2004, the effective date of the
offering, the convertible redeemable preferred
stock of the Company converted into 5,634,131
shares of common stock of the Company. The warrant
to purchase series D convertible redeemable
preferred stock converted into a warrant to
purchase 303,537 shares of the Companys common
stock. In connection with the conversion, all
rights and preferences of the convertible
redeemable preferred stock terminated.
    
    The Company redeemed the redeemable preferred stock
resulting in $16,750,000 of the proceeds being paid
out to the holders of the redeemable preferred
stock on October 1, 2004. The related unamortized
discount of $1,389,000 on the redeemable preferred
stock was charged to additional paid in capital as
a constructive dividend to the redeemable preferred
holders.
  6. Restricted Stock
   7. Warrants
   F-23




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##### Table of Contents



WEBSIDESTORY, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 Number of Shares
    
    
    Expiration Date
    
    Exercise Price2,857
    
    
    March 2005
    
    $
    37.8066,240
    
    
    February 2006
    
    $
    2.2734,504
    
    
    April 2006
    
    $
    5.11103,601
  8. Common Stock
  9. Stock Option Plans
      F-24




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##### Table of Contents



WEBSIDESTORY, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 Weighted-AverageOptions
    
    
    ExerciseOutstanding
    
    
    PricesBalance at December 31, 2001
    
    
    692,315
    
    
    $
    4.17Granted
    
    
    519,931
    
    
    
    0.84Exercised
    
    
    (1,982
    )
    
    
    0.84Forfeited
    
    
    (145,673
    )
    
    
    2.93Balance at December 31, 2002
    
    
    1,064,591
    
    
    
    2.73Granted
    
    
    362,771
    
    
    
    0.84Exercised
    
    
    (40,710
    )
    
    
    0.84Forfeited
    
    
    (297,208
    )
    
    
    3.32Balance at December 31, 2003
    
    
    1,089,444
    
    
    
    2.00Granted
    
    
    1,053,321
    
    
    
    7.54Exercised
    
    
    (404,717
    )
    
    
    1.04Forfeited
    
    
    (99,241
    )
    
    
    4.88Balance at December 31, 2004
    
    
    1,638,807
    
    
    
    5.62Options exercisable at December 31, 2004
    
    
    405,795
    
    
    
    3.31Options exercisable at December 31, 2003
    
    
    614,314
    
    
    
    2.71Options exercisable at December 31, 2002
    
    
    352,664
    
    
    $
    5.22
  Year Ended December 31,2002
    
    
    2003
    
    
    2004Weighted-average fair value:Options granted below fair value
    
    $
    
    
    
    $
    1.40
    
    
    $
    1.92Options granted above fair value
    
    
    
    
    
    
    
    
    
    
    0.21Options equal to fair value
    
    
    0.11
    
    
    
    
    
    
    
    2.66Weighted-average exercise price:Options granted at or below fair value
    
    
    0.84
    
    
    
    0.84
    
    
    
    7.59Options granted above fair value
    
    $
    
    
    
    $
    
    
    
    $
    6.74
 F-25




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##### Table of Contents



WEBSIDESTORY, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
  Options Outstanding
    
    
    Options ExercisableWeighted-
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    Number
    
    
    Remaining
    
    
    Exercise
    
    
    Number
    
    
    ExercisePrices
    
    
    Outstanding
    
    
    Life (Years)
    
    
    Price
    
    
    Exercisable
    
    
    Price$
    
    
    0.84
    
    
    
    530,683
    
    
    
    7.7
    
    
    $
    0.84
    
    
    
    297,734
    
    
    $
    0.841.89
    
    
    
    5,421
    
    
    
    6.6
    
    
    
    1.89
    
    
    
    4,730
    
    
    
    1.894.90
    
    
    
    48,813
    
    
    
    5.0
    
    
    
    4.90
    
    
    
    43,456
    
    
    
    4.905.25
    
    
    
    379,686
    
    
    
    9.2
    
    
    
    5.25
    
    
    
    
    
    
    
    8.00
    
    
    
    50,431
    
    
    
    9.7
    
    
    
    8.00
    
    
    
    
    
    
    
    8.50
    
    
    
    390,714
    
    
    
    9.7
    
    
    
    8.50
    
    
    
    
    
    
    
    9.52
    
    
    
    28,750
    
    
    
    5.3
    
    
    
    9.52
    
    
    
    28,678
    
    
    
    9.5210.20
    
    
    
    33,174
    
    
    
    6.3
    
    
    
    10.20
    
    
    
    
    
    
    
    10.25
    
    
    
    35,000
    
    
    
    9.8
    
    
    
    10.25
    
    
    
    
    
    
    
    10.50
    
    
    
    18,138
    
    
    
    9.5
    
    
    
    10.50
    
    
    
    
    
    
    
    10.92
    
    
    
    892
    
    
    
    5.4
    
    
    
    10.92
    
    
    
    892
    
    
    
    10.9211.22
    
    
    
    5,000
    
    
    
    9.9
    
    
    
    11.22
    
    
    
    
    
    
    
    11.45
    
    
    
    8,500
    
    
    
    9.9
    
    
    
    11.45
    
    
    
    
    
    
    
    11.61
    
    
    
    7,500
    
    
    
    9.9
    
    
    
    11.61
    
    
    
    
    
    
    
    11.75
    
    
    
    2,000
    
    
    
    9.9
    
    
    
    11.75
    
    
    
    
    
    
    
    11.92
    
    
    
    43,000
    
    
    
    9.9
    
    
    
    11.92
    
    
    
    
    
    
    
    12.46
    
    
    
    800
    
    
    
    10.0
    
    
    
    12.46
    
    
    
    
    
    
    
    12.76
    
    
    
    10,000
    
    
    
    9.9
    
    
    
    12.76
    
    
    
    
    
    
    
    12.93
    
    
    
    4,000
    
    
    
    9.9
    
    
    
    11.93
    
    
    
    
    
    
    
    13.10
    
    
    
    6,000
    
    
    
    10.0
    
    
    
    13.10
    
    
    
    
    
    
    
    14.56
    
    
    
    20,027
    
    
    
    5.5
    
    
    
    14.56
    
    
    
    20,027
    
    
    
    14.5628.00
    
    
    
    7,175
    
    
    
    4.0
    
    
    
    28.00
    
    
    
    7,175
    
    
    
    28.0030.80
    
    
    
    3,103
    
    
    
    5.5
    
    
    
    30.80
    
    
    
    3,103
    
    
    
    30.801,638,807
    
    
    
    8.7
    
    
    $
    5.62
    
    
    
    405,795
    
    
    $
    3.31
  WeightedWeighted
    
    
    Weighted
    
    
    AverageNumber
    
    
    Average
    
    
    Average Fair
    
    
    Intrinsicof Shares
    
    
    Exercise
    
    
    Value Per
    
    
    ValueGrants Made During Quarter Ended
    
    Granted
    
    
    Price
    
    
    Share
    
    

Per
ShareMarch 31, 2003
    
    
    57,142
    
    
    $
    0.84
    
    
    $
    1.18
    
    
    $
    0.34June 30, 2003
    
    
    800,527
    
    
    $
    0.24
    
    
    $
    1.47
    
    
    $
    1.23September 30, 2003
    
    
    224,142
    
    
    $
    0.25
    
    
    $
    2.38
    
    
    $
    2.13December 31, 2003
    
    
    10,569
    
    
    $
    0.84
    
    
    $
    3.84
    
    
    $
    3.00March 31, 2004
    
    
    262,926
    
    
    $
    5.16
    
    
    $
    5.55
    
    
    $
    0.39June 30, 2004
    
    
    181,421
    
    
    $
    5.51
    
    
    $
    7.98
    
    
    $
    2.47September 30, 2004
    
    
    451,143
    
    
    $
    8.49
    
    
    $
    8.45
    
    
    $
    December 31, 2004
    
    
    157,831
    
    
    $
    11.13
    
    
    $
    11.13
    
    
    $
    
  10. Qualified Retirement Plan
  F-26




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##### Table of Contents



WEBSIDESTORY, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 11. Commitments and Contingencies
   F-27




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##### Table of Contents



WEBSIDESTORY, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
  Gross
    
    
    Sublease
    
    
    NetPayments
    
    
    Income
    
    
    PaymentsYear Ending December 31,2005
    
    $
    1,779
    
    
    $
    768
    
    
    $
    1,0112006
    
    
    1,807
    
    
    
    786
    
    
    
    1,0212007
    
    
    45
    
    
    
    20
    
    
    
    25Total minimum payments
    
    $
    3,631
    
    
    $
    1,574
    
    
    $
    2,057
 12. Income Taxes
  Year Ended December 31,2002
    
    
    2003
    
    
    2004CurrentFederal
    
    $
    (21
    )
    
    $
    
    
    
    $
    25State
    
    
    2
    
    
    
    2
    
    
    
    2Foreign
    
    
    
    
    
    
    68
    
    
    
    21(19
    )
    
    
    70
    
    
    
    48DeferredFederal
    
    
    
    
    
    
    
    
    
    
    State
    
    
    
    
    
    
    
    
    
    
    Foreign
    
    
    
    
    
    
    (101
    )
    
    
    (2
    )
    
    
    
    (101
    )
    
    
    (2
    )$
    (19
    )
    
    $
    (31
    )
    
    $
    46
  2002
    
    
    2003
    
    
    2004Deferred tax assetsAccrued bonuses and vacation
    
    $
    120
    
    
    $
    159
    
    
    $
    96Allowance for doubtful accounts
    
    
    218
    
    
    
    211
    
    
    
    108Stock-based compensation related to nonstatutory stock options
    
    
    86
    
    
    
    594
    
    
    
    925Capitalized legal, net of amortization
    
    
    
    
    
    
    26
    
    
    
    Depreciation and amortization
    
    
    352
    
    
    
    433
    
    
    
    152Net operating loss carryforward
    
    
    4,961
    
    
    
    5,191
    
    
    
    4,677Federal research and development credits
    
    
    166
    
    
    
    241
    
    
    
    251Other
    
    
    268
    
    
    
    158
    
    
    
    2396,171
    
    
    
    7,013
    
    
    
    6,448Deferred tax liabilitiesCapitalized software and website development costs
    
    
    
    
    
    
    (42
    )
    
    
    (83
    )6,171
    
    
    
    6,971
    
    
    
    6,365Valuation allowance
    
    
    (6,171
    )
    
    
    (6,870
    )
    
    
    (6,328
    )$
    
    
    
    $
    101
    
    
    $
    37
   F-28




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##### Table of Contents



WEBSIDESTORY, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
   2002
    
    
    2003
    
    
    2004Computed expected federal tax expense
    
    $
    (871
    )
    
    $
    (666
    )
    
    $
    611State taxes, net of federal benefit
    
    
    (133
    )
    
    
    (90
    )
    
    
    129Stock-based compensation expense
    
    
    78
    
    
    
    23
    
    
    
    (30
    )Other
    
    
    (19
    )
    
    
    3
    
    
    
    69Valuation allowance
    
    
    926
    
    
    
    699
    
    
    
    (733
    )$
    (19
    )
    
    $
    (31
    )
    
    $
    46
 13. Subsequent Events
 . .
 .
 . .
 , .
 F-29




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##### Table of Contents



Index to Exhibits
 ExhibitNumber
    
    Description3.1(1)
    
    Amended and Restated Certificate of Incorporation.3.2(1)
    
    Amended and Restated Bylaws.4.1(1)
    
    Form of Common Stock Certificate.4.2(1)
    
    Registration Rights Agreement, as amended, by and among the Company and certain investors set forth
therein, dated June 18, 1999.4.3(1)
    
    Warrant to Purchase Common Stock by and between the Company and Imperial Bancorp, dated March 27, 2000.4.4(1)
    
    Warrant to Purchase Common Stock by and between the Company and Imperial Bancorp, dated February 2, 2001.4.5(1)
    
    Warrant to Purchase Common Stock by and between the Company and Imperial Creditcorp, dated April 30, 2001.4.6(1)+
    
    Warrant to Purchase Series D Convertible Preferred Stock by and between the Company and Jeffrey W.
Lunsford, dated April 1, 2003.10.1(1)+
    
    Amended and Restated 2000 Equity Incentive Plan.10.2(2)+
    
    2004 Equity Incentive Award Plan and Form of Option Grant Agreement.10.3(1)+
    
    Common Stock Purchase Agreement between the Company and Jeffrey W. Lunsford, dated April 1, 2003.10.4(1)+
    
    Common Stock Purchase Agreement between the Company and Michael S. Christian, dated July 29, 2003.10.5(1)+
    
    Amended and Restated Employment Agreement between the Company and Jeffrey W. Lunsford, dated July 21, 2004.10.6(1)+
    
    Offer Letter between the Company and Thomas D. Willardson, dated March 23, 2004.10.7(1)+
    
    Offer Letter between the Company and Rand Schulman, dated May 15, 2003.10.8(1)+
    
    Transition Agreement between the Company and John J. Hentrich, dated March 31, 2003.10.9(1)+
    
    Offer Letter between the Company and Christopher Reid, dated February 12, 2003.10.10(1)+
    
    Amendment to Employment Agreement between WebSideStory Holding B.V. and Daniel Guilloux, dated November
15, 2002.10.11(1)+
    
    Employment Agreement between WebSideStory Holding B.V. and Daniel Guilloux, dated as of July 1, 2000.10.12(1)+
    
    Confidentiality Agreement and Terms of Employment between the Company and Michael S. Christian, dated
April 25, 2000.10.13(1)+
    
    Form of Indemnification Agreement between the Company and the persons listed on Schedule A thereto.




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##### Table of Contents



ExhibitNumber
    
    Description10.14(1)+
    
    Form of Change of Control Agreement between the Company and the persons listed on Schedule A thereto.10.15(1)+
    
    Change of Control Agreement between the Company and Thomas D. Willardson, dated July 21, 2004.10.16(1)
    
    Terms for Delivery of Service and Customer Order Summary between the Company and Level (3)
Communications, Inc., dated November 20, 2001.10.17(1)
    
    Addendum to Terms for Delivery of Service between the Company and Level (3) Communications, Inc.,
dated November 20, 2001.10.18(1)
    
    Office Lease between the Company and LNR Seaview, Inc., dated August 23, 1999.10.19(1)
    
    First Amendment to Office Lease between the Company and LNR Seaview, Inc., dated July 3, 2001.10.20(1)
    
    Sublease between the Company and RF Magic, Inc., dated July 3, 2001.10.21(1)
    
    Sublease between the Company and Avexus, Inc., dated July 6, 2001.10.22(1)
    
    Addendum to Sublease between the Company and Avexus, Inc., dated April 18, 2002.10.23(1)
    
    Amendment to Sublease between the Company and RF Magic, Inc., dated September 10, 2003.10.24(1)
    
    Revised Master Service Agreement among the Company, Buena Vista Internet Group, ESPN Internet
Ventures, ABCNews Internet Ventures, Infoseek Corporation, ABC Multimedia, Inc. and Walt Disney
Parks & Resorts Online dated August 29, 2003.10.25(1)
    
    Amendment to Revised Master Service Agreement among the Company, Buena Vista Internet Group, ESPN
Internet Ventures, ABCNews Internet Ventures, Infoseek Corporation, ABC Multimedia, Inc. and Walt
Disney Parks & Resorts Online dated March 31, 2004.10.26(1)
    
    Patent Cross-License Agreement between the Company and NetIQ Corporation dated December 12, 2003.10.27(1)
    
    Salesforce.com JoinForces Product Alliance Program Agreement, dated May 21, 2004, between the
Company and Salesforce.com, Inc.10.28(1)
    
    Second Addendum to Terms for Delivery of Service between the Company and Level (3) Communications,
Inc., dated April 4, 2003.21.1(1)
    
    List of Subsidiaries.23.1*
    
    Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.31.1*
    
    Certification of Chief Executive
Officer pursuant to Rules 13a-14 and 15d-14 promulgated under the
Securities Exchange Act of 1934.31.2*
    
    Certification of Chief Financial
Officer pursuant to Rules 13a-14 and 15d-14 promulgated under the
Securities Exchange Act of 1934.32**
    
    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 (1)
    
    Incorporated by reference to the Registration Statement on Form S-1 of WebSideStory, Inc. (Registration
No. 333-115916) filed with the Securities and Exchange Commission on September 17, 2004.(2)
    
    Incorporated by reference to the Registration Statement on Form S-8 of WebSideStory,
Inc. (Registration No. 333-119350) filed with the Securities and Exchange Commission on
September 28, 2004.
    
    WebSideStory, Inc. has been granted confidential treatment with respect to certain
portions of this exhibit (indicated by asterisks), which have been separately filed
with the Securities and Exchange Commission.+
    
    Indicates management contract or compensatory plan.*
    
    Filed herewith**
    
    These certifications are being furnished solely to accompany this annual report
pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18
of the Securities Exchange Act of 1934 and are not to be incorporated by reference into
any filing of WebSideStory, Inc., whether made before or after the date hereof,
regardless of any general incorporation language in such filing.