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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

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 June 30, 2002
 
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 000-30093

Websense, Inc.

10240 Sorrento Valley Road
San Diego, California 92121
858-320-8000
(Address of principal executive offices, zip code and telephone number)

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.   (1)  Yes  [X]    No  [   ]    (2)  Yes  [X]    No  [   ]

The number of shares outstanding of the registrant’s Common Stock, $.01 par value, as of July 16, 2002 was 21,264,680.

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Websense, Inc.
Form 10-Q
For the Three and Six Months Ended June 30, 2002

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Part I — Financial Information

Item 1. Consolidated Financial Statements (Unaudited)

Websense, Inc.

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Websense, Inc.

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Websense, Inc.

See accompanying notes.

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Websense, Inc.

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WEBSENSE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.   Basis of Presentation

     The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information or footnote disclosures normally included in complete financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of our financial position and of the results for the interim periods presented.

     These financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2001, included in Websense, Inc.’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. Operating results for the three and six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2002. The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

2.   Net Income (Loss) Per Share

     Websense computes net income (loss) per share in accordance with Statement of Financial Accounting Standards No. 128, Earnings Per Share (“SFAS No. 128”). Under the provisions of SFAS No. 128, basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and common equivalent shares outstanding during the period.

     Dilutive securities include options and warrants as if converted. During the three and six months ended June 30, 2002, the difference between the weighted average shares used in determining basic net income (loss) per share versus diluted net income (loss) per share related to dilutive stock options and warrants totaled 2,306,000 and 2,469,000, respectively. Potentially dilutive securities totaling 1,019,000 and 327,000 for the three months ended June 30, 2002 and 2001, respectively, were excluded from diluted earnings per share because of their anti-dilutive effect. Potentially dilutive securities totaling 866,000 and 337,000 for the six months ended June 30, 2002 and 2001, respectively, were excluded from diluted earnings per share because of their anti-dilutive effect.

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3.   Amortization of Stock-based Compensation

     For the three and six month periods ended June 30, 2002 and 2001, the Company recorded amortization of stock-based compensation. The allocation of the expense by operating expense category is as follows (in thousands):

Three Months Ended

Six Months Ended

June 30, 2002

June 30, 2001

June 30, 2002

June 30, 2001

Selling and marketing

$

33

$

70