UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to                

Commission File Number: 000-51595

Web.com Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware	94-3327894
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
12808 Gran Bay Parkway, West, Jacksonville, FL	32258
(Address of principal executive offices)	(Zip Code)

(904) 680-6600

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x  Yes    ¨   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x   Yes    ¨   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer x
Non-accelerated filer ¨	Smaller reporting company ¨
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨   Yes    x   No

Common Stock, par value $0.001 per share, outstanding as of November 1, 2011: 47,282,088

Web.com Group, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period ended September 30, 2011

Index

Part I	Financial Information
Item 1.	Financial Statements	3
	Consolidated Statements of Operations (unaudited)	3
	Consolidated Balance Sheets (unaudited)	5
	Consolidated Statements of Cash Flows (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43
Part II	Other Information
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	(Removed and Reserved)	55
Item 5.	Other Information	55
Item 6.	Exhibits	55
Signatures		57

2

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Web.com Group, Inc.

Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

	Three months ended September 30,						Nine months ended  September 30,
	2011			2010			2011			2010
Revenue:
Subscription	$	43,398		$	32,060		$	123,642		$	80,498
Professional services		505			674			1,983			2,142
Total revenue		43,903			32,734			125,625			82,640
Cost of revenue (excluding depreciation and amortization shown separately below):
Subscription		17,026			14,436			51,642			34,122
Professional services		335			519			1,062			1,482
Total cost of revenue		17,361			14,955			52,704			35,604
Gross profit		26,542			17,779			72,921			47,036
Operating expenses:
Sales and marketing		11,080			8,274			32,190			19,005
Research and development		3,264			3,031			10,202			7,527
General and administrative		11,207			8,124			23,908			17,472
Restructuring charges		85			1,802			330			1,856
Depreciation and amortization		4,696			4,698			14,213			11,290
Total operating expenses		30,332			25,929			80,843			57,150
Loss from operations		(3,790	)		(8,150	)		(7,922	)		(10,114	)
Interest expense, net		(1,486	)		(1,046	)		(4,598	)		(948	)
Loss before income taxes from continuing operations		(5,276	)		(9,196	)		(12,520	)		(11,062	)
Income tax (expense) benefit		(195	)		21,212			(657	)		20,525
Net (loss) income from continuing operations		(5,471	)		12,016			(13,177	)		9,463
Discontinued operations:
Loss from discontinued operations, net of tax		—			—			—			(9	)
Gain on sale of discontinued operations, net of tax		75			—			325			125
Income from discontinued operations		75			—			325			116
Net (loss) income	$	(5,396	)	$	12,016		$	(12,852	)	$	9,579

See accompanying notes to consolidated financial statements

3

Web.com Group, Inc.

Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

(continued)

	Three months ended  September 30,					Nine months ended  September 30,
	2011			2010		2011			2010
Basic earnings per share:
(Loss) income from continuing operations per common share	$	(0.19	)	$	0.47	$	(0.48	)	$	0.38
Income from discontinued operations per common share	$	—		$	—	$	0.01		$	—
Net (loss) income per common share	$	(0.19	)	$	0.47	$	(0.47	)	$	0.38
Diluted earnings per share:
(Loss) income from continuing operations per common share	$	(0.19	)	$	0.45	$	(0.48	)	$	0.36
Income from discontinued operations per common share	$	—		$	—	$	0.01		$	—
Net (loss) income per common share	$	(0.19	)	$	0.45	$	(0.47	)	$	0.36
Basic weighted average common shares outstanding		27,705			25,481		27,308			25,449
Diluted weighted average common shares outstanding		27,705			26,839		27,308			26,961

See accompanying notes to consolidated financial statements

4

Web.com Group, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

	September 30, 2011			December 31, 2010
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	15,752		$	16,307
Restricted investments		301			300
Accounts receivable, net of allowance of $545 and $523, respectively		7,797			8,100
Prepaid expenses		3,403			2,551
Prepaid registry fees		14,469			14,193
Deferred taxes		268			248
Deferred financing fees and other current assets		1,282			1,221
Total current assets		43,272			42,920
Restricted investments		1,108			1,110
Property and equipment, net		9,037			8,765
Prepaid registry fees		12,476			13,569
Goodwill		123,186			122,512
Intangible assets, net		95,072			106,843
Other assets		2,721			3,770
Total assets	$	286,872		$	299,489
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	2,657		$	3,276
Accrued expenses		6,008			5,276
Accrued compensation and benefits		2,881			6,799
Accrued restructuring costs and other reserves		315			2,325
Deferred revenue		42,363			36,664
Current portion of debt and capital lease obligations		11,183			9,533
Other liabilities		1,177			1,180
Total current liabilities		66,584			65,053
Accrued rent expense		1,136			914
Deferred revenue		27,992			25,149
Long-term debt and capital lease obligations		75,962			93,623
Deferred tax liabilities		10,279			10,005
Other long-term liabilities		1,035			1,138
Total liabilities		182,988			195,882
Stockholders’ equity:
Common stock, $0.001 par value per share; 150,000,000 shares authorized, 29,275,984 and 27,756,227 shares issued and 29,275,984 and 27,340,062 outstanding at September 30, 2011 and December 31, 2010, respectively		29			27
Additional paid-in capital		274,716			263,453
Treasury stock, 0 and 416,165 shares at September 30, 2011 and December 31, 2010, respectively		—			(1,896	)
Accumulated other comprehensive loss, net of income tax benefit		(72	)		(40	)
Accumulated deficit		(170,789	)		(157,937	)
Total stockholders’ equity		103,884			103,607
Total liabilities and stockholders’ equity	$	286,872		$	299,489

See accompanying notes to consolidated financial statements

5

Web.com Group, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine months ended September 30,
	2011			2010
Cash flows from operating activities
Net (loss) income	$	(12,852	)	$	9,579
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Gain on sale of discontinued operations, net of tax		(325	)		(125	)
Depreciation and amortization		14,213			11,290
Stock-based compensation expense		4,985			3,393
Deferred income tax expense (benefit)		184			(21,176	)
Other non cash expenses		949			179
Changes in operating assets and liabilities:
Accounts receivable, net		371			(511	)
Prepaid expenses and other assets		(796	)		1,425
Prepaid registry fees		817			(406	)
Accounts payable		(160	)		987
Accrued expenses and other liabilities		496			(3,290	)
Accrued compensation and benefits		(3,944	)		2,098
Accrued restructuring		(2,010	)		283
Deferred revenue		8,542			5,214
Net cash provided by operating activities		10,470			8,940
Cash flows from investing activities
Business acquisitions, net of cash received		—			(127,053	)
Proceeds from sale of discontinued operations		325			125
Investment in intangible assets		—			(1,396	)
Purchase of property and equipment		(3,598	)		(1,056	)
Other		82			—
Net cash used in investing activities		(3,191	)		(129,380	)
Cash flows from financing activities
Stock issuance costs		(9	)		(11	)
Common stock repurchased		(448	)		(53	)
Issuance of debt obligations		—			110,000
Payments of debt obligations		(16,010	)		(6,181	)
Deferred financing fees		—			(5,162	)
Proceeds from exercise of stock options		8,633			244
Net cash (used in) provided by financing activities		(7,834	)		98,837
Net decrease in cash and cash equivalents		(555	)		(21,603	)
Cash and cash equivalents, beginning of period		16,307			39,427
Cash and cash equivalents, end of period	$	15,752		$	17,824
Supplemental cash flow information
Interest paid	$	3,762		$	926
Income tax paid	$	927		$	133
Non-cash investing activities
Acquisition-related note payable	$	—		$	5,000

See accompanying notes to consolidated financial statements

6

Web.com Group, Inc.

Notes to Consolidated Financial Statements

(unaudited)

1. The Company and Summary of Significant Accounting Policies

Description of Company

Web.com Group, Inc. (referred to as “the Company”, “Web.com Group, Inc.” or “Web.com” herein) is a leading provider of online marketing for small- to medium-sized businesses (“SMBs”) and a provider of global domain name registration and complementary website design and management services. The Company meets the needs of SMBs anywhere along their lifecycle by offering a full range of online services and support, including website design, domain name registration, lead generation, logo design, search engine optimization, search engine marketing and local sales leads, general contractor leads, franchise and homeowner association websites, shopping cart software, eCommerce website design and call center services.

The Company has reviewed the criteria of Accounting Standards Codification (“ASC”) 280-10, Segment Reporting, and has determined that the Company is comprised of only one segment, Web services and products.

Certain prior year amounts have been reclassified to conform to current year presentation.

Basis of Presentation

The accompanying consolidated balance sheet as of September 30, 2011, the consolidated statements of operations for the three and nine months ended September 30, 2011 and 2010, the consolidated statements of cash flows for the nine months ended September 30, 2011 and 2010, and the related notes to the consolidated financial statements are unaudited. The consolidated statements of operations for the three and nine months ended September 30, 2011 include the operations of Register.com (Cayman) LP, a Cayman limited partnership, and all its affiliates (collectively, “Register.com LP”), which the Company acquired on July 30, 2010. The consolidated statement of cash flows for the nine months ended September 30, 2011 includes the operations of Register.com LP. Finally, the consolidated balance sheets as of September 30, 2011 and December 31, 2010 include the assets and liabilities of Register.com LP.

The unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2010, except that certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or excluded as permitted.

In the opinion of management, the unaudited consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of the Company’s financial position as of September 30, 2011, and the Company’s results of operations for the three and nine months ended September 30, 2011 and 2010 and cash flows for the nine months ended September 30, 2011 and 2010. The results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of the results to be expected for the year ending December 31, 2011.

These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission (“SEC”) on March 14, 2011.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States 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 reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

7

Significant Accounting Policies

Goodwill and Other Intangible Assets

In accordance with ASC 350, Intangibles – Goodwill and Other, goodwill is determined to have an indefinite useful life and is tested for impairment, at least annually or more frequently if indicators of impairment arise. If impairment of the carrying value based on the calculated fair value exists, the Company measures the impairment through the use of discounted cash flows. The Company completed its annual goodwill impairment test during the fourth quarter of 2010 and determined that there were no indicators of impairment during the year ended December 31, 2010. In addition, there were no impairment indicators during the nine months ended September 30, 2011.

Intangible assets acquired as part of a business combination are accounted for in accordance with ASC 805, Business Combinations, and are recognized apart from goodwill if the intangible arises from contractual or other legal rights or the asset is capable of being separated from the acquired enterprise. Indefinite-lived intangible assets are tested for impairment annually and on an interim basis if events or changes in circumstances between annual tests indicate that the asset might be impaired in accordance with ASC 350. The Company completed its annual indefinite-lived intangible asset impairment test as of December 31, 2010 and determined that there was no impairment. In addition, there were no impairment indicators during the nine months ended September 30, 2011.

Definite-lived intangible assets are amortized on a straight-lined basis over their useful lives, which range between fourteen months and sixteen years. The Company uses the straight line method because it is consistent with how the intangible assets are utilized.

Financial Instruments

The Company financed the July 30, 2010 acquisition of Register.com LP with a $95 million term loan and a $15 million revolving credit facility, of which a total of $82.1 million is outstanding as of September 30, 2011. In connection with the business combination, the Company acquired outbound marketing and customer support call centers located in Nova Scotia, Canada. As a result, the Company has increased exposure to various market risks, including changes in interest rates from debt and foreign exchange rates due to the increased proportion of operating costs incurred in Canadian dollars. The Company’s objective is to partially mitigate the economic impact of these market risks by entering into certain derivative contracts. The Company does not enter into financial instruments for trading or speculative purposes.

Prepaid Registry Fees

Prepaid registry fees represent prepayments to registries for domain name registrations. Prepaid registry fees are amortized to cost of sales over the same period that the deferred revenue is recognized for the related domain name registration.

Revenue Recognition and Deferred Revenue

The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. The Company recognizes revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer; (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of its fees is reasonably assured.

Thus, the Company recognizes subscription revenue on a daily basis, as services are provided. Customers are billed for the subscription on a monthly, quarterly, semi-annual, annual or on a multi-year basis, at the customer’s option. For all of the Company’s customers, regardless of their billing method, subscription revenue is recorded as deferred revenue in the accompanying consolidated balance sheets. As services are performed, the Company recognizes subscription revenue on a daily basis over the applicable service period. When the Company provides a free trial period, it does not begin to recognize subscription revenue until the trial period has ended and the customer has been billed for the services.

8

The Company accounts for its multi-element arrangements, such as in the instances where it designs a custom website and separately offers other services such as hosting and marketing, in accordance with ASC 605-25, Revenue Recognition: Multiple-Element Arrangement. The Company identifies each element in an arrangement and assigns the relative selling price to each element. The additional services provided with a custom website are recognized separately over the period for which services are performed.

Income Taxes

The Company accounts for income taxes under the provisions of ASC 740, Income Taxes, using the liability method. ASC 740 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the difference is expected to reverse.

Stock-Based Employee Compensation

The Company accounts for stock-based compensation to employees in accordance with ASC 718, Compensation – Stock Compensation. Accordingly, the fair value of all stock awards is recognized as compensation expense over the vesting period.

Earnings per Share

The Company computes earnings per share in accordance with ASC 260, Earnings Per Share. Basic net income per common share includes no dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted net income per common share includes the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

New Accounting Standards

On May 12, 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. This ASU establishes a global standard for measuring amounts at fair value. This ASU will not have a material effect on the Company’s financial position or results of operations, but will change the Company’s disclosure policies for fair value. This ASU is effective for reporting periods (including interim periods) beginning after December 15, 2011. For the Company, this ASU will first take effect for the first quarter ending March 31, 2012. Early adoption is not permissible, and this ASU must be applied prospectively.

In June 2011, the FASB issued an update to ASC 220, Comprehensive Income. This ASU requires entities to present components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements that would include reclassification adjustments for items that are reclassified from other comprehensive income to net income on the face of the financial statements. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not expect the adoption of this guidance will have a material impact upon its financial position or results of operations.

On September 15, 2011, the FASB issued ASU No. 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This ASU permits an entity to first assess qualitative factors to determine whether it is more likely than not (a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. After assessing qualitative factors, if an entity determines that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, no further testing is necessary. If an entity determines that it is more likely than not that the fair value of the reporting unit is less than its carrying value, then the traditional two-step goodwill impairment test must be performed. The Company plans to perform its annual impairment test during the fourth quarter ending December 31, 2011. This ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. However, early adoption is permitted. The Company is currently evaluating the impact of ASU No. 2011-08 on its future goodwill impairment tests.

9

2. Discontinued Operations

On May 26, 2009, the Company sold its NetObjects Fusion software business for $4.0 million. The Company received a partial payment of $1.0 million at the closing of the sale and approximately $0.1 million during the year ended December 31, 2010. The buyer paid the Company $0.3 million during the nine months ended September 30, 2011, leaving approximately $2.6 million outstanding. The balance is scheduled to be paid by May 26, 2013 and payments, if received, will be recorded as a gain from the sale of discontinued operations upon receipt.

3. Business Combinations

Acquisition of Register.com LP

On July 30, 2010, the Company completed its acquisition of the partnership interests in Register.com LP. The Company believes that the acquisition further enhances the Company’s position as a leading provider of online marketing and web services to small businesses. In addition to bringing approximately 787,000 subscribers, which present substantial cross and up-sell opportunities, the acquisition of Register.com LP brought highly complementary products, sales channels and operating capabilities to the Company. Consideration for the interests in Register.com LP was approximately $135.1 million financed with a $95 million term loan, a $15 million revolving credit facility, approximately $20 million in cash and a $5 million seller note. In connection with the acquisition, the Company incurred approximately $2.9 million of acquisition costs during the year ended December 31, 2010 and recorded the expenses in the general and administrative expense line in the consolidated statement of operations, primarily reflected in the three and nine months ended September 30, 2010. These costs include investment banking, legal and other professional services.

The Company has accounted for the acquisition of Register.com LP using the acquisition method as required in ASC 805, Business Combinations. As such, fair values have been assigned to the assets and liabilities acquired and the excess of the total purchase price over the fair value of the net assets acquired is recorded as goodwill. The Company, with the assistance of independent valuation professionals, has estimated fair value of certain intangible assets. The goodwill represents business benefits the Company anticipates realizing from optimizing resources and cross-sale opportunities. The goodwill is not expected to be deductible for tax purposes.

Purchase Price Allocation

The following table summarizes the Company’s purchase price allocation based on the fair values of the assets acquired and liabilities assumed on July 30, 2010 (in thousands): 

Tangible current assets	$	13,401
Tangible non-current assets		1,808
Prepaid registry fees		26,799
Developed technology		28,720
Customer relationships		20,570
Domain/trade names		15,890
Goodwill		110,305
Current liabilities		(14,892	)
Deferred revenue		(44,243	)
Deferred tax liability		(22,198	)
Non-current liabilities		(1,018	)
Net assets acquired	$	135,142

The developed technology and the customer relationships intangible assets are amortized over a weighted-average period of 96 months and 116 months, respectively. The domain/trade names have indefinite lives and are not amortized.

10

The fair value of accounts receivables acquired is $3.9 million, with the gross contractual amount being $4.0 million.

Pro Forma Financial Information

The Company has prepared unaudited condensed pro forma financial information to reflect the consolidated results of operations of the combined entities as though the acquisition had occurred on January 1, 2010. The Company has made adjustments to the historical Web.com and Register.com LP financial statements that are directly attributable to the acquisition, factually supportable and expected to have a continuing impact on the combined results. This pro forma presentation does not include any impact of transaction synergies. The pro forma results are not necessarily indicative of our results of operations had we owned Register.com LP for the entire periods presented.The following summarizes unaudited pro forma total revenue and net income (in thousands, except per share amounts):

	Three months ended		Nine months ended
	September 30, 2010		September 30, 2010
Revenue	$	37,827	$	117,381
Net income	$	7,345	$	1,600
Basic earnings per share:
Net income per share	$	0.29	$	0.06
Diluted earnings per share:
Net income per share	$	0.27	$	0.06
Basic weighted-average common shares outstanding		25,481		25,449
Diluted weighted-average common shares outstanding		26,839		26,961

4. Earnings per Share

The following table sets forth the computation of basic and diluted net (loss) income per common share (in thousands, except per share amounts):

	Three months ended September 30,					Nine months ended September 30,
	2011			2010		2011			2010
(Loss) income from continuing operations	$	(5,471	)	$	12,016	$	(13,177	)	$	9,463
Income from discontinued operations		75			—		325			116
Net (loss) income		(5,396	)		12,016		(12,852	)		9,579
Weighted-average outstanding shares of common stock		27,705			25,481		27,308			25,449
Dilutive effect of stock options and restricted stock		—			1,358		—			1,512
Common stock and common stock equivalents		27,705			26,839		27,308			26,961
Basic earnings per share:
(Loss) income from continuing operations	$	(0.19	)	$	0.47	$	(0.48	)	$	0.38
Income from discontinued operations		—			—		0.01			—
Net (loss) income per share	$	(0.19	)	$	0.47	$	(0.47	)	$	0.38
Diluted earnings per share:
(Loss) income from continuing operations	$	(0.19	)	$	0.45	$	(0.48	)	$	0.36
Income from discontinued operations		—			—		0.01			—
Net (loss) income per share	$	(0.19	)	$	0.45	$	(0.47	)	$	0.36

11

As of September 30, 2011, options to purchase approximately 6.4 million shares of common stock were not included in the calculation of the weighted average shares for diluted net loss per common share because the effect would have been anti-dilutive.

5. Goodwill and Intangible Assets

Goodwill represents the cost in excess of the fair value of the net assets of acquired businesses. In accordance with ASC 350, Intangibles-Goodwill and other, goodwill is not amortized. The Company has determined that it has one reporting unit and performs its annual goodwill impairment test as of December 31 each year. In analyzing goodwill and intangible assets for potential impairment, the Company uses projections of future discounted cash flows and other procedures to determine whether the Company’s estimated fair value exceeds its carrying value. During the year ended December 31, 2010, the Company completed its annual goodwill and other indefinite-lived intangible assets impairment test and the results determined that the goodwill and indefinite-lived intangible assets were not at risk of failing step 1 and therefore not impaired at December 31, 2010. In addition, the Company believes there were no indicators of impairment during the three and nine months ended September 30, 2011.

The following table summarizes changes in the Company’s goodwill balances as required by ASC 350-20 for the nine months ended September 30, 2011 and the year ended December 31, 2010 (in thousands):

	September 30, 2011			December 31, 2010
Goodwill balance at beginning of period	$	224,806		$	115,189
Accumulated impaired goodwill at beginning of period		(102,294	)		(102,294	)
Goodwill balance at beginning of period, net		122,512			12,895
Goodwill acquired during the period		—			109,617
Goodwill adjusted during the period		674			—
Goodwill balance at end of period, net	$	123,186		$	122,512

The Company’s intangible assets are summarized as follows (in thousands):

	September 30, 2011			December 31, 2010			Weighted-average Amortization Period as of September 30, 2011
Indefinite-lived intangible assets:
Domain/Trade names	$	29,770		$	29,770
Definite-lived intangible assets:
Non-compete agreements		3,408			3,408		7 months
Customer relationships		54,995			55,077		73 months
Developed technology		57,923			57,923		66 months
Other		100			100
Accumulated amortization		(51,124	)		(39,435	)
	$	95,072		$	106,843

The weighted-average amortization period for the amortizable intangible assets as of September 30, 2011 is approximately 69 months. Total amortization expense was $3.9 million and $3.7 million for the three months ended September 30, 2011 and 2010, respectively. Total amortization expense was $11.7 million and $8.9 million for the nine months ended September 30, 2011 and 2010, respectively.

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As of September 30, 2011, the amortization expense for the next five years is as follows (in thousands):

2011 (remainder of year)	$	3,923
2012		15,380
2013		13,355
2014		8,941
2015		5,786
Thereafter		17,917
Total	$	65,302

6. Restructuring Costs and Other Reserves

The Company had approximately $2.3 million of accrued restructuring charges as of December 31, 2010 primarily related to relocating and terminating employees from the Register.com LP acquisition. The Company incurred approximately $0.3 million of adjustments to restructuring costs during the nine months ended September 30, 2011. Payments of $2.3 million were made during the nine months ended September 30, 2011. The $0.3 million of outstanding restructuring charges as of September 30, 2011 are expected to be paid by February 2012.

The table below summarizes the activity of total accrued restructuring costs and other reserves during the nine months ended September 30, 2011 (in thousands):

	Balance as of December 31, 2010		Cash Payments			Change in Estimates		Balance as of September 30, 2011
Restructuring costs	$	428	$	(594	)	$	330	$	164
Employee termination benefits		1,876		(1,746	)		—		130
Other acquisition related costs		21		—			—		21
Balance	$	2,325	$	(2,340	)	$	330	$	315

7.  Financial Instruments

The Company is exposed to various market risks, including changes in interest rates and foreign exchange rates.  In order to partially mitigate the economic impact of these risks, derivative contracts are used as described below. The Company does not enter into such financial instruments for trading or speculative purposes. See related fair value disclosures in Footnote 9, Fair Value.

Interest Rate Swap Agreements

In August 2010, the Company entered into an interest rate swap on $55 million of its variable rate term loans. The swap converts interest payments from the variable rate 1-month LIBOR plus 4.5 percent rate to a fixed rate of 0.0074 percent plus 4.5 percent rate and qualifies as a cash flow hedge under ASC 815, Derivatives and Hedging. The interest rate swap matures on July 30, 2013. Realized gains and losses are reported as interest expense in the Consolidated Statements of Operations and as operating cash flows in the Consolidated Statements of Cash Flows. The Company had $72 thousand, net of tax, and $40 thousand, net of tax, of unrealized losses recorded in accumulated other comprehensive income as of September 30, 2011 and December 31, 2010, respectively. The notional amount for this contract was approximately $33.3 million and $51.2 million at September 30, 2011 and December 31, 2010, respectively.

The following presents the location of all assets and liabilities associated with the Company’s derivative instruments within the consolidated balance sheets:

		Fair Value at
Derivatives designated as hedging instruments:	Balance sheet	September 30, 2011		December 31, 2010
Interest rate swap	Other long-term liabilities	$	116 thousand	$	64 thousand

The following presents the losses recorded from the derivative instruments and the location within the consolidated statements of operations:

		For the three months
Derivatives designated as hedging instruments:	Statement of Operations	Ended September 30, 2011
Interest rate swap	Interest expense	$	50 thousand

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		For the nine months
Derivatives designated as hedging instruments:	Statement of Operations	Ended September 30, 2011
Interest rate swap	Interest expense	$	166 thousand

8.  Long-term Debt and Capital Lease Obligations

Long-term Debt

On July 30, 2010, the Company entered into a Credit Facility Agreement (“Credit Agreement”) with the Royal Bank of Canada and issued a $95 million five-year term loan and a $15 million revolving credit facility to finance the acquisition of Register.com LP. The term loan and the revolving credit facility both bear variable interest rates of 1-month LIBOR plus 4.5 percent with the rate resetting at each month end. The term loan and the revolving credit facility mature on July 30, 2015. During 2011, the Company made principal payments of $16.0 million; $6.7 million was a required principal payment on the term loan and the remaining $9.3 million was used to pay down the revolving credit facility. The Company has approximately $13.0 million of available borrowing capacity at September 30, 2011 under the revolving credit facility.

In conjunction with the term loan and revolving credit facility, the Company incurred approximately $5.3 million of financing related fees that have been recorded as an asset that will be amortized to interest expense over the life of the related long-term debt using the interest method. As of September 30, 2011, the Company has approximately $3.8 million of unamortized financing fees remaining.

On July 30, 2010, the Company issued a $5 million note payable to the sellers of Register.com LP. The note payable bears interest at a rate of 5 percent with interest payments made on a quarterly basis and matures on July 30, 2015.

As of September 30, 2011, total principal payments due for all long-term debt during the next five years are as follows (in thousands):

2011(remainder of year)	$	2,781
2012		11,125
2013		11,125
2014		20,025
2015		41,994
Total		87,050
Less current portion		(11,125	)
Total long-term debt	$	75,925

Debt Covenants

In addition to scheduled principal payments above, the Credit Agreement requires the Company to pay an additional principal amount equal to fifty percent of any excess cash flow, as defined in the Credit Agreement, for such year. The required percentage of excess cash flow shall be reduced to thirty-three percent if the Consolidated Leverage Ratio is reduced to 1.5 to 1. The Consolidated Leverage Ratio is defined as consolidated debt divided by Covenant EBITDA (see below). For the year ended December 31, 2011 only, the required excess cash flow payment shall be reduced by $7.5 million. Excess cash flow payments are due within ninety-five days of each year end, commencing with the year ended December 31, 2011.

The Credit Agreement also requires that the Company maintain a Consolidated Fixed Charge Coverage Ratio which is defined as Covenant EBITDA divided by consolidated fixed charges. Consolidated fixed charges include consolidated interest expense and scheduled debt payments made in a given period.

Covenant EBITDA is defined as consolidated net income before:

· Income tax expense

· Interest expense, amortization or write-off of debt issuance costs

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· Depreciation and amortization expense

· Extraordinary gains or losses

· Non-cash gains on the sales of assets outside of the ordinary course of business

· Non-cash income

· Cash restructuring, integration, transition, severance, facilities discontinuation or transaction costs for any period prior to December 31, 2011 up to $6 million and, subsequent to December 31, 2011, an aggregate amount not to exceed $5 million

· Adjustments to revenue or expense resulting from a fair market value adjustment to deferred revenue or prepaid expenses in purchase accounting

· Other non-cash expenses, excluding any accrual for a future cash expenditure

· Acquisition expenses incurred prior to December 31, 2010 and audit or valuation services expense which constitute acquisition expenses incurred prior to December 31, 2011

· Marketing program expenditures in any period to the extent that such expenditures exceed the projected marketing program expenditures as reflected in the financing projection model up to $3 million per year

The covenants as of September 30, 2011, are calculated on a trailing 12-month basis:

		Covenant as of
Covenant	Covenant Requirement	September 30, 2011	Favorable (Unfavorable)
Leverage Ratio	Not to exceed 2.75 to 1	2.24 to 1	0.51
Fixed Charge Coverage Ratio	Minimum of 2.00 to 1	2.45 to 1	0.45

In addition to the financial covenants listed above, the term loan and credit facility include customary covenants that limit the incurrence of debt, the disposition of assets, and making of certain payments. Substantially all of the Company’s tangible and intangible assets collateralize the long-term debt as required by the Credit Agreement.

 Capital Lease Obligations

The Company acquired various capital lease obligations as part of the Solid Cactus acquisition in April 2009, which consisted of non-cancelable lease agreements of computers and equipment that continue through 2013. The required minimum payments on these capital leases as of September 30, 2011 are (in thousands):

2011(remainder of year)	$	19
2012		59
2013		25
Total		103
Less interest		(8	)
		95
Less current portion		(58	)
Total obligations under capital leases, long term	$	37

9.  Fair Value

The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels as follows:

Level 1-Quoted prices in active markets for identical assets or liabilities.

Level 2-Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

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Level 3-Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2011 and December 31, 2010 (in thousands):

	Level 1		Level 2		Level 3		Total
	As of September 30, 2011:
Liabilities:
Interest rate swap	$	-	$	116	$	-	$	116
	As of December 31, 2010:
Liabilities:
Interest rate swap	$	-	$	64	$	-	$	64

The estimate of fair values for the interest rate swap is based on applicable and commonly used pricing models and prevailing financial market information as of September 30, 2011 and December 31, 2010.

The Company also has financial assets and liabilities that are not required to be remeasured to fair value on a recurring basis. The Company’s cash and cash equivalents carrying value approximates fair market value. In addition, the term loans and revolving credit facility are both variable rate debt instruments and the fair value approximates the carrying values as of September 30, 2011 and December 31, 2010.

10.  Comprehensive Income

Comprehensive income consists of two components, net income and other comprehensive income. Other comprehensive income refers to gains and losses that under generally accepted accounting principles are recorded as an element of shareholders’ equity but are excluded from net income. The Company has an interest rate swap accounted for as a cash flow hedge. The Company’s accumulated other comprehensive loss as of September 30, 2011 and December 31, 2010 consists of the unrealized loss of $72 thousand, net of tax of $44 thousand, and unrealized losses of $40 thousand, net of tax of $24 thousand, respectively.

11. Income Taxes

The Company accounts for income taxes under the provisions of ASC 740, using the liability method. ASC 740 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the difference is expected to reverse.

The Company recognized income tax expense of $0.2 million during the three months ended September 30, 2011 based upon its estimated annual effective rate by jurisdiction. During the three months ended September 30, 2010, the Company recognized an income tax benefit of $21.2 million. The benefit was due to the release of the valuation allowance as a result of the acquisition of Register.com LP. Web.com had previously established a valuation allowance against its deferred tax assets (DTAs) for cumulative net operating losses (NOLs). As a result of the acquisition the Company has determined that some of these pre-existing DTAs will more likely than not be realized by the combined enterprise through the reversal of the DTLs. Under ASC 805-740, a change in an acquirer’s valuation allowance for a deferred tax asset that results from a change in the acquirer’s circumstances caused by a business combination should be accounted for as an event separate from the business combination and included in deferred income tax expense (benefit).

The Company recognized income tax expense of $0.7 million and an income tax benefit of $20.5 million in the nine months ended September 30, 2011 and 2010, respectively. The Company’s effective rate during the nine months ended September 30, 2011 results in income tax expense primarily due to changes in the valuation allowance related to non-reversing deferred tax liabilities and the alternative minimum tax credit. The income tax benefit during the nine months ended September 30, 2010 is primarily from the release of the valuation allowance discussed above.

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The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months. The Company’s policy is that it recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

As of September 30, 2011 and December 31, 2010, the Company had federal net operating loss carryforwards of approximately $216.2 million and $207.7 million, respectively, which begin to expire in the year 2020. The net operating loss carryforwards are subject to various limitations under Section 382 of the Internal Revenue Code. Accordingly, the Company estimates that at least $138.8 million of net operating loss carryforwards will be available during the carryforward period.

12. Stock Based Compensation

Equity Incentive Plans

At September 30, 2011, the Company had multiple stock based compensation plans. The Company’s Board of Directors adopted and stockholders approved the 1999 Equity Incentive Plan (“the 1999 Plan”), the 2005 Equity Incentive Plan (“the 2005 Plan”) and the 2008 Equity Incentive Plan (“the 2008 Plan”). The 1999 Plan provided for the issuance of 4.1 million incentive stock options, non-statutory stock options and stock bonuses. In November 2005, the 1999 Plan terminated and the Company no longer issues shares under the 1999 Plan, however forfeited or cancelled shares from this plan become available for issuance under the 2005 Plan. The 2005 and 2008 Plans provide for the issuance of 10.5 million incentive stock options, non-statutory stock options and restricted share awards. At September 30, 2011, approximately 4.3 million shares remain available for issuance under these two plans. The Company issues new shares of common stock upon the exercise of stock options and the granting of restricted shares.

The Company’s Board of Directors adopted and stockholders approved the 2005 Non-Employee Directors’ Stock Option Plan (“the 2005 Directors’ Plan”), which provides for the automatic grant of non-statutory stock options and restricted shares to non-employee directors. Approximately 1 million shares were authorized under the 2005 Directors’ Plan. As of September 30, 2011, 359 thousand shares remain available for future issuance.

In addition to the plans discussed above, the Company has additional equity incentive plans that were established in conjunction with the acquisitions of Web.com, Solid Cactus and Register.com LP. The Company reserved 2.4 million shares, 147 thousand shares and 466 thousand shares, for the Web.com, Solid Cactus and Register.com LP acquisitions, respectively. These plans are considered one-time, inducement awards of incentive stock options, non-statutory stock options and restricted shares. Once the inducement awards are granted, no additional shares, including forfeitures and cancellations, are available for future grant under these plans.

Vesting periods for the options issued under the Web.com plans range from zero to five years and have an option term of ten years. The options issued under the Solid Cactus plan have a ten year term and generally vest ratably each month over a four year period. The Register.com LP plan includes option grants to purchase 216 thousand shares that vest over four years, with 25 percent vesting on the one year anniversary of the grant date and 1/48 of the shares vesting monthly thereafter. The Register.com LP plan also includes options to purchase 125 thousand shares that vest over four years with 50 percent vesting on the second year anniversary and 1/48 of shares vesting monthly thereafter. These options have a ten year term. Finally, the Register.com LP plan included the issuance of 125 thousand restricted shares that also vest over the course of four years with 50 percent vesting on the second year, 25 percent on the third year and 25 percent on the fourth anniversary of the grant date.

Incentive stock options and non-statutory stock options issued under the 1999 Plan, the 2005 Plan and the 2008 Plan generally vest ratably over three to four years, are contingent upon continued employment and expire ten years from the grant date. Restricted share awards that have been granted under these plans generally vest 25 percent each year over a four year period.

The Board of Directors or a committee thereof, administers all of the equity incentive plans and determines the terms of options granted, including the exercise price, the number of shares subject to individual option awards and the vesting period of options, within the limits set forth in the plans. Options have a maximum term of 10 years and vest as determined by the Board of Directors.

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The following table outlines the activity in each of the stock based compensation plans from inception through September 30, 2011:

	1999 Plan			2005 Plan			2005 Directors' Plan			Web.com Plans			2008 Plan			Solid Cactus Plan			Register.com Plan
Authorized		4,074,428			2,964,644			985,000			2,424,558			7,000,000			146,900			465,900
Outstanding Options		(1,834,413	)		(2,889,617	)		(439,000	)		(35,456	)		(801,971	)		(63,150	)		(305,251	)
Outstanding RSA		-			-			(50,500	)		-			(1,457,350	)		-			(125,000	)
Exercised Options		(1,742,968	)		(459,074	)		(50,500	)		(1,892,685	)		(199,535	)		(42,750	)		(3,167	)
Released RSA		-			(10,000	)		(85,875	)		-			(440,216	)		-			-
Released RSA (minimum withholding taxes paid in lieu of shares)		-			3,245			-			-			112,111			-			-
Subtotal		497,047			(390,802	)		359,125			496,417			4,213,039			41,000			32,482
Adjustment		(497,047	)		497,047			-			-			-			-			-
Available for future grants		N/A			106,245			359,125			N/A			4,213,039			N/A			N/A

The fair value of each option award is estimated on the date of the grant using the Black Scholes option valuation model and the assumptions noted in the following table. Expected volatility rates are based on the Company’s historical volatility, since the Company’s initial public offering, on the date of the grant. The expected term of options granted represents the period of time that they are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. Below are the assumption ranges used in calculating the fair value of options granted during the following periods:

	Nine months ended September 30,
	2011			2010
Risk-free interest rate		0.98-2.10	%		1.25-2.75	%
Dividend yield		0	%		0	%
Expected life (in years)		5			5
Volatility		61-65	%		59-61	%

Stock Option Activity

The following table summarizes option activity for the nine months ended September 30, 2011 for all of the Company’s stock options:

	Shares Covered by Options			Exercise Price per Share		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Balance, December 31, 2010		6,995,021		$	0.50 to 46.40	$	5.92
Granted		1,217,200		8.17 to 15.56			10.24
Exercised		(1,624,412	)	0.50 to 14.05			5.31
Forfeited		(191,971	)	3.43 to 15.56			7.02
Expired		(26,979	)	3.43 to 46.40			9.96
Balance, September 30, 2011		6,368,859		0.50 to 40.15			6.86		6.13	$	9,598
Exercisable at September 30, 2011		4,123,166		$	0.50 to 40.15	$	6.47		4.68	$	7,613

Compensation costs related to the Company’s stock option plans were $1.0 million and $0.8 million for the three months ended September 30, 2011 and 2010, respectively. Compensation costs related to the Company’s stock option plans were $2.1 million and $2.2 million for the nine months ended September 30, 2011 and 2010, respectively. Compensation expense is generally recognized on a straight-line basis over the vesting period of grants. As of September 30, 2011, the Company had $7.5 million of unrecognized compensation costs related to share-based payments, which is expected to be recognized over a weighted average period of 2.7 years.

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The total intrinsic value of options exercised during the nine months ended September 30, 2011 and 2010 was $11.1 million and $0.1 million, respectively. The fair value of options vested during the nine months ended September 30, 2011 and 2010 was $2.9 million and $2.6 million, respectively. The weighted average grant-date fair value of options granted during the nine months ended September 30, 2011 and 2010 was $5.41 and $2.80, respectively.

Price ranges of outstanding and exercisable options as of September 30, 2011 are summarized below:

	Outstanding Options						Exercisable Options
Exercise Price	Number of Options		Weighted Average Remaining Life (Years)		Weighted Average Exercise Price		Number of Options		Weighted Average Exercise Price
$0.50 – $4.41		1,483,162		2.84	$	2.11		1,347,558	$	1.91
$4.42 – $5.66		1,280,402		8.42		5.26		428,384		5.27
$5.67 – $8.92		1,445,736		6.64		8.35		1,110,893		8.65
$8.93 – $9.97		1,669,840		6.98		9.57		824,457		9.17
$9.98 – $40.15		489,719		5.65		11.74		411,874		11.34
		6,368,859						4,123,166

 Restricted Stock Activity

The following information relates to awards of restricted stock and restricted stock units that have been granted under the 2005 Directors’ Plan, the 2005 Plan, the 2008 Plan and the Register.com LP Plan. The restricted stock is not transferable until vested and the restrictions lapse upon the completion of a certain time period, usually over a one- to four-year period. The fair value of each restricted stock grant is based on the closing price of the Company’s stock on the date of grant and is amortized to compensation expense over its vesting period, which ranges between one and four years.

The following restricted stock activity occurred under the Company’s equity incentive plans during the nine months ended September 30, 2011:

Restricted Stock Activity	Shares			Weighted Average Grant–Date Fair Value
Restricted stock outstanding at December 31, 2010		1,481,200			4.98
Granted		329,500			10.08
Lapse of restriction		(167,850	)		5.63
Forfeited		(10,000	)		3.58
Restricted stock outstanding at September 30, 2011		1,632,850			5.96

Compensation cost related to the Company’s restricted stock for the three months ended September 30, 2011 and 2010 was approximately $0.8 million and $0.4 million, respectively. Compensation expense for the nine months ended September 30, 2011 and 2010 was approximately $2.9 million and $1.2 million, respectively. As of September 30, 2011, there was approximately $7.5 million of total unrecognized compensation cost related to the restricted stock outstanding, which is expected to be recognized over a weighted average period of 2.1 years. The intrinsic value and fair value of outstanding restricted stock as of September 30, 2011 is $11.4 million and $7.7 million, respectively.

During the nine months ended September 30, 2011, $0.4 million of cash was used to pay the minimum withholding tax requirements in lieu of receiving 37,408 common shares.

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13. Related Party Transactions

In 2010, the Company purchased website hosting accounts from Innuity, Inc. (“Innuity”). Timothy Maudlin is the Lead Director of the Company and a shareholder of Innuity. The approximate dollar value of the amount involved in the transaction is $1.4 million plus a potential share of revenue from the sale of additional Company services to the website hosting account end users.

On December 22, 2009, the Company entered into a Master Channel Partner Agreement with ExactTarget, Inc. (“ExactTarget”) to provide email marketing solutions to the Company. Timothy Maudlin is the Lead Director of the Company and a member of the board of directors and a shareholder of ExactTarget. The approximate dollar value of the amount involved in the transaction is $0.2 million plus a potential share of revenue from the sale of the email marketing solutions to end users. The total amount of fees paid to ExactTarget during the three and nine months ended September 30, 2011 was $18 thousand and $0.1 million, respectively. The total amount of fees paid to ExactTarget during the three and nine months ended September 30, 2010 was $11 thousand and $0.1 million, respectively.

14. Commitments and Contingencies

Letters of Credit

The Company utilizes letters of credit to back certain payment obligations relating to its facility operating leases and certain vendor requirements. The Company has approximately $1.4 million in outstanding standby letters of credit as of September 30, 2011.

Legal Matters

In November 2001, Register.com Inc. (“Register.com”), its Chairman, President, Chief Executive Officer and former Vice President of Finance and Accounting Richard D. Forman and its former President and Chief Executive Officer Alan G. Breitman (the “Individual Defendants”) were named as defendants in class action complaints alleging violations of the federal securities laws in the United States District Court for the Southern District of New York. A Consolidated Amended Complaint, which is now the operative complaint, was filed in the Southern District of New York on April 19, 2002.

The purported class action alleges violations of Sections 11 and 15 of the Securities Act of 1933 (the “1933 Act”) and Sections 10(b), Rule 10b-5 and 20(a) of the Securities Exchange Act of 1934 (the “1934 Act”) against Register.com and Individual Defendants. The essence of the complaint is that defendants issued and sold Register.com’s common stock pursuant to the Registration Statement for the March 3, 2000 Initial Public Offering (“IPO”) without disclosing to investors that certain underwriters in the offering had solicited and received excessive and undisclosed commissions from certain investors. The complaint also alleges that the Registration Statement for the IPO failed to disclose that the underwriters allocated Register.com shares in the IPO to customers in exchange for the customers’ promises to purchase additional shares in the aftermarket at pre-determined prices above the IPO price, thereby maintaining, distorting and/or inflating the market price for the shares in the aftermarket.  The action seeks damages in an unspecified amount.

The action is being coordinated with approximately 300 other nearly identical actions filed against other companies. On July 15, 2002, Register.com moved to dismiss all claims against it and the Individual Defendants. On October 9, 2002, the Court dismissed the Individual Defendants from the case without prejudice. This dismissal disposed of the Section 15 and 20(a) control person claims without prejudice, since these claims were asserted only against the Individual Defendants. On February 19, 2003, the Court denied the motion to dismiss the complaint against Register.com.  On December 5, 2006, the Second Circuit vacated a decision by the district court granting class certification in six of the approximately 300 nearly identical actions that are part of the consolidated litigation, which are intended to serve as test, or “focus” cases. The plaintiffs selected these six cases, which do not include Register.com. On April 6, 2007, the Second Circuit denied the petition for rehearing filed by the plaintiffs, but noted that the plaintiffs could ask the District Court to certify more narrow classes than those that were rejected.

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The parties in the approximately 300 coordinated cases, including the parties in Register.com’s case, reached a settlement. It provides for releases of existing claims and claims that could have been asserted relating to the conduct alleged to be wrongful from the class of investors participating in the settlement. The insurers for the issuer defendants in the coordinated cases will make the settlement payment on behalf of the issuers, including Register.com. On October 6, 2009, the Court granted final approval to the settlement. Two appeals are proceeding. Plaintiffs have moved to dismiss both appeals. Four additional appeals that had been filed have been withdrawn. We intend to continue to defend the action vigorously if the settlement does not survive the appeal. Due to the inherent uncertainties of litigation, we cannot predict the ultimate outcome of this matter. We have notified our underwriters and insurance companies of the existence of the claims. We presently believe, after consultation with legal counsel, that the ultimate outcome of this matter will not have a material adverse effect on our results of operations, liquidity or financial position.

In addition to the legal matters mentioned above, we and our subsidiaries are named from time to time as defendants in various legal actions that are incidental to our business and arise out of or are related to claims made in connection with our customer and vendor contracts and employment related disputes. We believe that the resolution of these legal actions will not have a material adverse effect on our financial position or results of operations. There were no material legal matters that were reasonably possible and estimable at September 30, 2011. In addition, there were no material legal matters for which an estimate could not be made.

15.  Subsequent Events

Acquisition of Network Solutions

On October 27, 2011, the Company completed its acquisition (the “Acquisition”) of 100% of the equity interests in Net Sol Parent LLC (formerly known as GA-Net Sol Parent LLC) (“Network Solutions”), a provider of domain names, web hosting and online marketing services, pursuant to that certain Purchase Agreement dated August 3, 2011 by and among Web.com Group, Inc., a Delaware corporation, Net Sol Holdings LLC, a Delaware limited liability company, and GA-Net Sol Parent LLC, a Delaware limited liability company and wholly-owned subsidiary of Net Sol Holdings LLC.  The Company believes that the acquisition further enhances its position as a leading provider of online marketing and web services to small businesses. In addition to bringing approximately two million subscribers, which present substantial cross and up-sell opportunities, the acquisition of Network Solutions brought highly complementary products, sales channels and operating capabilities to the Company. Consideration for the acquisition was $405 million in cash and the issuance of 18 million shares of Web.com common stock.  The Company’s stockholders approved the issuance of the 18 million shares at the Company’s Special Meeting of Stockholders held on October 25, 2011.

The Company recorded approximately $3.8 million in acquisition-related transaction costs during the three and nine months ended September 30, 2011. These costs are reflected in the General and Administrative line item in the Consolidated Statement of Operations. In addition, the Company estimates an additional $11.3 million of acquisition-related transactions costs will be incurred in the fourth quarter of 2011.

The Company will account for the acquisition of Network Solutions using the acquisition method as required in ASC 805, Business Combinations. Based on the acquisition method of accounting, the consideration paid to Network Solutions is allocated to their assets and liabilities based on their fair value as of the date of the completion of the acquisition. Any remaining amount of the purchase price allocation is recorded as goodwill. The valuation of certain intangible assets has not been finalized as of the date of this report. The goodwill will represent business benefits the Company anticipates realizing from optimizing resources and cross-sale opportunities and is not expected to be deductible for tax purposes.

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Financing of the Network Solutions Acquisition

On October 27, 2011, the Company entered into credit facilities, pursuant to (i) a First Lien Credit Agreement, dated as of October 27, 2011, by and among the Company, J. P. Morgan Securities LLC and Deutsche Bank Securities Inc., as Co-Syndication Agents; Goldman Sachs Lending Partners LLC and SunTrust Bank, as Co-Documentation Agents; and JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders from time to time party thereto (the “First Lien Credit Agreement”) and (ii) a Second Lien Credit Agreement, dated as of October 27, 2011, by and among the Company, J. P. Morgan Securities LLC and Deutsche Bank Securities Inc., as Co-Syndication Agents; Goldman Sachs Lending Partners LLC and SunTrust Bank, as Co-Documentation Agents; and JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders from time to time party thereto (the “Second Lien Credit Agreement”).  The First Lien Credit Agreement provides for (i) a six-year $600 million first lien loan facility (the “First Lien Term Loan”) and (ii) a five-year revolving credit facility of $50 million (the “Revolving Credit Facility”).  The Second Lien Credit Agreement provides for a seven-year $150 million second lien loan facility (the “Second Lien Term Loan”).  The Revolving Credit Facility was partially drawn on October 27, 2011, the proceeds of which were used to finance a portion of the Acquisition and pay off all of the Company’s outstanding debt totaling $87.1 million, all of Network Solutions outstanding debt, and related financing fees and acquisition related transaction costs.

The First Lien Term Loan bears interest at a rate equal to either, at the Company’s option, the LIBOR rate plus an applicable margin equal to 5.5% per annum, subject to a 1.5% LIBOR floor, or the prime lending rate plus an applicable margin equal to 4.5% per annum.  Loans under the Revolving Credit Facility initially bear interest at a rate equal to either, at the Company’s option, the LIBOR rate plus an applicable margin equal to 5.5% per annum, or the prime lending rate plus an applicable margin equal to 4.5% per annum.  The interest rate applicable to the Revolving Credit Facility will be subject to decrease upon achievement of specified levels of first lien net leverage. The Company must also pay (i) a commitment fee of 0.5% per annum on the actual daily amount by which the revolving credit commitment exceeds then-outstanding revolving credit loans under the Revolving Credit Facility and (ii) a letter of credit fee equal to the applicable margin as applied to LIBOR loans under the Revolving Credit Facility and (iii) a fronting fee of 0.125% per annum, calculated on the daily amount available to be drawn under each letter of credit issued under the  Revolving Credit Facility. The Second Lien Term Loan bears interest at a rate equal to either, at the Company’s option, the LIBOR rate plus an applicable margin equal to 9.5% per annum, subject to a 1.5% LIBOR floor, or the prime lending rate plus an applicable margin equal to 8.5% per annum.

Unaudited Pro forma Combined Condensed Balance Sheet

The unaudited pro forma combined condensed balance sheet combines the historical consolidated balance sheets of Web.com and Network Solutions as of the close of business on September 30, 2011, and includes preliminary adjustments to reflect the transactions that are directly attributable to the acquisition and factually supportable.  We have prepared the unaudited pro forma combined condensed financial statements based on available information using assumptions that we believe are reasonable. These financial statements are being provided for informational purposes only and do not claim to represent our actual financial position had the acquisition occurred on that date specified.  In addition, the pro forma financial statements do not account for the cost of any restructuring activities or synergies resulting from the acquisition.

The unaudited pro forma combined condensed balance sheet was prepared using the acquisition method of accounting as outlined in Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 805, Business Combinations, with Web.com considered the acquiring company. Web.com has used preliminary estimates for the fair value of deferred revenue, deferred costs and intangible assets. The Company, with the assistance of independent valuation professionals, has determined preliminary values for certain intangible assets, such as customer relationships, trade names, and developed technology. Fair value adjustments for property and equipment and the related depreciation expense adjustments are not reflected herein as the Company is in the process of gathering the relevant information required to complete the valuation. The purchase price allocation and valuation is preliminary and subject to final adjustments and provided for informational purposes only.

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Pro Forma Balance Sheet as of September 30, 2011

Unaudited Pro Forma Combined Condensed Balance Sheet

as of September 30, 2011

(in thousands of dollars)

	Historical			Historical		Pro forma			Pro forma
	Web.com			Network Solutions		Adjustments			Combined
Current Assets:
Cash and cash equivalents	$	15,752		$	38,695	$	(49,816	)a	$	4,631
Accounts receivable, net of allowance		7,797			2,547		-			10,344
Prepaid expenses		3,403			7,102		(1,995	)e, l		8,510
Restricted investments		301			-		-			301
Prepaid registry fees		14,469			42,580		2,849	b		59,898
Deferred taxes, current		268			-		(268	)l		-
Deferred financing fees and other current assets		1,282			-		(1,219	)m		7,604
							7,541	j
Total current assets		43,272			90,924		(42,908	)		91,288
Restricted investments		1,108			-		-			1,108
Prepaid domains		12,476			57,728		3,862	b		74,066
Property and equipment, net		9,037			25,220		-			34,257
Goodwill		123,186			763,336		(763,336	)c		700,725
							577,539	d
Intangible assets, net		95,072			92,913		(92,913	)c		553,992
							458,920	d
Investments in unconsolidated entities		-			3,296		-			3,296
Other assets		2,721			2,234		(4,292	)e, m		55,272
							54,609	j
Total assets	$	286,872		$	1,035,651	$	191,481		$	1,514,004
Current liabilities:
Accounts payable and accrued expenses	$	2,657		$	22,266	$	6,966	f	$	31,889
Accrued expenses		6,008			-		(927	)l		5,081
Accrued compensation and benefits		2,881			-		-			2,881
Current long-term debt and capital lease obligations		11,183			249		(11,432	)h		6,000
							6,000	g
Deferred revenue		42,363			178,644		(87,952	)k		133,055
Accrued restructuring		315			-		-			315
Other liabilities		1,177			3,179		3,308	l		7,664
Total current liabilities		66,584			204,338		(84,037	)		186,885
Accrued rent expense		1,136			-		-			1,136
Long-term debt and capital lease obligations		75,962			241,672		765,000	g		765,000
							(317,634	)h
Deferred revenue		27,992			199,329		(98,136	)k		129,185
Deferred taxes		10,279			-		142,726	l		153,005
Other long-term liabilities		1,035			28,467		(15,666	)l		13,836
Total liabilities		182,988			673,806		392,253			1,249,047
Total stockholders' equity
Common stock		29			-		18	n		47
Additional paid in capital		274,716			-		164,862	n		439,578
Accumulated other comprehensive loss, net of tax		(72	)		-		-			(72	)
Member's equity		-			361,845		(361,845	)i		-
Accumulated deficit		(170,789	)		-		(3,807	)m		(174,596	)
Total stockholders' equity		103,884			361,845		(200,772	)		264,957
Total liabilities and stockholders' equity	$	286,872		$	1,035,651	$	191,481		$	1,514,004

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The preliminary purchase price allocation as of the close of business on September 30, 2011 is as follows (in thousands of dollars):

Goodwill	$	577,539
Non-compete Agreement		600
Trade Names		97,050
Developed Technology		189,890
Customer Relationships		171,380
Net assets (liabilities) acquired		(466,579	)
Total preliminary purchase price allocation	$	569,880

The following adjustments have been made to the above unaudited pro forma combined condensed balance sheet as of September 30, 2011 to reflect the acquisition-related transactions:

(a) To record net impact to cash and cash equivalents from acquisition related transactions are summarized below:

Proceeds from term loans	$	771.0
Financing fees related to term loan and credit facility		(62.2	)
Pay off Network Solutions's bank debt		(241.9	)
Pay off Web.com's bank debt		(87.1	)
Payments to sellers		(405.0	)
Acquisition-related transaction costs*		(24.6	)
Pro Forma Impact on Cash and Cash Equivalents	$	(49.8	)

* Includes approximately $9.5 million of Network Solutions acquisition costs.

(b) To adjust the prepaid registry fees to fair market value as required by ASC 805. The fair value of prepaid registry fees was calculated by multiplying the monthly cost of registering a domain name by the number of months of services that have been prepaid for each contract at the acquisition date;

(c) To eliminate Network Solutions’s historical goodwill and intangible assets;

(d) To record Web.com’s estimated goodwill and intangible assets arising from the acquisition of Network Solutions;

(e) To eliminate current and long term portion of Network Solutions’s deferred financing fees;

(f) This adjustment records employment-related liabilities under existing employee contracts that were triggered as a result of the acquisition;

(g) To record the current and non-current portion of the $771.0 million long-term debt issued to finance the acquisition;

(h) To eliminate Network Solutions’s and Web.com’s current and long-term debt that was settled at the closing of the acquisition. Web.com used the proceeds from the bank debt discussed in note (g) above to pay off $241.9 million of Network Solutions’s total outstanding debt in addition to approximately $87.1 million of Web.com’s outstanding debt;

(i) To eliminate Network Solutions’s historical member’s equity;

(j) To record Web.com’s $62.2 million of capitalizable deferred financing fees related to the total $800 million Debt Financing arrangements, of which $771.0 million is outstanding after the closing of the acquisition;

(k) To adjust the deferred revenue balance to fair market value as required by ASC 805. The fair value of deferred revenue was determined by estimating the costs associated with customer support services and prepaid domain name registration fees to fulfill the related contractual obligations over the remaining life of the customer contracts at the acquisition date and includes a normal profit margin;

(l) These entries adjust historical Web.com and Network Solutions income tax accounts to reflect an estimated combined entity income tax payable of $0.7 million, current deferred tax liability of $4.9 million and non-current deferred tax liability of $153.0 million. The income tax adjustments herein were based on the preliminary purchase price allocated to the assets and liabilities acquired;

(m) To eliminate Web.com’s current and non-current portion of deferred financing fees. Web.com’s outstanding debt was refinanced in conjunction with the Debt Financing arrangements; and

(n) To record the 18 million Shares of Web.com common stock with a par value of $0.001 issued to the Sellers to partially finance the acquisition of Network Solutions. The lowest market price on October 27, 2011 of $9.16 per common share was used as the fair value as per the Company’s policy.

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Pro Forma Condensed Consolidated Results of Operations

The Company has prepared unaudited condensed pro forma financial information to reflect the consolidated results of operations of the combined entities as though the acquisition had occurred on January 1, 2010 for the three and nine months ended September 30, 2010 and 2011. The Company has made adjustments to the historical Web.com and Network Solutions financial statements that are directly attributable to the acquisition, factually supportable and expected to have a continuing impact on the combined results. This pro forma presentation does not include any impact of transaction costs or expected synergies. The pro forma results are not necessarily indicative of our results of operations had the Company owned Network Solutions for the entire periods presented.The following summarizes unaudited pro forma total revenue and net loss (in thousands, except per share amounts):

	Three months ended			Three months ended
	September 30, 2011			September 30, 2010
Revenue	$	104,029		$	81,005
Net loss	$	(32,618	)	$	(22,161	)
Basic loss per share:
Net loss per share	$	(0.71	)	$	(0.51	)
Diluted loss per share:
Net loss per share	$	(0.71	)	$	(0.51	)
Basic weighted-average common shares outstanding		45,705			43,481
Diluted weighted-average common shares outstanding		45,705			43,481

	Nine months ended			Nine months ended
	September 30, 2011			September 30, 2010
Revenue	$	298,363		$	214,794
Net loss	$	(97,048	)	$	(113,133	)
Basic loss per share:
Net loss per share	$	(2.14	)	$	(2.60	)
Diluted loss per share:
Net loss per share	$	(2.14	)	$	(2.60	)
Basic weighted-average common shares outstanding		45,308			43,449
Diluted weighted-average common shares outstanding		45,308			43,449

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Safe Harbor

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, risks and uncertainties, including the risk factors set forth in this discussion, especially under the captions “Factors That May Affect Future Operating Results” in this Form 10-Q. Generally, the words “anticipate”, “expect”, “intend”, “believe” and similar expressions identify forward-looking statements. The forward-looking statements made in this Form 10-Q are made as of the filing date of this Form 10-Q with the Securities and Exchange Commission (SEC), and future events or circumstances could cause results that differ significantly from the forward-looking statements included here. Accordingly, we caution readers not to place undue reliance on these statements. We expressly disclaim any obligation to update or alter our forward-looking statements, whether, as a result of new information, future events or otherwise after the date of this document.

The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto in Item 1 above and with our financial statements and notes thereto for the year ended December 31, 2010 contained in our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 14, 2011.

Overview

We are a leading provider of domain names, online marketing and eCommerce for small businesses. We meet the needs of small businesses anywhere along their lifecycle by offering a full range of online services and support, including website design, domain name registration, lead generation, logo design, search engine optimization, search engine marketing and local sales leads, general contractor leads, franchise and homeowner association websites, shopping cart software, eCommerce website design and call center services. Our primary service offerings, eWorks! XL and SmartClicks, are comprehensive performance-based packages that include domain name registration, website design and publishing, online marketing and advertising, search engine optimization, search engine submission, lead generation, hosting and email solutions, and easy-to-understand Web analytics. As an application service provider, or ASP, we offer our customers a full range of Web services and products on an affordable subscription basis. In addition to our primary service offerings, we provide a variety of premium services to customers who desire more advanced capabilities, such as eCommerce solutions and other sophisticated online marketing services and online lead generation. The breadth and flexibility of our offerings allow us to address the Web services needs of a wide variety of customers, ranging from those just establishing their websites to those that want to enhance their existing online presence with more sophisticated marketing and lead generation services. As the Internet continues to evolve, we plan to refine and expand our service offerings to keep our customers at the forefront.

On July 30, 2010, we completed the acquisition of Register.com LP for total consideration of $135.1 million. Register.com LP offers domain registration and a wide array of website design and web hosting services from “Do It Yourself” tools to fully customized offerings, targeted primarily to small businesses. We believe that the acquisition of Register.com LP provides highly complementary products, sales channels and operating capabilities and that completing the acquisition brought us customers to whom we have substantial cross- and up-sell opportunity for us. The Company determined that the operations of Register.com LP are considered Web products and services and therefore, no change to our operating segment resulted. See Note 3, Business Combinations, for additional information on the acquisition.

Through the combination of our proprietary website publishing and management software, automated workflow processes, and specialized workforce development and management techniques, we believe that we achieve production efficiencies that enable us to offer sophisticated Web services at affordable rates. Our technology automates many aspects of creating, maintaining, enhancing, and marketing websites on behalf of our customers. The Register.com LP acquisition enabled us to increase our total subscribers to approximately 913,000 at September 30, 2011. We believe we are one of the industry’s largest providers of affordable Web services and products enabling small businesses to have an effective online presence.

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To increase our revenue and take advantage of our market opportunity, we plan to expand our subscriber base as well as furthering our cross-sell/upsell strategy with our domain name customers from Register.com LP. We intend to continue to invest in hiring additional personnel, particularly in outbound and inbound sales and marketing; developing additional services and products; adding to our infrastructure to support our growth; and expanding our operational and financial systems to manage our growing business. As we have in the past, we will continue to evaluate acquisition opportunities to increase the value and breadth of our Web services and product offerings and expand our subscriber base.

In addition to our outbound and inbound telesales, we have a sales strategy that leverages the brand and distribution of organizations with which we have a strategic marketing relationships to sell our Web services and products. We have developed strategic marketing relationships with well-known, brand name companies. We create sales material with each of these organizations, highlighting our Web services and products while also leveraging their brand. Then, on behalf of these companies, we initiate programs where our sales representatives directly contact their small business customers using telesales solicitation, direct mail and online contact.

Key Business Metrics

Management periodically reviews certain key business metrics to evaluate the effectiveness of our operational strategies, allocate resources and maximize the financial performance of our business. These key business metrics include:

Net Subscriber Additions

We maintain and grow our subscriber base through a combination of adding new subscribers and retaining existing subscribers. We define net subscriber additions in a particular period as the gross number of new subscribers added during the period, less subscriber cancellations during the period. For this purpose, we only count as new subscribers those customers whose subscriptions have extended beyond the free trial period. Additionally, we do not treat a subscription as cancelled, even if the customer is not current in its payments, until either we have made numerous attempts to contact the subscriber or 60 days have passed since the most recent failed billing attempt, whichever is sooner. In any event, a subscriber’s account is cancelled if payment is not received within approximately 80 days.

We review this metric to evaluate whether we are performing to our business plan. An increase in net subscriber additions could signal an increase in subscription revenue, higher customer retention, and an increase in the effectiveness of our sales efforts. Similarly, a decrease in net subscriber additions could signal decreased subscription revenue, lower customer retention, and a decrease in the effectiveness of our sales efforts. Net subscriber additions above or below our business plan could have a long-term impact on our operating results due to the subscription nature of our business.

Monthly Turnover (Churn)

Monthly turnover, or churn, is a metric we measure each quarter, and which we define as customer cancellations in the quarter divided by the sum of the number of subscribers at the beginning of the quarter and the gross number of new subscribers added during the quarter, divided by three months. Customer cancellations in the quarter include cancellations from gross subscriber additions, which is why we include gross subscriber additions in the denominator. In measuring monthly turnover, we use the same conventions with respect to free trials and subscribers who are not current in their payments as described above for net subscriber additions. Monthly turnover is the key metric that allows management to evaluate whether we are retaining our existing subscribers in accordance with our business plan. An increase in monthly turnover may signal deterioration in the quality of our service, or it may signal a behavioral change in our subscriber base. Lower monthly turnover signals higher customer retention.

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Average Revenue per Subscriber

Average revenue per subscriber, or ARPU, is a metric we measure on a quarterly basis. We define as quarterly subscription revenue divided by the average of the number of subscribers at the beginning of the quarter and the number of subscribers at the end of the quarter, divided by three to calculate a monthly ARPU. We exclude from subscription revenue the impact of the fair value adjustments to deferred revenue resulting from acquisition related write downs. The fair market value adjustment was $2.8 million and $5.7 million for the three months ended September 30, 2011 and 2010, respectively. The fair market value adjustment was $12.3 million and $5.7 million for the nine months ended September 30, 2011 and 2010, respectively. Average revenue per subscriber is the key metric that allows management to evaluate the impact on monthly revenue from product pricing and product sales mix trends.

Sources of Revenue

We derive our revenue from sales of a variety of services to small businesses, including web design, domain name registration, online marketing, search engine optimization, eCommerce solutions, logo design and home contractor lead services. Leads are generated through online advertising campaigns targeting customers in need of web design, hosting or online marketing solutions, through strategic partnerships with enterprise partners, or through our corporate websites.

Subscription Revenue

We currently derive a substantial majority of our revenue from fees associated with our subscription services, which are generally sold through our web services, online marketing, eCommerce, and domain name registration offerings. A portion of our services are offered free of charge for a 30-day trial period during which the customer can cancel at any time. After the 30-day trial period has ended, the revenue is recognized on a daily basis over the life of the contract. We bill a majority of our customers in advance through their credit cards, bank accounts, or business merchant accounts, and revenue is recognized on a daily basis over the life of the contract which can range from monthly up to 10 years.

For the three and nine months ended September 30, 2011, subscription revenue accounted for approximately 99% and 98% of our total revenue, respectively, as compared to 98% and 97% for the three and nine months ended September 30, 2010, respectively. The number of paying subscribers to our Web services and lead generation products drives subscription revenue as does the subscription price that we charge for these services. The number of paying subscribers is affected both by the number of new customers we acquire in a given period and by the number of existing customers we retain during that period. We expect other sources of revenue to decline as a percentage of total revenue over time.

 Professional Services Revenue

We generate professional services revenue from custom website design, eCommerce store design, and "Do It Yourself” logo design. Our custom website design and eCommerce store design work is typically billed on a fixed price basis and over very short periods. Our "Do It Yourself” logo design is typically billed upon the point-of-sale of the final product, which is created by the customer.

 Cost of Revenue

Cost of Subscription Revenue

Cost of subscription revenue primarily consists of expenses related to marketing fees we pay to companies with which we have strategic marketing relationships as well as compensation expenses related to our Web page development staff, domain name registration fees, directory listing fees, customer support costs, search engine registration fees, allocated overhead costs, billing costs, and hosting expenses. We allocate overhead costs such as rent and utilities to all departments based on headcount. Accordingly, general overhead expenses are reflected in each cost of revenue and operating expense category. As our customer base and Web services usage grows, we intend to continue to invest additional resources in our website development and support staff.

Cost of Professional Services Revenue

Cost of professional services revenue primarily consists of compensation expenses related to our Web page development staff, eCommerce store design, logo design, and allocated overhead costs. While in the near term, we expect to maintain or reduce costs in this area, in the long term, we may add additional resources in this area to support the growth in our professional services and custom design functions.

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Operating Expenses

Sales and Marketing Expense

Our largest direct marketing expenses are the costs associated with the online marketing channels we use to acquire and promote our services. These channels include search marketing, affiliate marketing and online partnerships. Sales costs consist primarily of salaries and related expenses for our sales and marketing staff. Sales and marketing expenses also include commissions, marketing programs, including advertising, events, corporate communications, other brand building and product marketing expenses and allocated overhead costs.

As market conditions improve, we plan to continue to invest in sales and marketing by increasing the number of direct sales personnel in order to add new subscription customers as well as increase sales of additional and new services and products to our existing customer base. Our investment in this area will also help us to expand our strategic marketing relationships, to build brand awareness, and to sponsor additional marketing events. Accordingly, we expect that, in the future, sales and marketing expenses will increase in absolute dollars.

Research and Development Expense

Research and development expenses consist primarily of salaries and related expenses for our research and development staff and allocated overhead costs. We have historically focused our research and development efforts on increasing the functionality of the technologies that enable our Web services and lead generation products. Our technology architecture enables us to provide all of our customers with a service based on a single version of the applications that serve each of our product offerings. As a result, we do not have to maintain multiple versions of our software, which enables us to have lower research and development expenses as a percentage of total revenue. We expect that, in the future, research and development expenses will increase as we continue to upgrade and extend our service offerings and develop new technologies.

 General and Administrative Expense

General and administrative expenses consist of salaries and related expenses for executive, finance, administration, and management information systems personnel, as well as professional fees, other corporate expenses, and allocated overhead costs. We expect that general and administrative expenses will increase in absolute dollars as we continue to add personnel to support the growth of our business.

Depreciation and Amortization Expense

Depreciation and amortization expenses relate primarily to our computer equipment, software, building and intangible assets recorded due to the acquisitions we have completed.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and related disclosure of contingent assets and liabilities. We review our estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies and estimates are described in more detail in Note 1, The Company and Summary of Significant Accounting Policies, to our consolidated financial statements included in this report, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our consolidated financial statements.

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Revenue Recognition

 We recognize revenue in accordance with Accounting Standards Codification, or ASC, 605, Revenue Recognition. We recognize revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer; (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of our fees is reasonably assured.

Thus, we recognize subscription revenue on a daily basis, as services are provided. Customers are billed for the subscription on a monthly, quarterly, semi-annual, annual or on a multi-year basis, at the customer’s option. For all of our customers, regardless of the method we use to bill them, subscription revenue is recorded as deferred revenue in the accompanying consolidated balance sheets. As services are performed, we recognize subscription revenue on a daily basis over the applicable service period. When we provide a free trial period, we do not begin to recognize subscription revenue until the trial period has ended and the customer has been billed for the services.

We account for our multi-element arrangements, such as in the instances where we design a custom website and separately offer other services such as hosting and marketing, in accordance with ASC 605-25, Revenue Recognition: Multiple-Element Arrangement. We identify each element in an arrangement and assign the relative selling price to each element. The additional services provided with a custom website are recognized separately over the period for which services are performed.

Allowance for Doubtful Accounts

In accordance with our revenue recognition policy, our accounts receivable are based on customers whose payment is reasonably assured. We monitor collections from our customers and maintain an allowance for estimated credit losses based on historical experience and specific customer collection issues. While credit losses have historically been within our expectations and the provisions established in our financial statements, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. Because we have a large number of customers, we do not believe a change in liquidity of any one customer or our inability to collect from any one customer would have a material adverse impact on our consolidated financial position.

We also monitor failed direct debit billing transactions and customer refunds and maintain an allowance for estimated losses based upon historical experience. These provisions to our allowance are recorded as an adjustment to revenue. While losses from these items have historically been minimal, we cannot guarantee that we will continue to experience the same loss rates that we have in the past.

Accounting for Stock-Based Compensation

We record compensation expenses for our employee and director stock-based compensation plans based upon the fair value of the award in accordance with ASC 718, Compensation – Stock Compensation. Stock-based compensation is amortized over the related vesting periods.

We grant to our employees options to purchase common stock at exercise prices equal to the quoted market values of the underlying stock at the time of each grant. Upon granting options to our employees, we value the fair value of each option award, on the date of the grant, using the Black Scholes option valuation model.

Goodwill and Intangible Assets

In accordance with ASC 350, Intangibles - Goodwill and Other, we periodically evaluate goodwill and indefinite-lived intangible assets for potential impairment. We test for the impairment of goodwill and indefinite-lived intangible assets annually, and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of goodwill or indefinite-lived intangible assets below its carrying amount. Other intangible assets include, among other items, customer relationships, developed technology and non-compete agreements, and they are amortized using the straight-line method over the periods benefited. Other intangible assets represent long-lived assets and are assessed for potential impairment whenever significant events or changes occur that might impact recovery of recorded costs. During the year ended December 31, 2010, we completed our annual impairment test of goodwill and other indefinite-lived intangible assets. The results of this test determined that goodwill and other indefinite-lived intangible assets were not at risk of failing step 1 and therefore not impaired at December 31, 2010. See Note 5, Goodwill and Intangible Assets, in the consolidated financial statements for additional information on goodwill and intangible assets. There were no impairment indicators during the three and nine months ended September 30, 2011.

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Accounting for Business Combinations

All of our acquisitions were accounted for as purchase transactions, and the purchase price was allocated based on the fair value of the assets acquired and liabilities assumed. The excess of the purchase price over the fair value of net assets acquired or net liabilities assumed was allocated to goodwill. Management weighs several factors in determining the fair value of amortizable intangibles, which primarily consists of developed technology, customer relationships, non-compete agreements and trade names, including using third-party valuation experts, valuation studies and other tools in determining the fair value of amortizable intangibles.

Provision for Income Taxes

We account for income taxes under the provisions of ASC 740, Income Taxes, using the liability method. ASC 740 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the difference is expected to reverse. Further, deferred tax assets are recognized for the expected realization of available net operating loss carry forwards. A valuation allowance is recorded to reduce a deferred tax asset to an amount that we expect to realize in the future. We review the adequacy of the valuation allowance on an ongoing basis and recognize these benefits if a reassessment indicates that it is more likely than not that these benefits will be realized. In addition, we evaluate our tax contingencies on an ongoing basis and recognize a liability when we believe that it is probable that a liability exists and that the liability is measurable.

In addition, we believe that we have fully reserved for any tax uncertainties in accordance with ASC 740, Income Taxes, which clarifies the accounting for uncertainty in income tax positions recognized in financial statements. However, if actual results differ from our estimates, we will adjust the tax provision in the period the tax uncertainty is realized.

Comparison of the Results for the Three Months Ended September 30, 2011 to the Results for the Three Months Ended September 30, 2010

The three months ended September 30, 2010 included approximately two months of activity from the Register.com LP acquisition as compared to three months of activity for the quarter ended September 30, 2011. In addition, the operations of Register.com LP were integrated with the existing legacy Web.com operations immediately following the closing of the acquisition on July 30, 2010. As such, revenue, ARPU or gross margin is not specifically segregated subsequent to the acquisition, nor would it be indicative of each of the standalone entities.

The following table sets forth our key business metrics for the three months ended September 30:

	Three months ended September 30,
	2011			2010
Net subscriber reductions		(12,642	)		(17,468	)
Churn		1.7	%		1.7	%
Average revenue per subscriber (monthly)	$	16.73		$	20.11

Net subscribers decreased by 12,642 customers during the three months ended September 30, 2011 when compared to same prior year period however, due to Register.com LP’s lower churning and substantially larger customer base, churn remained unchanged at 1.7%.

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The average revenue per subscriber was $16.73 during the three months ended September 30, 2011 as compared to $20.11 during the same prior year period. The decrease is primarily due to the additional 787,000 of lower monthly ARPU customers of Register.com LP, partially offset by revenue increases from our online marketing products as a result of increased marketing efforts and the direct advertising television campaign. The pro forma average revenue per subscriber adjusted to reflect a full quarter of Register.com LP activity for the three months ended September 30, 2010 was $15.55. When compared to the current quarter ended September 30, 2011 of $16.73, the average revenue per subscriber increased $1.18 due to sales of our legacy Web.com products to Register.com customers and increases from our online marketing product sales.

The average revenue per subscriber and pro forma average revenue per subscriber during the three months ended September 30, 2011 and 2010 is adjusted to exclude the unfavorable impact of $2.8 million and $5.7 million, respectively, of amortizing into revenue, deferred revenue that was recorded at fair value at the acquisition date. The fair value of the acquired deferred revenue was approximately 50 percent less than the pre-acquisition historical basis of Register.com LP. The unfavorable impact to our revenue declines on a monthly basis as the acquired deferred revenue becomes fully recognized.

Revenue

	Three months ended September 30,
	2011		2010
	(unaudited, in thousands)
Revenue:
Subscription	$	43,398	$	32,060
Professional services		505		674
Total revenue	$	43,903	$	32,734

Total revenue for the three months ended September 30, 2011 increased $11.2 million, or 34%, primarily due to the additional revenue from the July 2010 Register.com LP acquisition and to increases in our sales of online marketing products resulting from increased marketing efforts. In addition, Do-It-For-Me sales increased as a result of the direct advertising television campaign as well as from selling legacy Web.com products to the Register.com LP customer base. The three months ended September 30, 2010 included approximately two months of revenue compared to a full quarter in the three months ended September 30, 2011. In addition, the impact of amortizing into revenue deferred revenue that was written down to fair value at the acquisition date contributed $3.0 million to the three months ended September 30, 2011 increase in revenue compared to the same prior year quarter ended.

Pro forma revenue adjusted to reflect a full three months of Register.com LP ended September 30, 2010 and also adjusted for the fair market value adjustment of $5.7 million was $45.5 million, compared to pro forma revenue adjusted for the fair market value adjustment of $2.8 million for the three months ended September 30, 2011 of $46.7 million. The increase during the three months ended is from selling legacy Web.com products to the Register.com LP customer base as well as from improvements in our online marketing product sales.

Subscription Revenue. Subscription revenue increased $11.3 million or 35%, to $43.4 million in the three months ended September 30, 2011 up from $32.1 million for the same prior year period. The increase is due to the overall revenue drivers discussed above.

Professional Services Revenue. Professional services revenue decreased approximately $0.2 million during the three months ended September 30, 2011 when compared to the same prior year period ended.

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Cost of Revenue

	Three months ended September 30,
	2011		2010
	(unaudited)
Cost of revenue:
Subscription	$	17,026	$	14,436
Professional services		335		519
Total cost of revenue	$	17,361	$	14,955

Cost of Subscription Revenue. Cost of subscription revenue increased $2.6 million to $17.0 million, or 39% of subscription revenue, in the three months ended September 30, 2011 from $14.4 million in the three months ended September 30, 2010 primarily due to an additional $1.5 million of costs associated with a full quarter of Register.com LP presented in 2011 compared to approximately two months of activity in 2010. In addition, online marketing costs increased $0.6 million during the three months ended September 30, 2011 due to higher revenue. Our gross margin on subscription revenue increased from 55% during the three months ended September 30, 2010 to 61% during the three months ended September 30, 2011. Excluding the $2.8 million and $5.7 million impact of the fair market value adjustment during the three months ended September 30, 2011 and 2010, respectively, gross margin was 63% and 62%, respectively, principally due to the increases in sales of online marketing products and the sale of legacy Web.com products to the Register.com LP customer base.

Cost of Professional Services Revenue. Cost of professional services revenue decreased 35% to $0.3 million in the three months ended September 30, 2011 from $0.5 million during the same prior year period. The decrease was primarily the result of lower employee compensation and benefits expense.

Operating Expenses

	Three months ended September 30,
	2011		2010
	(unaudited)
Operating Expenses:
Sales and marketing	$	11,080	$	8,274
Research and development		3,264		3,031
General and administrative		11,207		8,124
Restructuring charges		85		1,802
Depreciation and amortization		4,696		4,698
Total operating expenses	$	30,332	$	25,929

Sales and Marketing Expenses. Sales and marketing expenses increased $2.8 million to $11.1 million, or 25% of total revenue, during the three months ended September 30, 2011, up from $8.3 million, or 25% of total revenue, during the three months ended September 30, 2010. Register.com LP contributed an additional $1.2 million of the overall increase, reflecting a $1.6 million increase when the acquisition is excluded. This incremental increase was primarily the result of a direct advertising television campaign that was launched in the first quarter of 2011 and continued on through the third quarter; in addition to an increase in marketing employee related costs and benefits.

Research and Development Expenses. Research and development expenses increased to $3.3 million, or 7% of total revenue, during the three months ended September 30, 2011 up from $3.0 million, or 9% of total revenue, during the three months ended September 30, 2010. The increase is primarily due to higher compensation related benefits.

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General and Administrative Expenses. General and administrative expenses during the three months ended September 30, 2011 were up $3.1 million when compared to the same prior year period. Corporate development expenses were up approximately $3.2 million due to $1.5 million of investment banking due diligence related costs and $1.8 million of legal, administrative and professional services expenses, both related to the October 27, 2011 acquisition of GA Net Sol Parent, LLC (“Network Solutions”). See Note 15. Subsequent Events, for additional information regarding the Network Solutions acquisition. In addition, approximately $1.5 million of one-time acquisition-related bonuses were incurred for the successful integration of Register.com during the three months ended September 30, 2011. The quarter over quarter corporate development increase in 2011 was partially offset by the absence of approximately $2.0 million of Register.com LP transaction costs incurred during the three months ended September 30, 2010.

Restructuring charges. Restructuring charges of $0.1 million were recorded in the third quarter ended September 30, 2011 primarily to adjust the original estimates for employee relocation and termination expenses as a result of the Register.com LP acquisition. The three months ended September 30, 2010 included $1.8 million of severance, relocation and other restructuring related costs as a result of the Register.com LP acquisition.

Depreciation and Amortization Expense. Depreciation and amortization expense of $4.7 million during the three months ended September 30, 2011, was comparable to the same prior year period.

Interest Expense, net. Net interest expense of $1.5 million for the three months ended September 30, 2011 was primarily from the term loan, revolving credit facility and seller note issued to finance the acquisition of Register.com LP.  In addition, deferred financing fee amortization of $0.3 million also contributed to interest expense during the three months ended September 30, 2011. Interest expense during the three months ended September 30, 2010 of $1.0 million was approximately one-third lower than the same current year period due to two months of expense compared to a full three months incurred in 2011.

Income Tax (Expense) Benefit. We recorded income tax expense of $0.2 million and an income tax benefit of $ 21.2 million in the three months ended September 30, 2011 and 2010, respectively, based upon our estimated annual effective tax rate by jurisdiction. Our effective tax rate results in income tax expense primarily due to changes in the valuation allowance related to non-reversing deferred tax liabilities and the alternative minimum tax credit. The $21.2 million income tax benefit during the three months ended September 30, 2010 was as a result of the acquisition of Register.com LP. We determined that some of our preexisting deferred tax assets will more likely than not be realized by the combined entity through the reversal of the deferred tax liabilities acquired from Register.com LP. ASC 805-740 requires that changes in an acquirer’s valuation allowance stemming from a business combination should be recognized as an element of income tax (expense) benefit.

We are in the process of evaluating the income tax consequences resulting from the October 27, 2011 acquisition of Network Solutions.

Discontinued operations. An installment payment of $0.1 million was received during the three months ended September 30, 2011 and recorded as a gain from the sale of our NetObjects Fusion software business sold in 2009.

Comparison of the Results for the Nine Months Ended September 30, 2011 to the Results for the Nine Months Ended September 30, 2010

The nine months ended September 30, 2010 included approximately two months of activity from the Register.com LP acquisition as compared to nine months of activity for the nine months ended September 30, 2011. In addition, the operations of Register.com LP were integrated with the existing legacy Web.com operations immediately following the closing of the acquisition on July 30, 2010. As such, revenue, ARPU or gross margin is not specifically segregated subsequent to the acquisition, nor would it be indicative of each of the standalone entities.

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The following table sets forth our key business metrics for the nine months ended September 30:

	Nine months ended September 30,
	2011			2010
Net subscriber (reductions) additions		(40,638	)		(14,291	)
Churn		1.7	%		2.6	%
Average revenue per subscriber (monthly)	$	16.20		$	26.17

Net subscribers decreased by 40,638 customers during the nine months ended September 30, 2011 as compared to 14,291 during the nine months ended September 30, 2010. However, due to a continued downward trend in churn as well as the acquisition of Register.com LP’s lower churning and substantially larger customer base, churn decreased from 2.6% to 1.7% in the nine months ended September 30, 2011 compared to the same prior year period ended.

The average revenue per subscriber decreased from $26.17 during the nine months ended September 30, 2010 to $16.20 during the nine months ended September 30, 2011. The decrease is primarily due to the additional 787,000 of lower monthly ARPU customers of Register.com LP, partially offset by improvements in sales of our online marketing products as a result of increased marketing efforts and the direct advertising television campaign. The average revenue per subscriber during the nine months ended September 30, 2011 and 2010 is adjusted to exclude the unfavorable impact of $12.3 million and $5.7 million, respectively, of amortizing into revenue, Register.com LP deferred revenue that was recorded at fair value at the acquisition date. The fair value of the acquired deferred revenue was approximately 50 percent less than the pre-acquisition historical basis of Register.com LP. The unfavorable impact to our revenue declines on a monthly basis as the acquired deferred revenue becomes fully recognized.

Pro forma average revenue per subscriber adjusted to include nine months of Register.com LP during the nine months ended September 30, 2010 was $15.54. This compares to the average revenue per subscriber of $16.20 for the nine months ended September 30, 2011. The increase is due to sales of legacy Web.com products to the Register.com subscriber base and to increases in our online marketing product sales.

Revenue

	Nine months ended September 30,
	2011		2010
	(unaudited)
Revenue:
Subscription	$	123,642	$	80,498
Professional services		1,983		2,142
Total revenue	$	125,625	$	82,640

Total revenue for the nine months ended September 30, 2011 increased $43.0 million, or 52%, primarily due to the additional revenue related to our July 2010 acquisition of Register.com LP and from increases in our sales of online marketing products resulting from increased marketing efforts. In addition, Do-It-For-Me sales increased as a result of the direct advertising television campaign as well as from selling legacy Web.com products to the Register.com LP customer base.

Pro forma revenue adjusted to reflect the full nine months of Register.com LP ended September 30, 2010 and also adjusted for the fair market value adjustment of $5.7 million was $136.3 million, compared to pro forma revenue adjusted for the fair market value adjustment of $12.3 million for the nine months ended September 30, 2011 of $138.0 million. After these adjustments, the revenue increase during the nine months ended September 30, 2011 was due primarily to sales of legacy Web.com products to the Register.com LP customer base and to favorable online marketing sales.

Subscription Revenue. Subscription revenue increased $43.1 million or 54% to $123.6 million in the nine months ended September 30, 2011, up from $80.5 million for the same prior year period primarily due to the items described above.

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Professional Services Revenue. Professional services revenue during the nine months ended September 30, 2011 was consistent with the prior year.

Cost of Revenue

	Nine months ended September 30,
	2011		2010
	(unaudited)
Cost of revenue:
Subscription	$	51,642	$	34,122
Professional services		1,062		1,482
Total cost of revenue	$	52,704	$	35,604

Cost of Subscription Revenue. Cost of subscription revenue was 42% of subscription revenue and increased $17.5 million during the nine months ended September 30, 2011 compared to the same prior year period. The Register.com LP acquisition contributed $16.2 million to the overall increase as only two months of activity was included in the nine month period ended September 30, 2010. Our gross margin on subscription revenue remained at approximately 58% during the nine months ended September 30, 2011 which was in line with the same prior year period. The gross margin was negatively impacted by amortizing deferred revenue based on the fair value calculated at the acquisition date which was approximately 50% lower than the historical basis of Register.com LP. Excluding the $12.3 million and $5.7 million effect of the adjustment related to the fair value of acquired deferred revenue for the nine months ended September 30, 2011 and 2010, respectively, the gross margin was 62% and 60%, respectively.

Cost of Professional Services Revenue. Cost of professional services revenue decreased 28% to $1.1 million in the nine months ended September 30, 2011 from $1.5 million during the same prior year period. The decrease was primarily the result of lower revenue in addition to lower employee compensation and benefits expense.

Operating Expenses

	Nine months ended September 30,
	2011		2010
	(unaudited)
Operating Expenses:
Sales and marketing	$	32,190	$	19,005
Research and development		10,202		7,527
General and administrative		23,908		17,472
Restructuring charges		330		1,856
Depreciation and amortization		14,213		11,290
Total operating expenses	$	80,843	$	57,150

Sales and Marketing Expenses. Sales and marketing expenses increased $13.2 million to $32.2 million, or 26% of total revenue, during the nine months ended September 30, 2011, up from $19.0 million, or 23% of total revenue, during the same prior year period ended. Register.com LP contributed $10.0 million of the overall increase, reflecting a $3.2 million increase when the acquisition is excluded. This increase was primarily the result of a direct advertising television campaign that was launched in the first quarter of 2011 as well as an overall increase in marketing related compensation expense and online marketing spending due to increased focus and efforts in this area.

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Research and Development Expenses. Research and development expenses increased $2.7 million to $10.2 million, or 8% of total revenue, during the nine months ended September 30, 2011 from $7.5 million, or 9% of total revenue, during the nine months ended September 30, 2010. The July 2010 acquisition of Register.com contributed $2.4 million of additional research and development costs during the first nine months of 2011. The additional increase primarily resulted from higher compensation related benefits expense during the nine months ended September 30, 2011 compared to the same prior year period ended.

General and Administrative Expenses. General and administrative expenses increased $6.4 million to $23.9 million, or 19% of total revenue, in the first nine months of 2011 compared to $17.5 million, or 21% of total revenue for the nine months ended September 30, 2010. The acquisition of Register.com LP accounted for $1.3 million of the year over year increase. Increases in corporate development expenses include $2.3 million of legal, professional and administrative fees related to the October 2011 acquisition of GA Net Sol Parent LLC (“Network Solutions”), $1.5 million for investment banking due diligence services, and $1.5 million for a one-time bonus for the successful integration of Register.com LP, partially offset by transaction-related costs of $3.0 million incurred in the nine months ended September 30, 2010. In addition, employee-related compensation and benefits expense increased approximately $1.8 million in the current year.

Restructuring charges. Restructuring charges of $0.3 million were recorded during the nine months ended September 30, 2011 primarily to adjust the original estimates for employee relocation and termination expenses as a result of the Register.com LP acquisition.

Depreciation and Amortization Expense. Depreciation and amortization expense increased 26% to $14.2 million during the nine months ended September 30, 2011, up from $11.3 million during the same prior year period. Amortization related to the intangible assets and depreciation expense from property and equipment acquired from Register.com LP, increased the total depreciation and amortization expense by approximately $3.7 million. Excluding the impact of the Register.com LP acquisition, amortization expense from intangible assets was lower by $0.8 million as certain intangibles became fully amortized.

Interest Expense, net. Net interest expense of $3.7 million for the first nine months of 2011 was from the term loan, revolving credit facility and seller note issued to finance the 2010 acquisition of Register.com LP. In addition, deferred financing fee amortization of $0.9 million also contributed to interest expense during the nine months ended September 30, 2011. Interest expense and deferred financing fee amortization totaled $0.9 million during the nine months ended September 30, 2010. The nine month period ended September 30, 2011 included nine months of interest expense while the same prior year period only included two months.

Income Tax (Expense) Benefit. We recorded income tax expense of $0.7 million and an income tax benefit of $20.5 million in the nine months ended September 30, 2011 and 2010, respectively, based upon our estimated annual effective tax rate by jurisdiction. Our effective tax rate results in income tax expense primarily due to changes in the valuation allowance related to non-reversing deferred tax liabilities and the alternative minimum tax credit. The $20.5 million income tax benefit during the nine months ended September 30, 2010 was as a result of the acquisition of Register.com LP. We determined that some of our preexisting deferred tax assets will more likely than not be realized by the combined entity through the reversal of the deferred tax liabilities acquired from Register.com LP.  ASC 805-740 requires that changes in an acquirer’s valuation allowance stemming from a business combination should be recognized as an element of income tax (expense) benefit.

We are in the process of evaluating the income tax consequences resulting from the October 27, 2011 acquisition of Network Solutions.

Discontinued operations. Proceeds of $0.3 million were received during the first nine months of 2011 and were recorded as a gain from the sale of discontinued operations resulting from the 2009 sale of our NetObjects Fusion software business.

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Outlook. We believe the Company has the potential to accelerate revenue growth from focusing on selling our entire product offering across the combined Web.com and Network Solutions’ nearly three million customer base. As we continue to integrate the Network Solutions operations, realize the significant post-merger cost savings and benefit from increased scale, we believe that we have the opportunity to generate substantial shareholder value. We expect strong operating cash flows that will be used to pay down debt and fund incremental marketing investments. We expect to drive increasing average revenue per subscriber through our cross-sell/up-sell activities but continue to expect net subscriber losses in the near term. As we continue to expand our marketing investments and realize the increasing benefits of new sales and marketing initiatives, we expect our gross subscriber additions to increase, driving net subscriber growth in the near to mid-term. 

Liquidity and Capital Resources

The following table summarizes total cash flows for operating, investing and financing activities for the nine months ended September 30, (in thousands):  

	2011			2010
	(unaudited)
Net Cash Provided by Operating Activities	$	10,470		$	8,940
Net Cash Used in Investing Activities		(3,191	)		(129,380	)
Net Cash (Used in) Provided by Financing Activities		(7,834	)		98,837
Decrease in Cash and Cash Equivalents	$	(555	)	$	(21,603	)

As of September 30, 2011, we had $15.8 million of unrestricted cash and cash equivalents and $23.3 million in negative working capital, as compared to $16.3 million of cash and cash equivalents and $22.1 million in negative working capital as of December 31, 2010. The deficit in working capital is due to the significant portion of deferred revenue from Register.com LP subscription revenue. In addition, there are approximately $11.2 million and $9.5 million of current debt obligations as of September 30, 2011 and December 31, 2010, respectively.

Net cash provided by operations for the nine months ended September 30, 2011 was $10.5 million as compared to the net cash provided by operations of $8.9 million for the same period ended September 30, 2010. Cash earnings in the nine months ended September 30, 2011 of $7.2 million increased approximately $4.1 million when compared to the same prior year period of $3.1 million. Changes in operating assets and liabilities resulted in $3.3 million of net favorable cash flows during the nine months ended September 30, 2011 compared to prior year to date comparable cash flows of $5.8 million during the same prior year; resulting in a net decrease in cash provided by operating activities of approximately $2.5 million year over year. Included in the other balance sheet changes during the nine months ended September 30, 2011 was approximately $2.0 million of payments made for the restructuring activities resulting from the July 2010 acquisition of Register.com LP.

Net cash used in investing activities in the nine months ended September 30, 2011 was $3.2 million compared to $129.4 million for the same prior year period. The prior year period included $127.1 million for the July 2010 acquisition of Register.com LP. Purchases of property and equipment of $3.6 million were made in the nine months ended September 30, 2011 primarily to migrate and streamline data centers to a centralized location. This was offset slightly by a $0.3 million payment received during the first quarter of 2011 from the sale of our discontinued NetObjects Fusion business, sold in 2009. The nine months ended September 30, 2010 included a $1.3 million purchase of approximately 5,700 customers. Approximately $1.1 million of property and equipment was purchased during the first nine months of 2010.   

Net cash used for financing activities during the nine months ended September 30, 2011 was $7.8 million as compared to net cash provided by financing activities of $98.8 million for the same prior year period ended. The nine months ended September 30, 2010 included $110 million of proceeds from the issuance of debt to finance the July 2010 Register.com LP acquisition. In addition, approximately $5.2 million of financing fees were incurred during the nine months ended September 30, 2010. Proceeds from the exercise of stock options of $8.6 million were received during the first nine months of 2011 and approximately $0.4 million of cash was used to pay employee minimum tax withholding requirements in lieu of receiving common shares. Principal payments of $16.0 million and $6.2 million were made in the nine months ended September 30, 2011 and 2010, respectfully, of which $9.3 million and $6.0 million was discretionary.

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 Long-term Debt

On July 30, 2010, we entered into a Credit Facility Agreement, or Credit Agreement, with the Royal Bank of Canada and issued a $95 million five year term loan and a $15 million revolving credit facility to finance the acquisition of Register.com LP, of which a total of $82.1 million was outstanding at September 30, 2011. The term loan and the revolving credit facility both bear variable interest rates of 1-month LIBOR plus 4.5 percent with the rate resetting at each month end. The term loan and the revolving credit facility mature on July 30, 2015. Approximately 46 percent of the term loan and revolving credit facility has been hedged with an interest rate swap that fixes 1-month LIBOR at 0.74 percent.

In addition, on July 30, 2010, we issued a $5 million note payable to the sellers of Register.com LP. The note payable bears interest at a rate of 5 percent with interest payments made on a quarterly basis and matures on July 30, 2015.

Debt Covenants

The Credit Agreement requires that we pay an additional principal amount equal to fifty percent of any excess cash flow, as defined in the Credit Agreement, for such year. The required percentage of excess cash flow shall be reduced to thirty-three percent if the Consolidated Leverage Ratio is reduced to 1.5 to 1. The Consolidated Leverage Ratio is defined as consolidated debt divided by Covenant EBITDA (see Note 8, Long-Term Debt and Capital Lease Obligations, for additional information). For the year ended December 31, 2011 only, the required excess cash flow payment shall be reduced by $7.5 million. Excess cash flow payments are due within ninety-five days of each year end, commencing with the year ended December 31, 2011.

The Credit Agreement also requires that we maintain a specified Consolidated Fixed Charge Coverage Ratio which is defined as Covenant EBITDA divided by consolidated fixed charges. Consolidated fixed charges include consolidated interest expense and scheduled debt payments made in a given period. Covenant EBITDA for the quarterly periods ended September 30, 2011, June 30, 2011, March 31, 2011 and December 31, 2010 was $10.8 million, $10.1 million, $8.7 million and $9.1 million, respectively. The consolidated debt and interest payments used in the covenant calculation below were $90.4 million and $11.6 million, respectively.

The covenant calculations as of September 30, 2011, are calculated on a trailing 12-month basis:

		Ratio at	Favorable /
Covenant Description	Covenant Requirement	September 30, 2011	(Unfavorable)
Consolidated Leverage Ratio	Not to exceed 2.75 to 1	2.24 to 1	0.51
Consolidated Fixed Charge Coverage Ratio	Minimum of 2.00 to 1	2.45 to 1	0.45

In addition to the financial covenants listed above, the term loan and credit facility include customary covenants that limit the incurrence of debt, the disposition of assets, and making of certain payments. Substantially all of our tangible and intangible assets collateralize the long-term debt as required by the Credit Agreement. 

Summary

Our future capital uses and requirements depend on numerous forward-looking factors. These factors include but are not limited to the following:

· the costs involved in the expansion of our customer base;

· the costs associated with the principal and interest payments of future debt service;

· the costs involved with investment in our servers, storage and network capacity;

· the costs associated with the expansion of our domestic and international activities;

· the costs involved with our research and development activities to upgrade and expand our service offerings; and

· the extent to which we acquire or invest in other technologies and businesses.

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We believe that our existing cash and cash equivalents and our future operating cash generated from the combined Web.com and Network Solutions entity will be sufficient to meet our projected combined entity operating requirements for at least the next 12 months, including our debt service requirements, sales and marketing expenses, research and development expenses and capital expenditures.

Non-GAAP Financial Measures

In addition to our financial information presented in accordance with U.S. GAAP, management uses certain “non-GAAP financial measures” within the meaning of the SEC Regulation G, to clarify and enhance understanding of past performance and prospects for the future. Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flows that excludes or includes amounts that are included in or excluded from the most directly comparable measure calculated and presented in accordance with GAAP. We monitor non-GAAP financial measures because it describes the operating performance of the company, excluding some recurring charges that are included in the most directly comparable measures calculated and presented in accordance with GAAP. Relative to each of the non-GAAP financial measures, we further set forth our rationale as follows:

Non-GAAP Revenue.  We exclude from non-GAAP revenue the fair value adjustment to deferred revenue resulting from acquisition related write downs, because we believe that excluding such measures helps management and investors better understand our revenue trends.

Non-GAAP Operating Income and Non-GAAP Operating Margin. We exclude from non-GAAP operating income and non-GAAP operating margin amortization of intangibles, fair value adjustment to deferred revenue, restructuring charges, corporate development expenses and stock-based compensation charges. We believe that excluding these items assist investors in evaluating period-over-period changes in our operating income and operating margin without the impact of items that are not a result of our day-to-day business and operations.

Non-GAAP Net Income and Non-GAAP Net Income per Basic Share and per Diluted Share. We exclude from non-GAAP net income and non-GAAP net income per diluted share and per basic share amortization of intangibles, income tax expense, fair value adjustment to deferred revenue, restructuring charges, corporate development expenses and stock-based compensation, amortization of deferred financing fees, gains/losses on operating assets and liabilities and include cash income tax expense, because we believe that excluding such measures helps management and investors better understand our operating activities.

Adjusted EBITDA. We exclude from Adjusted EBITDA depreciation expense, amortization of intangibles, fair value adjustment to deferred revenue, income tax, interest expense, interest income, stock-based compensation, corporate development expenses, and restructuring charges, because we believe that excluding such items helps management and investors better understand operating activities.

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The following table presents our non-GAAP measures for the periods indicated (in thousands, except per share data and percentages):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Reconciliation of GAAP revenue to non-GAAP revenue
GAAP revenue	$	43,903		$	32,734		$	125,625		$	82,640
Fair value adjustment to deferred revenue		2,755			5,726			12,327			5,742
Non-GAAP revenue	$	46,658		$	38,460		$	137,952		$	88,382
Reconciliation of GAAP net (loss) income to non-GAAP net income
GAAP net (loss) income	$	(5,396	)	$	12,016		$	(12,852	)	$	9,579
Amortization of intangibles		3,912			3,660			11,686			8,942
Gain on sale of assets		12			4			10			4
Stock based compensation		1,760			1,188			4,985			3,393
Income tax expense (benefit)		195			(21,212	)		657			(20,525	)
Restructuring charges		85			1,802			330			1,856
Corporate development		5,281			2,111			5,294			3,020
Amortization of deferred financing fees		313			178			939			178
Cash income tax expense		(325	)		(126	)		(473	)		(234	)
Fair value adjustment to deferred revenue		2,755			5,726			12,327			5,742
Fair value adjustment to prepaid registry fees		45			(44	)		202			(44	)
Non-GAAP net income	$	8,637		$	5,303		$	23,105		$	11,911
Reconciliation of GAAP diluted net (loss) income per share to non-GAAP diluted net income per share
Fully diluted shares:
Common stock		27,705			25,481			27,308			25,449
Diluted stock options		1,556			1,059			2,213			1,195
Diluted restricted stock		905			299			1,014			317
Total		30,166			26,839			30,535			26,961
Diluted GAAP net (loss) income per share	$	(0.19	)	$	0.45		$	(0.47	)	$	0.36
Diluted equity per share		0.01			-			0.05			-
Amortization of intangibles per share		0.13			0.14			0.38			0.32
Gain on sale of assets per share		-			-			-			-
Stock based compensation per share		0.06			0.04			0.16			0.13
Income tax expense (benefit) per share		0.01			(0.80	)		0.02			(0.77	)
Restructuring charges per share		-			0.07			0.01			0.07
Corporate development per share		0.18			0.08			0.17			0.11
Amortization of deferred financing fees per share		0.01			0.01			0.03			0.01
Cash income tax expense per share		(0.01	)		-			(0.02	)		(0.01	)
Fair value adjustment to deferred revenue per share		0.09			0.21			0.42			0.22
Fair value adjustment to prepaid registry fees per share		-			-			0.01			-
Diluted Non-GAAP net income per share	$	0.29		$	0.20		$	0.76		$	0.44

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	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Reconciliation of GAAP operating loss to non-GAAP operating income
GAAP operating loss	$	(3,790	)	$	(8,150	)	$	(7,922	)	$	(10,114	)
Amortization of intangibles		3,912			3,660			11,686			8,942
Stock based compensation		1,760			1,188			4,985			3,393
Restructuring charges		85			1,802			330			1,856
Corporate development		5,281			2,111			5,294			3,020
Fair value adjustment to deferred revenue		2,755			5,726			12,327			5,742
Fair value adjustment to prepaid registry fees		45			(44	)		202			(44	)
Non-GAAP operating income	$	10,048		$	6,293		$	26,902		$	12,795
Reconciliation of GAAP operating margin to non-GAAP operating margin
GAAP operating margin		-9	%		-25	%		-6	%		-12	%
Amortization of intangibles		8	%		10	%		8	%		11	%
Restructuring charges		0	%		5	%		0	%		2	%
Corporate development		11	%		5	%		4	%		4	%
Fair value adjustment to deferred revenue		8	%		18	%		10	%		5	%
Fair value adjustment to prepaid registry fees		0	%		0	%		0	%		0	%
Stock based compensation		4	%		3	%		4	%		4	%
Non-GAAP operating margin		22	%		16	%		20	%		14	%
Reconciliation of GAAP operating loss to adjusted EBITDA
GAAP operating loss	$	(3,790	)	$	(8,150	)	$	(7,922	)	$	(10,114	)
Depreciation and amortization		4,696			4,698			14,213			11,290
Stock based compensation		1,760			1,188			4,985			3,393
Restructuring charges		85			1,802			330			1,856
Corporate development		5,281			2,111			5,294			3,020
Fair value adjustment to deferred revenue		2,755			5,726			12,327			5,742
Fair value adjustment to prepaid registry fees		45			(44	)		202			(44	)
Adjusted EBITDA	$	10,832		$	7,331		$	29,429		$	15,143
Stock based compensation
Subscription (cost of revenue)	$	231		$	141		$	628		$	425
Sales and marketing		321			185			884			494
Research and development		231			141			667			447
General and administration		976			721			2,806			2,027
Total	$	1,759		$	1,188		$	4,985		$	3,393

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Contractual Obligations and Commitments

We have no material changes to the Contractual Obligations table as presented in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations of our 2010 Annual Report on Form 10-K.  See Note 14, Commitments and Contingencies, for additional information.

Off-Balance Sheet Arrangements

As of September 30, 2011 and December 31, 2010, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Foreign Currency Exchange Risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, specifically changes in the Canadian Dollar. The majority of our subscription agreements are denominated in U.S. dollars. The majority of our expenses are denominated in U.S. dollars; however, with the acquisition of Register.com LP, we have a higher exposure from our Canadian dollar expenditures. Exchange rate fluctuations have had little impact on our operating results and cash flows. We will analyze our exposure to currency fluctuations and may engage in financial hedging techniques in the future to reduce the effect of these potential fluctuations.

Interest Rate Sensitivity

We had unrestricted cash and cash equivalents totaling $15.8 million and $16.3 million at September 30, 2011 and December 31, 2010, respectively. These amounts were invested primarily in money market funds. The unrestricted cash, cash equivalents and short-term marketable securities are held for working capital purposes. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of these investments, we do not anticipate that the interest rates will materially fluctuate therefore we believe we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Declines in interest rates, however, will reduce future investment income.

As of September 30, 2011, we have $87.1 million of total debt outstanding. As a result, we have exposure to market risk for changes in interest rates related to these borrowings and as a result have entered into an interest rate swap on approximately 47 percent of our term loan swapping variable rate debt with fixed rate debt. Our variable rate debt is based on 1-month LIBOR plus 4.5 percent. A hypothetical 10 percent increase/decrease in 1-month LIBOR would result in an annual increase/decrease of interest expense of approximately $10 thousand.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

Based on their evaluation as of September 30, 2011, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective at the reasonable assurance level to ensure that the information required to be disclosed by us in this quarterly report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules, and that such information is accumulated and communicated to us to allow timely decisions regarding required disclosures.

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.

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Changes in Internal Controls Over Financial Reporting.

There have been no changes in our internal controls over financial reporting during the three and nine months ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

In November 2001, Register.com Inc. (“Register.com”), its Chairman, President, Chief Executive Officer and former Vice President of Finance and Accounting Richard D. Forman and its former President and Chief Executive Officer Alan G. Breitman (the “Individual Defendants”) were named as defendants in class action complaints alleging violations of the federal securities laws in the United States District Court for the Southern District of New York. A Consolidated Amended Complaint, which is now the operative complaint, was filed in the Southern District of New York on April 19, 2002.

The purported class action alleges violations of Sections 11 and 15 of the Securities Act of 1933 (the “1933 Act”) and Sections 10(b), Rule 10b-5 and 20(a) of the Securities Exchange Act of 1934 (the “1934 Act”) against Register.com and Individual Defendants. The essence of the complaint is that defendants issued and sold Register.com’s common stock pursuant to the Registration Statement for the March 3, 2000 Initial Public Offering (“IPO”) without disclosing to investors that certain underwriters in the offering had solicited and received excessive and undisclosed commissions from certain investors. The complaint also alleges that the Registration Statement for the IPO failed to disclose that the underwriters allocated Register.com shares in the IPO to customers in exchange for the customers’ promises to purchase additional shares in the aftermarket at pre-determined prices above the IPO price, thereby maintaining, distorting and/or inflating the market price for the shares in the aftermarket.  The action seeks damages in an unspecified amount.

The action is being coordinated with approximately 300 other nearly identical actions filed against other companies. On July 15, 2002, Register.com moved to dismiss all claims against it and the Individual Defendants.  On October 9, 2002, the Court dismissed the Individual Defendants from the case without prejudice. This dismissal disposed of the Section 15 and 20(a) control person claims without prejudice, since these claims were asserted only against the Individual Defendants. On February 19, 2003 the Court denied the motion to dismiss the complaint against Register.com. On December 5, 2006, the Second Circuit vacated a decision by the district court granting class certification in six of the approximately 300 nearly identical actions that are part of the consolidated litigation, which are intended to serve as test, or “focus” cases. The plaintiffs selected these six cases, which do not include Register.com. On April 6, 2007, the Second Circuit denied the petition for rehearing filed by the plaintiffs, but noted that the plaintiffs could ask the District Court to certify more narrow classes than those that were rejected.

The parties in the approximately 300 coordinated cases, including the parties in Register.com’s case, reached a settlement. It provides for releases of existing claims and claims that could have been asserted relating to the conduct alleged to be wrongful from the class of investors participating in the settlement. The insurers for the issuer defendants in the coordinated cases will make the settlement payment on behalf of the issuers, including Register.com. On October 6, 2009, the Court granted final approval to the settlement. Two appeals are proceeding.  Plaintiffs have moved to dismiss both appeals.  Four additional appeals that had been filed have been withdrawn. We intend to continue to defend the action vigorously if the settlement does not survive the appeal. Due to the inherent uncertainties of litigation, we cannot predict the ultimate outcome of this matter. We have notified our underwriters and insurance companies of the existence of the claims. We presently believe, after consultation with legal counsel, that the ultimate outcome of this matter will not have a material adverse effect on our results of operations, liquidity or financial position.

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In addition to the legal matters mentioned above, we and our subsidiaries are named from time to time as defendants in various legal actions that are incidental to our business and arise out of or are related to claims made in connection with our customer and vendor contracts and employment related disputes. We believe that the resolution of these legal actions will not have a material adverse effect on our financial position or results of operations. There were no material legal matters that were reasonably possible and estimable at September 30, 2011. In addition, there were no material legal matters for which an estimate could not be made.

Item 1A.   Risk Factors.

Factors That May Affect Future Operating Results

In addition to the risks discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our business is subject to the risks set forth below.

Risks Related to the Anticipated Acquisition of Network Solutions and the Combined Company

On October 27, 2011, Web.com Group, Inc. (“Web.com”) acquired GA-Net Sol Parent LLC, a Delaware corporation (“Network Solutions”) (the “Acquisition) for $405 million in cash and the issuance of 18 million shares of Web.com common stock (the “Shares”).

The failure to integrate successfully the businesses of the Company and Network Solutions in the expected timeframe would adversely affect the combined company’s future results following the completion of the Acquisition.

The success of the Acquisition will depend, in large part, on the ability of the combined company following the completion of the Acquisition to realize the anticipated benefits, including annual net operating synergies, from combining the businesses of the Company and Network Solutions. To realize these anticipated benefits, the combined company must successfully integrate the businesses of the Company and Network Solutions. This integration will be complex and time consuming.

The failure to integrate successfully and to manage successfully the challenges presented by the integration process may result in the combined company’s failure to achieve some or all of the anticipated benefits of the Acquisition.

Potential difficulties that may be encountered in the integration process include the following:

• lost sales and customers as a result of customers of either of the two companies deciding not to do business with the combined company;

• complexities associated with managing the larger, more complex, combined business;

• integrating personnel from the two companies while maintaining focus on providing consistent, high quality services and products;

• potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the Acquisition; and

• performance shortfalls at one or both of the companies as a result of the diversion of management’s attention caused by completing the Acquisition and integrating the companies’ operations.

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The integration of Network Solutions into Web.com may result in significant expenses and accounting charges that adversely affect Web.com’s operating results and financial condition.

In accordance with U.S. generally accepted accounting principles, or GAAP, Web.com will account for the acquisition using the purchase method of accounting. Web.com’s financial results may be adversely affected by the resulting accounting charges incurred in connection with the acquisition. Web.com also expects to incur additional costs associated with combining the operations of Web.com and Network Solutions, which may be substantial. Additional costs may include: costs of employee redeployment; relocation and retention, including salary increases or bonuses; accelerated amortization of deferred equity compensation and severance payments; reorganization or closure of facilities; taxes; advisor and professional fees and termination of contracts that provide redundant or conflicting services. Some of these costs may have to be accounted for as expenses that would negatively impact Web.com’s operating results and earnings (loss) per share for the periods in which those adjustments are made. The price of Web.com’s common stock could decline if Web.com’s financial results are materially affected by the foregoing charges and costs, or if the foregoing charges and costs are larger than anticipated. In addition, the charges and costs described above may not be reflected in the unaudited pro forma condensed combined financial statements to be filed in connection with the acquisition, and the unaudited pro forma condensed combined financial statements may not be indicative of the actual results of the combined company following the acquisition.

Integrating Web.com and Network Solutions may divert management’s attention away from the combined company’s operations.

Successful integration of Web.com’s and Network Solutions’s operations, products and personnel may place a significant burden on the combined company’s management and internal resources. Challenges of integration include the combined company’s ability to incorporate acquired products and business technology into its existing product offerings, and its ability to sell the acquired products through Web.com’s existing or acquired sales channels. Web.com may also experience difficulty in effectively integrating the different cultures and practices of Network Solutions, as well as in assimilating Network Solutions’s broad and geographically dispersed personnel. Further, the difficulties of integrating Network Solutions could disrupt the combined company’s ongoing business, distract its management focus from other opportunities and challenges, and increase the combined company’s expenses and working capital requirements. The diversion of management attention and any difficulties encountered in the transition and integration process could harm the combined company’s business, financial condition and operating results.

Depressed general economic conditions or adverse changes in general economic conditions could adversely affect our operating results. If economic or other factors negatively affect the small business sector, our customers may become unwilling or unable to purchase our Web services and products, which could cause our revenue to decline and impair our ability to operate profitably.

We have become increasingly subject to the risks arising from adverse changes in domestic and global economic conditions. Uncertainty about future economic conditions makes it difficult for us to forecast operating results and to make decisions about future investments. For example, the direction and relative strength of the global economy has been increasingly uncertain due to softness in the residential real estate and mortgage markets, volatility in fuel and other energy costs, difficulties in the financial services sector and credit markets, continuing geopolitical uncertainties and other macroeconomic factors affecting spending behavior. If economic growth in the United States is slowed, or if other adverse general economic changes occur or continue, many customers may delay or reduce technology purchases or marketing spending. This could result in reductions in sales of our Web services and products, longer sales cycles, and increased price competition.

Our existing and target customers are small businesses. We believe these businesses are more likely to be significantly affected by economic downturns than larger, more established businesses. For instance, the current global financial crisis affecting the banking system and financial markets and the possibility that financial institutions may consolidate or go out of business have resulted in a tightening in the credit markets, which could limit our customers’ access to credit. Additionally, these customers often have limited discretionary funds, which they may choose to spend on items other than our Web services and products. If small businesses experience economic hardship, or if they behave more conservatively in light of the general economic environment, they may be unwilling or unable to expend resources to develop their online presences, which would negatively affect the overall demand for our services and products and could cause our revenue to decline.

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

During the course of our history, we have completed several acquisitions of other businesses, and a key element of our strategy is to continue to acquire other businesses in the future. Most recently, we completed the acquisition of Network Solutions in October 2011, our largest acquisition to date. Integrating acquired businesses or assets we may acquire in the future, could add significant complexity to our business and additional burdens to the substantial tasks already performed by our management team. In the future, we may not be able to identify suitable acquisition candidates, and if we do, we may not be able to complete these acquisitions on acceptable terms or at all. In connection with our recent and possible future acquisitions, we may need to integrate operations that have different and unfamiliar corporate cultures. Likewise, we may need to integrate disparate technologies and Web service and product offerings, as well as multiple direct and indirect sales channels. The key personnel of the acquired company may decide not to continue to work for us. These integration efforts may not succeed or may distract our management’s attention from existing business operations. Our failure to successfully identify appropriate acquisition targets or to manage and integrate recent acquisitions, or any future acquisitions, could seriously harm our business.

We may not realize the anticipated benefits from an acquisition.

Acquisitions involve the integration of companies that have previously operated independently. We expect that acquisitions may result in financial and operational benefits, including increased revenue, cost savings and other financial and operating benefits. We cannot be certain, however, that we will be able to realize increased revenue, cost savings or other benefits from any acquisition, or, to the extent such benefits are realized, that they are realized timely or to the same degree as we anticipated. Integration may also be difficult, unpredictable, and subject to delay because of possible cultural conflicts and different opinions on product roadmaps or other strategic matters. We may integrate or, in some cases, replace, numerous systems, including those involving management information, purchasing, accounting and finance, sales, billing, employee benefits, payroll and regulatory compliance, many of which may be dissimilar. Difficulties associated with integrating an acquisition’s service and product offering into ours, or with integrating an acquisition’s operations into ours, could have a material adverse effect on the combined company and the market price of our common stock.

In the future, we may be unable to generate sufficient cash flow to satisfy our debt service obligations.

In October 2011, we entered into debt financing arrangements totaling $800 million, of which, $771.0 million of proceeds were used to pay off existing debt and to complete the acquisition of Network Solutions. All of the debt is currently outstanding.  Our ability to generate cash flow from operations to make principal and interest payments on our debt will depend on our future performance, which will be affected by a range of economic, competitive and business factors. If our operations do not generate sufficient cash flow from operations to satisfy our debt service obligations, we may need to seek additional capital to make these payments or undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets or reducing or delaying capital investments and acquisitions. We cannot assure you that such additional capital or alternative financing will be available on favorable terms, if at all. Our inability to generate sufficient cash flow from operations or obtain additional capital or alternative financing on acceptable terms could have a material adverse effect on our business, financial condition and results of operations.

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

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

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While we cannot determine with certainty why our subscription renewal rates are not higher, we believe there are a variety of factors, which have in the past led, and may in the future lead, to a decline in our subscription renewal rates. These factors include the cessation of our customers’ businesses, the overall economic environment in the United States and its impact on small businesses, the services and prices offered by us and our competitors, and the evolving use of the Internet by small businesses. If our renewal rates are low or decline for any reason, or if customers demand renewal terms less favorable to us, our revenue may decrease, which could adversely affect our financial performance.

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

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

Charges to earnings resulting from acquisitions may adversely affect our operating results.

Under applicable accounting, we allocate the total purchase price of a particular acquisition to an acquired company’s net tangible assets, and intangible assets based on their fair values as of the date of the acquisition and record the excess of the purchase price over those fair values as goodwill. Our management’s estimates of fair value are based upon assumptions believed to be reasonable but are inherently uncertain. Going forward, the following factors, among others, could result in material charges that would adversely affect our financial results:

• impairment of goodwill;

• charges for the amortization of identifiable intangible assets and for stock-based compensation;

• accrual of newly identified pre-merger contingent liabilities that are identified subsequent to the finalization of the purchase price allocation; and

• charges to income to eliminate certain of our pre-merger activities that duplicate those of the acquired company or to reduce our cost structure.

Additional costs may include costs of employee redeployment, relocation and retention, including salary increases or bonuses, accelerated amortization of deferred equity compensation and severance payments, reorganization or closure of facilities, taxes and termination of contracts that provide redundant or conflicting services. Some of these costs may have to be accounted for as expenses that would decrease our net income and earnings per share for the periods in which those adjustments are made.

Though we were profitable for the years ended December 31, 2006, 2007 and 2009, we were not profitable for the years ended December 31, 2010 and 2008 or for the nine months ended September 30, 2011 and we may not become or stay profitable in the future.

Although we generated net income for the years ended December 31, 2006, and 2007 and 2009, we have not historically been profitable, were not profitable for the years ended December 31, 2010 and 2008 or for the nine months ended September 30, 2011, and may not be profitable in future periods. As of September 30, 2011, we had an accumulated deficit of approximately $170.8 million. We expect that our expenses relating to the sale and marketing of our Web services, technology improvements and general and administrative functions, as well as the costs of operating and maintaining our technology infrastructure, will increase in the future. Accordingly, we will need to increase our revenue to be able to again achieve and, if achieved, to later maintain profitability. We may not be able to reduce in a timely manner or maintain our expenses in response to any decrease in our revenue, and our failure to do so would adversely affect our operating results and our level of profitability.

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

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

• issue additional equity securities that would dilute our stockholders;

• use cash that we may need in the future to operate our business; and

• incur debt that could have terms unfavorable to us or that we might be unable to repay.

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

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

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

• our ability to retain and increase sales to existing customers, attract new customers, and satisfy our customers’ requirements;

• the renewal rates and renewal terms for our services;

• changes in our pricing policies;

• the introduction of new services and products by us or our competitors;

• our ability to hire, train and retain members of our sales force;

• the rate of expansion and effectiveness of our sales force;

• technical difficulties or interruptions in our services;

• general economic conditions;

• additional investment in our services or operations;

• ability to successfully identify acquisition targets and integrate acquired businesses and technologies; and

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• our success in maintaining and adding strategic marketing relationships.

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

Additionally, in light of current global and U.S. economic conditions, we believe that our quarterly revenue and results of operations are likely to vary significantly in the future and that period-to-period comparisons of our operating results may not be meaningful. The results of one quarter may not be relied on as an indication of future performance. If our quarterly revenue or results of operations fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially.

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

A key element of our strategy is to combine a variety of functionalities in our Web service offerings to provide our customers with comprehensive solutions to their online presence needs, such as Internet search optimization, local yellow pages listings, and eCommerce capability. We provide many of these services through arrangements with third parties, and our continued ability to obtain and provide these services at a low cost is central to the success of our business. For example, we currently have agreements with several service providers that enable us to provide, at a low cost, Internet yellow pages advertising. However, these agreements may be terminated on short notice, typically 60 to 90 days, and without penalty. If any of these third parties were to terminate their relationships with us, or to modify the economic terms of these arrangements, we could lose our ability to provide these services at a cost-effective price to our customers, which could cause our revenue to decline or our costs to increase.

We have a risk of system and Internet failures, which could harm our reputation, cause our customers to seek reimbursement for services paid for and not received, and cause our customers to seek another provider for services.

We must be able to operate the systems that manage our network around the clock without interruption. Our operations depend upon our ability to protect our network infrastructure, equipment, and customer files against damage from human error, fire, earthquakes, hurricanes, floods, power loss, telecommunications failures, sabotage, intentional acts of vandalism and similar events. Our networks are currently subject to various points of failure. For example, a problem with one of our routers (devices that move information from one computer network to another) or switches could cause an interruption in the services that we provide to some or all of our customers. In the past, we have experienced periodic interruptions in service. We have also experienced, and in the future we may again experience, delays or interruptions in service as a result of the accidental or intentional actions of Internet users, current and former employees, or others. Any future interruptions could:

· Cause customers or end users to seek damages for losses incurred;

· Require the Company to replace existing equipment or add redundant facilities;

· Damage the Company’s reputation for reliable service;

· Cause existing customers to cancel their contracts; or

· Make it more difficult for the Company to attract new customers.

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Our data centers are maintained by third parties. A disruption in the ability of one of these service providers to provide service to us could cause a disruption in service to our customers.

A substantial portion of the network services and computer servers we utilize in the provision of services to customers are housed in data centers owned by other service providers. In particular, a significant number of our servers are housed in data centers in Atlanta, Georgia; Jacksonville, Florida; and Ontario, Canada. We obtain Internet connectivity for those servers, and for the customers who rely on those servers, in part through direct arrangements with network service providers and in part indirectly through the owners of those data centers. We also utilize other third-party data centers in other locations. In the future, we may house other servers and hardware items in facilities owned or operated by other service providers.

A disruption in the ability of one of these service providers to provide service to us could cause a disruption in service to our customers. A service provider could be disrupted in its operations through a number of contingencies, including unauthorized access, computer viruses, accidental or intentional actions, electrical disruptions, and other extreme conditions. Although we believe we have taken adequate steps to protect our business through contractual arrangements with our service providers, we cannot eliminate the risk of a disruption in service resulting from the accidental or intentional disruption in service by a service provider. Any significant disruption could cause significant harm to us, including a significant loss of customers. In addition, a service provider could raise its prices or otherwise change its terms and conditions in a way that adversely affects our ability to support our customers or could result in a decrease in our financial performance.

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

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

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

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

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

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

• Website design and development service and software companies;

• Internet service providers and application service providers;

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• Internet search engine providers;

• Local business directory providers;

• Website domain name providers and hosting companies; and

• eCommerce platform and service providers.

In addition, due to relatively low barriers to entry in our industry, we expect the intensity of competition to increase in the future from other established and emerging companies. Increased competition may result in price reductions, reduced gross margins, and loss of market share, any one of which could seriously harm our business. We also expect that competition will increase as a result of industry consolidations and formations of alliances among industry participants.

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

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

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

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

Changes in our industry occur very rapidly, including changes in the way the Internet operates or is used by small businesses and their customers. As a result, our Web services and products could become obsolete quickly. The introduction of competing products employing new technologies and the evolution of new industry standards could render our existing products or services obsolete and unmarketable. To be successful, our Web services and products must keep pace with technological developments and evolving industry standards, address the ever-changing and increasingly sophisticated needs of our customers, and achieve market acceptance. If we are unable to develop new Web services or products, or enhancements to our Web services or products, on a timely and cost-effective basis, or if new Web services or products or enhancements do not achieve market acceptance, our business would be seriously harmed.

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

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

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

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

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

Growth in our business may place a strain on our management, administrative, and sales and marketing infrastructure. If we fail to successfully manage our growth, our business could be disrupted, and our ability to operate our business profitably could suffer. Growth in our employee base may be required to expand our customer base and to continue to develop and enhance our Web service and product offerings. To manage growth of our operations and personnel, we would need to enhance our operational, financial, and management controls and our reporting systems and procedures. This would require additional personnel and capital investments, which would increase our cost base. The growth in our fixed cost base may make it more difficult for us to reduce expenses in the short term to offset any shortfalls in revenue.

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

Our success depends, in part, on our ability to protect and preserve the proprietary aspects of our technology, Web services, and products. If we are unable to protect our intellectual property, our competitors could use our intellectual property to market services and products similar to those offered by us, which could decrease demand for our Web services and products. We may be unable to prevent third parties from using our proprietary assets without our authorization. While we do rely on patents acquired from the Web.com acquisition, we do not currently rely on patents to protect all of our core intellectual property. To protect, control access to, and limit distribution of our intellectual property, we generally enter into confidentiality and proprietary inventions agreements with our employees, and confidentiality or license agreements with consultants, third-party developers, and customers. We also rely on copyright, trademark, and trade secret protection. However, these measures afford only limited protection and may be inadequate. Enforcing our rights to our technology could be costly, time-consuming and distracting. Additionally, others may develop non-infringing technologies that are similar or superior to ours. Any significant failure or inability to adequately protect our proprietary assets will harm our business and reduce our ability to compete.

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

Effective internal controls are necessary for us to provide reliable and accurate financial reports. We will need to devote significant resources and time to comply with the requirements of Sarbanes-Oxley with respect to internal control over financial reporting. In addition, Section 404 under Sarbanes-Oxley requires that we assess and our auditors attest to the design and operating effectiveness of our controls over financial reporting. Our ability to comply with the annual internal control report requirement for our fiscal year ending on December 31, 2011 will depend on the effectiveness of our financial reporting and data systems and controls across our company and our operating subsidiaries. We expect these systems and controls to become increasingly complex to the extent that we integrate acquisitions and our business grows. To effectively manage this complexity, we will need to continue to improve our operational, financial, and management controls and our reporting systems and procedures. Any failure to implement required new or improved controls, or difficulties encountered in the implementation or operation of these controls, could harm our operating results or cause us to fail to meet our financial reporting obligations, which could adversely affect our business and jeopardize our listing on the NASDAQ Global Select Market, either of which would harm our stock price.

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

We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new services and products or enhance our existing Web services, enhance our operating infrastructure and acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. For example, as a result of the acquisition of the Network Solutions, we have entered into debt arrangements for a total of $800 million. Financial market disruption and general economic conditions in which the credit markets are severely constrained and the depressed equity markets may make it difficult for us to obtain additional financing on terms favorable to us, if at all. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired.

Provisions in our amended and restated certificate of incorporation and bylaws or under Delaware law might discourage, delay, or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our common stock.

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

• establish a classified board of directors so that not all members of our board are elected at one time;

• provide that directors may only be removed for cause and only with the approval of 66 2/3% of our stockholders;

• require super-majority voting to amend some provisions in our amended and restated certificate of incorporation and bylaws;

• authorize the issuance of blank check preferred stock that our board of directors could issue to increase the number of outstanding shares to discourage a takeover attempt;

• prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;

• provide that the board of directors is expressly authorized to make, alter, or repeal our bylaws; and

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• establish advance notice requirements for nominations for elections to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings.

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

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

None. 

Item 3.  Defaults Upon Senior Securities.

Not applicable.

Item 4.  (Removed and Reserved).

Item 5.  Other Information.

Not applicable.

Item 6. Exhibits

Exhibit No.	Description of Document
2.1	Purchase Agreement dated August 3, 2011 by and among Web.com Group, Inc., Net Sol Holdings LLC, and GA-Net Sol Parent LLC. (1)
3.1	Amended and Restated Certificate of Incorporation of Web.com Group, Inc. ( 2)
3.2	Amended and Restated Bylaws of Web.com Group, Inc. (3)
3.3	Certificate of Ownership and Merger of Registration (4)
4.1	Reference is made to Exhibits 3.1 and 3.2
4.2	Specimen Stock Certificate. (4)
10.1	Commitment Letter dated August 3, 2011 by and among Web.com, Inc., JP Morgan Chase Bank, N.A., J.P. Morgan Securities LLC, Deutsche Bank Securities Inc., Deutsche Bank Trust Company Americas, Goldman Sachs Lending Partners LLC, SunTrust Bank, and SunTrust Robinson Humphrey Inc.
10.2	Indemnification Agreement dated October 27, 2011 by Web.com Group, Inc and Anton Levy
31.1	CEO Certification required by Rule 13a-14(a) or Rule 15d-14(a).
31.2	CFO Certification required by Rule 13a-14(a) or Rule 15d-14(a).
32.1	Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350). (5)
101.1	XBRL Instance Document*
101.2	XBRL Taxonomy Extension Schema Document*
101.3	XBRL Taxonomy Extension Calculation Linkbase Document*

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101.4	XBRL Taxonomy Extension Definition Linkbase Document*
101.5	XBRL Taxonomy Extension Label Linkbase Document*
101.6	XBRL Taxonomy Extension Presentation Linkbase Document*

* The XBRL information is being furnished with this Form 10-Q, not filed

(1) Filed as an Annex to our Definitive Proxy Statement (DEF 14A) (000-51595), filed with the SEC on September 22, 2011, and incorporated herein by reference.

(2) Filed as an Exhibit to our registration statement on Form S-1 (No. 333-124349), filed with the SEC on April 27, 2005, as amended, and incorporated herein by reference.

(3) Filed as an Exhibit to our current report on Form 8-K (000-51595), filed with the SEC on February 10, 2009, and incorporated herein by reference.

(4) Filed as an Exhibit to our current report on Form 8-K (000-51595), filed with the SEC on October 30, 2008, and incorporated herein by reference.

(5) The certification attached as Exhibit 32.1 accompanying this Quarterly Report on Form 10-Q, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Web.com Group, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Web.com Group, Inc.
	(Registrant)
	/s/ Kevin M. Carney
November 8, 2011
Date	Kevin M. Carney
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

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INDEX OF EXHIBITS

Exhibit No.	Description of Document
2.1	Purchase Agreement dated August 3, 2011 by and among Web.com Group, Inc., Net Sol Holdings LLC, and GA-Net Sol Parent LLC. (1)
3.1	Amended and Restated Certificate of Incorporation of Web.com Group, Inc. (2)
3.2	Amended and Restated Bylaws of Web.com Group, Inc. (3)
3.3	Certificate of Ownership and Merger of Registration (4)
4.1	Reference is made to Exhibits 3.1 and 3.2
4.2	Specimen Stock Certificate. (4)
10.1	Commitment Letter dated August 3, 2011 by and among Web.com, Inc., JP Morgan Chase Bank, N.A., J.P. Morgan Securities LLC, Deutsche Bank Securities Inc., Deutsche Bank Trust Company Americas, Goldman Sachs Lending Partners LLC, SunTrust Bank, and SunTrust Robinson Humphrey Inc.
10.2	Indemnification Agreement dated October 27, 2011 by Web.com Group, Inc. and Anton Levy
31.1	CEO Certification required by Rule 13a-14(a) or Rule 15d-14(a).
31.2	CFO Certification required by Rule 13a-14(a) or Rule 15d-14(a).
32.1	Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350). (5)
101.1	XBRL Instance Document*
101.2	XBRL Taxonomy Extension Schema Document*
101.3	XBRL Taxonomy Extension Calculation Linkbase Document*
101.4	XBRL Taxonomy Extension Definition Linkbase Document*
101.5	XBRL Taxonomy Extension Label Linkbase Document*
101.6	XBRL Taxonomy Extension Presentation Linkbase Document*

* The XBRL information is being furnished with this Form 10-Q, not filed

(1) Filed as an Annex to our Definitive Proxy Statement (DEF 14A) (000-51595), filed with the SEC on September 22, 2011, and incorporated herein by reference.

(2) Filed as an Exhibit to our registration statement on Form S-1 (No. 333-124349), filed with the SEC on April 27, 2005, as amended, and incorporated herein by reference.

(3) Filed as an Exhibit to our current report on Form 8-K (000-51595), filed with the SEC on February 10, 2009, and incorporated herein by reference.

(4) Filed as an Exhibit to our current report on Form 8-K (000-51595), filed with the SEC on October 30, 2008, and incorporated herein by reference.

(5) The certification attached as Exhibit 32.1 accompanying this Quarterly Report on Form 10-Q, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Web.com Group, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

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