<PAGE> 1
Filed Pursuant to Rule 424(a)
Registration No. 333-69171
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 26, 1999
INITIAL PUBLIC OFFERING
PROSPECTUS
3,000,000 SHARES OF COMMON STOCK
$9.00 TO $11.00 PER SHARE
[LOGO]
This is an initial public offering of WebTrends Corporation common stock.
WebTrends is selling 3,000,000 shares. In addition, certain of WebTrends'
shareholders may sell an aggregate of up to 450,000 shares depending on whether
the underwriters exercise their over-allotment option. WebTrends will not
receive any of the proceeds from the sale of shares by the shareholders.
Proposed Trading Symbol:
Nasdaq National Market "WEBT"
INVESTING IN THIS STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
-------------------------
<TABLE>
<CAPTION>
TOTAL
--------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Price to Public.......................
Underwriting Discounts &
Commissions.........................
WebTrends' Proceeds...................
Selling Shareholders' Proceeds........
</TABLE>
-------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
DAIN RAUSCHER WESSELS SOUNDVIEW TECHNOLOGY GROUP
a division of Dain Rauscher Incorporated
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........... 1
Risk Factors................. 4
Use of Proceeds.............. 16
Dividend Policy.............. 16
Capitalization............... 17
Dilution..................... 18
Selected Financial Data...... 19
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations................. 20
Business..................... 30
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management................... 48
Certain Transactions......... 55
Principal and Selling
Shareholders............... 56
Description of Capital
Stock...................... 57
Shares Eligible for Future
Sale....................... 59
Underwriting................. 61
Legal Matters................ 63
Experts...................... 63
Additional Information....... 63
Index to Financial
Statements................. F-1
</TABLE>
"AuditTrack," "AlertTrack," "ClusterTrends," "CommerceTrends," "DBTrends,"
"FastTrends," "FireTrends," "Manage Your WWWorld," "SmartPass," "WebTrends," and
the Company logo are all trademarks of the Company. All other trade names,
trademarks, and service marks appearing in this Prospectus are the property of
their respective holders.
i
<PAGE> 3
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights only selected information contained elsewhere in
this Prospectus. Before making an investment in WebTrends' Common Stock, you
should read this entire Prospectus and the Financial Statements and Notes, all
of which should be consulted when reading this Summary. Except where noted
otherwise, all information in this Prospectus, including share and per share
information, assumes (1) the automatic conversion of all outstanding shares of
Class B Common Stock into shares of Common Stock upon completion of this
Offering; (2) no exercise of the Underwriters' over-allotment option; and (3)
the Company's 1 for 2 reverse split of its capital stock effected as of January
19, 1999. See "Description of Capital Stock" and "Underwriting."
WEBTRENDS CORPORATION
WebTrends Corporation is a leading provider of enterprise management and
reporting solutions for Internet-based systems. We offer organizations a
comprehensive set of solutions that are integrated, scaleable, modular, and
easy-to-use. Our enterprise management products facilitate analysis and
reporting of Web site traffic, Internet advertising campaigns, quality, content,
usage, and e-commerce activities, as well as return on investment from
Internet-based systems. Our solutions also help organizations manage their
Internet infrastructure by providing valuable information about firewall
activity, virtual private networks, and security vulnerabilities, as well as
capacity and bandwidth requirements. Our products have been specifically
designed to enable organizations to centrally manage and administer multiple
Internet-based systems across the enterprise regardless of the quantity or
geographic locations of servers supporting those systems.
Our business has grown rapidly, with revenue increasing from $1.9 million
in 1996 to $8.0 million for the year ended December 31, 1998. We have been
profitable throughout this period. Since the introduction of our original Web
site traffic analysis product in 1996, we have introduced the following
products: WebTrends Enterprise Suite, WebTrends Professional Suite, WebTrends
Suite for Lotus Domino, WebTrends for Firewalls and VPNs, Server Cluster Add-on,
and WebTrends Security Analyzer. We plan to introduce WebTrends Enterprise
Reporting Server for UNIX and CommerceTrends Add-on by June 1999.
We market and deliver our award-winning products to both IT professionals
and other business managers. Over 20,000 customers have purchased our products,
including sophisticated Internet service providers and over one-third of the
Fortune 500 companies.
WebTrends was incorporated as an S Corporation in Delaware in 1993 and
reorganized as a C Corporation in Oregon in 1997. Our executive offices are
located at 851 SW Sixth Avenue, Suite 1200, Portland, Oregon 97204, our
telephone number is
1-888-WEBTRENDS (1-888-932-8736), and our Web site is located at
http://www.webtrends.com.
1
<PAGE> 5
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by WebTrends........... 3,000,000 shares
Common Stock to be Outstanding After the
Offering.................................. 11,218,964 shares(1)
Nasdaq National Market Symbol............... WEBT
Working capital and general corporate
Use of Proceeds............................. purposes. See "Use of Proceeds."
</TABLE>
- -------------------------
(1) Based on shares outstanding on December 31, 1998. Excludes 3,341,562 shares
reserved for issuance under our 1998 Stock Incentive Compensation Plan, 1997
Stock Incentive Compensation Plan and the 1999 Employee Stock Purchase Plan,
of which 1,471,149 shares were subject to outstanding stock options at a
weighted average exercise price of $2.46 per share. See
"Management -- Employee Benefit Plans."
2
<PAGE> 6
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------ ------- -------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue..................................... $1,865 $ 4,055 $ 8,008
Gross margin...................................... 1,660 3,763 7,375
Income from operations............................ 398 427 222
Net income(1)..................................... 405 287 219
Basic net income per share(2)..................... .04 .03
Diluted net income per share(2)................... .04 .02
Shares used in basic net income per share
calculation(2).................................. 8,126 8,211
Shares used in diluted net income per share
calculation(2).................................. 8,126 9,003
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------
ACTUAL PRO FORMA(3)
------ ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $1,099 $27,999
Working capital......................................... 221 27,121
Total assets............................................ 3,362 30,262
Total shareholders' equity.............................. 842 27,742
</TABLE>
- -------------------------
(1) Prior to 1997, WebTrends was an S Corporation and therefore did not pay
federal or state corporate income taxes.
(2) See Note 1 of the Notes to the Financial Statements for an explanation of
how the number of shares was determined in computing basic and diluted net
income per share. Net income per share data is not presented for any period
prior to 1997 as the Company's capital structure prior to January 1, 1997,
is not comparable to that existing in 1997. See Note 8 of the Notes to the
Financial Statements.
(3) Gives effect to the sale of 3,000,000 shares of Common Stock at the assumed
initial public offering price of $10.00 per share by WebTrends in this
Offering, after deducting estimated underwriting discounts and commissions
and estimated offering expenses. See "Use of Proceeds."
3
<PAGE> 7
RISK FACTORS
In addition to the other information contained in this Prospectus, you
should carefully read and consider the following risk factors before purchasing
our Common Stock. Investment in our Common Stock involves a high degree of risk.
This Prospectus contains "forward-looking" statements within the meaning of
Section 27A of the Securities Act. Discussions containing forward-looking
statements may be found in the material set forth under "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as within this Prospectus generally. In addition, when used
in this Prospectus, the words "believes," "intends," "anticipates," "expects,"
and similar expressions are intended to identify forward-looking statements.
Forward-looking statements are subject to a number of risks and uncertainties.
Actual results could differ materially from those described in the
forward-looking statements as a result of the risk factors set forth in this
section and the information provided in this Prospectus generally. We do not
intend to update any forward-looking statements.
LIMITED OPERATING HISTORY; NO ASSURANCE OF CONTINUED PROFITABILITY
WebTrends was formed in August 1993, and we introduced our first Internet
product in February 1996. Due to our limited operating history, any evaluation
of our business and our prospects must be in light of the risks and
uncertainties often encountered by companies in their early stages of
development. These risks and uncertainties are particularly significant for
companies in rapidly evolving markets, such as the market for Internet products
and services. These risks include our:
- Ability to develop new products and product upgrades in a timely fashion
to respond to changing market conditions and customer demands;
- Ability to compete in highly competitive markets;
- Need to expand distribution of our products;
- Dependence on key personnel; and
- Ability to manage rapidly expanding operations.
We may not be able to successfully address any or all of these risks.
Failure to adequately do so could have a material adverse effect on our
business, results of operations, and financial condition. In addition, although
our revenue has increased in recent periods while we maintained profitability,
our revenue may not grow in future periods, may not grow at past rates, and we
may not maintain profitability on a quarterly or annual basis, or at all.
SEASONALITY AND POTENTIAL FLUCTUATIONS IN FUTURE OPERATING RESULTS
During our short operating history, we have experienced seasonality in our
operating results. While revenue from sales has continued to grow, the second
and third quarters of the year have been typically characterized by lower levels
of revenue growth. This seasonal reduction in the rate of growth is due
primarily to a general reduction in the amount and frequency of new sales in the
European markets during the summer months. We expect this seasonality to
continue, and it may result in lower revenue during those quarters.
In addition to seasonal fluctuations, we may experience significant
fluctuations in our operating results from other causes. In particular, as we
increasingly focus on sales of our product suites rather than stand-alone
products and on larger purchases by larger
4
<PAGE> 8
customers, we expect the sales cycle associated with the purchase of our
products to lengthen. Furthermore, the amount of revenue associated with
particular licenses can vary significantly based upon the number of products
that are licensed and the number of devices involved in the installation.
Potential fluctuations may also result from any of the following:
- Changing demand for our products and services;
- The timing of sales of our products and services;
- The timing of customer orders and product implementations;
- Unexpected delays in introducing new products or enhancements;
- Delays or postponement of purchases by customers who anticipate the
release of a new product or enhancement;
- Announcements or delivery of new products by competitors;
- Increased expenses, whether related to sales and marketing, product
development, or administration;
- Changes in the rapidly evolving market for Internet management solutions;
- The mix of international and domestic sales;
- Costs related to possible acquisitions of technology and businesses; and
- General or industry specific economic conditions.
Based on the foregoing, we believe that our quarterly revenue and results
from operations are likely to vary significantly in the future and that quarter
to quarter comparisons of our operating results may not be meaningful. You
should therefore not rely on the results of one quarter as an indication of
future performance. Furthermore, in connection with our expansion, we plan to
increase our operating expenses to expand our sales and marketing operations,
develop new distribution channels, fund greater levels of research and
development, broaden professional services and support, and improve operational
and financial systems. Failure of our revenue to increase along with these
expenses could have a material adverse effect on our business, results of
operations, and financial condition.
DEVELOPING AND RAPIDLY CHANGING MARKET; RELEASE OF NEW PRODUCT VERSIONS
The market for our products is in the early stages of development and is
rapidly evolving. Accordingly, it is difficult to predict the future growth
rate, if any, and size of this market. As is common in such new and rapidly
evolving industries, demand and market acceptance for recently introduced
products are subject to high levels of uncertainty and risk. Furthermore, new
products can quickly render obsolete products that were only recently in high
demand. In 1998, we launched new products for analysis and reporting of server
clusters, firewalls, and virtual private networks ("VPNs"), as well as new
versions of existing products. In January 1999 we introduced a new product for
security analysis. We have additional new product launches planned for 1999 as
well as upgrades to our existing products. The market for our existing products
may not be sustainable at its current level and the market for the recently
introduced and planned products may not expand or develop.
Our markets are characterized by rapidly changing customer needs, evolving
industry standards, and rapid technological developments. Significant
competitive advantages accrue
5
<PAGE> 9
to companies that respond rapidly to such changes with innovative product
introductions and enhancements. Internet technology, however, is complex, and
new products and product enhancements can require long development and testing
periods. Releasing products prematurely may result in quality problems that
could damage our reputation. Accordingly, our future success depends upon our
ability to address the rapidly changing needs of our customers by developing and
introducing high quality products, product enhancements, and services on a
timely basis and by keeping pace with technological developments and emerging
industry standards. Any failure to develop and release enhanced or new products,
or delays or quality problems in doing so, could have a material adverse effect
on our business, results of operations, and financial condition.
COMPETITION
We compete in the markets for Web site traffic analysis solutions, alerting
and monitoring solutions, firewall and proxy server traffic analysis solutions,
and security analysis solutions. These markets are intensely competitive,
increasingly subject to rapid changes, and significantly affected by new product
introductions and other activities of market participants. In addition, these
markets are highly fragmented, and our competitors vary depending upon the
market that our Internet management solutions address.
In the market for Web site traffic analysis solutions, our primary
competitors are Andromedia, Inc., Accrue Software Inc., Internet Profiles
Corporation (I/Pro), Marketwave Corporation, and net.Genesis Corp. In the Web
site link analysis and quality control market, our primary competitors are
Tetranet Software Incorporated and Coast Software Inc. In the alerting and
monitoring market, our primary competitors are IPSwitch, Inc. and Geneva
Software, Inc. In the firewall and proxy analysis market, our primary
competitors are Telemate Software, Inc. and SecureIT, Inc., a division of
VeriSign, Inc. In the security analysis market, we expect to compete primarily
with ISS Group, Inc., Axent Technologies, Inc., and Network Associates, Inc.
Although the markets in which we compete are highly fragmented, we may face
additional competition from existing competitors if any of them were to broaden
the scope of their Internet management products either by developing or
acquiring additional products or distribution channels.
We also compete with vendors of Internet servers, operating systems, and
networking hardware. In particular, Microsoft Corporation, Netscape
Communications Corp., Sun Microsystems, Inc., Oracle Corp., and others bundle
Internet management solutions with their Internet products. We expect this
bundling activity to increase in the future. The bundling of competing products
with standard features of operating systems, Internet servers or networking
hardware could render our products obsolete and unmarketable. Even if the
functionality, ease of use, and performance of the products included with
operating systems, Internet servers, or networking hardware is inferior to our
products, a significant number of customers may elect to accept these products
instead of purchasing additional software from us.
We believe that additional competitors will continue to enter the market as
the size and visibility of the market opportunity increases. These new market
entrants may include traditional system and network management software
developers. For example, Computer Associates International, Inc. is currently
beta testing an extension to its Unicenter TNG product line that includes
functions for alerting and monitoring, Web site traffic analysis, and link
analysis.
6
<PAGE> 10
We also face competition and potential competition from Web management
service providers, such as consulting firms, Web design firms, Internet audit
firms, site management vendors, Internet Service Providers ("ISPs"), and
independent software vendors. These service providers may use our solutions, our
competitors' solutions, or custom-developed solutions to manage Web sites for
their customers who otherwise would have been sale opportunities for us. Certain
larger potential customers may rely on their IT departments to internally
develop Internet management solutions.
Increased competition could result in pricing pressures, reduced margins,
or the failure of our products to achieve or maintain market acceptance, any of
which could have a material adverse effect on our business, results of
operations, and financial condition. Certain of our current and potential
competitors have longer operating histories, greater name recognition, access to
larger customer bases, and substantially greater financial, technical,
marketing, distribution, service, support, and other resources than we have. As
a result, they may be able to respond more quickly than we can to new or
changing opportunities, technologies, standards, or customer requirements. For
all of the foregoing reasons, we may not be able to compete successfully against
our current and future competitors. See "Business -- Competition."
NEED TO INCREASE BRAND AWARENESS
Due in part to the emerging nature of the market for Internet management
solutions and the substantial resources available to many of our competitors,
there may be a time-limited opportunity to achieve and maintain a significant
market share. Developing and maintaining awareness of the "WebTrends" brand name
is critical to achieving widespread acceptance of our enterprise management and
reporting solutions. Furthermore, the importance of brand recognition will
increase as competition in the market for our products increases. Successfully
promoting and positioning the WebTrends brand will depend largely on the
effectiveness of our marketing efforts and our ability to develop reliable and
useful products at competitive prices. Therefore, we may need to increase our
financial commitment to creating and maintaining brand awareness among potential
customers. If we fail to successfully promote our brand name or if we incur
significant expenses promoting and maintaining our brand name, it could have a
material adverse effect on our business, results of operations, and financial
condition.
NEED TO EXPAND SALES AND DISTRIBUTION
In order to maintain and increase our current and future market share and
revenue, we will need to expand our direct and indirect sales operations and
channels of distribution. We have a broad base of customers, most of which
license a limited number of our products. To maintain and increase our results
from operations, we must increase the number of products that each customer
licenses. This may require an increasingly sophisticated sales effort targeted
at Webmasters, other management personnel associated with a prospective
customer's Internet capabilities, and other functional managers throughout the
organization. In order to achieve increased sales, we plan to hire additional
telemarketing and direct field sales personnel. Any new hires will require
training and take time to achieve full productivity. We may not be able to hire
enough qualified individuals when needed, or at all, and we may not be able to
increase distribution through any other methods. Failure to do so could have a
material adverse effect on our business, results of operations, and financial
condition.
7
<PAGE> 11
Our future success also depends upon our ability to expand our
relationships with domestic and international channel partners, distributors,
value-added resellers ("VARs"), systems integrators, on-line and other
resellers, ISPs, original equipment manufacturers, and other partners to build
our indirect sales channel. We must also continue to expand and maintain
strategic relationships with key hardware and software vendors, distribution
partners, and customers. We may not be successful in these efforts, and failure
to maintain our existing relationships or develop additional relationships could
result in general declines in our growth, which could have a material adverse
effect on our business, results of operations, and financial condition.
RISK FROM INDIRECT DISTRIBUTION CHANNELS
We are making an effort to increase distribution of our products through
various indirect channels of distribution, including channel partners, VARs,
distributors, resellers, original equipment manufacturers, ISPs, and others. We
cannot predict the extent to which any of these channel partners will be
successful in marketing or distributing our Internet management solutions. Many
of these channel partners also market and sell competitive products. We may not
be able to effectively manage potential conflicts among the various channel
partners or prevent them from devoting greater resources to supporting the
products of other companies. The loss of one or more of these channel partners,
because of either their preference for competing products or products they may
develop internally, could have a material adverse effect on our business,
results of operations, and financial condition. In addition, Network Trade
Corporation, a third-party export management company, has the primary
responsibility for identifying international distributors, resellers, and VARs
for our products. Accordingly, any disruption in our relationship with Network
Trade, which may be terminated by either party with 30 days' notice, could
materially slow our international sales growth, which could have a material
adverse effect on our business, results of operations, and financial condition.
Reliance on indirect channels of distribution may subject us to greater
credit risk as the revenue from sales of our products to distributors and
certain other channel partners flows first through the distributors, and then to
us. In particular, Network Trade, while not technically a distributor, collects
payments from our international resellers and then remits those payments to us,
presenting a similarly increased credit risk. Revenues received from Network
Trade accounted for 16.7% of our total revenue for the year ended December 31,
1998. Failure of our channel providers to timely remit to us the proceeds from
sales of our products, or any failure to accurately forecast the demand for our
products, could have a material adverse effect on our business, results of
operations, and financial condition.
RELIANCE ON KEY PERSONNEL AND NEED FOR ADDITIONAL PERSONNEL
Our success depends largely upon the continued services of our executive
officers and other key management and development personnel. In particular, we
rely on our co-founders, Elijahu Shapira, Chief Executive Officer and Chairman
of the Board, and W. Glen Boyd, President, Chief Technical Officer, and
director. Messrs. Shapira and Boyd do not have employment agreements and,
therefore, could terminate their employment with us at any time without penalty.
We do not maintain key person life insurance policies on any of our employees.
In addition, because of the complexity of our products and technologies, we are
substantially dependent upon the continued service of our existing engineering
personnel. The loss of the services of one or more of our executive officers,
engineering personnel, or other key employees could have a material adverse
effect on our business, results of operations, and financial condition.
8
<PAGE> 12
Our future success also depends on our ability to attract and retain highly
qualified personnel. We intend to hire a number of additional sales, support,
marketing, and research and development personnel. The competition for qualified
personnel in the computer software and Internet markets is intense, and we may
be unable to attract, assimilate, or retain additional highly qualified
personnel in the future. Additionally, we attempt to hire engineers with high
levels of experience in designing and developing software and Internet-related
products in time-pressured environments. There is a limited number of qualified
engineers in our geographic location, resulting in intense competition for the
services of such engineers. We may not be successful in attracting or retaining
qualified personnel, which could have a material adverse effect on our business,
results of operations, and financial condition.
MANAGEMENT OF GROWTH AND NEW MANAGEMENT TEAM
Since our inception, we have experienced significant expansion in our
operations. We intend to pursue further expansion throughout the foreseeable
future to take advantage of existing and potential market opportunities. This
rapid growth places significant challenges on our management, administrative,
and operational resources. To properly manage this growth, we must, among other
things, implement and improve additional and existing administrative and
operational systems, procedures, and controls on a timely basis. If we fail to
implement and improve these systems, it could have a material adverse effect on
our business, results of operations, and financial condition.
We have rapidly and significantly expanded our operations and anticipate
further significant expansion to accommodate expected growth in our customer
base and market opportunities. This expansion will continue to place a
significant strain on our management, operational, and financial resources. In
1998, we added a number of key managerial, technical, and operations personnel,
including a Chief Financial Officer, a Vice President of Sales, a Vice President
of Marketing, and a Vice President of Research and Development. We expect to add
other key personnel in the future. Additionally, we are significantly increasing
our employee base. To manage the expected growth of our operations and
personnel, we will be required to significantly improve or replace existing
management, operational, and financial systems. We will also need to expand our
finance, administrative, and operations staff. We may not be able to complete
the necessary improvements to our systems, procedures, and controls necessary to
support our future operations in a timely manner. Management may not be able to
hire, train, retain, motivate, and manage required personnel and may not be able
to successfully identify, manage, and exploit existing and potential market
opportunities. Any failure to properly manage our growth could have a material
adverse effect on our business, results of operations, and financial condition.
RISK FROM INTERNATIONAL DISTRIBUTION
Approximately 20.4% and 27.5% of our total revenue for the years ended
December 31, 1997 and December 31, 1998, respectively, were attributable to
sales made outside the United States. We believe that our future growth will
require continued expansion of our operations in international markets. To
expand internationally, we must continue to develop our international
distribution channels and increase our investment in marketing and product
awareness. If we are unable to do so in a timely and effective manner, our
growth, if any, in international sales will be limited, and could have a
material adverse effect on our business, results of operations, and financial
condition. To date, our revenue from international operations has primarily been
denominated in United States
9
<PAGE> 13
dollars, although some sales have been denominated in foreign currencies. An
increase in the value of the United States dollar relative to foreign currencies
would make our products more expensive and, therefore, potentially less
competitive in those markets. Moreover, even if international operations are
successfully expanded, we may not be able to maintain or increase international
market demand for our products.
Our international operations are subject to the risks inherent in
international business activities, including, in particular:
- Management of an organization spread over various countries;
- Longer accounts receivable payment cycles and other collection
difficulties in certain countries;
- Compliance with a variety of foreign laws and regulations;
- Unexpected changes in regulatory requirements;
- Overlap of different tax structures;
- Foreign currency exchange rate fluctuations;
- Import and export licensing requirements;
- Trade restrictions, changes in tariffs, and freight rates; and
- Regional economic conditions.
Such factors could have a material adverse effect on our future
international sales and, consequently, our business, results of operations, and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Sales, Marketing, and
Distribution."
RISKS RELATED TO THE EUROPEAN MONETARY CONVERSION
We are aware of the issues associated with the changes in Europe resulting
from the formation of a European economic and monetary union ("EMU"). One change
resulting from this union requires EMU member states to irrevocably fix their
respective currencies to a new currency, the Euro, as of January 1, 1999, at
which date the Euro became a functional legal currency of these countries.
During the next three years, business in the EMU member states will be conducted
in both the existing national currency, such as the French franc or the Deutsche
mark, and the Euro. As a result, companies operating or conducting business in
EMU member states will need to ensure that their financial and other software
systems are capable of processing transactions and properly handling these
currencies, including the Euro.
We are still assessing the impact that the conversion to the Euro will have
on our internal systems, the sale of our products, and the European and global
economies. We will take appropriate corrective actions based on the results of
such assessment. We have not yet determined the cost related to addressing this
issue. This issue and its related costs could have a material adverse effect on
our business, results of operations, and financial condition.
DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS; RISK OF INFRINGEMENT
We regard substantial elements of our Internet management solutions as
proprietary and attempt to protect them by relying on patent, trademark, service
mark, trade dress, copyright, and trade secret laws and restrictions, as well as
confidentiality procedures and
10
<PAGE> 14
contractual provisions. We currently have no issued patents. We have two patent
applications pending. These or any new patent applications may not result in
issued patents and may not provide us with any competitive advantages, or may be
challenged by third parties. Legal standards relating to the validity,
enforceability, and scope of protection of certain intellectual property rights
in Internet-related industries are uncertain and still evolving, and the future
viability or value of any of our intellectual property rights is uncertain.
Effective trademark, copyright, and trade secret protection may not be available
in every country in which our products are distributed or made available through
the Internet. Any steps we take to protect our intellectual property rights may
be inadequate, and enforcing such rights may require the use of substantial
amounts of our resources. Despite taking steps to protect such rights, third
parties could infringe or misappropriate our proprietary rights. Any such
infringement or misappropriation could have a material adverse effect on our
business, results of operations, and financial condition.
In addition to the technology we have developed internally, we also use
code libraries developed and maintained by third parties and have acquired or
licensed certain technologies from other companies. Our internally developed
technology, the code libraries, or the technology we acquired or licensed may
infringe on a third party's intellectual property rights and such third parties
may bring claims against us alleging infringement of their intellectual property
rights. Any such infringement or claim of infringement could have a material
adverse affect on our business, result of operations, and financial condition.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. We are not currently
involved in any intellectual property litigation. We may, however, be a party to
litigation in the future to protect our intellectual property or as a result of
an alleged infringement of others' intellectual property. Such claims and any
resulting litigation could subject us to significant liability for damages and
invalidation of our proprietary rights. Such litigation, regardless of its
success, would likely be time-consuming and expensive to defend and would divert
management time and attention. Any potential intellectual property litigation
could also force us to do one or more of the following:
- Cease selling, incorporating, or using products or services that
incorporate the challenged intellectual property;
- Obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on reasonable terms, or at all; and
- Redesign those products or services that incorporate such technology.
Any of these results could have a material adverse effect on our business,
results of operations, and financial condition. Furthermore, our competitors may
independently develop similar technology that substantially limits the value of
the intellectual property we have developed. See "Business -- Proprietary
Rights."
GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES
As Internet commerce continues to evolve, increasing regulation by federal,
state, or foreign agencies becomes more likely. Such regulation is likely in the
areas of user privacy, pricing, content, and quality of products and services.
Taxation of Internet use, or other charges imposed by government agencies or by
private organizations for accessing the Internet, may also be imposed. Laws and
regulations applying to the solicitation, collection, or processing of personal
or consumer information could affect our activities. Furthermore,
11
<PAGE> 15
any regulation imposing fees for Internet use could result in a decline in the
use of the Internet and the viability of Internet commerce, which could have a
material adverse effect on our business, results of operations, and financial
condition.
PRODUCT LIABILITY; RISK OF PRODUCT DEFECTS
Our products are used to monitor the activity levels of our customers'
Internet sites, to provide real-time monitoring of firewalls, and to provide
real-time monitoring, alerting, and recovery of Internet servers. These and
other functions that our products provide are often critical to our customers,
especially in light of the considerable resources many organizations spend on
the development and maintenance of their Web sites. Additionally, our security
products often contribute to vital protection of a company's internal systems
and information. As a result, the licensing and support of our products may
expose us to the risk of product liability and related claims. Our end-user
licenses contain provisions that limit our exposure to such claims, but these
provisions may not be enforceable in certain jurisdictions. Additionally, we
maintain limited products liability insurance. To the extent our contractual
limitations are unenforceable or such claims are not covered by insurance, a
successful products liability claim could have a material adverse effect on our
business, results of operations, and financial condition.
Our products and product enhancements are very complex and may from time to
time contain errors or result in failures that we did not detect or anticipate
when introducing such products or enhancements to the market. The computer
hardware environment is characterized by a wide variety of non-standard
configurations that make pre-release testing for programming or compatibility
errors very difficult and time consuming. Despite our testing, errors may still
be discovered in some new products or enhancements after the products or
enhancements are delivered to customers. The occurrence of these errors could
result in adverse publicity, loss of or delay in market acceptance, or claims by
customers against us, any of which could have a material adverse effect on our
business, results of operations, and financial condition. See
"Business -- Products and Services."
YEAR 2000 COMPLIANCE ISSUES
The "Year 2000 Issue" generally refers to the problems that some date
sensitive software may have in determining the correct century beginning in the
year 2000. For example, many systems will not recognize a difference between the
years 1900 and 2000 because they use only the last two digits of the year (00)
in their programming. Failure of such software or systems to recognize the
correct century could result in system failures or miscalculations causing
disruptions of operations and an inability to engage in similar ordinary
business activities.
We believe our internal software and hardware systems as well as our
currently marketed Internet products will function properly with respect to
dates in the year 2000 and thereafter. Nonetheless, we have not tested our
products in every possible computer environment, and therefore such products may
not be fully Year 2000 compliant. Certain older versions of our products are not
Year 2000 compliant; however, corrections for such non-compliance are available.
We have not tested for Year 2000 compliance certain products that we no longer
market that run on Novell systems, some of which remain in use. These older
products may not be Year 2000 compliant. Failure of our products to be Year 2000
compliant could result in significant decreases in market acceptance of our
products and legal liability for defective software, either of which would have
a material adverse effect on our business, results of operations, and financial
condition.
12
<PAGE> 16
If our suppliers, vendors, major distributors, and partners fail to correct
their Year 2000 problems, such failure could result in an interruption in, or a
failure of, certain of our normal business activities or operations. Such
failures could have a material adverse effect on our business, results of
operations, and financial condition. Due to the general uncertainty inherent in
the Year 2000 problem resulting from the uncertainty of the Year 2000 readiness
of third-party suppliers and vendors, we are unable to determine at this time
whether the consequences of the Year 2000 failures will have a material effect
on our business, results of operations, and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000."
DEPENDENCE ON CONTINUED USE AND EXPANSION OF THE INTERNET
Continued expansion in the sales of our Internet management solutions will
depend upon the adoption of the Internet as a widely used medium for commerce
and communication. The Internet may not prove to be a viable commercial
marketplace because of inadequate development of the necessary infrastructure,
such as a reliable network backbone, or timely development of complementary
products, such as high speed modems. The Internet has experienced, and is
expected to continue to experience, significant growth in the number of users
and amount of traffic. The Internet infrastructure may not be able to support
the demands placed on it by this continued growth. Furthermore, the Internet has
experienced a variety of outages and other delays as a result of damage to
portions of its infrastructure, and such outages and delays could adversely
affect the Web sites of organizations using our solutions. Additionally, the
Internet could lose its viability due to delays in the development or adoption
of new standards and protocols to handle increased levels of Internet activity
or due to increased governmental regulation. Moreover, critical issues
concerning the commercial use of the Internet (including security, reliability,
cost, ease of use, accessibility, and quality of service) remain unresolved and
may negatively affect the growth of Internet use and the attractiveness of
commerce and communication on the Internet. If critical issues concerning the
commercial use of the Internet are not favorably resolved, if the necessary
infrastructure and complementary products are not developed, or if the Internet
does not become a viable commercial marketplace, the demand for our Internet
management solutions could be significantly reduced and could have a material
adverse effect on our business, results of operations, and financial condition.
Even if the infrastructure, standards, or protocols of the Internet, or
complementary services, products, or facilities are developed, we may be
required to make significant expenditures to adapt our products to the changing
or emerging technologies. For example, if the format of Internet log files were
to change, our solutions for traffic analysis may not function as designed, and
we may incur significant expenses in developing new products that would be
compatible with the new format. We may not be successful in either developing
such software or timely introducing it to the market. Any such changes in
technology could have a material adverse effect on our business, results of
operations, and financial condition.
BROAD DISCRETION IN USE OF PROCEEDS
The net proceeds from the sale of the Common Stock we are offering for sale
will be added to our general working capital upon completion of this Offering.
We cannot specify with certainty how we will use the net proceeds. Accordingly,
our management will have considerable discretion in the application of the net
proceeds. The net proceeds may be
13
<PAGE> 17
placed in investments that do not produce income or that lose value. See "Use of
Proceeds."
CONCENTRATION OF OWNERSHIP
Our officers and directors will beneficially own at least 67% and possibly
as much as 73% of the outstanding Common Stock after this Offering, depending on
whether and to what extent the Underwriters exercise their over-allotment
option. As a result, they will be able to exercise control over all matters
requiring shareholder approval. Our Articles of Incorporation and Bylaws do not
provide for cumulative voting; therefore, these controlling shareholders will
have the ability to elect all of our directors. The controlling shareholders
will also have the ability to approve or disapprove significant corporate
transactions without further vote by the investors who purchase Common Stock
pursuant to this Offering. This ability to exercise control over all matters
requiring shareholder approval could prevent or significantly delay another
company or person from acquiring or merging with us. See "Management" and
"Principal and Selling Shareholders."
ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK
Certain provisions of our Articles of Incorporation and Bylaws may have the
effect of delaying, preventing, or making a merger or acquisition less desirable
to a potential acquirer, even where shareholders may consider the acquisition or
merger favorable. Such provisions include:
- The ability of the Board of Directors, without further shareholder
approval, to issue up to 15 million shares of Preferred Stock in one or
more series and to determine the rights (including voting rights) and
terms associated with such Preferred Stock;
- Providing for a classified Board of Directors with three-year terms in
certain circumstances;
- Prohibiting cumulative voting for the election of directors;
- Requiring approval by a super-majority of the shareholders to effect
certain amendments to the Articles of Incorporation or Bylaws; and
- Requiring certain procedures to be followed before matters can be
proposed for consideration at shareholder meetings.
The issuance of preferred stock may have the effect of delaying, deferring,
or preventing a change in control without further action by the shareholders.
Any such issuance may materially adversely affect the market price of the Common
Stock and the voting rights of the holders of Common Stock. The issuance of
preferred stock may also result in the loss of the voting control of holders of
Common Stock to the holders of the preferred stock. See "Description of Capital
Stock -- Preferred Stock."
Provisions of the Oregon Business Corporation Act and the Control Share Act
also may delay, prevent, or discourage someone from acquiring or merging with
the Company. See "Description of Capital Stock -- Oregon Control Share and
Business Combination Statutes."
SHARES OF COMMON STOCK ELIGIBLE FOR FUTURE SALE
If we sell a substantial number of shares of Common Stock in the public
market following this Offering, or if the public perceives that we might do so,
the market price of the Common Stock could be materially adversely affected.
Sales of shares of Common
14
<PAGE> 18
Stock held by our affiliates could have similar adverse effects on the market
price of the Common Stock. The issuance of shares of Common Stock in the future
could also materially adversely affect our ability to raise equity capital. See
"Shares Eligible for Future Sale."
NO PUBLIC MARKET FOR COMMON STOCK; DETERMINATION OF THE OFFERING PRICE; POSSIBLE
VOLATILITY OF STOCK PRICE
A public market for trading our Common Stock has not existed prior to this
Offering. We applied to list the Common Stock on the Nasdaq National Market for
purposes of establishing a public market for trading. We do not know the extent
to which investor interest will lead to the development of a trading market or
how liquid that market might be. The initial public offering price for the
Common Stock will be determined through negotiations among the Selling
Shareholders, the Underwriters, and us. If you purchase shares of Common Stock,
you may not be able to resell those shares at or above the initial public
offering price. See "Underwriting."
The market price of the Common Stock could be subject to significant
fluctuations in response to any of the following factors:
- Variations in actual and anticipated operating results (see
"-- Seasonality; Potential Fluctuations in Operating Results");
- Changes in earnings estimates by analysts;
- Failure to meet analysts' performance expectations;
- Lack of liquidity;
- General market and economic conditions; and
- Other events or factors outside our control.
The stock markets have, in general, and with respect to Internet companies
in particular, recently experienced stock price and volume volatility that has
affected the market prices of companies. The stock markets may continue to
experience volatility that may adversely affect the market price of the Common
Stock.
The stock prices for many companies in the technology and emerging growth
sector have experienced wide fluctuations that have often been unrelated to the
operating performance of such companies. Fluctuations such as these may affect
the market price of the Common Stock. Additionally, securities class action
claims have been brought against issuing companies in the past where such
periods of volatility in the market price of a company's securities have taken
place. Such litigation could result in substantial costs and a diversion of
management's attention and resources, and any adverse determination in such
litigation could also subject us to significant liabilities, any or all of which
could have a material adverse effect on our business, results of operations, and
financial condition.
DILUTION
If you purchase Common Stock in this Offering, you will incur immediate and
substantial dilution in net tangible book value per share. Further dilution will
result if options to purchase shares of Common Stock are exercised by option
holders in the future. See "Dilution."
15
<PAGE> 19
USE OF PROCEEDS
At an assumed initial public offering price of $10.00 per share (the
mid-point of the estimated initial public offering price range set forth on the
cover page of this Prospectus), the net proceeds from the sale of shares of
Common Stock to be sold by WebTrends are expected to be approximately $26.9
million, after deduction of underwriting discounts and commissions and estimated
offering expenses payable by the Company. The Company will not receive any
proceeds from the sale of Common Stock by the Selling Shareholders.
Among the purposes of this Offering are the following: (i) to obtain
additional equity capital; (ii) to create a public market for the Company's
Common Stock; (iii) to facilitate the Company's ability to access the public
equity markets in the future; (iv) to provide liquidity to certain of the
existing shareholders; and (v) to provide increased visibility and credibility
to the Company, facilitating expansion in a marketplace in which many of its
competitors and customers are public companies.
The Board of Directors and management of WebTrends have significant
flexibility in applying the net proceeds of this Offering. The amounts and
timing of the Company's actual expenditures will depend upon numerous factors,
including the status of the Company's product development efforts, competition,
and marketing and sales activities. The Company anticipates using the net
proceeds of this Offering for working capital and general corporate purposes.
Although WebTrends currently has no agreements or commitments to do so, it may
also use a portion of the net proceeds to license or acquire new products or
technologies or to acquire or invest in businesses complementary to those of the
Company. Pending the use of the net proceeds, WebTrends intends to invest them
in government securities and short-term, investment-grade, interest-bearing
securities. See "Risk Factors -- Broad Discretion in Use of Proceeds."
DIVIDEND POLICY
WebTrends did not declare any cash dividends on its capital stock in 1997
or 1998. WebTrends intends to retain its present and future earnings, if any, to
finance the growth and development of its business. The Company does not intend
to pay cash dividends in the foreseeable future, and the amounts and payment of
future dividends, if any, will be determined by the Board of Directors.
16
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of WebTrends as of
December 31, 1998, (i) on a historical basis and (ii) on an adjusted basis,
giving effect to the sale of 3,000,000 shares of Common Stock being sold by the
Company in this Offering at an assumed initial public offering price of $10.00
per share, and after deducting estimated underwriters discounts and commissions
and estimated offering expenses payable by the Company. The information set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Financial Statements and related Notes thereto and other financial information
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------
ACTUAL AS ADJUSTED
------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Shareholders' equity:
Preferred Stock, no par value per share; 15 million
shares authorized, no shares issued and outstanding,
actual and adjusted.................................. $ -- $ --
Class A Common Stock, no par value per share; 30 million
shares authorized, 8,210,527 shares issued and
outstanding, actual; 60 million shares authorized,
11,218,964 shares issued and outstanding, as
adjusted(1)(2)....................................... 260 27,480
Class B Common Stock, no par value per share; 30 million
shares authorized, 8,437 shares issued and
outstanding, actual; no shares authorized, no shares
issued and outstanding, as adjusted(2)............... 320 --
Deferred compensation..................................... (282) (282)
Retained earnings......................................... 544 544
----- -------
Total shareholders' equity.............................. 842 27,742
----- -------
Total capitalization............................ $ 842 $27,742
===== =======
</TABLE>
- -------------------------
(1) Based on shares outstanding on December 31, 1998. Excludes 3,341,562 shares
reserved for issuance under the Company's stock option and stock purchase
plans, of which 1,471,149 were issuable upon exercise of stock options
outstanding as of December 31, 1998, with a weighted average exercise price
of $2.46 per share. See "Management -- Employee Benefit Plans."
(2) Upon the closing of this Offering, the Class A Common Stock will be
redesignated Common Stock, no par value per share, and will be the only
authorized class of Common Stock. Each share of Class B Common Stock will
automatically be converted into one share of such Common Stock, and the
recorded value of the Class B Common Stock will be transferred to Common
Stock.
17
<PAGE> 21
DILUTION
As of December 31, 1998, WebTrends' net tangible book value was
approximately $842,000 or $0.10 per share of Common Stock. Net tangible book
value per share represents the amount of the Company's tangible assets less the
amount of its liabilities, divided by the number of shares of Common Stock
outstanding.
Giving effect to the issuance of 3,000,000 shares of Common Stock offered
by the Company at an assumed initial public offering price of $10.00 per share,
after the deduction of estimated underwriting discounts and offering expenses
payable by the Company, WebTrends' adjusted net tangible book value as of
December 31, 1998 would have been approximately $2.47 per share. This represents
an immediate increase in net tangible book value of $2.37 per share to existing
shareholders and an immediate dilution of $7.53 per share to purchasers of
shares of Common Stock in this Offering. The following table illustrates the per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Net tangible book value per share before this Offering.... $0.10
Increase per share attributable to new investors.......... 2.37
-----
Adjusted net tangible book value per share after this
Offering.................................................. 2.47
------
Dilution per share to new investors in this Offering........ $ 7.53
======
</TABLE>
The following table sets forth a comparison as of December 31, 1998, after
giving effect to this Offering (assuming an initial public offering price of
$10.00 per share), between the existing shareholders and the purchasers of
shares of Common Stock in this Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED(1)(2) TOTAL CONSIDERATION
----------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- -------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing 8,218,964 73.3% $ 265,119 0.9% $0.03
shareholders.......
New investors........ 3,000,000 26.7 30,000,000 99.1 10.00
---------- ----- ----------- -----
Total...... 11,218,964 100.0% $30,265,119 100.0%
========== ===== =========== =====
</TABLE>
- -------------------------
(1) Excludes 1,471,149 shares issuable upon exercise of stock options
outstanding as of December 31, 1998, with a weighted average exercise price
of $2.46 per share. See "Management -- Employee Benefit Plans" and
"Description of Capital Stock -- Stock Options."
(2) The above table is based on ownership as of December 31, 1998. If the
Underwriters' over-allotment option is exercised in full, sales by the
Selling Shareholders in this Offering will reduce the number of shares held
by existing shareholders to 7,768,964 shares, or 69.2% of the total number
of shares outstanding after this Offering, and will increase the number of
shares held by new investors to 3,450,000 shares, or 30.8% of the total
number of shares of Common Stock outstanding after this Offering. See
"Principal and Selling Shareholders."
18
<PAGE> 22
SELECTED FINANCIAL DATA
The following selected financial data of the Company is qualified by
reference to, and should be read in conjunction with, the Financial Statements
and Notes thereto, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and other financial information appearing elsewhere
in this Prospectus. The statement of operations data set forth below for each of
the years in the three-year period ended December 31, 1998, and the balance
sheet data as of December 31, 1997 and 1998, are derived from, and qualified by
reference to, the audited financial statements of the Company appearing
elsewhere in this Prospectus. The statement of operations data set forth below
for the year ended December 31, 1995, and the balance sheet data as of December
31, 1995 and 1996 are derived from, and qualified by reference to, audited
financial statements of the Company. The statement of operations data set forth
below, for the year ended December 31, 1994, and the balance sheet data as of
December 31, 1994, are derived from, and qualified by reference to, unaudited
financial statements of the Company. The unaudited financial statements have
been prepared on the same basis as the audited financial statements and, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information set
forth therein. Historical results are not necessarily indicative of the results
that may be expected in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996 1997 1998
---- ---- ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Revenue:
Software licenses......................................... $276 $617 $1,858 $3,837 $7,206
Support services.......................................... -- 20 7 218 802
---- ---- ------ ------ ------
Total revenue...................................... 276 637 1,865 4,055 8,008
Cost of revenue............................................. 7 39 205 292 633
---- ---- ------ ------ ------
Gross margin.............................................. 269 598 1,660 3,763 7,375
---- ---- ------ ------ ------
Operating expenses:
Research and development.................................. 34 91 403 1,059 2,211
Sales and marketing....................................... 12 152 552 1,528 3,642
General and administrative................................ 126 187 307 749 1,300
---- ---- ------ ------ ------
Total operating expenses........................... 172 430 1,262 3,336 7,153
---- ---- ------ ------ ------
Income from operations...................................... 97 168 398 427 222
Other income, net........................................... 1 1 7 10 29
---- ---- ------ ------ ------
Income before income taxes.................................. 98 169 405 437 251
Income taxes(1)............................................. 150 32
---- ---- ------ ------ ------
Net income(1)............................................... $ 98 $169 $ 405 $ 287 $ 219
====== ======
Basic net income per share(2)............................... $ .04 $ .03
Diluted net income per share(2)............................. .04 .02
====== ======
Shares used in basic net income per share calculation(2).... 8,126 8,211
Shares used in diluted net income per share
calculation(2)............................................ 8,126 9,003
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents................................... $108 $179 $321 $ 807 $1,099
Working capital (deficit)................................... 158 319 (103) 260 221
Total assets................................................ 198 365 910 1,886 3,362
Long-term obligations....................................... 70 72 -- 7 --
Total shareholders' equity.................................. 98 267 47 584 842
</TABLE>
- -------------------------
(1) Prior to 1997, the Company was an S Corporation and therefore did not pay
federal or state corporate income taxes.
(2) See Note 1 of Notes to Financial Statements for the determination of shares
used in computing basic and diluted net income per share. Net income per
share data is not presented for any period prior to 1997 as the Company's
capital structure prior to January 1, 1997 is not comparable to that
existing in 1997. See Note 8 of the Notes to the Financial Statements.
19
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's Financial Statements and related
Notes thereto included elsewhere in this Prospectus. The following "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains forward-looking statements that involve risks and uncertainties, such
as the Company's plans, objectives, expectations, and intentions. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including, but not
limited to, those discussed below and those set forth under "Risk Factors" and
elsewhere in this Prospectus.
OVERVIEW
WebTrends Corporation provides comprehensive, integrated, scaleable,
modular, and easy-to-use solutions that enable organizations to cost-effectively
manage and report on their Internet-based systems. WebTrends was incorporated as
an S Corporation on August 31, 1993 and reorganized into a C Corporation
effective January 1, 1997.
Since the year ended December 31, 1996, the Company has generated most of
its revenue from licensing its traffic analysis and management suite products
and related support services. The Company's initial traffic analysis product,
the WebTrends Log Analyzer, was introduced in February 1996 and is currently
offered in version 4.5. In September and November 1997, respectively, the
Company introduced its Enterprise and Professional Suite products. The
Professional Suite integrates Web site traffic analysis with proxy server
traffic analysis, link analysis, quality control, content management, as well as
monitoring, alerting, and recovery. The Enterprise Suite enables users to manage
more complex server configurations and to integrate Web site traffic analysis
data with existing databases, permitting advanced, custom analyses. Both
products are currently in version 3.0. In May 1998, the Company introduced the
WebTrends Suite for Lotus Domino, which is the first software package on the
market to offer full management, reporting, and analysis for Lotus Domino Web
Servers. In June 1998, the Company introduced WebTrends for Firewalls and VPNs,
which is a real-time solution to manage, report, and monitor firewall activity.
In January 1999, the Company introduced WebTrends Security Analyzer, which helps
secure Internet servers and other Internet devices. Prior to 1996, the Company
generated substantially all of its revenue from the license of its AuditTrack
product and related products developed as solutions for managing Novell
networks. The Company continues to sell AuditTrack, and revenue from this
product represented approximately 13.2% of total revenue during 1998. The
Company expects that revenue from its AuditTrack product will decrease both in
absolute dollars and as a percentage of revenue as sales of its Internet
products continue to increase.
Software license revenue consists of fees for licenses of the Company's
software products. The Company recognizes its license revenue upon delivery of
software, assuming no significant Company obligations or customer acceptance
rights exist. The Company sells a portion of its products domestically and
internationally through resellers. The Company recognizes revenue from sales to
domestic resellers primarily at the time of shipment, net of estimated returns
and allowances. Revenue from sales to international resellers is recognized upon
sales from the reseller to a third party or end user.
Support services revenue consists of annual subscriptions for upgrades,
customer support services, and professional services. Subscriptions provide
subscribers the right to
20
<PAGE> 24
obtain upgrades, when and if available, and are paid for in advance.
Subscription revenue is recognized ratably over the term of the subscription.
Professional services revenue is recognized once the services or deliverables
are performed.
The Company generates revenue through direct sales to end users and through
its indirect distribution channels. Direct sales are generated by the Company's
telesales organization, direct field sales force, and through on-line sales. The
indirect distribution channel includes distributors, resellers, and VARs. The
Company also conducts joint marketing and distribution programs with certain
strategic partners. The Company derives its international revenue primarily
through its indirect distribution channel.
Approximately 20.4% and 27.5% of the Company's total revenue for the years
ended December 31, 1997 and 1998, respectively, was attributable to sales made
outside the United States. The Company expects that international sales will
continue to represent a significant portion of its total revenue. The Company's
international sales are currently denominated in U.S. dollars. As a result,
increases in the value of the U.S. dollar relative to foreign currencies could
make the Company's products more expensive and, therefore, potentially less
competitive in those markets.
The Company has recorded net deferred compensation of approximately
$282,000 as of December 31, 1998, which represents the difference between the
exercise price and the fair value of the shares of the Company's Common Stock
issuable upon the exercise of stock options that were granted to employees in
July and August 1998. The deferred compensation is being amortized over the
vesting period of the stock options.
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed. Under the standard,
capitalization of software development costs begins upon the establishment of
technological feasibility, subject to net realizable value considerations. To
date, the period between achieving technological feasibility and the general
availability of such software has been short; therefore, software development
costs qualifying for capitalization have been immaterial. Accordingly, the
Company has not capitalized any software development costs and charged all such
costs to research and development expense.
The Company has grown rapidly, with revenue increasing from $1.9 million in
1996 to $8.0 million in 1998. During this period, WebTrends has experienced
continued profitability and, as of December 31, 1998, had retained earnings of
$544,000. However, this growth rate and profitability may not be sustainable,
and it should not be relied upon as predictive of future performance. The
Company expects to continue to increase its expenditures in all areas in order
to execute its business plan. In particular, the Company currently expects to
expand its sales and marketing operations, expand its international distribution
channels, increase its investment in product development, and improve its
internal operating and financial infrastructure. As a result, WebTrends does not
expect to increase profitability in line with revenue growth.
The Company's prospects must be considered in light of the risks and
uncertainties frequently encountered by companies in the early stages of
development, particularly companies in new and rapidly evolving markets. The
Company may not be successful in addressing such risks and difficulties or
sustaining or increasing profitability in the future. See "Risk
Factors -- Limited Operating History; No Assurance of Continued Profitability,"
"-- Developing and Rapidly Changing Market; Release of New Product Versions,"
and "-- Management of Growth and New Management Team."
21
<PAGE> 25
RESULTS OF OPERATIONS
The following table sets forth certain historical operating information for
the Company, as a percentage of total revenue, for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Statement of Operations Data
Revenue:
Software licenses................................. 99.6% 94.6% 90.0%
Support services.................................. 0.4 5.4 10.0
----- ----- -----
Total revenue................................ 100.0 100.0 100.0
Cost of revenue...................................... 11.0 7.2 7.9
----- ----- -----
Gross margin...................................... 89.0 92.8 92.1
----- ----- -----
Operating expenses:
Research and development.......................... 21.6 26.1 27.6
Sales and marketing............................... 29.6 37.7 45.5
General and administrative........................ 16.5 18.5 16.2
----- ----- -----
Total operating expenses..................... 67.7 82.3 89.3
----- ----- -----
Income from operations................................. 21.3 10.5 2.8
Other income, net...................................... 0.4 0.3 0.4
----- ----- -----
Income before income taxes............................. 21.7 10.8 3.2
Income taxes........................................... -- 3.7 0.4
----- ----- -----
Net income............................................. 21.7% 7.1% 2.8%
===== ===== =====
</TABLE>
REVENUE
Total revenue increased from $1.9 million in 1996 to $4.1 million in 1997,
and $8.0 million in 1998. The increases reflect year to year revenue growth of
117.4% and 97.5%, respectively.
Software Licenses. Software license revenue represented 90% or more of
total revenue for all periods reported. Software license revenue increased from
$1.9 million in 1996, to $3.8 million in 1997, and $7.2 million in 1998. The
period-to-period increases in software license revenue are primarily
attributable to the effect of a full year of sales of the WebTrends Log Analyzer
in the year ended December 31, 1997 and the introduction and sales of additional
products, including the WebTrends Professional Suite and WebTrends Enterprise
Suite, during late 1997 and the first half of 1998, and sales of WebTrends for
Firewalls and VPNs during the second half of 1998.
Support Services. Support services revenue increased from $7,000 in 1996,
to $218,000 in 1997, and $802,000 in 1998, representing approximately 0.4%,
5.4%, and 10.0% of total revenues, respectively. The increases in support
services revenue are primarily attributable to an increase in the installed base
of customers over the comparable periods and the initiation of the Company's
subscription program in the fourth quarter of 1996.
COST OF REVENUE
Cost of revenue includes product packaging, software documentation,
duplication, labor, and other costs associated with handling, packaging, and
shipping product, royalties associated with the sale of the Company's products,
and costs associated with providing technical support and consulting services to
customers. The cost of revenue increased from
22
<PAGE> 26
$205,000 in 1996, to $292,000 in 1997, and $633,000 in 1998. As a percentage of
total revenue, the cost of revenue increased from 7.2% for the year ended
December 31, 1997 to 7.9% for the year ended December 31, 1998. The increase in
cost of revenue is primarily attributable to the hiring of additional customer
support personnel to handle the increased demand from a larger installed base.
As a percentage of total revenue, the cost of revenue decreased from 11.0% for
the year ended December 31, 1996 to 7.2% for the year ended December 31, 1997.
This decrease is primarily due to leveraging fixed costs across increased
license revenue and greater material and shipping discounts associated with
higher sales volume.
OPERATING EXPENSES
Research and Development. Research and development expenses consist
primarily of salaries and related costs associated with the development of new
products, the enhancement of existing products, and the performance of quality
assurance and documentation activities. Research and development expenses
increased from $403,000 in 1996, to $1.1 million in 1997, and $2.2 million in
1998, representing 21.6%, 26.1%, and 27.6% of total revenues, respectively. The
increases in research and development expenses, both in absolute dollars and as
a percent of total revenue, are primarily attributable to the hiring of
additional research and development personnel and costs related to supporting
the development of new products and enhanced versions of existing products.
During the year ended December 31, 1998, the Company released three new
products. The Company continues to believe that significant investment in
research and development is required to remain competitive in its markets, and
therefore anticipates that research and development expenses will increase in
absolute dollars in future periods, but may vary as a percent of total revenue.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, trade shows, commissions, and advertising costs. Sales and marketing
expenses increased from $553,000 in 1996, to $1.5 million in 1997, and $3.6
million in 1998, representing 29.6%, 37.7%, and 45.5% of total revenues,
respectively. The increases in sales and marketing expenses are primarily
attributable to the hiring of additional sales, marketing, and customer support
personnel during the periods presented, including additional personnel required
to support indirect distribution channels, and increased spending on advertising
and tradeshows. The Company expects that sales and marketing expenses will
continue to increase in absolute dollars as the Company continues to expand its
marketing programs and sales force to increase brand awareness, but they may
vary as a percent of total revenue.
General and Administrative. General and administrative expenses consist
primarily of salaries and other personnel-related costs for executive,
financial, human resource, information services, and other administrative
personnel, as well as legal, accounting, and insurance costs. General and
administrative expenses increased from $307,000 in 1996, to $749,000 in 1997,
and $1.3 million in 1998, representing 16.5%, 18.5%, and 16.2% of total
revenues, respectively. The increase in absolute dollars is primarily
attributable to the hiring of additional accounting, administration, and
information services personnel and increased costs for rent and professional
services. The Company expects general and administrative expenses to increase in
absolute dollars to support the anticipated sales and operations, but they may
vary as a percent of total revenue.
23
<PAGE> 27
INCOME TAXES
Income taxes decreased from $151,000 for the year ended December 31, 1997
to $31,000 for the year ended December 31, 1998, primarily due to lower income
from operations resulting from the Company's increased operating expenses during
1998 and from the utilization of research and development tax credits associated
with the Company's investment in developing new products. The Company was an S
Corporation, and therefore paid no corporate income taxes prior to 1997. Income
taxes for the year ended December 31, 1997 reflect an effective tax rate of
approximately 34.4% of taxable income and is comprised of federal and state
income taxes. Income taxes for the year ended December 31, 1998 reflect the
Company's estimated consolidated tax rate for federal and state taxes of
approximately 12.5% of taxable income.
24
<PAGE> 28
SELECTED QUARTERLY FINANCIAL RESULTS
The following table sets forth a summary of the Company's unaudited
quarterly operating results for each of the eight quarters in the period ended
December 31, 1998, as well as results expressed as a percentage of the Company's
total revenue for the periods indicated. This information has been derived from
unaudited interim financial statements that, in the opinion of management, have
been prepared on a basis consistent with the financial statements contained
elsewhere in this Prospectus and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of such
information when read in conjunction with the Company's Financial Statements and
Notes thereto appearing elsewhere in this Prospectus. The operating results for
any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue:
Software licenses.................... $ 785 $ 877 $ 967 $1,208 $1,496 $1,661 $1,868 $2,181
Support services..................... 22 42 66 88 125 168 221 288
------ ------ ------ ------ ------ ------ ------ ------
Total revenue................. 807 919 1,033 1,296 1,621 1,829 2,089 2,469
Cost of revenue........................ 76 87 49 80 129 149 167 188
------ ------ ------ ------ ------ ------ ------ ------
Gross margin......................... 731 832 984 1,216 1,492 1,680 1,922 2,281
------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Research and development............. 181 200 238 440 456 512 639 604
Sales and marketing.................. 259 351 449 469 720 800 877 1,245
General and administrative........... 130 176 196 247 292 329 356 323
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses...... 570 727 883 1,156 1,468 1,641 1,872 2,172
------ ------ ------ ------ ------ ------ ------ ------
Income from operations................. 161 105 101 60 24 39 50 109
Other income, net...................... 1 3 3 4 5 8 9 7
------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes............. 162 108 104 64 29 47 59 116
Income taxes........................... 55 37 35 24 3 6 7 16
------ ------ ------ ------ ------ ------ ------ ------
Net income............................. $ 107 $ 71 $ 69 $ 40 $ 26 $ 41 $ 52 $ 100
====== ====== ====== ====== ====== ====== ====== ======
AS A PERCENTAGE OF TOTAL REVENUE
Revenue:
Software licenses.................... 97.3% 95.4% 93.6% 93.1% 92.3% 90.8% 89.4% 88.3%
Support services..................... 2.7 4.6 6.4 6.9 7.7 9.2 10.6 11.7
------ ------ ------ ------ ------ ------ ------ ------
Total revenue................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue........................ 9.4 9.5 4.7 6.2 8.0 8.1 8.0 7.6
------ ------ ------ ------ ------ ------ ------ ------
Gross margin......................... 90.6 90.5 95.3 93.8 92.0 91.9 92.0 92.4
------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Research and development............. 22.4 21.8 23.0 33.9 28.1 28.0 30.6 24.5
Sales and marketing.................. 32.1 38.2 43.5 36.1 44.4 43.7 42.0 50.4
General and administrative........... 16.1 19.1 19.0 19.1 18.0 18.0 17.0 13.1
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses...... 70.6 79.1 85.5 89.1 90.5 89.7 89.6 88.0
------ ------ ------ ------ ------ ------ ------ ------
Income from operations................. 20.0 11.4 9.8 4.7 1.5 2.2 2.4 4.4
Other income, net...................... 0.1 0.3 0.3 0.3 0.3 0.4 0.4 0.3
------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes............. 20.1 11.7 10.1 5.0 1.8 2.6 2.8 4.7
Income taxes........................... 6.8 4.0 3.4 1.9 0.2 0.3 0.4 0.6
------ ------ ------ ------ ------ ------ ------ ------
Net income............................. 13.3% 7.7% 6.7% 3.1% 1.6% 2.3% 2.4% 4.1%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
25
<PAGE> 29
During the Company's history, its operating results have varied on a
quarterly basis and may fluctuate significantly in the future on a quarterly and
annual basis as a result of a combination of factors. These factors include the
level of demand for the Company's products; the volume and timing of orders; the
level of product and price competition; the Company's ability to expand its
domestic and international sales and marketing organizations; the Company's
ability to develop new and enhanced products; the Company's ability to attract
and retain key technical, sales, and managerial personnel; the mix of
distribution channels through which the Company's products are sold; the growth
in the acceptance of, and activity on, the Internet, particularly by users
within organizations; the level of growth of intranets; customer budgets;
seasonal trends in customer purchasing; foreign currency exchange rates; and
general economic factors. In addition, the amount of revenue associated with
particular licenses can vary significantly based upon the number of products
licensed and the number of devices involved in the installation. The Company
establishes its expenditure levels for product development, sales and marketing,
and other operating expenses based, in large part, on its expected future
revenue. The Company's expectations regarding future revenue may not be
accurate. As a result, if revenues fall below expectations, operating results
and net income are likely to be adversely and disproportionately affected
because only a small portion of the Company's expenses vary with its revenue.
The Company is also increasing its sales and marketing efforts focused on
larger purchases by larger customers. Such transactions are generally more
complex and may increase the length of the Company's average sales cycle. The
Company anticipates that an increasing portion of its revenue could be derived
from larger orders, in which case the timing of receipt and fulfillment of any
such orders could cause fluctuations in the Company's operating results,
particularly on a quarterly basis.
Due to the foregoing factors, the Company's operating results are difficult
to forecast. The Company believes that period-to-period comparisons of its
historical operating results are not meaningful and should not be relied upon as
an indication of future performance. Also, the Company's operating results may
fall below the expectations of the Company, securities analysts, or investors in
some future quarter. In such event, the market price of the Company's Common
Stock would likely be materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily with cash from operations
and loans and capital contributions from shareholders. As of December 31, 1998,
the Company had working capital of approximately $221,000, compared to working
capital of $260,000 at December 31, 1997.
Net cash provided by operating activities was approximately $441,000 for
the year ended December 31, 1996, $808,000 for the year ended December 31, 1997,
and $866,000 for the year ended December 31, 1998. Net cash provided by
operating activities resulted primarily from profitable operations, higher
credit card sales volume, and increased accrued liabilities, partially offset by
increased accounts receivable for the periods indicated.
Net cash used by investing activities was approximately $156,000 for the
year ended December 31, 1996, $270,000 for the year ended December 31, 1997, and
$479,000 for the year ended December 31, 1998. Investing activities for the
periods were primarily purchases of computer equipment and related software. At
December 31, 1998, the Company had no material commitments for capital
expenditures.
26
<PAGE> 30
Net cash used by financing activities was approximately $142,000 for the
year ended December 31, 1996, $53,000 for the year ended December 31, 1997, and
$95,000 for the year ended December 31, 1998. The use of cash was primarily for
the repayment of loans made to the Company by its shareholders and the payment
of shareholder dividends, partially offset by the private sale of stock during
March 1997.
As of December 31, 1998, the Company had approximately $1.1 million in cash
and cash equivalents and a $750,000 bank line of credit with a major financial
institution. The line of credit expires on April 30, 1999. Borrowings under the
line generally are limited to 80% of the Company's eligible accounts receivable.
Interest on the unpaid balance accrues at a rate of prime plus 0.25%. Borrowings
under the line of credit are collateralized by the Company's accounts
receivable, inventory, and general intangible assets, including its intellectual
property rights. The line of credit agreement contains financial covenants,
including the ratio of current assets to liabilities, and tangible net worth. As
of December 31, 1998, the Company had a letter of credit for $225,000
outstanding against this line and was in compliance with all covenants. Since
its inception, the Company has significantly increased its operating expenses.
The Company anticipates that it will continue to experience significant growth
in its operating expenses for the foreseeable future and that its operating
expenses and capital expenditures will constitute a material use of the
Company's cash resources. In addition, the Company may utilize cash resources to
fund acquisitions or investments in businesses, technologies, or product lines
that are complementary to the Company's business. The Company believes that the
net proceeds to the Company from the Offering, together with its current cash
and cash equivalents, and funds expected to be generated from operations, will
satisfy the Company's anticipated working capital and other cash requirements
for at least the next 12 months.
IMPACT OF THE YEAR 2000 COMPUTER PROBLEM
The Year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of operations,
including among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
STATE OF READINESS OF THE COMPANY'S PRODUCTS
All new products introduced by the Company will be Year 2000 compliant. The
Company has been testing its existing products for use in the year 2000 and
beyond. The results suggest that the following versions of its products, and
later versions of such products, are Year 2000 compliant:
- AuditTrack v 3.2
- SmartPass v1.09
- WebTrends Log Analyzer v 4.0a
- WebTrends Professional Suite v1.0a
- WebTrends Enterprise Suite v1.0a
- WebTrends Suite for Lotus Domino v1.0
- WebTrends for Firewalls and VPNs v1.0
27
<PAGE> 31
Certain of the Company's customers may be using older versions of the above
products and will need to update or upgrade such products to achieve Year 2000
compliance. In addition, the Company has not tested certain products that it no
longer markets for Year 2000 compliance, some of which might still be in use.
Furthermore, the Company's testing does not cover every possible computing
environment. Accordingly, some customers may have Year 2000 problems with
products that the Company believes are Year 2000 compliant.
STATE OF READINESS OF THE COMPANY'S INTERNAL SYSTEMS
The Company may be affected by Year 2000 issues related to non-compliant
internal systems developed by the Company or by third-party vendors. The Company
has received assurances from its third-party vendors for all material systems in
use by the Company that such systems are Year 2000 compliant. The Company is not
currently aware of any Year 2000 problem relating to any of its internal,
material systems. The Company plans to test all such systems for Year 2000
compliance by June 30, 1999. The Company does not believe that it has any
material systems that contain embedded chips that are not Year 2000 compliant.
The Company's internal operations and business are also dependent upon the
computer-controlled systems of third parties such as suppliers, customers and
service providers. The Company believes that absent a systemic failure outside
the control of the Company, such as a prolonged loss of electrical or telephone
service, Year 2000 problems at such third parties will not have a material
impact on the Company.
COST
Based on its assessment to date, the Company does not anticipate that costs
associated with remediating the Company's non-compliant products or internal
systems will be material.
RISKS
Any failure of the Company to make its products Year 2000 compliant could
result in a decrease in sales of the Company's products, an increase in
allocation of resources to address Year 2000 problems of the Company's customers
without additional revenue commensurate with such dedication of resources, or an
increase in litigation costs relating to losses suffered by the Company's
customers due to such Year 2000 problems. Failures of the internal systems of
the Company could temporarily prevent the Company from processing orders,
issuing invoices, and developing products, and could require the Company to
devote significant resources to correcting such problems. Due to the general
uncertainty inherent in the Year 2000 computer problem, resulting from the
uncertainty of the Year 2000 readiness of third-party suppliers and vendors, the
Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's business, results of
operations, and financial condition.
IMPACT OF EUROPEAN MONETARY CONVERSION
The Company is still assessing the impact that the conversion to the Euro
will have on its internal systems, the sale of its products, and the European
and global economies. The Company will take appropriate actions based on the
results of such assessment. The Company has not yet determined the cost related
to addressing this issue. This issue and
28
<PAGE> 32
its related costs could have a material adverse effect on the Company's
business, results of operations, and financial condition.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, "Software for Internal Use,"
which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP No. 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. The Company does
not expect that the adoption of SOP No. 98-1 will have a material impact on its
consolidated financial statements.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
The standard also requires that changes in the derivatives' fair value be
recognized currently in results of operations unless specific hedge accounting
criteria are met. SFAS 133 is effective for fiscal years beginning after June
15, 1999. WebTrends does not expect SFAS 133 to have a material impact on its
consolidated financial statements.
29
<PAGE> 33
BUSINESS
The following Business Section contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including, but not limited to, those set forth under
"Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
WebTrends Corporation is a leading provider of enterprise management and
reporting solutions for Internet-based systems. WebTrends offers organizations a
comprehensive set of solutions that are integrated, scaleable, modular, and
easy-to-use. The Company's enterprise management products facilitate analysis
and reporting of Web site traffic, Internet advertising campaigns, quality,
content, usage, and e-commerce activities, as well as return on investment
("ROI") from Internet-based systems. WebTrends' solutions also help
organizations manage their Internet infrastructure by providing valuable
information about firewall activity, virtual private networks, and security
vulnerabilities, as well as capacity and bandwidth requirements. The Company's
products have been specifically designed to enable organizations to centrally
manage and administer multiple Internet-based systems across the enterprise
regardless of the quantity or geographic locations of servers supporting those
systems.
INDUSTRY BACKGROUND
EXPLOSIVE GROWTH OF THE INTERNET
The Internet has grown in less than a decade from a limited research tool
to a global network consisting of millions of computers and users. The Internet
is expected to continue to grow rapidly. International Data Corporation ("IDC")
estimates that the number of Internet users worldwide will grow from
approximately 69 million in 1997 to 320 million in 2002. The U.S. Department of
Commerce estimates that Internet traffic doubles every 100 days. The number of
Internet Web sites is also growing rapidly. The number of Web sites detected by
the Netcraft Web Server Survey increased from approximately 526,000 in November
1996 to approximately 1.6 million in November 1997, and to over 3.5 million in
November 1998, reflecting annual growth exceeding 100%. Network Solutions, Inc.,
which estimates that it holds a 75% worldwide market share in domain name
registrations, registered over 1.9 million new domains in 1998, nearly double
the previous year.
The growth of the Internet is primarily attributable to its value as a
low-cost, open, and ubiquitous platform for communications and commerce. As a
result of these attributes, organizations are increasingly embracing the
Internet as a critical platform for communicating with key constituents and
conducting business. Internally, many organizations have adopted Internet-based
systems to facilitate communications among employees and to automate internal
business processes. Many organizations are adding Web-based applications to
increase sales, cut costs, and improve customer service. Customer-centric
applications range from Web sites offering electronic brochures, to electronic
acquisition of goods and services, and automated customer service and support.
Organizations are making large investments in these applications to create
meaningful and attractively presented content that informs, entertains, and
communicates. Emerging applications now enable organizations to attract
customers and build customer loyalty by offering dynamic, personalized content.
Web-based applications for suppliers and distributors have also significantly
improved business-to-business procurement, payment systems, and logistics
planning. Entirely new businesses have emerged that have been developed
specifically to
30
<PAGE> 34
exploit the unique characteristics of the Internet and e-commerce. Accordingly,
IDC estimates that the volume of Internet commerce will increase from
approximately $12 billion in 1997 to over $400 billion in 2002.
Advertising revenue has also played an important role in the growth of the
Internet. Attracted by increasing numbers of users, Internet-based businesses
have developed that are supported primarily by advertising revenue. Traditional
businesses have also realized incremental advertising spending from their Web
sites. Jupiter Communications estimates that Internet advertising spending will
grow from $1.9 billion in 1998 to $7.7 billion in 2002.
GROWTH OF INTERNET TECHNOLOGY, CONTENT, AND INFRASTRUCTURE
Organizations are supporting their Internet-based systems by investing
heavily in technology, content, and infrastructure. Forrester Research estimates
that spending on software and services for e-commerce alone will exceed $5.6
billion in 1998 and $35 billion by 2002. The creation of Internet content
continues to grow rapidly by any measure. For example, as of May 27, 1998, the
AltaVista search engine had indexed more than 140 million Web pages, an increase
of more than 40 million pages in the first five months of 1998. The Internet
uses Web and specialized servers for different tasks and forms of
communications. For example, specialized servers are used for Web browsing,
mail, chat, news groups, file transfers, and audio and video streaming. A
measure of the growth of the Internet infrastructure is the number of Web and
other Internet servers that are installed. These servers are programs that
respond to requests for information and manage data from back-end computing
resources. According to IDC, the number of Web and other Internet servers
installed will grow from approximately 6.3 million in 1998 to nearly 12 million
in the year 2002.
Two other important components of the Internet infrastructure are proxy
servers and firewalls, which are used to improve the performance of information
gathering and to prevent unauthorized access to network resources, respectively.
Firewalls are also used to implement VPNs. VPNs facilitate secure communications
within an organization among geographically dispersed employees by using
encryption and security to provide the attributes of a private network while
transporting information over the public Internet. IDC expects the worldwide
firewall market to grow from approximately $353 million in 1997 to $1.2 billion
by the year 2000.
NEED FOR ENTERPRISE MANAGEMENT AND REPORTING SOLUTIONS FOR INTERNET-BASED
SYSTEMS
As organizations have increased their reliance on the Internet, their
fundamental challenge has been to ensure that their investments in Internet
technology, content, and infrastructure are furthering their strategic goals.
These organizations are increasingly looking for management and reporting
solutions that track and control the effectiveness of their Internet-based
systems by optimizing Internet advertising, measuring return on investment,
monitoring performance, and determining usage patterns. Specifically,
organizations need to track and optimize a user's experience on the
organization's Internet sites, whether it be an employee, customer, or business
partner. Organizations also must manage their investments in Internet
advertising.
Without effective management and reporting, Internet-based systems are
unlikely to fulfill their strategic missions. A September 1998 Forrester
Research survey of 25 new media executives and Web site design experts found
that most of their Web sites did not
31
<PAGE> 35
provide enough information and suffered from reliability problems and quality
issues, such as broken links and failed functions. Similarly, a 1997 survey from
InfoWeek/Ernst & Young revealed a significant increase in security threats and
insufficient resources to monitor network security.
In order for management to optimize the effectiveness and value of
Internet-based systems, such systems must fulfill the business needs of the
critical functional areas within the organization. Examples include:
- EXECUTIVE MANAGEMENT. How successful is the implementation of our
Internet strategy? What is the return on investment?
- MARKETING AND SALES. Which Web site visitors are purchasing our products
and services? Is our advertising effective in bringing qualified prospects
to our Web site?
- INFORMATION TECHNOLOGY. Is our existing Internet infrastructure secure
and does it have sufficient capacity? Are we providing reports to
functional managers that enable them to effectively manage our Internet
investment?
- CUSTOMER SERVICE. Has our Web site reduced the volume and duration of
telephone support calls? What are the most common support issues?
- FINANCE. Are we allocating Internet-related expenditures correctly? How
is our Internet strategy affecting employee productivity?
Despite the widespread need for comprehensive, scaleable, and easy-to-use
management and reporting solutions for Internet-based systems, there have been
no solutions offering all of these capabilities. Traditional network management
tools are not designed specifically for the Internet and do not allow business
managers to analyze Internet-specific activities and content effectively,
increasing the likelihood that Internet investments will be misallocated. Custom
applications and data mining tools are not cost-effective solutions because of
the volume and complexity of the underlying data. The few Internet tools
available are typically limited to particular needs, such as traffic analysis,
security analysis, or quality analysis. Furthermore, certain stand-alone tools
for traffic analysis are prohibitively expensive, yet do not scale to high
volume Web sites. In addition, piecing together individual tools from different
vendors for traffic analysis, security analysis, quality control, and other
management functions into a complete solution is expensive, difficult to manage,
and results in a confusing array of inconsistent user interfaces and report
formats.
THE WEBTRENDS SOLUTION
WebTrends offers a comprehensive solution of integrated, scaleable, and
modular software products that enable organizations to cost-effectively manage
and report on their Internet-based systems. The Company's enterprise management
products facilitate analysis and reporting of Web site traffic, quality,
content, usage, and e-commerce activities, as well as returns on investments
from Internet-based systems and Internet advertising campaigns. WebTrends'
solutions also help organizations manage their Internet infrastructure by
providing valuable information about firewall activity, VPNs, and security
vulnerabilities, as well as capacity and bandwidth requirements.
The WebTrends solution has the following key benefits:
Comprehensive Solution. WebTrends' products provide a comprehensive
solution to important Internet management needs. As Internet technology has
evolved and additional management requirements have become apparent, the
Company's modular architecture has
32
<PAGE> 36
enabled WebTrends to rapidly develop additional products and product
enhancements to meet customer needs.
Centralized Management. The WebTrends solution enables organizations to
centrally manage and administer multiple Internet-based systems across the
enterprise regardless of the quantity or geographic locations of servers
supporting those systems. WebTrends' products analyze data from servers that run
in numerous operating environments, including UNIX, Windows NT, NetWare, and
others. Organizations can also use the Company's products to manage Web sites
hosted by third parties such as ISPs.
Scaleability and Performance. The WebTrends solution is capable of managing
and reporting on high-traffic and distributed Internet-based systems. The
WebTrends solution is designed to scale to the following environments:
- A single system hosting up to 500 Web sites.
- One Internet server spread across a 50-server cluster.
- One Internet server or firewall generating over 40 million hits per day.
- One Internet server or firewall generating log files exceeding 10
gigabytes per day.
- One Internet server or firewall consisting of tens of thousands of Web
pages.
WebTrends products are designed to produce results quickly. For example,
server logs can be analyzed in real time while transactions are being processed.
In addition, results of traffic analyses can be stored using the Company's
FastTrends caching technology, allowing customers to perform further analyses or
reorganize results quickly.
Comprehensive and Flexible Reporting. Each WebTrends product produces
dozens of reports that can be customized for format and content. Reports can be
generated in HTML for on-line browsing or in Microsoft Word or other formats for
professional looking printed output.
Ease of Use and Installation. WebTrends' solutions have features that make
them easy to use, including fast installation, automatic detection of data
sources such as server logs, and an award-winning user-interface consistent
across all products. These features permit the Company's solutions to be used
throughout an organization by marketing, sales, and financial managers, as well
as Webmasters and other IT professionals.
Open and Flexible. WebTrends solutions are designed to integrate with other
systems. Data can be analyzed from numerous Internet system components developed
by dozens of vendors. Results can be exported to either the Company's FastTrends
cache or any ODBC-compliant database. ISPs can use the WebTrends ISP application
programming interface to automate configuration for their own customers.
Independent software developers can develop their own applications as cartridges
that interface with the WebTrends framework.
STRATEGY
WebTrends' objectives are to continue to lead and expand the market for
enterprise management and reporting solutions for Internet-based systems. Key
strategies to achieving these objectives include:
Leverage Market Leadership to Build Brand Awareness. The Company believes
it is the leading provider of enterprise management and reporting solutions for
Internet-based systems. WebTrends has been able to accomplish this by being the
first company to
33
<PAGE> 37
market a solution combining Web site traffic analysis -- a market in which
WebTrends is the leader with almost three times the share of its next closest
competitor according to a March 1998 IDC report -- with a variety of other
products that enable organizations to manage several critical aspects of their
Internet investments, such as firewall activity and VPNs. Fundamental to the
Company's strategy has been its belief that enterprise management and reporting
solutions for Internet-based systems require broad, integrated solutions that
track not just Internet traffic, but also quality, performance, and security.
Thus, the Company has, and will continue to leverage its market leadership to
offer additional traffic analysis, security, e-commerce management, and other
new products that enable organizations to manage the evolving needs of their
Internet-based systems.
Offer Comprehensive Internet Management Solutions. The Company intends to
reinforce and aggressively market its existing position as the only vendor
offering a comprehensive set of solutions for important Internet management
needs. The Company believes that individuals within an organization making
purchase decisions for Internet management and reporting solutions prefer a set
of solutions that offer consistent features for installation, reporting format,
user interface, and scaleability. The Company introduced its Enterprise and
Professional Suites in 1997, its Server Cluster Add-on and Lotus Domino Suite in
1998, its Security Analyzer in January 1999, and has additional new products
planned for 1999. The Company intends to continue to develop new features and
products to meet the additional management demands that will arise as Internet
usage and technologies evolve.
Address Needs of Both IT Professionals and Other Business Managers. In
addition to marketing its products to IT professionals on the basis of
performance and technical capabilities, the Company's strategy is to market
directly to the needs of business managers in such departments as sales and
marketing, customer service, finances, and human resources. WebTrends' products
enable these managers to make informed enterprise-wide management decisions. At
the same time, the Company markets its products as the preferred solution for
the IT professional to not only manage essential Internet issues such as network
bandwidth, navigation, capacity, quality assurance, system availability, and
security, but also increasingly to provide vital information to other managers
across the enterprise.
Exploit Architecture to Expand Product Line for Evolving Internet
Systems. The Company's extensible, cartridge-based product architecture
significantly reduces the design cycle, allowing the Company to bring new
products and features to market on a frequent, timely basis. This strategy is
critical because the Company must continue to provide management solutions for
evolving Internet technologies. Since the introduction of the Company's original
Web site traffic analysis product in 1996, the Company has introduced five
additional product offerings, with an additional three scheduled for
introduction through June 1999.
Aggressively Expand Channels and Geographic Scope of Sales. To increase the
distribution and visibility of its products, the Company intends to continue to
expand its domestic and international sales capabilities. The Company
anticipates adding telesales and on-line sales resources and augmenting its
field sales staffing and locations. The Company also intends to invest
significant efforts in further developing its indirect channels with key VARs,
distributors, resellers, OEMs, ISPs, and other channel partners in both domestic
and international markets.
Continue to Offer Scaleable Solutions that Address All Segments of
WebTrends' Market. The Company intends to reinforce its image as the leading
provider of enterprise
34
<PAGE> 38
management and reporting solutions of Internet systems by continuing to offer a
wide range of product choices and suite configurations at price points
appropriate to the resources and requirements of a broad spectrum of business
users. The speed, utility, and scaleability of the Company's products make them
appropriate for the enterprise management and reporting needs of the largest
Internet systems. The Company's customers include large organizations managing
networks of hundreds of servers as well as ISPs providing hosted Internet
resource management to thousands of customers. In addition, the Company has
provided its solutions to organizations that require information management for
specific high-traffic Internet events such as NASA's Web site for the John Glenn
shuttle mission that received over seven million hits on its most active day.
All of these customers look to the Company's solutions for their ability to
scale to the demands of large volumes of Internet users. At the same time, the
price/performance attributes of the Company's products make them affordable and
appropriate solutions for business users with more modest system requirements.
Invest in Technology to Maintain Leadership and Product Performance. The
Company believes that its customers purchase its solutions primarily due to
their superior performance characteristics. WebTrends' existing products offer
superior reliability, high speed relative to other available solutions, a broad
array of information reporting and analysis choices, and the ability to scale up
to very high traffic requirements. The Company believes that the reputation of
its existing products for performance will facilitate acceptance of additional
products into its market. The Company intends to continue to devote substantial
resources to the enhancement of its existing solutions and the development of
new products as the demands of its market evolve.
PRODUCTS AND SERVICES
WebTrends markets management suites, as well as stand-alone products for
traffic analysis, security analysis, and firewall management.
MANAGEMENT SUITES AND TRAFFIC ANALYSIS
WebTrends Professional Suite. WebTrends Professional Suite is an integrated
enterprise solution that manages and reports on an organization's important
Internet-related functions. It consists of four functional cartridges:
1. Web Site Traffic Analysis: The Web Site Traffic Analysis Cartridge
analyzes log files created by Web servers to provide valuable information
concerning the site and the users that visit it. It is compatible with all
significant Web servers and can analyze both local and remote server log files.
The Web Site Traffic Analysis Cartridge can produce separate analyses for each
of multiple Web sites that share a single Web server. Traffic analysis reports
answer questions such as:
- How many qualified prospects are being drawn to the Web site by an
advertising campaign?
- Which search engines and portals are referring qualified prospects to the
Web site?
- Which pages are most popular? What changes can be made to the Web site to
make the most popular pages easy to find?
- How can the appearance of the Web site be improved in light of the most
frequently used browsers and access speeds of our visitors?
35
<PAGE> 39
2. Proxy Server Traffic Analysis: The Proxy Server Traffic Analysis
Cartridge enables real-time analysis of employee Internet usage. Proxy server
traffic analysis reports answer questions such as:
- What Web sites provide useful information to employees?
- Which employees use the most resources?
- How much time do employees spend browsing Web sites that are unrelated to
their work?
3. Link Analysis and Quality Control: The Link Analysis and Quality Control
Cartridge detects broken links and other quality related problems on Web sites.
Link analysis and quality control reports answer questions such as:
- Does my Web site contain links to nonexistent Web pages?
- Which Web pages are slow to load in a browser?
- Does the Web site include duplicative images?
4. Monitoring, Alerting, and Recovery: The Monitoring, Alerting, and
Recovery Cartridge monitors devices such as servers, routers and databases, and
both issues alerts by e-mail or pager and runs automatic recovery routines when
failures are detected. Monitoring, alerting, and recovery reports answer
questions such as:
- What is the total downtime of our Internet-based system?
- Which components in our Internet-based system have experienced the
greatest number of failures?
WebTrends Enterprise Suite. The WebTrends Enterprise Suite adds advanced
capabilities to the WebTrends Professional Suite. The WebTrends Enterprise Suite
includes the Company's DBTrends technology. DBTrends allows an IT professional
to integrate Web traffic analysis results with data from the organization's
existing databases for custom analysis of e-commerce and other advanced
applications. The WebTrends Enterprise Suite also permits WebTrends analyses to
be exported to ODBC-compliant databases for archiving and historical analyses.
WebTrends Log Analyzer. The WebTrends Log Analyzer is a stand-alone product
that provides all of the capabilities of the Web Site Traffic Analysis Cartridge
included in the WebTrends suites. The WebTrends Log Analyzer was the Company's
first product for managing Internet-based systems and is a popular choice for
organizations that require an inexpensive, feature-rich solution for traffic
analysis.
WebTrends Enterprise Reporting Server for UNIX. The WebTrends Enterprise
Reporting Server for UNIX is a Web site traffic analysis solution that runs on
Sun's Solaris UNIX platform. It is designed to serve the needs of ISPs and
enterprise customers by allowing multiple users concurrent, remote management
and access to reports via Web browsers residing on any Windows, UNIX, or
Macintosh client using HTML, Java, and ActiveX technologies. The WebTrends
Enterprise Reporting Server for UNIX is currently in beta testing.
WebTrends Server Cluster Add-on. The WebTrends Server Cluster Add-on
enables the WebTrends Enterprise Suite to analyze multiple log files created by
Web servers in a cluster -- a group of Web servers cooperating to provide high
bandwidth and reliable access to a single Web site -- automatically
reconstructing the correct time of arrival for each and every hit, to produce
accurate Web traffic analysis reports. The WebTrends
36
<PAGE> 40
Server Cluster Add-on also reports how well the load is balanced across the
servers in the cluster and how well a redirector device is distributing requests
to servers that are installed in different geographic locations.
WebTrends Suite for Lotus Domino. The WebTrends Suite for Lotus Domino
contains the functionality of the cartridges of the WebTrends Professional
Suite, with each cartridge customized for the Lotus Domino Web server
environment.
WebTrends CommerceTrends Add-on. The WebTrends CommerceTrends Add-on helps
organizations manage their e-commerce and on-line advertising activities. The
WebTrends CommerceTrends Add-on creates a profile of an organization's
Internet-based advertising campaigns and expenditures and assigns a monetary
value for individual Web site visitors by analyzing their activity and their
interest in specific products or services. The Add-on uses the profile and
traffic data to calculate the organization's return on investment from each
advertisement, allowing the organization to make more effective advertising
investments. The WebTrends CommerceTrends Add-on is currently in development and
is expected to be released as an add-on product to the WebTrends Enterprise
Suite during the first half of 1999.
WebTrends Streaming Media Cartridge. The WebTrends Streaming Media
Cartridge reports on traffic of audio and video servers available from
RealNetworks, Inc. and Microsoft. Reports from this cartridge will identify the
number of streams requested, the connection speeds for browsers, and the most
popular content. This cartridge is currently in development and is expected to
be released as part of the WebTrends Enterprise Suite during the first quarter
of 1999.
SECURITY AND FIREWALL MANAGEMENT
WebTrends for Firewalls and VPNs. WebTrends for Firewalls and VPNs is an
enterprise management solution that provides information that enables
organizations to manage bandwidth usage, security, employee usage of Web sites
outside of the firewall, and traffic originating from outside the firewall.
WebTrends for Firewalls and VPNs is compatible with firewall products from all
of the leading firewall vendors including Check Point Software Technologies,
Inc., Cisco Systems, Inc., Lucent Technologies Inc., and Network Associates.
Firewall and VPN reports answer questions such as:
- Have hackers tried to breach our security?
- Does my Internet-based system have sufficient capacity and bandwidth to
service current traffic volume?
- What errors are occurring during user sessions?
- Which employees and departments use the most resources?
WebTrends Security Analyzer. The WebTrends Security Analyzer helps secure
Internet servers and other Internet devices by detecting security
vulnerabilities and recommending fixes that decrease the likelihood of
intrusions by hackers. An AutoSync capability updates the WebTrends Security
Analyzer as system vendors discover new vulnerabilities. The Company offers
Professional and Enterprise versions of this product as well as versions
tailored for security consultants.
37
<PAGE> 41
AUDITTRACK
When the Company was founded in 1993, its business plan was to develop
solutions for managing Novell networks. WebTrends continues to sell, support,
and enhance AuditTrack, a solution for auditing activity on Novell network
servers.
AWARDS
WebTrends' products have received over 25 industry awards including the
following:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AWARD PRODUCT DATE AWARDED
- -------------------------------------------------------------------------------------
<S> <C> <C>
Network World's Blue Ribbon WebTrends Enterprise Suite 3.0 December 1998
Award
- -------------------------------------------------------------------------------------
Network Computing Editor's WebTrends Enterprise Suite 2.1 November 1998
Choice Award
- -------------------------------------------------------------------------------------
Finalist, PC Computing 1998 MVP WebTrends Professional Suite 2.1 November 1998
Award
- -------------------------------------------------------------------------------------
Internet Commerce Expo, Best of WebTrends Professional Suite September 1998
Class
- -------------------------------------------------------------------------------------
PC Magazine Editor's Choice WebTrends Log Analyzer 4.0 March 1998
- -------------------------------------------------------------------------------------
VAR Business Magazine, VAR WebTrends Professional Suite January 1998
Business Recommends
- -------------------------------------------------------------------------------------
Software Publisher's Association WebTrends Professional Suite January 1998
CODIE Award Finalist for Best
Enterprise Management Tools
- -------------------------------------------------------------------------------------
ZDNet Editor's Choice (Five Star WebTrends Log Analyzer 4.0 and December 1997
Rating) WebTrends Professional Suite 1.0
- -------------------------------------------------------------------------------------
</TABLE>
LICENSING AND PRICING
All of WebTrends' products are licensed for use and are priced to be
affordable to both large and small organizations. In general, WebTrends'
products are licensed to be run on a single computer. WebTrends offers customers
who license its products the option to purchase one-year subscriptions that
permit users to download all new versions of the licensed product during the
subscription period. Subscriptions are generally priced at 20% of the license
fee. The Company periodically changes its pricing and licensing policies as a
result of competitive conditions and other factors. The following table lists
end-user product prices as of January 1, 1999 (upgrade pricing and shipping and
handling charges not shown). The Company offers reseller discounts, volume
discounts, and occasional promotional pricing.
38
<PAGE> 42
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
PRODUCTS SCOPE U.S. INTRODUCTION
LIST PRICE DATE
- -----------------------------------------------------------------------------------------------------
MANAGEMENT SUITES AND TRAFFIC ANALYSIS
- -----------------------------------------------------------------------------------------------------
WebTrends Enterprise Suite 500 virtual domains $1,499 September 1997
- -----------------------------------------------------------------------------------------------------
WebTrends Professional Suite 100 virtual domains $ 599 November 1997
- -----------------------------------------------------------------------------------------------------
WebTrends Log Analyzer 50 virtual domains $ 399 February 1996
- -----------------------------------------------------------------------------------------------------
WebTrends Enterprise Reporting Server for 10 domains/10 users $2,999* 1st Qtr. 1999
Unix Additional 10 pack $ 999*
- -----------------------------------------------------------------------------------------------------
Server Cluster Add-on Each additional $ 999 August 1998
server
- -----------------------------------------------------------------------------------------------------
WebTrends Suite for Lotus Domino 500 virtual domains $ 999 May 1998
- -----------------------------------------------------------------------------------------------------
CommerceTrends Add-on TBD** TBD** 2nd Qtr. 1999
- -----------------------------------------------------------------------------------------------------
SECURITY AND FIREWALL MANAGEMENT
- -----------------------------------------------------------------------------------------------------
WebTrends for Firewalls and VPNs Each firewall $1,499 June 1998
- -----------------------------------------------------------------------------------------------------
WebTrends Security Analyzer 255 IP Addresses $1,499 January 1999
Unlimited IP $4,999
Addresses
- -----------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------
* Projected
** To Be Determined
PRODUCT ARCHITECTURE AND TECHNOLOGY
The focus of product development at WebTrends is to bring new products as
well as new versions of existing products to market quickly in order to keep
pace with the rapid evolution of Internet technologies and increasing customer
demands. The Company devotes a substantial portion of its resources to
developing new products. Research and development expenses were approximately
$403,000 in 1996, $1.1 million in 1997, and $2.2 million in 1998. The Company
has recruited a product development team experienced in bringing quality
products to market on-time. As of December 31, 1998, the Company's product
development team consisted of 27 employees with responsibilities that include
software engineering, quality assurance, and technical writing. This team is
currently developing new versions of most of the Company's existing products as
well as new cartridges for analyzing the return on investment from
Internet-based systems and for managing streaming audio and video Internet
servers.
39
<PAGE> 43
[WEBTRENDS ILLUSTRATION]
The Company's product architecture and technologies, as shown in the above
diagram, provide significant competitive advantages. The architecture consists
of application cartridges atop a shared foundation of base technologies. The
application cartridges request services from the foundation, where most of the
code is located, through an application programming interface ("API"). This
shared foundation shortens the product development cycle because the shared
components do not have to be redeveloped for each new application cartridge. In
addition, enhancements to the foundation, such as improving the speed of the
report generator, benefit all cartridges.
Some of the important base technologies are:
Scheduler. The Scheduler automatically runs analyses and reports at
specified times and intervals, without the presence of an operator.
Graphical User-Interface (GUI) Framework. WebTrends' GUI framework improves
usability by maintaining a consistent look and feel across each of WebTrends'
products.
Reporting Engine. WebTrends' Reporting Engine permits customers to
customize the reports generated by the application cartridges. In addition, many
reports can be generated in HTML, Microsoft Word, Microsoft Excel, or comma
delimited formats.
Language Editor. A language editor is built into the products that
facilitates customizing the product for international use.
The Company has numerous additional technologies and product features,
including the following:
Direct Analysis of Server Logs. WebTrends' products can analyze server logs
as they are created or at scheduled times. In either case, the server logs are
read and analyzed in a single pass. The Company believes that the alternative
approach of first importing the log data into a database management system and
then analyzing the data is slow and costly.
FastTrends Cache. The Company's FastTrends caching technology stores the
results of an analysis allowing customers to quickly perform further analysis or
reorganize the results in meaningful ways. FastTrends contributes to the
scaleability of the Company's products by efficiently handling large amounts of
data.
40
<PAGE> 44
64-bit Technology. WebTrends has implemented 64-bit technology to permit
its products to analyze log files containing more than four gigabytes of data.
WebTrends' products are compiled to run on 32-bit processors.
Standard Programming Languages. The Company's engineers develop software
using C and C++ programming languages to produce fast, scaleable products.
Standard programming languages also ease porting the Company's technology to new
operating environments.
Remote Analysis. The Company's products need not reside on the server being
analyzed. Server logs can be exported to the system where the product resides or
can be remotely accessed.
Compatibility with ODBC Databases. WebTrends' products can obtain data from
ODBC-compliant databases for analysis. In addition, the results of analyses can
be exported to ODBC-compliant databases.
Information Gathering. The registration engine built into the Company's
products collects detailed customer information. The products also have a
customer feedback feature that encourages customers to communicate with the
Company. Information from both of these sources is used for sales leads and as
input for the next round of product upgrades and improvements.
SERVICES AND SUPPORT
WebTrends provides technical support to its registered users by telephone,
e-mail, and on its Web site. The Company's products are easy to install and use,
and the Company also maintains an extensive database of support information on
its Web site, all of which enables the Company's support organization to operate
efficiently and increases customer loyalty and satisfaction.
The Company intends to continue to enhance its services capabilities. Its
recently-formed professional services organization will provide end-user
implementation and training, certification and training for third-party service
providers and resellers, and management and reporting for high-traffic Internet
events and seminars. The Company also relies on VARs and ISPs that distribute
and promote the Company's products to provide similar services.
CUSTOMERS
As of December 31, 1998, WebTrends had licensed over 50,000 products to
over 20,000 customers. Some of its customers are Internet-based businesses that
were specifically formed to take advantage of emerging Internet opportunities.
However, the bulk of its customers are traditional companies from all segments
of the economy that are developing new applications and porting existing
applications to the Internet. The Company's products are used by over one-third
of the Fortune 500, but are also affordable to small organizations.
An important customer segment for the Company is ISPs that sell Web site
hosting services. Several of these ISPs use WebTrends' products to perform
WebTrends' analyses on their customers' Web sites as an added service. Some of
the ISPs' own customers have become WebTrends' customers to do more
sophisticated analyses in-house or to analyze other in-house, Internet servers.
41
<PAGE> 45
Representative customers include:
TECHNOLOGY
Cisco Systems
Compaq Computer
Dell Computer
EDS
Hewlett-Packard
IBM
Intel
Siemens
TELECOMMUNICATIONS
AT&T
Ameritech
Bell Atlantic
British Telecom
GTE
PUBLIC SECTOR
City of San Jose
NASA
University of Illinois
U.S. Air Force
U.S. Dept. of Labor
U.S. House of Representatives
INTERNET SERVICE PROVIDERS
@Home
Cable and Wireless
DIGEX
NETCOM
Prodigy
PSINet
Verio
MEDIA
BBC
Dow Jones & Company
NBC
Playboy Enterprises
Washington Post
MANUFACTURING
Boeing
Caterpillar
DaimlerChrysler
Eastman-Kodak
Ford Motor Co.
Pharmacia & Upjohn
INTERNET COMPANIES
InfoSeek
Netscape
Peapod
USWeb
UUNet
FINANCIAL SERVICES
American Express
BankAmerica
Chase Manhattan
Dun and Bradstreet
Union Bank
TRANSPORTATION
Air New Zealand
Alaska Airlines
American Airlines
Greyhound Lines
KLM Royal Dutch Airlines
CASE STUDIES
DIGEX Incorporated -- ISP Managing Web Sites for its Customers
DIGEX is a leading national Internet carrier that hosts and manages
hundreds of Web sites and firewalls for companies including America's Health
Network and Nike. DIGEX derives competitive advantage from its sophisticated Web
site management organization that includes 250 employees.
In August 1997, DIGEX initiated an engineering effort to evaluate Web site
reporting and analysis solutions to provide management reports to its customers.
After running a full battery of tests and comparing several competing traffic
analysis solutions, DIGEX decided to standardize on a single traffic analysis
software package to avoid the difficulties and expense in providing world-class
support on a variety of different applications.
DIGEX selected WebTrends' products because of their industry-leading
functionality, high quality, attractive prices, and ease of use. WebTrends'
support for server clusters and ability to perform with little to no demand on
the Web servers during peak hours were also critical. For example, the WebTrends
Log Analyzer generates reports between 1 a.m. and 2 a.m. daily for one of
DIGEX's largest customers whose site runs on a cluster of nine Web servers each
producing a 200 megabyte log file each day.
DIGEX cites three key benefits from its use of WebTrends' products:
- Increased Customer Satisfaction: DIGEX is experiencing improved customer
retention because customers are more satisfied with their overall hosting
solution.
42
<PAGE> 46
- Reduced Cost: DIGEX estimates that it is saving $200,000 per year,
compared to when it was supporting multiple reporting packages.
- Increased Competitiveness: DIGEX's ability to deliver industry-leading
reporting functionality provides a competitive advantage over Web-hosting
competitors.
Since standardizing on WebTrends, DIGEX has installed hundreds of copies of
WebTrends' products.
Cable & Wireless USA -- ISP Keeping Up With Customer Demands
Cable & Wireless owns and operates one of the world's premier Internet
networks. Its Internet Solutions Center manages mission-critical Web sites for
hundreds of global corporations. In May 1998, after extensive testing and
evaluation of off-the-shelf packages, the Internet Solutions Center decided to
replace its internally developed management applications with the WebTrends
Enterprise Suite. WebTrends Enterprise Suite met all of the Internet Solutions
Center's evaluation criteria including maintaining all of the existing
functionality of the internally developed applications and handling its largest
Web sites reliably.
The Internet Solutions Center installed WebTrends Enterprise Suite onto
numerous processing servers dedicated to running WebTrends software. Log files
from hundreds of Web Sites are moved to these processing servers each night by 2
a.m. The WebTrends Enterprise Suite automatically detects the type of each log
file, then creates up to 33 reports for each Web site, processing approximately
three gigabytes of data. By morning, daily and month-to-date reports are created
for every customer and are available on a reporting server via a Web browser.
Cable & Wireless has seen three clear benefits from the WebTrends solution:
- Increased Customer Satisfaction: Cable & Wireless customers are receiving
the reports they need, on a timely basis, to manage their businesses.
Requests to Cable & Wireless from its customers for customized reports
have significantly decreased.
- Lowered Operating Cost: Operational support effort has been reduced from
about 25 hours per week to about 10 hours per week, saving about $30,000
annually.
- Eliminated Development Costs: Two software developers who were developing
enhancements to the Internet Solutions Center's internally-developed
management software have been redeployed, saving about $200,000 annually.
Pharmacia & Upjohn -- Managing a Global Intranet
Pharmacia & Upjohn is a pharmaceutical and healthcare company with offices
in 54 countries and over 30,000 employees. Pharmacia & Upjohn used Internet
technology to develop an internal use network for communication of company
information and news that generates over 13 million hits per month to 400,000
Web pages housed on 50 geographically dispersed servers. Using WebTrends
Professional Suite, Pharmacia & Upjohn's Webmaster analyzes and monitors the
entire worldwide network from a single workstation in his office. Analyses are
scheduled for automatic execution and the reports are made available on the
network where they are regularly reviewed by 50 to 100 managers. The WebTrends
solution has benefited Pharmacia & Upjohn in the following ways:
- Improved Design: Frequently accessed information has been made easier to
find. Certain low-traffic pages have been deleted.
43
<PAGE> 47
- Increased Availability: E-mail messages or pager messages are
automatically sent when a server is down, reducing recovery delays.
- Facilitates Capacity Planning: Overall usage trends permit Pharmacia &
Upjohn to anticipate needs and upgrade servers and communications
facilities before network performance degrades.
- Reduced Overhead: The WebTrends' scheduler automates many of the
management activities. Furthermore, functional management is able to
review and customize their own reports reducing the stress on the IT
organization.
SALES, MARKETING, AND DISTRIBUTION
The Company conducts a number of marketing programs to promote the
WebTrends brand and to support the sale and distribution of its products. These
programs are designed to inform existing and potential resellers and end-user
customers about the capabilities and benefits of the Company's products.
Marketing activities include: press relations; publication of technical and
educational articles in the Company's on-line magazine, WebTrends Corporation
Alert; participation in industry trade shows; product/technology conferences and
seminars; Web-based and traditional advertising; development and distribution of
Company literature; and maintenance of the Company's Web site. The Company also
conducts joint marketing and distribution with strategic partners, including:
- Oracle: Distributes trial versions of Web site management products with
Oracle's Internet Application Server.
- Netscape: Sells WebTrends' products through its Software-Depot Store
e-commerce Web site.
- Microsoft: WebTrends promotes its products at the microsoft.com Web site
and at the Microsoft Partners' Pavilion at selected trade conferences.
- Check Point Software: Distributes trial versions of WebTrends' products
from its Web site and partner for marketing, advertising, and trade show
activities.
- Hewlett-Packard: Promotes WebTrends' products on the HP Covision Web site
as a strategic part of an integrated solution for electronic business.
Many of the Company's sales leads are generated from its own Web site,
which is often a customer's first contact with the Company. The Company's Web
site contains extensive product information and sales literature. The Web site
also has an on-line purchasing capability. Many visitors download free trial
versions of the Company's products from the Web site. Customers can purchase the
product during the trial period. For 1998, on-line sales accounted for
approximately 18% of WebTrends' revenue.
In addition to on-line sales, the Company's sales force consists of a
telesales organization and a direct field sales organization. The telesales
organization responds to incoming inquiries generated by the Company's
advertising and marketing activities. Telesales representatives also initiate
calls to contact customers who download trial software from the Web site, and
offer new products to existing customers. Data from software downloads and
license registrations are used to identify volume licensing opportunities that
are generally referred to a direct field sales representative or a VAR. As of
December 31, 1998, the telesales organization consisted of one manager and ten
sales representatives.
44
<PAGE> 48
The direct field sales organization is focused on large enterprises and
strategic sales. Strategic sales efforts are targeted at ISPs, Internet-based
companies, and other organizations with significant on-line presences. By
selling its solutions to the perceived Internet technology leaders, WebTrends
believes it enhances its own brand image. As of December 31, 1998, the direct
field sales organization consisted of five sales representatives. The Company
plans to grow its direct field sales force and base more of its direct field
sales representatives in their respective geographic territories in 1999. In
1998, direct sales, excluding on-line sales, accounted for approximately 51% of
WebTrends' revenue.
The Company's domestic, indirect distribution channel consists of numerous
resellers and a VAR program. The Company relies on the VAR program not only to
expand sales but also to meet the demand for value-added services related to the
installation and use of the Company's products. Recently the Company established
a national distribution relationship with Merisel. WebTrends expects that its
resellers and VARs will acquire product through Merisel or other distributors in
the future. As of December 31, 1998, the Company employed three VAR partner
managers to establish new VARs and manage the Company's relationships with
existing VARs and one reseller manager to manage the Company's relationships
with new and existing resellers. In 1998, indirect sales, both domestic and
international, accounted for approximately 31% of WebTrends' revenue.
The Company has a nonexclusive relationship with a third-party export
management company to establish indirect distribution channels outside of the
United States. The export management company is responsible for shipment of the
Company's products to the international distributor, reseller, or VAR and for
all documentation of such export shipments. International resellers and VARs are
responsible for the localization of reports, marketing materials and packaging
in the countries where they distribute WebTrends' products. In 1998,
international sales, both direct and indirect and primarily from European
markets, accounted for approximately 28% of WebTrends' revenues.
COMPETITION
The Company competes in the markets for Web site traffic analysis
solutions, alerting and monitoring solutions, firewall and proxy server traffic
analysis solutions, and security analysis solutions on the basis of performance,
scaleability, price, breadth of solution, ease of use, and compatibility with
the user's systems. These markets are new, and are characterized by intense and
increasing competition, rapidly changing technology, evolving standards, new
product introductions, and other activities of market participants. In addition,
these markets are highly fragmented, and our competitors vary depending upon the
market that our Internet management solutions address.
In the market for Web site traffic analysis solutions, the Company's
primary competitors are Andromedia, Accrue, I/Pro, Marketwave, and net.Genesis.
In the Web site link analysis and quality control market, the Company's primary
competitors are Tetranet Software and Coast Software. In the alerting and
monitoring market, the Company's primary competitors are IPSwitch and Geneva
Software. In the firewall and proxy analysis market, the Company's primary
competitors are Telemate and SecureIT. In the security analysis market, the
Company expects to compete primarily with ISS Group, Axent Technologies, and
Network Associates. Although the markets in which we compete are highly
fragmented, we may face additional competition from existing competitors if any
of them were to broaden the scope of their Internet management products either
by developing or acquiring additional products or distribution channels.
45
<PAGE> 49
The Company also competes with vendors of Internet servers, operating
systems, and networking hardware. In particular, Microsoft, Netscape, Sun
Microsystems, Oracle, and others bundle Internet management solutions with their
Internet products. The Company expects this bundling activity to increase in the
future. The bundling of competing products with standard features of operating
systems, Internet servers or networking hardware could render the Company's
products obsolete and unmarketable. Even if the functionality, ease of use, and
performance of the products included with operating systems, Internet servers,
or networking hardware is inferior to the Company's products, a significant
number of customers may elect to accept these products instead of purchasing
additional software from WebTrends.
The Company believes that additional competitors will continue to enter the
market as the size and visibility of the market opportunity increases. These new
market entrants may include traditional system and network management software
developers. For example, Computer Associates is currently beta testing an
extension to its Unicenter TNG product line that includes functions for alerting
and monitoring, Web site traffic analysis, and link analysis.
The Company also faces competition and potential competition from Web
management service providers, such as consulting firms, Web design firms,
Internet audit firms, site management vendors, ISPs, and independent software
vendors. These service providers may use the Company's solutions, competitors'
solutions, or custom-developed solutions to manage Web sites for their customers
who otherwise would have been sale opportunities for us. Certain larger
potential customers may rely on their IT departments to internally develop
Internet management solutions.
Increased competition could result in pricing pressures, reduced margins,
or the failure of the Company's products to achieve or maintain market
acceptance, any of which could have a material adverse effect on the Company's
business, results of operations, and financial condition. Certain current and
potential competitors have longer operating histories, greater name recognition,
access to larger customer bases, and substantially greater financial, technical,
marketing, distribution, service, support, and other resources than the Company.
As a result, they may be able to respond more quickly than the Company to new or
changing opportunities, technologies, standards, or customer requirements. For
all of the foregoing reasons, the Company may not be able to compete
successfully against its current and future competitors. See "Risk
Factors -- Competition."
PROPRIETARY RIGHTS
The Company relies on a combination of copyright, trade secret, patent,
trademark, confidentiality procedures, and contractual provisions to protect its
proprietary rights. The Company's software, documentation and other written
materials are provided limited protection by international and United States
copyright laws. The Company licenses its products in object code format for
limited use by customers. The Company treats the source code for its products as
a trade secret and requires all employees and third-parties who require access
to the source code to sign non-disclosure agreements.
The Company currently has two pending United States patents that seek to
protect inventions underlying the Company's FastTrends cache and server cluster
analysis technology, respectively. The Company is in the process of preparing an
additional United States patent application. The Company does not have any
issued patents.
46
<PAGE> 50
WebTrends has developed and published a log format for firewall data that
it hopes to establish as a standard. WebTrends may develop additional formats to
facilitate the standardization process for enterprise management of Internet and
intranet servers. The Company permits such formats to be implemented by vendors
of servers and other Internet products, and by competing enterprise management
software companies.
The Company has registered the trademark AuditTrack in the United States.
The Company has applied for United States trademark registrations for the
following: AlertTrack, ClusterTrends, CommerceTrends, DBTrends, FastTrends,
FireTrends, Manage Your WWWorld, SmartPass, WebTrends, and WWWorld. Certain of
these marks are also protected in other jurisdictions. See "Risk
Factors -- Dependence on Intellectual Property; Risk of Infringement."
EMPLOYEES
As of December 31, 1998, the Company had 78 employees, including 37 in
sales, marketing, and customer support, 27 in research and development, and 14
in finance and administration. All of the employees were located at the
Company's headquarters in Portland, Oregon, except for three sales
representatives. None of the Company's employees is represented by a labor
union. The Company has experienced no work stoppages and believes its
relationships with its employees are good.
FACILITIES
WebTrends is headquartered in Portland, Oregon, where it leases
approximately 22,000 square feet pursuant to a recently executed five-year
lease. Pursuant to the new lease, the Company will occupy an additional 15,000
square feet by July 1999. The Company has sales offices in Boston, Massachusetts
and Houston, Texas.
LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceedings.
47
<PAGE> 51
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS, AND KEY PERSONNEL
The executive officers, directors, and key personnel of WebTrends, and
their ages and positions, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Elijahu Shapira................. 33 Chairman of the Board and Chief
Executive Officer
W. Glen Boyd.................... 31 President, Chief Technical Officer, and
Director
James T. Richardson............. 51 Vice President, Chief Financial Officer,
and Secretary
Gregory D. Applegate............ 38 Vice President of Sales
Daniel J. Meub.................. 45 Vice President of Marketing
Michael Burmeister-Brown........ 40 Director
John W. Ryan.................... 37 Director
Srivats Sampath................. 39 Director
John D. Teddy................... 34 Vice President of Research & Development
</TABLE>
There are no family relationships among any of the directors, executive
officers, or key personnel of WebTrends.
Elijahu Shapira is a co-founder of WebTrends and has served as its Chief
Executive Officer since December 1997 and as a director since September 1993.
From September 1994 to November 1995 and from November 1996 to December 1998, he
served as Vice President and Secretary of the Company. Mr. Shapira has 14 years
of experience in the software industry. From June 1991 to September 1994, Mr.
Shapira was the Product Development Manager for the AntiVirus product line of
Central Point Software, an anti-virus software development company that was
acquired by Symantec Corporation in 1994. From March 1987 to October 1990, Mr.
Shapira was the Vice President of International Business Development for Carmel
Software Engineering, a company specializing in network security and encryption
products.
W. Glen Boyd is a co-founder of WebTrends and has served as the Company's
President since December 1996, as its Chief Technical Officer since December
1997, and as a director since September 1993. Mr. Boyd served as the President
of WebTrends from September 1993 to November 1995 and as the Company's Vice
President and Secretary from November 1995 to December 1996. Mr. Boyd has more
than 12 years of experience in the software industry. Prior to co-founding
WebTrends in 1993, from October 1990 to January 1993, Mr. Boyd was a Section
Manager for the AntiVirus, Commute, and PCTools product lines of Central Point
Software.
James T. Richardson has served as WebTrends' Vice President and Chief
Financial Officer since July 1998 and as Secretary since December 1998. From
April 1994 to December 1997, Mr. Richardson served as the Senior Vice President
of Corporate Operations and Chief Financial Officer of Network General, a
producer of networking software that merged with McAfee Associates in December
1997 to form Network Associates. From July 1992 to April 1994, Mr. Richardson
served as the Vice President of Finance and Chief Financial Officer of Logic
Modeling Corporation, an electronic design automation software company that
merged with Synopsys, Inc. in February 1994. From
48
<PAGE> 52
November 1989 to June 1992, Mr. Richardson served as the Vice President of
Finance and Administration and as Chief Financial Officer of Advanced Logic
Research, a manufacturer of personal computers. Mr. Richardson has served in
various management positions in the high-technology industry since 1977.
Gregory D. Applegate has served as WebTrends' Vice President of Sales since
April 1998. From December 1996 to April 1998, Mr. Applegate served as the Vice
President of Sales of OrCAD Inc., an electronic design automation software
company. From October 1993 to November 1996, Mr. Applegate served in a variety
of other management roles at OrCAD. Prior to his employment with OrCad, Mr.
Applegate served in sales and management positions at INTERSOLV, Inc., an
enterprise solution and software management company.
Daniel J. Meub has served as the Company's Vice President of Marketing
since December 1998. From December 1996 to October 1998, Mr. Meub served as the
President and Chief Executive Officer of Adaptive Solutions Inc., a supplier of
forms processing software and imaging solutions for the health care and
governmental markets that filed a voluntary petition under Chapter 7 of the
United States Bankruptcy Code due to insolvency. From January 1995 to November
1996, Mr. Meub served as the Executive Vice President of Marketing and Product
Development of Now Software Inc., a supplier of time management and utility
software. From February 1993 to June 1994, Mr. Meub served as the Vice
President/General Manager of the Desktop Product Group of Central Point
Software. From November 1991 to February 1993, Mr. Meub served as the Vice
President of Marketing and Development of Calera Recognition Systems, a
character recognition software development company. Mr. Meub has served in a
variety of sales and marketing roles since 1976.
Srivats Sampath has served as a director of WebTrends since January 1998.
Since July 1998, Mr. Sampath has served as the Vice President of Worldwide
Marketing of Network Associates, a provider of security and management solutions
for enterprise networks. From June 1996 to December 1997, Mr. Sampath served as
the Vice President of Product Marketing for Netscape Communications, a provider
of Internet software and services. From June 1993 to June 1996, Mr. Sampath
served as the President and Chief Executive Officer of Discussions Corporation,
a company that he founded to develop e-mail based groupware solutions. From 1984
to 1991, Mr. Sampath managed the LAN Enhancement Operations and Microcomputer
Communications Division of Intel Corporation. Mr. Sampath has over 15 years of
experience serving in management and executive roles in the computer industry.
John W. Ryan has served as a director of WebTrends since January 1998.
Since January 1997, Mr. Ryan has served as the President of J Ryan & Associates,
a provider of high technology marketing and sales consulting services. From
September 1995 to January 1997, Mr. Ryan served as the Vice President of
Marketing Strategy and Programs for Tivoli Systems, a systems management
division of IBM. From April 1994 to September 1995, Mr. Ryan served as the Vice
President of Marketing for Mergent International, a producer of security
software. From December 1990 to April 1994, he served as the director of a
business unit for Central Point Software. Mr. Ryan has 15 years of experience in
executive level and senior management roles in the computer industry.
Michael Burmeister-Brown has served as a director of WebTrends since
October 1996. Since July 1997, Mr. Burmeister-Brown has served as a software
engineer at Yahoo!, Inc., a company that provides services as a Web portal.
Since May 1992, Mr. Burmeister-Brown has also served as the President of Second
Nature Software, a software development
49
<PAGE> 53
company. From 1981 to 1991, Mr. Burmeister-Brown served in various executive
management roles, including President, Chief Executive Officer, and Chief
Technology Officer, for Central Point Software, a company he founded in 1981.
Mr. Burmeister-Brown has 16 years of experience in senior management roles in
the computer industry.
John D. Teddy has served as WebTrends' Vice President of Research &
Development since November 1998. From April 1997 to November 1998, Mr. Teddy
served as the Vice President of Engineering and Director of Engineering for
Cybermedia, Inc., a software development company. From April 1994 to April 1997,
Mr. Teddy served as the Chief Architect and Senior Development Manager for
Symantec, where he helped create software such as PCTools, Norton Navigator, and
CrashGuard. From October 1991 to April 1994, Mr. Teddy served as a Senior
Development Manager of Central Point Software.
CLASSIFIED BOARD; REMOVAL OF DIRECTORS
WebTrends' Bylaws provide that if the number of directors is increased to
six or more, the Board of Directors will, at the next annual meeting of
shareholders, be divided into three classes, each of which will serve for a
staggered three-year term. Currently, the Board is comprised of five directors,
each serving a one-year term. The Articles of Incorporation provide that a
director may be removed only for cause. The Bylaws provide that a director may
be removed at a special meeting of the shareholders specifically called for that
purpose, and the meeting notice must state that the purpose, or one of the
purposes, of the meeting is removal of the director by a vote of the holders of
a majority of the shares then entitled to vote on the election of directors.
BOARD COMMITTEES
WebTrends maintains two standing committees, an Audit Committee and a
Compensation Committee.
Audit Committee. In December 1998, the Board of Directors formed the Audit
Committee for the purpose of reviewing the Company's internal accounting
procedures and consulting with and reviewing the services provided by the
Company's independent public accountants. Messrs. Sampath and Burmeister-Brown
constitute the Audit Committee.
Compensation Committee. In December 1997, the Board of Directors formed the
Compensation Committee. The Compensation Committee reviews and recommends to the
Board the compensation and benefits of all the Company's officers and reviews
general policy relating to compensation and benefits of the Company's employees.
The Compensation Committee also administers the Company's stock option plans and
will administer the Company's Employee Stock Purchase Plan upon completion of
this Offering. Messrs. Shapira, Burmeister-Brown, and Ryan constitute the
Compensation Committee.
COMPENSATION OF DIRECTORS
Directors do not currently receive cash compensation for services rendered
as members of the Company's Board of Directors. WebTrends does, however,
reimburse the directors for certain reasonable expenses incurred in connection
with their attendance at Board and Committee meetings. Additionally, certain
directors have provided consulting services to the Company as independent
contractors. See "Certain Transactions."
In August 1998, the Company granted to Mr. Ryan an option to purchase 7,500
shares of Common Stock at an exercise price of $1.82 per share. The shares
subject to the foregoing option vest yearly over a four-year period.
50
<PAGE> 54
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to December 1997, WebTrends Board of Directors did not maintain a
standing Compensation Committee of the Board of Directors, and the entire Board,
including Messrs. Boyd and Shapira, participated in all decisions regarding
compensation of the Company's executive officers. In December 1997, the Board
formed the Compensation Committee and appointed Messrs. Burmeister-Brown, Ryan,
and Shapira as committee members. Mr. Shapira serves as the Chairman of the
Board and Chief Executive Officer of the Company. Messrs. Burmeister-Brown and
Ryan are not employees or officers or former employees or officers of the
Company. No executive officer of WebTrends serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of the Company's Board of Directors or Compensation
Committee.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to WebTrends' Chief
Executive Officer and the other executive officers of the Company whose salary
and bonus exceeded $100,000 for services rendered to the Company in all
capacities during fiscal 1998 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
NAME AND PRINCIPAL POSITION SALARY BONUS
--------------------------- -------- -------
<S> <C> <C>
Elijahu Shapira, Chairman of the Board and
Chief Executive Officer................................. $150,000 $20,000
W. Glen Boyd, President and Chief Technical Officer....... 150,000 20,000
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted to the Named Executive Officers during the
year ended December 31, 1998.
EMPLOYEE BENEFIT PLANS
401(K) PLAN
WebTrends maintains a 401(k) tax-qualified employee savings and retirement
plan covering all employees who satisfy certain eligibility requirements
relating to minimum age and length of service (the "401(k) Plan"). Pursuant to
the 401(k) Plan, eligible employees may elect to reduce their current
compensation by up to the lesser of 15% of their annual compensation or the
statutorily prescribed annual limit and have the amount of such reduction
contributed to the 401(k) Plan. The 401(k) Plan is intended to qualify under
Section 401 of the Internal Revenue Code of 1986, as amended (the "Code"), so
that contributions to the 401(k) Plan, and income earned on the 401(k) Plan
contributions are not taxable until withdrawn. The 401(k) Plan is available to
the Company's executive officers on terms not more favorable than those offered
to other employees.
51
<PAGE> 55
EMPLOYEE STOCK PURCHASE PLAN
The Company adopted the 1999 Employee Stock Purchase Plan (the "ESPP") in
December 1998. The ESPP will be implemented upon the effectiveness of this
Offering. The Company intends for the ESPP to qualify under Section 423 of the
Internal Revenue Code of 1986, as amended. The ESPP permits eligible employees
of WebTrends and its subsidiaries to purchase common stock through payroll
deductions of up to 15% of their cash compensation. WebTrends will implement the
ESPP with six-month offering periods, except that the first offering period will
begin on the effectiveness of this Offering and end on June 30, 1999. Subsequent
offering periods will begin on each January 1 and July 1. Under the ESPP, no
employee may purchase common stock worth more than $25,000 in any offering
period or in any calendar year, valued as of the first day of each offering
period. In addition, owners of 5% or more of the combined voting power or value
of all classes of stock of WebTrends or a subsidiary of the Company may not
participate in the ESPP. The Company authorized the issuance of a total of
350,000 shares of Common Stock under the ESPP, plus an automatic increase on
January 1, 2000 and each anniversary thereafter that will be equal to the lesser
of (i) 16,250 shares; (ii) 0.125% of the average common shares outstanding as
used to calculate fully diluted earnings per share as reported in the Annual
Report to shareholders for the preceding year; or (iii) a lesser amount
determined by the Company's Board of Directors. Any unissued shares resulting
from increases in previous years will be added to the aggregate number of shares
available for issuance under the ESPP.
The price of the Common Stock purchased under the ESPP will be the lesser
of 85% of the fair market value on the first day of an offering period and 85%
of the fair market value on the last day of an offering period, except that the
purchase price for the first offering period will be equal to the lesser of 100%
of the initial public offering price for the Common Stock and 85% of the fair
market value on June 30, 1999. The ESPP will terminate in December 2008, but the
Board of Directors may terminate it at any earlier time. The Company has not
issued any shares of Common Stock under the ESPP.
In the event of a merger or proposed sale of all or substantially all of
the Company's assets, the ESPP provides that each outstanding option to purchase
shares under the ESPP will be assumed or an equivalent option substituted by the
successor corporation. If the successor corporation refuses to assume or provide
an equivalent substitute for the option, the offering period during which a
participant may purchase stock will be shortened to a specified date before the
merger or proposed sale. In the event of a proposed liquidation or dissolution
of WebTrends, the offering period during which a participant may purchase stock
will be shortened to a specified date before the date of the proposed
liquidation or dissolution.
1998 STOCK INCENTIVE COMPENSATION PLAN
In December 1998, the Company adopted the 1998 Stock Incentive Compensation
Plan (the "1998 Plan"). The purpose of the 1998 Plan is to enhance the long-term
shareholder value of the Company by offering opportunities to selected
employees, directors, officers, consultants, agents, advisors, and independent
contractors of the Company to participate in the Company's growth and success,
to encourage them to remain in the service of the Company, and to own Company
stock. The 1998 Plan permits both option and stock grants. The Board has
reserved a total of 1,465,475 shares of Common Stock for the 1998 Plan, plus (a)
any shares returned to the 1997 Plan upon termination of certain option and
stock grants (other than terminations due to exercise or settlement of such
awards); and (b) an automatic annual increase, to be added on the first
52
<PAGE> 56
day of the Company's fiscal year beginning in 2001, equal to the lesser of
500,000 shares or 5% of the average common shares outstanding as used to
calculate fully diluted earnings per share as reported in the Company's Annual
Report to shareholders for the preceding year.
Stock Option Grants. The Compensation Committee will serve as the Plan
Administrator of the 1998 Plan. The Plan Administrator will have the authority
to select individuals to receive options under the 1998 Plan and to specify the
terms and conditions of each option granted (incentive or nonqualified), the
exercise price (which, for incentive stock options, must be at least equal to
the fair market value of the Common Stock on the date of grant and for
nonqualified options must be at least 85% of the fair market value of the Common
Stock on the date of grant), the vesting provisions, and the option term. For
purposes of the 1998 Plan, fair market value means the average of the high and
low per share sales price as reported on the Nasdaq National Market on the date
of grant. Unless otherwise provided by the Plan Administrator, and to the extent
required for incentive stock options by the Code, an option granted under the
1998 Plan generally will expire ten years from the date of grant or, if earlier,
one year after the optionee's retirement, early retirement, death, or disability
and three months after other terminations (other than termination for cause in
which case such option shall automatically expire upon first notification to the
optionee of such termination).
Stock Awards. The Plan Administrator is authorized under the 1998 Plan to
issue shares of Common Stock to eligible participants with terms, conditions,
and restrictions established by the Plan Administrator in its sole discretion.
Restrictions may be based on continuous service with the Company or the
achievement of performance goals. Holders of restricted stock are shareholders
of the Company and have, subject to certain restrictions, all the rights of
shareholders with respect to such shares.
Termination of the 1998 Plan. Unless terminated sooner by the Board of
Directors, the 1998 Plan will terminate in December 2008.
Adjustments. The Plan Administrator will make proportional adjustments to
the aggregate number of shares issuable under the 1998 Plan and to outstanding
awards in the event of stock splits or other capital adjustments.
Corporate Transactions. In the event of certain corporate transactions,
such as a merger or sale of the Company, each outstanding option to purchase
shares under the 1998 Plan will be assumed or an equivalent option substituted
by the successor corporation or a parent thereof. If the successor corporation
refuses to assume or provide an equivalent substitute for the option, unless
otherwise provided in an individual's option letter agreement, the option shall
terminate, but the holder of such option shall have the right to exercise the
option immediately before the corporation transaction. In the event of a
proposed dissolution or liquidation of the Company, the Plan Administrator, in
its discretion, may accelerate options and cancel any forfeiture provisions or
repurchase options applicable to stock awards.
1997 STOCK INCENTIVE COMPENSATION PLAN
WebTrends' 1997 Stock Incentive Compensation Plan (the "1997 Plan")
provides for the grant of incentive and nonqualified stock options and stock
awards to employees, directors and consultants of the Company. An aggregate of
1,534,524 shares of Common Stock has been authorized for issuance under the 1997
Plan. As of December 31, 1998, options to purchase an aggregate of 1,471,149
shares of Common Stock were outstanding under the 1997 Plan, with exercise
prices ranging from $0.61 to $8.00 per share. As of
53
<PAGE> 57
December 31, 1998, options to purchase 8,437 shares of Common Stock had been
exercised under the 1997 Plan. No additional options will be granted under the
1997 Plan, as future option grants will be made under the 1998 Plan. Any shares
that are returned to the 1997 Plan upon termination of certain options and stock
grants (other than terminations due to exercise or settlement of such awards)
will be added to the number of shares reserved for issuance under the 1998 Plan.
Options outstanding under the 1997 Plan will continue to be governed by the
terms of the 1997 Plan. In the event of a merger of the Company with or into
another corporation, the options may be assumed or an equivalent option
substituted by the successor corporation or a parent or subsidiary of such
corporation. If the successor corporation refuses to assume or provide an
equivalent substitute for the option, unless otherwise provided in an
individual's option letter agreement, the option will terminate, but the holder
of the option shall have the right to exercise the vested portion of the option
immediately before the corporate transaction.
LIMITATION OF LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Oregon law, WebTrends' Articles of Incorporation
("Articles") require indemnification against certain liabilities and expenses of
a director, and the Articles and Bylaws permit such indemnification of an
officer, where either is made or threatened to be made a party to a proceeding
(other than a proceeding by or in the right of the Company to procure a judgment
in its favor) because such person is or was a director or officer of WebTrends.
Indemnification is provided if the director or officer acted in good faith and
in a manner he or she reasonably believed was in or not opposed to the Company's
best interests, and, with respect to any criminal action or proceeding, the
director or officer, in addition, had no reasonable cause to believe his or her
conduct was unlawful. In the case of any proceeding by or in the right of the
Company, a director or officer is entitled to indemnification of certain
expenses if he or she acted in good faith and in a manner he or she reasonably
believed was in or not opposed to the Company's best interests. However,
pursuant to Oregon law, no indemnification would be made if the director's or
officer's errors or omissions (or alleged errors or omissions) were shown to
have involved any: (i) breach of the director's or officer's duty of loyalty to
WebTrends; (ii) act or omission not in good faith or that involved intentional
misconduct or a knowing violation of law; (iii) distribution that was unlawful
under Oregon law; (iv) transaction from which the director or officer received
an improper personal benefit; or (v) profits made from the purchase and sale by
the director or officer of securities of WebTrends within the meaning of Section
16(b) of the Securities Exchange Act of 1934, as amended, or similar provision
of any state statutory law or common law. The Articles also provide that no
director will be liable to the Company or its shareholders for monetary damages
for conduct as a director, except that a director may be personally liable in
the instances set forth in clauses (i)through (v) above. Indemnification may
also be provided to persons other than directors or officers under certain
circumstances.
The Company understands that the current position of the Securities and
Exchange Commission is that any indemnification of liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), is against public
policy and is, therefore, unenforceable.
54
<PAGE> 58
CERTAIN TRANSACTIONS
On August 24, 1998, WebTrends entered into a Consulting Agreement with J
Ryan & Associates, a consulting company formed by John W. Ryan, a director of
the Company, pursuant to which the Company is required to pay a fee of $45,000,
grant Mr. Ryan an option to purchase 7,500 shares of the Company's Common Stock
pursuant to the 1997 Plan and reimburse him for reasonable out-of-pocket
expenses incurred in connection with his providing services as a consultant. The
consulting services include assistance related the Company's North American
distribution channels and assisting with company positioning and overall market
planning. The Consulting Agreement has a term of six months, ending on February
28, 1999. As of December 31, 1998, the Company has made payments totaling
$45,000 and has granted Mr. Ryan an option to purchase 7,500 shares of Common
Stock under the 1997 Plan. See "Management -- Compensation of Directors."
In March 1997, the Company issued promissory notes, each in the amount of
$125,000 and bearing interest at the rate of 5% per annum, to each of Elijahu
Shapira and W. Glen Boyd, executive officers and directors of the Company. The
promissory notes were scheduled to mature in December 1997. In August 1998, the
payment terms of the promissory notes were amended to provide that payments in
amounts not less than $25,000 per quarter would be made on each promissory note
until the entire principal and accrued interest is paid in full. The Company has
made two quarterly payments totalling $60,858 to each of Messrs. Shapira and
Boyd as of December 31, 1998.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. Any future transactions between the Company and its
officers, directors, and principal shareholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested directors, and will be on terms no less favorable
to the Company than could be obtained from unaffiliated third parties.
55
<PAGE> 59
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of WebTrends Common Stock as of December 31, 1998 by (i)
each person (or group of affiliated persons) known by the Company to
beneficially own more than a number of shares equal to 5% of the Common Stock;
(ii) each director and Named Executive Officer; (iii) the Selling Shareholders;
and (iv) all of the Company's directors and executive officers as a group.
Except as otherwise indicated, WebTrends believes that the beneficial owners of
the Common Stock listed below, based on information furnished by such owners,
have sole voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
PERCENT OWNERSHIP(1)
-----------------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS(2) BENEFICIALLY OWNED(1) OFFERING OFFERING(3)
------------------- --------------------- -------- -----------
<S> <C> <C> <C>
Elijahu Shapira...................... 3,900,000(4) 47.5% 34.8%
W. Glen Boyd......................... 3,900,000(5) 47.5 34.8
James T. Richardson.................. 27,366(6) * *
Gregory D. Applegate................. -- -- --
Daniel J. Meub....................... -- -- --
Michael Burmeister-Brown............. 410,527 5.0 3.7
John W. Ryan......................... 20,526(6) * *
Srivats Sampath...................... 20,526(6) * *
All directors and executive officers
as a group
(eight persons).................... 8,278,945(6) 99.9 73.3
</TABLE>
- -------------------------
* Less than 1%.
(1) Beneficial ownership of shares includes any shares: (i) over which a person
exercises sole or shared voting or investment power; or (ii) of which a
person has the right to acquire ownership at any time within 60 days (e.g.
through the exercise of an option that has vested as to all or a portion of
the underlying shares). Shares of Common Stock subject to options currently
exercisable or exercisable within 60 days are deemed outstanding for
purposes of computing the percentage ownership of the person holding the
options, but are not deemed outstanding for computing the percentage
ownership of any other person.
(2) The address of Messrs. Shapira, Boyd, Richardson, Applegate, and Meub is c/o
WebTrends Corporation, 851 SW Sixth Avenue, Suite 1200, Portland, Oregon
97204. The address of Mr. Burmeister-Brown is c/o Second Nature Software,
1325 Officers' Row, Vancouver, Washington 98661. The address of Mr. Ryan is
c/o J Ryan & Associates, 2903 Mill Reef Cove, Austin, Texas 78746. The
address of Mr. Sampath is c/o Network Associates, Inc., 3965 Freedom Circle,
Santa Clara, California 95054.
(3) Assumes no exercise of the Underwriters' over-allotment option. If the
over-allotment option is exercised in full, the Selling Shareholders will
sell an aggregate of 450,000 shares of Common Stock. Specifically, Elijahu
Shapira and W. Glen Boyd will each sell 225,000 shares and will each
beneficially own 3,675,000 shares, or 32.8% of the Company's outstanding
Common Stock after completion of the Offering.
(4) Includes 500,000 shares of Common Stock held by Anne Lim Shapira as trustee
of The Shapira Group Trust, U/A/D 9/29/98. Mr. Shapira disclaims beneficial
ownership of such shares.
56
<PAGE> 60
(5) Includes 500,000 shares of Common Stock held by Alice Ferguson Boyd as
trustee of The Boyd Group Trust, U/A/D 9/29/98. Mr. Boyd disclaims
beneficial ownership of such shares.
(6) Includes shares subject to options exercisable within 60 days after December
31, 1998, as follows: James T. Richardson, 27,366 shares; John W. Ryan,
20,526 shares; and Srivats Sampath, 20,526 shares; for all officers and
directors as a group, 68,418 shares.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of WebTrends consists of 60 million shares of
Common Stock, no par value per share, and 15 million shares of Preferred Stock,
no par value per share.
COMMON STOCK
As of December 31, 1998, there were 8,218,964 shares of Common Stock
outstanding, held of record by seven shareholders. Following this Offering,
11,218,964 shares of Common Stock will be issued and outstanding (assuming no
exercise of stock options subsequent to December 31, 1998). Holders of Common
Stock are entitled to one vote per share on all matters to be voted upon by the
shareholders. Because holders of Common Stock do not have cumulative voting
rights, the holders of a majority of the shares of Common Stock can elect all of
the members of the Board of Directors standing for election. Subject to
preferences of any Preferred Stock that may be issued in the future, the holders
of Common Stock are entitled to receive such dividends as may be declared by the
Board of Directors. See "Dividend Policy." If the Company is liquidated,
dissolved, or wound up, the holders of Common Stock are entitled to receive pro
rata all of the Company's assets available for distribution to its shareholders
after payment of liquidation preferences of any outstanding shares of Preferred
Stock. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are fully paid and
non-assessable.
PREFERRED STOCK
Subject to the provisions of the Articles of Incorporation and limitations
prescribed by law, the Board of Directors has the authority to issue, without
further vote or action by the shareholders, up to 15 million shares of Preferred
Stock in one or more series. The Board has the power and authority to fix the
rights, preferences, privileges, and restrictions thereof, including dividend
rights, dividend rates, conversion rates, voting rights, terms of redemption,
redemption prices, liquidation preferences, and the number of shares
constituting any series or the designation of such series. Any series of
Preferred Stock may have rights and privileges superior to those of the Common
Stock. There will be no shares of Preferred Stock outstanding upon the
consummation of this Offering, and the Company has no present plans to issue any
Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage a third-party's
attempt to obtain control of WebTrends by means of a tender offer, proxy
contest, merger, or otherwise, which thereby protects the continuity of the
Company's management. The issuance of shares of the Preferred Stock may also
discourage a party from making a bid for the Common Stock because such issuance
may adversely affect the rights of the holders of Common Stock. For example,
Preferred Stock issued by the Company may rank prior to the Common Stock as to
dividend rights, liquidation preference, or both, may have full or limited
voting
57
<PAGE> 61
rights and may be convertible into shares of Common Stock. Accordingly, the
issuance of shares of Preferred Stock may discourage bids for the Common Stock
or may otherwise adversely affect the market price of the Common Stock. See
"Risk Factors -- Anti-Takeover Provisions; Possible Issuance of Preferred
Stock."
ANTI-TAKEOVER MEASURES
ARTICLES AND BYLAWS
WebTrends' Articles and Bylaws contain certain provisions that may have the
effect of delaying, deferring or preventing a change in control of the Company.
Such provisions include: (i) the ability of the Board of Directors, without
further shareholder approval, to issue up to 15 million shares of Preferred
Stock; (ii) requiring a classified board whenever there are six or more
directors, with each class containing as nearly as possible one-third of the
total number of directors and the members of each class serving for staggered
three-year terms; (iii) prohibiting cumulative voting for the election of
directors; (iv) requiring supermajority approval of the directors then in office
to change the total number of directors; (v) requiring supermajority approval of
the shareholders to effect certain amendments to the Articles or Bylaws; and
(vi) requiring no less than 60 days' advance notice with respect to nominations
of directors or other matters to be voted on by shareholders other than by or at
the direction of the Board of Directors. See "Risk Factors -- Anti-Takeover
Provisions; Possible Issuance of Preferred Stock," "Management -- Classified
Board; Removal of Directors."
OREGON CONTROL SHARE AND BUSINESS COMBINATION STATUTES
WebTrends is subject to certain provisions of the Oregon Business
Corporation Act that, in certain circumstances, restrict the ability of
significant shareholders to exercise voting rights (the "Control Share Act").
The Control Share Act generally provides that a person (the "Acquiring Person")
who acquires voting stock of an Oregon corporation in a transaction that results
in the Acquiring Person holding more than 20%, 33 1/3%, or 50% of the total
voting power of the corporation (a "Control Share Acquisition") cannot vote the
shares such person acquires in a Control Share Acquisition ("Control Shares")
unless voting rights are restored to the Control Shares by (i) a majority of the
outstanding voting shares, including the Control Shares, and (ii) the holders of
a majority of the outstanding voting shares, excluding the Control Shares and
shares held by the corporation's officers and inside directors. The term
"Acquiring Person" is broadly defined to include persons acting as a group.
The Acquiring Person may, but is not required to, submit to the corporation
a statement setting forth certain information about the Acquiring Person and its
plans with respect to the corporation. The statement may also request that the
corporation call a special meeting of shareholders to determine whether voting
rights will be accorded to the Control Shares. If the Acquiring Person does not
request a special meeting of shareholders, the issue of voting rights of Control
Shares will be considered at the next annual or special meeting of shareholders.
If the Acquiring Person's Control Shares are accorded voting rights and
represent a majority of all voting power, shareholders who do not vote in favor
of voting rights for the Control Shares will have the right to receive the
appraised "fair value" of their shares. The appraised fair value will, at a
minimum, be equal to the highest price paid per share by the Acquiring Person
for the Control Shares.
WebTrends is also subject to certain provisions of the Oregon Business
Corporation Act that govern business combinations between corporations and
interested shareholders
58
<PAGE> 62
(the "Business Combination Act"). The Business Combination Act generally
prohibits a corporation from entering into a business combination transaction
with a person, or affiliate of such person, for a period of three years from the
date such person acquires 15% or more of the voting stock of the corporation (an
"Interested Shareholder"). Business combination transactions for this purpose
include (i) a merger or plan of share exchange; (ii) any sale, lease, mortgage
or other disposition of 10% or more of the assets of the corporation; and (iii)
certain transactions that result in the issuance of capital stock of the
corporation to the Interested Shareholder. These restrictions do not apply if
(i) the Interested Shareholder, as a result of the transaction in which such
person became an Interested Shareholder, owns at least 85% of the outstanding
voting stock of the corporation (disregarding shares owned by directors who are
also officers and certain employee benefit plans); (ii) the board of directors
approves the share acquisition or business combination before the Interested
Shareholder acquired 15% or more of the corporation's outstanding voting stock;
or (iii) the board of directors and the holders of at least two-thirds of the
outstanding voting stock of the corporation (disregarding shares owned by the
Interested Shareholder) approve the transaction after the Interested Shareholder
acquires 15% or more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is BankBoston, N.A.,
located in Canton, Massachusetts.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has not been a public market for WebTrends'
Common Stock, and a significant public market for the Common Stock may not be
developed or sustained after this Offering. Future sales of substantial amounts
of the Common Stock in the public market, or even the prospect of such sales,
could adversely affect the prevailing market prices of the Common Stock or the
future ability of the Company to raise capital through an offering of equity
securities.
Upon the closing of this Offering, and assuming no exercise of outstanding
stock options subsequent to December 31, 1998, WebTrends will have 11,218,964
shares of Common Stock outstanding. The 3,000,000 shares sold in the Offering
will be freely tradable without restriction or limitation under the Securities
Act, except for any such shares purchased by "affiliates" of the Company, as
such term is defined under Rule 144 of the Securities Act, which will be subject
to the resale limitations of Rule 144. The remaining 8,218,964 shares of
WebTrends Common Stock issued and outstanding are "restricted securities" within
the meaning of Rule 144 and were issued and sold by WebTrends in private
transactions. Such restricted securities may be publicly sold only if registered
under the Securities Act or sold in accordance with an applicable exemption from
registration, such as Rule 144. The Company and the holders of all such
remaining shares will agree that, without the prior written consent of Dain
Rauscher Wessels, a division of Dain Rauscher Incorporated, they will not,
directly or indirectly, issue, sell, offer or agree to sell, grant any option
for the sale of, pledge, make any short sale, or otherwise dispose of shares of
Common Stock or any securities convertible or exchangeable therefor, for a
period of 180 days after the date of this Prospectus (the "Lock-Up Agreements").
Upon expiration of the Lock-Up Agreements, all of these restricted securities
will be eligible for immediate resale in the public market subject to the
limitations of Rule 144.
59
<PAGE> 63
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year, including an affiliate of the Company, would be entitled
to sell, within any three-month period, that number of shares that does not
exceed the greater of (i) 1% of the then-outstanding shares of Common Stock
(approximately 112,000 shares upon the closing of the Offering), and (ii) the
average weekly trading volume in the Common Stock during the four calendar weeks
immediately preceding the date on which a notice of sale is filed with the
Commission, provided certain manner of sale and notice requirements and
requirements as to the availability of current public information about the
Company are satisfied. In addition, in order to sell shares of Common Stock that
are not restricted securities, affiliates of the Company must comply with all
restrictions and requirements of Rule 144 other than the one-year holding period
requirement. As defined in Rule 144, an "affiliate" of an issuer is a person who
directly or indirectly through the use of one or more intermediaries controls,
or is controlled by, or is under common control with, such issuer. Under Rule
144(k), a holder of "restricted securities" who is not deemed an affiliate of
the issuer and who has beneficially owned shares for at least two years would be
entitled to sell shares under Rule 144(k) without regard to the limitations
described above.
WebTrends intends to file a registration statement under the Securities Act
following the date of this Prospectus to register the future issuance of up to
3,341,562 shares of Common Stock under the 1997 Plan, the 1998 Plan and the
ESPP. The registration statement will become effective immediately upon filing,
whereupon, subject to the satisfaction of applicable exercisability periods,
Rule 144 volume limitations applicable to affiliates and, in certain cases, the
Lock-Up Agreements with the Underwriters (described above), the shares of Common
Stock to be issued pursuant to the ESPP or upon exercise of outstanding options
granted pursuant to the 1998 Plan will be available for immediate resale in the
open market. As of December 31, 1998, no options were outstanding under the 1998
Plan and no shares had been issued under the ESPP.
60
<PAGE> 64
UNDERWRITING
The Underwriters named below, acting through their representatives, Dain
Rauscher Wessels, a division of Dain Rauscher Incorporated ("Dain Rauscher
Wessels"), and SoundView Technology Group, Inc. (the "Representatives"), have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement, to purchase from the Company and the Selling Shareholders the number
of shares of Common Stock set forth opposite their respective names below. The
Underwriters are committed to purchase and pay for all such shares if any are
purchased, subject to certain conditions precedent.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
------------------- ---------
<S> <C>
Dain Rauscher Wessels.......................................
SoundView Technology Group, Inc.............................
---------
Total............................................. 3,000,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Shareholders
that the Underwriters propose to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession of not in
excess of $ per share, of which $ may be reallowed to other dealers.
After the public offering, the public offering price, concession and reallowance
to dealers may be reduced by the Representatives. No such reduction shall change
the amount of proceeds to be received by the Company as set forth on the cover
page of the Prospectus.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company, and the Selling Shareholders against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
Underwriting Agreement.
The Selling Shareholders have granted to the Underwriters an option,
exercisable for 30 days after the date of this Prospectus, to purchase up to
450,000 additional shares of Common Stock to cover over-allotments, if any, at
the same price per share to be paid by the Underwriters for the other shares of
Common Stock offered hereby. To the extent that the Underwriters exercise such
option, each of the Underwriters will be obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares that the number of shares of Common Stock to be purchased by it shown in
the above table represents as a percentage of the 3,000,000 shares of Common
Stock offered hereby. If purchased, such additional shares will be sold by the
Underwriters on the same terms as those on which the 3,000,000 shares are being
sold.
61
<PAGE> 65
The price of the shares of Common Stock purchased by the Underwriters will
be the public offering price set forth on the cover page of the Prospectus less
the following underwriting discounts and commissions, to be provided by the
Company and the Selling Shareholders:
<TABLE>
<CAPTION>
TOTAL WITHOUT TOTAL WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- --------------- ---------------
<S> <C> <C> <C>
By Company.................................
By Selling Shareholders....................
</TABLE>
The Company will also pay certain offering expenses estimated to total $1.0
million.
The Company's shareholders and option holders have agreed, for a period of
180 days after the date of this Prospectus (the "Lock-Up Period"), not to offer,
pledge, sell, offer to sell, contract to sell, sell any option or contract to
purchase, purchase any option to sell, grant any option right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any of
the shares of Common Stock or any securities convertible into, or exercisable or
exchangeable for, Common Stock, owned as of the date of this Prospectus or
thereafter acquired directly by such holders or with respect to which they have
or hereafter acquire the power of disposition, without the prior written consent
of the Representatives. However, the Representatives may, in their sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements. There are no agreements between the
Representatives and any of the Company's shareholders providing consent by the
Representatives to the sale of shares prior to the expiration of the Lock-Up
Period. In addition, the Company has agreed that during the Lock-Up Period, the
Company will not, subject to certain exceptions, issue, sell, contract to sell,
or otherwise dispose of, any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock other than the
Company's sale of shares in this Offering, the issuance of Common Stock upon the
exercise of outstanding options or warrants, and the Company's issuance of
options and shares under existing employee stock option and stock purchase
plans, without the prior written consent of the Representatives.
The Representatives have advised the Company that in connection with this
Offering, certain persons participating in this Offering may engage in
transactions, including stabilizing bids, syndicate covering transactions and
the imposition of penalty bids, which may have the effect of stabilizing or
maintaining the market price of the Common Stock at a level above that which
might otherwise prevail in the open market. A stabilizing bid is a bid for or
the purchase of the Common Stock on behalf of the Underwriters for the purpose
of preventing or retarding a decline in the market price of the Common Stock. A
"syndicate covering transaction" is the bid for or the purchase of the Common
Stock on behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with this Offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with the offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
62
<PAGE> 66
Prior to this Offering, there was no public market for the Common Stock.
The initial public offering price for the Common Stock will be determined by
negotiation between the Company, the Selling Shareholders and the Underwriters.
Among other factors to be considered in determining the initial public offering
price are prevailing market and economic conditions, revenues and earnings of
the Company, the state of the Company's business operation, an assessment of the
Company's management and consideration of the above factors in relation to
market valuation of companies in related businesses and other factors deemed
relevant. There can be no assurance, however, that the prices at which the
Common Stock will sell in the public market after this Offering will be equal to
or greater than the initial public offering price.
LEGAL MATTERS
The validity of the Common Stock offered hereby and certain other legal
matters will be passed upon for the Company by Perkins Coie LLP, Portland,
Oregon. Certain legal matters will be passed upon for the Underwriters by Wilson
Sonsini Goodrich & Rosati, P.C., Palo Alto, California.
EXPERTS
The financial statements of the Company as of December 31, 1997 and 1998,
and for each of the years in the three-year period ended December 31, 1998, have
been included in this Prospectus and elsewhere in the registration statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
WebTrends has filed with the Commission a registration statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby (as
amended, the "Registration Statement"). This Prospectus, which constitutes part
of the Registration Statement, omits certain information contained in the
Registration Statement, together with exhibits and schedules, on file with the
Commission pursuant to the Securities Act and the rules and regulations of the
Commission. The Registration Statement, including the exhibits and schedules,
may be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
the Commission's Regional Offices at 7 World Trade Center, Suite 1300, New York,
New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, and copies may be obtained at the prescribed rates from the Public
Reference Section of the Commission at its principal office in Washington, D.C.
The Commission also maintains a Web site on the Internet that contains reports,
proxy and information statements, and other information regarding registrants,
including the Company, that file electronically with the Commission at
http://www.sec.gov.
Statements contained in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract, agreement, or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and an opinion thereon expressed by
independent auditors and may furnish its shareholders with quarterly reports for
the first three quarters of each fiscal year containing unaudited summary
financial information.
63
<PAGE> 67
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 68
WEBTRENDS CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of KPMG Peat Marwick LLP............................. F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Shareholders' Equity.......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 69
INDEPENDENT AUDITORS' REPORT
The Board of Directors
WebTrends Corporation:
We have audited the accompanying balance sheets of WebTrends Corporation as
of December 31, 1997 and 1998, and the related statements of operations,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WebTrends Corporation as of
December 31, 1997 and 1998, and the results of its operations, and its cash
flows for each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Portland, Oregon
January 11, 1999, except for note 10
which is as of January 19, 1999
F-2
<PAGE> 70
WEBTRENDS CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 806,916 1,098,847
Accounts receivable, net............................. 526,641 977,577
Inventories.......................................... 89,135 62,115
Prepaid expenses..................................... 41,999 190,530
Deferred offering costs.............................. -- 255,394
Deferred taxes....................................... 90,500 157,500
---------- ---------
Total current assets......................... 1,555,191 2,741,963
Property and equipment, net............................ 325,966 598,407
Other assets........................................... 5,032 5,016
Deferred taxes, net.................................... -- 17,000
---------- ---------
Total assets................................. $1,886,189 3,362,386
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... 243,830 383,187
Accrued liabilities.................................. 214,448 653,766
Accrued compensation and employment taxes............ 165,805 508,422
Accrued income taxes................................. 24,548 --
Deferred revenue..................................... 387,074 824,013
Notes and interest payable to shareholders........... 259,709 151,103
---------- ---------
Total current liabilities.................... 1,295,414 2,520,491
Deferred taxes......................................... 6,500 --
---------- ---------
Total liabilities............................ 1,301,914 2,520,491
---------- ---------
Commitments and contingencies (note 9)
Shareholders' equity:
Preferred stock, no par value. Authorized 15,000,000
shares; no shares outstanding..................... -- --
Common stock, Class A voting, no par value.
Authorized 30,000,000 shares; issued and
outstanding 8,210,527 at December 31, 1997 and
1998.............................................. 260,000 260,000
Common stock, Class B non-voting, no par value.
Authorized 30,000,000 shares; none and 8,437
shares issued and outstanding at December 31, 1997
and 1998.......................................... -- 320,387
Deferred compensation, net............................. -- (282,227)
Retained earnings...................................... 324,275 543,735
---------- ---------
Total shareholders' equity................... 584,275 841,895
---------- ---------
Total liabilities and shareholders' equity... $1,886,189 3,362,386
========== =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 71
WEBTRENDS CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1997 1998
---------- ---------- ---------
<S> <C> <C> <C>
Revenue:
Software licenses....................... $1,858,014 3,836,657 7,206,461
Support services........................ 6,824 218,233 801,963
---------- ---------- ---------
Total revenue................... 1,864,838 4,054,890 8,008,424
Cost of revenue........................... 204,546 292,268 632,925
---------- ---------- ---------
Gross margin.................... 1,660,292 3,762,622 7,375,499
---------- ---------- ---------
Operating expenses:
Research and development................ 402,583 1,059,439 2,211,029
Sales and marketing..................... 552,634 1,526,889 3,641,965
General and administrative.............. 307,318 748,832 1,300,626
---------- ---------- ---------
Total operating expenses........ 1,262,535 3,335,160 7,153,620
---------- ---------- ---------
Income from operations.......... 397,757 427,462 221,879
---------- ---------- ---------
Other income (expense):
Interest income......................... 9,042 21,769 41,997
Interest expense........................ (2,097) (11,358) (13,111)
---------- ---------- ---------
Other income, net............... 6,945 10,411 28,886
---------- ---------- ---------
Income before income taxes...... 404,702 437,873 250,765
Income taxes.............................. -- 150,500 31,305
---------- ---------- ---------
Net income...................... $ 404,702 287,373 219,460
========== ========== =========
Basic net income per share................ $ .04 .03
========== =========
Diluted net income per share.............. $ .04 .02
========== =========
Shares used in basic net income per share
calculation............................. 8,126,173 8,210,651
========== =========
Shares used in diluted net income per
share calculation....................... 8,126,173 9,003,209
========== =========
Pro forma net income data:
Income before income taxes as
reported............................. 404,702
Pro forma income taxes.................. 140,027
----------
Pro forma net income.................... $ 264,675
==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 72
WEBTRENDS CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A, CLASS B,
PREFERRED STOCK COMMON STOCK COMMON STOCK
-------------------- -------------------- ----------------- DEFERRED RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT COMPENSATION EARNINGS TOTAL
--------- -------- --------- -------- ------ -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995.................... -- $ -- 6,300,300 $ 10,000 -- $ -- -- 257,150 267,150
Conversion of S
Corporation shares to C
Corporation shares...... -- -- 1,499,700 -- -- -- -- -- --
Dividend distribution..... -- -- -- -- -- -- -- (624,950) (624,950)
Net income................ -- -- -- -- -- -- -- 404,702 404,702
--------- -------- --------- -------- ----- -------- -------- -------- --------
Balance, December 31,
1996.................... -- -- 7,800,000 10,000 -- -- -- 36,902 46,902
Sale of common stock...... -- -- 410,527 250,000 -- -- -- -- 250,000
Net income................ -- -- -- -- -- -- -- 287,373 287,373
--------- -------- --------- -------- ----- -------- -------- -------- --------
Balance, December 31,
1997.................... -- -- 8,210,527 260,000 -- -- -- 324,275 584,275
Deferred compensation..... -- -- -- -- -- 315,268 (315,268) -- --
Amortization of deferred
compensation............ -- -- -- -- -- -- 33,041 -- 33,041
Exercise of stock
options................. -- -- -- -- 8,437 5,119 -- -- 5,119
Net income................ -- -- -- -- -- -- -- 219,460 219,460
--------- -------- --------- -------- ----- -------- -------- -------- --------
Balance, December 31,
1998.................... -- $ -- 8,210,527 $260,000 8,437 $320,387 (282,227) 543,735 841,895
========= ======== ========= ======== ===== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 73
WEBTRENDS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
--------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................ $ 404,702 287,373 219,460
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........ 29,447 88,375 206,417
Provision for doubtful accounts...... 12,423 32,705 43,548
Loss on marketable securities........ 1,323 -- --
Loss on sale of assets............... -- -- 293
Amortization of deferred stock
compensation...................... -- -- 33,041
Changes in assets and liabilities:
Accounts receivable.................. (261,525) (149,443) (494,484)
Inventories.......................... (9,728) (76,027) 27,020
Prepaid expenses..................... (14,216) (26,209) (403,925)
Deferred taxes, net.................. -- (84,000) (90,500)
Other assets......................... (4,101) 407 16
Accounts payable..................... 78,561 165,269 139,357
Accrued liabilities.................. 12,409 186,410 439,318
Accrued compensation and employment
taxes............................. 57,809 97,719 342,617
Accrued income taxes................. -- 24,548 (24,548)
Accrued interest..................... 2,097 5,503 (8,606)
Deferred revenues.................... 131,592 255,481 436,939
--------- -------- ---------
Net cash provided by operating
activities..................... 440,793 808,111 865,963
--------- -------- ---------
Cash flows from investing activities:
Acquisition of property and equipment..... (156,422) (269,533) (479,151)
--------- -------- ---------
Net cash used by investing
activities..................... (156,422) (269,533) (479,151)
--------- -------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock.... -- 250,000 5,119
Dividend payments to shareholders......... (142,068) (482,882) --
Principal payments on borrowings from
shareholders........................... -- (70,000) (100,000)
Borrowings from shareholders.............. -- 250,000 --
--------- -------- ---------
Net cash used by financing
activities..................... (142,068) (52,882) (94,881)
--------- -------- ---------
Increase in cash and cash equivalents....... 142,303 485,696 291,931
Cash and cash equivalents, beginning of
year...................................... 178,917 321,220 806,916
--------- -------- ---------
Cash and cash equivalents, end of year...... $ 321,220 806,916 1,098,847
========= ======== =========
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest............................... $ -- 5,855 21,717
Income taxes........................... -- 208,000 155,500
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 74
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
WebTrends Corporation (the Company) was incorporated as an S Corporation on
August 31, 1993 in Delaware and was reorganized into a C Corporation effective
January 1, 1997 in Oregon. WebTrends Corporation is a leading provider of
enterprise management solutions for Internet-based systems.
USE OF ESTIMATES
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For the purpose of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable are shown net of allowance for doubtful accounts of
$20,000 and $40,000 at December 31, 1997 and 1998, respectively.
NEED FOR NEW PRODUCT DEVELOPMENT
A substantial portion of the Company's revenues each year are generated
from the development and rapid release to market of computer software products
newly introduced during the year. In the extremely competitive industry
environment in which the Company operates, such product generation, development
and marketing processes are uncertain and complex, requiring accurate prediction
of market trends and demand as well as successful management of various
development risks inherent in such products. In light of these requirements, it
is reasonably possible that failure to successfully manage a significant product
introduction could have a severe near-term impact on the Company's growth and
results of operations.
INVENTORIES
Inventory is valued at the lower of estimated cost or market determined
using the "first-in, first-out" ("FIFO") method. Inventories consist of CDs,
printing, packaging and receiving costs.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of individual assets of
three to five years. Expenditures for renewals and improvements that
significantly add to the useful life of an
F-7
<PAGE> 75
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
asset are capitalized. Expenditures for repairs and maintenance are charged to
income. When depreciable properties are retired or otherwise disposed of, the
cost and related accumulated depreciation are removed from the accounts and the
resulting gain or loss is reflected in operations.
REVENUE RECOGNITION
In October 1997, The American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 97-2, Software Revenue Recognition.
Subsequently, in March 1998, the Financial Accounting Standards Board ("FASB")
approved SOP 98-4, Deferral of the Effective Date of a Provision of 97-2,
Software Revenue Recognition. SOP 98-4 defers for one year, the application of
several paragraphs and examples in SOP 97-2 that limit the definition of vendor
specific objective evidence ("VSOE") of the fair value of various elements in a
multiple element arrangement. The provisions of SOP's 97-2 and 98-4 have been
applied to transactions entered into beginning January 1, 1998. Prior to 1997,
the Company's revenue policy was in accordance with the preceding authoritative
guidance provided by SOP No. 91-1, Software Revenue Recognition.
Software license revenue consists of fees for licenses of the Company's
software products. The Company recognizes its license revenue upon delivery of
software, assuming no significant Company obligations or customer acceptance
rights exist. The Company sells a portion of its products domestically and
internationally through resellers. For domestic resellers, the Company
recognizes revenue from sales primarily at the time of shipment, net of
estimated returns and allowances. Revenue from sales to international resellers
is recognized upon sales from the reseller to a third party or end user.
Support services revenue consists of annual subscriptions for upgrades,
post customer support services. and professional services. Subscriptions, that
allow the subscriber to purchase the right to obtain upgrades, when and if
available, are paid in advance and revenues are recognized ratably over the term
of the subscription. Professional services are recognized once the services or
deliverables are performed.
CONCENTRATION OF CREDIT RISK
Sales outside of the United States were approximately $336,000, $828,000
and $2.2 million for the years ended December 31, 1996, 1997 and 1998,
respectively. During these same periods, no individual customer or reseller
accounted for 10% or more of total revenue. However, accounts receivable at
December 31, 1997 and 1998 includes balances due from a third-party export
management company that manages most of the Company's international sales
through invoicing and initiating collection procedures. This account comprised
21% and 28%, respectively, of the total outstanding accounts receivable balance
at those respective dates of which 81% and 94%, respectively, was due less than
thirty days from billing. For 1997 and 1998, except for the one third-party
export management company, no customer comprised greater than 10% of the total
accounts receivable balance.
F-8
<PAGE> 76
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and notes payable to shareholders approximate fair value due to
the short-term nature of these instruments. Fair value estimates are made at a
specific point in time, based on relevant market information about the financial
instrument when available. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, cannot be
determined with precision. Changes in assumptions could significantly affect the
estimates.
ADVERTISING COSTS
Advertising costs are generally expensed when incurred. Total advertising
costs were approximately $266,000, $553,000 and $957,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.
RESEARCH AND DEVELOPMENT
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed. Under the standard,
capitalization of software development costs begins upon the establishment of
technological feasibility, subject to net realizable value considerations. To
date, the period between achieving technological feasibility and the general
availability of such software has been short; therefore, software development
costs qualifying for capitalization have been immaterial. Accordingly, the
Company has not capitalized any software development costs and charged all such
costs to research and development expense.
INCOME TAXES
Prior to January 1, 1997, the Company was taxed under the S Corporation
provisions of the Internal Revenue Code. Under those provisions, the Company did
not pay federal or state corporate income taxes on its taxable income. Instead,
the shareholders were liable for federal and state income taxes on the Company's
taxable income. Supplemental pro forma net income data for the year ended
December 31, 1996, as if the Company was a C Corporation, are presented for
comparison purposes only.
Effective January 1, 1997, the S Corporation election was terminated. The
Company's income taxes since that date are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
F-9
<PAGE> 77
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
STOCK-BASED EMPLOYEE COMPENSATION
The Company adopted Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, ("SFAS No. 123") which permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply provisions of APB Opinion No. 25 and provide pro
forma net income and pro forma earnings per share disclosures as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosure provisions of SFAS No. 123.
NET INCOME PER SHARE
Basic and diluted net income per share were computed using the weighted
average number of common shares outstanding during each year, with diluted net
income per share including the effect of potentially dilutive common stock
equivalents. The weighted average number of common shares outstanding for basic
net income per share computations for the years ended December 31, 1997 and 1998
were 8,126,173 and 8,210,651, respectively. For diluted net income per share,
- -0- and 792,558 shares were added to the weighted average number of common
shares outstanding for the same periods, respectively, representing potential
dilution for stock options outstanding, calculated using the treasury stock
method. Basic and diluted net income per share have been calculated in
accordance with SEC Staff Accounting Bulletin No. 98. Net income per share data
is not presented for any period prior to 1997 as the Company was an S
Corporation and the capital structure is not comparable to that existing in
1997.
(2) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
--------- --------
<S> <C> <C>
Computer hardware and equipment......................... $ 416,166 813,255
Furniture and fixtures.................................. 4,383 4,383
Computer software....................................... 32,061 113,830
--------- --------
Total......................................... 452,610 931,468
Less accumulated depreciation and amortization.......... (126,644) (333,061)
--------- --------
Total assets, net............................. $ 325,966 598,407
========= ========
</TABLE>
(3) INCOME TAXES
Components of the 1997 provision for income taxes include:
<TABLE>
<CAPTION>
CHANGE IN TOTAL TAX
CURRENT DEFERRED TOTAL TAX STATUS EXPENSE
-------- -------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Federal.......................... $187,000 (75,000) 112,000 7,000 119,000
State and local.................. 47,500 (18,000) 29,500 2,000 31,500
-------- ------- ------- ----- -------
Total.................. $234,500 (93,000) 141,500 9,000 150,500
======== ======= ======= ===== =======
</TABLE>
F-10
<PAGE> 78
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Components of the 1998 provision for income taxes include:
<TABLE>
<CAPTION>
TOTAL TAX
CURRENT DEFERRED EXPENSE
-------- -------- ---------
<S> <C> <C> <C>
Federal........................................ $102,000 (75,000) 27,000
State and local................................ 19,805 (15,500) 4,305
-------- ------- ------
Total................................ $121,805 (90,500) 31,305
======== ======= ======
</TABLE>
The 1997 and 1998 provision for income taxes varies from the amounts
computed by applying the federal statutory rate to income before taxes:
<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Federal income tax computed at statutory rates.............. 34.0% 34.0%
State and local taxes, net of federal benefits.............. 8.5 8.0
Tax credits................................................. (14.2) (37.3)
Foreign sales corporation benefit........................... -- (1.2)
Deferred stock compensation................................. -- 4.3
Change in tax status........................................ 2.0 --
Other....................................................... 4.1 4.7
----- -----
Total............................................. 34.4% 12.5%
===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Deferred incentive compensation.......................... $16,600 --
Allowance for doubtful accounts.......................... 7,800 15,700
Accrued sales tax........................................ 54,600 94,800
Research and development credits......................... -- 23,600
Accrued vacation and bonus............................... 2,600 34,000
Other.................................................... 8,900 13,000
------- -------
Deferred tax assets.............................. 90,500 181,100
Deferred tax liabilities:
Depreciation of equipment................................ (6,500) (6,600)
------- -------
Net deferred tax assets.......................... $84,000 174,500
======= =======
</TABLE>
The Company has not recorded a valuation allowance against its deferred tax
assets existing at December 31, 1997 or 1998, as it believes it is more likely
than not that the results of future operations will generate sufficient taxable
income to realize the deferred tax assets for which no valuation allowance has
been assigned.
At December 31, 1998, the Company had approximately $24,000 of federal and
state tax credit carryforwards to offset future taxable income which will expire
in the year 2013.
F-11
<PAGE> 79
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) DEFERRED REVENUE
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- -------
<S> <C> <C>
Deferred customer support................................. $ -- 107,055
Deferred product revenues................................. 115,308 68,166
Deferred subscription revenues............................ 218,277 533,893
Other..................................................... 53,489 114,899
-------- -------
$387,074 824,013
======== =======
</TABLE>
(5) NOTES PAYABLE TO SHAREHOLDERS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- -------
<S> <C> <C>
Notes payable to officer/shareholders, unsecured, due on
demand with interest at 5%.............................. $250,000 150,000
Accrued interest on notes................................. 9,709 1,103
-------- -------
$259,709 151,103
======== =======
</TABLE>
(6) LINE OF CREDIT
As of December 31, 1998, the Company had a $750,000 bank line of credit
with a major financial institution. The line of credit expires on April 30,
1999. Borrowings under the line generally are limited to 80% of the Company's
eligible accounts receivable. Interest on the unpaid balance accrues at a rate
of prime plus 0.25%. Borrowings under the line of credit are collateralized by
the Company's accounts receivable, inventory and general intangible assets,
including its intellectual property rights. The line of credit agreement
contains financial covenants, including tangible net worth and the ratio of
current assets to liabilities. As of December 31, 1998, the Company had a letter
of credit for $225,000 outstanding against its line of credit.
(7) EMPLOYEE BENEFIT PLAN
The Company established an employee benefit plan, effective January 1,
1997, that features a 401(k) salary reduction provision, covering all employees
who meet certain eligibility requirements. Eligible employees can elect to defer
up to 15% of compensation or the statutorily prescribed annual limit. The
Company, at its discretion, may make contributions to the plan. To date, the
Company has made no contributions to the plan and has incurred administrative
costs of $1,775 and $3,328 for the years ended December 31, 1997 and 1998,
respectively.
(8) SHAREHOLDERS' EQUITY
PREFERRED STOCK
The Company is authorized to issue 15,000,000 shares of preferred stock, no
par value. The Board of Directors of the Company has the authority to divide the
preferred stock into as many series as it shall from time to time determine.
Each series of preferred
F-12
<PAGE> 80
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
stock shall have the powers, preferences and rights as determined by the Board
at its discretion.
COMMON STOCK
Effective December 31, 1996, the shareholders exchanged 300 shares, no par
value, of the S Corporation for 1,500,000 shares, no par value, of the C
Corporation as part of its restructuring into a C Corporation which became
effective January 1, 1997. At the same time, the Company authorized 30,000,000
shares of Class A voting common stock, no par value, to be made available for
issuance. Effective March 17, 1997, the Company authorized a stock for stock
exchange of the then outstanding 1,500,000 shares for 7,800,000 shares. This
stock for stock exchange has been retroactively reflected for all periods
presented. Also on March 17, 1997, the Company authorized the sale of 410,527
shares to one of its Board members.
In May 1998, the Company approved a 3-for-1 stock split. Accordingly, share
and per share amounts for common stock have been retroactively restated to
reflect the stock split for all periods presented. See note 10 for additional
discussion.
In December of 1998, the Company approved a recapitalization of its common
stock to be effected upon the closing of its initial public offering. Under the
terms of the recapitalization, the Class A common stock will be redesignated
common stock, no par value per share, and will be the only authorized class of
common stock. Each share of Class B common stock will automatically be converted
into one share of such common stock, and the recorded value of the Class B
common stock will be transferred to common stock.
Deferred compensation cost recognized for 1998 totaled $315,268 for stock
option awards that were granted with exercise prices that were less than the
estimated value of the stock at the date of grant. Amortization of $33,041 of
deferred compensation was recorded for the year ended December 31, 1998.
STOCK OPTIONS
Effective March 28, 1997, the Company established the 1997 Key Employees'
Incentive Stock Option Plan and subsequently authorized 1,500,000 shares of
Class B non-voting common stock, no par value, to be reserved for grants under
the plan. Effective December 5, 1997, the Board approved the 1997 Stock
Incentive Compensation Plan (the "Plan") which replaced the Key Employee
Incentive Stock Option Plan. Options granted under the Plan may be designated as
incentive or nonqualified at the discretion of the plan administrator. On
October 30, 1998, the Company increased the number of shares authorized under
the plan to 2,000,000. In December 1998, the Company reduced the number of
shares authorized in the Plan to 1,534,524 and the Company determined that no
additional options will be granted under the Plan.
In December 1998, the Company adopted the 1998 Stock Incentive Compensation
Plan (the "1998 Plan"). The 1998 Plan permits both option and stock grants. The
Board has reserved a total of 1,465,475 shares of common stock for the 1998
Plan, plus (a) any shares returned to the 1997 Plan upon termination of certain
option and stock grants (other than terminations due to exercise or settlement
of such awards); and (b) an
F-13
<PAGE> 81
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
automatic annual increase, to be added on the first day of the Company's fiscal
year beginning in 2001, equal to the lesser of 500,000 shares or 5% of the
average common shares outstanding as used to calculate fully diluted earnings
per share as reported in the Company's Annual Report for the preceding year.
The option price for incentive stock options are set at not less than the
market value of the Company's common stock (market value plus 10% for
shareholders who possess more than 10% of the combined voting power of all
classes of shares of the Company) at the date of the grant. Employee options
generally vest 25% after the first year of employment and in equal amounts on a
monthly or annual basis thereafter over the term of the option. Options are
contingent on continued employment with the Company and expire ten years (five
years for 10% shareholders as defined above) from the date of grant. Certain
options are subject to acceleration upon a change in control of the Company as
defined in the option agreements.
The Company applies APB Opinion No. 25 in accounting for its stock options
plans. Accordingly, compensation cost is generally not recognized for stock
option grants.
A summary of stock options follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- --------
<S> <C> <C>
Options outstanding at December 31, 1996................. -- $ --
Granted.................................................. 666,708 0.6067
Canceled................................................. -- --
Forfeited................................................ (37,500) 0.6067
--------- -------
Options outstanding at December 31, 1997................. 629,208 0.6067
Granted.................................................. 1,000,567 3.3488
Canceled................................................. (35,000) 0.7800
Forfeited................................................ (115,187) 0.6566
Exercised................................................ (8,437) 0.6067
--------- -------
Options outstanding at December 31, 1998................. 1,471,149 $2.4630
========= =======
</TABLE>
At December 31, 1998, the range of exercise prices and weighted average
remaining contractual life of the outstanding options were $0.6067 to $8 and
9.22 years, respectively. At December 31, 1998, 134,802 options were exercisable
with a weighted average exercise price of $0.6067.
The Company adopted the 1999 Employee Stock Purchase Plan (the "ESPP") in
December 1998. The Company intends for the ESPP to qualify under Section 423 of
the Internal Revenue Code of 1986, as amended. The Company authorized the
issuance of a total of 350,000 shares of common stock plus an automatic annual
increase as defined in the ESPP.
F-14
<PAGE> 82
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SFAS NO. 123 DISCLOSURE
The Company applies APB No. 25 and related interpretations in accounting
for its plans. However, pro forma information regarding net income is required
by SFAS No. 123, which also requires that the information be determined as if
the Company had accounted for its employee stock options granted under the fair
value method prescribed by that statement. In accordance with SFAS No. 123 pro
forma disclosures as if the Company adopted the cost recognition requirements
under SFAS No. 123 in 1997 are presented below.
The per share weighted average fair value of stock options granted during
1997 and 1998 was $.44 and $3.08, respectively. For SFAS No. 123 purposes, the
fair value of each option has been estimated as of the date of grant using the
Black-Scholes option pricing model with the following assumptions for grants in
1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Average dividend yield...................................... $ --% --%
Expected life in years...................................... 4 4
Risk free interest rate..................................... 7.0% 6.0%
Expected volatility......................................... 100% 100%
</TABLE>
Had the Company used the fair value methodology for determining
compensation expense, the Company's net income net of related tax effects would
have approximated the pro forma amounts below:
<TABLE>
<CAPTION>
1997 1998
-------- -------
<S> <C> <C>
Net income:
As reported............................................... $287,373 219,460
Pro forma................................................. 240,947 20,033
Net income per share, basic and diluted:
As reported............................................... $ .04 .03
Pro forma................................................. .03 --
</TABLE>
The effect of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.
(9) COMMITMENTS AND CONTINGENCIES
The Company leases its office facilities under a six-year operating lease
which commenced October 1, 1997. This lease was amended in September 1998 to
terminate on January 31, 1999. As consideration for the early termination, the
Company paid the landlord $20,548.
In November 1998, the Company negotiated a new five-year lease for office
facilities in a new premises with the option to extend for an additional five
years. The lease term begins on January 15, 1999. The new lease provides for a
base rent of $34,208 per month for the first six months. Beginning July 1999,
the Company will lease additional space in the same building. At that time, the
base rent will increase to $57,467 for all space occupied, with annual
adjustments thereafter. For the years ended December 31, 1996,
F-15
<PAGE> 83
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1997 and 1998, rent expense was approximately $31,000, $84,000 and $204,000,
respectively.
Future minimum lease payments under this lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
------------------------
<S> <C>
1999............................................. $ 532,946
2000............................................. 689,599
2001............................................. 712,696
2002............................................. 735,794
2003............................................. 735,794
Thereafter....................................... 61,316
----------
$3,468,145
==========
</TABLE>
(10) SUBSEQUENT EVENTS
In January 1999, the Company approved a 1-for-2 reverse stock split.
Accordingly, share and per share amounts for common stock have been
retroactively restated to reflect the reverse stock split for all periods
presented.
F-16
<PAGE> 84
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 85
DESCRIPTION OF GRAPHICS
INSIDE FRONT COVER
Top Center:
Text:
Enterprise Management Solutions for Internet Systems
Center:
Graphic:
A large WebTrends logo centered on the page with the text "Manage Your
WWWorld-TM" centered below the logo. The logo and text are in the middle of a
ring of eight circles. Each of the eight circles contains text. Starting with
the circle directly above the logo and proceeding clockwise, the texts in the
circles state: "Web Site Traffic Analysis," "Proxy Server Traffic Analysis,"
"Site Content & QA Management," "E-Commerce and ROI Reports," "Alerting,
Monitoring & Recovery," "Streaming Media Server Management," Firewall and VPNs
Management," and "Server & Network Security Analysis."
Bottom:
Text:
Awards for the WebTrends product family:
Graphic:
Nine graphics appear below the text representing awards that have been given to
WebTrends' products. The awards depicted from left to right are: (1) PC
Magazine Editors' Choice, (2) ICE Best of Class, (3) PC Computing MVP Finalist,
(4) Network Computing Editors' Choice, (5) iw Labs Best of Test, (6) The Best
of LANTIMES, (7) Network Computing Best Value, (8) CODIE Awards Finalist, and
(9) ZDNET Editors' Pick.
GATEFOLD (LEFT SIDE)
Top Right:
Graphic:
The WebTrends logo.
Top Left:
Text:
WebTrends Enterprise Suite
Graphics:
There are three graphics under the text. From left to right they are: (1)
product packaging for the WebTrends Enterprise Suite, (2) screen shot of the
site manager feature, and (3) screen shot of a traffic analysis report.
Middle:
Test:
WebTrends Professional Suite
Graphics:
There are three graphics under the text. From left to right they are: (1)
product packaging for the WebTrends Professional Suite, (2) screen shot of an
alerting, monitoring, and recovery report, and (3) screen shot of the main
console.
Bottom:
Text:
WebTrends for Firewalls and VPNs
Graphics:
There are four graphics under the text. From left to right they are (1)
product packaging for WebTrends for Firewalls and VPNs, (2) screen shot of the
general options feature, (3) screen shot of the scheduler feature, and (4)
screen shot of a firewall report.
GATEFOLD (RIGHT SIDE)
Top:
Text:
WebTrends Enterprise Reporting Server*; * Scheduled for release first quarter,
1999
Graphics:
There are four graphics under the text. From left to right they are: (1) product
packaging for the WebTrends Enterprise Reporting Server, (2) screen shot of a
user profile report, (3) screen shot of the content editor feature, and (4)
screen shot of the status feature.
Middle:
Text:
WebTrends Security Analyzer
Graphics:
There are three graphics under the text. From left to right they are: (1)
product packaging for the WebTrends Security Analyzer, (2) screen shot of the
main viewer, and (3) screen shot of a security analysis report.
Bottom:
Text:
WebTrends Log Analyzer
Graphics:
There are four graphics under the text. From left to right they are: (1) product
packaging for the WebTrends Log Analyzer, (2) screen shot of the scheduler
feature, (3) screen shot of the options feature, and (4) screen shot of a
traffic analysis report.
Bottom Right:
Text:
Manage Your WWWorld-TM
INSIDE BACK COVER
Top Left:
Text:
www.webtrends.com
Top:
Graphics:
There are two screen shots inside a box. The first screen shot is the
Professional Suite product page from the WebTrends Web site. The second screen
shot is the "contact us" page from the Web Trends Web site.
Center:
Graphics:
There are two screen shots inside a box. The first screen shot is the products
page from the WebTrends Web site. The second screen shot is the ordering page
from the WebTrends Web site.
Bottom:
Graphics:
There are two screen shots inside a box. The first screen shot is the knowledge
base page from the WebTrends Web site. The second screen shot is the technical
support page from the WebTrends Web site.
<PAGE> 86
- --------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL NOR
IS IT SEEKING AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION WHERE IT IS
UNLAWFUL TO DO SUCH. THE INFORMATION IN THIS PROSPECTUS IS CURRENT AND CORRECT
ONLY AS OF , 1999, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR ANY SALE OF SECURITIES.
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
3,000,000 SHARES OF COMMON STOCK
$9.00 TO $11.00 PER SHARE
LOGO
DAIN RAUSCHER WESSELS SOUNDVIEW TECHNOLOGY GROUP
a division of Dain Rauscher Incorporated
, 1999
- --------------------------------------------------------------------------------
