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EX-23.2 - EX-23.2 - Everyday Health, Inc.y80435aexv23w2.htm
EX-23.4 - EX-23.4 - Everyday Health, Inc.y80435aexv23w4.htm
EX-10.3.1 - EX-10.3.1 - Everyday Health, Inc.y80435aexv10w3w1.htm
EX-10.1.1 - EX-10.1.1 - Everyday Health, Inc.y80435aexv10w1w1.htm
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As filed with the Securities and Exchange Commission on March 26, 2010
Registration No. 333-164474
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
 
 
 
Everyday Health, Inc.
(Exact name of registrant as specified in its charter)
 
         
Delaware   7389   80-0036062
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)
 
 
 
 
45 Main St., Suite 800
Brooklyn, NY 11201
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
 
 
 
Benjamin Wolin
Chief Executive Officer
45 Main St., Suite 800
Brooklyn, NY 11201
(718) 797-0722
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
 
 
 
Copies to:
 
         
Babak Yaghmaie, Esq.
Stephane Levy, Esq.
Cooley Godward Kronish LLP
1114 Avenue of the Americas
New York, NY 10036-7798
(212) 479-6000
  Alan Shapiro, Esq.
Executive Vice President
& General Counsel
Everyday Health, Inc.
45 Main St., Suite 800
Brooklyn, NY 11201
(718) 797-0722
  Kirk A. Davenport, Esq.
Latham & Watkins LLP
885 Third Avenue
New York, NY 10022-4834
(212) 906-1200
 
 
 
 
Approximate date of commencement of proposed sale to the public:  As soon as practicable after this Registration Statement becomes effective.
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  o
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
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. (Check one):
 
Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o
(Do not check if a smaller reporting company)
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 


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The information in this preliminary prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting any offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
 
Subject to Completion. Dated March 26, 2010.
 
           Shares
 
(EVERYDAYHEALTH LOGO)
 
Common Stock
 
 
 
 
This is an initial public offering of shares of common stock of Everyday Health, Inc.
 
Everyday Health is offering           of the shares to be sold in the offering. The selling stockholders identified in this prospectus are offering           shares. Everyday Health will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.
 
Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $     and $     . We have applied to have our common stock listed on The Nasdaq Global Market under the symbol “EVDY.”
 
See “Risk Factors” on page 13 to read about factors you should consider before buying shares of our common stock.
 
 
 
 
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
 
 
 
 
                 
   
Per Share
 
Total
 
Initial public offering price
  $                $        
Underwriting discounts and commissions
  $       $    
Proceeds, before expenses, to Everyday Health
  $       $    
Proceeds, before expenses, to the selling stockholders
  $       $    
                 
                 
 
To the extent that the underwriters sell more than           shares of common stock, the underwriters have the option to purchase up to an additional           shares from Everyday Health at the initial public offering price less underwriting discounts and commissions.
 
 
 
 
The underwriters expect to deliver the shares against payment in New York, New York on          , 2010.
 
Goldman, Sachs & Co. J.P. Morgan
 
Jefferies & Co. Needham & Company, LLC
 
 
 
 
 
Prospectus dated          , 2010.


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Helping consumers:Research symptoms Find treatment options Connect with others Eat healthier Live better Health is a journey. And Everyday Health is there to lead the way, providing consumers with the expert guidance and advice they need to make better choices, actively manage their conditions and live healthier lives, every day. www.EverydayHealth.com

 


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Because every day counts. Condition Management Prevention Caring Lifestage

 


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Everyday Health is a leading provider of online consumer health solutions. Our broad portfolio of over 25 websites span the health spectrum — from caregiving and condition management to fitness, nutrition and personal care, we o er users the tools, community and expert advice they need to live healthier, every day. Treatment Options Connecting Personal Care Fitness and Nutrition

 


 

 
TABLE OF CONTENTS
 
Prospectus
 
         
   
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 EX-10.1.1
 EX-10.3.1
 EX-23.1
 EX-23.2
 EX-23.4
 EX-23.5
 
 
Through and including          , 2010 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
 
 
No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
 
 
All website references in this prospectus are intended to be inactive textual references only. The content of such websites is not incorporated by reference in this prospectus.


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PROSPECTUS SUMMARY
 
This summary highlights information contained elsewhere in this prospectus. You should read the following summary together with the more detailed information appearing in this prospectus, including our consolidated financial statements and related notes, and the risk factors beginning on page 13, before deciding whether to purchase shares of our common stock.
 
Everyday Health, Inc.
 
Overview
 
We are a leading provider of online consumer health solutions. We provide our consumers, advertisers and partners with content and advertising-based services across a broad portfolio of websites that span the health spectrum — from lifestyle offerings in pregnancy, diet and fitness to in-depth medical content for condition prevention and management.
 
The Internet has fundamentally altered the consumer health market by enabling consumers to readily access a wide variety of useful information and decision-support tools. Historically, consumers accessed such information through general portals, and more recently search engines, each of which serve as gateways to the Internet. The increased reliance on search engines has fragmented the online consumer audience and has resulted in the growth in popularity of highly-specialized websites that are focused on a specific content category, commonly referred to as a vertical or a vertical category. This growth in popularity is particularly pervasive in the consumer health vertical since consumers have a wide variety of individual health interests and needs. We have designed the Everyday Health portfolio, which includes websites that we operate and with which we partner, to take advantage of this fragmentation by providing multiple sources of reliable and highly-personalized content to satisfy the diverse needs of our consumers and advertising customers. The Everyday Health portfolio consists of over 25 consumer health websites, including www.EverydayHealth.com, www.RevolutionHealth.com, www.WhattoExpect.com, www.JillianMichaels.com, www.SouthBeachDiet.com and www.SparkPeople.com.
 
The depth, breadth and quality of the content across the Everyday Health portfolio, including our personalized tools and community features, have enabled us to serve tens of millions of consumers each month. During 2009, the Everyday Health portfolio attracted an average of 25 million unique visitors per month, according to comScore, Inc., a market research firm. Since our inception, over 39 million consumers have registered on our websites to obtain personalized content and features, such as pregnancy calendars, calorie tracking tools or e-mail newsletters on requested health topics, and over 1.8 million consumers have paid for a premium subscription service. During 2009, we averaged over 16,000 registrations per day and sent over 410 million opt-in, content-based newsletters per month.
 
The composition of the Everyday Health portfolio, together with our large consumer audience, database of registered users and customized content offerings, has created an attractive platform for national, regional and local advertisers. The solutions we provide our advertisers include display advertising, sponsorships of specific content offerings or areas on a website, commonly referred to as integrated sponsorships, custom e-mail campaigns and lead generation products. We also provide our advertisers with detailed post-campaign reporting metrics that enable them to better assess the effectiveness of their marketing expenditures. We believe this combination of targeted advertising and results-focused measurability allows us to compete favorably in the consumer health vertical. Our advertisers consist primarily of pharmaceutical and medical device companies, manufacturers and retailers of over-the-counter products and consumer-packaged-goods and healthcare providers. During 2009, we featured over 470 brands on the Everyday Health portfolio and our customers included 24 of the top 25 global companies ranked by 2008 healthcare revenue as compiled by MedAdNews and 43 of the top “100 Leading National Advertisers in 2008” as compiled by Advertising Age.
 
We have an integrated approach to running our business. This means that we share development, operations and marketing resources across the entire Everyday Health portfolio rather than


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allocating resources to individual websites in the portfolio. This approach enables us to efficiently operate our own websites, in addition to those of our partners that are looking to expand their consumer audience and to grow their revenues online. In addition, the Everyday Health portfolio allows providers of consumer health content with an existing online presence to leverage our advertising platform to increase their revenues, while maintaining editorial and operational control over their content.
 
We generate revenues primarily from the sale of advertising and sponsorship services, as well as the sale and licensing of our premium content, including subscriptions to certain websites in the Everyday Health portfolio.
 
Industry Background
 
Prior to the widespread adoption of the Internet, consumers were forced to rely on their physicians, friends and family, and hard-to-access resources to address their health questions and concerns. The Internet, however, has made such information more accessible and the consumer health vertical has rapidly evolved as one of the largest and fastest growing content categories on the Internet. In recent years, fragmentation of the online audience and decreased consumer reliance on general portals has resulted in consumers seeking multiple websites to satisfy their diverse health-related needs. According to comScore, consumers that interact with health content online visited approximately 3.5 different health websites per month on average during 2009. We believe that consumers will continue to rely on multiple websites that are dedicated specifically to health-related content and which contain more in-depth and personalized offerings in order to satisfy their diverse health needs. We also believe that consumer demand for authoritative and differentiated content will continue to drive the growth of both free content and subscription-based, premium services in the online consumer health vertical.
 
Advertisers are increasingly migrating a greater portion of their spending online as more consumers turn to the Internet as a preferred medium for accessing information and purchasing products and services. The growth of online spending in the health and wellness category, however, has not developed as rapidly as the overall advertising market. According to a February 2010 study prepared on our behalf by Forrester Research, Inc., a market research firm, total online advertising represented 8.5% and 9.6% of total advertising, excluding direct mail, during 2008 and 2009, respectively. However, according to Forrester Research, total online advertising in the health and wellness category represented only 4.0% and 4.9% of total advertising in the health and wellness category in 2008 and 2009, respectively. The health and wellness category includes health products, services and insurance, prescription drugs and nutritional supplements, personal care and fitness and sports equipment. Furthermore, according to Forrester Research, total online advertising in the health and wellness category is projected to grow at a compounded annual rate of approximately 19.3% from 2009 to 2013. We believe that this projected growth, combined with our strategy of offering a diverse portfolio of health-related websites, represents a significant opportunity for us to increase our advertising and sponsorship revenues.
 
The Everyday Health Solution
 
We believe our success in becoming a leading provider of online consumer health solutions has been driven by our ability to address the challenges faced by consumers, advertisers and partners. Our portfolio of over 25 websites is designed to enable:
 
  •  consumers to readily access a variety of valuable content, interactive tools and community features across numerous health categories and empower them to better manage their health concerns;
 
  •  advertisers to reach a large and desirable base of consumers in a targeted and contextually-relevant manner; and
 
  •  partners to more effectively promote and monetize their content online.


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Benefits to Consumers
 
Premier Portfolio of Trusted Websites.  We have built a portfolio of websites that provides consumers with reliable and engaging content. We own and operate several health and wellness websites, including our flagship website, www.EverydayHealth.com, and we partner with many well-recognized consumer health content providers. For example, we are the exclusive online partner with the author of the What to Expect When You’re Expecting series of books, the best-selling pregnancy books ever published, to develop, operate and monetize www.WhattoExpect.com. We have also partnered with recognized leaders in the health, diet and fitness categories, including the author and publisher of The South Beach Diet (www.SouthBeachDiet.com), one of the best-selling diet books of all time, and Jillian Michaels (www.JillianMichaels.com), from the NBC television show, The Biggest Loser.
 
Engaging Content, Extensive Personalization Tools and Community Features.  Our engaging content, personalization tools and community features are critical components of our value proposition to consumers. We have dedicated significant resources to build a robust and interactive portfolio of websites that allows consumers to readily access relevant health and wellness content. For example, consumers can research symptoms and create personalized tools such as pregnancy calendars, calorie counters, meal plans and drug alerts. We utilize the information that our registered users voluntarily submit to provide them with targeted content, features and tools that are intended to better meet their individual needs. We have also created a community environment that empowers consumers to share information and interact with each other.
 
Benefits to Advertisers
 
High Quality and Trusted Platform.  We believe that advertisers, particularly large pharmaceutical and medical device companies and manufacturers of over-the-counter and consumer-packaged-goods, are highly sensitive to promoting their products and services in an environment that will not diminish the value of their brand. The Everyday Health portfolio, which features many well-recognized providers of consumer health content, provides advertisers with a trusted platform in which to promote their offerings.
 
Large Audience Scale.  The Everyday Health portfolio attracts a large number of unique visitors, making it attractive to advertisers in light of the highly-fragmented nature of the online consumer health market. We believe that the overall size, scale and composition of the Everyday Health portfolio, as well as the discrete categories within the portfolio that engage the audience around specific consumer health topics, provide advertisers with significant flexibility to undertake multiple advertising strategies through a single platform, whether focused on a national, regional or local audience.
 
Targeted and Innovative Solutions.  Our focus on customized offerings, in addition to our engaged consumer base, allows advertisers to effectively target their desired audience through highly immersive and interactive campaigns. Our suite of advertising solutions, when combined with our extensive database of information voluntarily provided by millions of registered users, can facilitate advertising campaigns that are directed at specific geographic areas, demographic groups, interests, issues or user communities. Moreover, we provide our advertisers with detailed post-campaign reporting that allows them to measure and evaluate the effectiveness of their campaigns.
 
Benefits to Partners
 
Online Expertise and Portfolio Integration.  A premier consumer health website requires timely and updated content, interactive tools and applications and robust community features. We have expertise in developing content, integrating new websites and cross-promoting our content offerings across the Everyday Health portfolio to our consumers. We believe that such cross-promotion activities, combined with our extensive user database and experience in operating and promoting websites, make us well suited to promote our partners’ content and expand their consumer audience online.


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Monetization Opportunities.  As consumers become more sophisticated in their use of the Internet and the use of search engines continues to fragment the online audience, the Everyday Health portfolio provides an attractive method for our partners to promote their content and create new revenue opportunities, which we refer to as monetization opportunities. The Everyday Health portfolio enables our partners to benefit from the large and targeted advertising platform that we have created to increase their exposure to major advertisers, thereby increasing their revenues, without relinquishing editorial and operational control over their content offerings.
 
Our Strategy
 
Our goal is to offer the best content, tools and community features across the health spectrum, while providing a compelling platform for an increasing number of advertisers and partners seeking to engage with our large and growing consumer base. Key elements of our strategy include:
 
  •  developing new and improved offerings to enhance the consumer experience;
 
  •  seeking to aggressively grow our advertiser and sponsorship base;
 
  •  continuing to build and enhance awareness of the Everyday Health brand;
 
  •  acquiring complementary businesses; and
 
  •  expanding into international markets.
 
Preferred Stock Conversion and Reverse Stock Split
 
Prior to the consummation of this offering, all of the outstanding shares of our redeemable convertible preferred stock will automatically convert into           shares of our common stock, which we refer to in this prospectus as the automatic preferred stock conversion. As a result, after this offering, we will only have common stock outstanding. Prior to the consummation of this offering, we will also increase our total authorized number of shares of capital stock, make certain changes to our charter documents and effect a           to           reverse stock split, which we refer to in this prospectus as the reverse stock split.
 
Corporate History and Information
 
We were incorporated in Delaware in January 2002 as Agora Media Inc. We changed our name to Waterfront Media Inc. in January 2004. In January 2010, to better align our corporate identity with the Everyday Health brand, we changed our name to Everyday Health, Inc.
 
Our principal executive office is located at 45 Main Street, Suite 800, Brooklyn, NY 11201, and our telephone number is (718) 797-0722. Our Internet website address is www.EverydayHealth.com. The information on, or that can be accessed through, any website in the Everyday Health portfolio is not part of this prospectus, and you should not consider any information on, or that can be accessed through, any website in the Everyday Health portfolio as part of this prospectus.
 
 
The names Everyday Health, Revolution Health, CarePages, Daily Glow and our logos are trademarks, service marks or trade names owned by us. All other trademarks, service marks or trade names appearing in this prospectus are owned by their respective holders.


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The Offering
 
Common stock offered by Everyday Health                       shares
 
Common stock offered by the selling stockholders                       shares
 
Common stock to be outstanding immediately after this offering                       shares
 
Use of proceeds We estimate that we will receive net proceeds from this offering of approximately $      million, based on an assumed public offering price of $      per share, the midpoint of the price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and offering expenses payable by us. We intend to use the net proceeds from this offering for working capital and general corporate purposes, which may include financing the development of new content and advertising-based services, as well as funding capital expenditures and operating losses. We may also use a portion of the net proceeds to repay borrowings under our credit facilities or acquire complementary businesses, products or technologies. However, we do not have agreements or commitments for any specific repayments or acquisitions at this time. We will not receive any proceeds from the sale of shares by the selling stockholders in this offering. See “Use of Proceeds.”
 
Proposed NASDAQ Global Market symbol “EVDY”
 
Risk Factors You should read the “Risk Factors” section beginning on page 13 and other information included in this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.
 
The number of shares of common stock that will be outstanding after this offering is based on 30,266,278 shares of common stock outstanding as of December 31, 2009 after giving effect to the assumptions in the following paragraph, and excludes:
 
  •  4,751,879 shares of common stock issuable upon exercise of outstanding options with a weighted-average exercise price of $4.52 per share;
 
  •  659,780 shares of common stock reserved for future issuance under our 2003 Stock Option Plan; provided, however, that following the completion of this offering, no additional grants will be awarded under our 2003 Stock Option Plan and such shares will become available for issuance under our 2010 Equity Incentive Plan, which we plan to adopt prior to the consummation of this offering;
 
  •            shares of common stock reserved for future issuance under our 2010 Equity Incentive Plan, which we plan to adopt prior to the consummation of this offering; and


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  •  222,977 shares of common stock issuable upon the exercise of outstanding warrants, which includes warrants to purchase our redeemable convertible preferred stock that will become exercisable for common stock after this offering, at a weighted-average exercise price of $5.47 per share.
 
Unless otherwise indicated, all information in this prospectus:
 
  •  gives effect to the completion of the reverse stock split;
 
  •  gives effect to the automatic preferred stock conversion;
 
  •  assumes no exercise by the underwriters of their option to purchase up to          additional shares, consisting of shares to be purchased from us; and
 
  •  gives effect to the adoption of our amended and restated certificate of incorporation and our amended and restated bylaws that will occur immediately prior to the consummation of this offering.


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SUMMARY CONSOLIDATED FINANCIAL DATA
 
The following tables summarize our consolidated financial data for the periods presented. The consolidated statement of operations data for the three years ended December 31, 2009 and the consolidated balance sheet data as of December 31, 2009 have been derived from our audited consolidated financial statements for the three years ended December 31, 2009 included elsewhere in this prospectus. The consolidated statement of operations data for the three months ended December 31, 2008 and 2009 have been derived from our unaudited consolidated financial statements and have been prepared on the same basis as the audited consolidated financial statements and notes thereto and, in the opinion of our management, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair statement of the information for the interim periods. Our historical results for any prior periods are not necessarily indicative of results to be expected for a full year or for any future period.
 
The pro forma balance sheet data as of December 31, 2009 give effect to the automatic preferred stock conversion. The pro forma as adjusted balance sheet data as of December 31, 2009 give further effect to our issuance and sale of          shares of common stock in this offering at an assumed initial public offering price of $      per share, the midpoint of the estimated price range shown on the cover of this prospectus, after deducting estimated underwriting discounts and commissions and offering expenses payable by us and the application of the net proceeds therefrom as described in “Use of Proceeds.” The as adjusted information presented is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing.
 
On October 7, 2008, we acquired Revolution Health Group LLC and its subsidiaries, which we collectively refer to as RHG. Accordingly, the following tables include RHG’s financial data from the closing date of the acquisition. Our operating expenses in the fourth quarter of 2008 and the first and second quarters of 2009 included various transition-related expenses that we incurred following the closing of the RHG acquisition. We eliminated a majority of these redundant transition-related expenses by the beginning of the third quarter of 2009. These transition-related expenses consisted of:
 
  •  compensation for product development, sales and marketing, and general and administrative personnel who were employed by us for a short period of time following the RHG acquisition; and
 
  •  third-party product development expenses, such as content licensing fees, data center costs and other technology-related expenses.
 
The fourth quarter of 2008 is the first calendar quarter which reflects the RHG acquisition in our financial results. Accordingly, the fourth quarter of 2009 is the first calendar quarter which can be used to compare our quarterly financial performance subsequent to the RHG acquisition on a year-over-year basis. In the fourth quarter of 2009, our revenues were approximately $28.6 million, an increase of 26.0% over our revenues of approximately $22.7 million in the fourth quarter of 2008. Similarly, our Adjusted EBITDA was approximately $5.6 million in the fourth quarter of 2009, as compared to approximately $(1.9) million in the fourth quarter of 2008.
 
You should read this information together with our consolidated financial statements and related notes included elsewhere in this prospectus and the information under “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 


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          Three Months
 
          Ended
 
    Year Ended December 31,     December 31,  
    2007     2008     2009     2008     2009  
    (in thousands, except share and per share data)  
 
Consolidated Statement of Operations Data:
                                       
Revenues
  $ 47,363     $ 69,412     $ 90,111     $ 22,672     $ 28,618  
                                         
Operating expenses:
                                       
Cost of revenue
    30,111       35,229       39,453       8,442       8,696  
Sales and marketing
    7,425       14,503       20,816       6,059       6,249  
Product development
    10,753       14,874       20,192       5,566       5,115  
General and administrative
    6,859       12,906       16,239       5,488       3,681  
Depreciation and amortization
    2,030       4,340       9,787       1,980       2,454  
                                         
Total operating expenses
    57,178       81,852       106,487       27,535       26,195  
                                         
Income (loss) from operations
    (9,815 )     (12,440 )     (16,376 )     (4,863 )     2,423  
Interest expense, net
    (323 )     (455 )     (1,314 )     (208 )     (491 )
                                         
Income (loss) before provision for income taxes
    (10,138 )     (12,895 )     (17,690 )     (5,071 )     1,932  
Provision for income taxes
          (293 )     (1,331 )     (293 )     (497 )
                                         
Net income (loss)
  $ (10,138 )   $ (13,188 )   $ (19,021 )   $ (5,364 )   $ 1,435  
                                         
Net income (loss) per common share:
                                       
Basic
  $ (1.57 )   $ (2.01 )   $ (2.89 )   $ (0.82 )   $ 0.22  
                                         
Diluted
  $ (1.57 )   $ (2.01 )   $ (2.89 )   $ (0.82 )   $ 0.20  
                                         
Pro forma basic (unaudited)(1)
          $ (0.63 )   $ (0.63 )           $ 0.05  
                                         
Pro forma diluted (unaudited)(1)
          $ (0.63 )   $ (0.63 )           $ 0.05  
                                         
Weighted-average common shares outstanding: Basic
    6,444,696       6,559,614       6,581,793       6,564,654       6,617,235  
                                         
Diluted
    6,444,696       6,559,614       6,581,793       6,564,654       7,321,932  
                                         
Pro forma basic (unaudited)(1)
            20,955,330       30,229,627               30,265,069  
                                         
Pro forma diluted (unaudited)(1)
            20,955,330       30,229,627               30,969,766  
                                         
 
(1) Pro forma weighted average shares outstanding reflects the conversion of our redeemable convertible preferred stock (using the if-converted method) into common stock as though the conversion had occurred on the original dates of issuance.
 
                                         
          Three Months
 
          Ended
 
    Year Ended December 31,     December 31,  
    2007     2008     2009     2008     2009  
    (in thousands)  
 
Other Financial Data:
                                       
Adjusted EBITDA
  $ (6,795 )   $ (5,104 )   $ (2,664 )   $ (1,858 )   $ 5,598  
                                         
Stock-based compensation expense included in:
                                       
Sales and marketing
  $ 276     $ 812     $ 815     $ 278     $ 217  
Product development
    64       492       548       168       106  
General and administrative
    650       1,692       1,662       579       398  
                                         
Total stock-based compensation expense
  $ 990     $ 2,996     $ 3,025     $ 1,025     $ 721  
                                         
 


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    As of December 31, 2009  
                Pro Forma
 
    Actual    
Pro Forma
   
As Adjusted
 
    (in thousands)  
 
Consolidated Balance Sheet Data:
                       
Cash and cash equivalents
  $ 16,360                  
Total assets
    129,389                  
Deferred revenue
    6,930                  
Long-term debt (including current portion)
    17,000                  
Total liabilities
    46,203                  
Redeemable convertible preferred stock
    130,420                  
Total stockholders’ equity (deficit)
    (47,234 )                
 
Definition and Discussion of Other Financial Data
 
Definition of Adjusted EBITDA
 
We define Adjusted EBITDA as net loss plus net interest (income) expense; income tax expense; non-cash charges including depreciation, amortization and stock-based compensation expense; and compensation expense related to acquisition earnout arrangements.
 
Discussion of Adjusted EBITDA
 
Adjusted EBITDA is a measure of operating performance that is not calculated in accordance with generally accepted accounting principles, or GAAP. The table below provides a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP. Adjusted EBITDA should not be considered as an alternative to net income, income from operations or any other measure of financial performance calculated and presented in accordance with GAAP. Our Adjusted EBITDA may not be comparable to similarly titled measures of other companies because other companies may not calculate similarly titled measures in the same manner as we do. We prepare Adjusted EBITDA to eliminate the impact of items that we do not consider indicative of our core operating performance. We encourage you to evaluate these adjustments and the reasons we consider them appropriate, as well as the material limitations of non-GAAP measures and the manner in which we compensate for those limitations.
 
Our management uses Adjusted EBITDA:
 
  •  as a measure of operating performance;
 
  •  to allocate resources to enhance the financial performance of our business;
 
  •  to evaluate the effectiveness of our business strategies;
 
  •  in communications with our board of directors concerning our financial performance;
 
  •  for planning purposes, including the preparation of our annual operating budget; and
 
  •  as a factor when determining management’s incentive compensation.
 
Management also uses Adjusted EBITDA to evaluate compliance with the debt covenants in one of our credit facilities, which includes an EBITDA maintenance covenant. This credit facility’s definition of EBITDA is substantially similar to our definition of Adjusted EBITDA. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a description of our credit facilities.
 
Management believes that the use of Adjusted EBITDA provides consistency and comparability with our past financial performance, facilitates period to period comparisons of operations, and also facilitates comparisons with other peer companies, many of which use similar non-GAAP financial

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measures to supplement their GAAP results. Management believes that it is useful to exclude non-cash charges such as depreciation, amortization and stock-based compensation from Adjusted EBITDA because:
 
  •  the amount of such non-cash expenses in any specific period may not directly correlate to the underlying performance of our business operations; and
 
  •  such expenses can vary significantly between periods as a result of new acquisitions, or the timing of new stock-based awards, as the case may be.
 
More specifically, we believe it is appropriate to exclude stock-based compensation expense from Adjusted EBITDA because non-cash equity grants made at a certain price and point in time do not reflect how our business is performing at any particular time. While we believe that stockholders should have information about any dilutive effect of outstanding options and the cost of that compensation, we also believe that stockholders should have the ability to view the non-GAAP financial measure (which excludes these costs) that management uses to evaluate our business. The determination of stock-based compensation expense is based on many subjective inputs, many of which are not necessarily directly related to the performance of our business. Therefore, excluding this cost gives us a clearer view of the operating performance of our business. Because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies may use under the authoritative accounting guidance for stock-based compensation, as well as the impact of non-operational factors such as our share price, on the magnitude of this expense, management believes that providing a non-GAAP financial measure that excludes this stock-based compensation expense allows investors and analysts to make meaningful comparisons between our operating results and those of other companies. Stock-based compensation has been a significant non-cash recurring expense in our business and has been used as a key incentive offered to our employees. We believe such compensation contributed to the revenues earned during the periods presented and also believe it will contribute to the generation of future period revenues. Stock-based compensation expense will recur in future periods for GAAP purposes. There are material limitations to our exclusion of stock-based compensation from Adjusted EBITDA, primarily that these expenses reduce our GAAP net income. See below for a further discussion of these limitations on our use of Adjusted EBITDA as an analytical tool, as well as the manner in which management compensates for these limitations.
 
We believe it is appropriate to exclude depreciation and amortization from Adjusted EBITDA because depreciation is a function of our capital expenditures which are included in our statements of cash flows, while amortization reflects other asset acquisitions made at a point in time and their associated costs. In analyzing the performance of our business currently, management believes it is helpful also to consider the business without taking into account costs or benefits accruing from historical decisions on infrastructure and capacity. While these matters do affect the overall financial health of our company, they are separately evaluated and relate to historic decisions that do not affect current operations of our business on a cash flow basis. Further, depreciation and amortization do not result in ongoing cash expenditures. Investors should note that the use of assets being depreciated or amortized contributed to revenues earned during the periods presented and will continue to contribute to future period revenues. This depreciation and amortization expense will recur in future periods for GAAP purposes. There are material limitations to our exclusion of depreciation and amortization from Adjusted EBITDA, primarily that these expenses reduce our GAAP net income and the assets being depreciated or amortized will often have to be replaced in the future, resulting in future cash requirements. See below for a further discussion of these limitations on our use of Adjusted EBITDA as an analytical tool, as well as the manner in which management compensates for these limitations.
 
Management believes it is appropriate to exclude compensation expense associated with acquisition earnout arrangements because this expense results from activities that are not part of our normal operations. There are material limitations to our exclusion from Adjusted EBITDA of earnout expenses associated with acquisitions, primarily that these expenses reduce our GAAP net income.


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See below for a further discussion of these limitations on our use of Adjusted EBITDA as an analytical tool, as well as the manner in which management compensates for these limitations.
 
We believe Adjusted EBITDA is useful to investors in evaluating our operating performance because securities analysts use Adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of companies. We anticipate that our investor and analyst presentations after we are public will include Adjusted EBITDA.
 
Material limitations of non-GAAP measures
 
Although measures similar to Adjusted EBITDA are frequently used by investors and securities analysts in their evaluations of companies, these measures, including Adjusted EBITDA, have limitations as an analytical tool, and you should not consider Adjusted EBITDA in isolation or as a substitute for analysis of our results of operations as reported under GAAP.
 
Some of these limitations are:
 
  •  Adjusted EBITDA does not reflect our future requirements for contractual commitments or our cash expenditures or future requirements for capital expenditures;
 
  •  Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital;
 
  •  Adjusted EBITDA does not reflect interest income or interest expense;
 
  •  Adjusted EBITDA does not reflect cash requirements for income taxes;
 
  •  Adjusted EBITDA does not reflect the non-cash component of employee compensation;
 
  •  although depreciation and amortization are non-cash charges, the assets being depreciated or amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for these replacements; and
 
  •  other companies in our industry may calculate similarly titled measures differently than we do, limiting their usefulness as comparative measures.
 
Management compensates for the inherent limitations associated with using the Adjusted EBITDA measure through disclosure of such limitations, presentation of our financial statements in accordance with GAAP and reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, net income (loss). Further, management also reviews GAAP measures, and evaluates individual measures that are not included in Adjusted EBITDA such as our level of capital expenditures, equity issuance and interest expense, among other measures.


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The following table presents a reconciliation of Adjusted EBITDA to net income (loss), the most comparable GAAP measure, for each of the periods indicated:
 
                                         
          Three Months
 
          Ended
 
    Year Ended December 31,     December 31,  
    2007     2008     2009     2008     2009  
    (in thousands)  
 
                                         
Reconciliation of Adjusted EBITDA to Net Income (Loss):
                                       
Net income (loss)
  $ (10,138 )   $ (13,188 )   $ (19,021 )   $ (5,364 )   $ 1,435  
Interest expense, net
    323       455       1,314       208       491  
Income tax expense
          293       1,331       293       497  
Depreciation and amortization expense
    2,030       4,340       9,787       1,980       2,454  
Stock-based compensation
    990       2,996       3,025       1,025       721  
Compensation expense related to acquisition earnout
                900              
                                         
Adjusted EBITDA
  $ (6,795 )   $ (5,104 )   $ (2,664 )   $ (1,858 )   $ 5,598  
                                         


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RISK FACTORS
 
Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this prospectus, before deciding whether to invest in our common stock. Our business, prospects, financial condition or operating results could be materially adversely affected by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. The trading price of our common stock could decline as a result of any of these risks, and you could lose part or all of your investment in our common stock. When deciding whether to invest in our common stock, you should also refer to the other information in this prospectus, including our consolidated financial statements and related notes and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus. You should read the section entitled “Special Note Regarding Forward-Looking Statements” immediately following these risk factors for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this prospectus.
 
Risks Related to Our Business
 
We have a limited operating history.
 
Our company has been in existence since 2002. We have a limited operating history and participate in new markets that are changing rapidly. Our limited operating history may make it difficult for you to evaluate our current business and our future prospects. Moreover, our business has undergone significant changes during its short history as a result of:
 
  •  changes in our content and advertising-based service offerings;
 
  •  changes in the revenue mix derived from such offerings;
 
  •  acquisitions;
 
  •  technological changes; and
 
  •  changes in the markets in which we compete.
 
We expect our business to undergo further changes, making it difficult to forecast our future financial performance. Many companies seeking to provide consumer health products and services through the Internet have failed to become profitable, and some have ceased operations. We cannot assure you that our current strategy will be successful or that our business and revenues will continue to grow.
 
We have incurred significant losses since our inception and expect to incur losses in the future.
 
We have accumulated significant losses since our inception. We generated revenues of $90.1 million and recorded net losses of $19.0 million in the year ended December 31, 2009. As of December 31, 2009, our accumulated deficit was $58.2 million. We expect to continue to incur significant operating expenses and, as a result, we will need to generate significant revenues to achieve or maintain profitability. We may not be able to achieve or sustain profitability on a quarterly or annual basis in the future.
 
Failure to maintain and enhance our brands could have a material adverse effect on our business.
 
We believe that our brand identity is critical to the success of our business and in helping us achieve recognition as a trusted source of consumer health solutions. We also believe that maintaining and enhancing our brands are vital to expanding our consumer base and growing our relationships with advertisers. We believe that the importance of brand recognition and consumer loyalty will only increase in light of increasing competition in our markets. Some of our existing and potential


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competitors, including search engines, media companies and other online content providers, have well established brands with greater recognition and market penetration. We have expended considerable resources on establishing and enhancing the Everyday Health brand and the other brands in the Everyday Health portfolio. We have developed policies and procedures that are intended to preserve and enhance these brands, including editorial procedures designed to control the quality of our content. We expect to continue to devote significant additional resources and efforts to enhance our brands. However, we may not be able to successfully maintain or enhance awareness of our brands, and events outside of our control may have a negative effect on our brands.
 
If we are unable to deliver content that attracts and retains consumers to websites in the Everyday Health portfolio, our ability to attract advertisers will be adversely affected, which in turn will negatively impact our business.
 
We generate a significant percentage of our revenues from advertising fees. Our future success depends on our ability to deliver timely, interesting, relevant and valuable content to attract and retain consumers to websites in the Everyday Health portfolio. Our ability to successfully develop, produce and license highly-specialized consumer health content is subject to numerous uncertainties, including our ability to:
 
  •  successfully anticipate and respond to rapidly changing developments and preferences to ensure our content offerings remain appealing to our consumers;
 
  •  attract and retain qualified editors, writers and technical personnel;
 
  •  license quality content from third parties;
 
  •  fund new development projects to further broaden our content offerings; and
 
  •  successfully expand our content offerings and advertising-based services into new platforms and delivery mechanisms.
 
If the content on the Everyday Health portfolio is not perceived as sufficiently appealing or valuable to our consumers, we will be unable to retain or grow our consumer base. If we cannot maintain and grow our consumer base, or if we experience a decline in traffic levels or the number of page views by our consumers, our ability to retain and attract advertisers will be adversely affected. This would in turn negatively affect our business and revenues.
 
Our inability to enter into new, or otherwise extend our existing, licensing arrangements for proprietary content or the decline in the popularity of a public figure that is associated with our partners would adversely affect our ability to grow our business and revenues.
 
We are highly dependent on the proprietary content that we license from third parties to attract and retain consumers to the Everyday Health portfolio. We believe that such proprietary content is an important element of our business and helps to differentiate us from our competitors. Moreover, we have historically derived a portion of our revenues from subscriptions to certain websites in the Everyday Health portfolio that are based on licensed proprietary content. We anticipate that a meaningful portion of our revenues in the foreseeable future will continue to be derived from both advertising and subscription arrangements associated with these websites.
 
Our licensing arrangements have varying duration and renewal terms. As these arrangements expire, renewals on favorable terms may be sought; however, third parties may outbid us for the rights to such content. In addition, owners of such content may elect to create their own online presence in lieu of granting us a license. Furthermore, renewal costs could substantially exceed the original contract cost and reduce the profitability of these agreements to us. Our inability to renew our existing licensing arrangements, or to otherwise enter into new licensing arrangements, in each case on commercially favorable terms, could adversely affect the appeal of our content offerings to our consumers, which in turn would negatively impact the traffic and page views of the Everyday Health


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portfolio and its attractiveness to our consumers, advertisers and partners. The loss of the licensing arrangements associated with www.JillianMichaels.com or www.SouthBeachDiet.com, each of which accounted for more than 10% of our consolidated revenues for the year ended December 31, 2009, may have a material adverse effect on our business and revenues. In addition, the loss of the licensing arrangement associated with www.WhattoExpect.com may also have a material adverse effect on our business and revenues.
 
In addition, we rely on the popularity and credibility of public figures that are associated with certain websites in the Everyday Health portfolio. These individuals may not retain their current appeal or may become subject to negative publicity. The popularity and credibility of the websites associated with these public figures or content providers also depend on the quality and acceptance of competing content released into the marketplace at or near the same time, the availability of alternative sources for the information, general economic conditions and other tangible and intangible factors, all of which are difficult to predict. Consumer preferences change frequently and it is a challenge to anticipate what offerings will be successful at a certain point in time. Any decline in the popularity of the content offerings, or any negative publicity, whether individually or with respect to the content offerings associated with the websites associated with these public figures or content providers, may have an adverse impact on our business and revenues.
 
Our failure to attract and retain consumers in a cost-effective manner could compromise our ability to grow our revenues and become profitable.
 
Our continued success is highly dependent on our ability to attract and retain consumers in a cost-effective manner. In order to attract consumers to the Everyday Health portfolio, we must expend considerable amounts of money and resources for online and offline advertising and marketing. We use a diverse mix of marketing and advertising programs to promote the websites in our portfolio, and we have spent, and expect to continue to spend, significant amounts of money on these initiatives. Significant increases in the pricing of one or more of these initiatives will result in higher marketing costs. Our failure to attract and acquire new, and retain existing, consumers in a cost-effective manner would make it more difficult to maintain and grow our revenues and ultimately to achieve profitability.
 
Our revenues are subject to fluctuations due to the timing and amount of expenditures by our advertising customers.
 
Advertising and sponsorship revenue comprises a significant and growing component of our revenues. Our advertising and sponsorship revenue accounted for approximately 64.5% of our total revenues for the year ended December 31, 2009. Advertising spending in the markets in which we compete can fluctuate significantly as a result of a variety of factors, many of which are outside of our control. These factors include:
 
  •  variations in expenditures by advertisers due to budgetary constraints;
 
  •  the cancellation, non-renewal or delay of campaigns;
 
  •  advertisers’ internal review process;
 
  •  the cyclical and discretionary nature of advertising spending;
 
  •  the timing of FDA approvals of prescription drugs and medical devices;
 
  •  seasonal factors relating to the prevalence of specific health conditions and other seasonal factors that affect the promotion of specific products; and
 
  •  general economic conditions, including those specific to the Internet and media industry.
 
Our advertising and sponsorship revenue is primarily derived from short-term contracts that may not be renewed.
 
Many of our advertising and sponsorship contracts are short-term commitments and are subject to termination by the customer at any time. Despite the short-term nature of these commitments, we


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typically must expend significant resources over a lengthy sales cycle to obtain these contracts. As of December 31, 2009, one advertising agency accounted for approximately 13% of our accounts receivable. Our current customers may not fulfill their obligations under their existing contracts or continue to advertise with us beyond the terms of their existing contracts. If a significant number of advertisers, or a few large advertisers, decide to reduce their expenditures with us or to discontinue advertising with us, we could experience a material decline in our revenues.
 
Our quarterly operating results are subject to significant fluctuations, and these fluctuations may adversely affect the trading price of our common stock.
 
We have experienced, and expect to continue to experience, significant fluctuations in our quarterly revenues and operating results. Our quarterly revenues and operating results may fluctuate significantly due to a number of factors, many of which are outside of our control. These factors include:
 
  •  traffic levels to the websites in our portfolio;
 
  •  our ability to introduce new and appealing content that will drive the growth of our consumer base;
 
  •  the spending priorities and advertising budget cycles of specific advertisers;
 
  •  the addition or loss of advertisers;
 
  •  the addition of new websites and services by us or our competitors;
 
  •  changes in our pricing policies or those of our competitors;
 
  •  costs relating to our ongoing efforts to improve our content and advertising-based service offerings; and
 
  •  seasonal fluctuations in advertising spending.
 
In addition, seasonal factors, including those relating to the prevalence of specific health conditions, can also affect our operating results. For example, we have historically experienced an increase in new subscriptions in the first calendar quarter. This increase typically coincides with the general trend towards making healthy lifestyle choices at the beginning of the new year.
 
As a result of these seasonal and quarterly fluctuations, we believe that comparisons of our quarterly results of operations are not necessarily meaningful and that these comparisons are not reliable as indicators of our future performance. In addition, these fluctuations could result in volatility in our operating results and may adversely affect our cash flows. As our business grows, these seasonal fluctuations may become more pronounced. Any seasonal or quarterly fluctuations that we report in the future may differ from the expectations of securities analysts and investors. This could cause the price of our common stock to decline.
 
Our inability to sustain or grow our advertising rates could adversely affect our operating results.
 
The rates charged for advertising on the Internet, particularly in the consumer health sector, have fluctuated over the past few years due to a variety of factors, including the growth in use of search engines, general economic conditions and competitive offerings. We have committed significant resources to delivering content and advertising-based services designed to appeal to our advertising customers by engaging consumers in a more interactive and meaningful manner, therefore providing a higher return on our advertisers’ expenditures. However, our customers may not perceive our content offerings and advertising-based services as sufficiently valuable to justify the payment of our rates. If we are unable to maintain our historical, or grow to anticipated, pricing levels for advertising, we will experience difficulties in maintaining or growing our revenues.


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We face significant competition in attracting both consumers and advertising customers.
 
In order to attract consumers to websites in our portfolio, we have to compete with a variety of sources that provide different forms of consumer health information, including:
 
  •  websites that provide online health and/or medical information, such as www.webmd.com;
 
  •  websites that offer specific diet or fitness programs, such as www.weightwatchers.com and www.rodale.com, or that focus on a specific medical condition, such as www.dlife.com for diabetes;
 
  •  broad-based public portals that offer health-related content, such as www.aol.com and www.yahoo.com;
 
  •  non-profit and governmental websites that provide consumer health information, such as www.fda.gov, www.cdc.gov and www.health.nih.gov; and
 
  •  traditional offline media companies, such as magazine and book publishers, as well as distributors of television and video programming.
 
We believe that the depth and breadth of our content offerings and advertising-based services across the consumer health spectrum differentiate us from our competitors. However, since there are no meaningful barriers to entry into the markets in which we participate, we anticipate that competition for consumers will continue to intensify, particularly as our competitors broaden their product offerings. As we continue to diversify the breadth of our content offerings and advertising-based services and expand internationally, we expect our competitors to further expand as well. Our current and future competitors may offer new categories of content, products or services before we do, which may give them a competitive advantage when trying to attract consumers or advertisers. Moreover, both existing and potential consumers may perceive our competitors’ offerings to be superior to ours.
 
Recently, our industry has experienced consolidation which could increase competition in the future, particularly with respect to content acquisition, exclusivity of content and pricing. To compete effectively, we may need to expend significant resources on content acquisition, technology or marketing and advertising. We currently plan to distinguish ourselves from our competitors on the basis of the depth and breadth of our content offerings across the health spectrum, the quality of our advertising-based services and technological leadership. These efforts may be expensive and could reduce our margins.
 
We also compete for advertisers with the information sources mentioned above. Advertising customers seek to allocate expenditures in a way that will enable them to reach the broadest audience in the most targeted and cost-efficient manner. Advertisers may choose to work with our competitors due to a variety of factors, including:
 
  •  preference for our competitors’ online content and print offerings;
 
  •  desire to utilize other forms of advertising offered by our competitors that are not offered by us; and
 
  •  price and reach.
 
Many of our current and potential competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we do. As a result, we could lose market share to our competitors, and our revenues could decline.


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The market for Internet advertising is still developing, and if the Internet fails to gain further acceptance as a medium for advertising, we would experience slower revenue growth or a decrease in revenue, and greater losses than expected.
 
Our future success depends, in part, on continued growth in the use of the Internet as an advertising and marketing platform. The Internet advertising market is still developing, and we cannot compare this market with traditional advertising media to gauge its effectiveness. As a result, demand for and market acceptance of Internet advertising solutions remain uncertain. Many of our current and potential customers have limited experience with Internet advertising and have allocated only a relatively small portion of their aggregate advertising and marketing budgets to Internet activities. The adoption of Internet advertising, particularly by entities that have historically relied on traditional methods of advertising and marketing, requires the acceptance of new advertising and marketing methods. These customers may find Internet advertising to be less effective for meeting their business needs than traditional advertising and marketing methods. Furthermore, there are software programs designed to limit or prevent advertising from being delivered to a user’s computer. Widespread adoption of this software by users would significantly undermine the commercial viability of Internet advertising.
 
We depend on Internet search engines to attract a significant portion of the traffic to the Everyday Health portfolio, and if we are listed less prominently in search result listings, our business and operating results would be harmed.
 
We derive a significant portion of our traffic from consumers who search for consumer health information through Internet search engines, such as those operated by Google, Microsoft and Yahoo! A critical factor in attracting consumers to our portfolio of websites is whether our websites are prominently displayed in response to a relevant Internet search.
 
Search result listings are determined and displayed in accordance with a set of formulas or algorithms developed by the particular Internet search engine. The algorithms determine the order of the results in response to the relevant Internet search. From time to time, search engines revise these algorithms. In some instances, these modifications may cause websites within the Everyday Health portfolio to be listed less prominently in unpaid search results, which would result in decreased traffic from search engines to our websites. One of the most cost-effective efforts we employ to attract and acquire new, and retain existing, users is search engine optimization, or SEO. SEO involves developing websites in a manner that will enhance the likelihood that they will rank well in search engine results. An effective SEO effort can significantly reduce our marketing costs. Conversely, if our SEO efforts are ineffective, we could experience a substantial increase in our consumer acquisition costs and a decrease of free traffic to the Everyday Health portfolio.
 
The websites in our portfolio may also become listed less prominently in unpaid search results for other reasons, such as search engine technical difficulties, search engine technical changes and changes we make to our websites. In addition, search engines have deemed the practices of some companies to be inconsistent with search engine guidelines and have decided not to list their websites in search result listings at all. If listed less prominently or not at all in search result listings for any reason, the traffic to the websites in our portfolio would likely decline, which could harm our operating results. If we decide to attempt to replace this traffic, we may be required to increase our marketing expenditures, which could also harm our operating results. Any decrease in traffic would be costly to replace.
 
If we experience a decline in renewals from our premium subscription-based services, our revenues and business may decline.
 
Our premium services consist primarily of subscriptions sold to consumers who purchase access to one or more of the websites in our portfolio or to a specific interactive service or application, including licensing our CarePages social media application to healthcare service providers. We must


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continually add new subscribers and licensees, both to increase our subscriber and licensee base and to replace subscribers and licensees who choose not to renew their subscriptions or licenses. Subscribers and licensees may choose not to renew their subscriptions or licenses for many reasons at any time prior to the renewal date, including:
 
  •  a desire to reduce discretionary spending;
 
  •  a perception that they do not use the service sufficiently;
 
  •  a belief that the service is a poor value or that competitive services provide a better value or experience; or
 
  •  a feeling that subscriber service issues are not satisfactorily resolved.
 
Licensees may choose not to renew their licenses for many of the same reasons. If we are unable to attract new subscribers or licensees to our premium services to counterbalance our non-renewal rates, our subscriber and licensee base will decrease. If our subscriber and licensee non-renewal rate increases, we may be required to increase the rate at which we add new subscribers and licensees in order to maintain and grow our revenues from our premium services and may have to incur significantly higher marketing and advertising expenses than we currently anticipate.
 
Developing and implementing new and updated applications, features and services may be more difficult than expected, may take longer and cost more than expected and may not result in sufficient increases in revenue to justify the costs.
 
Attracting and retaining consumers require us to continue to improve the technology underlying our content offerings and content-delivery platform. Accordingly, we must continue to develop new and updated applications, features and services. If we are unable to do so on a timely basis or if we are unable to implement new applications, features and services that enhance our consumers’ experience without disruption to our existing ones, we may lose potential and existing consumers and advertising customers. We rely on a combination of internal development, strategic relationships, licensing and acquisitions to develop our content offerings and advertising-based services. These efforts may:
 
  •  cost more than expected;
 
  •  take longer than originally expected;
 
  •  require more testing than originally anticipated;
 
  •  require additional advertising and marketing costs; and
 
  •  require the acquisition of additional personnel and other resources.
 
The revenue opportunities generated from these efforts may fail to justify the amounts spent.
 
Future acquisitions could disrupt our business and harm our financial condition and operating results.
 
We have acquired, and in the future may acquire or invest in, complementary businesses, products or technologies. Most recently, in October 2008, we acquired Revolution Health Group LLC and its subsidiaries. Following the closing of this offering, we expect that as a result of our access to the public markets, we will have enhanced opportunities to pursue acquisitions and investments in the future. Acquisitions and investments involve numerous risks, including:
 
  •  potential negative impact on our financial results because they may require us to incur charges and substantial debt or liabilities, may require us to amortize, write down or record impairment of amounts related to deferred compensation, goodwill and other intangible assets, or may cause adverse tax consequences, substantial depreciation or deferred compensation charges;
 
  •  difficulty in assimilating the operations and personnel of acquired businesses;


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  •  potential disruption of our ongoing businesses and distraction of our management and the management of acquired companies;
 
  •  difficulty in incorporating acquired technology and rights into our content offerings and advertising-based services;
 
  •  difficulty entering geographic or business markets in which we have little or no prior experience;
 
  •  unanticipated expenses related to technology and other integration;
 
  •  potential failure to achieve additional sales and enhance our customer base through cross-marketing of the combined company’s products and services to new and existing customers;
 
  •  unanticipated expenses relating to implementing or improving internal controls, procedures and policies appropriate for a public company of a business that prior to the acquisition lacked these controls, procedures and policies;
 
  •  potential litigation resulting from our business combinations or acquisition activities; and
 
  •  potential unknown liabilities associated with the acquired businesses.
 
Our inability to integrate any acquired business successfully or the failure to achieve any expected synergies could result in increased expenses and a reduction in expected revenues or revenue growth. In addition, we may not be able to identify or consummate any future acquisition on favorable terms, or at all. If we do pursue an acquisition, it is possible that we may not realize the anticipated benefits from the acquisition or that the financial markets or investors will negatively view the acquisition. As a result, our stock price could fluctuate or decline.
 
The costs associated with potential acquisitions or strategic partnerships could dilute your investment or adversely affect our results of operations.
 
In order to finance acquisitions, investments or strategic partnerships, we may use equity securities, debt, cash or a combination of the foregoing. Any issuance of equity securities or securities convertible into equity may result in substantial dilution to our existing stockholders, reduce the market price of our common stock or both. Any debt financing is likely to increase our interest expense and include financial and other covenants that could have an adverse impact on our business. In addition, an acquisition may involve non-recurring charges, including writedowns of significant amounts of intangible assets or goodwill. The related increases in expenses could adversely affect our results of operations. Any such acquisitions or strategic alliances may require us to obtain additional equity or debt financing, which may not be available on commercially acceptable terms, if at all. We do not intend to seek security holder approval for any such acquisition or security issuance unless required by applicable law, regulation or the terms of our existing securities.
 
There are a number of risks associated with expansion of our business internationally.
 
Expansion into international markets is one of the key elements of our growth strategy. In addition to facing many of the same challenges we face domestically, there are additional risks and costs inherent in expanding our business in international markets. These include:
 
  •  strong local competitors that are better attuned to the local culture and preferences;
 
  •  the need to adapt our websites and advertising programs to meet local needs and to comply with local legal and regulatory requirements;
 
  •  varied, unfamiliar and unclear legal and regulatory restrictions, as well as unforeseen changes in legal and regulatory requirements;
 
  •  limitations on our activities in foreign countries;


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  •  more restrictive data protection regulation, which may vary by country;
 
  •  difficulties in staffing and managing multinational operations;
 
  •  difficulties in finding appropriate foreign licensees or joint venture partners;
 
  •  distance, language and cultural differences;
 
  •  foreign political and economic uncertainty;
 
  •  less extensive adoption of the Internet as an information source and increased restriction on the content of websites;
 
  •  different and conflicting intellectual property laws;
 
  •  currency exchange-rate fluctuations; and
 
  •  potential adverse tax requirements.
 
We have limited experience in managing international operations. As a result, we may face difficulties and unforeseen expenses in expanding our business internationally, and even if we attempt to do so, we may be unsuccessful.
 
Given the tenure and experience of our Chief Executive Officer and President, and their guiding roles in developing our business and growth strategy since our inception, our growth may be inhibited, or our operations may be impaired, if we were to lose their services.
 
Our growth and success depends to a significant extent on our ability to retain Benjamin Wolin, our Chief Executive Officer, and Michael Keriakos, our President, both of whom founded our company and have led the growth and operation of our business since its inception. The loss of the services of either of these key executives could result in our inability to manage our operations effectively and to implement our business strategy. This may cause our stock price to fluctuate or decline. Further, we cannot assure you that we would be able to successfully integrate newly-hired executives or senior managers with our existing management team.
 
We may not be able to attract, hire and retain qualified personnel in a cost-effective manner, which could impact the quality of our content offerings and advertising-based services and the effectiveness and efficiency of our management, resulting in increased costs and losses in revenues.
 
Our success depends on our ability to attract, hire and retain, at commercially reasonable rates, qualified editorial and writing, sales and marketing, customer support, technical, financial and accounting, legal and other managerial personnel. The competition for personnel in the industries in which we operate is intense. Our personnel may terminate their employment at any time for any reason. Loss of personnel may result in increased costs for replacement hiring and training. If we fail to attract and hire new personnel, or retain and motivate our current personnel, we may not be able to operate our businesses effectively or efficiently, serve our consumers and customers properly or maintain the quality of our content offerings and advertising-based services.
 
In particular, our success depends in significant part on maintaining and growing an effective sales force. This dependence involves a number of challenges, including:
 
  •  the need to hire, integrate, motivate and retain additional sales and sales support personnel;
 
  •  the need to train new sales personnel, many of whom lack sales experience when they are hired; and
 
  •  competition from other companies in hiring and retaining sales personnel.


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Our growth could strain our personnel, technology and infrastructure resources. If we are unable to implement appropriate controls and procedures to manage our growth, we may not be able to successfully implement our business plan.
 
Our growth in operations has placed a significant strain on our management, administrative, technological, operational and financial infrastructure. Anticipated future growth, including growth related to the broadening of our content offerings and advertising-based services and our expansion into new geographic areas, will continue to place similar strains on our personnel, technology and infrastructure. Our success will depend in part upon our ability to manage our growth. To manage the expected growth of our operations, we will need to continue to improve our operational, financial, technological and management controls and our reporting systems and procedures. The resulting additional capital investments will increase our costs, which will make it more difficult for us to offset any future revenue shortfalls by offsetting cost reductions in the short term.
 
As a creator and a distributor of content over the Internet, we face potential liability for legal claims based on the nature and content of the materials that we create or distribute.
 
Consumers access health-related content through our portfolio of websites, including information regarding particular medical conditions, diagnosis and treatment and possible adverse reactions or side effects from medications. If our content, or content we obtain from third parties, contains inaccuracies, it is possible that consumers who rely on that content or others may sue us for various causes of action. Although the websites in our portfolio contain terms and conditions, including disclaimers of liability, that are intended to reduce or eliminate our liability, the law governing the validity and enforceability of online agreements is still evolving. Moreover, many of these terms and conditions relate to websites that are operated by our partners and are not under our control. We could be subject to claims by third parties that these online agreements are unenforceable. A finding by a court that these agreements are invalid and that we are subject to liability could harm our business and require us to make costly changes.
 
We have editorial procedures in place to control the quality of our content offerings. However, our editorial and other quality control procedures may not be sufficient to ensure that there are no errors or omissions in our content offerings or to prevent such errors and omissions in content that is controlled by our partners. Even if potential claims do not result in liability to us, investigating and defending against these claims could be expensive and time consuming and could divert management’s attention away from our operations.
 
In addition, we could be exposed to liability in connection with material posted to the websites in our portfolio by our consumers. Many of these websites offer consumers an opportunity to post comments and opinions. Some of this user-generated content may infringe on third-party intellectual property rights or privacy rights or may otherwise be subject to challenge under copyright laws. Moreover, we could face claims for making such user-generated content available on the websites in our portfolio if consumers rely on such information to their detriment, particularly if the information relates to medical diagnosis and treatment. Such claims could divert management’s time and attention away from our business and result in significant costs to us, regardless of the merit of these claims.
 
If we become subject to these types of claims and are not successful in our defense, we may be forced to pay substantial damages. Our insurance may not adequately protect us against these claims. The filing of these claims may result in negative publicity and also damage our reputation as a high quality and trusted provider of consumer health content and services.
 
The effects of the recent global economic crisis may impact our business, operating results or financial condition.
 
The recent global economic crisis has caused disruptions and extreme volatility in global financial markets and increased rates of default and bankruptcy, and has impacted levels of consumer spending. These macroeconomic developments have negatively affected, and may continue to affect,


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our business, operating results or financial condition in a number of ways. For example, current or potential customers may delay or decrease spending with us, may have difficulty paying us or may delay paying us for previously purchased products and services. This may also require us to increase our bad debt reserve and may affect how we recognize accounts receivables. In addition, if consumer spending continues to decrease, this may result in lower click through rates on advertisements displayed on our portfolio of websites. A slow or uneven pace of economic recovery would negatively impact our business and operating results.
 
Risks Related to Our Intellectual Property and Technology Platform
 
If our intellectual property and technologies are not adequately protected to prevent use or misappropriation by our competitors, the value of our brand and other intangible assets may be diminished, and our business may be adversely affected.
 
Our future success and competitive position depend in part on our ability to protect our proprietary technologies and intellectual property. We rely, and expect to continue to rely, on a combination of confidentiality and licensing agreements with our employees, consultants and third parties with whom we have relationships, along with trademark, copyright, patent and trade secret protection laws, to protect our proprietary technologies and intellectual property. Many of our trademarks contain words or terms having a common usage and, as a result, may not be protectable under applicable law. Competitors may adopt service marks or trademarks similar to ours or use identical or similar terms as keywords in Internet search engine advertising programs, thereby impeding our ability to build brand identity and possibly leading to confusion by our consumers and customers. We also possess intellectual property rights in aspects of our content, search technology, software products and other processes. However, we do not register our copyrights in any of our content. Rather, this content is primarily protected by user agreements that limit access to and use of our content. Compliance with use restrictions is difficult to monitor, and our proprietary rights may be more difficult to enforce than other forms of intellectual property rights.
 
Although we rely on copyright laws to protect the works of authorship created by us, we do not register the copyrights in any of our copyrightable works. Copyrights of U.S. origin must be registered before the copyright owner may bring an infringement suit in the U.S. Furthermore, if a copyright of U.S. origin is not registered within three months of publication of the underlying work, the copyright owner is precluded from seeking statutory damages or attorneys fees in any U.S. enforcement action, and is limited to seeking actual damages and lost profits. Accordingly, if one of our unregistered copyrights of U.S. origin is infringed by a third party, we will need to register the copyright before we can file an infringement suit in the U.S., and our remedies in any such infringement suit may be limited.
 
We cannot assure you that the steps we take will be adequate to protect our technologies and intellectual property, that our patent and trademark applications will lead to issued patents and registered trademarks, that others will not develop or patent similar or superior technologies, products or services, or that our patents, trademarks and other intellectual property will not be challenged, invalidated or circumvented by others. Furthermore, the intellectual property laws of other countries where our websites are directed or can be accessed may not protect our products and intellectual property rights to the same extent as the laws of the U.S. The legal standards relating to the validity, enforceability and scope of protection of intellectual property rights in Internet-related industries are uncertain and still evolving, both in the U.S. and in other countries. If the protection of our technologies and intellectual property is inadequate to prevent use or appropriation by third parties, the value of our brand and other intangible assets may diminish.
 
In addition, third parties may knowingly or unknowingly infringe our patents, trademarks and other intellectual property rights, and litigation may be necessary to protect and enforce our intellectual property rights. Any such litigation could be costly and divert management’s attention and resources away from our business. We also expect that the more successful we are, the more likely that competitors will claim that


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we infringe on their intellectual property or proprietary rights. Even if these claims do not result in liability to us, we could incur significant costs in investigating and defending against these claims. If we are unable to protect our proprietary rights or if third parties independently develop or gain access to our or similar technologies, our business, revenue, reputation and competitive position could be harmed.
 
Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information. Failure to protect our proprietary information could make it easier for third parties to compete with our products and harm our business.
 
In order to protect our proprietary rights, we rely in part on security measures, as well as confidentiality agreements with our employees, licensees, independent contractors and other advisors. These measures and agreements may not effectively prevent disclosure of confidential information, including trade secrets, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. We could potentially lose future trade secret protection if any unauthorized disclosure of such information occurs. In addition, others may independently discover our trade secrets and proprietary information. In such cases we could not assert any trade secret rights against such parties. Laws regarding trade secret rights in certain markets in which we operate may afford little or no protection to our trade secrets. The loss of trade secret protection could make it easier for third parties to compete with our products by copying functionality. In addition, any changes in, or unexpected interpretations of, the trade secret and other intellectual property laws in any country in which we operate may compromise our ability to enforce our trade secret and intellectual property rights. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights. Failure to obtain or maintain trade secret protection could adversely affect our business, revenue, reputation and competitive position.
 
Intellectual property claims against us could be costly and result in the loss of significant rights related to, among other things, our websites and advertising and marketing activities.
 
Trademark, copyright, patent and other intellectual property rights are important to us and our business. Our intellectual property rights extend to our technologies, applications and the content on our websites. We rely on intellectual property licensed from third parties. From time to time, third parties may allege that we have violated their intellectual property rights. If we are forced to defend ourselves against intellectual property infringement claims, regardless of the merit or ultimate result of such claims, we may face costly litigation, diversion of technical and management personnel, limitations on our ability to use our current websites or inability to market or provide our content offerings or advertising-based services. As a result of any such dispute, we may have to:
 
  •  develop non-infringing technology;
 
  •  pay damages;
 
  •  enter into royalty or licensing agreements;
 
  •  cease providing certain content or advertising-based services; or
 
  •  take other actions to resolve the claims.
 
These actions, if required, may be costly or unavailable on terms acceptable to us. In addition, many of our partnering agreements require us to indemnify our partners for third-party intellectual property infringement claims, which could increase the cost to us of an adverse ruling in such an action.
 
In addition, we face potential liability for negligence, copyright, patent or trademark infringement or other claims based on the nature of our content. These claims could potentially arise with respect to both company-acquired content and user-generated content. Litigation to defend these claims could be costly, and any other liabilities we incur in connection with the claims could be significant.


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Our possession and use of personal information presents risks and expenses that could harm our business. Unauthorized disclosure or manipulation of such data, whether through breach of our network security or otherwise, could expose us to costly litigation and damage our reputation.
 
Maintaining our network security is of critical importance because we use and store confidential registered user, employee and other sensitive data, such as names, addresses, credit card numbers and other personal information, including information about a consumer’s health interests. In particular, a substantial majority of our consumers who subscribe to a premium service use credit and debit cards to pay for those subscriptions. If we or our processing vendors were to have problems with our billing software, our consumers could encounter difficulties in accessing websites within our portfolio or otherwise have a dissatisfying experience. In addition, if our billing software fails to work properly and, as a result, we do not automatically charge our consumers’ credit cards on a timely basis or at all, our ability to generate revenue would be compromised.
 
We and our vendors use commercially available encryption technology to transmit personal information. We also use security and business controls to limit access and use of personal information. Third parties may be able to circumvent these security and business measures by developing and deploying viruses, worms and other malicious software programs that are designed to attack or infiltrate our systems and networks. In addition, employee error, malfeasance or other errors in the storage, use or transmission of personal information could result in a breach of registered user or employee privacy.
 
If third parties improperly obtain and use the personal information of our registered users or employees, we may be required to expend significant resources to resolve these problems. A major breach of our network security and systems could have serious negative consequences for our businesses, including:
 
  •  possible fines, penalties and damages;
 
  •  reduced demand for our content offerings and advertising-based services;
 
  •  an unwillingness of consumers to provide us with their credit card or payment information;
 
  •  an unwillingness of registered users to provide us with personal information;
 
  •  harm to our reputation and brand; and
 
  •  difficulty in processing subscriber credit card orders.
 
Similarly, if a well-publicized breach of data security at any other major consumer website were to occur, there could be a general public loss of confidence in the use of the Internet for commercial transactions.
 
Finally, privacy concerns in general may cause visitors to avoid online websites that collect information and may indirectly inhibit market acceptance of our products and services. In addition, if our privacy practices are deemed unacceptable by watchdog groups or privacy advocates, such groups may attempt to block access to our websites or disparage our reputation and business.
 
We rely on Internet bandwidth and data center providers and other third parties for key aspects of the process of providing services to our clients, and any failure or interruption in the services and products provided by these third parties could harm our business.
 
We rely on third-party vendors, including data center and Internet bandwidth providers. Any disruption in the network access or co-location services provided by these third-party providers or any failure of these third-party providers to handle current or higher volumes of use could significantly harm our business. Any financial or other difficulties our providers face may have negative effects on our business, the nature and extent of which we cannot predict. We exercise little control over these third-party vendors, which increases our vulnerability to problems with the services they provide. We


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license technology and related databases from third parties to facilitate analysis, storage of data and delivery of offerings. We have experienced interruptions and delays in service and availability for data centers, bandwidth and other technologies in the past. Any future errors, failures, interruptions or delays experienced in connection with these third-party technologies and services could adversely affect our business.
 
Interruption or failure of our information technology and communications systems could impair our ability to effectively deliver our services, which could cause us to lose clients and harm our operating results.
 
Our business depends on the continuing operation of our technology infrastructure and systems. Any damage to or failure of our systems could result in interruptions in our ability to deliver offerings quickly and accurately and/or process visitors’ responses emanating from our various websites. Interruptions in our service could reduce our revenue and profits, and our reputation could be damaged if people believe our systems are unreliable. Our systems and operations are vulnerable to damage or interruption from earthquakes, terrorist attacks, floods, fires, power loss, break-ins, hardware or software failures, telecommunications failures, computer viruses or other attempts to harm our systems and similar events.
 
We lease or maintain server space in various locations around the U.S. Our facilities are also subject to break-ins, sabotage, intentional acts of vandalism and potential disruptions if the operators of these facilities have financial difficulties. The occurrence of a natural disaster, a decision to close a facility we are using without adequate notice or other unanticipated problems at our facilities could result in lengthy interruptions in our service.
 
Any unscheduled interruption in our service would result in an immediate loss of revenue. Frequent or persistent system failures that result in the unavailability of any of the websites in our portfolio or slower response times could reduce the number of consumers accessing our websites, impair our delivery of advertisements and harm the perception of our portfolio of websites as reliable, trustworthy and consistent sources of information. Our insurance policies provide only limited coverage for service interruptions and may not adequately compensate us for any losses that may occur due to any failures or interruptions in our systems.
 
Any constraints on the capacity of our technology infrastructure could delay the effectiveness of our operations or result in system failures, which would result in the loss of clients and harm our business and results of operations.
 
Our future success depends in part on the efficient performance of our software and technology infrastructure. As the number of websites in our portfolio and users who access our portfolio of websites increases, our technology infrastructure may not be able to meet the increased demand. A sudden and unexpected increase in the volume of consumer usage could strain the capacity of our technology infrastructure. Any capacity constraints we experience could lead to slower response times or system failures and adversely affect the availability of websites and the level of consumer usage, which could result in the loss of clients or revenue or harm to our business and results of operations.
 
If we cannot protect our domain names, our ability to successfully promote our brands will be impaired.
 
We currently own various web domain names, including www.EverydayHealth.com, www.RevolutionHealth.com, www.DailyGlow.com and www.CarePages.com, that are critical to the operation of our business. The acquisition and maintenance of domain names, or Internet addresses, is generally regulated by governmental agencies and their designees. The regulation of domain names in the U.S. and in foreign countries is subject to change. Governing bodies may establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we may be unable to acquire or maintain relevant domain names in all


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countries in which we conduct business. Furthermore, it is unclear whether laws protecting trademarks and similar proprietary rights will be extended to protect domain names. Therefore, we may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights. We may not be able to successfully implement our business strategy of establishing a strong brand for Everyday Health if we cannot prevent others from using similar domain names or trademarks. This failure could impair our ability to increase market share and revenues.
 
Risks Related to Regulation of Our Industry
 
Laws and standards relating to data collection and use practices and the privacy of Internet users and other individuals could impair our efforts to maintain and grow our consumer audience and thereby decrease our advertising and sponsorship revenue.
 
We collect information from consumers who register to access certain content on our websites. Subject to each consumer’s permission or right to decline, which we refer to as an opt-out, we may use this information to inform our consumers of content that may be of interest to them. We may also share this information with our advertising customers for registered users who have elected to receive additional promotional materials and have granted us permission to share their information with third parties. Internet user privacy and the use of consumer information to track online activities are issues that are subject to rigorous discussions and analysis both in the U.S. and abroad. We have privacy policies posted on our websites that we believe comply with applicable laws requiring notice to consumers about our information collection, use and disclosure practices. The U.S. federal and various state governments have adopted or proposed limitations on the collection, distribution and use of personal information of Internet users. Several foreign jurisdictions, including the European Union and Canada, have adopted legislation, including directives or regulations, that may limit our collection and use of information from Internet users in these jurisdictions. In addition, growing public concern about privacy, data security and the collection, distribution and use of personal information has led to self-regulation of these practices by the Internet advertising and direct marketing industry, and to increased federal and state regulation. Because many of the proposed laws or regulations are in early stages, we cannot yet determine the impact these regulations may have on our business over time. We cannot assure you that the privacy policies and other statements we provide to users of websites in our portfolio, or our practices with respect to these matters, will be found sufficient to protect us from liability or adverse publicity in this area. A determination by a state or federal agency or court that any of our practices do not meet applicable standards, or the implementation of new standards or requirements, could adversely affect our business. Furthermore, we cannot assure you that our advertisers are currently in compliance, or will remain in compliance, with their own privacy policies, regulations governing consumer privacy or other applicable legal requirements. We may be held liable if these parties advertise on one of the websites in our portfolio or use the data we collect on their behalf in a manner that is not in compliance with applicable laws or regulations or posted privacy standards.
 
In addition, we may be subject to the Children’s Online Privacy Protection Act, or COPPA, which applies to operators of commercial websites and online services directed to U.S. children under the age of 13 that collect personal information from children, and to operators of general audience websites with actual knowledge that they are collecting information from U.S. children under the age of 13. Our websites are not directed at children under the age of 13, and our registration process utilizes age screening in order to prevent under-age registrations. We believe that we are in compliance with COPPA. COPPA, however, is a relatively new law, can be applied broadly and is subject to interpretation by courts and other governmental authorities. The failure to accurately anticipate the application, interpretation or legislative expansion of this law could create liability for us, result in adverse publicity and negatively affect our business.
 
Additional, more burdensome laws or regulations, including consumer privacy and data security laws, could be enacted or applied to us or our advertising customers. Such laws or regulations could


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impair our ability to collect user information that helps us to provide more targeted advertising to our consumers, thereby impairing our ability to maintain and grow our consumer audience and maximize advertising and sponsorship revenue from our customers.
 
Our business could be harmed if we are unable to correspond with existing and potential consumers by e-mail.
 
We use e-mail as a significant means of communicating with our existing and potential consumers. The laws and regulations governing the use of e-mail for marketing purposes continue to evolve, and the growth and development of the market for commerce over the Internet may lead to the adoption of additional legislation or changes to existing laws. If new laws or regulations are adopted, or existing laws and regulations are interpreted, amended or modified, to impose additional restrictions on our ability to send e-mail to our consumers or potential consumers, we may not be able to communicate with them in a cost-effective manner.
 
Notably, the CAN-SPAM Act regulates commercial e-mails, provides a right on the part of the recipient to request the sender to stop sending messages, and establishes penalties for the sending of e-mail messages that are intended to deceive the recipient as to source or content. An action alleging our failure to comply with CAN-SPAM and the adverse publicity associated with any such action could result in less consumer participation and lead to reduced revenues from advertisers. If we were found to be in violation of the CAN-SPAM Act, applicable state laws not preempted by the CAN-SPAM Act, or foreign laws regulating the distribution of e-mail, whether as a result of violations by our partners or if we were deemed to be directly subject to and in violation of these requirements, we could be exposed to damages or penalties. We also may be required to change one or more aspects of the way we operate our business, which could impair our ability to market our goods and services or increase our operating costs.
 
In addition to legal restrictions on the use of e-mail, Internet service providers and others typically attempt to block the transmission of unsolicited e-mail, commonly known as spam. If an Internet service provider or software program identifies e-mail from us as spam, we could be placed on a restricted list that would block our e-mail to consumers or potential consumers who maintain e-mail accounts with these Internet service providers or who use these software programs.
 
If we are unable to communicate by e-mail with our consumers and potential consumers as a result of legislation, blockage or otherwise, we might lose consumers, and it would be more difficult to attract new consumers.
 
We face potential liability related to the privacy and security of health-related information we collect from or on behalf of our consumers.
 
The privacy and security of information about the past, present, or future physical or mental health or condition of an individual is a major issue in the U.S., because of heightened privacy concerns and the potential for significant consumer harm from the misuse of such sensitive data. We have procedures and technology in place intended to safeguard the information we receive from users of our services from unauthorized access or use.
 
The Privacy Standards and Security Standards under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, establish a set of basic national privacy and security standards for the protection of individually identifiable health information by health plans, healthcare clearinghouses and healthcare providers, referred to as covered entities, and the business associates with whom such covered entities contract for services. Notably, whereas HIPAA previously directly regulated only these covered entities, the Health Information for Economic and Clinical Health Act of 2009, or HITECH, which was signed into law as part of the stimulus package in February 2009, makes certain of HIPAA’s privacy and security standards also directly applicable to covered entities’ business associates. As a result, business associates are now subject to significant civil and criminal penalties for failure to comply with applicable privacy and security rule requirements. Moreover,


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HITECH creates a new requirement to report certain breaches of unsecured, individually identifiable health information and imposes penalties on entities that fail to do so. Additionally, certain states have adopted comparable privacy and security laws and regulations, some of which may be more stringent than HIPAA.
 
We have contractual arrangements with some HIPAA covered entities to make our CarePages social support website service available to patients and their friends and families. As part of those arrangements, we do not receive, process, or store any information from the covered entities about a patient. Instead, we only receive and store information from our users. Accordingly, we believe that we do not receive protected health information on behalf of these covered entities, and are not required to comply with HIPAA or HITECH. However, we have signed business associate agreements with certain covered entities who offer our CarePages service to their patients and their families and friends. If, in spite of the lack of access to and processing of individually identifiable health information on behalf of covered entities, we are subject to the requirements of HIPAA or HITECH and our data practices do not comply with such requirements, we may be directly subject to liability under HIPAA or HITECH. In addition, if our security practices do not comply with our contractual obligations, we may be subject to liability for breach of those obligations. Any liability from a failure to comply with the requirements of HIPAA or HITECH, to the extent such requirements are deemed to apply to our operations, or contractual obligations, could adversely affect our financial condition. The costs of complying with privacy and security related legal and regulatory requirements are burdensome and could have a material adverse effect on our results of operations. In addition, we are unable to predict what changes to the Privacy Standards and Security Standards might be made in the future or how those changes could affect our business. Any new legislation or regulation in the area of privacy and security of personal information, including personal health information, could also adversely affect our business operations.
 
Developments in the healthcare industry could adversely affect our business.
 
A significant portion of our advertising and sponsorship revenue is derived from the healthcare industry, including pharmaceutical, over-the-counter and consumer-packaged-goods companies, and could be affected by changes affecting healthcare spending. General reductions in expenditures by healthcare industry participants could result from, among other things:
 
  •  government regulation or private initiatives that affect the manner in which healthcare industry participants interact with consumers and the general public;
 
  •  consolidation of healthcare industry participants;
 
  •  reductions in governmental funding for healthcare; and
 
  •  adverse changes in business or economic conditions affecting pharmaceutical companies or other healthcare industry participants.
 
Even if general expenditures by industry participants remain the same or increase, developments in the healthcare industry may result in reduced spending in some or all of the specific market segments that we serve now or in the future. For example, use of our content offerings and advertising-based services could be affected by:
 
  •  changes in the design and provision of health insurance plans, including any new regulations that may stem from health reform initiatives that are pending before Congress;
 
  •  a decrease in the number of new drugs or pharmaceutical products coming to market; and
 
  •  decreases in marketing expenditures by pharmaceutical companies as a result of governmental regulation or private initiatives that discourage or prohibit advertising or sponsorship activities by pharmaceutical companies.


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In addition, our advertising customers’ expectations regarding pending or potential industry developments may also affect their budgeting processes and spending plans with us.
 
The healthcare industry has changed significantly in recent years, and we expect that significant changes will continue to occur. However, the timing and impact of developments in the healthcare industry are difficult to predict. We cannot assure you that the demand for our offerings will continue to exist at current levels or that we will have adequate technical, financial and marketing resources to react to changes in the healthcare industry.
 
Government regulation of healthcare creates risks and challenges with respect to our compliance efforts and our business strategies.
 
The healthcare industry is highly regulated and subject to changing political, legislative, regulatory and other influences. Existing and future laws and regulations affecting the healthcare industry could create unexpected liabilities for us, cause us to incur additional costs and restrict our operations. Many healthcare laws are complex, and their application may not be clear. Our failure to accurately anticipate the application of these laws and regulations, or other failure to comply with such laws and regulations, could create liability for us.
 
For example, there are federal and state laws that govern patient referrals, physician financial relationships and inducements to healthcare providers and patients. The federal healthcare programs’ anti-kickback law prohibits any person or entity from offering, paying, soliciting or receiving anything of value, directly or indirectly, for the referral of patients covered by Medicare, Medicaid and other federal healthcare programs or the leasing, purchasing, ordering or arranging for or recommending the lease, purchase or order of any item, good, facility or service covered by these programs. Many states also have similar anti-kickback laws that are not necessarily limited to items or services for which payment is made by a federal healthcare program. An advisory opinion issued by the Department of Health and Human Services, Office of the Inspector General, the agency with responsibility for interpreting the federal anti-kickback law, concluded that the sale of advertising and sponsorships to healthcare providers and vendors by web-based information services implicates the federal anti-kickback law. However, the advisory opinion suggests that enforcement action will not result if the fees paid represent fair market value for the advertising or sponsorship arrangements, the fees do not vary based on the volume or value of business generated by the advertising, and the advertising or sponsorship relationships are clearly identified as such to users. We review our practices to ensure that we comply with all applicable laws. However, the laws in this area are broad and we cannot determine precisely how the laws will be applied to our business practices. Any determination by a state or federal regulatory agency that any of our practices violate any of these laws could subject us to liability and require us to change or terminate some portions of our business.
 
Further, we derive revenues from the sale of advertising and promotion of prescription and over-the-counter drugs. If the FDA or the FTC finds that any of the information provided on our portfolio of websites violates FDA or FTC regulations, they may take regulatory or judicial action against us and/or the advertiser of that information. State attorneys general may also take similar action based on their state’s consumer protection statutes. Any increase or change in regulation of advertising and promotion in the healthcare industry could make it more difficult for us to generate and grow our advertising and sponsorship revenue. Members of Congress, physician groups and others have criticized the FDA’s current policies and have called for more stringent regulation of prescription drug advertising that is directed at consumers and have urged the FDA to become more active in enforcing its current policies. We cannot predict what actions the FDA or industry participants may take in response to these criticisms. It is also possible that new laws, regulations or FDA policies could be promulgated that would impose additional restrictions on such advertising. In November 2009, the FDA convened a public meeting to seek guidance on the marketing of prescription drugs on the Internet and in social media, and subsequently solicited comments from the public on the issue. It is not clear what steps, if any, the FDA will take in response to the public meeting and the comments it subsequently received from the public or whether it will seek specific regulation of Internet


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advertising of prescription drugs. Our advertising and sponsorship revenue could be materially reduced by additional restrictions on the advertising of prescription drugs and medical devices to consumers, whether imposed by law or regulation or required under policies adopted by industry members.
 
In addition, the practice of most healthcare professions requires licensing under applicable state law and state laws may further prohibit business entities from practicing medicine, which is referred to as the prohibition against the corporate practice of medicine. Similar state prohibitions may exist with respect to other licensed professions. We believe that we do not engage in the practice of medicine or any other licensed healthcare profession, or provide, through our portfolio of websites, professional medical advice, diagnosis, treatment or other advice that is tailored in such a way as to implicate state licensing or professional practice laws. However, a state may determine that some portion of our business violates these laws and may seek to have us discontinue those portions or subject us to penalties or licensure requirements. Any determination that we are a healthcare provider and acted improperly as a healthcare provider may result in liability to us.
 
Lastly, the Federal False Claims Act imposes liability on any person or entity who, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal healthcare program. The whistleblower, or qui tam, provisions of the False Claims Act allow a private individual to bring actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federal government and to share in any monetary recovery. After the filing of such a suit, the federal government must determine whether it will intervene and control the case and, if it does not, the private individual may pursue the claim. In addition, various states have enacted false claim laws analogous to the Federal False Claims Act, and many of these state laws apply where a claim is submitted to any third-party payor and not merely a federal healthcare program. When an entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties. It is not clear whether there is a basis for the application of the False Claims Act to the types of services that we provide, however we are aware of allegations in a complaint filed against a similar online consumer health information provider relating to the alleged off-label promotion of prescription drugs by a pharmaceutical manufacturer. To the extent that the court first finds liability on the part of the pharmaceutical manufacturer and then extends liability to the online provider for posting the pharmaceutical company’s allegedly off-label advertisement, this may create a risk of liability under the False Claims Act in connection with the advertising services we provide.
 
Changes in regulations could hurt our business and financial results of operations.
 
It is possible that new laws and regulations or new interpretations of existing laws and regulations in the U.S. and elsewhere will be adopted covering issues affecting our business, including:
 
  •  privacy, data security and use of personally identifiable information;
 
  •  copyrights, trademarks and domain names; and
 
  •  marketing practices, such as e-mail or direct marketing.
 
Increased government regulation, or the application of existing laws to online activities, could:
 
  •  decrease the growth rate of the Internet;
 
  •  negatively impact our ability to generate revenues;
 
  •  increase our operating expenses; or
 
  •  expose us to significant liabilities.
 
For example, Internet user privacy and the use of consumer information to track online activities are debated issues both in the U.S. and abroad. In February 2009, the FTC published Self-Regulatory


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Principles to govern the tracking of consumers’ activities online in order to deliver advertising targeted to the interests of individual consumers, sometimes referred to as behavioral advertising. These principles serve as industry guidelines. In addition, there is the possibility of proposed legislation and enforcement relating to behavioral advertising. We have privacy policies posted throughout our portfolio of websites that we believe comply with applicable laws requiring notice to consumers about our information collection, use and disclosure practices. We also notify consumers about our information collection, use and disclosure practices relating to data we receive from our consumers. We cannot assure you that the privacy policies and other statements we provide to our consumers or our practices will be sufficient to protect us from liability or adverse publicity in this area. A determination by a state or federal agency or court or foreign jurisdiction that any of our practices do not meet applicable standards, or the implementation of new standards or requirements, could adversely affect our business.
 
Risks Related to This Offering and Ownership of Our Common Stock
 
An active, liquid and orderly trading market for our common stock may not develop, our share price may be volatile, and you may be unable to sell your shares at or above the offering price.
 
Prior to this offering, there has not been a public market for our common stock. We cannot predict the extent to which a trading market will develop or how liquid that market might become. The initial public offering price for our shares will be determined by negotiations between us and representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. The market price of shares of our common stock may be subject to wide fluctuations in response to the many risk factors listed in this section and other factors beyond our control, including:
 
  •  actual or anticipated fluctuations in our key operating metrics, financial condition and operating results;
 
  •  issuance of new or updated research or reports by securities analysts;
 
  •  our announcement of actual results for a fiscal period that are higher or lower than projected or expected results, or our announcement of revenue or earnings guidance that is higher or lower than expected;
 
  •  fluctuations in the valuation of companies perceived by investors to be comparable to us;
 
  •  share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
 
  •  sales or expected sales of additional common stock;
 
  •  announcements from, or operating results of, our competitors; or
 
  •  general economic and market conditions.
 
Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may cause our common stock price to decline. If our common stock price after this offering does not exceed the initial public offering price, you will not realize any return on your investment in our common stock and may lose some or all of your investment. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns.


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We will be subject to additional regulatory compliance matters, including Section 404 of the Sarbanes-Oxley Act of 2002, as a result of becoming a public company, and our management has no experience managing a public company. Failure to comply with these regulatory matters could harm our business.
 
We have never operated as a public company and will incur significant legal, accounting and other expenses that we did not incur as a private company. Our management team and other personnel will need to devote a substantial amount of time and company resources to new compliance initiatives and to meeting the obligations that are associated with being a public company. We may not successfully or efficiently manage this transition to public company status. We expect rules and regulations such as the Sarbanes-Oxley Act of 2002 to increase our legal and finance compliance costs and to make some activities more time-consuming. We may need to hire a number of additional employees with public accounting and disclosure experience in order to meet our ongoing obligations as a public company. Furthermore, Section 404 of the Sarbanes-Oxley Act of 2002 requires that our management report on, and our independent registered public accounting firm attest to, the effectiveness of our internal control structure and procedures for financial reporting in our annual report on Form 10-K for the fiscal year ending December 31, 2011. Section 404 compliance may divert internal resources and will take a significant amount of time and effort to complete. We may not be able to successfully complete the procedures and certification and attestation requirements of Section 404 by the required time. If we fail to do so, or if in the future our chief executive officer, chief financial officer or independent registered public accounting firm determines that our internal controls over financial reporting are not effective as defined under Section 404, we could be subject to sanctions or investigations by the Nasdaq Stock Market, the SEC or other regulatory authorities. Furthermore, investor perceptions of our company may change, causing a decline in the market price of our stock. Irrespective of compliance with Section 404, any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. If we are unable to implement these changes effectively or efficiently, our operations, financial reporting or financial results could be harmed and could result in an adverse opinion on internal controls from our independent registered public accounting firm.
 
Our reported financial results may be adversely affected by changes in accounting principles applicable to us.
 
Generally accepted accounting principles in the U.S. are subject to interpretation by the Financial Accounting Standards Board, or FASB, the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change. In addition, the SEC has announced a multi-year plan that could ultimately lead to the use of International Financial Reporting Standards by U.S. issuers in their SEC filings. Any such change could have a significant effect on our reported financial results.
 
Our ability to raise capital in the future may be limited.
 
Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds through the issuance of new equity securities, debt or a combination of both. Additional financing may not be available on favorable terms, or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements. If we issue new debt securities, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity securities, existing stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.


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If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.
 
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have any, and may never obtain, research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts who covers us downgrades our stock, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
 
Provisions of our certificate of incorporation, bylaws and Delaware law could deter takeover attempts.
 
Various provisions in our certificate of incorporation and bylaws, as they will be in effect following this offering, could delay, prevent or make more difficult a merger, tender offer, proxy contest or other attempt to acquire control of our company. Our stockholders might view any transaction of this type as being in their best interest since the transaction could result in a higher stock price than the then-current market price for our common stock. Among other things, our certificate of incorporation and bylaws:
 
  •  authorize our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror;
 
  •  divide our board of directors into three classes so that only approximately one-third of the total number of directors is elected each year;
 
  •  permit directors to be removed only for cause and then only by a two-thirds vote;
 
  •  prohibit stockholders from calling a special meeting of stockholders;
 
  •  prohibit action by written consent of our stockholders; and
 
  •  specify advance notice requirements for stockholder proposals and director nominations.
 
In addition, following this offering, we will be subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers and which has an anti-takeover effect with respect to transactions not approved in advance by our board of directors, including discouraging takeover attempts that might result in a premium over the market price for shares of our common stock. In general, those provisions prohibit a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder, unless:
 
  •  the transaction is approved by the board of directors before the date the interested stockholder attained that status;
 
  •  upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or
 
  •  on or after the date the business combination is approved by the board of directors and authorized at a meeting of stockholders, and not by written consent by at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.
 
In general, Section 203 defines a business combination to include the following:
 
  •  any merger or consolidation involving the corporation and the interested stockholder;
 
  •  any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;


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  •  subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;
 
  •  any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or
 
  •  the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.
 
In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by any such entity or person.
 
A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of, and do not currently intend to opt out of, this provision.
 
Future sales of shares of our common stock by existing stockholders could depress the market price of our common stock.
 
If our existing stockholders sell, or indicate an intent to sell, substantial amounts of our common stock in the public market following this offering, the trading price of our common stock could decline significantly, even below the initial public offering price. Based on shares outstanding as of          , 2010, upon completion of this offering, we will have outstanding approximately           shares of common stock, assuming no exercise of the underwriters’ option to purchase additional shares. Our officers, directors and the holders of substantially all of our common stock have entered into lock-up agreements with the underwriters prohibiting them from selling any of their shares for a period of 180-days following the date of this prospectus, which period may be extended for up to 17 days in some circumstances. Goldman, Sachs & Co. and J.P. Morgan Securities Inc. may, in their sole discretion, permit our officers, directors, employees and current stockholders to sell shares prior to the expiration of the lock-up agreements.
 
After the lock-up agreements expire, and based on shares outstanding as of          , an additional           shares will be eligible for sale in the public market,          of which are held by directors, executive officers and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, and various vesting agreements. In addition, the shares subject to outstanding options under our 2003 Stock Option Plan as of          , 2010, the shares reserved for future issuance under our 2003 Stock Option Plan and 2010 Equity Incentive Plan and shares issuable upon exercise of warrants will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline substantially.
 
A limited number of stockholders will have the ability to influence the outcome of director elections and other matters requiring stockholder approval.
 
Immediately after this offering, our directors, executive officers and their affiliated entities will beneficially own     % percent of our outstanding common stock. These stockholders, if they act together, could exert substantial influence over matters requiring approval by our stockholders, including the election of directors, the amendment of our certificate of incorporation and bylaws and the approval of mergers or other business combination transactions. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive our stockholders of an opportunity to receive a premium for their stock as part of a sale of our company and may reduce our stock price. These actions may be taken even if they are opposed by other stockholders, including those who purchase shares in this offering.


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Our management will have broad discretion over the use of the proceeds we receive in this offering and may not apply the proceeds in ways that increase the value of your investment.
 
Our management will have broad discretion to use the net proceeds from this offering, and you will be relying on the judgment of our management regarding the application of these proceeds. Our management may not apply the net proceeds of this offering in ways that increase the value of your investment. We intend to use the net proceeds from this offering for working capital and general corporate purposes, which may include funding the development of new content and advertising-based services, as well as funding capital expenditures and operating losses. We may use a portion of the net proceeds from this offering to repay borrowings under our credit facilities or acquire complementary businesses. Until we use the net proceeds from this offering, we plan to invest them, and these investments may not yield a favorable rate of return. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.
 
You will experience immediate and substantial dilution.
 
The initial public offering price will be substantially higher than the pro forma net tangible book value of each outstanding share of common stock immediately after this offering. If you purchase our common stock in this offering, you will suffer immediate and substantial dilution. If previously granted warrants or options are exercised, you will experience additional dilution. As of          , warrants to purchase           shares of our common stock at a weighted-average exercise price of $      per share and options to purchase          shares of common stock at a weighted-average exercise price of $      were outstanding. For more information refer to the section of this prospectus entitled “Dilution.”
 
We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend solely on appreciation in the price of our common stock.
 
We have never declared or paid any cash dividends on our common stock and do not intend to do so for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. In addition, the provisions of our credit facilities prohibit us from paying cash dividends, without first obtaining the consent of our lender. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future, and the success of an investment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.


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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This prospectus contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this prospectus regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are subject to all of the risks, uncertainties and assumptions described under the section titled “Risk Factors” and elsewhere in this prospectus, including, among other things:
 
  •  our financial performance, including our revenues, cost of revenues, operating expenses and ability to achieve and sustain profitability;
 
  •  our rate of revenue growth and our ability to generate additional revenues in a cost-effective manner;
 
  •  our ability to attract and maintain consumers, advertising customers and partners in a cost-effective manner;
 
  •  our ability to produce and acquire content that attracts and maintains consumers;
 
  •  our ability to maintain and enhance our brands;
 
  •  the volatile and competitive nature of the Internet and the advertising industry;
 
  •  our success with respect to any future acquisitions;
 
  •  our ability to adequately protect our intellectual property;
 
  •  any disruptions in our services;
 
  •  the effect of government regulations on our business; and
 
  •  our ability to retain and hire necessary employees and appropriately staff our operations.
 
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this prospectus, particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
 
You should read this prospectus and the documents that we have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.


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INDUSTRY AND MARKET DATA
 
We obtained the industry and market data in this prospectus from our own research as well as from industry and general publications and surveys and studies conducted by third parties, including a study prepared on our behalf by Forrester Research. Industry and general publications, studies and surveys generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurances as to the accuracy or completeness of such information. With respect to the monthly unique visitor data provided by comScore, you should note that, beginning in August 2009, comScore adopted a new methodology for calculating unique visitors. Accordingly, the comScore unique visitor information contained in this prospectus for periods subsequent to July 2009 reflects the inclusion of unique monthly visitor numbers that are derived from the use of comScore’s new methodology. While we believe that these publications, studies and surveys are reliable, we have not independently verified the data contained in them. In addition, while we believe that the results and estimates from our internal research are reliable, such results and estimates have not been verified by any independent source. Moreover, these third parties may, in the future, alter the manner in which they conduct surveys and studies regarding the markets in which we operate our business. As a result, you should carefully consider the inherent risks and uncertainties associated with the industry and market data contained in this prospectus, including those discussed under the heading “Risk Factors.”


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USE OF PROCEEDS
 
We estimate that we will receive net proceeds from this offering of approximately $      million, or $      million if the underwriters exercise their option to purchase additional shares in full, based on an assumed initial public offering price of $      per share, the midpoint of the estimated price range shown on the cover of this prospectus, and after deducting estimated underwriting discounts and commissions and offering expenses payable by us. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders.
 
A $1.00 increase or decrease in the assumed initial public offering price of $      per share, the midpoint of the estimated price range shown on the cover of this prospectus, would increase or decrease the net proceeds to us from this offering by $      million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and offering expenses payable by us.
 
We intend to use the net proceeds from this offering for working capital and general corporate purposes, which may include financing the development of new content and advertising-based services, as well as funding capital expenditures and operating losses. We may also use a portion of the net proceeds to repay borrowings under our credit facilities or acquire complementary businesses, products or technologies. However, we do not have agreements or commitments for any specific repayments or acquisitions at this time, and cannot assure you that we will make any acquisitions in the future. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Long-Term Debt” for a description of our credit facilities which we may choose to repay with the net proceeds of this offering.
 
In addition, the other principal purposes for this offering are to:
 
  •  increase our visibility in the markets we serve;
 
  •  strengthen our balance sheet;
 
  •  create a public market for our common stock;
 
  •  facilitate our future access to the public capital markets;
 
  •  provide liquidity for our existing stockholders;
 
  •  improve the effectiveness of our equity compensation plans in attracting and retaining key employees; and
 
  •  enhance our ability to acquire complementary businesses or technologies.
 
We have not yet determined with any certainty the manner in which we will allocate our net proceeds. Our management will retain broad discretion in the allocation and use of our net proceeds of this offering. The amounts and timing of these expenditures will vary depending on a number of factors, including the amount of cash generated by our operations, competitive and technological developments, and the rate of growth, if any, of our business.
 
Pending specific utilization of the net proceeds as described above, we intend to invest the net proceeds of the offering in short-term investment grade and U.S. government securities.


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DIVIDEND POLICY
 
We have never declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends on our common stock in the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. In addition, our credit facilities prohibit us from paying dividends on our common stock, without first obtaining the consent of our lenders.


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CAPITALIZATION
 
The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2009:
 
  •  on an actual basis;
 
  •  on a pro forma basis to reflect the automatic preferred stock conversion; and
 
  •  on a pro forma as adjusted basis to further reflect the filing of our amended and restated certificate of incorporation prior to the closing of this offering and our issuance and sale of           shares of common stock in this offering at an assumed initial public offering price of $      per share, the midpoint of the estimated price range shown on the cover of this prospectus, after deducting estimated underwriting discounts and commissions and offering expenses payable by us and the application of the net proceeds therefrom as described in “Use of Proceeds.”
 
You should read this table together with our financial statements and the related notes appearing at the end of this prospectus and the “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this prospectus.
 
                         
    As of December 31, 2009  
                Pro Forma
 
    Actual     Pro Forma     As Adjusted  
    (in thousands, except share
 
    and per share data)  
 
Cash and cash equivalents
  $ 16,360     $                     
                         
Long-term debt, including current portion
  $ 17,000     $            
Redeemable convertible preferred stock, $0.01 par value; 23,870,811 shares authorized, 23,647,834 shares issued and outstanding actual; no shares authorized and no shares issued and outstanding, pro forma; no shares authorized and no shares issued and outstanding, pro forma as adjusted
    130,420                  
Stockholders’ equity (deficit):
                       
Preferred stock, $0.01 par value, no shares authorized and no shares issued and outstanding, actual; no shares authorized and no shares issued and outstanding, pro forma;          shares authorized and no shares issued and outstanding, pro forma as adjusted
                     
Common stock, $0.01 par value; 37,000,000 shares authorized, actual and pro forma; 6,618,444 shares issued and outstanding, actual;     shares authorized and     shares issued and outstanding, pro forma;     shares authorized and          shares issued and outstanding, pro forma as adjusted
    66                  
Additional paid-in capital
    10,937                  
Accumulated deficit
    (58,237 )                
                         
Total stockholders’ (deficit) equity
    (47,234 )                
                         
Total capitalization
  $ 100,186     $                     
                         


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A $1.00 increase or decrease in the assumed initial public offering price of $      per share, the midpoint of the estimated price range shown on the cover of this prospectus, would increase or decrease pro forma as adjusted additional paid-in capital and total stockholders’ equity by $      million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and offering expenses payable by us.
 
The information set forth in the table excludes:
 
  •  4,751,879 shares of common stock issuable upon exercise of outstanding options with a weighted-average exercise price of $4.52 per share;
 
  •  659,780 shares of common stock reserved for future issuance under our 2003 Stock Option Plan; provided, however, that following the completion of this offering, no additional grants will be awarded under our 2003 Stock Option Plan and such shares will become available for issuance under our 2010 Equity Incentive Plan, which we plan to adopt prior to the consummation of this offering;
 
  •            shares of common stock reserved for future issuance under our 2010 Equity Incentive Plan, which we plan to adopt prior to the consummation of this offering; and
 
  •  222,977 shares of common stock issuable upon the exercise of outstanding warrants, which includes warrants to purchase our redeemable convertible preferred stock that will become exercisable for common stock after this offering, at a weighted-average exercise price of $5.47 per share.


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DILUTION
 
If you invest in our common stock, your interest will be diluted immediately to the extent of the difference between the initial public offering price per share you will pay in this offering and the pro forma as adjusted net tangible book value per share of our common stock after this offering. Net tangible book value per share represents our total tangible assets less total liabilities and redeemable convertible preferred stock, divided by the number of shares of our common stock outstanding.
 
As of                    , 2010, our net tangible book value was $        million, or $        per share of common stock. On a pro forma basis, after giving effect to the automatic preferred stock conversion, our tangible book value would have been $        million, or $        per share of common stock. After giving further effect to our issuance and sale of           shares of common stock in this offering at an assumed initial public offering price of $      per share, the midpoint of the estimated price range shown on the cover of this prospectus, after deducting estimated underwriting discounts and commissions and offering expenses payable by us, the pro forma as adjusted net tangible book value as of December 31, 2009 would have been $      million, or $      per share. This represents an immediate increase in pro forma net tangible book value to existing stockholders of $      per share. Accordingly, new investors who purchase shares of common stock in this offering will suffer an immediate dilution of their investment of $      per share. The following table illustrates this per share dilution to the new investors purchasing shares of common stock in this offering:
 
                 
Assumed initial public offering price per share
          $    
Net tangible book value per share at                    , 2010, before giving effect to this offering
  $            
Increase in pro forma net tangible book value per share attributable to the automatic preferred stock conversion
                        
Pro forma net tangible book value per share as of                 , 2010, before giving effect to this offering
               
Increase in net tangible book value per share attributable to new investors purchasing shares in this offering
               
                 
Pro forma as adjusted net tangible book value per share after giving effect to this offering
          $    
                 
Dilution per share to new investors in this offering
          $             
                 
 
A $1.00 increase or decrease in the assumed initial public offering price of $      per share, the midpoint of the estimated price range shown on the cover of this prospectus, would increase or decrease the pro forma as adjusted net tangible book value after this offering by $      per share and the dilution in net tangible book value per share to investors in this offering by $      per share, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and offering expenses payable by us.
 
If the underwriters exercise their option to purchase additional shares in full, the pro forma as adjusted net tangible book value will increase to $      per share, representing an immediate increase in pro forma net tangible book value to existing stockholders of $      per share and an immediate dilution in pro forma net tangible book value of $      per share to new investors.
 
If all our outstanding stock options and outstanding warrants are assumed to have been exercised as of December 31, 2009, assuming the treasury stock method, the pro forma as adjusted net tangible book value will increase to $           per share, representing an immediate increase in pro forma net tangible book value to existing stockholders of $           per share and an immediate dilution in pro forma net tangible book value of $           per share to new investors.


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The following table summarizes, on the pro forma basis described above as of December 31, 2009, the differences between the number of shares of common stock purchased from us, the total consideration paid to us, and the average price per share paid by existing stockholders and by new investors purchasing shares of common stock in this offering. The calculation below is based on an assumed initial public offering price of $      per share, the midpoint of the estimated price range shown on the cover of this prospectus, before the deduction of estimated underwriting discounts and commissions and offering expenses payable by us:
 
                                         
                Total
    Average
 
    Shares Purchased     Consideration     Price
 
   
Number
   
Percent
   
Amount
   
Percent
   
per Share
 
 
Existing stockholders
                                                           
New investors
                                       
Total
                                       
 
The foregoing table and calculations are based on the number of shares of our common stock outstanding as of December 31, 2009, after giving effect to the automatic preferred stock conversion, and excludes:
 
  •  4,751,879 shares of common stock issuable upon exercise of outstanding options with a weighted-average exercise price of $4.52 per share;
 
  •  659,780 shares of common stock reserved for future issuance under our 2003 Stock Option Plan; provided, however, that following the completion of this offering, no additional grants will be awarded under our 2003 Stock Option Plan and such shares will become available for issuance under our 2010 Equity Incentive Plan, which we plan to adopt prior to the consummation of this offering;
 
  •            shares of common stock reserved for future issuance under our 2010 Equity Incentive Plan, which we plan to adopt prior to the consummation of this offering; and
 
  •  222,977 shares of common stock issuable upon the exercise of outstanding warrants, which includes warrants to purchase our redeemable convertible preferred stock that will become exercisable for common stock after this offering, at a weighted-average exercise price of $5.47 per share.
 
The following table summarizes, on the pro forma basis described above as of December 31, 2009, the differences between the number of shares of common stock purchased from us, the total consideration paid to us, and the average price per share paid by existing stockholders and by new investors purchasing shares of common stock in this offering. The calculation below is based on an assumed initial public offering price of $      per share, the midpoint of the estimated price range shown on the cover of this prospectus, before the deduction of estimated underwriting discounts and commissions and offering expenses payable by us and assuming that all our outstanding stock options and outstanding warrants have been exercised as of December 31, 2009.
 
                                         
                Total
    Average
 
    Shares Purchased     Consideration     Price
 
   
Number
   
Percent
   
Amount
   
Percent
   
per Share
 
 
Existing stockholders
                                                           
New investors
                                       
Total
                                       
 
The foregoing tables do not reflect proceeds to be realized by existing stockholders in connection with sales made in this offering. The sale of           shares of common stock to be sold by the


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selling stockholders in this offering will reduce the number of shares held by existing stockholders to          , or     % of the total shares outstanding, or to          , or     % of the total shares outstanding assuming that all our outstanding stock options and outstanding warrants had been exercised as of December 31, 2009, and will increase the number of shares held by new investors to          , or     % of the total shares outstanding, or to          , or     % of the total shares outstanding assuming that all our outstanding stock options and outstanding warrants had been exercised as of December 31, 2009. If the underwriters exercise their option to purchase additional shares in full, the shares held by existing stockholders will further decrease to          , or     % of the total shares outstanding, or to          , or     % of the total shares outstanding assuming that all our outstanding stock options and outstanding warrants had been exercised as of December 31, 2009, and the number of shares held by new investors will further increase to          , or     % of the total shares outstanding, or to          , or     % of the total shares outstanding assuming that all our outstanding stock options and outstanding warrants had been exercised as of December 31, 2009.


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SELECTED CONSOLIDATED FINANCIAL DATA
 
The following tables summarize our consolidated financial data for the periods presented. You should read the following selected consolidated financial data in conjunction with our consolidated financial statements and the related notes appearing at the end of this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus.
 
We derived the consolidated statement of operations data for the years ended December 31, 2007, 2008 and 2009 and the consolidated balance sheet data as of December 31, 2008 and 2009 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the consolidated statement of operations data for the years ended December 31, 2005, 2006 and 2007 and the consolidated balance sheet data as of December 31, 2006 and 2007 from our audited consolidated financial statements, which are not included in this prospectus. We derived the consolidated balance sheet data as of December 31, 2005 from our unaudited consolidated financial statements, which are not included in this prospectus. We derived the consolidated statement of operations data for the three months ended December 31, 2008 and 2009 from our unaudited consolidated financial statements, which have been prepared on the same basis as our audited financial statements and, in the opinion of our management, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for the fair statement of the financial information set forth in those statements. Our historical results for any prior periods are not necessarily indicative of results to be expected for a full year or any future period.
 
On October 7, 2008, we acquired Revolution Health Group LLC and its subsidiaries, which we collectively refer to as RHG. Accordingly, the following tables include RHG’s financial data from the closing date of the acquisition. Our operating expenses in the fourth quarter of 2008 and the first and second quarters of 2009 included various transition-related expenses that we incurred following the closing of the RHG acquisition. We eliminated a majority of these redundant transition-related expenses by the beginning of the third quarter of 2009. These transition-related expenses consisted of:
 
  •  compensation for product development, sales and marketing, and general and administrative personnel who were employed by us for a short period of time following the RHG acquisition; and
 
  •  third-party product development expenses, such as content licensing fees, data center costs and other technology-related expenses.
 
The fourth quarter of 2008 is the first calendar quarter which reflects the RHG acquisition in our financial results. Accordingly, the fourth quarter of 2009 is the first calendar quarter which can be used to compare our quarterly financial performance subsequent to the RHG acquisition on a year-over-year basis. In the fourth quarter of 2009, our revenues were approximately $28.6 million, an increase of 26.0% over our revenues of approximately $22.7 million in the fourth quarter of 2008. Similarly, our Adjusted EBITDA was approximately $5.6 million in the fourth quarter of 2009, as compared to approximately $(1.9) million in the fourth quarter of 2008.
 


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          Three Months
 
          Ended
 
    Year Ended December 31,     December 31,  
    2005     2006     2007     2008     2009     2008     2009  
    (in thousands, except share and per share data)  
 
Consolidated Statement of Operations Data:
                                                       
Revenues
  $ 29,687     $ 33,421     $ 47,363     $ 69,412     $ 90,111     $ 22,672     $ 28,618  
                                                         
Operating expenses:
                                                       
Cost of revenue
    18,714       21,830       30,111       35,229       39,453       8,442       8,696  
Sales and marketing
    2,814       4,108       7,425       14,503       20,816       6,059       6,249  
Product development
    5,679       8,534       10,753       14,874       20,192       5,566       5,115  
General and administrative
    3,617       4,318       6,859       12,906       16,239       5,488       3,681  
Depreciation and amortization
    668       1,029       2,030       4,340       9,787       1,980       2,454  
                                                         
Total operating expenses
    31,492       39,819       57,178       81,852       106,487       27,535       26,195  
                                                         
Income (loss) from operations
    (1,805 )     (6,398 )     (9,815 )     (12,440 )     (16,376 )     (4,863 )     2,423  
Interest (expense) income, net
    48       196       (323 )     (455 )     (1,314 )     (208 )     (491 )
                                                         
Income (loss) before provision for income taxes
    (1,757 )     (6,202 )     (10,138 )     (12,895 )     (17,690 )     (5,071 )     1,932  
Provision for income taxes
                      (293 )     (1,331 )     (293 )     (497 )
                                                         
Net income (loss)
  $ (1,757 )   $ (6,202 )   $ (10,138 )   $ (13,188 )   $ (19,021 )   $ (5,364 )   $ 1,435  
                                                         
Net income (loss) per common share:
                                                       
Basic
  $ (0.28 )   $ (0.98 )   $ (1.57 )   $ (2.01 )   $ (2.89 )   $ (0.82 )   $ 0.22  
                                                         
Diluted
  $ (0.28 )   $ (0.98 )   $ (1.57 )   $ (2.01 )   $ (2.89 )   $ (0.82 )   $ 0.20  
                                                         
Pro forma basic (unaudited)(1)
                          $ (0.63 )   $ (0.63 )           $ 0.05  
                                                         
Pro forma diluted (unaudited)(1)
                          $ (0.63 )   $ (0.63 )           $ 0.05  
                                                         
Weighted-average common shares outstanding:
                                                       
Basic
    6,309,013       6,347,745       6,444,696       6,559,614       6,581,793       6,564,654       6,617,235  
                                                         
Diluted
    6,309,013       6,347,745       6,444,696       6,559,614       6,581,793       6,564,654       7,321,932  
                                                         
Pro forma basic (unaudited)(1)
                            20,955,330       30,229,627               30,265,069  
                                                         
Pro forma diluted (unaudited)(1)
                            20,955,330       30,229,627               30,969,766  
                                                         
 
(1) Pro forma weighted average shares outstanding reflects the conversion of our redeemable convertible preferred stock (using the if-converted method) into common stock as though the conversion had occurred on the original dates of issuance.

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          Three Months
 
          Ended
 
    Year Ended December 31,     December 31,  
    2005     2006     2007     2008     2009     2008     2009  
    (in thousands)  
 
Other Financial Data:
                                                       
Adjusted EBITDA
  $ (855 )   $ (4,986 )   $ (6,795 )   $ (5,104 )   $ (2,664 )   $ (1,858 )   $ 5,598  
                                                         
Stock-based compensation expense included in:
                                                       
Sales and marketing
  $ 57     $ 197     $ 276     $ 812     $ 815     $ 278     $ 217  
Product development
    152       57       64       492       548       168       106  
General and administrative
    73       129       650       1,692       1,662       579       398  
                                                         
Total stock-based compensation expense
  $ 282     $ 383     $ 990     $ 2,996     $ 3,025     $ 1,025     $ 721  
                                                         
 
                                                 
    As of December 31,  
    2005     2006     2007     2008     2009        
    (in thousands)  
 
Consolidated Balance Sheet Data:
                                               
Cash and cash equivalents
  $ 2,096     $ 2,573     $ 14,249     $ 25,050     $ 16,360          
Total assets
    6,295       9,408       32,680       135,694       129,389          
Deferred revenue
    3,264       3,628       3,095       6,001       6,930          
Long-term debt (including current portion)
                5,941       7,597       17,000          
Total liabilities
    8,109       11,127       19,905       37,230       46,203          
Redeemable convertible preferred stock
          11,348       34,702       130,420       130,420          
Total stockholders’ equity (deficit)
    (1,814 )     (13,067 )     (21,927 )     (31,956 )     (47,234 )        
 
The following table presents a reconciliation of Adjusted EBITDA to net income (loss), the most comparable GAAP measure, for each of the periods identified. For additional information, please see the Definition and Discussion of Adjusted EBITDA in “Prospectus Summary” above.
 
                                                         
          Three Months
 
          Ended
 
    Year Ended December 31,     December 31,  
    2005     2006     2007     2008     2009     2008     2009  
    (in thousands)  
 
Reconciliation of Adjusted EBITDA to Net Income (Loss):
                                                       
Net income (loss)
  $ (1,757 )   $ (6,202 )   $ (10,138 )   $ (13,188 )   $ (19,021 )   $ (5,364 )   $ 1,435  
Interest (income) expense, net
    (48 )     (196 )     323       455       1,314       208       491  
Income tax expense
                      293       1,331       293       497  
Depreciation and amortization expense
    668       1,029       2,030       4,340       9,787       1,980       2,454  
Stock-based compensation
    282       383       990       2,996       3,025       1,025       721  
Compensation expense related to acquisition earnout
                            900              
                                                         
Adjusted EBITDA
  $ (855 )   $ (4,986 )   $ (6,795 )   $ (5,104 )   $ (2,664 )   $ (1,858 )   $ 5,598  
                                                         


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
You should read the following discussion together with our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements about our business and operations. Our actual results may differ materially from those we currently anticipate as a result of many factors, including those we describe under “Risk Factors” and elsewhere in the prospectus. See “Special Note Regarding Forward Looking Statements.”
 
Overview
 
We are a leading provider of online consumer health solutions. We provide our consumers, advertisers and partners with content and advertising-based services across a broad portfolio of over 25 websites that span the health spectrum — from lifestyle offerings in pregnancy, diet and fitness to in-depth medical content for condition prevention and management. The depth, breadth and quality of the content on the Everyday Health portfolio, including our personalized tools and community features, have enabled us to aggregate a large and growing base of engaged consumers. Our portfolio of consumer health websites and large consumer base, along with our customized advertising-based services, provide advertisers with a compelling platform to promote their products and services in a highly-targeted and measurable manner. We have an integrated approach to running our business. Rather than allocating resources to individual websites in our portfolio, we share development, operations and marketing resources across the entire Everyday Health portfolio. As a result, we enable our partners to cost-efficiently promote and monetize their content online.
 
The Everyday Health portfolio currently consists of over 25 websites, which include websites that we operate and websites that our partners operate. The websites that we operate include websites that we own, such as www.EverydayHealth.com, www.RevolutionHealth.com, www.DailyGlow.com and www.CarePages.com, and websites that we operate with our consumer health partners, such as www.JillianMichaels.com, www.SouthBeachDiet.com and www.WhattoExpect.com. Under these arrangements, we typically have the exclusive rights, subject to limited exceptions, to use and market our partners’ content online, as well as to determine the precise methodology for monetizing the content online. In exchange for these rights, our partners receive royalties based on the revenue generated from our operation of these websites and related services. The revenue we generate from the operation of these websites consists of advertising and sponsorship revenue, as well as premium services revenue. The royalty rates we pay vary and, in some cases, we guarantee a minimum annual royalty payment to our partners. These arrangements are long-term contracts, most of which have initial five year terms. Certain of these contracts have varying renewal provisions.
 
The Everyday Health portfolio also includes websites that we do not operate but help monetize through advertising and sponsorships. These websites include a variety of consumer health websites, such as www.SparkPeople.com, www.MayoClinic.com and www.MedHelp.org. These arrangements provide advertisers with additional audience reach and access to unique content assets. The revenues we generate through these arrangements consist of advertising and sponsorship revenue. The royalty rates we pay vary and, in some cases, we guarantee a minimum annual royalty payment to our partners. These contractual arrangements generally range from one to three years in length and require our partner to operate the website and maintain specific audience levels, in exchange for a royalty based on the advertising revenue generated by us on that website.
 
Our integrated approach to operating our portfolio of websites allows us to manage our business in an efficient manner. Key elements of our integrated approach are as follows:
 
  •  A significant majority of our advertising and sponsorship revenue is derived from sales based on the entire Everyday Health portfolio, not based on one or a select group of individual websites within the portfolio. This enables us to provide advertisers with a more compelling platform to reach their desired audience.


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  •  We have established marketing, editorial, product management, customer service and technology resources that are deployed across the entire Everyday Health portfolio, which allow us to benefit from economies of scale.
 
  •  We actively cross-promote our content offerings to our consumers, which enables us to effectively drive consumers across our portfolio of websites. As a result, we are able to add new websites to the Everyday Health portfolio and immediately direct a significant volume of traffic to these websites in an expedited and cost-effective manner.
 
We allocate our resources based on our judgment on how to best grow and monetize our consumer audience across the Everyday Health portfolio.
 
Background Information
 
Key Trends Affecting Our Business
 
We believe that there are three key trends that drive our ability to continue to grow our business:
 
  •  Consumers have become increasingly reliant on the Internet for health information and services, and the consumer health vertical has become one of the largest and fastest growing content categories online. We believe this trend will continue, particularly as current legislative and regulatory initiatives seek to place a greater degree of emphasis on wellness and preventive care as a means of controlling and reducing healthcare costs.
 
  •  Advertisers and marketers in the health category, which include pharmaceutical and medical device, manufacturers and retailers of over-the-counter products and consumer-packaged-goods and healthcare providers, are increasingly shifting a greater portion of their spending online. We believe that the online percentage of the total health-related consumer advertising market is still relatively small, and that a significant opportunity exists to grow our revenues as advertisers allocate more of their marketing expenditures online.
 
  •  The Internet has enabled consumers to access a wide variety of premium health-related products and services on a paid subscription basis. We believe consumer demand for personalized and authoritative content and services from trusted brands will continue to increase in the future.
 
Acquisitions
 
In May 2008, we acquired all of the outstanding equity of Nurture Media LLC, or Nurture Media, an online search marketing and consulting business, for a purchase price of $1.7 million, including $0.1 million of acquisition costs, which was fully allocated to goodwill. In addition to the purchase price, the sellers of Nurture Media are eligible to receive an additional amount of up to $3.8 million based on our achievement of specified business milestones during the period from June 2008 through May 2011. These contingent earnout payments may be paid, at the election of the sellers, in cash or an equivalent number of shares of our common stock calculated based on the then current fair market value per share of our common stock, as determined by our board of directors. Through December 31, 2009, we have paid the sellers a total of $0.9 million in cash earnout payments. Payments of the remaining earnout amounts are also contingent upon the continued employment of some of the sellers with us. Since one of these sellers is no longer employed by us, the maximum future earnout payment is $1.4 million. We have recorded the earnout payments, and expect to record any future earnout payments, as compensation expense for the applicable periods.
 
In October 2008, we acquired all of the outstanding equity of RHG. RHG was comprised of a portfolio of websites, which provided health-related content and services targeted at consumers and healthcare providers, including www.RevolutionHealth.com and www.CarePages.com. The purchase price totaled $72.8 million, consisting of 8,930,966 shares of Series E redeemable convertible preferred stock valued at $71.3 million, and $1.5 million of acquisition-related expenses. We accounted


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for the RHG acquisition as a purchase business combination and, accordingly, we allocated the purchase price to the tangible and intangible assets acquired and liabilities assumed on the basis of their respective fair values. The Series E redeemable convertible preferred stock will automatically convert into shares of our common stock upon consummation of this offering. The results of operations of RHG have been included in our consolidated financial statements from October 7, 2008, which was the closing date of the acquisition.
 
The RHG acquisition enabled us to significantly increase our consumer audience. According to comScore, Inc., or comScore, in the third quarter of 2008, our average monthly unique visitors totaled 14.68 million. In the fourth quarter of 2008, after our acquisition of RHG, our average monthly unique visitors totaled 25.95 million. In addition, we have integrated the RHG websites, tools and applications into the broader Everyday Health portfolio to further enhance our value proposition to both consumers and customers. We believe that the acquisition and integration of RHG have provided us with a greater opportunity to market the Everyday Health portfolio to a larger number of advertisers.
 
Key Metrics
 
We use the following key operating metrics in evaluating our business performance, allocating resources and making decisions regarding operating strategies.
 
  •  Monthly Unique Visitors.  Monthly unique visitors is the total number of unique consumers that access the Everyday Health portfolio in a specific calendar month. Average monthly unique visitors is the total number of unique visitors for a specified period divided by the number of months in the period. We use monthly unique visitor metrics to assess the nature and scope of our content offerings, tools and applications, the overall growth and composition of our portfolio of websites and the effectiveness of our marketing efforts.
 
  •  Total Brands.  Total brands is defined as the approximate number of distinct brands that market their products and services on our portfolio in a specified period. We use this metric to evaluate our success in renewing existing brand contracts and attracting new brands.
 
  •  Advertising and Sponsorship Revenue per Brand.  Advertising and sponsorship revenue per brand is our total advertising and sponsorship revenue from all brands that marketed their products and services on the Everyday Health portfolio during a specific period divided by the total number of brands that marketed their products and services on our portfolio in the period. We use revenue per brand to assess our success in expanding our advertising and sponsorship relationships and increasing our market share of advertising dollars from each of our customers.
 
  •  Average Paid Subscribers per Month.  A paid subscriber is a consumer who has paid for access to a premium content offering on the Everyday Health portfolio. Average paid subscribers for a specific period is calculated by taking the average of the individual monthly averages of each month for such period. An individual month’s average is calculated by taking the average of the beginning and ending number of subscribers in that month. We use this metric to evaluate the revenue and marketing efforts associated with our premium, subscription-based services.
 
  •  Average Revenue per Paid Subscriber per Month.  Average revenue per paid subscriber per month is the total revenue earned in a specific period from subscriptions to one or more of the websites in the Everyday Health portfolio divided by the average paid subscribers per month, as defined above, during that period and further divided by the number of months in the period. We use this metric to evaluate our success in increasing revenue generated by our premium, subscription-based services.


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The following represents our recent performance with respect to these key metrics:
 
                         
    Year Ended
    December 31,
    2007   2008(2)   2009
 
Average monthly unique visitors (in thousands)(1)
    8,852       17,466       25,277  
Total brands
    323       416       473  
Advertising and sponsorship revenue per brand (in thousands)
  $ 61     $ 92     $ 123  
Average paid subscribers per month (in thousands)
    121       125       120  
Average revenue per paid subscriber per month
  $ 19.11     $ 19.95     $ 18.99  
 
(1) Average monthly unique visitors based on comScore data.
 
(2) Reflects our acquisition of RHG in October 2008.
 
Revenues
 
We generate revenue from advertising and sponsorship services and premium services, including subscription fees and, to a much lesser extent, licensing fees.
 
The advertisers and sponsors on the Everyday Health portfolio consist primarily of pharmaceutical and medical device companies, manufacturers and retailers of over-the-counter products and consumer-packaged-goods and healthcare providers, such as hospitals, dentists and doctors. Our advertising and sponsorship revenue consists primarily of revenues generated from:
 
  •  display advertisements on websites in the Everyday Health portfolio and in our free e-mail newsletters, which are primarily sold based on a cost-per-impression advertising model;
 
  •  interactive brand sponsorships, which consist of our integrated marketing programs and sponsorships that provide advertisers and marketers the opportunity to integrate their brands and relevant information into content and tools across the Everyday Health portfolio, which are primarily sold based on a cost-per-impression advertising model or a cost-per-visitor advertising model, and which frequently include a production fee;
 
  •  customer acquisition marketing programs, which are sold based on the number of qualified leads that are provided to our advertisers; and
 
  •  stand-alone e-mails that are sent on behalf of our advertising customers to consumers who have opted-in to receive them, which are primarily sold based on a cost-per-impression advertising model.
 
Our premium services revenue consists primarily of revenues generated from subscriptions sold to consumers who purchase access for a defined period of time to one or more of the websites in the Everyday Health portfolio, or a specific interactive service or application. Our subscription services are designed to provide the consumer with the ability to access consumer health content from well-recognized sources, and to personalize or customize a specific health or wellness program. Our premium services also include the revenues generated from licensing our CarePages social networking application to healthcare service providers and, to a lesser extent, from the sale of products and merchandise.
 
We maintain broad discretion regarding the monetization strategy for the websites that we operate. In determining the optimal monetization strategy, we consider a number of factors, including the website’s advertising market potential, the existing premium service offerings and the competitive landscape. As our portfolio has expanded and our consumer audience has grown significantly, the mix of our total revenues from advertising and sponsorship services and premium services has changed. A significant portion of our revenues is currently derived from advertising and sponsorship services. In the years ended December 31, 2007, 2008 and 2009, our advertising and sponsorship revenue accounted for 41.4%, 55.3% and 64.5% of total revenues, respectively, and our premium services


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revenue accounted for 58.6%, 44.7% and 35.5% of total revenues, respectively. We anticipate that revenues derived from our advertising and sponsorship services will continue to grow in the future as a percentage of total revenues. Nonetheless, we anticipate that revenues from our premium services will continue to make a meaningful contribution to our total revenues.
 
Cost of Revenues, Gross Profit and Gross Margin
 
Cost of revenues consists primarily of the expenses associated with aggregating the total consumer audience across the Everyday Health portfolio. These costs include:
 
  •  media costs associated with generating consumer visits to the websites that we operate, commonly referred to as audience aggregation;
 
  •  royalty payments to the Everyday Health portfolio partners; and
 
  •  to a lesser extent, merchant processing transaction costs associated with subscription fees for our premium services, merchandise inventory and fulfillment costs, ad serving and other expenses.
 
Media costs consist primarily of fees paid to online publishers, Internet search companies and other media channels for search engine and database marketing and display and television advertising. These media activities are directly attributable to revenue-generating and audience aggregation events, designed to increase the consumer audience to the websites we operate, increase the number of consumers subscribing to our premium services and grow our registered user base. Our partner royalties are generally based on the amount of revenue generated on the particular website. In some cases, we guarantee the partner a minimum annual payment.
 
We carefully monitor our gross profit and gross margin because they are key indicators of our performance in successfully aggregating and monetizing our consumer audience across the entire Everyday Health portfolio. Gross profit is defined as total revenues minus cost of revenues. Gross margin is our gross profit as a percentage of our total revenues.
 
Since our operating decisions are based on aggregating and monetizing the Everyday Health portfolio as a single consumer audience, we believe that our aggregate gross profit is an important measure of our overall performance and do not believe that the gross profit associated with any individual website or category of websites is meaningful to an analysis of our overall operating performance. The gross margin we realize on revenues generated on our operated websites, however, is generally higher than the gross margin generated from websites within our portfolio that are operated by our partners because we typically pay a higher royalty rate to partners that operate their own websites, and such royalties are accounted for as a cost of revenue. At the same time, some of the other costs to operate the websites in the Everyday Health portfolio, such as product development expenses, website hosting and maintenance expenses, are not captured in our cost of revenue, and, therefore, are not captured in our gross margin calculation. As a result, we also believe that our Adjusted EBITDA is an important metric for measuring our overall financial performance (for a detailed description of Adjusted EBITDA, please refer to “Summary Consolidated Financial Data — Definition and Discussion of Other Financial Data” above).


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Both our gross profit and gross margin have improved over the past several years as shown in the table below:
 
                         
    Year Ended December 31,
    2007   2008   2009
    (dollars in thousands)
 
Revenue
  $ 47,363     $ 69,412     $ 90,111  
Revenue Growth
    41.7%       46.5%       29.8%  
Cost of Revenue
  $ 30,111     $ 35,229     $ 39,453  
Gross Profit
  $ 17,252     $ 34,183     $ 50,658  
Gross Margin
    36.4%       49.3%       56.2%  
 
We anticipate that our gross profit is likely to continue to improve in the future as we continue to aggregate our consumer audience more efficiently and enhance our monetization capabilities for the entire Everyday Health portfolio. While our royalty payments to our partners have increased in recent years, and we expect these amounts to continue to increase on an absolute basis in the foreseeable future, we do not believe that any such increases will negatively impact our gross profit or Adjusted EBITDA since we anticipate that the growth in our total revenue will continue to exceed the increase in our cost of revenue.
 
Operating Expenses
 
Sales and Marketing.  Sales and marketing expenses consist primarily of personnel-related costs, including non-cash stock compensation, for our account management, research, marketing, sales analytics and creative design personnel, as well as fees for third-party professional marketing and analytical services. As part of our sales and marketing departments, we have a reporting and analysis group that analyzes traffic and subscription data to determine the effectiveness of individual advertising and marketing campaigns. We expect our sales and marketing expenses to increase in absolute dollars as we increase the number of sales, sales support and analytical professionals.
 
Product Development.  Product development expenses consist of costs related to the products and services we provide to our consumers, including the costs associated with the operation and maintenance of the websites in the Everyday Health portfolio that we operate. These costs include personnel-related expenses, including non-cash stock compensation for our editorial, product management, technology and customer service personnel, as well as fees paid to editorial and technology consultants and other technology costs. We expect our investment in product development to increase in absolute dollars as we continue to increase our editorial, product development and technology personnel, and as we enhance our product offerings by creating and licensing content, tools and applications, but expect product development expense to decrease as a percentage of revenues.
 
General and Administrative.  General and administrative expenses consist primarily of personnel-related expenses, including non-cash stock compensation for our executive, finance, legal, human resources and other administrative personnel, as well as accounting and legal professional fees and other general corporate expenses, including insurance and facilities expenses. We expect our general and administrative expenses to increase when we become a public company as our accounting, legal and personnel-related expenses and directors’ and officers’ insurance costs increase as we implement and monitor a more comprehensive corporate governance and compliance program, maintain and assess internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act and prepare and distribute periodic reports.
 
Depreciation and Amortization.  These expenses consist of depreciation and amortization of property and equipment and capitalized software and amortization of intangible assets related to acquisitions.


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Interest (Expense) Income, Net
 
These amounts consist principally of interest expense with partially offsetting interest income. Interest expense is primarily related to our credit facilities. The outstanding balance of our debt was $17.0 million as of December 31, 2009. We expect interest expense to decline in future periods if we repay borrowings under our credit facilities with the net proceeds of this offering. However, our borrowings could subsequently increase in connection with future capital requirements.
 
Income Taxes
 
We are subject to tax at the federal, state and local level in the U.S. and in one foreign jurisdiction. Earnings from our limited non-U.S. activities are subject to local country income tax and may be subject to U.S. income tax.
 
As of December 31, 2009, we had approximately $67.1 million of federal and state net operating loss, or NOL, carryforwards available to offset future taxable income, which expire from 2020 through 2029. The full utilization of these NOL carryforwards in the future will be dependent upon our ability to generate taxable income and could be limited due to ownership changes, as defined under the provisions of Section 382 of the Internal Revenue Code. Specifically, Section 382 contains rules that limit the ability of a company that undergoes ownership change, which is generally any change in ownership of more than 50% of its stock over a three-year period, to use its NOL carryforwards and specified built-in losses recognized in years after the ownership change. We have not yet completed a detailed analysis to determine whether such an ownership change has occurred.
 
As of December 31, 2009, we had gross deferred tax assets of approximately $32.9 million, related primarily to NOL carryforwards, and deferred tax liabilities of $4.7 million related primarily to basis differences in indefinite lived intangible assets that cannot be offset by deferred tax assets. We have provided a valuation allowance against the net deferred tax assets to the extent we have determined that it is more likely than not that such net deferred tax assets will not be realizable. If we achieve profitability, the net deferred tax assets may be available to offset future income tax liabilities.
 
On January 1, 2007, we adopted the authoritative accounting guidance prescribing a threshold and measurement attribute for the financial recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance also provides for de-recognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition. The guidance utilizes a two-step approach for evaluating uncertain tax positions. Step one is recognition, which requires a company to determine if the weight of available evidence indicates that a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. If a tax position is not considered “more likely than not” to be sustained then no benefits of the position are to be recognized. Step two is measurement, which is based on the largest amount of benefit, which is more likely than not to be realized on ultimate settlement. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows. Furthermore, as of December 31, 2009, we did not have any material unrecognized tax benefits, and we do not expect any significant increase in unrecognized tax benefits within the next twelve months.
 
Critical Accounting Policies and Estimates
 
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. These estimates and assumptions are often based on judgments that we believe to be reasonable under the circumstances at the time made, but all such estimates and assumptions are inherently uncertain and unpredictable. Actual results may differ from those estimates and assumptions and it is possible that other professionals, applying their own judgment to the same facts and circumstances, could develop and support alternative estimates and


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assumptions that would result in material changes to our operating results and financial condition. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances.
 
We believe the following reflects our critical accounting policies and our more significant judgments and estimates used in the preparation of our consolidated financial statements.
 
Revenue Recognition and Deferred Revenue
 
We recognize advertising revenue in the period in which the advertisement is delivered. Our revenue from sponsorship services is recognized over the period in which we substantially satisfy our contractual obligations set forth in the relevant sponsorship agreements. Advertising and sponsorship revenue accounted for 55.3% and 64.5% of total revenue for the years ended December 31, 2008 and 2009, respectively.
 
We recognize subscription revenue ratably over the relevant subscription periods, which are predominantly quarterly, after deducting refunds and charge-backs. We typically charge each subscriber’s credit card for the full price for their subscription at the commencement of the subscription period and at each subscription renewal date, unless the consumer cancels the subscription prior to the renewal date. When consumers sign up for free-trial subscriptions, we automatically charge their credit card for a subscription at the end of the free-trial period unless they cancel before the trial period ends. Once billed, the revenue is recognized on a straight line basis, ratably over the subscription period. No revenue is recognized or allocated to the free-trial period.
 
We generally recognize licensing revenue ratably over the term of the contract. We recognize revenue from the sale of products and merchandise on the Everyday Health portfolio, including charges for shipping, when products are shipped to customers, which is when title is deemed to have transferred.
 
Deferred revenue consists of subscription fees that we have collected from consumers but for which revenue has not been recognized and revenue from advertising and sponsorship services, as well as licensing fees, that we have billed in advance of when the revenue is to be earned.
 
Capitalized Software and Website Development Cost
 
We incur costs to develop software for internal use. In accordance with authoritative accounting guidance, we capitalize costs, consisting principally of payroll, third-party consultants and related charges, incurred during the application development stage of a project. Upon completion of a project, the capitalized costs are amortized using the straight-line method over their estimated useful lives, which is typically three years.
 
We incur costs to develop our website applications. In accordance with authoritative accounting guidance, we capitalize costs, consisting principally of payroll and related benefits, incurred in the application and infrastructure development stages of website development, as well as the costs of content deemed to be reference material in nature. Upon completion, these costs are amortized using the straight-line method over their estimated useful lives, which is typically three years.
 
Software and website development costs that do not meet the criteria for capitalization are expensed as incurred and are included in product development expense in the consolidated statements of operations.
 
Goodwill and Other Indefinite Lived Intangible Assets
 
Goodwill represents the excess cost over fair value of the identifiable net assets of acquired businesses. Other indefinite lived intangible assets consist of trade names.
 
Goodwill and trade names, recorded during 2008 in connection with acquisitions completed that year, are tested for impairment on an annual basis as of October 1, commencing in 2009, and


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whenever events or circumstances indicate that the carrying value of the asset may not be recoverable. Application of the impairment test requires judgment and results in impairment being recognized if the carrying value of the asset exceeds its fair value.
 
The fair value of goodwill is estimated using a combination of an income approach based on the present value of estimated future cash flows and a market approach based on revenue and earnings of comparable publicly-traded companies. Equal weightings are given to each of the income and market approach results. As we have one operating segment and one reporting unit, the first step of the impairment test requires a comparison of the fair value of our reporting unit, or business enterprise value as a whole, to the carrying value of our invested capital. If the carrying amount is higher than the fair value, there is indication that an impairment may exist and a second step must be performed. If the carrying amount is less than the fair value, no indication of impairment exists and a second step is not performed. The fair value of trade names is estimated using an income approach based on the present value of estimated future cash flows.
 
The evaluation of our goodwill and trade names as of October 1, 2009 indicated that the carrying value of the assets was less than the fair value and, accordingly, there was no impairment loss recognized for the year ended December 31, 2009.
 
Long-Lived Assets
 
We review long-lived assets, including property and equipment and intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. The intangible assets with definite lives consist of customer relationships and agreements with certain of our partners.
 
Stock-Based Compensation
 
Prior to January 1, 2006, we accounted for employee stock options using the intrinsic value method and disclosure provisions in accordance with the then current authoritative accounting guidance. Under the intrinsic value method, compensation expense is measured on the date of the grants as the difference between the fair value of our common stock on the grant date and the exercise price multiplied by the number of stock options granted.
 
Effective January 1, 2006, we account for stock-based compensation in accordance with the current authoritative accounting guidance, under which stock-based awards, including stock options, are recorded at fair value as of the grant date and recognized as compensation expense over the requisite service period (generally the vesting period), which we have elected to amortize using the graded attribution method. We adopted this guidance using the modified retrospective transition method. Under that transition method, compensation expense is recognized in the financial statements as if the recognition of the authoritative accounting guidance had been applied to all share-based payments granted subsequent to the original effective date, effectively January 1, 1995. As such, operating results for the periods prior to 2006 have been retrospectively adjusted utilizing the stock option fair values originally determined for the purpose of providing pro forma disclosures in our prior financial statements.
 
The following table presents the weighted-average assumptions used to estimate the fair value of options granted using the Black-Scholes option pricing model, for the periods presented:
 
                 
    Year Ended
    December 31,
      2008       2009  
 
Volatility
    58.15 %     52.79 %
Expected life (years)
    6.25       6.25  
Risk-free interest rate
    2.38 %     2.87 %
Dividend yield
    0.00       0.00  


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As there has been no public market for our common stock prior to this offering, and therefore a lack of company-specific historical and implied volatility data, we have determined the share price volatility for options granted based on an analysis of reported data for a peer group of companies that granted options with substantially similar terms. The expected volatility of options granted has been determined using an average of the historical realized volatility measures of this peer group of companies for a period of time commensurate with the expected term of the option. We intend to continue to consistently apply this process using the same or similar entities until a sufficient amount of historical information regarding the volatility of our own share price becomes available, or unless circumstances change such that the identified entities are no longer similar to us. In this latter case, more suitable entities whose share prices are publicly available would be utilized in the calculation.
 
The expected life of options granted has been determined utilizing the simplified method for determining the expected life for options qualifying for treatment due to the limited history we have with option exercise activity. The risk-free interest rate is based on a U.S. Treasury yield curve rate for periods equal to the expected term of the stock options. We have not paid, and do not anticipate paying, cash dividends on our shares of common stock, and the expected dividend yield is, therefore, assumed to be zero.
 
In addition, forfeitures are estimated at the time of grant, based on our historical forfeiture experience, and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
 
The assumptions used in calculating the fair value of stock-based awards represent our best estimates. These estimates involve inherent uncertainties and the application of management judgment. The assumptions we used in the Black-Scholes pricing model are based on subjective future expectations combined with management judgment. If any of the assumptions used in this pricing model change significantly, stock-based compensation for future awards may differ materially from the awards granted previously. Additionally, the pricing model fair value of the awards is based upon the fair value of our underlying common stock, determined as described below.
 
The following table summarizes our stock option grants to our employees and non-employee members of our Board since January 1, 2008:
 
                                 
    Number of
      Common Stock
   
    Shares Subject
      Fair Value per
  Intrinsic Value per
    to Options
  Exercise Price
  Share at Grant
  Share at Grant
Grant Date
  Granted   Per Share   Date   Date
 
4/11/2008
    1,003,550     $ 6.18     $ 5.40     $  
9/3/2008
    460,600       6.18       5.64        
12/9/2008
    398,550       6.18       4.28        
6/15/2009
    68,850       3.55       3.03        
6/15/2009
    775,150       3.33       3.03        
6/15/2009
    250,000       8.00       3.03        
10/5/2009
    155,900       3.06       4.11       1.05  
10/8/2009
    125,000       3.06       4.11       1.05  
12/23/2009
    254,700       4.11       4.11        
2/23/2010
    248,750       4.77       4.77        
 
We have historically granted stock options at exercise prices equal to or greater than the fair value as determined by our board of directors or compensation committee on the date of grant, with input from management. Since 2007, the board of directors or compensation committee has performed a contemporaneous valuation of our common stock in order to determine the fair value of our common stock in connection with stock option grants. In making this determination, the board of directors or compensation committee considered a number of factors, including:
 
  •  our financial performance;


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  •  the price and other terms for our equity financings;
 
  •  our acquisitions and debt financings, as well as any material transaction; and
 
  •  general economic and financial conditions, and the trends specific to the Internet markets in which we operate.
 
In addition, the board of directors or compensation committee considered the independent valuations completed by a third party valuation consultant performed as of the end of each calendar quarter. In performing these valuations, the independent valuation consultant typically considered a variety of relevant factors including, but not limited to, the following:
 
  •  the nature and history of our company;
 
  •  the financial and economic conditions affecting the general economy, our company and our industry;
 
  •  our past results, current operations and our future prospects;
 
  •  our earnings capacity and dividend-paying capacity;
 
  •  the economic benefit to us of both our tangible and intangible assets;
 
  •  the market prices of actively traded interests in public entities engaged in the same or similar lines of business to us, as well as sales of ownership interests in entities similar to us;
 
  •  the prices, terms and conditions of past sales of our ownership interests; and
 
  •  the impact on the value of ownership interests in us resulting from the existence of buy-sell and option agreements, investment letter stock restrictions, restrictive shareholders agreements or other such agreements.
 
The independent valuation consultant estimated our firm value each quarter by utilizing the market and/or income approaches. Under the income approach, the discounted cash flow method was used. When utilizing the market approach, the independent valuation consultant employed the guideline transaction and guideline company methods. The application of the utilized approach was driven by the facts and circumstances surrounding the relevant valuation date. Details regarding the specific application of each approach are discussed in the following paragraphs. In each valuation, the independent valuation consultant allocated the firm value across the capital structure using an option pricing model, which recognizes the economic characteristics of each security and assigns value to each class based on those characteristics. A lack of marketability discount has been applied to the common stock in each valuation in order to recognize the inherent illiquidity in holding stock of a privately held company.
 
In instances where there were recent transactions in our preferred stock, the guideline transaction method, a variant of the market approach, was used. This method was used as the primary method for each valuation from the beginning of 2008 through and including the first quarter of 2009. Under this method, the implied firm value from the most recent preferred stock transaction was derived, and trended, where appropriate, to the valuation date based on an analysis of company, industry, and market conditions. The trending analysis reviewed, among other factors: (1) company-specific milestones; (2) our performance relative to management’s projections; (3) changes in pricing of broad market and technology indices, specifically the S&P 500 and Nasdaq; and (4) changes in equity pricing of a reasonably comparable group of companies. The peer group consists of publicly-traded Internet companies with advertising and/or subscription based revenue models. The peer group originally consisted of five companies, but acquisitions reduced the original sample size to four in 2008 and then three in 2009. When the sample size reached three, a new company was added to make the sample size more meaningful from a statistical perspective.
 
Beginning with the second quarter 2009 valuation, the combination of the difficult economic environment and the time that had lapsed between the most recent preferred stock transaction and the valuation date precluded use of the trended firm value implied from the latest transaction. As such,


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the discounted cash flow method was utilized to estimate our firm value for quarterly valuations, including, and subsequent to, June 30, 2009. In conducting the discounted cash flow analysis, the independent valuation consultant relied upon income statement projections provided by management. Financial statistics from peer companies were used to check the reasonableness of the assumptions, as well as to provide guidance in developing our appropriate discount rate.
 
In the third quarter of 2009, we notified the independent valuation consultant that we were considering an initial public offering, or IPO, with a potential target date of the second quarter of 2010. As a result, beginning with the third quarter 2009 valuation, a potential IPO has been factored into the valuation consultant’s analysis via the market approach, whereby our firm value is estimated utilizing the guideline company method by assigning valuation multiples to us based on comparisons to the peer group. The market approach has been used in conjunction with the discounted cash flow method since the third quarter of 2009. In estimating the common stock value, the independent consultant has assigned a 50% probability to each of the income and market-based approaches based on an analysis of prevailing IPO market conditions and input from management.
 
A brief narrative of estimated fair value as of the date of each grant and the option exercise price are set forth below:
 
April 2008.  On April 11, 2008, we granted 1,003,550 options at an exercise price of $6.18 per share. The independent valuation consultant estimated the fair value of our common stock as of March 31, 2008 to be $5.40 per share. In estimating the fair value of our common stock as of March 31, 2008, the independent valuation consultant noted that our estimated revenue and Adjusted EBITDA for the first quarter of 2008 was expected to exceed our budgeted figures for the first quarter of 2008 and the fact that we had renewed a major contract in the first quarter of 2008. In addition, the independent valuation consultant’s analysis also reflected the fact that four of the five companies in the set of peer companies had experienced share declines, as well as the fact that the S&P 500 index and the Nasdaq index had declined by approximately 9.9% and 14.1%, respectively. The compensation committee, based on its review of the factors cited above, determined that the fair value of our common stock on April 11, 2008 was $5.40 per share. The compensation committee, however, elected to set the exercise price for the options granted on April 11, 2008 at $6.18 per share and above the fair value determination of our common stock so that the option recipients were issued options with the same exercise price as the individuals who received option grants at the end of 2007. The exercise price of $6.18 per share used for the grants at the end of 2007 was based on the price per share paid for our common stock in an arm’s-length transaction pursuant to which certain of our existing stockholders sold common stock to a new investor at a negotiated purchase price of $6.18 per share in the third quarter of 2007.
 
September 2008.  On September 3, 2008, we granted 460,600 options at an exercise price of $6.18 per share. The independent valuation consultant estimated the fair value of our common stock as of June 30, 2008 to be $5.64 per share. The increase in fair value from $5.40 per share at March 31, 2008 to $5.64 per share at June 30, 2008 reflected our acquisition of Nurture Media in May 2008, as well as our positive revenue performance in the second quarter of 2008 relative to budget. This increase also reflected changes in the stock prices for the peer set of companies and the decrease of approximately 3.2% in the S&P 500 index and the increase of approximately 0.6% in the Nasdaq index. The compensation committee, based on its review of the factors cited above, determined that the fair value of our common stock as of September 3, 2008 was $5.64 per share. Since the fair value determination of our common stock at June 30, 2008 was not substantially higher than the fair value determination of our common stock at the end of the prior March 31, 2008 quarter, namely $5.40 per share, and continued to be lower than the $6.18 exercise price used for the April 2008 option grants, the compensation committee elected to retain the $6.18 exercise price for the September 2008 option grants and to grant these options with an exercise price above the fair value determination of our common stock in order to maintain parity with respect to the exercise price of options granted in the prior quarter.


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December 2008.  On December 9, 2008, we granted 398,500 options at an exercise price of $6.18 per share. The independent valuation consultant estimated the fair value of our common stock as of September 30, 2008 to be $4.28 per share. In October 2008, we acquired RHG. The consideration for the RHG acquisition consisted of the issuance of our Series E redeemable convertible preferred stock valued at a price per share of $7.98. Subsequent to the RHG acquisition and prior to December 9, 2008, we also sold shares of Series F redeemable convertible preferred stock at a price per share of $7.61. Given the proximity of our issuance of Series E and Series F redeemable convertible preferred stock to September 30, 2008, the independent valuation consultant incorporated those transactions into its valuation of our common stock as of September 30, 2008 and the price of the Series F redeemable convertible preferred stock was used as a benchmark in the corporate securities valuation model. Based on this assessment, the independent valuation consultant estimated a reduced common stock fair value of $4.28 per share as of September 30, 2008 as compared to an estimated fair value of $5.64 per share as of June 30, 2008. This reduction in fair value was primarily due to the dilution and additional liquidation preferences, totaling approximately $38 million in the aggregate, associated with the newly issued Series E and Series F redeemable convertible preferred shares. Based on its review of the factors cited above, the compensation committee determined that the fair value of our common stock on December 9, 2008 was $4.28 per share. Nonetheless, in light of the proximity to the sale of the Series E and Series F redeemable convertible preferred stock, and the desire to maintain a consistent exercise price to the grants made two months earlier, the compensation committee elected to retain the $6.18 exercise price for the December 9, 2008 grants and to grant these options with an exercise price above the fair value determination of our common stock.
 
June 2009.  On June 15, 2009, we granted (i) 68,850 options at an exercise price of $3.55 per share; (ii) 775,150 options at an exercise price of $3.33 per share and (iii) 250,000 options at an exercise price of $8.00 per share. The independent valuation consultant estimated the fair value of our common stock to be $3.03 per share as of March 31, 2009 and $3.23 per share as of December 31, 2008. The independent valuation consultant’s estimated common stock fair value as of December 31, 2008 of $3.23 per share, as compared to $4.28 per share as of September 30, 2008, reflected a variety of internal and external factors. With respect to internal factors, the independent valuation consultant noted that our revenues and Adjusted EBITDA in the fourth quarter of 2008 were unfavorable as compared to the budgeted figure, as well as the fact that the Adjusted EBITDA for the full year 2008 was unfavorable as compared to budget. In addition, the independent valuation consultant’s analysis reflected the fact that three of the four companies in the peer companies’ set had experienced share declines and that in the fourth quarter of 2008 the S&P 500 and Nasdaq indices had decreased approximately 22.5% and 24.6%, respectively. Likewise, the independent valuation consultant noted the worsening market conditions, characterized by the failure or distressed sale of major U.S. banks, the passage of the Emergency Economic Stabilization Act of 2008 and the U.S. government providing emergency capital to a number of financial institutions. The independent valuation consultant’s estimated common stock fair value as of March 31, 2009 of $3.03 per share, as compared to $3.23 per share as of December 31, 2008, reflected further negative changes in the overall market condition and our financial performance. Specifically, the independent valuation consultant noted that our revenues for the first quarter of 2009 were unfavorable as compared to budget, although our Adjusted EBITDA was favorable as compared to budget. During the first quarter of 2009, all of the companies in the peer companies’ set had experienced share price declines, ranging from 1% to 34%, and the S&P 500 and Nasdaq indices had experienced further declines of approximately 11.7% and 3.1%, respectively. In addition, during the first quarter of 2009, the independent valuation consultant noted the prevailing recessionary economic environment brought on by the collapse of the housing market and a significant reduction in the availability of credit. The compensation committee, based on its review of the factors cited above, determined on June 15, 2009 that the fair value of our common stock as of such date was $3.03 per share. Despite this determination, the compensation committee elected to issue options to certain of our executive officers at an exercise price of $8.00 per share. The compensation committee’s election to grant these


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options at a significantly higher exercise price than the $3.03 fair value determination was based on a desire to create significant incentives for these executive officers to increase shareholder value. Similarly, the grants above fair value with an exercise price of $3.33 per share related to events, such as commencement of employment or promotions, that had occurred in the first quarter of 2009, and the grants above fair value with an exercise price of $3.55 per share related to activity that occurred in the fourth quarter of 2008. In both instances, the compensation committee elected to grant these options at an exercise price above the common stock fair value determination of $3.03 per share on June 15, 2009. The exercise price for the option grants that related to activity in the fourth quarter of 2008 was equal to 110% of the fair value of $3.23 per share as of December 31, 2008. Likewise, the exercise price for the option grants that related to activity in the first quarter of 2009 was equal to 110% of the fair value of $3.03 per share as of March 31, 2009.
 
October 2009.  On October 5, 2009, we granted 155,900 options at an exercise price of $3.06 per share. On October 8, 2009, we granted 125,000 options at an exercise price of $3.06 per share. The independent valuation consultant estimated the fair value of our common stock as of June 30, 2009, which was the most recently-completed valuation, to be $2.78 per share. The independent valuation consultant’s decrease in the estimated common stock fair value from $3.03 per share as of March 31, 2009 to $2.78 per share as of June 30, 2009, reflected our financial performance in the second quarter of 2009 and the price trends for the peer set of companies and both the S&P 500 and Nasdaq indices. Specifically, the independent valuation consultant noted that, in the second quarter of 2009, our revenues and Adjusted EBITDA were unfavorable as compared to the budgeted figures. In addition, the independent valuation consultant noted that all companies in the peer companies’ set had experienced share price changes, ranging from a decline of 4% to an increase of 34%. The S&P 500 and Nasdaq indices, however, experienced increases of approximately 15.2% and 20.0%, respectively. Based on its review of the factors cited above, the compensation committee determined on October 5, 2009 that the fair value of our common stock was $2.78 per share as of such date. Nonetheless, the compensation committee once again elected to grant these options at an exercise price equal to 110% of the fair value of $2.78 per share. However, subsequent to these option grants in early October 2009, the independent valuation consultant completed the valuation of our common stock as of September 30, 2009. Upon completion, this report was delivered to the compensation committee in December 2009. As noted above, the independent valuation consultant utilized two methods for estimating the fair value of our common stock as of September 30, 2009. In connection with the September 30, 2009 valuation, the independent valuation consultant recognized the potential for our IPO in the valuation by assigning it a 50% probability based on an analysis of market conditions and input from management. The independent valuation consultant estimated the fair value of our common stock as of September 30, 2009 to be $4.11 per share. In addition to the probability ratio related to an IPO being completed, the independent valuation consultant also considered internal and external factors in estimating the fair value of our common stock as of September 30, 2009. Specifically, the independent valuation consultant noted that our revenues were unfavorable as compared to budget and that our Adjusted EBITDA in the third quarter was positive although unfavorable as compared to budget. Likewise, the independent valuation consultant noted that the companies in the peer companies’ set had experienced share price increases ranging from 11% to 84% in the third quarter of 2009, and in that same period the S&P 500 and Nasdaq indices had experienced increases of 15.0% and 15.7%, respectively. As a result, and despite the compensation committee’s determination on October 5, 2009 that the fair value of our common stock was $2.78 per share, we have used the estimated fair value of $4.11 per share to reflect these option grants in our financial results and to recognize the appropriate compensation expense associated with these grants.
 
December 2009.  On December 23, 2009, we granted 254,700 options at an exercise price of $4.11 per share. As noted above, the probability of completing an IPO had been reflected in the analysis prepared by the independent valuation consultant as of September 30, 2009. The compensation committee concluded that, based on our financial performance in the fourth quarter of 2009, as well as its review of the factors cited above and the fact that there remained significant uncertainty in the financial markets and specifically the potential for completing an IPO, the fair value of our common


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stock as of December 23, 2009 should remain at $4.11 per share despite the passage of time since September 30, 2009.
 
February 2010.  On February 23, 2010, we granted 248,750 options at an exercise price of $4.77 per share. The independent valuation consultant estimated the fair value of our common stock as of December 31, 2009 to be $4.77 per share. In connection with the December 31, 2009 valuation, the independent valuation consultant again recognized the potential for our IPO in the valuation by assigning it a 50% probability. In addition to the probability ratio related to an IPO being completed, the independent valuation consultant also considered internal and external factors in estimating the fair value of our common stock as of December 31, 2009. Specifically, the independent valuation consultant noted that during the fourth quarter of 2009 the peer companies’ set had experienced share price changes ranging from a loss of approximately 24% to a gain of approximately 16%. Likewise, the independent valuation consultant noted that the S&P 500 and Nasdaq indices had experienced increases of approximately 5.5% and 6.9%, respectively, in the fourth quarter of 2009. In addition, the independent valuation consultant’s analysis reflected that our revenues and Adjusted EBITDA in the fourth quarter of 2009 were favorable as compared to budget. The board of directors and compensation committee determined that, based on our financial performance and a review of the factors cited above, as well as the fact that there continued to be significant uncertainty in the financial markets and specifically the potential for completing an IPO, the fair value of our common stock as of February 23, 2010 should remain at $4.77 per share despite the passage of time since December 31, 2009.
 
Results of Operations
 
The following table sets forth our consolidated statement of operations data for the periods presented. In the table below and throughout this discussion and analysis, consolidated statements of operations data for the years ended December 31, 2007, 2008 and 2009 have been derived from our audited consolidated financial statements. The information contained in the table below should be read in conjunction with our consolidated financial statements and related notes contained elsewhere in this prospectus.
 
On October 7, 2008, we acquired RHG. Accordingly, the following table includes RHG’s financial data from the closing date of the acquisition. Our operating expenses in the fourth quarter of 2008 and the first and second quarters of 2009 included various transition-related expenses that we incurred following the closing of the RHG acquisition. We eliminated a majority of these redundant transition-related expenses by the beginning of the third quarter of 2009. These transition-related expenses consisted of:
 
  •  compensation for product development, sales and marketing, and general and administrative personnel who were employed by us for a short period of time following the RHG acquisition; and
 
  •  third-party product development expenses, such as content licensing fees, data center costs and other technology-related expenses.


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    Year Ended December 31,  
    2007     2008     2009  
    (in thousands, except share and per share data)  
 
Consolidated Statement of Operations Data:
                       
Revenues
  $ 47,363     $ 69,412     $ 90,111  
                         
Operating expenses:
                       
Cost of revenue
    30,111       35,229       39,453  
Sales and marketing
    7,425       14,503       20,816  
Product development
    10,753       14,874       20,192  
General and administrative
    6,859       12,906       16,239  
Depreciation and amortization
    2,030       4,340       9,787  
                         
Total operating expenses
    57,178       81,852       106,487  
                         
Loss from operations
    (9,815 )     (12,440 )     (16,376 )
Interest expense, net
    (323 )     (455 )     (1,314 )
                         
Loss before provision for income taxes
    (10,138 )     (12,895 )     (17,690 )
Provision for income taxes
          (293 )     (1,331 )
                         
Net loss
  $ (10,138 )   $ (13,188 )   $ (19,021 )
                         
Net income (loss) per common share:
                       
Basic
  $ (1.57 )   $ (2.01 )   $ (2.89 )
                         
Diluted
  $ (1.57 )   $ (2.01 )   $ (2.89 )
                         
Pro forma basic (unaudited)(1)
          $ (0.63 )   $ (0.63 )
                         
Pro forma diluted (unaudited)(1)
          $ (0.63 )   $ (0.63 )
                         
Weighted-average common shares outstanding:
                       
Basic
    6,444,696       6,559,614       6,581,793  
                         
Diluted
    6,444,696       6,559,614       6,581,793  
                         
Pro forma basic (unaudited)(1)
            20,955,330       30,229,627  
                         
Pro forma diluted (unaudited)(1)
            20,955,330       30,229,627  
                         
 
(1) Pro forma weighted average shares outstanding reflects the conversion of our redeemable convertible preferred stock (using the if-converted method) into common stock as though the conversion had occurred on the original dates of issuance.
 
Comparison of Years Ended December 31, 2009 and 2008
 
Revenue
 
Our total revenues increased 29.8% to $90.1 million in 2009 from $69.4 million in 2008. The increase in advertising and sponsorship revenue accounted for $19.7 million, or 95.3%, of our $20.7 million overall revenue increase.
 
Advertising and sponsorship revenue increased 51.4% to $58.1 million in 2009 from $38.4 million in 2008. The increase in advertising and sponsorship revenue was primarily attributable to an increase in the number of brands that advertised on the Everyday Health portfolio, as well as an increase in the advertising and sponsorship revenue per brand, when compared to the year ended December 31, 2008. The total number of brands that marketed their products and services on our portfolio in 2009 was approximately 473, or 13.7% more than the approximately 416 total number of brands that marketed their products and services on our portfolio in 2008. The advertising and sponsorship revenue per brand increased from approximately $92,000 in 2008 to approximately $123,000 in 2009,


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an increase of 33.7%. For the years ended December 31, 2009 and 2008, no advertiser accounted for 10% or more of total advertising and sponsorship revenue.
 
Premium services revenue increased 3.2% to $32.0 million in 2009 from $31.0 million in 2008. This $1.0 million increase was primarily attributable to a $3.6 million increase in license fee revenue in connection with the RHG acquisition in October 2008, as we did not generate license fee revenue prior to such acquisition, partially offset by a $2.6 million decrease in subscription fee revenue from $29.9 million in 2008 to $27.3 million in 2009. The decrease in subscription fee revenue was primarily due to a decrease in our average paid subscribers per month to approximately 120,000 in 2009, compared to approximately 125,000 in 2008, and a lower average revenue per paid subscriber per month of $18.99 in 2009, compared to $19.95 in 2008. The decrease in our average paid subscribers per month during 2009 resulted from a reduction in subscription renewals as a result of the economic recession. The lower average revenue per paid subscriber per month during 2009 resulted from a larger portion of our subscriptions generated from billing plans with a slightly lower subscription fee.
 
Costs and Expenses
 
Cost of Revenues.  Cost of revenues increased 12.0% to $39.5 million in 2009 from $35.2 million in 2008. The $4.2 million increase in cost of revenues was primarily attributable to increased royalties to our partners of $7.0 million, due mainly to increased advertising and sponsorship revenue, partially offset by a decrease in media expense of $2.9 million from reduced marketing activities in 2009. Cost of revenues as a percentage of total revenues improved to 43.8% in 2009, compared to 50.7% in 2008.
 
Sales and Marketing.  Sales and marketing expense increased 43.5% to $20.8 million in 2009 from $14.5 million in 2008. The $6.3 million increase in sales and marketing expense was primarily attributable to our investment in a larger sales team to deliver advertising and sponsorship revenue growth across our portfolio of websites, including the addition of sales personnel from the RHG acquisition in October 2008, as well as increased commissions and other compensation to our sales force in connection with the increase in advertising and sponsorship revenue.
 
Product Development.  Product development expense increased 35.8% to $20.2 million in 2009 from $14.9 million in 2008. The $5.3 million increase in product development expense was primarily due to staffing increases in our editorial, product management and technology departments and increased third-party licensed content expenses for our portfolio of websites. In addition, hosting and other computer expenses increased in 2009 as we upgraded and expanded our computer operations, and we recognized $0.9 million of product development compensation expense in 2009 relating to the contingent earnout from the Nurture Media acquisition in May 2008.
 
General and Administrative.  General and administrative expense increased 25.8% to $16.2 million in 2009 from $12.9 million in 2008. This $3.3 million increase was primarily due to increases in personnel and related compensation expenses and facilities, legal and professional expenses, resulting primarily from the RHG acquisition in October 2008.
 
Depreciation and Amortization.  Depreciation and amortization expense increased 125.5% to $9.8 million in 2009 from $4.3 million in 2008. The $5.4 million increase in depreciation and amortization expense consisted of $1.8 million of amortization expense of intangible assets related to the RHG acquisition, $1.5 million of depreciation and amortization expense of property and equipment related to the RHG acquisition, and $2.1 million from other property and equipment additions, including capitalized product development.
 
Interest Expense.  Interest expense, net, increased 188.8% to $1.3 million in 2009, compared to $0.5 million in 2008. The $0.9 million increase in net interest expense was due to a $0.8 million increase in interest expense, primarily due to increased borrowings in 2009, and a $0.1 million increase in amortization and write-offs of deferred financing costs relating to our credit facility borrowings.


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Income Tax Provision.  Income tax provision in 2009 totaled $1.3 million, compared to $0.3 in 2008. The $1.0 million increase in the income tax provision was primarily due to a $0.9 million increase in the deferred federal, state and local provision for income taxes related to basis differences in indefinite lived intangible assets, recorded in connection with the RHG acquisition in October 2008, that could not be offset by current year deferred tax assets.
 
Comparison of Years Ended December 31, 2008 and 2007
 
Revenue
 
Our total revenues increased 46.6% to $69.4 million in 2008 from $47.4 million in 2007. The increase in advertising and sponsorship revenue accounted for $18.8 million, or 85.1%, of our $22.0 million overall revenue increase.
 
Advertising and sponsorship revenue increased 95.7% to $38.4 million in 2008 from $19.6 million in 2007. The increase in advertising and sponsorship revenue was primarily attributable to an increase in the number of brands that advertised on the Everyday Health portfolio, as well as an increase in the advertising and sponsorship revenue per brand when compared to the year ended December 31, 2007. The total number of brands that marketed their products and services on our portfolio in 2008 was approximately 416, or 28.8% more than the approximately 323 total number of brands that marketed their products and services on our portfolio in 2007. The advertising and sponsorship revenue per brand increased from approximately $61,000 in 2007 to approximately $92,000 in 2008. For the years ended December 31, 2008 and 2007, one advertiser accounted for 10% or more of total advertising and sponsorship revenue.
 
Premium services revenue increased 11.5% to $31.0 million in 2008 from $27.8 million in 2007. This $3.2 million increase was attributable to a $2.1 million increase in subscription fee revenue and a $1.1 million increase in license fee revenue in connection with the RHG acquisition in October 2008, as we did not generate license fee revenue prior to such acquisition. The increase in subscription fee revenue from $27.8 million in 2007 to $29.9 million in 2008 was primarily due to an increase in our average paid subscribers per month to approximately 125,000 in 2008, compared to approximately 121,000 in 2007, and an increase in average revenue per paid subscriber per month to $19.95 in 2008, compared to $19.11 in 2007.
 
Costs and Expenses
 
Cost of Revenues.  Cost of revenues increased 17.0% to $35.2 million in 2008 from $30.1 million in 2007. The $5.1 million increase in cost of revenues was primarily attributable to increased royalties to our partners of $5.9 million and an increase in ad serving and other costs, due mainly to increased advertising and sponsorship revenue, partially offset by a decrease in media expense of $1.3 million from reduced marketing activities in 2008. Cost of revenues as a percentage of revenue improved to 50.8% in 2008, compared to 63.6% in 2007.
 
Sales and Marketing.  Sales and marketing expense increased 95.3% to $14.5 million in 2008 from $7.4 million in 2007. The $7.1 million increase in sales and marketing expense was primarily attributable to our investment in a larger sales team to deliver advertising and sponsorship revenue growth across our portfolio of websites, including the addition of sales personnel from the RHG acquisition in October 2008, increased commissions and other compensation to our sales force in connection with the increase in advertising and sponsorship revenue noted above, and increased stock-based compensation expense of $0.5 million.
 
Product Development.  Product development expense increased 38.3% to $14.9 million in 2008 from $10.8 million in 2007. The $4.1 million increase in product development expense was primarily due to staffing increases in our editorial and product management personnel, increased third-party licensed content expenses for our portfolio of websites and increased stock-based compensation expense of $0.4 million.


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General and Administrative.  General and administrative expense increased 88.2% to $12.9 million in 2008 from $6.9 million in 2007. This $6.0 million increase was primarily due to increases in personnel and related compensation expenses, including a $1.0 million increase in stock-based compensation expense.
 
Depreciation and Amortization.  Depreciation and amortization expense increased 113.8% to $4.3 million in 2008 from $2.0 million in 2007. The $2.3 million increase in depreciation and amortization expense consisted of $1.0 million of increased depreciation and amortization expense of property and equipment and intangible assets related to the RHG acquisition in October 2008, and $1.3 million from other property and equipment additions, including capitalized product development.
 
Interest Expense.  Interest expense, net, increased 40.9% to $0.5 million in 2008, compared to $0.3 million in 2007. The $0.1 million increase in net interest expense was primarily attributable to an increase in interest expense relating to our credit facility borrowings.
 
Income Tax Provision.  Income tax provision in 2008 totaled $0.3 million, compared to $0 in 2007. The $0.3 million deferred federal, state and local provision for income taxes related to basis differences in indefinite lived intangible assets that cannot be offset by current year deferred tax assets. There was no deferred tax provision in 2007, as the indefinite lived intangible assets giving rise to the provision were recorded in connection with the RHG acquisition in October 2008.


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Seasonality and Fluctuations in Unaudited Quarterly Results of Operations
 
The following table presents our unaudited quarterly consolidated results of operations for the twelve quarters ended December 31, 2009. This unaudited quarterly consolidated information has been prepared on the same basis as our audited consolidated financial statements and, in the opinion of management, the consolidated statements of operations data includes all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods. You should read this table in conjunction with our financial statements and the related notes located elsewhere in this prospectus. The results of operations for any quarter are not necessarily indicative of the results of operations for any future periods.
 
                                                                                                 
    Three Months Ended,  
    March 31,
    June 30,
    September 30,
    December 31,
    March 31,
    June 30,
    September 30,
    December 31,
    March 31,
    June 30,
    September 30,
    December 31,
 
    2007     2007     2007     2007     2008     2008     2008     2008     2009     2009     2009     2009  
    (in thousands, except share and per share data)  
 
                                                                                                 
Consolidated Statement of Operations Data:
                                                                                               
                                                                                                 
Revenues
  $ 9,815     $ 11,242     $ 11,960     $ 14,346     $ 14,450     $ 15,917     $ 16,373     $ 22,672     $ 18,592     $ 20,408     $ 22,493     $ 28,618  
                                                                                                 
                                                                                                 
Operating expenses:
                                                                                               
                                                                                                 
Cost of revenue
    9,211       7,650       7,316       5,934       10,121       8,910       7,756       8,442       11,400       10,092       9,265       8,696  
                                                                                                 
Sales and marketing
    1,470       1,756       1,727       2,472       2,174       2,829       3,441       6,059       5,253       5,134       4,180       6,249  
                                                                                                 
Product development
    2,180       2,706       2,787       3,080       2,911       3,025       3,372       5,566       5,605       5,501       3,971       5,115  
                                                                                                 
General and administrative
    1,291       1,607       1,491       2,470       2,208       2,594       2,616       5,488       3,907       4,520       4,131       3,681  
                                                                                                 
Depreciation and amortization
    339       492       579       620       660       825       875       1,980       2,413       2,478       2,442       2,454  
                                                                                                 
                                                                                                 
Total operating expenses
    14,491       14,211       13,900       14,576       18,074       18,183       18,060       27,535       28,578       27,725       23,989       26,195  
                                                                                                 
                                                                                                 
Income (loss) from operations
    (4,676 )     (2,969 )     (1,940 )     (230 )     (3,624 )     (2,266 )     (1,687 )     (4,863 )     (9,986 )     (7,317 )     (1,496 )     2,423  
                                                                                                 
Interest (expense) income, net
    (5 )     (49 )     (80 )     (189 )     1       (110 )     (138 )     (208 )     (189 )     (185 )     (449 )     (491 )
                                                                                                 
Income (loss) before provision for income taxes
    (4,681 )     (3,018 )     (2,020 )     (419 )     (3,623 )     (2,376 )     (1,825 )     (5,071 )     (10,175 )     (7,502 )     (1,945 )     1,932  
                                                                                                 
Provision for income taxes
                                              (293 )     (278 )     (278 )     (278 )     (497 )
                                                                                                 
                                                                                                 
Net income (loss)
  $ (4,681 )   $ (3,018 )   $ (2,020 )   $ (419 )   $ (3,623 )   $ (2,376 )   $ (1,825 )   $ (5,364 )   $ (10,453 )   $ (7,780 )   $ (2,223 )   $ 1,435  
                                                                                                 
                                                                                                 
Net income (loss) per common share:
                                                                                               
                                                                                                 
Basic
  $ (0.73 )   $ (0.47 )   $ (0.31 )   $ (0.06 )   $ (0.55 )   $ (0.36 )   $ (0.28 )   $ (0.82 )   $ (1.59 )   $ (1.19 )   $ (0.34 )   $ 0.22  
                                                                                                 
                                                                                                 
Diluted
  $ (0.73 )   $ (0.47 )   $ (0.31 )   $ (0.06 )   $ (0.55 )   $ (0.36 )   $ (0.28 )   $ (0.82 )   $ (1.59 )   $ (1.19 )   $ (0.34 )   $ 0.20  
                                                                                                 
                                                                                                 
Weighted-average common shares outstanding:
                                                                                               
                                                                                                 
Basic
    6,401,378       6,410,099       6,431,160       6,536,722       6,550,604       6,558,900       6,564,246       6,564,654       6,564,654       6,564,654       6,580,644       6,617,235  
                                                                                                 
                                                                                                 
Diluted
    6,401,378       6,410,099       6,431,160       6,536,722       6,550,604       6,558,900       6,564,246       6,564,654       6,564,654       6,564,654       6,580,644       7,321,932  
                                                                                                 
 


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The following table presents certain unaudited other financial data for each of the periods indicated. For additional information, please see the discussion of Adjusted EBITDA in the “Prospectus Summary.”
 
                                                                                                 
    Three Months Ended,  
    March 31,
    June 30,
    September 30,
    December 31,
    March 31,
    June 30,
    September 30,
    December 31,
    March 31,
    June 30,
    September 30,
    December 31,
 
    2007     2007     2007     2007     2008     2008     2008     2008     2009     2009     2009     2009  
    (in thousands)  
 
                                                                                                 
Other Financial Data:
                                                                                               
                                                                                                 
Adjusted EBITDA
  $ (4,225 )   $ (2,174 )   $ (1,060 )   $     664     $ (2,463 )   $   (705 )   $     (78 )   $ (1,858 )   $ (6,730 )   $  (3,203 )   $  1,671     $  5,598  
                                                                                                 
                                                                                                 
Stock-based compensation expense included in:
                                                                                               
                                                                                                 
Sales and marketing
  $ 31     $ 84     $ 84     $ 77     $ 136     $ 199     $ 199     $ 278     $ 219     $ 191     $ 188     $ 217  
                                                                                                 
Product development
    7       20       20       17       82       121       121       168       162       141       139       106  
                                                                                                 
General and administrative
    74       199       197       180       283       416       414       579       462       404       398       398  
                                                                                                 
                                                                                                 
Total stock-based compensation expense
  $ 112     $ 303     $ 301     $ 274     $ 501     $ 736     $ 734     $ 1,025     $ 843     $ 736     $ 725     $ 721  
                                                                                                 
 
The following table presents a reconciliation of Adjusted EBITDA to net income (loss), the most comparable GAAP measure, for each of the periods indicated. For additional information, please see the discussion of Adjusted EBITDA in the “Prospectus Summary.”
 
                                                                                                 
    Three Months Ended,  
    March 31,
    June 30,
    September 30,
    December 31,
    March 31,
    June 30,
    September 30,
    December 31,
    March 31,
    June 30,
    September 30,
    December 31,
 
    2007     2007     2007     2007     2008     2008     2008     2008     2009     2009     2009     2009  
    (in thousands)  
 
                                                                                                 
Reconciliation of Adjusted EBITDA to Net Income (Loss):
                                                                                               
                                                                                                 
Net income (loss)
  $  (4,681 )   $  (3,018 )   $  (2,020 )   $  (419 )   $  (3,623 )   $  (2,376 )   $  (1,825 )   $  (5,364 )   $ (10,453 )   $  (7,780 )   $  (2,223 )   $  1,435  
                                                                                                 
Interest (income) expense, net
    5       49       80       189       (1 )     110       138       208       189       185       449       491  
                                                                                                 
Income tax expense
                                              293       278       278       278       497  
                                                                                                 
Depreciation and amortization expense
    339       492       579       620       660       825       875       1,980       2,413       2,478       2,442       2,454  
                                                                                                 
Stock-based compensation
    112       303       301       274       501       736       734       1,025       843       736       725       721  
                                                                                                 
Compensation expense related to acquisition earnout
                                                          900              
                                                                                                 
                                                                                                 
Adjusted EBITDA
  $ (4,225 )   $ (2,174 )   $ (1,060 )   $ 664     $ (2,463 )   $ (705 )   $ (78 )   $  (1,858 )   $ (6,730 )   $ (3,203 )   $ 1,671     $  5,598  
                                                                                                 
 
The timing of our revenues is affected by several seasonal factors. Our advertising and sponsorship revenue experiences seasonal fluctuations, primarily due to the annual budgeting process for our advertising customers. As a result, our advertising and sponsorship revenue generally is lowest in the first quarter of each calendar year and increase each consecutive quarter. In addition, we increase our marketing expenditures in the first calendar quarter to promote websites in the Everyday Health portfolio that focus on diet and fitness. As a result, our cost of revenues tends to be highest in the first quarter of each calendar year.
 
On October 7, 2008, we acquired RHG. Accordingly, the tables above include RHG’s financial data from the closing date of the acquisition. Our operating expenses in the fourth quarter of 2008 and the first and second quarters of 2009 included various transition-related expenses that we incurred following the closing of the RHG acquisition. These transition-related expenses consisted of:
 
  •  compensation for product development, sales and marketing, and general and administrative personnel who were employed by us for a short period of time following the RHG acquisition; and
 
  •  third-party product development expenses, such as content licensing fees, data center costs and other technology-related expenses.
 
We eliminated a majority of these redundant transition-related expenses by the beginning of the third quarter of 2009.


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Liquidity and Capital Resources
 
At December 31, 2009, our principal sources of liquidity consisted of cash and cash equivalents of $16.4 million and accounts receivable of $22.2 million. We currently expect that our existing cash and cash equivalents, together with anticipated cash flow from operations and anticipated availability under our working capital credit facility, will be sufficient to fund our currently anticipated cash needs through at least 2010. Our liquidity could be negatively affected by a decrease in demand for our content offerings and advertising-based services, including the impact of changes in customer buying patterns or advertiser spending behavior and by other factors outside of our control, including general economic conditions, as well as the other risks to our business discussed under the caption “Risk Factors.”
 
Our primary sources of cash historically have been advertising and sponsorship revenue, payments for our premium services, proceeds from the issuance of convertible redeemable preferred stock and borrowings under our working capital credit facility. Since the beginning of 2003, we have issued convertible redeemable preferred stock for aggregate net proceeds of $57.2 million. As of December 31, 2009, we had $17.0 million of borrowings outstanding under our credit facility.
 
Our principal uses of cash historically have been to fund operating losses and to finance capital expenditures relating to purchases of property and equipment primarily to support our infrastructure and capitalized product development.
 
Our future capital requirements will be a function of the extent of our future operating losses and capital expenditures, which will depend on many factors, including:
 
  •  the cost of developing new content and advertising-based services;
 
  •  the timing and extent of market acceptance of our content offerings and advertising-based services;
 
  •  the level of advertising and promotion required to retain and acquire our consumer audience;
 
  •  the expansion of our sales and marketing organizations;
 
  •  the establishment of additional offices in the U.S. and worldwide and the building of infrastructure necessary to support our growth; and
 
  •  our relationships with our vendors and customers.
 
In addition, future acquisitions and licensing arrangements may increase our need for capital.
 
Our cash requirements going forward may require us to raise additional funds through borrowing or the issuance of additional equity or equity-linked securities. Any increase in the amount of our borrowings will result in an increase in our interest expense. Future issuance of equity or equity-linked securities will result in dilution to the holders of our common stock. In addition, if the banking system or the financial markets continue to remain volatile, our ability to raise additional debt or equity capital could be adversely affected. Additional financing may not be available on commercially reasonable terms or at all.
 
                         
    Year Ended December 31,  
    2007     2008     2009  
    (in thousands)  
 
Net cash used in operating activities
  $ (10,522 )   $ (20,834 )   $ (10,218 )
Net cash (used in) provided by investing activities
    (6,875 )     7,541       (7,850 )
Net cash provided by financing activities
    29,073       24,094       9,378  
                         
Net increase (decrease) in cash and cash equivalents
  $ 11,676     $ 10,801     $ (8,690 )
                         
 
Cash and cash equivalents decreased by $8.7 million to $16.4 million in the year ended December 31, 2009, compared to an increase of $10.8 million in the year ended December 31, 2008.


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Cash and cash equivalents increased by $10.8 million to $25.1 million for the year ended December 31, 2008, compared to an increase of $11.7 million for the year ended December 31, 2007.
 
      Operating Activities
 
For the year ended December 31, 2009, net cash used in operating activities was $10.2 million. Net cash used in operating activities consisted of an operating loss of $19.0 million adjusted for non-cash expenses of $14.6 million, including depreciation and amortization, non-cash stock compensation expense and provision for deferred income taxes. Additionally, changes in operating assets and liabilities resulted in a use of $5.8 million of cash, which was primarily the result of declines in accounts payable and accrued expenses and increases in accounts receivable related to higher advertising revenues, offset by increases in deferred revenue primarily related to premium services billed in advance of the services being provided. Net cash used in operating activities was $10.6 million lower in the year ended December 31, 2009, compared to the year ended December 31, 2008, resulting primarily from the paying down of a significant portion of the liabilities acquired in connection with the RHG acquisition in the fourth quarter of 2008, partially offset by our higher net operating loss in 2009 compared to 2008.
 
For the year ended December 31, 2008, net cash used in operating activities was $20.8 million. Net cash used in operating activities consisted of an operating loss of $13.2 million adjusted for non-cash expenses of $10.7 million, including depreciation and amortization, non-cash stock compensation expense and non-cash royalty expense. Additionally, changes in operating assets and liabilities resulted in a use of cash of $18.3 million, which was primarily the result of declines in accounts payable and accrued expenses that were acquired as part of the acquisition of RHG and increases in accounts receivable resulting from higher advertising revenues. Net cash used in operating activities was $10.3 million higher in the year ended December 31, 2008, compared to the year ended December 31, 2007. The increase in cash used was primarily attributable to a higher net loss and the paying down of a significant portion of the accounts payable and accrued expenses that were acquired as part of the acquisition of RHG.
 
For the year ended December 31, 2007, net cash used in operating activities was $10.5 million. Net cash used in operating activities consisted of an operating loss of $10.1 million adjusted for non-cash expenses of $4.0 million, including depreciation and amortization and non-cash stock compensation expense. Additionally, changes in operating assets and liabilities resulted in a use of cash of $4.4 million, which was primarily the result of an increase in accounts payable and accrued expenses offset by increases in accounts receivable resulting from higher advertising revenues.
 
      Investing Activities
 
Our primary investing activities consisted of additions to property and equipment, including computer hardware and software and capitalized product development costs. Additionally, our investing activities included payments made to acquire businesses offset by the cash we received in the acquisition of businesses that we purchased for stock and increases in security deposits.
 
We used $7.9 million of net cash in investing activities during the year ended December 31, 2009, primarily for purchases of property and equipment and increases to security deposits. Net cash used in investing activities was $15.4 million higher than in the year ended December 31, 2008.
 
Cash provided by investing activities was $7.5 million for the year ended December 31, 2008, which was primarily due to the cash we acquired in the October 2008 acquisition of RHG offset by investments in property and equipment and the cash paid for the acquisition of Nurture Media. Net cash provided by investing activities was $14.4 million higher than the year ending December 31, 2007.
 
We used $6.9 million of net cash in investing activities for the year ended December 31, 2007, which was primarily for purchases of property and equipment and increases in restricted cash being held by our merchant processing bank.


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Financing Activities
 
We generated $9.4 million of net cash from financing activities during the year ended December 31, 2009, primarily as a result of increased borrowings under our credit facilities secured in September and October of 2009, net of repayments, including the full payoff of our former credit facility.
 
We generated $24.1 million of net cash from financing activities during 2008. Substantially all of this cash resulted from the issuance and sale of $22.5 million, net of issuance costs, of redeemable convertible preferred stock.
 
We generated $29.1 million of net cash from financing activities during 2007. This cash resulted primarily from the issuance and sale of $23.2 million, net of issuance costs, of redeemable convertible preferred stock and borrowings under our credit facility.
 
Long-Term Debt
 
Square 1 Credit Facility
 
In September 2009, we entered into a $12.0 million credit facility with Square 1 Bank, which we refer to as the Square 1 credit facility. The Square 1 credit facility consists of: (i) a 24-month revolving credit facility, which has a borrowing base that is determined by a percentage of eligible accounts receivable, as defined in the Square 1 credit facility, which we refer to as the Square 1 revolver, and (ii) a 12-month committed line, which we refer to as the Square 1 committed line. As of December 31, 2009, we had $12.0 million outstanding under the Square 1 revolver.
 
The maximum amount that can be outstanding under the Square 1 revolver is $12.0 million minus the balance outstanding under the Square 1 committed line. The maximum amount that can be outstanding under the Square 1 committed line is $4.0 million, and such amount decreases to zero over the term of the Square 1 committed line. For the period from the closing date of the Square 1 credit facility through December 31, 2009, the interest rate for the Square 1 revolver was equal to the greater of 8.0% or the prime rate then in effect plus 4.75% and, subsequent to December 31, 2009, the greater of 7.5% or the prime rate then in effect plus 4.25%. For the period from the closing date of the Square 1 credit facility through December 31, 2009, the interest rate for the Square 1 committed line was equal to the greater of 9.0% or the prime rate then in effect plus 5.75% and, subsequent to December 31, 2009, the greater of 8.5% or the prime rate then in effect plus 5.25%. In addition to paying interest on the Square 1 credit facility, we pay a commitment fee of 0.75% per annum for the unutilized commitment.
 
The Square 1 credit facility contains financial and operational covenants with which we must comply, whether or not there are any borrowings outstanding. These financial covenants include EBITDA, liquidity and cash requirements, each as defined in the Square 1 credit facility. These operational covenants include restrictions on dispositions, mergers and acquisitions, indebtedness, investments, liens and our ability to pay dividends and make other distributions. We were in compliance with the financial and operational covenants of the Square 1 credit facility as of December 31, 2009. Both the Square 1 revolver and the Square 1 committed line are secured by a first priority security interest in substantially all of our existing and future assets.
 
Horizon Credit Facility
 
In October 2009, we entered into a $5.0 million credit facility with Compass Horizon Funding Company LLC, which we refer to as the Horizon credit facility. The Horizon credit facility consists of a $5.0 million commitment amount, which we refer to as the Horizon committed line, and has a maturity date of May 1, 2013. We received the full amount of the Horizon committed line upon the closing of the Horizon credit facility. All indebtedness incurred pursuant to the Horizon credit facility is subordinate to any indebtedness outstanding under the Square 1 credit facility.


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The interest rate for the Horizon committed line is equal to 13.0% plus the amount by which the one-month LIBOR rate as of the date five days prior to the funding date of the loan as reported by the Wall Street Journal exceeds 2.76%.
 
The Horizon credit facility contains operational covenants with which we must comply, whether or not there are any borrowings outstanding. The operational covenants include restrictions on dispositions, mergers and acquisitions, indebtedness, investments, liens and our ability to pay dividends and make other distributions. We were in compliance with the operational covenants of the Horizon credit facility as of December 31, 2009. The Horizon committed line is secured by a subordinated security interest in substantially all of our existing and future assets.
 
Contractual Obligations and Commitments
 
The following table summarizes our principal contractual obligations as of December 31, 2009:
 
                                         
    Payments Due by Period  
          Less Than
                More Than
 
    Total     1 Year     1-3 Years     3-5 Years     5 Years  
    (in thousands)  
 
Long-term debt obligations(1)
  $ 17,000     $ 142     $ 16,858              
Operating lease obligations(2)
    14,648       2,649       5,108     $ 4,086     $ 2,805  
Minimum guarantees under royalty agreements(3)
    22,560       12,135       9,492       933        
Purchase obligations(4)
    10,559       4,331       6,228              
                                         
Total
  $ 64,767     $ 19,257     $ 37,686     $ 5,019     $ 2,805  
                                         
 
(1) For a description of our long-term debt obligations, see “— Long-Term Debt” above.
 
(2) Operating lease obligations totaling $14.6 million do not reflect aggregate sublease rentals of $1.2 million.
 
(3) Some of the minimum guaranteed payments are subject to reductions if specified performance metrics are not maintained by our partners.
 
(4) Purchase obligations pertain primarily to fees for third-party content, technology and other services.
 
Off-Balance Sheet Arrangements
 
We do not engage in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, as part of our ongoing business. Accordingly, our operating results, financial condition and cash flows are not subject to off-balance sheet risks.
 
Quantitative and Qualitative Disclosures About Market Risk
 
Interest Rate Risk.  Our interest income is primarily generated from interest earned on operating cash accounts. Our exposure to market risks related to interest expense is limited to borrowings under our credit facilities. Based on the $17.0 million of borrowings outstanding under the Square 1 revolver and the Horizon credit facility as of December 31, 2009, and the interest rates in effect on each at that date, our annual interest expense would amount to $1.6 million. A hypothetical interest rate increase of 1% on our Square 1 revolver and our Horizon credit facility would increase annual interest expense by $0.2 million. We do not enter into interest rate swaps, caps or collars or other hedging instruments.
 
Foreign Currency Risk.  Substantially all of our revenues and expenses are denominated in U.S. dollars and, therefore, our exposure to market risks related to fluctuations in foreign currency exchange rates is not material.


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Recent Accounting Pronouncements
 
In October 2009, the Financial Accounting Standards Board, or the FASB, issued a new accounting standard that changes the accounting for revenue recognition for multiple-element arrangements, which is effective for annual periods ending after June 15, 2010. However, early adoption of this standard is permitted. In arrangements with multiple deliverables, the standard permits entities to use management’s best estimate of selling price to value individual deliverables when those deliverables have never been sold separately or when third-party evidence is not available. In addition, any discounts provided in multiple-element arrangements will be allocated on the basis of the relative selling price of each deliverable. We are currently evaluating the impact of adopting the provisions of this standard.
 
In June 2009, the FASB issued a new accounting standard that provides for a codification of accounting standards to be the authoritative source of generally accepted accounting principles in the U.S. Rules and interpretive releases of the SEC under federal securities laws are also sources of authoritative GAAP for SEC registrants. We have adopted this disclosure guidance and, accordingly, we no longer use references to U.S. GAAP accounting standards in our disclosures accompanying the consolidated financial statements. The codification does not affect our consolidated financial position, results of operations or cash flows.
 
In May 2009, the FASB issued a new standard which sets forth general standards of accounting for the disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. We have applied the requirements of this standard effective September 30, 2009, which did not have a material impact on our consolidated financial position, results of operations or cash flows.
 
In December 2007, the FASB issued a new standard that changes the accounting for all business combinations and is effective for fiscal years beginning on or after December 15, 2008. The standard provides that, upon initially obtaining control, an acquirer shall recognize 100% of the fair values of acquired assets, including goodwill and assumed liabilities, with only limited exceptions, even if the acquirer has not acquired 100% of the target. As a consequence, the current step acquisition model will be eliminated. Additionally, the standard changes current practice, in part, as follows: (i) contingent consideration arrangements will be fair valued at the acquisition date and included on that basis in the purchase price consideration; (ii) transaction costs will be expensed as incurred, rather than capitalized as part of the purchase price; (iii) pre-acquisition contingencies, such as those relating to legal matters, will generally have to be accounted for in purchase accounting at fair value; and (iv) in order to accrue for a restructuring plan in purchase accounting certain requirements would have to be met on the acquisition date. While the adoption of this standard did not have a material impact on our consolidated financial statements, it is likely to have a material impact on how we account for any future business combinations into which we may enter.


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BUSINESS
 
Overview
 
We are a leading provider of online consumer health solutions. We provide our consumers, advertisers and partners with content and advertising-based services across a broad portfolio of websites that span the health spectrum — from lifestyle offerings in pregnancy, diet and fitness to in-depth medical content for condition prevention and management. The depth, breadth and quality of the content across the Everyday Health portfolio, including our personalized tools and community features, have enabled us to aggregate a large and growing base of engaged consumers. Our portfolio of consumer health websites and large consumer base, along with our customized solutions, provides advertisers with a compelling platform to promote their products and services in a highly-targeted and measurable manner. We also enable leading online and offline providers of consumer health content to efficiently promote their content online and to better monetize their content offering by attracting more consumers and advertisers to their websites.
 
We have designed the Everyday Health portfolio to provide multiple sources of reliable and highly-personalized content to satisfy the diverse needs of our consumers and advertising customers. The Everyday Health portfolio currently consists of over 25 consumer health websites, which includes websites that we operate and websites that our partners operate. The websites that we operate include websites that we own, such as www.EverydayHealth.com, www.RevolutionHealth.com, www.DailyGlow.com and www.CarePages.com, and websites that we operate with our partners, such as www.JillianMichaels.com, www.SouthBeachDiet.com and www.WhattoExpect.com. Under these partnering arrangements, we typically have the exclusive rights, subject to limited exceptions, to use and market our partners’ content online and to determine the precise methodology for monetizing the content online. We pay royalties based on the revenue generated from our operation of these websites and related services. The Everyday Health portfolio also includes websites that we do not own or operate, but that we help monetize by selling advertisements and sponsorships. These websites include a variety of consumer health websites, such as www.SparkPeople.com, www.MayoClinic.com and www.MedHelp.org.
 
The composition of the Everyday Health portfolio, together with our large consumer audience and customized offerings, provides national, regional and local advertisers with a platform to reach our consumer audience through a diverse set of highly-targeted solutions. These solutions include display advertising, integrated sponsorships, custom e-mail campaigns and lead generation products. Moreover, our extensive database of registered users and the information voluntarily provided to us by our consumers allow us to better target the audience that our advertisers are seeking to reach. We also gather a variety of data to generate detailed post-campaign reports that enable advertisers to better assess the effectiveness of their marketing expenditures. We believe this combination of targeted advertising and results-focused measurability will allow us to compete favorably in the consumer health vertical. Our advertisers consist primarily of pharmaceutical and medical device companies, manufacturers and retailers of over-the-counter products and consumer-packaged-goods and healthcare providers. We featured over 470 brands on the Everyday Health portfolio during 2009. In addition, our customers included 24 of the top 25 global companies ranked by 2008 healthcare revenue as compiled by MedAdNews and 43 of the top “100 Leading National Advertisers in 2008” as compiled by Advertising Age.
 
We have developed an operational approach that utilizes our editorial, sales and marketing, and technology resources across the entire Everyday Health portfolio. We believe that our expertise in developing content and interactive programs, combined with this integrated operational approach, enables us to promote our partners’ content and expand their consumer audience online. In addition, we allow content partners that have an existing online presence to leverage our advertising platform and increase their revenues by attracting more advertisers to their websites, while maintaining editorial and operational control over their products and services. We also provide a variety of e-commerce


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opportunities to our partners, including directly offering their offline products and services to the Everyday Health consumer audience online.
 
Industry Background
 
General.  The widespread adoption of the Internet as a preferred source for consumer information has resulted in the availability of a vast quantity of content across a disparate array of websites. Historically, consumers accessed such information through general portals, which typically have served as a gateway to the Internet and, more recently, search engines that allow consumers to search for information around topics of interest. As a result, we believe that consumers are increasingly seeking websites that are dedicated to a specific vertical content category and that can provide deeper and more tailored content offerings.
 
Consumer Health.  Prior to the widespread adoption of the Internet, quality consumer health information was not readily available, and consumers were forced to rely on their physicians, friends and family, and hard-to-access resources, such as medical journals, to address their health questions and concerns. The Internet has fundamentally altered the consumer health market, as more consumers use it as a convenient resource for critical information and decision-support tools. According to Manhattan Research, LLC, a healthcare marketing services firm, the number of U.S. adults looking for health information online has increased from 63.3 million in 2002 to 157.5 million by the third quarter of 2009. Manhattan Research also found that in the twelve month period prior to the third quarter of 2009, 68% of all adults in the U.S. used the Internet to obtain health information, compared to 64% of adults seeking such information from a doctor and 43% of adults seeking such information from friends or family members. As a result, the consumer health vertical, which spans lifestyle offerings in pregnancy, diet and fitness, personal care, wellness, medical content and condition management, has rapidly evolved as one of the largest and fastest growing vertical content categories on the Internet. According to comScore, as of July 2009, there were approximately 11,200 health-related websites. Furthermore, according to comScore, consumers that interact with health content online visited approximately 3.5 different health websites per month on average during 2009. We believe that consumers will continue to rely on multiple websites that are dedicated specifically to health-related content and which contain more in-depth and personalized offerings in order to satisfy their diverse consumer health needs.
 
We believe that the growth of the consumer health vertical will further accelerate due to current legislative and regulatory trends underway in the U.S. that seek to place a greater degree of emphasis on wellness and preventive care as a means of controlling and reducing healthcare costs.
 
Online Advertising.  Advertisers are increasingly migrating a greater portion of their spending online as more consumers turn to the Internet as a preferred medium for accessing information and purchasing products and services. The growth of online spending in the health and wellness category, however, has not developed as rapidly as the overall advertising market. According to a February 2010 analysis prepared on our behalf by Forrester Research, Inc., a market research firm, total online advertising represented 8.5% and 9.6% of total advertising, excluding direct mail, during 2008 and 2009, respectively. However, according to Forrester Research, total online advertising in the health and wellness category represented only 4.0% and 4.9% of total advertising in the health and wellness category in 2008 and 2009, respectively. Furthermore, according to Forrester Research, total online advertising in the health and wellness category is projected to grow at a compounded annual rate of approximately 19.3% from 2009 to 2013. We believe that this projected growth, combined with our strategy of offering a portfolio of health-related websites, represents a significant opportunity for us to increase our advertising and sponsorship revenues.
 
Subscription-Based Premium Services.  In addition to providing consumers with free access to a variety of health information, the Internet also provides consumers with a broad range of subscription-based, premium health-related information and services. We believe that consumer demand for authoritative and differentiated content from trusted sources has contributed to, and will continue to


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drive, the growth of the subscription-based, premium information and services market. According to an August 2009 report by Veronis Suhler Stevenson, a private equity firm, total spending on general, paid Internet content is expected to grow from $1.6 billion in 2009 to $2.3 billion in 2013. We believe that the market for subscription-based premium consumer health information will benefit from this overall growth. In addition to paid content, the Internet has enabled the sale and delivery of a broad array of other products and services through electronic commerce, or e-commerce.
 
Market Opportunity
 
Consumers.  The content offerings in the consumer health vertical remain largely fragmented across a variety of different websites. We believe that the sheer volume of information available from disparate sources has diminished the value of such information to consumers. As a result, consumers are increasingly seeking:
 
  •  a trusted source from which to obtain relevant and actionable information;
 
  •  a greater variety of thorough and insightful content across the consumer health spectrum;