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Web.com Group, Inc. – IPO: ‘424B1’ on 11/2/05

On:  Wednesday, 11/2/05, at 6:24am ET   ·   Accession #:  1193125-5-213648   ·   File #:  333-124349

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

11/02/05  Web.com Group, Inc.               424B1                  1:2.9M                                   RR Donnelley/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 424B1       Filed Pursuant to 424(B)1                           HTML   2.15M 

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Filed Pursuant to 424(b)(1)
Registration No. 333-124349

PROSPECTUS

6,800,000 Shares

Common Stock

We are offering for sale 4,800,000 shares of our common stock. The selling stockholders included in this prospectus are offering an additional 2,000,000 shares of common stock. This is our initial public offering and no public market currently exists for our shares.

Our common stock has been approved for quotation on the NASDAQ National Market under the symbol “WSPI.”

Investing in our common stock involves risks. See “ Risk Factors” beginning on page 7.

We and the selling stockholders have granted the underwriters a right to purchase up to 1,020,000 additional shares of common stock to cover over-allotments, if any.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares on or about November 7, 2005.

FRIEDMAN BILLINGS RAMSEY

November 1, 2005

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PROSPECTUS SUMMARY

You should read the entire prospectus carefully, especially “Risk Factors” and the consolidated financial statements and the related notes, before deciding to invest in shares of our common stock.

Website Pros

Our Business

We believe we are a leading provider, based on our number of subscribers, of Web services and products that enable small and medium-sized businesses to establish, maintain, promote and optimize their Internet presence. Our primary service offering, eWorks! XL, is a comprehensive package that includes Website design and publishing, Internet marketing and advertising, search engine optimization, search engine submission, and lead generation. As an application service provider, or ASP, we offer our customers a full range of Web services and products on an affordable subscription basis. In addition to our primary service offering, we provide a variety of premium Web services to customers who desire more advanced capabilities, such as e-commerce solutions and more sophisticated Internet marketing services. The breadth and flexibility of our offerings allow us to address the Web services needs of a wide variety of customers, ranging from those just establishing their Websites to those requiring a more robust Internet presence.

Through the combination of our proprietary Website publishing and management software, automated workflow processes, and specialized workforce development and management techniques, we believe we achieve production efficiencies that enable us to offer sophisticated Web services at affordable rates. Our technology automates many aspects of creating, maintaining, enhancing and marketing Websites on behalf of our customers. With over 45,000 paying subscribers to our eWorks! XL and premium subscription-based services as of June 30, 2005, we believe we are currently one of the industry’s largest providers of affordable Web services and products enabling small and medium-sized businesses to have an effective Internet presence. We define paying subscribers as unique user accounts that are current in their payments.

We primarily sell our Web services and products to customers identified through strategic marketing relationships with established brand name companies that have large numbers of small and medium-sized business customers, including Discover Financial Services, Inc., Network Solutions, and IBM. We have a sales force primarily based at our national sales center in Spokane, Washington, that utilizes leads generated by our strategic marketing relationships to acquire new customers. Our sales force specializes in selling to small and medium-sized businesses across a wide variety of industries throughout the United States.

Market Opportunity

Our target market consists of over 22 million businesses in the United States. This consists of approximately 14.7 million income-generating home-based businesses, as estimated by the International Data Corporation, or IDC, in May 2005 (report # 33365), and approximately 8.1 million additional businesses with fewer than 100 employees that are not home-based businesses, as estimated by IDC in March 2005 (report # 33047). We believe that small and medium-sized businesses understand that an effective Web presence is important to their success because of the increasing acceptance of the Internet as a tool for both consumers and businesses. We believe our market opportunity is driven by the following factors:

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Our Approach and Solution

Provide Comprehensive Solutions for Small and Medium-Sized Businesses.    Our goal is to enable small and medium-sized businesses to outsource their Web services needs to us. Our experience is that many of these businesses do not have the in-house expertise to effectively design an Internet presence that will generate adequate traffic to their Websites and increase direct customer interaction. Our Web services include, among other features, Website design and publishing, local, regional, and national Internet marketing and advertising, search engine optimization, search engine submission, and lead generation.

Offer Affordable Subscription-Based Solutions.    Because our customers are value-driven, we provide our Web services on an affordable subscription basis. Our eWorks! XL customers typically pay a recurring monthly fee ranging from approximately $50 to over $100. Additionally, we offer a premium Internet marketing service at a price averaging approximately $375 per month that is targeted at businesses with significant spending on local print yellow pages advertising.

Streamline Operations for Efficient Customer Acquisition, Fulfillment, and Support.    We utilize proprietary workflow processes and customer relationship management systems, together with a combination of integrated template-driven and specialized Website design tools, to sell, design, and support our Web services and products. We believe this integrated infrastructure enables us to minimize the time between initial customer contact and service activation.

Form and Enhance Strategic Marketing Relationships.    We have formed strategic marketing relationships with companies that have large customer bases of small and medium-sized businesses. These companies generate leads for us by providing filtered lists of their customers, conducting e-mail marketing campaigns about our Web services and products, advertising our Web services and products on the Internet, and using other forms of both direct and indirect solicitation.

Our Strategy

Our objective is to enhance our position as a leading provider of Web services and products for small to medium-sized businesses. Key elements of this strategy are to:

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Recent Acquisitions

In April 2005, we acquired substantially all of the assets of E.B.O.Z., Inc., or EBOZ, for 185,524 shares of our common stock, and all of the outstanding securities of Leads.com, Inc., or Leads.com, for 2,320,518 shares of our common stock and the assumption of options to purchase 73,242 shares of our common stock. We issued an additional 20,000 shares of common stock to EBOZ in August 2005 as additional consideration. We believe the EBOZ asset acquisition improves our ability to cost-effectively provide Web traffic generation solutions to our customers through the use of Internet banner advertisements, pay-per-click campaign management, and search engine optimization. We believe the Leads.com acquisition enhances our ability to provide customer leads to locally and regionally focused businesses. The Leads.com solution is offered through subscription-based packages. These packages can include local pay-per-click advertising, online yellow page advertisement creation, and industry-specific customer leads.

We acquired these businesses to expand our ability to serve small and medium-sized businesses within a subscription-based revenue model. We believe they increase the breadth of our offering, enable us to appeal to a broader customer base and allow us to provide valuable lead generating solutions that could increase the benefit customers can derive from our Web services and products.

Recent Developments

We recently completed our fiscal quarter ended September 30, 2005. For the three months ended September 30, 2005, our total revenue was $10.1 million. We had approximately 47,000 paying subscribers as of September 30, 2005 and over 2,500 net subscriber additions for the three months ended September 30, 2005. Our monthly turnover for the three months ended September 30, 2005 was approximately 5.7%. The paying subscribers, net subscriber addition numbers, and monthly turnover percentages exclude customers of services provided through Leads.com and EBOZ that do not also subscribe to our eWorks! XL or other premium subscription-based services. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics” for a description of how we measure net subscriber additions and monthly turnover. We caution you that we have not yet completed the financial statements for the quarter and that the expectations above are based only on preliminary estimates. Actual results for the quarter could differ from these preliminary expectations.

Corporate Information

Website Pros, Inc. was incorporated under the General Corporation Law of the State of Delaware on March 2, 1999. Our principal offices are located at 12735 Gran Bay Parkway West, Building 200, Jacksonville, Florida 32258. Our telephone number is (904) 680-6600 and our Website is located at www.websitepros.com. Our Website and the information contained therein or connected thereto shall not be deemed to be incorporated into this prospectus or the registration statement of which it forms a part. Unless the context indicates otherwise, as used in this prospectus, the terms “we,” “us,” and “our” refer to Website Pros, Inc.

Quikpage, eBoz, eMarketing Answers, SiteToolBox, LinkBuddies, SmartClicks, and Smart Age are registered trademarks or service marks of Website Pros, Inc. The following are trademarks and service marks of Website Pros, Inc., that are pending registration: Website Pros, the Website Pros logo, SiteStyles, eWorks! XL, Visibility Online, Leads.com Bringing Customers to Your Front Door, LeadLogic, TrafficJumper and Bring the World to Your Web Page. All other trademarks and trade names appearing in this prospectus are either unregistered marks of ours or the property of their respective holders.

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The Offering

The number of shares to be outstanding after this offering is based on the number of shares outstanding as of September 15, 2005. This number does not include as of that date:

Except as otherwise indicated in this prospectus, all of the information in this prospectus reflects:

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Summary Consolidated Financial Data

The following table summarizes our consolidated financial data. The summary financial data for the years ended December 31, 2002, 2003, and 2004 are derived from our audited consolidated financial statements included in this prospectus. The summary financial data for the six months ended June 30, 2004 and 2005 are derived from our unaudited consolidated financial statements included in this prospectus. You should read this data together with our consolidated financial statements and related notes included elsewhere in this prospectus and the information under “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The summary unaudited pro forma consolidated statement of operations data gives effect to our acquisitions of Leads.com, Inc. and the assets of E.B.O.Z., Inc. as if such acquisitions had occurred at January 1, 2004. The as adjusted consolidated balance sheet data gives effect to our receipt of the estimated net proceeds from the sale of the shares of common stock by us in this offering, after deducting underwriting discounts and commissions and estimated offering expenses, and the conversion of all of our outstanding convertible redeemable preferred stock into 6,324,962 shares of common stock, which will occur automatically at the closing of this offering.

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RISK FACTORS

You should consider carefully the risks described below, together with the other information contained in this prospectus, before you decide to buy our common stock. We believe the risks and uncertainties described below are the most significant risks we face. If any of the following events actually occurs, our business, financial condition, results of operations and future growth prospects would likely be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you may lose all or part of the money you paid to buy our common stock.

Risks Related to Our Business

We depend primarily on a small number of strategic marketing relationships—and one key strategic marketing relationship in particular—to identify prospective customers. The loss of one or more of our strategic marketing relationships, or a reduction in the referrals and leads they generate, would significantly reduce our future revenue and increase our expenses.

As a key part of our strategy, we have entered into agreements with a number of companies pursuant to which these parties provide us with access to their customer lists and allow us to use their names in marketing our Web services and products. Approximately 99% of our new customers in the year ended December 31, 2004, and approximately 96% in the six months ended June 30, 2005, were identified through our strategic marketing relationships. We believe these strategic marketing relationships are critical to our business because they enable us to penetrate our target market with a minimum expenditure of resources. If these strategic marketing relationships are terminated or otherwise fail, our revenue would likely decline significantly and we could be required to devote additional resources to the sale and marketing of our Web services and products. We have no long-term contracts with these organizations, and these organizations are generally not restricted from working with our competitors. Accordingly, our success will depend upon the willingness of these organizations to continue these strategic marketing relationships.

Our strategic marketing relationship with Discover Financial Services, Inc., or Discover, is particularly important to us and accounted for approximately 86% of our new customers in the year ended December 31, 2004, and approximately 77% in the six months ended June 30, 2005. Customers attributable to our relationship with Discover represented approximately 65% of our total revenue during the year ended December 31, 2004, and approximately 64% in the six months ended June 30, 2005. We expect that customer relationships enabled by our strategic marketing relationship with Discover will continue to account for a significant portion of our new customers and our revenue in the future. Discover is under no obligation to continue to contract with us or continue this strategic marketing relationship, and either Discover or we can terminate our agreement with short notice and no penalty. Additionally, this agreement expires pursuant to its terms in November 2006, and we cannot assure you that the agreement will be extended or renewed. We therefore cannot assure you that we will continue to have a relationship with Discover. If our strategic marketing relationship with Discover ends, we will need to take remedial measures to generate customer leads, which could be expensive, and if such efforts fail, our business would be materially harmed.

To successfully execute our business plan, we must also establish new strategic marketing relationships with additional organizations that have strong relationships with small and medium-sized businesses that would enable us to identify additional prospective customers. If we are unable to diversify and extend our strategic marketing relationships, our ability to grow our business may be compromised.

Most of our Web services are sold on a month-to-month basis, and if our customers either are unable or choose not to subscribe to our Web services, our revenue may decrease.

Typically, our Web service offerings are sold pursuant to month-to-month subscription agreements, and our customers can generally cancel their subscriptions to our Web services at any time with little or no penalty.

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Historically, we have experienced a high turnover rate in our customer base. For the years ended December 31, 2003 and 2004, 60% and 56%, respectively, of our subscribers who were customers at the beginning of the respective year were no longer subscribers at the end of the respective year. While we cannot determine with certainty why our subscription renewal rates are not higher, we believe there are a variety of factors, which have in the past led, and may in the future lead, to a decline in our subscription renewal rates. These factors include the cessation of our customers’ businesses, the overall economic environment in the United States and its impact on small and medium-sized businesses, the services and prices offered by us and our competitors, and the evolving use of the Internet by small and medium-sized businesses. If our renewal rates are low or decline for any reason, or if customers demand renewal terms less favorable to us, our revenue may decrease, which could adversely affect our stock price.

If economic or other factors negatively affect the small and medium-sized business sector, our customers may become unwilling or unable to purchase our Web services and products, which could cause our revenue to decline and impair our ability to operate profitably.

Our existing and target customers are small and medium-sized businesses. These businesses are more likely to be significantly affected by economic downturns than larger, more established businesses. Additionally, these customers often have limited discretionary funds, which they may choose to spend on items other than our Web services and products. If small and medium-sized businesses experience economic hardship, they may be unwilling or unable to expend resources to develop their Internet presences, which would negatively affect the overall demand for our services and products and could cause our revenue to decline.

We may expand through acquisitions of, or investments in, other companies or technologies, which may result in additional dilution to our stockholders and consume resources that may be necessary to sustain our business.

One of our business strategies is to acquire complementary services, technologies or businesses. In connection with one or more of those transactions, we may:

Business acquisitions also involve the risk of unknown liabilities associated with the acquired business. In addition, we may not realize the anticipated benefits of any acquisition, including securing the services of key employees. Incurring unknown liabilities or the failure to realize the anticipated benefits of an acquisition could seriously harm our business.

We may find it difficult to integrate recent and potential future business combinations, which could disrupt our business, dilute stockholder value, and adversely affect our operating results.

During the course of our history, we have completed several acquisitions of other businesses, and a key element of our strategy is to continue to acquire other businesses in the future. In particular, we completed the Leads.com and EBOZ acquisitions in April 2005. Integrating these recently acquired businesses and any businesses we may acquire in the future could add significant complexity to our business and additional burdens to the substantial tasks already performed by our management team. In the future, we may not be able to identify suitable acquisition candidates, and if we do, we may not be able to complete these acquisitions on acceptable terms or at all. In connection with our recent and possible future acquisitions, we may need to integrate operations that have different and unfamiliar corporate cultures. Likewise, we may need to integrate disparate technologies and Web service and product offerings, as well as multiple direct and indirect sales channels. The key personnel of the acquired company may decide not to continue to work for us. These integration efforts may

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not succeed or may distract our management’s attention from existing business operations. Our failure to successfully manage and integrate Leads.com, EBOZ, or any future acquisitions could seriously harm our business.

We have only recently become profitable and may not maintain our level of profitability.

Although we generated net income for the year ended December 31, 2004, we have not historically been profitable, were not profitable in any other period since our inception, and may not be profitable in future periods. As of June 30, 2005, we had an accumulated deficit of approximately $69.6 million. We expect that our expenses relating to the sale and marketing of our Web services, to technology improvements and to general and administrative functions, as well as the costs of operating and maintaining our technology infrastructure, will increase in the future. Accordingly, we will need to increase our revenue to be able to maintain our profitability. We may not be able to reduce in a timely manner or maintain our expenses in response to any decrease in our revenue, and our failure to do so would adversely affect our operating results and our level of profitability.

Our operating results are difficult to predict and fluctuations in our performance may result in volatility in the market price of our common stock.

Due to our limited operating history, our evolving business model, and the unpredictability of our emerging industry, our operating results are difficult to predict. We expect to experience fluctuations in our operating and financial results due to a number of factors, such as:

These factors and others all tend to make the timing and amount of our revenue unpredictable and may lead to greater period-to-period fluctuations in revenue than we have experienced historically.

As a result of these factors, we believe that our quarterly revenue and results of operations are likely to vary significantly in the future and that period-to-period comparisons of our operating results may not be meaningful. You should not rely on the results of one quarter as an indication of future performance. If our quarterly revenue or results of operations fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially.

Our business depends in part on our ability to continue to provide value-added Web services and products, many of which we provide through agreements with third parties, and our business will be harmed if we are unable to provide these Web services and products in a cost-effective manner.

A key element of our strategy is to combine a variety of functionalities in our Web service offerings to provide our customers with comprehensive solutions to their Internet presence needs, such as Internet search

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optimization, local yellow pages listings, and e-commerce capability. We provide many of these services through arrangements with third parties, and our continued ability to obtain and provide these services at a low cost is central to the success of our business. For example, we currently have agreements with several service providers that enable us to provide, at a low cost, Internet yellow pages advertising. However, these agreements may be terminated on short notice, typically 60 to 90 days, and without penalty. If any of these third parties were to terminate their relationships with us, or to modify the economic terms of these arrangements, we could lose our ability to provide these services at a cost-effective price to our customers, which could cause our revenue to decline or our costs to increase.

Our systems, and those of our co-location provider, are vulnerable to natural disasters and other unexpected problems that could lead to interruptions, delays, loss of data, or the inability to accept and fulfill customer subscriptions.

Our network operating center, containing substantially all of our communications hardware, nearly all of our non-sales staff, and much of our other computer hardware operations is located in Jacksonville, Florida. Likewise, the facilities of our third-party co-location provider are located in Jacksonville, Florida. Additionally, one of our sales centers, from which the majority of our sales are made, is located in Spokane, Washington. Hurricanes, fire, floods, earthquakes, power loss, telecommunications failures, break-ins, computer sabotage, and similar events could damage or destroy these systems and facilities and temporarily stop a majority of our business activities in fulfilling customer orders and in securing new customers. Our business could be seriously harmed, our revenues could decline and we could be required to make significant expenditures if our systems were damaged or destroyed, or if our customer fulfillment were delayed or stopped, by any of these occurrences.

We rely heavily on the reliability, security, and performance of our internally developed systems and operations, and any difficulties in maintaining these systems may result in service interruptions, decreased customer service, or increased expenditures.

The software and workflow processes that underlie our ability to deliver our Web services and products have been developed primarily by our own employees. The reliability and continuous availability of these internal systems are critical to our business, and any interruptions that result in our inability to timely deliver our Web services or products, or that materially impact the efficiency or cost with which we provide these Web services and products, would harm our reputation, profitability, and ability to conduct business. In addition, many of the software systems we currently use will need to be enhanced over time or replaced with equivalent commercial products, either of which could entail considerable effort and expense. If we fail to develop and execute reliable policies, procedures, and tools to operate our infrastructure, we could face a substantial decrease in workflow efficiency and increased costs, as well as a decline in our revenue.

We face intense and growing competition. If we are unable to compete successfully, our business will be seriously harmed.

The market for our Web services and products is competitive and has relatively low barriers to entry. Our competitors vary in size and in the variety of services they offer. We encounter competition from a wide variety of company types, including:

In addition, due to relatively low barriers to entry in our industry, we expect the intensity of competition to increase in the future from other established and emerging companies. Increased competition may result in price

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reductions, reduced gross margins, and loss of market share, any one of which could seriously harm our business. We also expect that competition will increase as a result of industry consolidations and formations of alliances among industry participants.

Many of our current and potential competitors have longer operating histories, significantly greater financial, technical, marketing and other resources than we do, greater brand recognition and, we believe, a larger installed base of customers. These competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements. They may also be able to devote greater resources to the promotion and sale of their services and products than we can. If we fail to compete successfully against current or future competitors, our revenue could increase less than anticipated or decline, and our business could be harmed.

Our failure to build brand awareness quickly could compromise our ability to compete and to grow our business.

As a result of the anticipated increase in competition in our market, and the likelihood that some of this competition will come from companies with established brands, we believe brand name recognition and reputation will become increasingly important. Our strategy of relying significantly on third-party strategic marketing relationships to find new customers may impede our ability to build brand awareness, as our customers may wrongly believe our Web services and products are those of the parties with which we have strategic marketing relationships. If we do not continue to build brand awareness quickly, we could be placed at a competitive disadvantage to companies whose brands are more recognizable than ours.

If our security measures are breached, our services may be perceived as not being secure, and our business and reputation could suffer.

Our Web services involve the storage and transmission of our customers’ proprietary information. Although we employ data encryption processes, an intrusion detection system, and other internal control procedures to assure the security of our customers’ data, we cannot guarantee that these measures will be sufficient for this purpose. If our security measures are breached as a result of third-party action, employee error or otherwise, and as a result our customers’ data becomes available to unauthorized parties, we could incur liability and our reputation would be damaged, which could lead to the loss of current and potential customers. If we experience any breaches of our network security or sabotage, we might be required to expend significant capital and other resources to remedy, protect against or alleviate these and related problems, and we may not be able to remedy these problems in a timely manner, or at all. Because techniques used by outsiders to obtain unauthorized network access or to sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures.

Accounting for acquisitions under generally accepted accounting principles could adversely affect our reported financial results.

Under generally accepted accounting principles in the United States, we could be required to record charges for in-process research and development or other charges in connection with future acquisitions, which would reduce any future reported earnings or increase any future reported loss. Acquisitions could also require us to record substantial amounts of goodwill and other intangible assets. For example, in connection with our recent acquisitions of Leads.com and EBOZ, we have recorded $10.7 million of goodwill. Any future impairment of this goodwill, and the ongoing amortization of other intangible assets, could adversely affect our reported financial results.

If we cannot adapt to technological advances, our Web services and products may become obsolete and our ability to compete would be impaired.

Changes in our industry occur very rapidly, including changes in the way the Internet operates or is used by small and medium-sized businesses and their customers. As a result, our Web services and products could

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become obsolete quickly. The introduction of competing products employing new technologies and the evolution of new industry standards could render our existing products or services obsolete and unmarketable. To be successful, our Web services and products must keep pace with technological developments and evolving industry standards, address the ever-changing and increasingly sophisticated needs of our customers, and achieve market acceptance. If we are unable to develop new Web services or products, or enhancements to our Web services or products, on a timely and cost-effective basis, or if new Web services or products or enhancements do not achieve market acceptance, our business would be seriously harmed.

Providing Web services and products to small and medium-sized businesses designed to allow them to Internet-enable their businesses is a new and emerging market; if this market fails to develop, we will not be able to grow our business.

Our success depends on a significant number of small and medium-sized business outsourcing Website design, hosting, and management as well as adopting other online business solutions. The market for our Web services and products is relatively new and untested. Custom Website development has been the predominant method of Internet enablement, and small and medium-sized businesses may be slow to adopt our template-based Web services and products. Further, if small or medium-sized businesses determine that having an Internet presence is not giving their businesses an advantage, they would be less likely to purchase our Web services and products. If the market for our Web services and products fails to grow or grows more slowly than we currently anticipate, or if our Web services and products fail to achieve widespread customer acceptance, our business would be seriously harmed.

We are dependent on our executive officers, and the loss of any key member of this team may compromise our ability to successfully manage our business and pursue our growth strategy.

Our future performance depends largely on the continuing service of our executive officers and senior management team, especially those of David Brown, our chief executive officer. Our executives are not contractually obligated to remain employed by us. Accordingly, any of our key employees could terminate their employment with us at any time without penalty and may go to work for one or more of our competitors after the expiration of their non-compete period. The loss of one or more of our executive officers could make it more difficult for us to pursue our business goals and could seriously harm our business.

Our growth could strain our resources and our business may suffer if we fail to implement appropriate controls and procedures to manage our growth.

We are currently experiencing a period of rapid growth in employees and operations, with our employee base increasing from 273 full-time employees as of June 30, 2004, to 391 full-time employees as of June 30, 2005. This growth has placed, and will continue to place, a strain on our management, administrative, and sales and marketing infrastructure. If we fail to successfully manage our growth, our business could be disrupted, and our ability to operate our business profitably could suffer. We anticipate that further growth in our employee base will be required to expand our customer base and to continue to develop and enhance our Web service and product offerings. To manage the growth of our operations and personnel, we will need to enhance our operational, financial, and management controls and our reporting systems and procedures. This will require additional personnel and capital investments, which will increase our cost base. The growth in our fixed cost base may make it more difficult for us to reduce expenses in the short term to offset any shortfalls in revenue.

We may be unable to protect our intellectual property adequately or cost-effectively, which may cause us to lose market share or force us to reduce our prices.

Our success depends, in part, on our ability to protect and preserve the proprietary aspects of our technology, Web services, and products. If we are unable to protect our intellectual property, our competitors could use our intellectual property to market services and products similar to those offered by us, which could

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decrease demand for our Web services and products. We may be unable to prevent third parties from using our proprietary assets without our authorization. We do not currently rely on patents we own to protect our core intellectual property, and we have not applied for patents in any jurisdictions inside or outside of the United States. To protect, control access to, and limit distribution of our intellectual property, we generally enter into confidentiality and proprietary inventions agreements with our employees, and confidentiality or license agreements with consultants, third-party developers, and customers. We also rely on copyright, trademark, and trade secret protection. However, these measures afford only limited protection and may be inadequate. Enforcing our rights to our technology could be costly, time-consuming and distracting. Additionally, others may develop non-infringing technologies that are similar or superior to ours. Any significant failure or inability to adequately protect our proprietary assets will harm our business and reduce our ability to compete.

Our growth will be adversely affected if we cannot continue to successfully retain, hire, train, and manage our key employees, particularly in the telesales and customer service areas.

Our ability to successfully pursue our growth strategy will depend on our ability to attract, retain, and motivate key employees across our business. We have many key employees throughout our organization who do not have non-competition agreements and may leave to work for a competitor at any time. In particular, we are substantially dependent on our telesales and customer service employees to obtain and service new customers. Competition for such personnel and others can be intense, and there can be no assurance that we will be able to attract, integrate, or retain additional highly qualified personnel in the future. In addition, our ability to achieve significant growth in revenue will depend, in large part, on our success in effectively training sufficient personnel in these two areas. New hires require significant training and in some cases may take up to three months before they achieve full productivity. Our recent hires and planned hires may not become as productive as we would like, and we may be unable to hire sufficient numbers of qualified individuals in the future in the markets where we have our facilities. If we are not successful in retaining our existing employees, or hiring, training and integrating new employees, or if our current or future employees perform poorly, growth in the sales of our services and products may not materialize and our business will suffer.

If we fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial results, which could cause our stock price to fall or result in our stock being delisted.

Effective internal controls are necessary for us to provide reliable and accurate financial reports. We will need to devote significant resources and time to comply with the new requirements of Sarbanes-Oxley with respect to internal control over financial reporting. In addition, Section 404 under Sarbanes-Oxley requires that we assess and our auditors attest to the design and operating effectiveness of our controls over financial reporting. Our ability to comply with the annual internal control report requirement for our fiscal year ending on December 31, 2006, which is the first time these new requirements will apply to us, will depend on the effectiveness of our financial reporting and data systems and controls across our company and our operating subsidiaries. We expect these systems and controls to become increasingly complex to the extent that we integrate acquisitions and our business grows. To effectively manage this complexity, we will need to continue to improve our operational, financial, and management controls and our reporting systems and procedures. Any failure to implement required new or improved controls, or difficulties encountered in the implementation or operation of these controls, could harm our operating results or cause us to fail to meet our financial reporting obligations, which could adversely affect our business and jeopardize our listing on the NASDAQ National Market, either of which would harm our stock price.

Risks Related to Our Industry

The success of our business depends on the continued growth of the Internet as a business tool for small and medium-sized businesses.

Expansion in the sales of our Web services and products will depend on the continued acceptance of the Internet as a communications and commerce platform for small and medium-sized businesses. The use of the

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Internet as a business tool could be adversely affected by delays in the development or adoption of new standards and protocols to handle increased demands of Internet activity, security, reliability, cost, ease-of-use, accessibility, and quality of service. The performance of the Internet and its acceptance as a business tool have been harmed in the past by viruses, worms, and similar malicious programs, and the Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure. If for any reason the Internet does not remain a widespread communications medium and commercial platform or businesses do not continue to become Internet enabled and maintain an online presence, the demand for our services and products would be significantly reduced.

We could become subject to litigation regarding intellectual property brought by other parties, which could divert management’s attention, increase our legal expenses, and prevent us from using or selling the challenged technology.

In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. This litigation is particularly prevalent in the technology industry. In addition, there has been an increase in the filing of suits alleging infringement of intellectual property rights. Regardless of the merits of these suits, many defendants are entering into settlement arrangements quickly to dispose of such suits to avoid publicity and the nuisance of attending to the suits. Other companies or individuals may pursue litigation against us with respect to intellectual property-based claims. The results of any litigation are inherently uncertain. In the event of an adverse result in any future litigation with respect to intellectual property rights relevant to our products, we could be required to:

Our insurance may not cover potential claims or may not be adequate to indemnify us for damages we incur. Also, litigation frequently involves substantial expenditures and can require significant management attention, even if we ultimately prevail.

Governmental regulation involving the transmission of information over the Internet is evolving, and we may face liability in connection with the information that is transmitted using our Web services and products.

The legal framework that applies to the Internet is continually evolving. Laws have been, and likely will continue to be, enacted that address issues of privacy, security, pricing, taxation, quality and substance of services and products, and other issues. Because our Web services and products allow customers to transmit information over the Internet on their own Websites, and because we develop and host many of these Websites, we may be found to be liable for any improper information that our customers transmit. We may face liability for defamation, negligence, copyright, patent or trademark infringement, and other claims based on the nature and content of the materials being transmitted by our Web services. Although we retain discretion to cancel the Web services being provided to customers if we learn such content is being transmitted, there can be no guarantee that our customers will refrain from such transmission or that we will not be deemed responsible for the content being transmitted or hosted using our Web services, products or infrastructure. Government regulations also could affect the cost of communicating on the Internet and could negatively affect the demand for our Web services and products, and our business could thereby be harmed.

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State and local governments may in the future be permitted to levy additional taxes on Internet access and electronic commerce transactions, which could result in a decrease in the attractiveness of the Internet to our customers and potential customers, and could reduce demand for our Web services.

In November 2004, the federal government passed legislation placing a three-year ban on state and local governments’ imposition of new taxes on Internet access or electronic commerce transactions. Unless the ban is extended, state and local governments may begin to levy additional taxes on Internet access and electronic commerce transactions upon the legislation’s expiration in November 2007. An increase in taxes may make electronic commerce transactions less attractive for merchants and businesses, which could result in a decrease in the level of demand for our services.

Risks Related to this Offering

We cannot assure you that a market will develop for our common stock or what the market price of our common stock will be.

Prior to this offering, there has been no public trading market for our common stock, and we cannot assure you that one will develop or be sustained after this offering. We cannot predict the extent to which investor interest will lead to the development of an active and liquid trading market. The initial public offering price has been determined by negotiations between the underwriters and us, and may bear no relationship to the price at which the common stock will trade upon completion of this offering. You may not be able to resell your shares above the initial public offering price and may suffer a complete loss of your investment.

Our stock price may be volatile, and you may lose some or all of your investment.

The trading prices of the securities of companies in the Internet market have been highly volatile. Accordingly, the trading price of our common stock is likely to be subject to wide fluctuations. Factors affecting the trading price of our common stock may include, among other things:

In addition, we are listing our common stock on the NASDAQ National Market. There are continuing eligibility requirements for companies listed on the NASDAQ National Market. If we are not able to continue to satisfy the eligibility requirements of the NASDAQ National Market, then our stock may be delisted. This could result in a lower price of our common stock and may limit the ability of our stockholders to sell our stock, any of which could result in your losing some or all of your investment.

We might require additional capital to support business growth, and this capital might not be available on acceptable terms, or at all.

We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new services and products or enhance our existing Web services, enhance our operating infrastructure and acquire complementary businesses and

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technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock, including shares of common stock sold in this offering. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired.

There may be an adverse effect on the market price of our stock as a result of shares being available for sale in the future.

Immediately after this offering, there will be 16,494,568 shares of common stock outstanding, assuming no exercise of the underwriters’ over-allotment option. Of these shares, the shares sold in this offering will be freely tradable immediately, 8,690,368 additional shares will be eligible for sale 180 days after the date of this prospectus following the expiration of lock-up agreements described in “Underwriting” and 2,991,179 shares will become available for sale in the public market on subsequent dates. Friedman, Billings, Ramsey & Co., Inc., on behalf of the underwriters, may release these stockholders from their lock-up agreements with the underwriters at any time and without notice, which would allow for earlier sale of shares in the public market. Moreover, the holders of 8,670,406 shares of common stock will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file ourselves or for other stockholders. We also intend to register up to 6,352,230 shares of our common stock that are subject to outstanding stock options or reserved for issuance under our stock option plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the limitations of our lock-up agreements described in “Underwriting.” If any of these stockholders cause a large number of securities to be sold in the public market, or the market perceives that these holders intend to sell a large number of securities, the sales or perceived sales could result in a substantial reduction in the trading price of our common stock or impede our ability to raise future capital.

You will experience immediate and substantial dilution in the pro forma net tangible book value of the shares you purchase in this offering.

The initial public offering price will be substantially higher than the pro forma net tangible book value per share of our outstanding common stock. As a result, investors purchasing common stock in this offering will incur immediate dilution of $6.92 per share. This dilution is due in large part to earlier investors in our company having paid substantially less than the initial public offering price when they purchased their shares. Investors who purchase shares of common stock in this offering will contribute approximately 34% of the total amount we have raised to fund our operations but will own only approximately 29% of our common stock. The exercise of outstanding options and warrants will result in further dilution to investors.

Our principal stockholders have significant voting power and may take actions that may not be in the best interests of our other stockholders.

Upon completion of this offering, our executive officers, directors, and principal stockholders will, in the aggregate, beneficially own approximately 56% of our outstanding common stock. As a result, these stockholders, acting together, will have the ability to exert substantial influence over all matters requiring approval of our stockholders, including the election and removal of directors and the approval of mergers or other business combinations. This concentration of control could be disadvantageous to other stockholders whose interests are different from those of our officers, directors, and principal stockholders.

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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.

Our amended and restated certificate of incorporation and bylaws contain provisions that could depress the trading price of our common stock by acting to discourage, delay, or prevent a change of control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions:

Additionally, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder and which may discourage, delay, or prevent a change of control of our company.

Because management has broad discretion as to the use of the net proceeds from this offering, you may not agree with how we use them, and such proceeds may not be invested successfully.

The proceeds from this offering have not been allocated for a particular purpose, and our management will have broad discretion with respect to the use of the net proceeds. We currently intend to use the net proceeds from the offering for working capital and general corporate purposes. You will be relying on the judgment of our management concerning these uses and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The failure of our management to apply these funds effectively could result in unfavorable returns and uncertainty about our prospects, each of which could cause the price of our common stock to decline.

If certain e-mail communications sent by employees of one of our underwriters are deemed to have constituted a non-conforming prospectus in violation of the Securities Act of 1933, the recipients of the e-mails may be entitled to rescission rights under the Securities Act of 1933 if they purchase shares of our common stock in this offering.

Following the filing of the registration statement relating to this offering and prior to the effectiveness of such registration statement, two employees of Friedman, Billings, Ramsey & Co, Inc., or FBR, one of our underwriters, distributed an e-mail to representatives of approximately 34 potential institutional investors that included certain information about us and the proposed offering. The e-mail very briefly described the filing, the size of the offering, the nature of our business, and commented on our customer base and strategic partnerships. We were not involved in, nor did we support or condone, the preparation or distribution of the e-mail, and the information contained in the e-mail does not necessarily reflect our views as to matters addressed in the e-mails.

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FBR contacted all recipients of the original e-mail, alerting them that they had received the e-mail in error, and asking them to disregard and not to further distribute the e-mail. The two employees who sent the unauthorized communications were immediately instructed not to send the e-mail to anyone else and were removed from having any further contact with potential investors in connection with this offering. FBR, as the book running managing underwriter for this offering, has confirmed to us that none of the recipients identified by FBR as having received the e-mail, nor accounts the recipients represent, will be allowed to purchase any shares in this offering.

The FBR e-mail communication, which included certain information about us and the proposed offering, may constitute a prospectus that does not meet the requirements of the Securities Act of 1933. No person who received the e-mail should rely on any of the information contained in it when making an investment decision whether to buy our common stock in this offering. You should rely only on the information contained in this prospectus and should make an investment decision only after carefully reviewing and evaluating all of the information in this prospectus, including the risks described in this section and throughout the prospectus.

If the e-mail communications were determined to constitute a non-conforming prospectus in violation of the Securities Act of 1933, and any recipients of the e-mails were able to participate in the offering despite the prohibitions described above, those purchasers might have the right, for a period of one year from the date of their purchase of the shares, to obtain recovery of the consideration paid in connection with their purchase. This is commonly referred to as a rescission right. If any rescission right were to be asserted, we would intend to contest the matter vigorously. FBR has agreed to indemnify us for any losses, costs and expenses that we may incur as a result of the e-mail distribution, including any costs we may incur in connection with rescission rights. We believe the risk that we will incur any material liability as a result of the e-mail distribution is remote.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business.” In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements.

Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performances, or achievements expressed or implied by the forward-looking statements. We discuss many of these risks in this prospectus in greater detail under the heading “Risk Factors.” Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this prospectus. You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we currently expect.

Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

You should rely only on the information contained in this prospectus. Neither we nor the selling stockholders have authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common stock.

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USE OF PROCEEDS

We estimate that our net proceeds from the offering will be approximately $42.1 million, after deducting underwriting discounts and commissions and estimated offering expenses. If the underwriters exercise their over-allotment option in full, we estimate that our net proceeds will be approximately $48.8 million. We will not receive any of the proceeds from the sale of shares by the selling stockholders.

The principal purpose of this offering is to obtain a public market for our common shares, which we believe will facilitate our future access to the capital markets and enhance our ability to use our common shares for acquisitions.

We have not made any specific plans with respect to the use of net proceeds of this offering. We expect to use the net proceeds for working capital and general corporate purposes. We may also use a portion of the net proceeds to acquire businesses, services, products, or technologies complementary to our current business, although we have no specific acquisitions planned. The amount and timing of our actual expenditures for general corporate purposes will vary significantly depending on a number of factors, including such factors as the amount of cash generated by our operations. Accordingly, our management will have broad discretion in the application of the net proceeds generated from this offering. You will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use these proceeds.

Pending final use, we expect to invest the net proceeds of this offering in short-term, investment grade, interest-bearing securities or guaranteed obligations of the United States or its agencies.

DIVIDEND POLICY

We have not paid any dividends since inception, and we currently intend to retain our future earnings, if any, to finance the further development and expansion of our business and do not intend to pay dividends for the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in future financing instruments, and other factors our board of directors deems relevant.

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2005:

You should read the following table together with our financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

The number of shares in the table above excludes as of June 30, 2005:

Share amounts have been retroactively adjusted to give effect to a one-for-five reverse stock split effected in September 2005.

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DILUTION

If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock after this offering. As of June 30, 2005, we had a net tangible book value of $8.5 million, or $0.73 per share of common stock, on a pro forma basis. Pro forma net tangible book value per share is equal to our total tangible assets, or total assets less intangible assets, less total liabilities, divided by the number of shares of our outstanding common stock, after giving effect to the conversion of all of our outstanding convertible redeemable preferred stock into 6,324,962 shares of common stock. After giving effect to the sale of 4,800,000 shares of common stock by us in this offering and our receipt of the estimated net proceeds therefrom, after deducting underwriting discounts and commissions and our estimated offering expenses, our pro forma as adjusted net tangible book value as of June 30, 2005 would have been $50.6 million, or $3.08 per share of common stock. This represents an immediate increase in pro forma net tangible book value of $2.35 per share to our existing stockholders and an immediate dilution of $6.92 per share to new investors in this offering. The following table illustrates this per share dilution:

The following table summarizes, as of June 30, 2005, on the pro forma as adjusted basis described above, the differences between existing stockholders and the new investors with respect to the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid before deducting the estimated underwriting discounts and commissions and our offering expenses.

The sale of 2,000,000 shares of common stock to be sold by the selling stockholders in this offering will reduce the number of shares held by existing stockholders to 9,622,612, or 59% of the total shares outstanding, and will increase the number of shares held by new investors to 6,800,000, or 41% of the total shares outstanding. If the underwriters exercise their over-allotment option in full, the shares held by existing stockholders will further decrease to 9,322,612, or 54% of the total shares outstanding, and the number of shares held by new investors will further increase to 7,820,000, or 46% of the total shares outstanding.

As of June 30, 2005, there were 3,750,436 shares of common stock subject to options outstanding, at a weighted average exercise price of $3.32 per share, and 2,532,212 shares available for future grant or issuance under our existing equity incentive plan and those equity incentive plans becoming effective upon the closing of this offering. Additionally, in connection with the acquisition of Leads.com, Inc., we assumed options exercisable for an aggregate of 73,242 shares of our common stock, with a weighted average exercise price of $4.48 per share, of which options to purchase 62,779 shares remain outstanding as of June 30, 2005. As of June 30, 2005, there were also 353,675 shares of common stock subject to warrants outstanding, at a weighted average exercise price of $2.30 per share. To the extent any of these options or warrants are exercised, new options are issued under our equity incentive plans or we issue additional shares of common stock in the future, there will be further dilution to new investors.

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SELECTED CONSOLIDATED FINANCIAL DATA

The consolidated statement of operations data for the years ended December 31, 2002, 2003, and 2004 and the consolidated balance sheet data as of December 31, 2003 and 2004 are derived from our audited consolidated financial statements, which are included elsewhere in this prospectus. The consolidated statement of operations data for the six months ended June 30, 2004 and 2005 and the consolidated balance sheet data as of June 30, 2005 are derived from our unaudited consolidated financial statements included in this prospectus. The consolidated balance sheet data as of December 31, 2002 are derived from audited consolidated financial statements not included in this prospectus. The consolidated statement of operations data for the years ended December 31, 2000 and 2001 and the consolidated balance sheet data as of December 31, 2000 and 2001 are derived from our unaudited consolidated financial statements not included in this prospectus. The unaudited information has been prepared on the same basis as our audited consolidated financial statements and, in the opinion of management, contains all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of our operating results and financial position for these periods. Historical results are not necessarily indicative of future results. The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”