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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-K
 ANNUAL REPORT
PURSUANT TO SECTION 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 fiscal year ended December 31, 2006
 OR
 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
    
    33-0727173(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)10182 Telesis Court, 6thFloor, San Diego, CA
    
    92121(Address of principal executive offices)
    
    (Zip Code)
 (858) 546-0040
  Title of Each Class
    
    Name of Exchange on Which RegisteredCommon Stock, par value $0.001 per share
    
    The Nasdaq Stock Market, LLC
  o þ
 o þ
 Note
 þ o
 o
  o þ o
 o þ
   *
    
    Excludes the common stock held by executive officers, directors and stockholders whose ownership
exceeded 10% of the common stock outstanding at December 31, 2006. This calculation does not
reflect a determination that such persons are affiliates for any other purposes. DOCUMENTS INCORPORATED BY REFERENCE




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##### 



WEBSIDESTORY, INC.
 FORM 10-K  ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006
 TABLE OF CONTENTS
 PagePART IItem 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    11Item 1B. Unresolved Staff Comments
    
    
    25Item 2. Properties
    
    
    25Item 3. Legal Proceedings
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    26PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    27Item 6. Selected Financial Data
    
    
    27Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    42Item 8. Financial Statements and Supplementary Data
    
    
    43Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    44Item 9A. Controls and Procedures
    
    
    44Item 9B. Other Information
    
    
    46PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    46Item 11. Executive Compensation
    
    
    46Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    46Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    47Item 14. Principal Accountant Fees and Services
    
    
    47PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    47EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32




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PART I
 Forward-Looking Statements
   
 Item 1. Business.
 Overview
    1




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Recent Acquisitions; $15 million Revolving Credit Facility
    2




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Benefits of Our Services
   
    
    Enable a More Complete View of the Customer Lifecycle:Our solutions deliver flexible
deployment and data collection options which allow our customers to analyze any number of
sources of data. Utilizing our Visual Sciences product line, the online behavioral data
captured in our web analytics solutions can be analyzed separately or in conjunction with
other data sources, enabling customer analysis across multiple channels. These potential
data sources include, but are not limited to: integrated voice response (IVR); email
traffic; product sales data across web, catalog, phone, and store channels; and custom
data.
    
    Provide Valuable Information to Improve Online and Offline Initiatives.Our analytic
reports and drill down and visualization capabilities help our customers understand how
users navigate and engage with their websites. Our reporting services allow businesses to
compare the popularity and effectiveness of their content over time and across sections of
their websites. These reports can reveal which paths in a website lead to the greatest
number of sales and where bottlenecks occur and enable rapid testing of the effects that
changes in content and design have on browsing, shopping and buying behavior. In addition,
our services allow our customers to develop offline marketing strategies based on online
analysis. We also correlate browsing and searching behavior with purchasing to reveal
shopping patterns and trends.
    
    Empower Customers to Implement Informed Marketing Decisions. While our web analytics
service provides a basis for decisions affecting online marketing, our customers can use
our analytics-driven applications to apply the insights gained. Our customers can use our
website search application to influence how visitors navigate their website and search for
content and products. Our web content management application allows our customers to
publish and modify website content. Through integration with HBX Analytics, both site
search and website content can be automatically optimized based on website visitor
behavior.
    
    Improve Marketing Return on Investment.Our web and internet channel analytics reports
help businesses determine where their marketing budgets are best spent. We capture, analyze
and report on on-line responses to both online and offline marketing campaigns. Using our
services, our customers can run simultaneous campaigns, assess results in real time and
then reallocate marketing resources to the most effective campaigns. Our customers can also
identify which referral sources generate the most customer leads and can assess each
campaigns return on investment in terms of sales relative to costs.
 Our Strategy
  3




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
    
    Expand the Features and Functionality of Our Services.We plan to further enhance the
features and functionality of our applications, as well as adapt our services to changing
Internet environments and business practices. We also plan to continue to increase the
number of languages supported by our services.
    
    Pursue New Customers in Our Existing Markets, Cross-Sell Our Products and Expand into
New Geographic Markets.Our applications currently serve diverse organizations, including
Fortune 500 corporations, small and medium businesses, and educational and government
institutions. We intend to continue marketing our services to a broad range of
organizations, primarily through our direct sales force. We plan to increase the number of
sales people that we employ and to develop other marketing or distribution channels for our
services. Additionally, we plan to leverage our sales force to cross-sell our applications,
extended services and packaged service offerings across our current and potential customer
base. We also plan to increase our marketing efforts to customers outside of North America,
and we may also expand outside North America.
    
    Continue to Develop and Acquire Related Services and Technologies.We believe that our
success in web analytics will help us sell both related customer analytics applications and
analytics-driven applications such as call center analytics, point of sale analytics,
website search applications, web content management, keyword bid management, marketing
surveys, email marketing and affiliate marketing networks. In the past year, we have
developed or acquired several of these customer intelligence applications, and we intend to
develop or acquire additional applications. We believe our strengths in data analysis,
scalability and delivery of on-demand application services will allow us to compete
effectively with other companies that may attempt to offer comparable customer intelligence
services.
    
    Provide Superior Customer Service and Build Lasting Relationships with Our Customers.
We believe that we can generate more revenue from our customers by promoting wider and more
diverse deployments of our services. We seek to learn industry best practices based on
feedback from our customers and to incorporate these practices into our technology and
professional services. This strategy enhances the value our customers receive from our
services. We intend to keep our customers satisfied by responding promptly to their
feedback and requests and by building technology that helps them achieve their goals.
    
    Encourage the Development of Third-Party Applications that Integrate with and are
Complementary to Our Services.Our services are designed to allow third-party developers to
create applications complementary to our core services offering. Our analytic reporting and
data collection processes can be integrated with third-party applications through our
published application programming interfaces, or APIs, and through standard-format data
feeds. We actively encourage our customers to integrate our services with other systems and
applications that they use to increase the value of our services.
 Our Services
  Service
    
    DescriptionHBX On-Demand Web Analytics
    
    HBX is our on-demand web analytics
service that collects, processes, stores
and reports on Internet user behavior
based on browser activity. Reports that
we provide give our customers an extensive analysis of what visitors are
doing on their web pages. For example,
HBX can be used to inform our customers
which marketing initiatives visitors
responded to, what search engines they
used, what keywords they entered, how
much time they spent on web pages, what
they bought online, when they abandoned
shopping carts and what geographic area
they live in.
 4




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Service
    
    DescriptionVisual Site
    
    Visual Site provides customers real-time
visibility into Internet channel
campaigns, sites, visitors and segments.
Visual Site can integrate data from other
visitor or transaction data sources to
enable customers to gain a comprehensive
view of their Internet visitors.Visual Call
    
    Visual Call provides customers real-time
visibility into voice channel systems,
customers and segments.Visual Mail
    
    Visual Mail provides customers real-time
visibility into e-mail channel content,
customers and segments.WebSideStory Search
    
    Search is our on-demand application that
delivers relevant search results to
visitors of our customers websites and
guides them, step-by-step, to the
products and information they want.
Search also enables our customers to
learn from their website visitors
behavior and improve their business
decisions based on what visitors are
searching for and how often they find
what they want. Customers can customize
the search interface and results
templates to match their website design.WebSideStory Publish
    
    Publish is our on-demand web content
management application that helps
businesses improve their website. Publish
allows marketers and website owners to
control website content, without
sacrificing control over workflow, design
and permissions required by web teams.
For example, customers of Publish can
navigate their own website to the content
they want to modify, click a button and
make the change. An additional click of a
button will publish the changed content.
Little to no training is required to
utilize this application, and no
technical expertise is needed.WebSideStory Bid
    
    Bid is our on-demand keyword bid
management application that enables
search engine marketers to actively
manage pay-per-click bids from a single,
easy-to-use interface. Bid is integrated
with HBX to enable customers to analyze
the effectiveness of their keyword bid
strategies.
  Professional Services.
 HBX DataFeed.
 HitBox Professional.
 Express Search.
 5




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Technology and Operations
 Technology
 WebSideStory Product Line:
      Visual Sciences Product Line:
    6




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® ® ® ®
   Operations
   Customers
  Sales and Marketing
 Direct Sales
  7




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Marketing
   
    
    advertising on industry-related websites;
    
    participation in, and sponsorship of, Internet user conferences, trade shows and industry events;
    
    partnering with well-known organizations within the industry;
    
    using our website to provide product and company information and industry-related downloads; and
    
    issuing press releases about business and product developments as appropriate.
 Customer Service and Support
  International Sales
  Competition
  
    
    web analytics providers such as Coremetrics, Omniture and WebTrends;
    
    website search providers such as Endeca, Google and Verity;
 8




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
    
    web content management providers such as Interwoven and Vignette; and
    
    providers of keyword bid management solutions such as Did-It and Efficient Frontier.
   
    
    product functionality and breadth of services offered;
    
    price and cost of ownership;
    
    brand name and reputation;
    
    rates of user adoption among the decision makers;
    
    performance, security, scalability, reliability and flexibility of the services;
    
    ability to gather and process large amounts of data;
    
    speed and ease of implementation and use;
    
    ease of integration with existing applications; and
    
    quality of customer support and services.
  Intellectual Property
    9




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United States and Foreign Government Regulation
     10




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Employees
  Available Information
  www.websidestory.com
 
 Item 1A. Risk Factors
 The following information sets forth factors that could cause our actual results to differ
materially from those contained in forward-looking statements we have made in this annual report
and those we may make from time to time.
 Risks Related to Our Business
 Our web analytics services comprise a substantial majority of our revenue, and our business will be
harmed if customer demand for these services declines.
  We have limited experience with customer intelligence applications other than web analytics and our
efforts to expand our services beyond web analytics may not be successful.
  11




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Our indebtedness could adversely affect our financial health.
   
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    impair our ability to obtain additional financing in the future for working capital
needs, capital expenditures, acquisitions and general corporate purposes;
    
    require us to dedicate our cash flows from operations to the payment of principal and
interest on our indebtedness, thereby eliminating or reducing the availability of our cash
flows to fund working capital needs, capital expenditures, acquisitions and other general
corporate purposes;
    
    have a material adverse effect on our business and financial condition if we are unable
to service our indebtedness or refinance such indebtedness;
    
    limit our flexibility in planning for, or reacting to, changes in our business and the
industry in which we operate; and
    
    place us at a disadvantage compared to our competitors that have less indebtedness.
 Covenants in our senior secured revolving credit facility may limit our ability to operate our
business.
  If we cannot successfully integrate our business with the businesses of Avivo and Visual Sciences,
or if the benefits of these business combinations do not meet the expectations of investors or
financial or industry analysts, the market price of our common stock may decline.
  
    
    we may not be able to integrate the business of Avivo or Visual Sciences with our
business in a timely and efficient manner, or at all;
    
    the combined company may not achieve the benefits of either business combination as
rapidly as, or to the extent, anticipated by investors or financial or industry analysts;
 12




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
    
    we may not be able to expand the customer base of Avivo or Visual Sciences; or
    
    the former stockholders of Avivo or Visual Sciences could dispose of a significant
portion of our common stock that they received in connection with the business
combinations.
 We operate in highly competitive markets, which could make it difficult for us to acquire and
retain customers.
  
    
    web analytics providers such as Coremetrics, Omniture and WebTrends;
    
    website search providers such as Endeca, Google and Verity;
    
    web content management providers such as Interwoven and Vignette; and
    
    providers of keyword bid management solutions such as Did-It and Efficient Frontier.
   Many of our services are sold pursuant to short-term subscription agreements, and if our customers
elect not to renew these agreements, our revenue may decrease.
  13




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Because we recognize the majority of our revenue from subscriptions to our services over the term
of the applicable agreement, the lack of subscription renewals or new subscription agreements may
not be immediately reflected in our operating results.
  We may have difficulty maintaining our profitability.
  If we fail to respond to rapidly changing technology or evolving industry standards, our services
may become obsolete or less competitive.
  We may be liable to our customers and may lose customers if we provide poor service, if our
services do not comply with our agreements or if there is a loss of data.
   14




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We may expand through acquisitions of, or investments in, other companies or through business
relationships, all of which may divert our managements attention, result in additional dilution to
our stockholders or consume resources that are necessary to sustain our business.
   
    
    issue additional equity securities that would dilute our stockholders;
    
    use cash that we may need in the future to operate our business;
    
    incur debt on terms unfavorable to us or that we are unable to repay;
    
    incur large charges or substantial liabilities;
    
    encounter difficulties retaining key employees of the acquired company or integrating
diverse business cultures; and
    
    become subject to adverse tax consequences, or incur substantial depreciation or
deferred compensation charges.
  Fluctuations in our operating results may make it difficult to predict our future performance and
may result in volatility in the market price of our common stock.
  
    
    our ability to retain and increase sales to existing customers, attract new customers
and satisfy our customers requirements;
    
    the timing and success of new product introductions or upgrades by us or our competitors;
    
    changes in our pricing policies or payment terms or those of our competitors;
    
    concerns relating to the security of our networks and systems;
    
    the rate of success of our domestic and international expansion;
    
    our ability to hire and retain key executives as well as technical and sales and marketing personnel;
 15




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
    
    our ability to expand our operations and the amount and timing of expenditures related to this expansion;
    
    limitations in the scalability of our networks and systems;
    
    costs related to the integration of Avivo and Visual Sciences with our business and the
development or acquisition of other technologies, products or businesses; and
    
    general economic, industry and market conditions.
   We rely on a small number of third parties to support our network, any disruption of which could
affect our ability to provide our services and could harm our reputation.
    16




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A rapid expansion of our networks and systems could cause us to lose data or cause our networks or
systems to fail.
  If our security measures are breached and unauthorized access is obtained, our services may be
perceived as not being secure, and customers may hold us liable or stop using our services.
  Any failure to adequately expand our direct sales force will impede our growth.
  We may encounter difficulties managing our growth, which could adversely affect our results of
operations.
  17




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The success of our business depends in large part on our ability to protect and enforce our
intellectual property rights.
    If a third party asserts that we are infringing its intellectual property, whether successful or
not, it could subject us to costly and time-consuming litigation or expensive licenses, and our
business may be harmed.
  
    
    divert managements attention;
    
    result in costly and time-consuming litigation;
    
    require us to enter into royalty or licensing agreements, which may not be available on
acceptable terms, or at all; or
    
    require us to redesign our software and services to avoid infringement.
 18




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If we fail to develop our brands cost-effectively, our business may suffer.
  We rely on our management team and will need to hire additional personnel to grow our business.
    Our business strategy includes expanding our international operations; therefore, our business is
susceptible to risks associated with international operations.
  
    
    unexpected changes in foreign regulatory requirements;
    
    localization of our service, including translation into foreign languages and associated expenses;
 19




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
    
    fluctuations in currency exchange rates;
    
    political, social and economic instability abroad, including conflicts in the Middle
East, terrorist attacks and security concerns in general;
    
    longer accounts receivable payment cycles and difficulties in collecting accounts receivable;
    
    difficulties in managing and staffing international operations;
    
    potentially adverse tax consequences, including the complexities of foreign value added
tax systems and restrictions on the repatriation of earnings;
    
    maintaining and servicing computer hardware in distant locations;
    
    the burdens of complying with a wide variety of foreign laws and different legal standards; and
    
    reduced or varied protection for intellectual property rights in some countries.
   We previously identified material weaknesses in our internal control over financial reporting, and
our business and stock price may be adversely affected if our internal controls are not effective.
  Changes in financial accounting standards or practices or existing taxation rules or practices may
cause adverse, unexpected financial reporting fluctuations and affect our reported results of
operations.
  20




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Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
 Our net operating loss carryforwards may expire unutilized, which could prevent us from offsetting
future taxable income.
     Risks Related to Our Industry
 Widespread blocking or erasing of cookies or limitations on our ability to use cookies may impede
our ability to collect information with our technology and reduce the value of that data.
  21




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Privacy concerns and laws or other domestic or foreign regulations may subject us to litigation or
limit our ability to collect and use Internet user information, resulting in a decrease in the
value of our services and an adverse impact on the sales of our services.
   22




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The success of our business depends on the continued growth of the Internet as a business tool and
the growth of the web analytics market.
   Risks Related to the Securities Market and the Ownership of Our Common Stock
 Our stock price may be volatile and you may not be able to sell your shares at an attractive price.
  
    
    variations in our operating results;
    
    announcements of technological innovations, new services or service enhancements or
significant agreements by us or by our competitors;
 23




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
    
    recruitment or departure of key personnel;
    
    changes in the estimates of our operating results or changes in recommendations by any
securities analysts that elect to follow our common stock;
    
    sales of our common stock, including sales by officers, directors and funds affiliated
with them;
    
    fluctuations in stock market prices and trading volumes of similar companies or of the
securities markets generally;
    
    market conditions in our industry, the industries of our customers and the economy as a whole; or
    
    economic and political factors, including wars, terrorism and political unrest.
 We might require additional capital to support business growth and this capital might not be
available on acceptable terms, or at all.
  Future sales of our common stock by our stockholders may depress our stock price.
   24




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Provisions in our amended and restated certificate of incorporation and bylaws or under Delaware
law might discourage, delay or prevent a change of control of our company or changes in our
management and, therefore, depress the trading price of our common stock.
  
    
    establish a classified board of directors so that not all members of our board are
elected at one time;
    
    provide that directors may only be removed for cause and only with the approval of
the holders of 66 2/3% of our outstanding voting stock;
    
    require super-majority voting to amend some provisions in our amended and restated
certificate of incorporation and bylaws;
    
    authorize the issuance of blank check preferred stock that our board of directors
could issue to increase the number of outstanding shares to discourage a takeover attempt;
    
    prohibit stockholder action by written consent, requiring all stockholder actions to be
taken at a meeting of our stockholders;
    
    provide that the board of directors is expressly authorized to make, alter or repeal
our bylaws; and
    
    establish advance notice requirements for nominations for elections to our board or for
proposing matters that can be acted upon by stockholders at stockholder meetings.
  
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
   25




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Item 3. Legal Proceedings.
    
 Item 4. Submission of Matters to a Vote of Security Holders.
  26




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
 Market Information
  Fiscal Year Ended December 31, 2005
    
    High
    
    LowFirst Quarter
    
    $
    13.46
    
    
    $
    10.76Second Quarter
    
    $
    15.10
    
    
    $
    9.95Third Quarter
    
    $
    19.10
    
    
    $
    13.63Fourth Quarter
    
    $
    20.60
    
    
    $
    15.27
 Fiscal Year Ended December 31, 2006
    
    High
    
    LowFirst Quarter
    
    $
    20.40
    
    
    $
    13.58Second Quarter
    
    $
    17.47
    
    
    $
    12.12Third Quarter
    
    $
    13.25
    
    
    $
    9.90Fourth Quarter
    
    $
    14.39
    
    
    $
    11.22
  Dividend Policy
  Issuer Purchases of Equity Securities
  
 Item 6. Selected Financial Data.
    27




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Condensed Consolidated Statement of Operations Data (in thousands, except share and per share data)
 Year Ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Revenues
    
    $
    64,527
    
    
    $
    39,452
    
    
    $
    22,602
    
    
    $
    16,360
    
    
    $
    13,570(Loss) income from operations
    
    
    (11,155
    )
    
    
    5,758
    
    
    
    1,642
    
    
    
    (2,608
    )
    
    
    (1,887
    )(Benefit from) provision for income taxes
    
    
    (4,491
    )
    
    
    (3,073
    )
    
    
    46
    
    
    
    (31
    )
    
    
    (19
    )Cumulative effect of change in accounting
principle
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net (loss) income
    
    
    (7,716
    )
    
    
    9,659
    
    
    
    1,768
    
    
    
    (2,078
    )
    
    
    (2,625
    )Net (loss) income attributable to common
stockholders
    
    
    (7,716
    )
    
    
    9,659
    
    
    
    (947
    )
    
    
    (3,644
    )
    
    
    (3,992
    )Basic net (loss) income per common share:Before cumulative effect of change in
accounting
principle
    
    $
    (0.41
    )
    
    $
    0.56
    
    
    $
    (0.13
    )
    
    $
    (0.91
    )
    
    $
    (1.05
    )Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Basic net (loss) income per share
    
    $
    (0.41
    )
    
    $
    0.56
    
    
    $
    (0.13
    )
    
    $
    (0.91
    )
    
    $
    (1.05
    )Diluted net (loss) income per common share:Before cumulative effect of change in
accounting
principle
    
    $
    (0.41
    )
    
    $
    0.51
    
    
    $
    (0.13
    )
    
    $
    (0.91
    )
    
    $
    (1.05
    )Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted net (loss) income per share
    
    $
    (0.41
    )
    
    $
    0.51
    
    
    $
    (0.13
    )
    
    $
    (0.91
    )
    
    $
    (1.05
    )Shares used in per share calculations:Basic
    
    
    18,678,099
    
    
    
    17,231,411
    
    
    
    7,300,809
    
    
    
    4,001,979
    
    
    
    3,806,550Diluted
    
    
    18,678,099
    
    
    
    18,774,978
    
    
    
    7,300,809
    
    
    
    4,001,979
    
    
    
    3,806,550
 Condensed Consolidated Balance Sheet Data (in thousands)
 As of December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Cash, cash equivalents and short-term investments
    
    $
    25,319
    
    
    $
    31,680
    
    
    $
    22,033
    
    
    $
    5,690
    
    
    $
    4,563Working capital (deficit)
    
    
    (5,360
    )
    
    
    24,692
    
    
    
    17,664
    
    
    
    2,679
    
    
    
    2,740Total assets
    
    
    137,568
    
    
    
    87,743
    
    
    
    37,618
    
    
    
    9,917
    
    
    
    8,605Note payable
    
    
    19,708
    
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    679Redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,056
    
    
    
    12,519Convertible redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,837
    
    
    
    30,008Accumulated deficit
    
    
    (52,325
    )
    
    
    (44,609
    )
    
    
    (54,268
    )
    
    
    (56,036
    )
    
    
    (53,958
    )Total stockholders equity (deficit)
    
    
    85,753
    
    
    
    69,816
    
    
    
    28,145
    
    
    
    (39,179
    )
    
    
    (38,273
    )
 
 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
Item 1A. Risk Factors. This Managements Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the financial statements and related notes
for the year ended December 31, 2006, which are included elsewhere in this annual report.
 Overview
  28




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##### Table of Contents



Sources of Revenues
  Software Revenue Recognition Modification of SOP 97-2, Software Revenue Recognition, With Respect to
Certain Transactions, Revenue Recognition Accounting for Revenue Arrangements with Multiple Deliverables
 29




---



##### Table of Contents



Cost of Revenues and Operating Expenses
 Cost of Revenues
  Sales and Marketing Expenses
  Technology Development Expenses
  General and Administrative Expenses
  Stock-Based Compensation Expenses
 Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees Statement of Cash Flows
 Critical Accounting Policies and Estimates
  30




---



##### Table of Contents



Subscription, Hosting and Support Revenue
   
    
    Revenue recognition for subscription services begins when the customer has been given
access to the service or after acceptance.
    
    Revenue recognition for post-contract support begins upon execution of the software
license agreement or after acceptance of the related software license, and hosting support
services begins upon acceptance of the software. For contracts without acceptance
provisions, revenue recognition for post-contract support begins upon completion of
installation and for hosting, upon delivery of the service.
   License Revenue
   31




---



##### Table of Contents



1.
    
    Persuasive evidence of an arrangement exists, which consists of a written contract
signed by both the customer and us.2.
    
    Delivery has occurred, which is after acceptance of the software, or for contracts
without acceptance provisions, delivery occurs after completion of installation.3.
    
    The fee is fixed or determinable, which occurs when we have a signed contract that
states the agreed upon fee for our products and/or services and specifies the related terms
and conditions that govern that arrangement.4.
    
    Collection is probable as determined by the payment history of the customer and the
customers financial position.
 Professional Services Revenue
  Advertising Revenue
  Allowance for Doubtful Accounts
  Accounting for Stock-Based Compensation
   32




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##### Table of Contents



Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards
  Business Combinations
  Impairments of Long-lived Assets and Goodwill
 Accounting for the Impairment or Disposal of
Long-Lived Assets
 Goodwill
and Other Intangible Assets Accounting for
the Impairment or Disposal of Long-Lived Assets
 Income Taxes
  33




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##### Table of Contents



Results of Operations
  Year Ended December 31,2006
    
    2005
    
    2004RevenuesSubscription, hosting and support
    
    
    83
    %
    
    
    93
    %
    
    
    99
    %License
    
    
    5
    %
    
    
    0
    %
    
    
    0
    %Professional services
    
    
    8
    %
    
    
    3
    %
    
    
    0
    %Advertising
    
    
    4
    %
    
    
    4
    %
    
    
    1
    %Total revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Cost of revenuesCost of revenue
    
    
    25
    %
    
    
    17
    %
    
    
    15
    %Amortization of intangible assets
    
    
    4
    %
    
    
    1
    %
    
    
    0
    %Total cost of revenues
    
    
    29
    %
    
    
    18
    %
    
    
    15
    %Gross profit
    
    
    71
    %
    
    
    82
    %
    
    
    85
    %Operating expensesSales and marketing
    
    
    41
    %
    
    
    37
    %
    
    
    44
    %Technology development
    
    
    20
    %
    
    
    12
    %
    
    
    17
    %General and administrative
    
    
    22
    %
    
    
    16
    %
    
    
    18
    %Amortization of intangible assets
    
    
    5
    %
    
    
    3
    %
    
    
    0
    %Total operating expenses
    
    
    88
    %
    
    
    68
    %
    
    
    79
    %(Loss) income from operations
    
    
    (17
    )%
    
    
    14
    %
    
    
    6
    %Interest expense
    
    
    (3
    )%
    
    
    0
    %
    
    
    0
    %Interest income
    
    
    1
    %
    
    
    2
    %
    
    
    1
    %Other expense
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %(Loss) income before income taxes
    
    
    (19
    )%
    
    
    16
    %
    
    
    7
    %(Benefit from) provision for income taxes
    
    
    (7
    )%
    
    
    (8
    )%
    
    
    0
    %(Loss) income before cumulative effect of change in accounting
principle
    
    
    (12
    )%
    
    
    24
    %
    
    
    7
    %Cumulative effect of change in accounting principle (net of tax)
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Net (loss) income
    
    
    (12
    )%
    
    
    24
    %
    
    
    7
    %Constructive dividend on redemption of redeemable preferred stock
    
    
    0
    %
    
    
    0
    %
    
    
    (6
    )%Accretion of discount on redeemable preferred stock
    
    
    0
    %
    
    
    0
    %
    
    
    (6
    )%Net (loss) income attributable to common stockholders
    
    
    (12
    )%
    
    
    24
    %
    
    
    (5
    )%
 34




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##### Table of Contents



Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
 Revenues
  Subscription, Hosting and Support Revenue.
 License Revenue.
 Professional Services Revenue.
 Advertising Revenue.
 Cost of Revenues and Operating Expenses
 Cost of Revenues.
 35




---



##### Table of Contents



Sales and Marketing Expenses.
 Technology Development Expenses.
 General and Administrative Expenses.
 Amortization of Intangibles.
 Other Income, Net
 Interest expense.
 Interest income.
 36




---



##### Table of Contents



Provision for Income Taxes
  Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
 Revenues
  Subscription, Hosting and Support Revenue.
 Professional Services Revenue.
 Advertising Revenues.
 Cost of Revenues and Operating Expenses
 Cost of Revenues.
 Sales and Marketing Expenses.
 37




---



##### Table of Contents



Technology Development Expenses.
 General and Administrative Expenses.
 Other Income, Net
 Interest income.
 Provision for Income Taxes
  Liquidity and Capital Resources
 Overview
  Visual Sciences Merger.
 38




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##### Table of Contents



Avivo Acquisition
 Initial Public Offering of Common Stock
 New Credit Facility.
   Cash Flows (in thousands)
 Year Ended December 31,2006
    
    
    2005
    
    
    2004Net cash provided by (used in)Operating activities
    
    $
    13,601
    
    
    $
    7,887
    
    
    $
    4,703Investing activities
    
    
    (15,921
    )
    
    
    5,645
    
    
    
    (26,437
    )Financing activities
    
    
    1,898
    
    
    
    827
    
    
    
    21,749Effect of exchange rate changes on cash
    
    
    167 
    
    
    (101
    )
    
    
    5Net change in cash and cash equivalents
    
    $
    (255
    )
    
    $
    14,258
    
    
    $
    20
 39




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##### Table of Contents



Operating Activities
    Investing Activities
    Financing Activities
   40




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##### Table of Contents



Factors That May Affect Future Financial Condition And Liquidity
   Total
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    ThereafterSenior notes (1)
    
    $
    20,927
    
    
    $
    20,927
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating leases (2)
    
    
    15,812
    
    
    
    2,168
    
    
    
    2,619
    
    
    
    2,635
    
    
    
    2,639
    
    
    
    2,718
    
    
    
    3,033Capital leases
    
    
    88
    
    
    
    38
    
    
    
    25
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    36,827
    
    
    $
    23,133
    
    
    $
    2,644
    
    
    $
    2,660
    
    
    $
    2,639
    
    
    $
    2,718
    
    
    $
    3,033
 
 (1)
    
    Amount shown for senior notes includes principal and accrued interest. As noted
elsewhere in this report, in February 2007, we entered into a $15 million, two-year senior
secured revolving credit facility. We used $5.0 million of initial borrowings under this
credit facility, together with cash-on-hand, to repay all of the senior notes we issued in
connection with the Visual Sciences merger. As a result, we had $5.0 million of
indebtedness outstanding under our senior credit facility as of March 9, 2007.(2)
    
    Net of sublease rental income of $597,000 in 2007.  
    
    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.
  Off-Balance Sheet Arrangements
  41




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##### Table of Contents



Future Accounting Requirements
 Accounting for
Uncertainty in Income Taxes
 Fair Value Measurements
 Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements
 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
 Foreign Currency Exchange Risk
  Interest Rate Sensitivity
  42




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data.
   Condensed Consolidated Quarterly Data (unaudited, in thousands, except share and per share data)
   Three Months EndedDec. 31,
    
    
    Sept. 30,
    
    
    June 30,
    
    
    March 31,2006
    
    
    2006
    
    
    2006
    
    
    2006Revenues
    
    $
    18,391
    
    
    $
    17,447
    
    
    $
    15,245
    
    
    $
    13,443Cost of revenues
    
    
    5,553
    
    
    
    5,002
    
    
    
    4,736
    
    
    
    3,638Gross profit
    
    
    12,838
    
    
    
    12,445
    
    
    
    10,509
    
    
    
    9,805Operating expenses
    
    
    15,243
    
    
    
    15,080
    
    
    
    14,413
    
    
    
    12,016Loss from operations
    
    
    (2,405
    )
    
    
    (2,635
    )
    
    
    (3,904
    )
    
    
    (2,211
    )Loss before cumulative effect of change in
accounting principle
    
    
    (1,715
    )
    
    
    (1,827
    )
    
    
    (2,432
    )
    
    
    (1,755
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13Net loss
    
    $
    (1,715
    )
    
    $
    (1,827
    )
    
    $
    (2,432
    )
    
    $
    (1,742
    )Basic net loss per common share:Before cumulative effect of change in accounting
principle
    
    $
    (0.09
    )
    
    $
    (0.10
    )
    
    $
    (0.13
    )
    
    $
    (0.09
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Basic net loss per share
    
    $
    (0.09
    )
    
    $
    (0.10
    )
    
    $
    (0.13
    )
    
    $
    (0.09
    )Diluted net loss per common share:Before cumulative effect of change in accounting
principle
    
    $
    (0.09
    )
    
    $
    (0.10
    )
    
    $
    (0.13
    )
    
    $
    (0.09
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted net loss per share
    
    $
    (0.09
    )
    
    $
    (0.10
    )
    
    $
    (0.13
    )
    
    $
    (0.09
    )Shares used in per share calculations:Basic
    
    
    19,087
    
    
    
    18,738
    
    
    
    18,477
    
    
    
    18,405Diluted
    
    
    19,087
    
    
    
    18,738
    
    
    
    18,477
    
    
    
    18,405
 43




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##### Table of Contents



Three Months EndedDec. 31,
    
    
    Sept. 30,
    
    
    June 30,
    
    
    March 31,2005
    
    
    2005
    
    
    2005
    
    
    2005Revenues
    
    $
    11,746
    
    
    $
    11,337
    
    
    $
    9,412
    
    
    $
    6,957Cost of revenues
    
    
    2,031
    
    
    
    2,046
    
    
    
    1,692
    
    
    
    1,007Gross profit
    
    
    9,715
    
    
    
    9,291
    
    
    
    7,720
    
    
    
    5,950Operating expenses
    
    
    7,693
    
    
    
    7,677
    
    
    
    6,544
    
    
    
    5,004Income from operations
    
    
    2,022
    
    
    
    1,614
    
    
    
    1,176
    
    
    
    946Income before cumulative effect of change in
accounting principle
    
    
    5,572
    
    
    
    1,759
    
    
    
    1,261
    
    
    
    1,067Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    $
    5,572
    
    
    $
    1,759
    
    
    $
    1,261
    
    
    $
    1,067Basic net income per common share:Before cumulative effect of change in accounting
principle
    
    $
    0.31
    
    
    $
    0.10
    
    
    $
    0.07
    
    
    $
    0.07Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Basic net income per share
    
    $
    0.31
    
    
    $
    0.10
    
    
    $
    0.07
    
    
    $
    0.07Diluted net income per common share:Before cumulative effect of change in accounting
principle
    
    $
    0.28
    
    
    $
    0.09
    
    
    $
    0.07
    
    
    $
    0.06Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted net income per share
    
    $
    0.28
    
    
    $
    0.09
    
    
    $
    0.07
    
    
    $
    0.06Shares used in per share calculations:Basic
    
    
    18,243
    
    
    
    18,094
    
    
    
    17,102
    
    
    
    15,447Diluted
    
    
    19,884
    
    
    
    19,757
    
    
    
    18,459
    
    
    
    16,922
 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 (a) Evaluation of Disclosure Controls and Procedures
   (b) Managements Report on Internal Control Over Financial Reporting
  44




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##### Table of Contents



(1)
    
    pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of our assets;(2)
    
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in accordance with
the authorization of our management and directors; and(3)
    
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the
financial statements.
  Internal Control 
Integrated Framework
  Internal
Control-Integrated Framework
  (c) Remediation of Previously Existing Material Weaknesses
   
    
    In February 2006, we hired a new chief financial officer. Our chief financial officer
is a CPA with 17 years of experience as a financial professional, including Big Four public
accounting experience. Our chief financial officer possesses a strong background in
technical accounting and the application of generally accepted accounting principles.
    
    In May 2006, we hired a director of financial reporting and compliance to support our
financial accounting and reporting functions. In addition, we have improved the
documentation of our job descriptions within the financial accounting and reporting
functions.
 45




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##### Table of Contents




    
    In July 2006, we established an Internal Audit function and hired a CPA with over 25
years experience with public companies to assist us with the evaluation and improvement of
our internal control over financial reporting.
    
    In November 2006, we hired a director of revenue recognition which further strengthens
the financial expertise in the accounting department.
    
    Existing staff, together with these new hires, represent a sufficient complement of
personnel with an appropriate level of accounting knowledge, experience and training.
Additional accounting and finance personnel hired in 2006 have had sufficient time in their
positions and have gained a thorough understanding of the company as of December 31, 2006.
Additionally, we have used experienced qualified consultants as needed to assist management
in the accounting and financial reporting functions. As deemed necessary, we will continue
to leverage the resources and expertise of financial consultants to help us maintain
compliance with accounting principles generally accepted in the United States of America.
  
    
    We implemented controls surrounding the evaluation of, and accounting for, leases and
sub-leases, which consists of review and approval of the accounting for leases by
appropriate personnel.
  (d) Changes in Internal Control Over Financial Reporting
  
 Item 9B. Other Information.
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
  
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
  46




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##### Table of Contents



Item 13. Certain Relationships and Related Transactions, and Director Independence.
  
 Item 14. Principal Accountant Fees and Services.
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
 (a) Documents filed as part of this report:
    (b) Exhibits.
 (c) Financial Statement Schedules
 47




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##### Table of Contents



SIGNATURES
  WEBSIDESTORY, INC.Dated:
March 13, 2007
    
    By:
    
    /s/ JAMES W. MACINTYRE, IVJames W. MacIntyre, IVChief Executive Officer and President
  Name
    
    Title
    
    Date/s/ JAMES W. MACINTYRE, IV
    
    Chief Executive Officer, President and Director
    
    March 13, 2007James W. MacIntyre, IV
    
    (Principal Executive Officer)/s/ CLAIRE LONG
    
    Chief Financial Officer
    
    March 13, 2007Claire Long
    
    (Principal Financial and Accounting Officer)Director
    
    March 13, 2007Anil Arora/s/ CHARLES J. FITZGERALD, JR.
    
    Director
    
    March 13, 2007Charles J. Fitzgerald, Jr./s/ JAMES R. GLYNN
    
    Director
    
    March 13, 2007James R. Glynn/s/ WILLIAM H. HARRIS, JR.
    
    Non-Executive Chairman of the Board
    
    March 13, 2007William H. Harris, Jr./s/ KURT R. JAGGERS
    
    Director
    
    March 13, 2007Kurt R. Jaggers/s/ DOUGLAS LINDROTH
    
    Director
    
    March 13, 2007Douglas Lindroth/s/ JEFFREY W. LUNSFORD
    
    Director
    
    March 13, 2007Jeffrey W. Lunsford/s/ JAMES S. MAHAN, III
    
    Director
    
    March 13, 2007James S. Mahan, III
 48




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##### Table of Contents



WebSideStory, Inc.
Index To Financial Statements
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2006 and 2005
    
    
    F-4Consolidated Statements of Operations for the fiscal years ended December 31, 2006, 2005 and 2004
    
    
    F-5Consolidated Statements of Stockholders Equity (Deficit) and Comprehensive Income (Loss) for
the fiscal years ended December 31, 2006, 2005 and 2004
    
    
    F-6Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2006, 2005 and 2004
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-9
 F-1




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##### Table of Contents



REPORT OF
 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
   Consolidated financial statements
   Internal control over financial reporting
 Internal Control  Integrated Framework Internal Control  Integrated
  F-2




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F-3




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##### Table of Contents



WEBSIDESTORY, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands, except share data)
 December 31,
    
    
    December 31,2006
    
    
    2005AssetsCurrent assetsCash and cash equivalents
    
    $
    19,713
    
    
    $
    19,968Investments
    
    
    5,606
    
    
    
    11,712Accounts receivable, net
    
    
    15,654
    
    
    
    7,842Deferred tax assets
    
    
    708
    
    
    
    507Prepaid expenses and other current assets
    
    
    3,943
    
    
    
    2,304Total current assets
    
    
    45,624
    
    
    
    42,333Property and equipment, net
    
    
    6,562
    
    
    
    2,532Investments
    
    
    
    
    
    
    3,276Goodwill
    
    
    49,380
    
    
    
    21,286Intangible assets, net
    
    
    19,732
    
    
    
    6,901Deferred tax assets
    
    
    14,956
    
    
    
    9,166Other assets
    
    
    1,314
    
    
    
    2,249$
    137,568
    
    
    $
    87,743Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    987
    
    
    $
    877Accrued liabilities
    
    
    9,327
    
    
    
    3,880Deferred revenue
    
    
    20,924
    
    
    
    12,801Capital lease short-term
    
    
    38
    
    
    
    83Current maturities of notes payable
    
    
    19,708
    
    
    
    Total current liabilities
    
    
    50,984
    
    
    
    17,641Capital lease long-term
    
    
    50
    
    
    
    90Other liabilities
    
    
    781
    
    
    
    196Total liabilities
    
    
    51,815
    
    
    
    17,927Commitments and contingencies (Note 11)Stockholders equityPreferred stock, $0.001 par value;
10,000,000 shares authorized and no
shares issued and outstanding at
December 31, 2006 and December 31, 2005
    
    
    
    
    
    
    Common stock, $0.001 par value;
75,000,000 shares authorized, 19,238,781
and 18,401,180 shares issued and
outstanding at December 31, 2006 and
December 31, 2005, respectively
    
    
    19
    
    
    
    18Additional paid-in capital
    
    
    137,862
    
    
    
    114,934Unearned stock-based compensation
    
    
    (22
    )
    
    
    (630
    )Accumulated other comprehensive income
    
    
    219
    
    
    
    103Accumulated deficit
    
    
    (52,325
    )
    
    
    (44,609
    )Total stockholders equity
    
    
    85,753
    
    
    
    69,816$
    137,568
    
    
    $
    87,743
  F-4




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WEBSIDESTORY, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except share and per share data)
 Year Ended December 31,2006
    
    
    2005
    
    
    2004RevenuesSubscription, hosting and support
    
    $
    53,307
    
    
    $
    36,732
    
    
    $
    22,405License
    
    
    3,524
    
    
    
    
    
    
    
    Professional services
    
    
    5,319
    
    
    
    996
    
    
    
    71Advertising
    
    
    2,377
    
    
    
    1,724
    
    
    
    126Total revenues
    
    
    64,527
    
    
    
    39,452
    
    
    
    22,602Cost of revenuesCost of revenue
    
    
    16,283
    
    
    
    6,574
    
    
    
    3,315Amortization of intangible assets
    
    
    2,646
    
    
    
    202
    
    
    
    Total cost of revenues
    
    
    18,929
    
    
    
    6,776
    
    
    
    3,315Gross profit
    
    
    45,598
    
    
    
    32,676
    
    
    
    19,287Operating expensesSales and marketing
    
    
    26,450
    
    
    
    14,654
    
    
    
    9,922Technology development
    
    
    12,824
    
    
    
    4,955
    
    
    
    3,792General and administrative
    
    
    14,277
    
    
    
    6,162
    
    
    
    3,931Amortization of intangible assets
    
    
    3,202
    
    
    
    1,147
    
    
    
    Total operating expenses
    
    
    56,753
    
    
    
    26,918
    
    
    
    17,645(Loss) income from operations
    
    
    (11,155
    )
    
    
    5,758
    
    
    
    1,642Interest expense
    
    
    (1,765
    )
    
    
    (34
    )
    
    
    (38
    )Interest income
    
    
    696
    
    
    
    905
    
    
    
    205Other (expense) income
    
    
    4
    
    
    
    (43
    )
    
    
    5Total other (expense) income
    
    
    (1,065
    )
    
    
    828
    
    
    
    172(Loss) income before income taxes
    
    
    (12,220
    )
    
    
    6,586
    
    
    
    1,814(Benefit from) provision for income taxes
    
    
    (4,491
    )
    
    
    (3,073
    )
    
    
    46(Loss) income before cumulative effect of change in accounting
principle (net of tax)
    
    
    (7,729
    )
    
    
    9,659
    
    
    
    1,768Cumulative effect of change in accounting principle (net of tax)
    
    
    13
    
    
    
    
    
    
    
    Net (loss) income
    
    
    (7,716
    )
    
    
    9,659
    
    
    
    1,768Constructive dividend on redemption of redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    (1,389
    )Accretion of discount on redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    (1,326
    )Net (loss) income attributable to common stockholders
    
    $
    (7,716
    )
    
    $
    9,659
    
    
    $
    (947
    )Basic net (loss) income per common share:(Loss) income before cumulative effect of change
change in accounting principle
    
    $
    (0.41
    )
    
    $
    0.56
    
    
    $
    (0.13
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    Basic net (loss) income per common share
    
    $
    (0.41
    )
    
    $
    0.56
    
    
    $
    (0.13
    )Diluted net (loss) income per common share:(Loss) income before cumulative effect of change
change in accounting principle
    
    $
    (0.41
    )
    
    $
    0.51
    
    
    $
    (0.13
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    Diluted net (loss) income per common share
    
    $
    (0.41
    )
    
    $
    0.51
    
    
    $
    (0.13
    )Shares used in per share calculations:Basic
    
    
    18,678,099
    
    
    
    17,231,411
    
    
    
    7,300,809Diluted
    
    
    18,678,099
    
    
    
    18,774,978
    
    
    
    7,300,809
  F-5




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##### Table of Contents



WEBSIDESTORY, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
 AND COMPREHENSIVE INCOME (LOSS)
 (in thousands, except share data)
 AccumulatedAdditional
    
    
    Unearned
    
    
    Other
    
    
    
    
    
    
    Stockholders
    
    
    ComprehensiveCommon Stock
    
    
    Paid-in
    
    
    Stock-based
    
    
    Comprehensive
    
    
    Accumulated
    
    
    (Deficit) /
    
    
    (Loss) /Shares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Income
    
    
    Deficit
    
    
    Equity
    
    
    IncomeBalance 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 adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    5Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,768
    
    
    
    1,768
    
    
    
    1,768Balance at December 31, 2004
    
    
    15,624,856
    
    
    
    16
    
    
    
    82,895
    
    
    
    (779
    )
    
    
    281
    
    
    
    (54,268
    )
    
    
    28,145
    
    
    
    1,773Exercise of stock options
    
    
    334,713
    
    
    
    
    
    
    
    974
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    974
    
    
    
    Tax benefit from stock option exercise
    
    
    
    
    
    
    
    
    
    
    1,729
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,729
    
    
    
    Warrant Exercise
    
    
    74,639
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock issuance for acquisition
    
    
    2,366,972
    
    
    
    2
    
    
    
    29,138
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,140
    
    
    
    Warrant issuance
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    Option assumption for acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (651
    )
    
    
    
    
    
    
    
    
    
    
    (651
    )
    
    
    Modification of option award
    
    
    
    
    
    
    
    
    
    
    138
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    138
    
    
    
    Unearned stock-based compensation
    
    
    
    
    
    
    
    
    
    
    (17
    )
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    783
    
    
    
    
    
    
    
    
    
    
    
    783
    
    
    
    Foreign currency adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    (21
    )
    
    
    (21
    )Unrealized loss on available-for-sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (157
    )
    
    
    
    
    
    
    (157
    )
    
    
    (157
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,659
    
    
    
    9,659
    
    
    
    9,659Balance at December 31, 2005
    
    
    18,401,180
    
    
    
    18
    
    
    
    114,934
    
    
    
    (630
    )
    
    
    103
    
    
    
    (44,609
    )
    
    
    69,816
    
    
    
    9,481Exercise of stock options
    
    
    230,979
    
    
    
    1
    
    
    
    1,463
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,464
    
    
    
    Vesting of restricted stock awards
    
    
    9,166
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrant exercise
    
    
    271,918
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax benefit from stock option exercise
    
    
    
    
    
    
    
    
    
    
    857
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    857
    
    
    
    Stock issuance for Avivo escrow release
    
    
    325,538
    
    
    
    
    
    
    
    3,417
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,417
    
    
    
    Warrant issuance for acquisition
    
    
    
    
    
    
    
    
    
    
    6,358
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,358
    
    
    
    Transfer of unearned stock-based
compensation upon adoption of SFAS No. 123R
    
    
    
    
    
    
    
    
    
    
    (534
    )
    
    
    534
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    Amortization of stock-based compensation
    
    
    
    
    
    
    
    
    
    
    11,380
    
    
    
    74
    
    
    
    
    
    
    
    
    
    
    
    11,454
    
    
    
    Foreign currency adjustment, net of tax of
$16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51
    
    
    
    
    
    
    
    51
    
    
    
    51Unrealized gain on available-for-sale
securities, net of tax of $28
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    44
    
    
    
    44Reclassification adjustment for realized loss
on available-for-sale securities, net of
tax of $14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    21
    
    
    
    21Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,716
    )
    
    
    (7,716
    )
    
    
    (7,716
    )Balance at December 31, 2006
    
    
    19,238,781
    
    
    $
    19
    
    
    $
    137,862
    
    
    $
    (22
    )
    
    $
    219
    
    
    $
    (52,325
    )
    
    $
    85,753
    
    
    $
    (7,600
    )
  F-6




---



##### Table of Contents



WEBSIDESTORY, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Year Ended December 31,2006
    
    
    2005
    
    
    2004Cash flows from operating activitiesNet (loss) income
    
    $
    (7,716
    )
    
    $
    9,659
    
    
    $
    1,768Adjustments to reconcile net (loss) income to net cash provided by operating
activities:Depreciation and amortization
    
    
    8,956
    
    
    
    2,660
    
    
    
    1,009Debt discount amortization
    
    
    968
    
    
    
    
    
    
    
    Bad debt provision
    
    
    343
    
    
    
    112
    
    
    
    28Stock-based compensation
    
    
    11,424
    
    
    
    998
    
    
    
    882Loss on sale of securities
    
    
    35
    
    
    
    
    
    
    
    Windfall tax benefits from stock options exercised
    
    
    (519
    )
    
    
    
    
    
    
    Deferred income taxes
    
    
    (4,756
    )
    
    
    (3,318
    )
    
    
    64Cumulative effect of change in accounting principle
    
    
    (13
    )
    
    
    
    
    
    
    Changes in operating assets and liabilities, net of effect of acquisition:Accounts receivable
    
    
    (5,572
    )
    
    
    (3,633
    )
    
    
    (1,475
    )Prepaid expenses and other assets
    
    
    675
    
    
    
    (3,019
    )
    
    
    (717
    )Accounts payable and accrued liabilities
    
    
    2,685
    
    
    
    1,323
    
    
    
    829Deferred revenue
    
    
    6,504
    
    
    
    3,238
    
    
    
    2,430Other liabilities
    
    
    587
    
    
    
    (133
    )
    
    
    (115
    )Net cash provided by operating activities
    
    
    13,601
    
    
    
    7,887
    
    
    
    4,703Cash flows from investing activitiesPurchase of investments
    
    
    (10,786
    )
    
    
    (15,276
    )
    
    
    (34,156
    )Sales of investments
    
    
    11,677
    
    
    
    
    
    
    
    Maturities of investments
    
    
    8,561
    
    
    
    25,131
    
    
    
    9,157Purchase of property and equipment
    
    
    (4,336
    )
    
    
    (1,526
    )
    
    
    (1,438
    )Proceeds from sale of property and equipment
    
    
    35
    
    
    
    
    
    
    
    Restricted cash, cash equivalents and investments
    
    
    (442
    )
    
    
    
    
    
    
    Acquisition, net of cash acquired
    
    
    (20,630
    )
    
    
    (2,684
    )
    
    
    Net cash (used in) provided by investing activities
    
    
    (15,921
    )
    
    
    5,645
    
    
    
    (26,437
    )Cash flows from financing activitiesExercise of stock options and warrants
    
    
    1,463
    
    
    
    974
    
    
    
    439Windfall tax benefits from stock option exercises
    
    
    519
    
    
    
    
    
    
    
    Payments on capital lease
    
    
    (84
    )
    
    
    (62
    )
    
    
    (27
    )Payments on note payable
    
    
    
    
    
    
    (85
    )
    
    
    Redemption of redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    (16,750
    )Proceeds from sale of common stock
    
    
    
    
    
    
    
    
    
    
    38,087Net cash provided by financing activities
    
    
    1,898
    
    
    
    827
    
    
    
    21,749Effect of exchange rate changes on cash
    
    
    167
    
    
    
    (101
    )
    
    
    5Net (decrease) increase in cash and cash equivalents
    
    
    (255
    )
    
    
    14,258
    
    
    
    20Cash and cash equivalents at beginning of year
    
    
    19,968
    
    
    
    5,710
    
    
    
    5,690Cash and cash equivalents at end of year
    
    $
    19,713
    
    
    $
    19,968
    
    
    $
    5,710Supplemental cash flow information:Cash paid for interest
    
    $
    
    
    
    $
    
    
    
    $
    4Cash paid for income taxes
    
    
    2
    
    
    
    77
    
    
    
    22Supplemental disclosure of non-cash investing and financing activities:Business combination with Visual SciencesCash paid for business combination, net of cash acquired
    
    $
    20,186
    
    
    $
    
    
    
    $
    Fair value of debt issued in business combination
    
    
    18,740
    
    
    
    
    
    
    
    Fair value of warrants issued in business combination
    
    
    6,358
    
    
    
    
    
    
    
    Liabilities assumed in business combination
    
    
    3,521
    
    
    
    
    
    
    
    Total fair value of assets acquired in business combination
    
    $
    48,805
    
    
    $
    
    
    
    $
    
  F-7




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##### Table of Contents



WEBSIDESTORY, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS-Continued
(in thousands)
 Year Ended December 31,2006
    
    
    2005
    
    
    2004Business combination with AtomzCash paid for business combination, net of cash acquired
    
    $
    444
    
    
    $
    2,684
    
    
    $
    Fair value of common stock issued in business combination
    
    
    3,418
    
    
    
    27,731
    
    
    
    Fair value of common stock options granted as part of business combination
    
    
    
    
    
    
    1,409
    
    
    
    Liabilities assumed in business combination
    
    
    
    
    
    
    4,451
    
    
    
    Total fair value of assets acquired in business combination
    
    $
    3,862
    
    
    $
    36,275
    
    
    $
    Non-cash purchases of property and equipment
    
    $
    573
    
    
    $
    
    
    
    $
    Equipment acquired under capital lease and note payable
    
    $
    
    
    
    $
    
    
    
    $
    153
  F-8




---



##### Table of Contents



WEBSIDESTORY, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. The Company and Nature of Business
   2. Summary of Significant Accounting Policies
 Use of Estimates
  Principles of Consolidation
  Foreign Currency
  Concentration of Risk
  F-9




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##### Table of Contents



Geographical Information
  Revenue Recognition
  Software Revenue Recognition Modification of SOP 97-2, Software Revenue Recognition, With Respect to
Certain Transactions, Revenue Recognition Accounting for Revenue Arrangements with Multiple
Deliverables
 Subscription, Hosting and Support Revenue
   
    
    Revenue recognition for subscription services begins when the customer has been given
access to the service or after acceptance.
    
    Revenue recognition for post-contract support begins upon execution of the software
license agreement or after acceptance of the related software license, and hosting support
services begins upon acceptance of the
software. For contracts without acceptance provisions, revenue recognition for post-contract
support begins upon completion of installation and for hosting, upon delivery of the service.
 F-10




---



##### Table of Contents



License Revenue
    1.
    
    Persuasive evidence of an arrangement exists, which consists of a written contract
signed by both the customer and the Company.2.
    
    Delivery has occurred, which is after acceptance of the software, or for contracts
without acceptance provisions, delivery occurs after completion of installation.3.
    
    The fee is fixed or determinable, which occurs when the Company has a signed contract
that states the agreed upon fee for its products and/or services and specifies the related
terms and conditions that govern that arrangement.4.
    
    Collection is probable as determined by the payment history of the customer and the
customers financial position.
 Professional Services Revenue
  Advertising Revenue
  F-11




---



##### Table of Contents



Cash and Cash Equivalents
  Restricted Cash
  Investments
   Accounts Receivable
  Deferred Commissions
  F-12




---



##### Table of Contents



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
  Goodwill and Other Intangible Assets
 Goodwill and Other Intangible Assets Accounting for the Impairment or Disposal of Long-Lived
Assets
 Impairment of Long-Lived Assets
  Internal-use Software and Website Development Costs
 Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, Accounting for Website Development Costs
 Software Development Costs
 Accounting for the Costs of Computer
 F-13




---



##### Table of Contents



Software to Be Sold, Leased or Otherwise Marketed
 Comprehensive Income (Loss)
  Cost of Revenues
  Accounting for Stock-Based Compensation
 Share-Based Payment Accounting for
Stock-Based Compensation Accounting for Stock Issued to Employees Statement of Cash Flows
     F-14




---



##### Table of Contents



Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards
  Year Ended December 31,2006
    
    
    2005
    
    
    2004Cost of revenues
    
    $
    2,359
    
    
    $
    58
    
    
    $
    15Sales and marketing
    
    
    3,791
    
    
    
    183
    
    
    
    209Technology development
    
    
    2,555
    
    
    
    334
    
    
    
    37General and administrative
    
    
    2,719
    
    
    
    423
    
    
    
    621Stock-based compensation expense
    
    $
    11,424
    
    
    $
    998
    
    
    $
    882
  Year EndedDecember 31, 2006Risk free interest rate
    
    
    4.52
    %Expected dividend yield
    
    
    Expected volatility
    
    
    46.5
    %Expected life (in years)
    
    
    3.9
   F-15




---



##### Table of Contents



Year Ended December 31,2005
    
    
    2004Net income (loss) attributable to common stockholders  as reported
    
    $
    9,659
    
    
    $
    (947
    )Add: Stock-based compensation as reported in the statements of
operations determined under the intrinsic value based method
    
    
    998
    
    
    
    882Deduct: Total stock-based employee compensation expense determined
under the fair value based method
    
    
    (3,440
    )
    
    
    (1,127
    )Pro forma net income (loss) attributable to common stockholders
    
    $
    7,217
    
    
    $
    (1,192
    )Net income (loss) per share attributable to common stockholdersBasic  as reported
    
    $
    0.56
    
    
    $
    (0.13
    )Diluted  as reported
    
    $
    0.51
    
    
    $
    (0.13
    )Basic  pro forma
    
    $
    0.42
    
    
    $
    (0.16
    )Diluted  pro forma
    
    $
    0.38
    
    
    $
    (0.16
    )
  Year Ended December 31,2005
    
    2004Risk free interest rate
    
    
    3.70
    %
    
    
    2.95
    %Expected dividend yield
    
    
    
    
    
    
    Expected volatility
    
    
    52.4
    %
    
    
    31.9
    %Expected life (in years)
    
    
    3.3
    
    
    
    3.9
  Net (Loss) Income per Share
   Year Ended December 31,2006
    
    
    2005
    
    
    2004Potential shares excluded from diluted loss per shareUnvested common stock
    
    
    70,619
    
    
    
    
    
    
    
    285,200Options and warrants
    
    
    1,230,863
    
    
    
    
    
    
    
    1,084,220Convertible redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    4,225,5981,301,482
    
    
    
    
    
    
    
    5,595,018
 F-16




---



##### Table of Contents



Year Ended December 31,2006
    
    
    2005
    
    
    2004Numerator:Net (loss) income attributable to common stockholders
    
    $
    (7,716
    )
    
    $
    9,659
    
    
    $
    (947
    )Denominator:Weighted average common shares outstanding
    
    
    18,678,099
    
    
    
    17,231,411
    
    
    
    7,300,809Denominator of basic calculation
    
    
    18,678,099
    
    
    
    17,231,411
    
    
    
    7,300,809Effect of dilutive securities:Weighted average stock options, warrants and
restricted common stock
    
    
    
    
    
    
    1,543,567
    
    
    
    Denominator of diluted calculation
    
    
    18,678,099
    
    
    
    18,774,978
    
    
    
    7,300,809Net (loss) income per common share:Basic
    
    $
    (0.41
    )
    
    $
    0.56
    
    
    $
    (0.13
    )Diluted
    
    $
    (0.41
    )
    
    $
    0.51
    
    
    $
    (0.13
    )
  Income Taxes
   F-17




---



##### Table of Contents



Warranties and Indemnification
    Advertising Expenses
  Leases
 Accounting for Leases,
 Future Accounting Requirements
 Accounting for
Uncertainty in Income Taxes
 Fair Value Measurements
 Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements
 F-18




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##### Table of Contents



3. Composition of Certain Balance Sheet Captions
 Investments
  Short-term
    
    
    Long-termDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Certificates of deposit
    
    $
    767
    
    
    $
    3,418
    
    
    $
    
    
    
    $
    755Auction rate securities
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    Mortgage backed securities
    
    
    3,839
    
    
    
    3,983
    
    
    
    
    
    
    
    2,521Federal agencies
    
    
    
    
    
    
    4,311
    
    
    
    
    
    
    
    $
    5,606
    
    
    $
    11,712
    
    
    $
    
    
    
    $
    3,276
  Gross
    
    
    GrossUnrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAs of December 31, 2006Certificates of deposit
    
    $
    768
    
    
    $
    
    
    
    $
    (1
    )
    
    $
    767Auction rate securities
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    1,000Mortgage backed securities
    
    
    3,889
    
    
    
    
    
    
    
    (50
    )
    
    
    3,839Federal agencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,657
    
    
    $
    
    
    
    $
    (51
    )
    
    $
    5,606As of December 31, 2005Certificates of deposit
    
    $
    4,203
    
    
    $
    
    
    
    $
    (30
    )
    
    
    4,173Auction rate securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mortgage backed securities
    
    
    6,588
    
    
    
    
    
    
    
    (84
    )
    
    
    6,504Federal agencies
    
    
    4,354
    
    
    
    
    
    
    
    (43
    )
    
    
    4,311$
    15,145
    
    
    $
    
    
    
    $
    (157
    )
    
    $
    14,988
 The Meaning of Other Than Temporary Impairment and Its
Application to Certain Investments
  December 31,2006Less than one year
    
    $
    One to five years
    
    
    619Five to ten years
    
    
    703Over ten years
    
    
    2,517$
    3,839
 F-19




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##### Table of Contents



Accounts Receivable
  December 31,
    
    
    December 31,2006
    
    
    2005Accounts receivableTrade accounts receivable
    
    $
    16,220
    
    
    $
    8,207Allowance for doubtful accounts
    
    
    (566
    )
    
    
    (365
    )$
    15,654
    
    
    $
    7,842
  December 31,
    
    
    December 31,
    
    
    December 31,2006
    
    
    2005
    
    
    2004Allowance for doubtful accountsBeginning balance
    
    $
    365
    
    
    $
    407
    
    
    $
    553Bad debt provision
    
    
    343
    
    
    
    112
    
    
    
    28Write offs
    
    
    (196
    )
    
    
    (207
    )
    
    
    (192
    )Write off recoveries
    
    
    54
    
    
    
    53
    
    
    
    18Ending balance
    
    $
    566
    
    
    $
    365
    
    
    $
    407
 Prepaid Expenses and Other Current Assets
  December 31,
    
    
    December 31,2006
    
    
    2005Deferred commissions
    
    $
    1,672
    
    
    $
    1,314Restricted cash held in escrow and restricted for letters of credit
    
    
    644
    
    
    
    Other prepaid expenses
    
    
    1,627
    
    
    
    990$
    3,943
    
    
    $
    2,304
 Property and Equipment
  December 31,
    
    
    December 31,2006
    
    
    2005Computers and office equipment
    
    $
    11,603
    
    
    $
    5,252Furniture and fixtures
    
    
    1,288
    
    
    
    1,025Leasehold improvements
    
    
    870
    
    
    
    36913,761
    
    
    
    6,646Accumulated depreciation and amortization
    
    
    (7,199
    )
    
    
    (4,114
    )$
    6,562
    
    
    $
    2,532
   F-20




---



##### Table of Contents



Goodwill and Intangible Assets
  GoodwillBalance as of December 31, 2004
    
    $
    Acquisition of Avivo
    
    
    21,286Balance as of December 31, 2005
    
    
    21,286Acquisition of Visual Sciences
    
    
    24,145Avivo net purchase price adjustments
    
    
    87Avivo escrow release
    
    
    3,862Balance as of December 31, 2006
    
    $
    49,380
  December 31, 2006
    
    
    December 31, 2005Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    NetCustomer relationships
    
    $
    11,240
    
    
    $
    (3,985
    )
    
    $
    7,255
    
    
    $
    7,340
    
    
    $
    (1,147
    )
    
    $
    6,193Maintenance contracts
    
    
    1,670
    
    
    
    (263
    )
    
    
    1,407
    
    
    
    
    
    
    
    
    
    
    
    Acquired complete technology
    
    
    13,690
    
    
    
    (2,849
    )
    
    
    10,841
    
    
    
    910
    
    
    
    (202
    )
    
    
    708Trade name
    
    
    330
    
    
    
    (101
    )
    
    
    229
    
    
    
    
    
    
    
    
    
    
    
    $
    26,930
    
    
    $
    (7,198
    )
    
    $
    19,732
    
    
    $
    8,250
    
    
    $
    (1,349
    )
    
    $
    6,901
   Other Assets
  December 31,
    
    
    December 31,2006
    
    
    2005Capitalized internal-use software
development costs, net of accumulated
amortization of $730 and $239, respectively
    
    $
    1,170
    
    
    $
    1,280Restricted cash held in escrow
    
    
    
    
    
    
    807Long term deposits and other noncurrent assets
    
    
    144
    
    
    
    162$
    1,314
    
    
    $
    2,249
 Accrued Expenses and Other Current Liabilities
  December 31,
    
    
    December 31,2006
    
    
    2005Accrued bonuses and commissions
    
    $
    3,318
    
    
    $
    1,579Accrued payroll and vacation
    
    
    1,094
    
    
    
    1,017Accrued accounting and legal services
    
    
    1,177
    
    
    
    487Accrued interest
    
    
    730
    
    
    
    Accrued sublease liability
    
    
    
    
    
    
    240Accrued sales and income taxes
    
    
    1,011
    
    
    
    248Accrued
tenant improvements
    
    
    573
    
    
    
    Other accrued expenses
    
    
    1,424
    
    
    
    309$
    9,327
    
    
    $
    3,880
 F-21




---



##### Table of Contents



Accumulated Other Comprehensive Income
  December 31,
    
    
    December 31,2006
    
    
    2005Unrealized loss on available-for-sale securities
    
    $
    (93
    )
    
    $
    (157
    )Foreign currency translation adjustment
    
    
    312
    
    
    
    260$
    219
    
    
    $
    103
 4. Stockholders Equity
 Common Stock
  December 31,2006Stock options outstanding
    
    
    3,881,395Restricted common stock outstanding
    
    
    185,637Warrants outstanding
    
    
    1,092,923Stock options available for future grant
    
    
    442,7065,602,661
 Warrants
    Number
    
    Numberof Shares
    
    of Shares
    
    Expiration
    
    ExerciseOutstanding
    
    Exercisable
    
    Date
    
    Price10,000
    
    
    
    
    
    
    September 2010
    
    $
    17.841,082,923
    
    
    
    1,082,923
    
    
    August 2007
    
    $
    18.471,092,923
    
    
    
    1,082,923
  Number
    
    Numberof Shares
    
    of Shares
    
    Expiration
    
    ExerciseOutstanding
    
    Exercisable
    
    Date
    
    Price10,000
    
    
    
    
    
    
    September 2010
    
    $
    17.84303,537
    
    
    
    202,358
    
    
    January 2013
    
    $
    313,537
    
    
    
    202,358
  5. Business Combinations
 Visual Sciences
  F-22




---



##### Table of Contents



February 1,2006Cash
    
    $
    3,083Accounts receivable
    
    
    2,348Prepaid expenses and other current assets, and deferred tax assets-current
    
    
    1,831Property and equipment
    
    
    1,760Other long-term assets
    
    
    41Intangible assets
    
    
    18,680Goodwill
    
    
    24,145Accounts payable and accrued liabilities
    
    
    (2,210
    )Deferred revenues
    
    
    (1,311
    )Purchase price, including transaction costs
    
    $
    48,367
  
    
    completed technology of $12.8 million: 5 years
    
    customer relationships of $3.9 million: 5 years
    
    maintenance contracts of $1.7 million: 10 years
    
    trade name of $0.3 million: 3 years
 F-23




---



##### Table of Contents



Year Ended December 31,2006
    
    2005Revenues
    
    $
    65,330
    
    
    $
    48,236(Loss) income before cumulative effect of change in accounting principle
    
    
    (7,754
    )
    
    
    4,489Net (loss) income
    
    
    (7,741
    )
    
    
    4,489(Loss) earnings per share  basic
    
    
    (0.41
    )
    
    
    0.26(Loss) earnings per share  diluted
    
    
    (0.41
    )
    
    
    0.24
  Avivo
    F-24




---



##### Table of Contents



Year Ended December 31,2005
    
    2004Revenues
    
    $
    42,821
    
    
    $
    28,957Income (loss) before cumulative effect of change in accounting principle
    
    
    9,466
    
    
    
    (2,141
    )Net income (loss)
    
    
    9,466
    
    
    
    (2,141
    )Earnings (loss) per share  basic
    
    
    0.48
    
    
    
    (0.22
    )Earnings (loss) per share  diluted
    
    
    0.45
    
    
    
    (0.22
    )
  6. Debt
    7. Stock-Based Compensation Plans
   F-25




---



##### Table of Contents



Information under SFAS No. 123R for 2006
  Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicOptions
    
    
    Exercise
    
    
    Contractual
    
    
    ValueOutstanding
    
    
    Prices
    
    
    Term (years)
    
    
    (in millions)Balance at December 31, 2005
    
    
    2,814,596
    
    
    $
    9.29Granted
    
    
    2,183,369
    
    
    
    16.66Exercised
    
    
    (230,979
    )
    
    
    6.34Forfeited
    
    
    (885,591
    )
    
    
    12.67Balance at December 31, 2006
    
    
    3,881,395
    
    
    
    12.84
    
    
    
    7.67
    
    
    $
    7.7Vested and expected to vest at December 31, 2006
    
    
    3,508,019
    
    
    
    12.62
    
    
    
    0.90
    
    
    $
    7.6Exercisable at December 31, 2006
    
    
    1,140,816
    
    
    
    8.13
    
    
    
    7.12
    
    
    $
    5.8
  F-26




---



##### Table of Contents



WeightedAverageRestricted
    
    RemainingStock
    
    ContractualOutstanding
    
    Term (in years)Nonvested shares at December 31, 2005
    
    
    Awarded
    
    
    199,507Vested
    
    
    (9,166
    )Forfeited
    
    
    (4,704
    )Nonvested shares at December 31, 2006
    
    
    185,637
    
    
    
    0.09
   Year Ended December 31,2006
    
    
    2005
    
    
    2004Cost of revenues
    
    $
    2,359
    
    
    $
    58
    
    
    $
    15Sales and marketing
    
    
    3,791
    
    
    
    183
    
    
    
    209Technology development
    
    
    2,555
    
    
    
    334
    
    
    
    37General and administrative
    
    
    2,719
    
    
    
    423
    
    
    
    621Stock-based compensation expense before taxes
    
    
    11,424
    
    
    
    998
    
    
    
    882Related income tax benefits
    
    
    (4,530
    )
    
    
    (396
    )
    
    
    Cumulative effect of change in accounting principle, net of tax
    
    
    (13
    )
    
    
    
    
    
    
    Stock-based compensation expense, net of taxes
    
    $
    6,881
    
    
    $
    602
    
    
    $
    882
 Information under SFAS No. 123 for Periods Prior to 2006
  Weighted-AverageOptions
    
    
    ExerciseOutstanding
    
    
    PricesBalance at December 31, 2003
    
    
    1,089,444
    
    
    $
    2.00Granted
    
    
    1,053,321
    
    
    
    7.54Exercised
    
    
    (406,862
    )
    
    
    1.04Forfeited
    
    
    (99,241
    )
    
    
    4.88Balance at December 31, 2004
    
    
    1,636,662
    
    
    
    5.62Granted
    
    
    1,644,598
    
    
    
    11.65Exercised
    
    
    (334,713
    )
    
    
    2.92Forfeited
    
    
    (131,951
    )
    
    
    9.31Balance at December 31, 2005
    
    
    2,814,596
    
    
    $
    9.29Options exercisable at December 31, 2005
    
    
    552,363
    
    
    $
    4.68Options exercisable at December 31, 2004
    
    
    405,795
    
    
    $
    3.31
  Year EndedDecember 31,2005
    
    2004Weighted-average fair value:Options granted below fair value
    
    $
    8.40
    
    
    $
    1.92Options granted above fair value
    
    
    4.72
    
    
    
    0.21Options equal to fair value
    
    
    5.14
    
    
    
    4.37Weighted-average exercise price:Options granted at or below fair value
    
    
    11.64
    
    
    
    7.59Options granted above fair value
    
    
    12.02
    
    
    
    6.74
 F-27




---



##### Table of Contents



8. Qualified Retirement Plan
  9. Income Taxes
  Year Ended December 31,2006
    
    
    2005
    
    
    2004United States
    
    $
    (12,914
    )
    
    $
    5,952
    
    
    $
    1,264International
    
    
    694
    
    
    
    634
    
    
    
    550$
    (12,220
    )
    
    $
    6,586
    
    
    $
    1,814
  Year Ended December 31,2006
    
    
    2005
    
    
    2004CurrentFederal
    
    $
    23
    
    
    $
    64
    
    
    $
    25State
    
    
    9
    
    
    
    56
    
    
    
    2Foreign
    
    
    233
    
    
    
    204
    
    
    
    21265
    
    
    
    324
    
    
    
    48DeferredFederal
    
    
    (3,702
    )
    
    
    (2,997
    )
    
    
    State
    
    
    (1,054
    )
    
    
    (438
    )
    
    
    Foreign
    
    
    
    
    
    
    38
    
    
    
    (2
    )(4,756
    )
    
    
    (3,397
    )
    
    
    (2
    )$
    (4,491
    )
    
    $
    (3,073
    )
    
    $
    46
 F-28




---



##### Table of Contents



December 31,2006
    
    
    2005Deferred tax assetsAccrued bonuses and vacation
    
    $
    208
    
    
    $
    250Allowance for doubtful accounts
    
    
    150
    
    
    
    95Stock-based compensation related to nonstatutory stock options
    
    
    4,322
    
    
    
    1,111Depreciation and amortization
    
    
    480
    
    
    
    308Federal net operating loss carryforward
    
    
    10,419
    
    
    
    10,078State net operating loss carryforward
    
    
    1,503
    
    
    
    1,030Credits
    
    
    23
    
    
    
    Other
    
    
    204
    
    
    
    7517,309
    
    
    
    12,947Deferred tax liabilitiesOther identified intangibles
    
    
    (1,251
    )
    
    
    (2,764
    )Capitalized software and website development costs
    
    
    (394
    )
    
    
    (510
    )(1,645
    )
    
    
    (3,274
    )Valuation allowance
    
    
    
    
    
    
    $
    15,664
    
    
    $
    9,673
     December 31,2006
    
    
    2005
    
    
    2004Computed expected federal tax (benefit) expense
    
    $
    (4,161
    )
    
    $
    2,208
    
    
    $
    611State taxes, net of federal benefit
    
    
    (690
    )
    
    
    391
    
    
    
    139Stock-based compensation expense
    
    
    (2
    )
    
    
    (13
    )
    
    
    (30
    )Alternative minimum tax
    
    
    
    
    
    
    
    
    
    
    11Original issue discount amortization
    
    
    311
    
    
    
    
    
    
    
    Other
    
    
    51
    
    
    
    215
    
    
    
    58Valuation allowance
    
    
    
    
    
    
    (5,874
    )
    
    
    (743
    )$
    (4,491
    )
    
    $
    (3,073
    )
    
    $
    46
 10. Segment Information
 Disclosures about Segments of an Enterprise and Related Information
 F-29




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##### Table of Contents



VisualWebSideStory
    
    Sciences
    
    TotalYear Ended December 31, 2006Revenues from external customers
    
    $
    55,101
    
    
    $
    9,426
    
    
    $
    64,527Loss from operations
    
    
    (874
    )
    
    
    (10,281
    )
    
    
    (11,155
    )Loss before cumulative effect of change in accounting principle
    
    
    (389
    )
    
    
    (7,340
    )
    
    
    (7,729
    )Depreciation and amortization expense
    
    
    2,154
    
    
    
    955
    
    
    
    3,109Amortization of intangible assets
    
    
    2,216
    
    
    
    3,633
    
    
    
    5,849Stock-based compensation expense
    
    
    6,434
    
    
    
    4,990
    
    
    
    11,424
 VisualWebSideStory
    
    Sciences
    
    TotalYear Ended December 31, 2005Revenues from external customers
    
    $
    39,452
    
    
    $
    
    
    
    $
    39,452Income from operations
    
    
    5,758
    
    
    
    
    
    
    
    5,758Income before cumulative effect of change in accounting principle
    
    
    9,659
    
    
    
    
    
    
    
    9,659Depreciation and amortization expense
    
    
    1,311
    
    
    
    
    
    
    
    1,311Amortization of intangible assets
    
    
    1,349
    
    
    
    
    
    
    
    1,349Stock-based compensation expense
    
    
    998
    
    
    
    
    
    
    
    998
 VisualWebSideStory
    
    Sciences
    
    TotalYear Ended December 31, 2004Revenues from external customers
    
    $
    22,602
    
    
    $
    
    
    
    $
    22,602Income from operations
    
    
    1,642
    
    
    
    
    
    
    
    1,642Income before cumulative effect of change in accounting principle
    
    
    1,768
    
    
    
    
    
    
    
    1,768Depreciation and amortization expense
    
    
    1,009
    
    
    
    
    
    
    
    1,009Amortization of intangible assets
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    882
    
    
    
    
    
    
    
    882
 VisualWebSideStory
    
    Sciences
    
    TotalAs of December 31, 2006Goodwill
    
    $
    25,235
    
    
    $
    24,145
    
    
    $
    49,380Intangible assets, net
    
    
    4,685
    
    
    
    15,047
    
    
    
    19,732Total assets
    
    
    87,068
    
    
    
    50,500
    
    
    
    137,568
 F-30




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##### Table of Contents



VisualWebSideStory
    
    Sciences
    
    TotalAs of December 31, 2005Goodwill
    
    $
    21,286
    
    
    $
    
    
    
    $
    21,286Intangible assets, net
    
    
    6,901
    
    
    
    
    
    
    
    6,901Total assets
    
    
    87,743
    
    
    
    
    
    
    
    87,743
  Year Ended December 31,2006
    
    
    2005
    
    
    2004United States
    
    $
    56,234
    
    
    $
    33,831
    
    
    $
    18,983Europe
    
    
    8,293
    
    
    
    5,621
    
    
    
    3,619$
    64,527
    
    
    $
    39,452
    
    
    $
    22,602
  11. Commitments and Contingencies
     F-31




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##### Table of Contents



Year Ending December 31:2007
    
    $
    2,1682008
    
    
    2,6192009
    
    
    2,6352010
    
    
    2,6392011
    
    
    2,718Thereafter
    
    
    3,033Total
    
    $
    15,812
 12. Subsequent Events
 New Credit Facility
    F-32




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##### Table of Contents



Index to Exhibits
 ExhibitNumber
    
    Description2.1(1)
    
    Agreement and Plan of Merger dated as of February 8, 2005 by and among the Registrant, WSSI
Acquisition Company, Avivo Corporation and Charles M. Linehan, as the Holder Representative.2.2(2)
    
    Agreement and Plan of Merger dated as of February 1, 2006 by and among the Registrant, VS
Acquisition, LLC, Visual Sciences, LLC and Ned Scherer, as the Holder Representative.3.1(3)
    
    Amended and Restated Certificate of Incorporation.3.2(3)
    
    Amended and Restated Bylaws.3.3(7)
    
    First Amendment to Amended and Restated Bylaws.4.1(3)
    
    Form of Common Stock Certificate.4.2(2)
    
    Second Amended and Restated Registration Rights Agreement dated as of February 1, 2006 by and
among the Registrant and certain investors set forth therein.4.3(10)
    
    Warrant to Purchase Common Stock dated as of November 21, 2005 and issued by the Registrant
in favor of Starsoft Development Labs, Inc.4.4(2)
    
    Form of Warrant to Purchase Common Stock dated as of February 1, 2006 and issued by the
Registrant in favor of the former holders of units of membership interest in Visual Sciences,
LLC.10.1(3) +
    
    Amended and Restated 2000 Equity Incentive Plan.10.2(4) +
    
    2004 Equity Incentive Award Plan and Form of Option Grant Agreement.10.3(5) +
    
    Avivo Corporation 1999 Equity Incentive Plan and Form of Option Grant Agreement.10.4(8) +
    
    2006 Employment Commencement Equity Incentive Award Plan.10.5(8) +
    
    2006 Employment Commencement Equity Incentive Award Plan Form of Option Grant Agreement.10.6(6) +
    
    Offer Letter dated as of January 26, 2006 by and between the Registrant and Claire Long.10.7(9) +
    
    Non-Employee Director Compensation Policy.10.8(10) +
    
    Offer Letter dated as of November 21, 2005 by and between the Registrant and Andrew S.
Greenhalgh.10.9(3) +
    
    Offer Letter dated as of February 12, 2003 by and between the Registrant and Christopher Reid.10.10(3) +
    
    Employment Agreement dated as of July 1, 2000 by and between WebSideStory Holding B.V. and
Daniel Guilloux.10.11(3) +
    
    Amendment to Employment Agreement dated as of November 15, 2002 by and between WebSideStory
Holding B.V. and Daniel Guilloux.10.12 (11) +
    
    Executive Employment Agreement dated as of October 29, 2006 by and between WebSideStory, Inc.
and James W. MacIntyre, IV.10.13(10) +
    
    Amended and Restated Employment Agreement dated as of February 1, 2006 by and between Visual
Sciences, LLC and David R. Scherer.10.14(3) +
    
    Form of Indemnification Agreement by and between the Registrant and the persons listed on
Schedule A thereto.10.15(3) +
    
    Form of Change in Control Agreement between the Registrant and the persons listed on Schedule
A thereto.10.16(6) +
    
    Change in Control Agreement dated as of January 18, 2006 by and between the Registrant and
Claire Long.10.17(10)
    
    Master Service Agreement dated as of August 10, 2005 by and between the Registrant and Level
3 Communications, LLC.10.18(10)
    
    Addendum to Master Service Agreement dated as of September 22, 2005 by and between the
Registrant and Level 3 Communications, LLC.10.19(3)
    
    Office Lease dated as of August 23, 1999 by and between the Registrant and LNR Seaview, Inc.10.20(3)
    
    First Amendment to Office Lease dated as of July 3, 2001 by and between the Registrant and
LNR Seaview, Inc.10.21(10)
    
    Second Amendment to Office Lease dated as of December 7, 2005 by and between the Registrant
and Seaview PFG, LLC (as assignee of LNR Seaview, Inc.)




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##### Table of Contents



ExhibitNumber
    
    Description10.22(3)
    
    Sublease dated as of July 3, 2001 by and between the Registrant and RF Magic, Inc.10.23(3)
    
    Amendment to Sublease dated as of September 10, 2003 by and between the Registrant and RF
Magic, Inc.10.24(8)
    
    Second Amendment of Sublease dated as of June 14, 2006 by and between Registrant and RF
Magic, Inc.10.25(3) 
    
    Revised Master Service Agreement dated as of August 29, 2003 by and among the Registrant,
Buena Vista Internet Group, ESPN Internet Ventures, ABCNews Internet Ventures, Infoseek
Corporation, ABC Multimedia, Inc. and Walt Disney Parks & Resorts Online.10.26(3) 
    
    Amendment to Revised Master Service Agreement dated as of March 31, 2004 by and among the
Registrant, Buena Vista Internet Group, ESPN Internet Ventures, ABCNews Internet Ventures,
Infoseek Corporation, ABC Multimedia, Inc. and Walt Disney Parks & Resorts Online.10.27(3) 
    
    Patent Cross-License Agreement dated December 12, 2003 by and between the Registrant and
NetIQ Corporation.10.28(3) 
    
    Salesforce.com JoinForces Product Alliance Program Agreement dated as of May 21, 2004 by and
between the Registrant and Salesforce.com, Inc.10.29(2)
    
    Form of Senior Note dated as of February 1, 2006 and issued by the Registrant in favor of the
former holders of units of membership interest in Visual Sciences, LLC.10.30(12)
    
    Loan and Security Agreement dated as of February 23, 2007 between Registrant and Silicon
Valley Bank.10.31(12)
    
    Form of Security Agreement dated as of February 23, 2007 between each of the Secured
Guarantors and Silicon Valley Bank.10.32(12)
    
    Form of Unconditional Guaranty of each of the Guarantors dated as of February 23, 2007 in
favor of Silicon Valley Bank.21.1(10)
    
    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 Current Report on Form 8-K of the Registrant filed with the
Securities and Exchange Commission on February 10, 2005.(2)
    
    Incorporated by reference to the Current Report on Form 8-K of the Registrant filed with the
Securities and Exchange Commission on February 7, 2006.(3)
    
    Incorporated by reference to the Registration Statement on Form S-1 of the Registrant
(Registration No. 333-115916) filed with the Securities and Exchange Commission on May 27,
2004.(4)
    
    Incorporated by reference to the Registration Statement on Form S-8 of the Registrant
(Registration No. 333-119350) filed with the Securities and Exchange Commission on September
28, 2004.(5)
    
    Incorporated by reference to the Registration Statement on Form S-8 of the Registrant
(Registration No. 333-124754) filed with the Securities and Exchange Commission on May 10,
2005.(6)
    
    Incorporated by reference to the Current Report on Form 8-K of the Registrant filed with the
Securities and Exchange Commission on January 24, 2006.(7)
    
    Incorporated by reference to the Current Report on Form 8-K of the Registrant filed with the
Securities and Exchange Commission on April 4, 2006.(8)
    
    Incorporated by reference to the Quarterly Report on Form 10-Q of the Registrant filed with
the Securities and Exchange Commission on August 8, 2006.(9)
    
    Incorporated by reference to the Current Report on Form 8-K of the Registrant filed with
the Securities and Exchange Commission on October 2, 2006.(10)
    
    Incorporated by reference to the Annual Report on Form 10-K of the Registrant filed with the
Securities and Exchange Commission on March 16, 2006.(11)
    
    Incorporated by reference to the Current Report on Form 8-K of the Registrant filed with the
Securities and Exchange Commission on November 2, 2006.(12)
    
    Incorporated by reference to the Current Report on Form 8-K of the Registrant filed with the
Securities and Exchange Commission on February 27, 2007.
    
    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.*
    
    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.