**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

 

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**FORM 10-Q**

 

**(Mark One)**

 

**ý****                                ****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES****EXCHANGE ACT OF 1934**

 

**For the quarterly period ended June 30, 2005**

 

**OR**

 

**o****                                ****TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES****EXCHANGE ACT OF 1934**

 

**For the transition period from             to**

 

**Commission File Number 000-25469**

 

**iVillageInc.**

(Exact Name of Registrant as Specified in Its Charter)

 
| **Delaware**                                     | ** ** | **13-3845162**      |
|--------------------------------------------------|------------|---------------------|
| (State or Other Jurisdiction of                  |       | (IRS Employer       |
| Incorporation or  Organization)                  |       | Identification No.) |
|                                             |       |                |
| **500 - 512 Seventh Avenue, New York, New York** | ** ** | **10018**           |
| (Address of Principal Executive Offices)         |       | (Zip Code)          |

 

**(212) 600-6000**

(Registrant’s Telephone Number, Including Area Code)

 

 

(Former Name, Former Address and Former Fiscal Year,if Changed since Last Report)

 

Indicate by check mark whether the registrant: (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes ý No o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act). Yes ý  No o

 

As of August 8, 2005, the registrant had outstanding 72,286,880 sharesof common stock.

 

 

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**iVillage Inc.**

**Form 10-Q**

**For the Quarter ended June 30, 2005**

 

## **INDEX**

 
| **PART I.**                                                                                                    | **FINANCIAL INFORMATION**                                                                       | ** ** |
|----------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------|------------|
|                                                                                                           |                                                                                            |       |
| **Item 1.**                                                                                                    | **Financial Statements (Unaudited):**                                                           |       |
|                                                                                                           |                                                                                            |       |
| *Condensed Consolidated Balance Sheets as of June 30, 2005 and  December 31, 2004*                             | 1                                                                                               |
|                                                                                                           |                                                                                            |       |
| *Condensed Consolidated Statements of Operations for the three and six  months ended   June 30, 2005 and 2004* | 2                                                                                               |
|                                                                                                           |                                                                                            |
| *Condensed Consolidated Statements of Cash Flows for the three and six  months ended   June 30, 2005 and 2004* | 3                                                                                               |
|                                                                                                           |                                                                                            |       |
| *Notes to Condensed Consolidated Financial Statements*                                                         | 4                                                                                               |
|                                                                                                           |                                                                                            |       |
| **Item 2.**                                                                                                    | **Management’s Discussion and Analysis of Financial Condition and  Results of Operations** | 23         |
|                                                                                                           |                                                                                            |       |
| **Item 3.**                                                                                                    | **Quantitative and Qualitative Disclosures  About Market Risk**                                 | 67         |
|                                                                                                           |                                                                                            |       |
| **Item 4.**                                                                                                    | **Controls and Procedures**                                                                     | 68         |
| ** **                                                                                                     | ** **                                                                                      |       |
| **PART II.**                                                                                                   | **OTHER INFORMATION**                                                                           |       |
| ** **                                                                                                     | ** **                                                                                      |       |
| **Item 5.**                                                                                                    | **Other Information**                                                                           | 68         |
|                                                                                                           |                                                                                            |       |
| **Item 6.**                                                                                                    | **Exhibits**                                                                                    | 71         |
|                                                                                                           |                                                                                            |       |
| **Signatures**                                                                                                 |                                                                                            | 72         |
|                                                                                                           |                                                                                            |       |
| **Exhibit Index**                                                                                              | 73                                                                                              |

 

**TRADEMARKS**

 

iVillage®,iVillage.com®, gURL.com®, Newborn Channel®, WebStakes.com®, iVillage Consulting®,iVillage Solutions® and Healthology® are registered trademarks of iVillage Inc.The stylized iVillage logo, “the Internet for Women”, Astrology.com, BabySteps, Public Affairs Group, Inc., Business Women’s Network, Business Women’sNetwork Government, Diversity Best Practices, Best Practices In CorporateCommunications, Promotions.com, HealthCentersOnline, Inc. and iVillage.co.ukare trademarks of iVillage Inc. All other brand names, trademarks or servicemarks referred to in this report are the property of their owners.

 

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**PART I**

**FINANCIAL INFORMATION**

 

**Item 1.Financial Statements.**

 

***iVillageInc. and Subsidiaries***

***CondensedConsolidated Balance Sheets***

***(inthousands, except share data)***

**(Unaudited)**

 
| ** **                                                                                                                                                                                                                                                          | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------|------------|------------------|------------|
| ** **                                                                                                                                                                                                                                                          | ** ** | **2005**     | ** ** | **2004**         | ** ** |
| ** **                                                                                                                                                                                                                                                          | ** ** | ** **   | ** ** | ** **       | ** ** |
| **Assets**                                                                                                                                                                                                                                                          |       |         |       |             |       |
| Current assets: Cash and cash equivalents.                                                                                                                                                                                                                          |       | $            | 55,972     |             | $          | 83,046 |   |
| Accounts receivable, less allowance for  doubtful accounts of $888 and $1,010 as of June 30, 2005 and December 31,  2004, respectively                                                                                                                              |       | 14,159       |       | 9,159            |       |
| Accounts receivable - related parties                                                                                                                                                                                                                               |       | 566          |       | 549              |       |
| Prepaid rent                                                                                                                                                                                                                                                        |       | 318          |       | 318              |       |
| Other current assets                                                                                                                                                                                                                                                |       | 3,940        |       | 3,740            |       |
| Total current assets                                                                                                                                                                                                                                                |       | 74,955       |       | 96,812           |       |
|                                                                                                                                                                                                                                                                |       |         |       |             |       |
| Fixed assets, net                                                                                                                                                                                                                                                   |       | 10,076       |       | 8,381            |       |
| Goodwill, net                                                                                                                                                                                                                                                       |       | 43,058       |       | 23,241           |       |
| Intangible assets, net                                                                                                                                                                                                                                              |       | 17,757       |       | 8,832            |       |
| Prepaid rent, net of current portion                                                                                                                                                                                                                                |       | 3,126        |       | 3,203            |       |
| Other assets                                                                                                                                                                                                                                                        |       | 107          |       | 79               |       |
| Total assets                                                                                                                                                                                                                                                        |       | $            | 149,079    |             | $          | 140,548 |   |
|                                                                                                                                                                                                                                                                |       |         |       |             |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                                                                                      |       |         |       |             |       |
|                                                                                                                                                                                                                                                                |       |         |       |             |       |
| Current liabilities:                                                                                                                                                                                                                                                |       |         |       |             |       |
| Accounts payable and accrued expenses                                                                                                                                                                                                                               |       | $            | 11,947     |             | $          | 9,933 |   |
| Accounts payable and accrued expenses -  related parties                                                                                                                                                                                                            |       | 559          |       | 209              |       |
| Deferred revenue                                                                                                                                                                                                                                                    |       | 6,966        |       | 2,080            |       |
| Deferred rent                                                                                                                                                                                                                                                       |       | 144          |       | 144              |       |
| Other current liabilities.                                                                                                                                                                                                                                          |       | 24           |       | 24               |       |
| Total current liabilities                                                                                                                                                                                                                                           |       | 19,640       |       | 12,390           |       |
|                                                                                                                                                                                                                                                                |       |         |       |             |       |
| Deferred rent, net of current portion                                                                                                                                                                                                                               |       | 1,267        |       | 1,339            |       |
| Total liabilities                                                                                                                                                                                                                                                   |       | 20,907       |       | 13,729           |       |
| Commitments and contingencies (Note 8)                                                                                                                                                                                                                              |       | —       |       | —           |       |
| Stockholders’ equity:                                                                                                                                                                                                                                          |       |         |       |             |       |
| Preferred stock – par value $.01, 5,000,000  shares authorized; no shares issued and outstanding as of June 30, 2005 and  December 31, 2004, respectively                                                                                                      |       | —       |       | —           |       |
| Common stock - par value $.01, 200,000,000  shares authorized; 73,357,142 and 72,695,263 shares issued at June 30, 2005  and December 31, 2004, respectively; 72,265,644 and 71,634,412 shares  outstanding as of June 30, 2005 and December 31, 2004, respectively |       | 734          |       | 727              |       |
| Additional paid-in capital                                                                                                                                                                                                                                          |       | 621,145      |       | 617,958          |       |
| Treasury stock at cost (1,091,498 and  1,060,851shares as of June 30, 2005 and December 31, 2004, respectively)                                                                                                                                                     |       | (966         | )          | (766             | )          |
| Unearned compensation                                                                                                                                                                                                                                               |       | (78          | )          | —           |       |
| Accumulated other comprehensive income                                                                                                                                                                                                                              |       | 29           |       | —           |       |
| Accumulated deficit                                                                                                                                                                                                                                                 |       | (492,692     | )          | (491,100         | )          |
| Total stockholders’ equity                                                                                                                                                                                                                                     |       | 128,172      |       | 126,819          |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                                                     |       | $            | 149,079    |             | $          | 140,548 |   |

 

***The accompanying notes are an integral part of thesecondensed consolidated financial statements***

 

1

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***iVillageInc. and Subsidiaries***

***CondensedConsolidated Statements of Operations***

***(inthousands, except per share amounts)***

***(Unaudited)***

* *
| ** **                                                                                                 | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                 | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                                       |       |                             |       |                           |       |   |   |   |   |
| Revenues:                                                                                                  |       |                             |       |                           |       |   |   |   |   |
| Revenues                                                                                                   |       | $                                | 19,769     |                           | $          | 14,523 |   | $ | 35,492 |   | $ | 27,923 |   |
| Revenues – related parties                                                                            |       | 1,311                            |       | 1,975                          |       | 2,862 |   | 4,082 |   |
| Total revenues                                                                                             |       | 21,080                           |       | 16,498                         |       | 38,354 |   | 32,005 |   |
|                                                                                                       |       |                             |       |                           |       |   |   |   |   |
| Operating expenses:                                                                                        |       |                             |       |                           |       |   |   |   |   |
| Editorial, product development and  technology                                                             |       | 8,921                            |       | 7,013                          |       | 17,160 |   | 14,524 |   |
| Sales and marketing                                                                                        |       | 7,001                            |       | 4,723                          |       | 12,937 |   | 9,108 |   |
| General and administrative                                                                                 |       | 3,572                            |       | 2,885                          |       | 6,561 |   | 5,793 |   |
| Depreciation and amortization                                                                              |       | 2,311                            |       | 1,953                          |       | 4,115 |   | 3,757 |   |
| Total operating expenses                                                                                   |       | 21,805                           |       | 16,574                         |       | 40,773 |   | 33,182 |   |
| Loss from operations                                                                                       |       | (725                             | )          | (76                            | )          | (2,419 | ) | (1,177 | ) |
| Interest income, net                                                                                       |       | 358                              |       | 50                             |       | 710 |   | 68 |   |
| Other income, net                                                                                          |       | 16                               |       | 34                             |       | 16 |   | 86 |   |
| Gain on sale of joint venture interest                                                                     |       | 25                               |       | 76                             |       | ___101 |   | 243 |   |
| Net (loss) income                                                                                          |       | $                                | (326       | )                              | $          | 84 |   | $ | (1,592 | ) | $ | (780 | ) |
| Per share data:                                                                                            |       |                             |       |                           |       |   |   |   |   |
| Basic net (loss) income per share                                                                          |       | $                                | (0.00      | )                              | $          | 0.00 |   | $ | (0.02 | ) | $ | (0.01 | ) |
| Diluted net (loss) income per share                                                                        |       | $                                | (0.00      | )                              | $          | 0.00 |   | $ | (0.02 | ) | $ | (0.01 | ) |
| Weighted average shares of common stock  outstanding used in computing basic net (loss) income per share   |       | 72,230                           |       | 59,079                         |       | 72,080 |   | 58,761 |   |
| Weighted average shares of common stock  outstanding used in computing diluted net (loss) income per share |       | 72,230                           |       | 64,425                         |       | 72,080 |   | 58,761 |   |

* *

*The accompanying notes are an integral part of thesecondensed consolidated financial statements*

 

2

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***iVillageInc. and Subsidiaries***

***CondensedConsolidated Statements of Cash Flows***

***(inthousands)***

***(Unaudited)***

* *
| ** **                                                                                          | ** ** | **Six months ended June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                                                          | ** ** | **2005**                      | ** ** | **2004** | ** ** |
|                                                                                                |       |                          |       |   |   |
| Cash flows from operating activities:                                                               |       |                          |       |   |   |
| Net (loss) income                                                                                   |       | $                             | (1,592     | ) | $ | (780 | ) |
| Adjustments to reconcile net (loss) income  to net cash (used in) provided by operating activities: |       |                          |       |   |   |
| Depreciation and amortization                                                                       |       | 4,115                         |       | 3,757 |   |
| Deferred rent amortization                                                                          |       | (72                           | )          | (72 | ) |
| Bad debt expense                                                                                    |       | 12                            |       | — |   |
| Expense recognized in connection with  issuance/modification of terms of stock options              |       | 15                            |       | 19 |   |
| Gain on sale of joint venture interest                                                              |       | (101                          | )          | (243 | ) |
| Changes in operating assets and liabilities  net of effects of acquisitions:                        |       |                          |       |   |   |
| Accounts receivable                                                                                 |       | (2,024                        | )          | (971 | ) |
| Prepaid rent                                                                                        |       | 77                            |       | 75 |   |
| Other assets                                                                                        |       | 10                            |       | (681 | ) |
| Accounts payable and accrued expenses                                                               |       | (117                          | )          | 97 |   |
| Deferred revenue                                                                                    |       | (1,198                        | )          | 581 |   |
|                                                                                                |       |                          |       |   |   |
| Net cash (used in) provided by operating  activities                                                |       | (875                          | )          | 1,782 |   |
|                                                                                                |       |                          |       |   |   |
| Cash flows from investing activities:                                                               |       |                          |       |   |   |
| Purchase of fixed assets.                                                                           |       | (2,782                        | )          | (1,609 | ) |
| Cash paid less cash acquired for  acquisition of Healthology, Inc.                                  |       | (14,149                       | )          | — |   |
| Cash paid for acquisition of The Virtual  Mirror, Inc. .                                            |       | (5                            | )          | — |   |
| Cash paid less cash acquired for acquisition  of HealthCentersOnline, Inc. .                        |       | (9,403                        | )          | — |   |
| Cash paid for acquisition of assets of  iVillage UK Limited .                                       |       | (370                          | )          | — |   |
| Proceeds from the sale of joint venture  interest.                                                  |       | 101                           |       | 151 |   |
|                                                                                                |       |                          |       |   |   |
| Net cash used in investing activities                                                               |       | (26,608                       | )          | (1,458 | ) |
|                                                                                                |       |                          |       |   |   |
| Cash flows from financing activities:                                                               |       |                          |       |   |   |
| Proceeds from exercise of stock options and  warrants.                                              |       | 380                           |       | 1,094 |   |
| Principal payments on stockholders’ notes  receivable                                          |       | —                        |       | 197 |   |
| Cash provided by financing activities                                                               |       | 380                           |       | 1,291 |   |
|                                                                                                |       |                          |       |   |   |
| Effect of foreign exchange rate changed on  cash and cash equivalents                               |       | 29                            |       | — |   |
|                                                                                                |       |                          |       |   |   |
| Net (decrease) increase in cash for the  period                                                     |       | (27,074                       | )          | 1,615 |   |
| Cash and cash equivalents, beginning of  period                                                     |       | 83,046                        |       | 15,823 |   |
| Cash and cash equivalents, end of period                                                            |       | $                             | 55,972     |   | $ | 17,438 |   |

 

**Supplemental disclosure of non-cash investing and financingactivities:**

** **

**On January 7, 2005, iVillage acquired Healthology, Inc.partially through the issuance of our common stock and options to purchase ourcommon stock (see Note 7).**

** **

**On April 8, 2005, iVillage acquired HealthCentersOnline,Inc. partially through the issuance of our common stock (see Note 7).**

 

On May 5, 2005, iVillage received iVillage common stock in lieuof cash for the exercise of stock options (see Note 9-Capital Stock- TreasuryStock)

 

**During the six months ended June 30, 2005, iVillage wroteoff approximately $1.1 million of fixed assets which were fully depreciated.**

** **

*The accompanying notes are an integral part of these condensedconsolidated financial statements*

 

3

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**Note 1 – Organization and Basis of Presentation**

 

iVillage is “the Internet for women” and consists of several online andoffline media-based properties, including the iVillage.com Web site, or iVillage.com,Healthology, Inc., or Healthology, HealthCentersOnline, Inc., orHealthCentersOnline, iVillage Limited, operator of the iVillage.co.uk Web site,iVillage Consulting, The Virtual Mirror, Inc., operator of theGardenWeb.com Web site, or GardenWeb.com, Promotions.com, Inc.,Knowledgeweb, Inc., operator of the Astrology.com Web site, orAstrology.com, iVillage Parenting Network, Inc., or IVPN, and PublicAffairs Group, Inc., or PAG. Following is a synopsis of certain of ouroperational activities, subsidiaries and divisions:

 
| iVillage.com        |   | An online destination providing practical solutions on a range of  topics and everyday support for women 18 years of age and over.                                                                                                                                                                                                                                                                                                                             |
|---------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Healthology         |   | Acquired on January 7, 2005, Healthology distributes physician-generated  videos and articles providing health and medical information via the  Healthology.com Web site, or Healthology.com, and a syndication network, and  provides Web site creation and development services to healthcare related  organizations.                                                                                                                                        |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| HealthCentersOnline |   | Acquired on April 8, 2005, HealthCentersOnline provides healthcare  information on the Internet for patients and their families and helps  patients understand the complex nature of various conditions, diagnostic  tests, treatment options and preventive care. HealthCentersOnline creates  health content through a unique blend of original physician-edited articles,  useful health tools and high impact instructional animations and  illustrations. |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| iVillage Limited    |   | On April 29, 2005, iVillage, through its subsidiary iVillage Limited,  acquired from iVillage UK Limited, a subsidiary of Tesco Stores Limited,  certain assets relating to the iVillage.co.uk Web site, an online destination  providing                                                                                                                                                                                                                      |

 

4

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**iVillage Inc. and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements**

**(Unaudited)**

 
|                 |   | practical solutions on a range of topics and everyday support for  women 18 years of age and over.                                                                                                                                                                                                                                                                                        |
|----------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| iVillage Consulting  |   | Assists companies in the creation and development of Web sites,  digital commerce platforms and other aspects of technological  infrastructures, primarily for Hearst Communications, Inc., and its  affiliates, or Hearst, a related party.                                                                                                                                              |
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| GardenWeb.com        |   | An online destination offering an online community and reference  tools focused on horticulture.                                                                                                                                                                                                                                                                                          |
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| Promotions.com, Inc. |   | Comprised of two divisions: Promotions.com and Webstakes.com, which  offer online and offline promotions and direct marketing programs that are  integrated with customers’ marketing initiatives.                                                                                                                                                                                   |
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| Astrology.com        |   | An online destination for individuals seeking daily horoscopes,  astrological content and personalized forecasts online.                                                                                                                                                                                                                                                                  |
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| IVPN                 |   | A holding company for iVillage Integrated Properties, Inc., or IVIP,  the operator of The Newborn Channel and Lamaze Publishing Company, or Lamaze  Publishing, publisher of Lamaze Parents, which collectively provide  informational and instructional magazines, custom publications, television  programming, videos and online properties of interest to expectant and new  parents. |
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| PAG                  |   | Comprised of three divisions: Business Women’s Network, Diversity  Best Practices and Best Practices in Corporate Communications, each offering  an extensive database of pertinent information and events to subscribing companies  and members, and relevant publications.                                                                                                         |

 

Management believes that iVillage’s current funds will be sufficient toenable iVillage to meet its planned expenditures through at least the nexttwelve months. Factors that could adversely affect iVillage’s operationsinclude the loss of any of iVillage’s major customers, a significant downturnin the advertising market or economy in general, and iVillage’s ability togenerate significantly increased annual revenues.

 

iVillage is subject to the risks and uncertainties frequentlyencountered by companies in the rapidly evolving markets for Internet and mediaproducts and services. These risks include the failure to develop and extendiVillage’s brands, the non-acceptance or rejection of iVillage’s services byWeb consumers, vendors, sponsors and/or advertisers and the inability ofiVillage to maintain and increase the levels of traffic on its online services.In the event iVillage does not successfully implement its business plan,certain assets may not be recoverable.

 

5

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*UnauditedInterim Financial Information*

 

The unaudited interim condensed consolidated financial statements ofiVillage as of June 30, 2005 and for the three and six months ended June 30,2005 and 2004, respectively, included herein, have been prepared in accordancewith the instructions for Form 10-Q under the Securities Exchange Act of 1934,as amended, or the Exchange Act, and Article 10 of Regulation S-X of the rulesand regulations of the Securities and Exchange Commission. Certain informationand footnote disclosures normally included in financial statements prepared inaccordance with generally accepted accounting principles have been condensed oromitted pursuant to such rules and regulations relating to interim financialstatements. These financial statements should be read in conjunction withiVillage’s Annual Report on Form 10-K for the fiscal year ended December 31,2004.

 

In the opinion of management, the accompanying unaudited interim condensedconsolidated financial statements reflect all adjustments, consisting only ofnormal recurring adjustments and appropriate intercompany eliminationadjustments, necessary to state fairly the financial position of iVillage atJune 30, 2005 and the results of its operations and its cash flows for thethree and six months ended June 30, 2005 and 2004, respectively. The resultsfor the three and six months ended June 30, 2005 are not necessarily indicativeof the expected results for the full fiscal year or any future period.

 

*Principles of Consolidation*

 

The unaudited interim condensed consolidated financial statementsinclude the accounts of iVillage and its subsidiaries. Intercompany balancesand transactions have been eliminated in consolidation.

 

In accordance with Statement of Financial Accounting Standard, or SFAS,No. 131, “Disclosures About Segments of an Enterprise and Related Information”,or SFAS 131, segment information is being reported consistent with iVillage’smethod of internal reporting. In accordance with SFAS 131, operating segmentsare defined as components of an enterprise for which separate financialinformation is available that is evaluated regularly by the chief operatingdecision maker in deciding how to allocate resources and in assessingperformance. iVillage is organized primarily by subsidiaries and divisions.iVillage’s subsidiaries and divisions have no operating managers who report tothe chief operating decision maker. The chief operating decision maker reviewsinformation at a consolidated results of operations level, although the chiefoperating decision maker does review revenue results of subsidiaries anddivisions. As a result, iVillage’s discussion of revenue has been organizedinto separate subsidiaries and divisions, however operating expenses andresults of operations are discussed on a combined basis.

 

*Revenues, Receivables and Customer Concentration*

 

Our five largest customers accounted for approximately 20% of totalrevenues for the three months ended June 30, 2005, and approximately 21% oftotal revenues for the six months ended June 30, 2005. No single customer accounted for more than10% of our total revenues for the three and six months ended June 30,2005. iVillage’s five largest customers accounted for

 

6

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approximately 28% of total revenues for the three months ended June 30,2004, and approximately 32% of total revenues for the six months ended June 30,2004. One customer, Hearst, a related party, accounted for approximately 12% oftotal revenues for the three months ended June 30, 2004. Wal-Mart Stores, Inc.and its affiliates, or Wal-Mart and Hearst, each accounted for approximately12% of total revenues for the six months ended June 30, 2004. At June 30, 2005 and December 31, 2004, nosingle customer accounted for more than 10% of total net accounts receivable.The significance of revenues from anyof our customers can vary on a quarter to quarter basis as a result of thenumber and timing of such customers’ advertising and marketing initiatives.We anticipate that our results of operations in any given period will continueto depend to a significant extent on revenues from a small number of customers.

 

Included in total revenues are barter transactions which totaledapproximately $1.6 million, or 8% of total revenues, for the three months endedJune 30, 2005, and approximately $3.3 million, or 9% of total revenues, for thesix months ended June 30, 2005.  For thecorresponding period in 2004, barter transactions totaled approximately $1.1million, or 7% of total revenues, for the three months ended June 30, 2004, andapproximately $2.0 million, or 6% of total revenues, for the six months endedJune 30, 2004.

 

*Fixed Assets and Intangibles*

 

Depreciation of equipment, furniture and fixtures, and computersoftware is provided for by the straight-line method over their estimateduseful lives ranging from one to five years. Amortization of leaseholdimprovements is provided for over the lesser of the term of the related leaseor the estimated useful life of the improvement. The cost of additions andexpenditures which extend the useful lives of existing assets are capitalized,and repairs and maintenance costs are charged to operations as incurred.Amortization of intangible assets are over the expected life of the relatedasset and range from one to ten years. iVillage has adopted SFAS No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets”, or SFAS 144, regardingthe recognition and measurement of the impairment of long-lived assets to beheld and used.

 

iVillage assesses the recoverability of its fixed assets and intangibleassets by determining whether the unamortized balance over the assets remaininglife can be recovered through undiscounted forecasted cash flows. Ifundiscounted forecasted cash flows indicate that the unamortized amounts willnot be recovered, an adjustment will be made to reduce the net amounts to anamount consistent with forecasted future cash flows discounted at a rate commensuratewith the risk associated when estimating future discounted cash flows. Futurecash flows are based on trends of historical performance and iVillage’sestimate of future performances, giving consideration to existing andanticipated competitive and economic conditions.

 

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*Web Site DevelopmentCosts*

 

iVillage accounts for Web site developmentcosts in accordance with the provisions of Emerging Issues Task Force, or EITF,Issue No. 00-2, “Accounting for Web Site Development Costs”, or EITF 00-2,which requires that certain costs to develop Web sites be capitalized orexpensed, depending on the nature of the costs. Amortization of Web sitedevelopment costs is provided for by the straight-line method over theestimated useful life of two years. Development costs of approximately $0.7million for the six months ended June 30, 2005 were capitalized. Amortizationexpense of Web site development costs was approximately $0.2 million for thethree months ended June 30, 2005 and approximately $0.3 million for six monthsended June 30, 2005.  Development costsof approximately $0.2 million were capitalized for the six months ended June30, 2004.  Amortization expense of noamount was recorded for the three months ended June 30, 2004 and approximately$25,000 was recorded for the six months ended June 30, 2004.  Amortization expense of Web site developmentcosts is included in Depreciation and amortization in the condensed consolidatedstatements of operations.

 

*Goodwill*

 

SFAS No. 141, “Business Combinations”, or SFAS 141, requires allbusiness combinations to be accounted for using the purchase method ofaccounting and that certain intangible assets acquired in a businesscombination shall be recognized as assets apart from goodwill. Goodwill is notsubject to amortization and is tested for impairment annually, or morefrequently if events or changes in circumstances indicate that the asset may beimpaired in accordance with SFAS No. 142, “Goodwill and Other IntangibleAssets”, or SFAS 142. The impairment test consists of a comparison of the fairvalue of the reporting unit with its carrying amount. If the carrying amount ofthe reporting unit exceeds its fair value then an analysis will be performed tocompare the implied fair value of goodwill with the carrying amount ofgoodwill. An impairment loss will be recognized in an amount equal to thedifference. Fair value is typically based upon future cash flows discounted ata rate commensurate with the risk involved or market based comparables. Afteran impairment loss is recognized, the adjusted carrying amount of goodwill isits new accounting basis.(See Note 2 – Goodwill).

 

*Foreign Currency Translation*

 

iVillage’s’s condensed consolidated financial statements are reportedin U.S. dollars as that is the reporting currency. The Company’s foreignsubsidiary, iVillage Limited, maintains its records in the currency of thecountry within which it operates. Under SFAS No. 52, “Foreign CurrencyTranslation”, the British Pound is the functional currency. Accordingly, thebalance sheet accounts of iVillage Limited are translated into U.S. dollars atthe rate of exchange in effect as of the balance sheet date. Revenue andexpenses are translated at the average exchange rate prevailing during theperiod. Translation adjustments are reported in other comprehensive incomewithin stockholders’ equity.  Thecumulative effect of the foreign currency translation was approximately $29,000at June 30, 2005.

 

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*Comprehensive Income*

 

iVillage reflects its comprehensive (loss) income such as unrealizedgains and losses on the Company’s foreign currency translation adjustments as aseparate component of stockholders’ equity as required by SFAS No. 130, “Reporting Comprehensive Income*”*. iVillage has not recorded thetax effects related to the currency translation adjustments because suchadjustments relate to indefinite investments in international subsidiaries.Comprehensive (loss) income consists of net (loss) income and foreign currencytranslation adjustments. Comprehensive loss was $0.3 million for the threemonths ended June 30, 2005 and comprehensive income was approximately $0.1million for the three months ended June 30, 2004. Comprehensive loss wasapproximately $1.6 million for the six months ended June 30, 2005 and $0.8million for the six months ended June 30, 2004.

 

*Use of Estimates*

 

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amount ofassets and liabilities, disclosure of contingent assets and liabilities at thedate of the financial statements, and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from these estimates.  Significant estimates and assumptions made byiVillage include those related to fair values utilized to allocate revenueunder the Financial Accounting Standards Board, or FASB, Emerging Issues TaskForce, or EITF, Issue No. 00-21 “Accounting for Revenue Arrangements withMultiple Deliverables,” or EITF 00-21, the useful lives of fixed assets andintangible assets, the recoverability of fixed assets, goodwill, intangibleassets and deferred tax assets, the allocation of purchase price to the netassets acquired in acquisitions and deferred tax assets, the allowance fordoubtful accounts and the assessment of expected probable losses (if any) ofclaims and potential claims.

 

*Accrued Expenses*

 

In the ordinary course of business, iVillage utilizes estimates todetermine the accrual of certain operating expenses. These estimates arereviewed on an ongoing basis to determine the adequacy of these accruals. For thethree and six month periods ended June 30, 2005, iVillage reversed nopreviously established accruals. iVillage reversed approximately $0.3 millionof accruals included in operating expenses primarily due to the renegotiationof a vendor contract with substantial changes in the terms and conditions ofthe original contract which provided a one-time benefit in the three and sixmonth periods ended June 30, 2004.

 

*Income Taxes*

 

iVillage recognizes deferred taxes by the asset and liability method ofaccounting for income taxes in accordance with the provisions of SFAS No. 109, “Accountingfor Income Taxes”. Deferred income taxes are recognized for differences betweenthe financial statement and tax bases of assets and liabilities at enactedstatutory tax rates in effect for the years in which the differences areexpected to reverse. The effect on deferred taxes of a change in tax rates isrecognized in income in the period that includes the enactment date. Inassessing the realizability of deferred tax assets, iVillage considers whetherit is more likely than not that some portion or

 

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all of the deferred tax assets will not be realized. The ultimaterealization of deferred tax assets is dependent upon the generation of futuretaxable income or reversal of deferred tax liabilities during the periods inwhich those temporary differences become deductible. iVillage considers thescheduled reversal of deferred tax liabilities, projected future taxableincome, and tax planning strategies in making this assessment.

 

The difference between our U.S. federal statutory rate of 34%, as wellas our state and local rate, net of our federal benefit of 7%, when compared toour actual effective tax rate of 0%, is principally attributed to the valuationallowance provided for our deferred tax assets generated during the period.iVillage has a full valuation allowance on our net deferred tax assets. If wegenerate pre tax income in future periods, a partial or full reversal of thevaluation allowance against the deferred tax assets may be required, and suchreversal may be material in the period in which the reversal is recorded. Thedecision to reverse the valuation allowance will, among other things, considerour profitability in recent periods, as well as our future profitability andavailable tax planning strategies.

 

*Net Income (Loss) Per Share*

 

Basic net income (loss) per share is computed using theweighted-average number of common shares outstanding during the period.  Diluted net income (loss) per share iscomputed using the weighted-average number of common shares and common stockequivalents outstanding during the period. Common stock equivalent shares are excluded from the computation iftheir effect is anti-dilutive.

 

Included in the June 30, 2005 and June 30, 2004 calculation of weightedaverage number of shares of common stock outstanding are 54,636 shares and58,394 shares, respectively, which have not been issued.  These shares are being held for formerWomen.com Networks, Inc., or Women.com, and Promotions.com stockholders thathave not yet exchanged their respective shares for shares of iVillage duringthe periods presented, but are entitled to do so.

 

Stockoptions and warrants in the amount of 8,772,534**sharesfor the three and six months ended June 30, 2005 were not included in thecomputation of diluted net loss per share as they were anti-dilutive.  Stock options and warrants in the amount of901,811 shares for the three months ended June 30, 2004, were not included inthe computation of diluted net income per share as they wereanti-dilutive.  Stock options andwarrants in the amount of 8,445,590 shares for the six months ended June 30,2004, were not include in the computation of diluted net loss per share as theywere anti-dilutive as a result of net losses for the period.

 
| ** **                                                        | ** ** | **Three months ended June 30,**                 | ** ** | **Six months ended June 30,** | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                        | ** ** | **2005**                                        | ** ** | **2004**                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                        | ** ** | **($ in thousands except per share data)** | ** ** |
| Net (loss) income- as reported                                    |       | $                                               | (326       | )                             | $          | 84 |   | $ | (1,592 | ) | $ | (780 | ) |
| Weighted average shares of common stock  outstanding - basic      |       | 72,230                                          |       | 59,079                        |       | 72,080 |   | 58,761 |   |
| Assumed conversion of dilutive securities                         |       | —                                          |       | 5,346                         |       | — |   | — |   |
| Weight average shares of common stock  outstanding – diluted |       | 72,230                                          |       | 64,425                        |       | 72,080 |   | 58,761 |   |
| Basic net (loss) income per share                                 |       | $                                               | (0.00      | )                             | $          | 0.00 |   | $ | (0.02 | ) | $ | (0.01 | ) |
| Diluted net (loss) income per share                               |       | $                                               | (0.00      | )                             | $          | 0.00 |   | $ | (0.02 | ) | $ | (0.01 | ) |

 

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*Stock-Based Compensation*

 

iVillage appliesAccounting Principles Board Opinion, or APB, No. 25, “Accounting for StockIssued to Employees”, or APB 25, and related interpretations in accounting forits stock option issuances, and has adopted the disclosure-only provisions ofSFAS No. 123, “Accounting for Stock-Based Compensation”, or SFAS 123. Nocompensation cost related to grants of stock options was reflected in iVillage’snet (loss) income, as all options granted under the plans had an exercise priceat least equal to the market value of the underlying common stock on the dateof grant. In January 2005, in conjunction with the acquisition of Healthology(See Note 7 – Business Acquisitions), all outstanding options to purchaseHealthology common stock were converted into options to purchase shares ofiVillage common stock at a predetermined exchange ratio.  The fair value of the converted options asdetermined by the Black Scholes model was $0.3 million. A deferred compensationcharge of approximately $0.1 million was calculated as a portion of theconverted options were unvested at the time of acquisition date and contained acontinued service requirement. Compensation cost related to the convertedHealthology options, as well as a modification of stock option terms ingeneral, is measured at the fair value of iVillage’s common stock at themeasurement date and is amortized to expense over the vesting period.Compensation costs related to the converted Healthology options wasapproximately   $12,000 for the threemonths ended June 30, 2005 and $15,000 for the six months ended June 30, 2005.Forfeitures related to the converted Healthology options were approximately$17,000 for the three and six months ended June 30, 2005.  For the three and six months ended June 30,2005, there was no compensation costs related to the modification of stockoption terms.  For the three and sixmonths ended June 30, 2004, compensation costs related to the modification ofstock option terms was approximately $19,000. If compensation cost for iVillage’sstock options, utilizing the Black Scholes model, had been determined based onthe fair value of the stock options at the grant date for awards in the threeand six months ended June 30, 2005 and 2004 consistent with the provisions ofSFAS 123, iVillage’s net loss would have been adjusted to the pro forma amountsindicated below:

 
| ** **                                                        | ** ** | **Three months ended  June 30,**                | ** ** | **Six months ended  June 30,** | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                        | ** ** | **2005**                                        | ** ** | **2004**                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                        | ** ** | **($ in thousands except per share data)** | ** ** |
| Net (loss) income - as reported                                   |       | $                                               | (326       | )                              | $          | 84 |   | $ | (1,592 | ) | $ | (780 | ) |
| Add: Stock-based compensation expense  determined under APB 25    |       | 12                                              |       | 19                             |       | 15 |   | 19 |   |
| Less: Stock-based compensation expense  determined under SFAS 123 |       | (838                                            | )          | (638                           | )          | (1,606 | ) | (1,598 | ) |
| Net loss - pro forma                                              |       | $                                               | (1,152     | )                              | $          | (535 | ) | $ | (3,183 | ) | $ | (2,359 | ) |
| Basic and diluted net loss per share – as  reported          |       | $                                               | (0.00      | )                              | $          | 0.00 |   | $ | (0.02 | ) | $ | (0.01 | ) |
| Basic and diluted net loss per share – pro  forma            |       | $                                               | (0.02      | )                              | $          | (0.01 | ) | $ | (0.04 | ) | $ | (0.04 | ) |

 

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Because options vest overseveral years and additional option grants are expected to be made in futureyears, the above pro forma results are not representative of the pro formaresults for the full fiscal year or any future periods.

 

The weighted averageassumptions used for grants made in 2005 and 2004 are as follows:

 

| ** **              | ** ** | **Options granted during the  six months ended  June 30,** | ** ** |
|-------------------------|------------|------------------------------------------------------------|------------|
| ** **              | ** ** | **2005**                                                   | ** ** | **2004** | ** ** |
|                    |       |                                                       |       |   |   |
| Risk-free interest rate |       | 3.36                                                       | %          | 2.71 | % |
| Expected option life    |       | 3 years                                                    |       | 4 years |   |
| Dividend yield          |       | 0.00                                                       | %          | 0.00 | % |
| Volatility              |       | 80                                                         | %          | 91 | % |

 

*Recent Accounting Pronouncements*

 

In December 2004, the FASB issued SFAS Statement No. 123(R), “Share-BasedPayments”, or SFAS 123(R), which revises SFAS 123, supersedes APB 25 and amendsFASB Statement No. 95 “Statement of Cash Flows”, or FAS 95. The statementrequires companies to expense the fair value of employee stock options andother forms of stock-based compensation.

The statement addresses the accounting for share-based paymenttransactions in which iVillage receives employee services in exchange foreither equity instruments of iVillage or liabilities that are based on the fairvalue of iVillage’s equity instruments or that may be settled by the issuanceof such equity instruments. In addition, iVillage’s stock employee purchaseplan will need to be modified to comply with SFAS 123(R). This statement iseffective for public companies for interim or annual periods beginning January1, 2006.  The statement could have asignificant impact on the consolidated statement of operations as iVillage willbe required to expense the fair value of stock option grants. iVillage has notyet determined which adoption method it will utilize.

 

In December 2004, theFASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APBOpinion No. 29”, or SFAS 153.  SFAS 153eliminates an exception for

 

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nonmonetary exchanges of similar productiveassets under APB Opinion No. 29, and replaces it with a general exception forexchanges of nonmonetary assets that do not have commercial substance.  SFAS 153 is to be applied prospectively andis effective for nonmonetary asset exchanges occurring in fiscal periodsbeginning after June 15, 2005.  iVillagebelieves that the future adoption of SFAS 153 will not have a material impacton its financial statements.

 

In May 2005, FASB issued Statement No. 154, “Accounting Changes andError Corrections”, or SFAS 154. SFAS 154 requires retrospective application toprior periods’ financial statements of changes in accounting principle. It alsorequires that the new accounting principle be applied to the balances of assetsand liabilities as of the beginning of the earliest period for whichretrospective application is practicable and that a corresponding adjustment bemade to the opening balance of retained earnings for that period rather thanbeing reported in an income statement. The statement will be effective foraccounting changes and corrections of errors made in fiscal years beginningafter December 15, 2005. The Company does not expect the adoption of SFAS 154to have a material effect on the Company’s consolidated financial position orresults of operations.

 

**Note 2 – Goodwill**

 

Intangible assets with indefinite lives and goodwill are not amortized,but are tested at least annually for impairment, or if circumstances changethat will more likely than not reduce the fair value of the reporting unitbelow its carrying amount. iVillage performs its annual impairment analysis inthe fourth quarter of the fiscal year. In December 2004, iVillage completed theannual impairment test and no impairment was recognized.

 

During the six months ended June 30, 2005, iVillage acquired Healthology, Inc., HealthCentersOnline, Inc. andiVillage Limited (See Note 7 – Business Acquisitions), and incurredapproximately $5,000 of additional costs related to the acquisition of TheVirtual Mirror, Inc., which was acquired in November 2004. The following tablesets forth the components of goodwill, net as of December 31, 2004 and June 30,2005 (in thousands):

 
| ** **              | ** ** | **December 31,  2004** | ** ** | **Acquisition** | ** ** | **Impairment  losses** | ** ** | **June 30,  2005** | ** ** |
|-------------------------|------------|------------------------|------------|-----------------|------------|------------------------|------------|--------------------|------------|
| Reporting unit – 1 |       | $                      | 19,778     |            | $          | 19,817                 |       | $                  | —     |   | $ | 39,595 |   |
| Reporting unit – 2 |       | 1,693                  |       | —          |       | —                 |       | 1,693              |       |
| Reporting unit – 3 |       | 1,770                  |       | —          |       | —                 |       | 1,770              |       |
|                    |       | $                      | 23,241     |            | $          | 19,817                 |       | $                  | —     |   | $ | 43,058 |   |

 

Reporting unit – 1 includes iVillage Inc., Women.comNetworks, Inc., Healthology, Inc., HealthCentersOnline, Inc., iVillage Limited,The Virtual Mirror, Inc., Knowledgeweb, Inc., and Cooperative Beauty Ventures,L.L.C.

 

Reporting unit – 2 includes iVillage ParentingNetwork, Inc., Lamaze Publishing Company and iVillage Integrated Properties,Inc.

 

Reportingunit – 3 includes Public Affairs Group, Inc.

 

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**Note 3 -Intangible Assets**

 

iVillage reviews for the impairment of long-lived assets and certainidentifiable intangibles whenever events or changes in circumstances indicatethat the carrying amount of an asset may not be recoverable in accordance withthe provisions of SFAS 144.  During thesix months ended June 30, 2005, iVillage acquired Healthology,HealthCentersOnline, Inc. and iVillage Limited (See Note 7 – BusinessAcquisitions).

 

Identifiable intangible assets are amortized under the straight-line oraccelerated method over the period of expected benefit ranging from one to tenyears.  The following table sets forththe components of the intangible assets subject to amortization as of June 30,2005 and December 31, 2004 (in thousands):

 
| ** **                                          | ** ** | ** **      | ** ** | **June 30,  2005** | ** ** | **December  31, 2004** | ** ** |
|-----------------------------------------------------|------------|-----------------|------------|--------------------|------------|------------------------|------------|
| ** **                                          | ** ** | **Range****of** | ** ** | **Gross**          | ** ** | ** **             | ** ** | ** ** | ** ** | ** ** | ** ** | **Gross** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                          | ** ** | **useful**      | ** ** | **carrying**       | ** ** | ** **             | ** ** | **Accumulated** | ** ** | ** ** | ** ** | **carrying** | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
| ** **                                          | ** ** | **life**        | ** ** | **amount**         | ** ** | **Acquisition**        | ** ** | **amortization** | ** ** | **Net** | ** ** | **amount** | ** ** | **amortization** | ** ** | **Net** | ** ** |
| Advertiser and  member lists and customer contracts |       | 2-10 years      |       | $                  | 20,777     |                   | $          | 4,486 |   | $ | (15,094 | ) | $ | 10,169 |   | $ | 20,777 |   | $ | (13,719 | ) | $ | 7,058 |   |
| Trademarks and  domain names.                       |       | 3 years         |       | 3,364              |       | 1,473                  |       | (3,443 | ) | 1,394 |   | 3,364 |   | (3,200 | ) | 164 |   |
| Licensing  agreement                                |       | 10 years        |       | 2,900              |       | —                 |       | (1,700 | ) | 1,200 |   | 2,900 |   | (1,555 | ) | 1,345 |   |
| Technology.                                         |       | 3 years         |       | 935                |       | 64                     |       | (925 | ) | 74 |   | 935 |   | (821 | ) | 114 |   |
| Non-competition  agreements                         |       | 1-2 years       |       | 810                |       | 202                    |       | (856 | ) | 156 |   | 810 |   | (810 | ) | — |   |
| Content                                             |       | 3-4 years       |       | 757                |       | 5,504                  |       | (1,497 | ) | 4,764 |   | 757 |   | (606 | ) | 151 |   |
|                                                |       |            |       | $                  | 29,543     |                   | $          | 11,729 |   | $ | (23,515 | ) | $ | 17,757 |   | $ | 29,543 |   | $ | (20,711 | ) | $ | 8,832 |   |

 

Amortization expense for the three months ended June 30, 2005 wasapproximately $1.6 million and $2.8 million for the six months ended June 30,2005. Amortization expense for the three months ended June 30, 2004 was approximately$1.2 million and $2.3 million for the six months ended June 30, 2004.

 

Estimatedamortization expense for the twelve months ending June 30 are as follows (inthousands):

 

| 2006   |   | $     | 5,909  |   |
|--------|--------|-------|--------|--------|
| 2007   |   | 5,296 |   |
| 2008   |   | 4,047 |   |
| 2009   |   | 2,260 |   |
| 2010   |   | 245   |   |
|   |   | $     | 17,757 |   |

 

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**Note 4 – Deferred Gain on Sale of Joint Venture Interest**

 

In March 2003, iVillage and Tesco.com Limited, a division of Tesco,PLC, or Tesco, restructured the terms of their joint venture so that Tescopurchased iVillage’s entire ownership interest in iVillage UK. iVillage andTesco also entered into a twenty-year license agreement for the use of certainof iVillage’s content and intellectual property subject to earlier terminationupon the occurrence of certain events, for the greater of a minimum monthlylicense fee or a percentage of iVillage UK’s gross revenues. In April, 2005 inconnection with the asset acquisition (See Note 7 – Business Acquisitions),iVillage UK Limited and iVillage terminated a license agreement.

 

All moniesreceived by iVillage under the license agreement have been classified as otherincome and have been included in the condensed consolidated statements ofoperations as a gain on sale of joint venture interest. iVillage has earnedapproximately $25,000 for the three months ended June 30, 2005, andapproximately $0.1 million for the six months ended June 30, 2005. iVillageearned approximately $0.1 million for the three months ended June 30, 2004 and$0.2 million for the six months ended June 30, 2004 for services provided.  As of June 30, 2005, iVillage was owed noamount and at December 31, 2004, iVillage was owed approximately $0.1 millionfor license fees.

 

**Note 5 –Discontinued Operations**

 

As of June30, 2005 and December 31, 2004, approximately $24,000 of current liabilities ofdiscontinued operations are included in the caption “Other current liabilities”in the condensed consolidated balance sheets, respectively.

 

**Note 6 – Related Party Transactions**

 

***America Online,Inc., a division of Time Warner Inc.***

 

AmericaOnline, Inc., a division of Time Warner Inc., or AOL, is a stockholder ofiVillage.  Additionally, a member of theboard of directors was an employee of AOL through June 2004.  Since the fourth quarter of 2004, AOL is nolonger reported as a related party.

 

Included inthe caption “Revenues-related parties” in the condensed consolidated statementsof operations is approximately $47,000 for the three months ended June 30, 2004and

 

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approximately$0.1 million for the six months ended June 30, 2004 relating to revenuesrecognized from AOL.

 

***HearstCommunications, Inc.***

 

As of June 30, 2005, Hearst owned approximately 25% of iVillage’soutstanding common stock.

 

From time to time, iVillage has provided production services outsidethe scope of its Web site services and amended and restated magazine contentand hosting agreements with Hearst.

 

Revenues, net of royalty payments, from Hearst, were approximately$1.3 million for the three months ended June 30, 2005, andapproximately $2.8 million for the six months ended June 30, 2005.  Revenues, net of royalty payments, fromHearst, were approximately $1.9 million for the three months endedJune 30, 2004, and approximately $3.8 million for the six months endedJune 30, 2004. iVillage was owed a net receivable from this stockholder ofapproximately $0.1 million as of June 30, 2005 and approximately$0.4 million as of December 31, 2004.

 

***Catalyst GroupDesign, Inc.***

 

Our Senior Vice President and Editor-in-Chief is the spouse of theChief Executive Officer of Catalyst Group Design, Inc., or Catalyst GroupDesign. In 2004, iVillage entered into several agreements totalingapproximately $0.3 million with Catalyst Group Design for services relatedto the redesign of iVillage’s Web site and several revenue contracts ofiVillage. In the first quarter of 2005, iVillage entered into one agreementwith Catalyst Group Design for services related to the redesign of iVillage’sAstrology.com Web site for approximately $0.1 million.  To date, iVillage has capitalizedapproximately $0.1 million of these fees as Web site development costs andapproximately $0.1 million as prepaid expenses. For the three months ended June30, 2005, approximately $17,000 was expensed and for the six months ended June30, 2005, approximately $36,000 was expensed. There are no comparable amounts for the periods in 2004.  As of June 30, 2005 and December 31, 2004,iVillage owed Catalyst Group Design approximately $0.1 million.

 

***WaterfrontMedia, Inc.***

 

Our Chief Executive Officer and another board member of iVillage, HabibKairouz, both serve on the board of directors of one of our customers,Waterfront Media Inc., or Waterfront Media. Our Chief Executive Officer ownsless than one percent of Waterfront Media’s fully diluted securities. As aManaging Partner of Rho Capital Partners, Inc., Habib Kairouz may bedeemed to have indirect beneficial ownership of approximately 33% of WaterfrontMedia’s fully diluted voting securities as a result of shares owned directly byaffiliates of Rho Capital Partners, Inc.

 

During the first quarter of 2005, iVillage signed, launched andcompleted one new advertising agreement with Waterfront Media, and alsocompleted the remaining contract from 2004. Revenues from Waterfront Media wereno amount for the three months ended June 30, 2005

 

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and approximately $0.1 million for the six months ended June 30, 2005.Revenues from Waterfront Media were no amount for the three months ended June30, 2004 and approximately $0.2 million for the six months ended June 30, 2004.At June 30, 2005, iVillage was owed a receivable of approximately $20,000, andat December 31, 2004, iVillage was owed a receivable of approximately$44,000.

 

**Note 7 – Business Acquisitions**

 

***Healthology, Inc.***

 

On January 7, 2005, iVillage acquired all of the outstanding equity ofHealthology, a privately held company that is a leading producer anddistributor of physician-generated video- and article-based health and medicalinformation (via the internet). The aggregate purchase price, inclusive ofclosing costs of approximately $0.5 million, was approximately $17.5 millionconsisting of approximately $15.9 million in cash, 205,908 shares of iVillage’scommon stock with the fair value of $1.2 million based on the five day closingprice of iVillage’s common stock as reported by the NASDAQ National Market onthe two days prior to, the day of and the two days following the acquisitiondate, and $0.3 million of common stock options (See Note 1-Organization andBasis of Presentation-Stock Based Compensation). Approximately $1.7 million ofthe purchase price was deposited into an escrow fund to cover possibleindemnification claims.  Approximately$0.6 million of the escrow fund, representing the cash portion, is eligible forrelease after 18 months, with the remaining portion, consisting solely ofstock, eligible for release after 24 months.  The difference between the purchase price and the fair value of theacquired net assets of Healthology of approximately $14.0 million was recordedas goodwill (See Note 2-Goodwill).  Inthe second quarter of 2005, we recorded an additional approximately $0.3million of goodwill due primarily to additional transaction costs and to recordadditional pre-acquisition liabilities which are reflected in the below table.

 

The cost of the acquisition was allocated to the assets acquired andliabilities assumed based upon their estimated fair values as follows (inthousands):

 
| Cash                                  |   | $      | 1,788  |   |
|---------------------------------------|--------|--------|--------|--------|
| Accounts receivable                   |   | 2,121  |   |
| Other current assets                  |   | 105    |   |
| Accounts payable and accrued expenses |   | (1,096 | )      |
| Deferred revenue                      |   | (5,456 | )      |
| Deferred compensation                 |   | 84     |   |
| Fixed assets                          |   | 54     |   |
| Content                               |   | 2,914  |   |
| Customer contracts                    |   | 1,884  |   |
| Domain names                          |   | 913    |   |
| Non-competition agreement             |   | 181    |   |
| Technology                            |   | 64     |   |
| Goodwill                              |   | 13,964 |   |
|                                  |   | $      | 17,520 |   |

 

A portion of the content intangible asset acquired is being amortizedon an accelerated basis.  Theamortization expense relating to the acquired intangible assets has noassociated tax impact since the acquisition of Healthology was a stock purchaseand any acquired intangible

 

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assets would not be deductible for tax purposes.   In addition,goodwill is not tax deductible.   No pro forma informationis included as the acquisition of Healthology would not have had a materialimpact on the consolidated results of operations of iVillage.

 

***HealthCentersOnline, Inc.***

 

On April 8, 2005, iVillage acquired all of the outstanding equity ofHealthCentersOnline, Inc., a privately-held, online destination forphysician-edited information on health conditions, treatments and preventativecare for patients.  The aggregatepurchase price, inclusive of closing costs of approximately $0.2 million, wasapproximately $12.2 million, consisting of approximately $11.2 million in cashand 166,945 shares of iVillage common stock with a fair value of $1.0 millionbased on the five day closing price of iVillage’s common stock as reported bythe NASDAQ National Market on the two days prior to, the day of and the twodays following the announcement date. $1.8 million of the purchase price wasdeposited into an escrow fund to cover possible indemnification claims and is eligiblefor release after 18 months.  Thedifference between the purchase price and the fair value of the acquired netassets of HealthCentersOnline of approximately $5.8 million was recorded asgoodwill (See Note 2-Goodwill). iVillage has not finalized the allocation ofthe purchase price.  iVillage, however,does not expect the final allocation to differ materially from the preliminaryallocation.

 

The cost of the acquisition was allocated to the assets acquired andliabilities assumed based upon their estimated fair values as follows (inthousands):

 
| Cash.                                 |   | $      | 1,740  |   |
|---------------------------------------|--------|--------|--------|--------|
| Accounts receivable                   |   | 623    |   |
| Other current assets                  |   | 76     |   |
| Other assets                          |   | 26     |   |
| Accounts payable and accrued expenses |   | (1,074 | )      |
| Deferred revenue                      |   | (411   | )      |
| Fixed assets                          |   | 155    |   |
| Content .                             |   | 2,590  |   |
| Customer contracts                    |   | 2,052  |   |
| Trademarks/Domain names               |   | 560    |   |
| Non-competition agreements            |   | 21     |   |
| Goodwill                              |   | 5,847  |   |
|                                  |   | $      | 12,205 |   |

 

A portion of the customer contracts intangible asset acquired is beingamortized on an accelerated basis.  Theamortization expense relating to the acquired intangible assets has noassociated tax impact since the acquisition of Healthology was a stock purchaseand any acquired intangible assets would not be deductible for tax purposes.  In addition, goodwill is not tax deductible.

 

The accompanying unaudited pro forma summary represents consolidatedresults of operations for iVillage as if the acquisition of HealthCentersOnlinehad been consummated on January 1, 2004. The pro forma information does notnecessarily reflect the actual results that would have been achieved, nor is itnecessarily indicative of future consolidated results of iVillage.

 

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| ** **         | ** ** | **Three months ended June 30,**                  | ** ** | **Six months ended June 30,** | ** ** |
|--------------------|------------|--------------------------------------------------|------------|-------------------------------|------------|
| ** **         | ** ** | **2005**                                         | ** ** | **2004**                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **         | ** ** | **($ in thousands, expect per share data)** | ** ** |
| Total revenues     |       | $                                                | 21,132     |                          | $          | 17,202 |   | $ | 39,355 |   | $ | 33,198 |   |
| Net loss           |       | $                                                | (378       | )                             | $          | (93 | ) | $ | (1,831 | ) | $ | (1,256 | ) |
| Net loss per share |       | $                                                | (0.01      | )                             | $          | (0.00 | ) | $ | (0.03 | ) | $ | (0.02 | ) |

 

***iVillage UK Limited***

 

On April 29, 2005, iVillage, through its subsidiary, iVillage Limited,acquired from iVillage UK Limited, a subsidiary of Tesco, the iVillage.co.ukWeb site and certain related assets. The purchase price, inclusive of closingcosts, was approximately $0.6 million and was structured as an asset purchase.In connection with the acquisition, iVillage UK Limited and iVillage terminateda license agreement pursuant to which iVillage previously licensed content andcertain other intellectual property to iVillage UK Limited (See Note 4 –Deferred Gain on Sale of Joint Venture Interest). iVillage has not finalizedthe allocation of the purchase price. iVillage, however, does not expect the final allocation to differmaterially from the preliminary allocation.

 

The cost of the acquisition was allocated to the assets acquired andliabilities assumed based upon their estimated fair values as follows (inthousands):

 
| Working capital.         |   | $   | 18     |   |
|--------------------------|--------|-----|--------|--------|
| Fixed assets             |   | 15  |   |
| Customer relationships . |   | 550 |   |
|                     |   | $   | 583    |   |

 

The customer relationships intangible asset acquired is being amortizedon an accelerated basis.  Theamortization expense relating to the acquired intangible assets has noassociated tax impact since the UK entity has been operating in a net lossposition and it is more likely than not that any deferred tax asset will not berealized.  No pro forma information isincluded as the acquisition of iVillage UK Limited would not have had amaterial impact on the consolidated results of operations of iVillage.

 

**Note 8 – Commitments and Contingencies**

 

*Leases*

 

iVillageleases office space and equipment under non-cancelable operating leasesexpiring at various dates through April 2015 (See Note 10 – Subsequent Event).The following is a schedule of future minimum lease payments under non-cancelableoperating leases as of June 30, 2005, for the next five years:

 

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| **Twelve months ending June 30:** | ** ** | **(in thousands)** | ** ** |
|-----------------------------------|------------|--------------------|------------|
| 2006                              |       | $                  | 2,409      |   |
| 2007                              |       | 2,168              |       |
| 2008                              |       | 2,034              |       |
| 2009                              |       | 2,035              |       |
| 2010                              |       | 1,992              |       |
| Thereafter                        |       | 7,197              |       |
|                              |       | $                  | 17,835     |   |

 

In addition, in the ordinary course of business, iVillage enters intoagreements with various service providers for ad serving, satellitetransmissions and license/content arrangements.

 

*Technology*

 

In the event of an unforeseen interruption of service to the satellitetechnology used by iVillage Parenting Network, Inc. to transmit its televisionchannels, iVillage would need to find another satellite provider and/or investin alternative technology to distribute this service.

 

***Litigation***

*** ***

In the normal course of business, iVillage issubject to proceedings, lawsuits and other claims.  Such matters are subject to manyuncertainties, and outcomes are not predictable with assurance. Consequently,the ultimate aggregate amount of monetary liability or financial impact withrespect to these matters at March 31, 2005 cannot be ascertained. While thesematters could affect the operating results of any one quarter when resolved infuture periods and while there can be no assurance with respect thereto,management believes, with the advice of outside legal counsel, that after finaldisposition any monetary liability or financial impact to iVillage from thesematters would not be material to iVillage’s results of operations and financialcondition.

 

Severalplaintiffs have filed class action lawsuits in federal court against iVillage,several of its present and former executives and its underwriters in connectionwith its March 1999 initial public offering. A similar class action lawsuit was filed against Women.com, several ofits former executives and its underwriters in connection with Women.com’sOctober 1999 initial public offering. The complaints generally assert claims under the Securities Act of 1933,as amended, the Exchange Act and the rules and regulations of the SEC.  The complaints seek class actioncertification, unspecified damages in an amount to be determined at trial, andcosts associated with the litigation, including attorneys’ fees.

 

In February 2003, the defendants’ motion to dismiss certain of theplaintiffs’ claims was granted in part, but, for the most part, denied. In June2003, a proposed settlement of this litigation was structured between theplaintiffs, the issuer defendants, the issuer officers and directors named as defendants,and the issuers’ insurance companies. The proposed settlement

 

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generally provides that the issuer defendants and related individualdefendants will be released from the litigation without any liability otherthan certain expenses incurred to date in connection with the litigation, theissuer defendants’ insurers will guarantee $1.0 billion in recoveries byplaintiff class members, the issuer defendants will assign certain claimsagainst the underwriter defendants to the plaintiff class members, and theissuer defendants will have the opportunity to recover certainlitigation-related expenses if the plaintiffs recover more than $5.0 billionfrom the underwriter defendants. The respective boards of directors of iVillageand Women.com each approved the proposed settlement in July 2003.

 

On June 25,2004, the plaintiffs filed a motion for preliminary approval of the settlementwith the court, which was accompanied by a brief filed by the issuer defendantsin support of the plaintiffs’ motion. The court requested that any objectionsto preliminary approval of the settlement be submitted by July 14, 2004, andcertain underwriter defendants formally objected to the settlement. Theplaintiffs and issuer defendants separately filed replies to the underwriterdefendants’ objections to the settlement on August 4, 2004.  On February 15, 2005, the court issued anopinion and order granting preliminary approval to the settlement and orderingthe plaintiffs and issuer defendants to submit to the court a revisedsettlement stipulation consistent with the court’s order.  Pursuant to thecourt’s instruction, the parties to the settlement agreement submitted therevised settlement stipulation on May 2, 2005.  The Court has indicatedthat assuming the revised settlement stipulation is acceptable to the Court,notice to the class-members would be sent out in the beginning of September2005 and a final hearing to allow for any plaintiff to object to the settlementwill take place on January 9, 2006.  Webelieve, based upon the advice of outside legal counsel, that theaforementioned lawsuit and claims asserted against us and our subsidiarypursuant to these complaints are without merit and we intend to vigorouslydefend against these claims.  If the proposed settlement in the initialpublic offering “laddering” cases is ultimately not approved by the courts,defending against these claims could require the expenditure of significantfinancial and managerial resources, which could harm our business.

 

We are not currently subject to any other material legalproceedings.  We may from time to time, however, become a party to variouslegal proceedings arising in the ordinary course of business.

 

**Note 9 – Capital Stock**

 

*Warrants*

 

As of June 30, 2005 and December 31, 2004, there were outstandingwarrants to purchase 5,282 shares of iVillage common stock with an exerciseprice of $14.35 per share, respectively. The warrants expire on June 9, 2007.

 

*Treasury Stock*

 

On May 5, 2005, the formerowners of StudentCenter LLC, the assets of which were purchased by iVillage inSeptember 1997 and sold in May 1998, exercised 33,334 options.  The

 

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options had a grant price of$6.00 per share representing gross proceeds of approximately $0.2 million.  In lieu of cash payment, the former owners ofStudentCenter LLC remitted 30,647 shares with an average price of $6.53 pershare to iVillage.

 

**Note 10 – Subsequent Events**

 

*Intangible Assets – Technology*

 

In July 2005, iVillage purchased certain proprietary software productsand related technology, and the intellectual rights from Corsis TechnologyServices, Inc., or Corsis, to further expand its Promotions.com operations for$1.0 million.  In addition, Corsis washired to further enhance and develop the software for an additional $1.0million, which is due upon acceptance by iVillage.  If Corsis fails to complete and deliver theenhanced software, iVillage would be entitled to a full refund of all moneyspaid.

 

*Commitments and Contingencies – Leases*

 

Effective July 1, 2005, iVillage amended its New York lease to add14,668 square feet, in which iVillage has consolidated its Healthology and IVPNsubsidiaries. The future minimum lease payments have been included in the tablein Note 8 – Commitments and Contingencies – Leases.

 

*Employment Agreement*

 

In August 2005, iVillage and its Chief Executive Officer, or CEO,entered into an employment agreement which expires in May 2008.  The agreement provides for a salary increase,bonus potential and a stock option grant, subject to shareholder approval, of567,000 shares which vests in three equal installments over three years.  In addition, the CEO will be awarded a grantof 50,000 restricted stock units on or about June 30, 2005, January 1,2006 and June 30, 2007, which all vest on May 31, 2008, and 100,000 performanceunits which will also vest on May 31, 2008. The restricted stock units and the performance units may entitle the CEOto cash payments based on the fair market value of iVillage’s common stock onthe vesting date. The restricted stock unit and performance stock unit awardswill be recorded as a liability equal to the fair value obligaiton.  The corresponding expense will be recordedover the service period.  Changes to theunderlying fair market value of the stock during the vesting period will beincluded in the calculation of the expense.

 

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

 

Statements in this Quarterly Report on Form10-Q, including statementscontained in “Item 2. Management’s Discussion and Analysis of FinancialCondition and Results of Operations”, constitute “forward-looking statements” withinthe meaning of Section 27A of the Securities Act of 1933, as amended, orSecurities Act, and Section 21E of the Securities Exchange Act of 1934, asamended, or Exchange Act. The words or phrases “can be”, “expects”, “may affect”,“may depend”, “anticipates”, “believes”, “estimates”, “plans”, “projects”, andsimilar words and phrases are intended to identify such forward-lookingstatements. These forward-looking statements are subject to various known andunknown risks and uncertainties and we caution you that any forward-lookinginformation provided by or on behalf of us is not a guarantee of futureresults, performance or achievements. Actual results could differ materiallyfrom those anticipated in these forward-looking statements due to a number offactors, some of which are beyond our control. In addition to the risksdiscussed below in “Item 2. Management’s Discussion and Analysis of FinancialCondition and Results of Operations” and in our other public filings, pressreleases and statements by our management, factors that may cause our actualresults, performance or achievements to differ materially from any futureresults, performance or achievements expressed or implied in such forwardlooking statements include:

 

•                  the volatile andcompetitive nature of the media industry, in particular the Internet;

 

•                  changes indomestic and foreign economic, political and market conditions;

 

•                  the effect offederal, state and foreign regulation on our business;

 

•                  the impact ofrecent and future acquisitions and joint ventures on our business and financialcondition;

 

•                  our ability toestablish and maintain relationships with advertisers, sponsors, and otherthird-party providers and partners; and

 

•                  the impact ofpending litigation on our business and financial condition.

 

All forward-looking statements in this report are current only as ofthe date on which the statements were made. We do not undertake any obligationto publicly update any forward-looking statement to reflect events orcircumstances after the date on which any statement is made or to reflect theoccurrence of unanticipated events.

 

When used in this Quarterly Report on Form 10-Q and unlessotherwise specified, “iVillage,” “we,” “our” and “us” refer toiVillage Inc. and its consolidated subsidiaries.

 

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**Overview**

 

The following management’s discussion and analysis is intended toprovide information necessary to understand our consolidated financialstatements and highlight certain other information which, in the opinion of ourmanagement, will enhance a reader’s understanding of our financial condition,changes in financial condition and results of operations. It is organized asfollows:

 

•                  Thesection entitled “iVillage Background,” briefly describes the organization ofour business by subsidiary or division.

 

•                  “CriticalAccounting Policies” discusses each of our most critical accounting policies,including revenue recognition, fixed assets and intangibles, Web sitedevelopment costs, goodwill, income taxes, allowance for doubtful accounts, andmanagement estimates and assumptions.

 

•                  “Results ofOperations” discusses the primary factors that are likely to contribute tosignificant variability of our results of operations from period to period andthen provides detailed narrative regarding significant changes in our resultsof operations for the three and six months ended June 30, 2005 compared to thethree and six months ended June 30, 2004.

 

•                  “Liquidity andCapital Resources” discusses our liquidity and cash flows for the three and sixmonths ended June 30, 2005 compared to those for the three and six months endedJune 30, 2004, factors that may influence our future cash requirements and thestatus of certain contractual obligations as of June 30, 2005.

 

•                  “RecentAccounting Pronouncements” discusses the significance of various recentaccounting pronouncements to our financial reporting.

 

•                  “LegalProceedings” discusses the status of litigation relating to our initial publicoffering as well as that of Women.com.

 

•                  “Risk Factors”discusses various risks and uncertainties associated with our business.

 

**iVillage Background**

 

Founded in 1995, iVillage is “the Internet for women” and consists ofseveral online and offline media-based properties, including iVillage.com,Healthology, HealthCentersOnline, iVillage Limited, iVillage Consulting,GardenWeb.com, Promotions.com, Astrology.com, IVPN and PAG. Following is asynopsis of certain of our operational activities, subsidiaries and divisions:

 

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| **Subsidiary  or Division** | ** ** | **Operational Activity**                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|-----------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| iVillage.com                |       | An online destination providing practical solutions on a range of  topics and everyday support for women 18 years of age and over.                                                                                                                                                                                                                                                                                                                             |
|                        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Healthology                 |       | Acquired on January 7, 2005, Healthology distributes physician-generated  videos and articles providing health and medical information via the  Healthology.com Web site, or Healthology.com, and a syndication network, and  provides Web site creation and development services to healthcare related  organizations.                                                                                                                                        |
|                        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| HealthCentersOnline         |       | Acquired on April 8, 2005, HealthCentersOnline provides healthcare  information on the Internet for patients and their families and helps  patients understand the complex nature of various conditions, diagnostic  tests, treatment options and preventive care. HealthCentersOnline creates  health content through a unique blend of original physician-edited articles,  useful health tools and high impact instructional animations and  illustrations. |
|                        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| iVillage Limited            |       | On April 29, 2005, iVillage, through its subsidiary iVillage Limited,  acquired from iVillage UK Limited, a subsidiary of Tesco Stores Limited,  certain assets relating to the iVillage.co.uk Web site, an online destination  providing practical solutions on a range of topics and everyday support for  women 18 years of age and over.                                                                                                                   |
|                        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| iVillage Consulting         |       | Assists companies in the creation and development of Web sites,  digital commerce platforms and other aspects of technological  infrastructures, primarily for Hearst, a related party.                                                                                                                                                                                                                                                                        |
|                        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| GardenWeb.com               |       | An online destination offering an online community and reference  tools focused on horticulture.                                                                                                                                                                                                                                                                                                                                                               |
|                        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Promotions.com, Inc.        |       | Comprised of two divisions: Promotions.com and Webstakes.com, which  offer online and offline promotions and direct marketing programs that are  integrated with customers’ marketing initiatives.                                                                                                                                                                                                                                                        |
|                        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Astrology.com               |       | An online destination for individuals seeking daily horoscopes,  astrological content and personalized                                                                                                                                                                                                                                                                                                                                                         |

 

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|   |   | forecasts online.                                                                                                                                                                                                                                                                                                  |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                               |
| IVPN   |   | A holding company for IVIP, the operator of The Newborn Channel, and  Lamaze Publishing, publisher of Lamaze Parents, which collectively provide  informational and instructional magazines, custom publications, television  programming, videos and online properties of interest to expectant and new  parents. |
|   |   |                                                                                                                                                                                                                                                                                                               |
| PAG    |   | Comprised of three divisions: Business Women’s Network, Diversity  Best Practices and Best Practices in Corporate Communications, each offering  an extensive database of pertinent information and events to subscribing  companies and members, and relevant publications.                                  |

 

The discussion and analysis below indicates the results of operationsof GardenWeb.com since November 22, 2004, Healthology, Inc. since January7, 2005, HealthCentersOnline, Inc. since April 8, 2005 and the assets ofiVillage UK Limited since April 29, 2005.

 

**Critical Accounting Policies**

 

**Revenue Recognition**

 

*iVillage.com*

 

The discussion and analysis below related to iVillage.com also includesinformation related to our Healthology, HealthCentersOnline, iVillage Limited,Promotions.com, Inc., Substance.com, Women.com and GardenWeb.com subsidiariesand gURL.com, iVillage Consulting and iVillageSolutions divisions.

 

Revenues from iVillage.com, HealthCentersOnline, iVillage Limited,Substance.com, Women.com and gURL.com are derived primarily from the sale ofsponsorship and advertising contracts. Sponsorship revenues are derivedprincipally from contracts designed to support a customer’s broad marketingobjectives, including brand promotion, awareness, product introductions andonline research. Sponsorship agreements typically include the delivery ofimpressions on our Web sites and occasionally the design and development ofcustomized sites that enhance the promotional objectives of the sponsor. Animpression is the viewing of promotional material on a Web page, which mayinclude rich media and display or banner advertisements, links, or other textor images. As part of a few sponsorship agreements, sponsors selling productsmay provide us with a commission on sales of their products generated throughour Web sites. To date, amounts received from the sale of sponsor’s productshave not been significant.

 

Advertising revenues are derived principally from short-term advertisingcontracts in which we typically guarantee a minimum number of impressions orpages to be delivered to users over a specified period of time for a fixed feeor based on actual impressions delivered.

 

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Sponsorship and advertising revenues for fixed fee contracts that areboth time and impression based are recognized ratably in the period in whichthe advertisement is displayed, provided that we have no continuing obligationsand the collection of the receivable is reasonably assured, at the lesser ofthe ratio of impressions delivered over total guaranteed impressions or thestraight-line basis over the period of service. To the extent that minimumguaranteed impressions are not met, we defer recognition of the correspondingrevenues until the guaranteed impressions are achieved. Sponsorship andadvertising revenues in which the customer specifies the timing of the deliveryof impressions and payment is due upon delivery of impressions are recognized whenthe impressions are delivered and the collection of the receivable isreasonably assured.  In certain instancesthe customer reports impression delivery to us. These impression reports are compared to our internal traffic reportsfor accuracy.

 

We also derive sponsorship and advertising revenues from sponsoredlinks appearing on an iVillage Web page that is based upon relevant content ora World Wide Web search query result. These revenues are earned on a cost perthousand impressions and/or a percentage of the advertiser’s net revenue andare recognized upon notification from the search engine provider.

 

Revenues from Healthology are also included in sponsorship andadvertising revenues. Healthology’s revenues are derived primarily fromcontracts in which Healthology creates, provides and distributes health relatedcontent and streaming media. We recognize revenue from Healthology’s contractsstraight-line over the expected period we will provide services or uponcompleted contract when the content created is not owned by Healthology andwhen the collection of the receivable is reasonably assured.

 

For contracts with multiple elements, namely those that includedelivered and undelivered products, or advertising and production revenue, weallocate revenue to each element based on evidence of its fair value under theFinancial Accounting Standards Board, or FASB, Emerging Issues Task Force, orEITF, Issue No. 00-21, “Accounting for Revenue Arrangements with MultipleDeliverables,” or EITF 00-21. Evidence of fair value is the price of adeliverable when it is regularly sold on a stand-alone basis. We recognizerevenue allocated to each element when the criteria for revenue set forth aboveare met.

 

Barter revenues generally represent exchanges by us of advertisingspace on our Web sites for reciprocal advertising space on or traffic fromother Web sites. Revenues and expenses from these barter transactions arerecorded based upon the fair value of the advertisements delivered inaccordance with EITF No. 99-17, “Accounting for Advertising Barter Transactions”.Fair value of advertisements delivered is based upon our recent practice ofreceiving cash for similar advertisements. Barter revenues are recognized whenthe advertisements are displayed on iVillage.com and its affiliated properties.Barter expenses are generally recognized when our advertisements are displayedon the reciprocal Web sites or properties, generally in the same period as whenadvertisements are displayed on iVillage.com and its affiliated properties.Barter expenses are included as part of sales and marketing expenses.

 

We recognize revenues from iVillage Consulting’s services based upon anumber of factors, including actual hours worked at negotiated hourly rates,completed contract or straight-line over the life of the contract.

 

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We receive or have received revenues from initiatives involvingsubscription-based properties, the sale of iVillage-branded products andservices, the sale of third-party products, the licensing of portions of ourcontent and services, and the sale of research. Revenues from GardenWeb.com areincluded as part of subscription-based properties. We recognize revenues fromthese initiatives when products are shipped and/or provided to the customer, orstraight-line over the life of the agreement and when the collection of thereceivable is reasonably assured and no further obligation remains.

 

Promotions.com, Inc. generates revenues through Promotions.com, anonline and offline full service promotions services group, and Webstakes.com, adivision dedicated to Internet sweepstakes and promotions.

 

Promotions.com revenues are derived principally from contracts in whichPromotions.com provides custom services for the creation, administration andimplementation of a promotion on a customer’s Web site. Promotions.com’srevenue recognition policy related to its services is to recognize revenues asdeliverables are met and/or ratably over the period of the promotion, providedthat no significant obligations remain and collection of the receivable isreasonably assured.

 

Webstakes.com revenues are derived primarily from service contractswhereby Webstakes.com recognizes revenues based on either a “cost-per-click” ora “cost-per-action” pricing model. Webstakes.com recognizes revenue related toits cost-per-click pricing model when a user has been delivered to the customer’sWeb site, the customer has reported such activity to us and the collection ofthe corresponding receivable is reasonably assured. Revenue is recognizeddifferently in a cost-per-action pricing model, which requires Webstakes.com tonot only deliver the aforementioned user to a customer’s Web site, but alsorequires a specific user action such as purchasing a product or registering formore information as a member of the customer’s Web site in order forWebstakes.com to earn revenue. Webstakes.com recognizes revenue related to thecost-per-action pricing model when the specific action has been performed onits customer’s Web site, the customer has reported such activity to us, and thecollection of the corresponding receivable is reasonably assured.

 

*Astrology.com*

 

Revenues from Astrology.com consist of the sale of astrological chartsand other related products to users of our astrology-related Web sites. Werecognize revenues from astrological product sales, net of any discounts, whenproducts are delivered to customers, the collection of the receivable isreasonably assured and no further obligations remain. In addition,Astrology.com earns revenues through the licensing of its content and revenueshare agreements. We recognize revenues from these products when the collectionof the receivable is reasonably assured or as cash is received, and no furtherobligations remain.

 

*IVPN*

 

IVPN’s revenues are derived primarily from advertising placements inIVPN’s publications and broadcasts of The Newborn Channel, The NewbornChannel-Spanish, currently offered as an audio overlay to The Newborn Channel,and The Wellness Channel, or collectively, the Channels.  In addition,sponsorship and advertising revenues are generated

 

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through a sampling and coupon program, which offers advertisers theability to distribute samples, coupons and promotional literature to new andexpectant parents. Sponsorship and advertising revenues are recognized on astraight-line basis over the term of the contract, provided that IVPN has nocontinuing obligations and the collection of the receivable is reasonablyassured.

 

IVPN also creates and distributes custom publications and mailings.Revenues from the sale of custom publications and mailings are recognized whenIVPN completes its creative responsibilities and receives the appropriateapprovals from the customer and/or through the distribution of the custompublications, provided that evidence of fair value is obtained at a minimum onthe undelivered deliverable, the other requirements of EITF 00-21 arefulfilled, and the collection of the receivable is reasonably assured.

 

IVPN charges an annual feepaid by hospitals for their receipt of broadcasts of the Channels. Contractsrelated to this fee typically range from three to five years in length. IVPNrecognizes revenues from these fees ratably over the term of the agreementprovided the collection of the receivable is reasonably assured.

 

*PAG*

 

Revenues from PAG are generated primarily through subscription-basedprograms that convey current best practices for both diversity issues in theworkplace and corporate communications, the hosting of events, includingnotably an annual two-day summit and gala event that focuses on diversity andwomen, and consulting agreements. PAG recognizes revenue from subscriptionsratably over the term of the subscription agreement, from the events when theevents are held, and from the consulting agreements ratably over the term ofthe agreement or upon completion of the deliverable, provided the collection ofthe receivable is reasonably assured.

 

**Fixed Assets and Intangibles**

 

Depreciation of equipment, furniture and fixtures and computer softwareis provided for by the straight-line method over their estimated useful livesranging from one to five years. Amortization of leasehold improvements isprovided for over the lesser of the term of the related lease or the estimateduseful life of the improvement. The cost of additions, and expenditures whichextend the useful lives of existing assets, are capitalized, and repairs andmaintenance costs are charged to operations as incurred. Amortization ofintangible assets are over the expected life of the related asset and rangefrom one to ten years.

 

We assess the recoverability of our fixed assets and intangible assetsby determining whether the unamortized balance over the assets’ remaining lifecan be recovered through undiscounted forecasted cash flows. If undiscountedforecasted cash flows indicate that the unamortized amounts will not berecovered, an adjustment will be made to reduce the net amounts to an amountconsistent with forecasted future cash flows discounted at a rate commensuratewith the risk associated when estimating future discounted cash flows. Future cashflows are based on trends of historical performance and our estimate of futureperformances, giving consideration to existing and anticipated competitive andeconomic conditions.

 

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**Web SiteDevelopment Costs**

 

We account for Web site development costs in accordance with theprovisions of EITF 00-2 which requires that certain costs to develop Web sitesbe capitalized or expensed, depending on the nature of the costs. Amortizationof Web site development costs is provided for by the straight-line method overthe estimated useful life of two years.

 

**Goodwill**

 

SFAS No. 141 requires all business combinations to be accountedfor using the purchase method of accounting and that certain intangible assetsacquired in a business combination shall be recognized as assets apart fromgoodwill. Goodwill is not subject to amortization and is tested for impairmentannually, or more frequently if events or changes in circumstances indicatethat the asset may be impaired in accordance with SFAS 142. The impairmenttest consists of a comparison of the fair value of the reporting unit with itscarrying amount. If the carrying amount of the reporting unit exceeds its fairvalue then an analysis will be performed to compare the implied fair value ofgoodwill with the carrying amount of goodwill. An impairment loss will berecognized in an amount equal to the difference. Fair value is typically basedupon future cash flows discounted at a rate commensurate with the risk involvedor market based comparables. After an impairment loss is recognized, theadjusted carrying amount of goodwill is its new accounting basis.

 

**Income Taxes**

 

We recognize deferred taxes by the asset and liability method ofaccounting for income taxes in accordance with the provisions of SFAS No. 109, “Accountingfor Income Taxes”. Deferred income taxes are recognized for differences betweenthe financial statement and tax bases of assets and liabilities at enactedstatutory tax rates in effect for the years in which the

differences are expected to reverse. The effect on deferred taxes of achange in tax rates is recognized in income in the period that includes theenactment date. In assessing the realizability of deferred tax assets, weconsider whether it is more likely than not that some portion or all of thedeferred tax assets will not be realized. The ultimate realization of deferredtax assets is dependent upon the generation of future taxable income orreversal of deferred tax liabilities during the periods in which thosetemporary differences become deductible. We consider the scheduled reversal ofdeferred tax liabilities, projected future taxable income, and tax planningstrategies in making this assessment.

 

The difference between our U.S. federal statutory rate of 34%, as wellas our state and local rate, net of our federal benefit of 7%, when compared toour actual effective tax rate of 0%, is principally attributed to a valuationallowance provided for our deferred tax assets generated during the period. Wehave a full valuation allowance on our net deferred tax assets. If we generatepre tax income in future periods, a partial or full reversal of the valuationallowance against the deferred tax assets may be required, and such reversalmay be material in the period in which the reversal is recorded. The decisionto reverse the valuation allowance will, among other things, consider ourprofitability in recent periods, as well as our future profitability andavailable tax planning strategies.

 

30

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**Allowance for Doubtful Accounts**

 

We assess the required amount of allowance for doubtful accounts basedon past experience, our review of the accounts receivable agings and ouranalysis of specific customer accounts.

 

**Management Estimates and Assumptions**

 

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amount ofassets and liabilities, disclosure of contingent assets and liabilities at thedate of the financial statements, and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from theseestimates. Significant estimates and assumptions made by us include thoserelated to the useful lives of fixed assets and intangible assets, therecoverability of fixed assets, the allocation of purchase price to the fairvalue of net assets acquired in acquisition and deferred tax assets, theallowance for doubtful accounts and the assessment of expected probable losses(if any) of claims and potential claims.

 

**Results of Operations**

 

In accordance with SFAS 131, segment information is being reportedconsistent with our method of internal reporting. Operating segments, asdefined by SFAS 131, are components of an enterprise for which separatefinancial information is available that is evaluated regularly by the chiefoperating decision maker in deciding how to allocate resources and in assessingperformance. We are organized primarily by subsidiaries and divisions. Oursubsidiaries and divisions have no operating managers who report to the chiefoperating decision maker.  The chiefoperating decision maker reviews information at a consolidated results ofoperations level, although the chief operating decision maker does reviewrevenue results of subsidiaries and divisions. As a result, our discussion ofrevenue has been organized into separate subsidiaries and divisions, however,operating expenses and results of operations are discussed on a combined basis.

 

                Our quarterly results of operationsfluctuate due to a variety of factors. We believe the following factors may contribute to the variability ofour results of operations from period to period:

 

•                  the timing ofour recognition of revenue;

 

•                  the volatilityof the online advertising market;

 

•                  the timing ofour sponsored events and symposiums;

 

•                  the loss of acontract from a major customer;

 

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•                  an interruptionor malfunction in service from our primary third party service providers;

 

•                  the date ofcommencement of a sponsorship and advertising campaign;

 

•                  the date ofcompletion, and the receipt of customer approval, for the creative servicesand/or distribution services of a custom publication, magazine or order, whichis based upon a customer’s advertising and marketing initiatives; and

 

•                  thedetermination of final purchase price allocations on recent acquisitions whichmay lead to higher than anticipated amortization costs.

 

**Revenues**

 

The following table sets forth revenues by property:

 
|           |   | **Three  Months Ended June 30,** |   | **Six  Months Ended June 30,** |   |
|----------------|--------|----------------------------------|--------|--------------------------------|--------|
|           |   | **(dollars  in thousands)**      |   |
|           |   | **2005**                         |   | **(1)**                        |   | **2004** |   | **(1)** |   | **2005** |   | **(1)** |   | **2004** |   | **(1)** |   |
| iVillage.com   |   | $                                | 16,043 |                           | 76     | % | $ | 9,717 |   | 59 | % | $ | 28,099 |   | 73 | % | $ | 18,333 |   | 57 | % |
|           |   |                             |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Astrology.com  |   | 1,170                            |   | 6                              | %      | 788 |   | 5 | % | 2,321 |   | 6 | % | 1,628 |   | 5 | % |
|           |   |                             |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| IVPN           |   | 3,107                            |   | 15                             | %      | 5,013 |   | 30 | % | 6,511 |   | 17 | % | 10,390 |   | 32 | % |
|           |   |                             |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| PAG            |   | 760                              |   | 4                              | %      | 980 |   | 6 | % | 1,423 |   | 4 | % | 1,654 |   | 5 | % |
|           |   |                             |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total revenues |   | $                                | 21,080 |                           | 100    | %(2) | $ | 16,498 |   | 100 | % | $ | 38,354 |   | 100 | % | $ | 32,005 |   | 100 | %(2) |

 

----

(1)  Percent of total revenues.

(2)  The aggregate of this column does not equal100% due to rounding.

 

*iVillage.com*

 
|                          |   | **Three  Months Ended June 30,** |   | **Six  Months Ended June 30,** |   |
|-------------------------------|--------|----------------------------------|--------|--------------------------------|--------|
|                          |   | **(dollars  in thousands)**      |   |
|                          |   | **2005**                         |   | **(1)**                        |   | **2004** |   | **(1)** |   | **2005** |   | **(1)** |   | **2004** |   | **(1)** |   |
| Sponsorship & advertising |   | $                                | 11,687 |                           | 72     | % | $ | 6,283 |   | 65 | % | $ | 19,051 |   | 68 | % | $ | 11,591 |   | 63 | % |
|                          |   |                             |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Barter                        |   | 1,600                            |   | 10                             | %      | 1,092 |   | 11 | % | 3,270 |   | 12 | % | 1,925 |   | 11 | % |
|                          |   |                             |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| iVillage Consulting           |   | 1,107                            |   | 7                              | %      | 1,083 |   | 11 | % | 2,434 |   | 9 | % | 2,236 |   | 12 | % |
|                          |   |                             |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Promotions.com                |   | 1,064                            |   | 7                              | %      | 1,071 |   | 11 | % | 2,434 |   | 9 | % | 2,127 |   | 12 | % |
|                          |   |                             |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Online services/other         |   | 585                              |   | 4                              | %      | 188 |   | 2 | % | 910 |   | 3 | % | 454 |   | 2 | % |
|                          |   | $                                | 16,043 |                           | 100    | % | $ | 9,717 |   | 100 | % | $ | 28,099 |   | 100 | %(2) | $ | 18,333 |   | 100 | % |

 

32

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----

(1)  Percent of iVillage.com’s revenues.

(2)  The aggregate of this column does not equal100% due to rounding.

 

*Three Months Ended June 30*

 

Revenues from iVillage.com accounted for approximately 76% of totalrevenues for the three months ended June 30, 2005, and approximately 59% oftotal revenues for the three months ended June 30, 2004.  Revenues from iVillage.com increased approximately$6.3 million, or 65%, for the three months ended June 30, 2005, as compared tothe corresponding period in 2004.

 

The increase in revenues for the three months ended June 30, 2005, ascompared to the corresponding period in 2004, was primarily due to an increasein sponsorship and advertising revenues, which includes revenues from sponsoredlinks and our recent acquisitions, of approximately $5.4 million, an increasein barter revenue of approximately $0.5 million and an increase in onlineservices revenues of approximately $0.4 million.  The increase in sponsorship and advertisingrevenues was primarily due to the acquisition of Healthology which contributedapproximately $2.4 million, HealthCentersOnline which contributed approximately$0.8 million, iVillage Limited which contributed approximately $0.5 million andan increased number of advertisers, coupled with higher pricing of contracts,related to iVillage’s websites of approximately $1.5 million. The increase inbarter revenue was used to provide some additional traction for the iVillage.comWeb site relaunch which occurred in January 2005.

 

The increase in online services revenues of approximately 200% for thethree months ended June 30, 2005, as compared to the corresponding period in2004, was primarily due to the acquisition of HealthCentersOnline which offerssubscription based and licensing services.

 

*Six Months Ended June 30*

 

Revenues from iVillage.com accounted for approximately 73% of totalrevenues for the six months ended June 30, 2005, and approximately 57% of totalrevenues for the six months ended June 30, 2004.  Revenues from iVillage.com increasedapproximately $9.8 million, or 53%, for the six months ended June 30, 2005, ascompared to the corresponding period in 2004.

 

The increase in revenues for the six months ended June 30, 2005, ascompared to the corresponding period in 2004, was primarily due to an increasein sponsorship and advertising revenues, which includes revenues from sponsoredlinks and our recent acquisitions, of approximately $7.5 million, an increasein barter revenue of approximately $1.3 million and an increase in onlineservices revenues of approximately $0.4 million.  The increase in sponsorship and advertisingrevenues was primarily due to the acquisition of Healthology which contributedapproximately $3.8 million, HealthCentersOnline which contributed approximately$0.8 million, iVillage Limited which contributed approximately $0.5 million andan increased number of advertisers, coupled with higher pricing of contracts,related to iVillage’s websites of approximately $2.1 million. The increase inbarter revenue was used to provide some traction for the iVillage.com Web siterelaunch which occurred in January 2005.

 

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The increase in online services revenues of approximately 90% for thesix months ended June 30, 2005, as compared to the corresponding period in2004, was primarily due to the acquisition of HealthCentersOnline which offerssubscription based and licensing services.

 

*Astrology.com*

 
|            |       | **Three  Months Ended June 30,** |       | **Six  Months Ended June 30,** |       |
|-----------------|------------|----------------------------------|------------|--------------------------------|------------|
|            |       | **(dollars  in thousands)**      |       |
| ** **      | ** ** | **2005**                         | ** ** | **(1)**                        | ** ** | **2004** | ** ** | **(1)** | ** ** | **2005** | ** ** | **(1)** | ** ** | **2004** | ** ** | **(1)** | ** ** |
| Online services |       | $                                | 791        |                           | 68         | % | $ | 627 |   | 80 | % | $ | 1,658 |   | 71 | % | $ | 1,350 |   | 83 | % |
|            |       |                             |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other           |       | 379                              |       | 32                             | %          | 161 |   | 20 | % | 663 |   | 29 | % | 278 |   | 17 | % |
|            |       | $                                | 1,170      |                           | 100        | % | $ | 788 |   | 100 | % | $ | 2,321 |   | 100 | % | $ | 1,628 |   | 100 | % |

 

----

(1)  Percent of Astrology.com’s revenues.

 

*Three Months Ended June 30*

 

Revenues from Astrology.com accounted for approximately 6% of totalrevenues for the three months ended June 30, 2005, and approximately 5% oftotal revenues for the three months ended June 30, 2004.  Revenues from Astrology.com increasedapproximately $0.4 million, or 48%, for the three months ended June 30, 2005,as compared to the corresponding period in 2004, primarily due to an increasein revenues from online services of approximately $0.2 million and otherrevenues of approximately $0.2 million. The increase in online services wasprimarily due to an increase in astrological charts sold and the introductionof new products. The increase in other revenue was primarily due to an increasein payments received from third parties in connection with our distributionagreements.

 

*Six Months Ended June 30*

 

Revenues from Astrology.com accounted for approximately 6% of totalrevenues for the six months ended June 30, 2005, and approximately 5% of totalrevenues for the six months ended June 30, 2004.  Revenues from Astrology.com increasedapproximately $0.7 million, or 43%, for the six months ended June 30, 2005, ascompared to the corresponding period in 2004, primarily due to an increase inrevenues from online services of approximately $0.3 million and other revenuesof approximately $0.4 million. The increase in online services was primarilydue to an increase in astrological charts sold and the introduction of newproducts. The increase in other revenue was primarily due to an increase inpayments received from third parties in connection with our distributionagreements.

 

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*IVPN*

 
|                          |   | **Three  Months Ended June 30,** |   | **Six  Months Ended June 30,** |   |
|-------------------------------|--------|----------------------------------|--------|--------------------------------|--------|
|                          |   | **(dollars  in thousands)**      |   |
|                          |   | **2005**                         |   | **(1)**                        |   | **2004** |   | **(1)** |   | **2005** |   | **(1)** |   | **2004** |   | **(1)** |   |
| Sponsorship & advertising |   | $                                | 2,689  |                           | 87     | % | $ | 3,091 |   | 62 | % | $ | 5,089 |   | 78 | % | $ | 5,788 |   | 56 | % |
|                          |   |                             |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Custom publications           |   | —                           |   | —                         | %      | 1,623 |   | 32 | % | 596 |   | 9 | % | 3,888 |   | 37 | % |
|                          |   |                             |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Licensing fees                |   | 418                              |   | 13                             | %      | 299 |   | 6 | % | 826 |   | 13 | % | 714 |   | 7 | % |
|                          |   | $                                | 3,107  |                           | 100    | % | $ | 5,013 |   | 100 | % | $ | 6,511 |   | 100 | % | $ | 10,390 |   | 100 | % |

 

----

(1)  Percent of IVPN’s revenues.

 

*Three Months Ended June 30*

 

Revenues from IVPN accounted for approximately 15% of total revenuesfor the three months ended June 30, 2005, and approximately 30% of totalrevenues for the three months ended June 30, 2004.  Revenues from IVPN decreased approximately$1.9 million, or 38%, for the three months ended June 30, 2005, as compared tothe corresponding period in 2004.

 

The decrease in revenues for the three months ended June 30, 2005, ascompared to the corresponding period in 2004, was primarily due to a decreasein revenue from custom publications of approximately $1.6 million and adecrease in sponsorship and advertising revenues of approximately $0.4 million.The decrease in revenues from custom publications was due to Wal-Mart Stores,Inc. and its affiliates or Wal-Mart, no longer utilizing IVPN to create anddistribute custom publications which were used for baby promotions in itsUnited States stores. The decrease in revenues from sponsorship and advertisingwas mainly due to a decrease in the number of customers advertising in IVPN’spublications and on The Newborn Channel and the discontinuance of the videooffering.  Revenues from the videooffering were no amount for the three months ended June 30, 2005 andapproximately $0.1 million for the three months ended June 30, 2004.

 

As of June 30, 2005, 667 hospitals had agreed to pay a fee for TheNewborn Channel and all contracts had commenced. This compares to 506 hospitalsthat agreed to pay a fee for The Newborn Channel and 467 contracts that commencedas of June 30, 2004.  This led to theincrease in revenues from licensing of approximately $0.1 million, or 40%, forthe three months ended June 30, 2005 as compared to the corresponding period in2004.

 

*Six Months Ended June 30*

 

Revenues from IVPN accounted for approximately 17% of total revenuesfor the six months ended June 30, 2005, and approximately 32% of total revenuesfor the six months ended June 30, 2004. Revenues from IVPN decreased approximately $3.9 million, or 37%, for thesix months ended June 30, 2005, as compared to the corresponding period in2004.

 

The decrease in revenues for the six months ended June 30, 2005, ascompared to the corresponding period in 2004, was primarily due to a decreasein revenue from custom

 

35

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publications of approximately $3.3 million and a decrease insponsorship and advertising revenues of approximately $0.7 million. Thedecrease in revenues from custom publications was due to Wal-Mart no longerutilizing IVPN to create and distribute custom publications which were used forbaby promotions in its United States stores. The decrease in revenues fromsponsorship and advertising was mainly due to a decrease in the number ofcustomers advertising in IVPN’s publications and on The Newborn Channel and thediscontinuance of the video offering. Revenues from the video offering wereapproximately $0.1 million for the six months ended June 30, 2005 andapproximately $0.3 million for the six months ended June 30, 2004.

 

Revenues from IVPN may vary based upon the timing and volume ofcustomers’ advertising and marketing initiatives

 

*PAG*

 
|                        |   | **Three  Months Ended June 30,** |   | **Six  Months Ended June 30,** |   |
|-----------------------------|--------|----------------------------------|--------|--------------------------------|--------|
|                        |   | **(dollars  in thousands)**      |   |
|                        |   | **2005**                         |   | **(1)**                        |   | **2004** |   | **(1)** |   | **2005** |   | **(1)** |   | **2004** |   | **(1)** |   |
| Subscription-based programs |   | $                                | 509    |                           | 67     | % | $ | 459 |   | 47 | % | $ | 985 |   | 69 | % | $ | 910 |   | 55 | % |
|                        |   |                             |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Events                      |   | 201                              |   | 26                             | %      | 359 |   | 37 | % | 312 |   | 22 | % | 401 |   | 24 | % |
|                        |   |                             |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consulting/other            |   | 44                               |   | 6                              | %      | 135 |   | 14 | % | 109 |   | 8 | % | 305 |   | 18 | % |
|                        |   |                             |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Barter                      |   | 6                                |   | 1                              | %      | 27 |   | 3 | % | 17 |   | 1 | % | 38 |   | 2 | % |
|                        |   | $                                | 760    |                           | 100    | % | $ | 980 |   | 100 | %(2) | $ | 1,423 |   | 100 | % | $ | 1,654 |   | 100 | %(2) |

 

----

(1)  Percent of PAG’s revenues.

(2)  The aggregate of this column does not equal100% due to rounding.

 

*Three Months Ended June 30*

 

Revenues from PAG accounted for approximately 4% of total revenues forthe three months ended June 30, 2005, and approximately 6% of total revenuesfor the three months ended June 30, 2004. Revenues from PAG decreasedapproximately $0.2 million, or 22%, for the three months ended June 30, 2005,as compared to the corresponding period in 2004.  The decrease in revenues for the three monthsended June 30, 2005, as compared to the corresponding period in 2004, wasprimarily due to the timing of an event. In 2004, the event took place in the second quarter however in 2005 thisevent will occur in the third quarter.

 

*Six Months Ended June 30*

 

Revenues from PAG accounted for approximately 4% of total revenues forthe six months ended June 30, 2005, and approximately 5% of total revenues forthe six months ended June 30, 2004. Revenues from PAG decreased approximately$0.2 million, or 14%, for the six months ended June 30, 2005, as compared tothe corresponding period in 2004.  Thedecrease in revenues for the six months ended June 30, 2005, as compared to thecorresponding period in

 

36

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2004, was primarily due to a decrease in consulting revenue ofapproximately $0.2 million due to the non-renewal of contracts that expired inthe later part of 2004 and the second quarter of 2005.

 

Events revenue decreased approximately $0.1 million, or 22%, for thesix months ended June 30, 2005, as compared to the corresponding period in2004, due to the timing of an event which took place in the second quarter of2004 which will occur in the third quarter of 2005, offset by an event in March2005 with no like event in 2004, which provided additional revenues ofapproximately $0.1 million.

 

**Revenues, Receivables and Customer Concentration**

 

Our five largest customers accounted for approximately 20% of totalrevenues for the three months ended June 30, 2005 and approximately 28% oftotal revenues for the corresponding period in 2004.  Our five largest customers accounted forapproximately 21% of total revenues for the six months ended June 30, 2005 andapproximately 32% of total revenues for the corresponding period in 2004. Nosingle customer accounted for more than 10% of our total revenues for the threemonth and six months ended June 30, 2005. One customer, Hearst, a related party,accounted for approximately 12% of total revenues for the three months endedJune 30, 2004.  Wal-Mart and Hearst eachaccounted for approximately 12% of total revenues for the six months ended June30, 2004.  At June 30, 2005 andDecember 31, 2004, no single customer accounted for more than 10% of total netaccounts receivable. The significance of revenues from any of our customers canvary on a quarter to quarter basis as a result of the number and timing of suchcustomers’ advertising and marketing initiatives. We anticipate that ourresults of operations in any given period will continue to depend to asignificant extent on revenues from a small number of customers. Consequently,the loss of even a small number of our largest customers at any one time mayadversely affect our business, financial condition and results of operations,unless we are able to enter into contracts to replace lost revenue.

 

**Operating Expenses**

 

The following table sets forth our operating expenses by type (dollarsin thousands):

 
|                                           |   | **Three  Months Ended June 30,** |   | **Six  Months Ended June 30,** |   |
|------------------------------------------------|--------|----------------------------------|--------|--------------------------------|--------|
|                                           |   | **2005**                         |   | **(1)**                        |   | **2004** |   | **(1)** |   | **2005** |   | **(1)** |   | **2004** |   | **(1)** |   |
| Editorial, product development and  technology |   | $                                | 8,921  |                           | 42     | % | $ | 7,013 |   | 43 | % | $ | 17,160 |   | 45 | % | $ | 14,524 |   | 45 | % |
|                                           |   |                             |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales and marketing                            |   | 7,001                            |   | 33                             | %      | 4,723 |   | 29 | % | 12,937 |   | 34 | % | 9,108 |   | 28 | % |
|                                           |   |                             |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| General and administrative                     |   | 3,572                            |   | 17                             | %      | 2,885 |   | 17 | % | 6,561 |   | 17 | % | 5,793 |   | 18 | % |
|                                           |   |                             |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                  |   | 2,311                            |   | 11                             | %      | 1,953 |   | 12 | % | 4,115 |   | 11 | % | 3,757 |   | 12 | % |
|                                           |   |                             |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total operating expenses                       |   | $                                | 21,805 |                           | 103    | % | $ | 16,574 |   | 100 | %(2) | $ | 40,773 |   | 106 | %(2) | $ | 33,182 |   | 104 | %(2) |

 

----

(1)  Percent of total revenues. 

(2)  The aggregate of this column does not equaltotal operating expenses due to rounding.

 

Total operating expenses increased for the three and six months endedJune 30, 2005, as compared to the corresponding period in 2004, primarily dueto the acquisitions of Healthology

 

37

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on January 7, 2005, HealthCentersOnline on April 8, 2005, the assets ofiVillage UK Limited on April 29, 2005, collectively the Acquisitions, and anincrease in our marketing and barter expenses. During the second half of 2005, the Company expects to stabilize and/ordecrease operating expenses through synergies achieved with our Acquisitions,as well as the outsourcing of certain of our information technology servicesfunctions.

 

**Editorial, Product Development and Technology**

 

Editorial, product development and technology expenses consistprimarily of the following:

 

•                  payroll,severance and related expenses for the editorial, technology, Web site designand production staffs;

 

•                  thecost of communications;

 

•                  relatedexpenditures necessary to support iVillage’s Web sites, software and contentdevelopment, technology and support operations;

 

•                  consultantcosts associated with the custom services provided by Promotions.com;

 

•                  costsassociated with IVPN’s magazines, custom publications, onsert program, whichbundles samples and promotional literature in a poly-bag with a magazine, andthe broadcasting of its programs; and

 

•                  anallocation of facility expenses, which is based on the number of personnel ineditorial, product development and technology roles.

 

*Three Months Ended June 30*

 

Editorial, product development and technology expenses for the threemonths ended June 30, 2005 were approximately $8.9 million, or 42% of totalrevenues. Editorial, product development and technology expenses for the threemonths ended June 30, 2004 were approximately $7.0 million, or 43% of totalrevenues.

 

Editorial, product development and technology expenses increasedapproximately $1.9 million, or 27%, for the three months ended June 30, 2005,as compared to the corresponding period in 2004, primarily due to an increasein payroll and related benefits of approximately $1.1 million primarily due tothe Acquisitions, an increase in licensing fees of approximately $0.4 millionand an increase in consultant expenses of approximately $0.3 million. Licensingfees increased due to a one-time benefit of approximately $0.3 million realizedin the second quarter of 2004 stemming from the renegotiation of a vendorcontract with substantial changes in the terms and conditions of the originalcontract.  Consultant expenses increaseddue to higher revenues from the Promotions.com division and non-capitalizablecosts associated with the iVillage Web site redesign, as well as from theAcquisitions. The increase was partially offset by a decrease in costs ofapproximately $0.3 million associated with no custom publications createdand/or distributed in the three months ended in June 30, 2005, as compared withtwo custom

 

38

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publication created and distributed in the corresponding period in 2004due to Wal-Mart no longer utilizing IVPN for custom publications in its UnitedStates stores. Editorial, product development and technology expenses remainedconsistent as a percentage of total revenues for the three months ended June30, 2005, as compared to the corresponding period in 2004, due to a similargrowth in editorial, product development and technology expenses and revenues.

 

*Six Months Ended June 30*

 

Editorial, product development and technology expenses for the sixmonths ended June 30, 2005 were approximately $17.2 million, or 45% of totalrevenues. Editorial, product development and technology expenses for the sixmonths ended June 30, 2004 were approximately $14.5 million, or 45% of totalrevenues.

 

Editorial, product development and technology expenses increasedapproximately $2.7 million, or 18%, for the six months ended June 30, 2005, ascompared to the corresponding period in 2004, primarily due to an increase inpayroll and related benefits of approximately $1.4 million primarily due to theAcquisitions, an increase in consultant expenses of approximately $0.9 million,an increase in licensing fees of approximately $0.4 million, an increase inexpenses for IVPN’s non-custom publication products of approximately $0.3million and an increase of approximately $0.2 million related to more robustvideo offerings on the Web site. Consultant expenses increased due to higherrevenues from the Promotions.com division and non-capitalizable costsassociated with the iVillage Web site redesign, as well as from theAcquisitions.  Licensing fees increaseddue to a one-time benefit of approximately $0.3 million realized in the secondquarter of 2004 stemming from the renegotiation of a vendor contract withsubstantial changes in the terms and conditions of the original contract.  Expenses from IVPN’s non-custom publicationproducts increased primarily due to IVPN converting many of its hospitals fromthe satellite broadcast to a new system that eliminates the need for a constantsatellite feed leading to some duplicative costs as both the satellite and newsystem are currently running. As the remaining hospitals are converted to thenew system, this new technology will only require a limited amount of satellitetime each month resulting in reduced operating costs in the second half of2005. The increase was partially offset by a decrease in costs of approximately$0.9 million associated with one custom publication created and distributed inthe six months ended in June 30, 2005, as compared with four custom publicationcreated and distributed in the corresponding period in 2004 due to Wal-Mart nolonger utilizing IVPN for custom publications in its United States stores.Editorial, product development and technology expenses remained consistent as apercentage of total revenues for the three months ended June 30, 2005, ascompared to the corresponding period in 2004, due to a similar growth ineditorial, product development and technology expenses and revenues.

 

**Sales and Marketing**

 

Sales and marketing expenses consist primarily of the following:

 

•                  payroll,commissions, severance and related expenses for sales and marketing personnel;

 

•                  advertisingand other marketing-related expenses; and

 

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•                  anallocation of facility expenses, which is based on the number of personnel insales and marketing roles.

 

*Three Months Ended June 30*

 

Sales and marketing expenses for the three months ended June 30, 2005were approximately $7.0 million, or 33% of total revenues. Sales and marketingexpenses for the three months ended June 30, 2004 were approximately $4.7million, or 29% of total revenues.

 

Sales and marketing expenses increased approximately $2.3 million, or48%, for the three months ended June 30, 2005, as compared to the correspondingperiod in 2004, primarily due to an increase in advertising, marketing andbarter expenses of approximately $1.1 million which were used to provide sometraction for the iVillage Web site relaunch which occurred in January 2005 andwas incurred by the Acquisitions and increased payroll costs of approximately$0.9 million primarily from the Acquisitions. Sales and marketing expensesincreased as a percentage of total revenues for the three months ended June 30,2005, when compared to the corresponding period in 2004, due to a largerpercent growth in sales and marketing expenses, stemming from the Acquisitions,as compared to total revenues.

 

Included in sales and marketing expenses are barter transactions, whichamounted to approximately 23% of total sales and marketing costs during thethree month period ended June 30, 2005 and 2004.

 

*Six Months Ended June 30*

 

Sales and marketing expenses for the six months ended June 30, 2005were approximately $12.9 million, or 34% of total revenues. Sales and marketingexpenses for the six months ended June 30, 2004 were approximately $9.1million, or 28% of total revenues.

 

Sales and marketing expenses increased approximately $3.8 million, or42%, for the six months ended June 30, 2005, as compared to the correspondingperiod in 2004, primarily due to an increase in advertising, marketing andbarter expenses of approximately $2.4 million which were used to provide sometraction for the iVillage Web site relaunch which occurred in January 2005 andwas incurred by the Acquisitions and increased payroll costs of approximately$1.2 million primarily from the Acquisitions. Sales and marketing expensesincreased as a percentage of total revenues for the six months ended June 30,2005, when compared to the corresponding period in 2004, due to a largerpercent growth in sales and marketing expenses, stemming from the Acquisitions,as compared to total revenues.

 

Included in sales and marketing expenses are barter transactions, whichamounted to approximately 25% of total sales and marketing costs during the sixmonth period ended June 30, 2005, compared to approximately 21% of such costsfor the corresponding period in 2004.

 

**General and Administrative**

 

General and administrative expenses consist primarily of the following:

 

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•                  payroll,severance and related expenses for executive management, finance, humanresources and in-house legal counsel;

 

•                  directors’and officers’ insurance;

 

•                  generalcorporate overhead;

 

•                  professionalfees; and

 

•                  anallocation of facility expenses, which is based on the number of personnel ingeneral and administrative roles.

 

*Three Months Ended June 30*

 

General and administrative expenses for the three months ended June 30,2005 were approximately $3.6 million, or 17% of total revenues. General andadministrative expenses for the three months ended June 30, 2004 wereapproximately $2.9 million, or 17% of total revenues.

 

General and administrative expenses increased approximately $0.7million for the three months ended June 30, 2005, or 24%, as compared to thecorresponding period in 2004, primarily due to an increase in salaries ofapproximately $0.5 million primarily from the Acquisitions and from generalcorporate overhead of approximately $0.3 million from the Acquisitions.   The increase was partially offset by anapproximately $0.1 million decrease in insurance expenses due to better pricing.General and administrative expenses remained consistent as a percentage oftotal revenues for the three months ended June 30, 2005, when compared to thecorresponding period in 2004, due to a similar growth in general andadministrative expenses and revenues.

 

In the ordinary course of business, we utilize estimates to determinethe accrual of certain operating expenses. These estimates are reviewed on anongoing basis to determine the adequacy of these accruals. For the three monthsended June 30, 2004, we reversed approximately $0.3 million of accrualsincluded in operating expenses due to the renegotiation of a vendor contractwith substantial changes in the terms and conditions of the original contractwhich provided a one-time benefit.

 

*Six Months Ended June 30*

 

General and administrative expenses for the six months ended June 30,2005 were approximately $6.6 million, or 17% of total revenues. General andadministrative expenses for the six months ended June 30, 2004 wereapproximately $5.8 million, or 18% of total revenues.

 

General and administrative expenses increased approximately $0.8million for the six months ended June 30, 2005, or 13%, as compared to thecorresponding period in 2004, primarily due to an increase in salaries ofapproximately $0.5 million primarily from the Acquisitions and from generalcorporate overhead of approximately $0.4 million from the Acquisitions.   The increase was partially offset by anapproximately $0.3 million decrease in insurance expenses due to betterpricing. General and administrative expenses decreased as a

 

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percentage of total revenues for the six months ended June 30, 2005,when compared to the corresponding period in 2004, due to a higher growth inrevenues as compared to general and administrative expenses.

 

In the ordinary course of business, we utilize estimates to determinethe accrual of certain operating expenses. These estimates are reviewed on anongoing basis to determine the adequacy of these accruals. For the six monthsended June 30, 2004, we reversed approximately $0.3 million of accrualsincluded in operating expenses, primarily due to the renegotiation of a vendorcontract with substantial changes in the terms and conditions of the originalcontract which provided for a one-time benefit.

 

**Depreciation and Amortization**

 

*Three Months Ended June 30*

 

Depreciation and amortization expenses were approximately $2.3 million,or 11% of total revenues, for the three months ended June 30, 2005 andapproximately $2.0 million, or 12% of total revenues, for the three monthsended June 30, 2004. Depreciation and amortization expenses increasedapproximately $0.4 million for the three months ended June 30, 2005, or 18%, ascompared to the corresponding period in 2004, primarily due to increased amortizationcosts of approximately $1.1 million stemming from the Acquisitions offset bydecreased amortization from intangibles acquired in the Women.com acquisitionwhich were fully amortized in June 2004 and the Promotions.com acquisitionwhich were fully amortized in April 2005.

 

*Six Months Ended June 30*

 

Depreciation and amortization expenses were approximately $4.1 million,or 11% of total revenues, for the six months ended June 30, 2005 andapproximately $3.8 million, or 12% of total revenues, for the six months endedJune 30, 2004. Depreciation and amortization expenses increased approximately$0.4 million for the six months ended June 30, 2005, or 10%, as compared to thecorresponding period in 2004, primarily due to increased amortization costs ofapproximately $1.7 million stemming from the Acquisitions offset by decreasedamortization from intangibles acquired in the Women.com acquisition which werefully amortized in June 2004 and the Promotions.com acquisition which werefully amortized in April 2005.

 

**Interest Income, Net**

 

Interest income, net includes primarily interest income from our cashbalances and interest earned on stockholders’ notes receivable.

 

*Three Months Ended June 30*

 

Interest income, net for the three months ended June 30, 2005 was approximately$0.4 million, or 2% of total revenues, and approximately $50,000, or less than1% of total revenues for the three months ended June 30, 2004. Interest income,net increased for the three months ended June 30, 2005 as compared to thecorresponding period in 2004, primarily due to larger

 

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cash balances maintained in the second quarter of 2005 stemming fromthe public offering completed in July 2004.

 

*Six Months Ended June 30*

 

Interest income, net for the six months ended June 30, 2005 wasapproximately $0.7 million, or 2% of total revenues, and approximately $0.1million, or less than 1% of total revenues for the six months ended June 30,2004. Interest income, net increased for the six months ended June 30, 2005 ascompared to the corresponding period in 2004, primarily due to larger cashbalances maintained in 2005 stemming from the public offering completed in July2004.

 

**Other Income, Net**

 

*Three Months Ended June 30*

 

Other income, net for the three months ended June 30, 2005 wasapproximately $16,000, or less than 1% of total revenues, and approximately$34,000, or less than 1% of total revenues for the three months ended June 30,2004. Other income, net primarily includes moneys received from a legalsettlement and from a distribution in a bankruptcy claim acquired in theacquisition of Women.com and Promotions.com.

 

*Six Months Ended June 30*

 

Other income, net for the six months ended June 30, 2005 wasapproximately $16,000, or less than 1% of total revenues, and approximately$86,000, or less than 1% of total revenues for the six months ended June 30,2004. Other income, net primarily includes moneys received from a legalsettlement and from a distribution in a bankruptcy claim acquired in theacquisition of Women.com and Promotions.com.

 

**Gain on Sale of Joint Venture Interest**

 

*Three and Six Months Ended June 30*

 

Gain on sale of joint venture interest was approximately $25,000, orless than 1% of total revenues, for the three months ended June 30, 2005, andapproximately $0.1 million, or less than 1% of total revenues for the threemonths ended June 30, 2004. Gain on sale of joint venture interest wasapproximately $0.1 million, or less than 1% of total revenues, for the sixmonths ended June 30, 2005, and approximately $0.2 million, or 1% of totalrevenues for the six months ended June 30, 2004.

 

Gain on sale of joint venture interest resulted from the restructuringof our Tesco, PLC, or Tesco, relationship in March 2003, under which a divisionof Tesco purchased our entire ownership interest in iVillage UK. The gain onsale also related to amounts we received pursuant to the license agreemententered into with the Tesco division contemporaneously with such restructuring.

 

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On April 29, 2005, iVillage, through its subsidiary, iVillage Limited,acquired from iVillage UK Limited, a subsidiary of Tesco, the iVillage.co.ukWeb site and certain related assets. In connection with the acquisition, iVillageUK Limited and iVillage terminated a license agreement pursuant to whichiVillage previously licensed content and certain other intellectual property toiVillage UK Limited. As a result, the approximate $0.1 million we received on aquarterly basis for licensing fees ceased on April 29, 2005. We do not expectthis to have a material affect on our results of operations.

 

**Net Loss**

 

*Three Months Ended June 30*

 

We recorded a net loss of approximately $0.3 million, or $0.00 pershare, for the three months ended June 30, 2005. For the comparable period in2004, we recorded a net income of approximately $0.1 million, or $0.00 pershare. We recorded a net loss for the three months ended June 30, 2005 comparedto net income in the same period in 2004 primarily due to an increase in ourmarketing spend in 2005 which was used to provide some traction for theiVillage Web site relaunch which occurred in January 2005, an increase inamortization expense associated with the Acquisitions, coupled with the loss ofWal-Mart in 2004. This was partially offset by an increase in iVillage.com’ssponsorship and advertising revenues and by decreased amortization fromintangibles acquired in the Women.com acquisition which were fully amortized inJune 2004 and the Promotions.com acquisition which were fully amortized inApril 2005.

 

*Six Months Ended June 30*

 

We recorded a net loss of approximately $1.6 million, or $0.02 pershare, for the six months ended June 30, 2005. For the comparable period in2004, we recorded a net loss of approximately $0.8 million, or $0.01 per share.Net loss for the six months ended June 30, 2005 increased approximately $0.8million, or 104%, as compared to the corresponding period in 2004 primarily dueto an increase in our marketing spend in 2005 which was used to provide sometraction for the iVillage Web site relaunch which occurred in January 2005, anincrease in amortization expense associated with the Acquisitions, coupled withthe loss of Wal-Mart in 2004. This was partially offset by an increase iniVillage.com’s sponsorship and advertising revenues and by decreasedamortization from intangibles acquired in the Women.com acquisition which werefully amortized in June 2004 and the Promotions.com acquisition which werefully amortized in April 2005.

 

**Recent Events**

 

In July 2005, iVillage purchased certain proprietary software productsand related technology, and the intellectual rights from Corsis TechnologyServices, Inc., or Corsis, to further expand its Promotions.com operations for$1.0 million.  In addition, Corsis washired to further enhance and develop the software for an additional $1.0million, which is due upon acceptance by iVillage.  If Corsis fails to complete and deliver theenhanced software, iVillage would be entitled to a full refund of all moneyspaid.

 

Effective July 1, 2005, iVillage amended its New York lease to add14,668 square feet, in which iVillage has consolidated its Healthology and IVPNsubsidiaries.

 

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In August 2005, iVillage and its Chief Executive Officer, or CEO,entered into an employment agreement which expires in May 2008.  The agreement provides for a salary increase,bonus potential and a stock option grant, subject to shareholder approval, of567,000 shares which vests in three equal installments over three years.  In addition, the CEO will be awarded a grantof 50,000 restricted stock units on or about June 30, 2005, January 1,2006 and June 30, 2007, which all vest on May 31, 2008, and 100,000 performanceunits which will also vest on May 31, 2008. The restricted stock units and the performance units may entitle the CEOto cash payments based on the fair market value of iVillage’s common stock onthe vesting date.  The restricted stockunit and performance stock unit awards will be recorded as a liability equal tothe fair value obligation.  Thecorresponding expense will be recorded over the service period.  Changes to the underlying fair market valueof the stock during the vesting period will be included in the calculation ofthe expense.

 

**Liquidity and Capital Resources**

 

As of June 30, 2005, we had approximately $56.0 million in cash andcash equivalents. Cash equivalents include money market accounts. We maintainour cash and cash equivalents in highly rated financial institutions and attimes these balances exceed insurable amounts.

 

Net cash used in operating activities was approximately $0.9 millionfor the six months ended June 30, 2005. For the comparable period in 2004,approximately $1.8 million of net cash was provided by operations. Net cashused in operating activities increased approximately $2.7 million between thecomparable six month periods primarily due to higher accounts receivableinvoicing of approximately $1.1 million and a utilization of deferred revenuein 2005 of approximately $1.2 million as compared to an increase of deferredrevenue of approximately $0.6 million in 2004, both stemming from the increasein total revenue. Theses amounts were offset by a utilization of other assetsof approximately $10,000 for the six month period ended June 30, 2005, comparedto an increase in other assets of approximately $0.7 million for thecorresponding period in 2004. The increase in other assets for the six monthperiod ended June 30, 2004 was due to higher insurance premiums paid andprepaid expenses on behalf of a custom publication.

 

Net cash used in investing activities was approximately $26.6 millionfor the six months ended June 30, 2005. For the comparable period in 2004,approximately $1.5 million of net cash was utilized in investing activities.The increase in net cash used in investing activities for the six months endedJune 30, 2005 compared to the corresponding period in 2004 was primarily due tothe Acquisitions of approximately $27.5 million less cash acquired ofapproximately $3.5 million and increased fixed asset purchases of $1.2 millionprimarily from the purchase of hospital equipment by IVPN and capitalization ofWeb site development costs.

 

Net cash provided by financing activities decreased approximately $0.9million to $0.4 million for the six months ended June 30, 2005, fromapproximately $1.3 million for the six months ended June 30, 2004. The decreasein net cash provided by financing activities for the six months ended June 30,2005, as compared to the corresponding period in 2004, was primarilyattributable to a decrease in proceeds from the exercise of stock options andwarrants of

 

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approximately $0.7 million and a decrease in proceeds from principalpayments on stockholders’ note receivable of approximately $0.2 million. As ofDecember 31, 2004, iVillage no longer had an outstanding stockholders’ notereceivable.

 

Except for the year ended December 31, 2004, we have historicallyincurred net losses and negative cash flows on an annual basis. However,management believes that our current funds will be sufficient to enable us tomeet our planned expenditures through at least the next twelve months.

 

Factors that could adversely affect our ability to achieve profitableoperations on a quarterly and fiscal year basis include the loss of any of ourmajor customers or a significant downturn in the advertising market or economy,in general. Additional factors that could have an adverse affect are describedbelow under “Risks” as well as elsewhere in this “Item 2. Management’sDiscussion and Analysis of Financial Condition and Results of Operations.”

 

IVPN currently broadcasts television programming to hospitals via a24-hour, 7 days a week satellite broadcast. IVPN is in the process ofconverting many of its hospitals from the satellite broadcast to a new systemthat eliminates the need for a constant satellite feed. This new technologywill only require a limited amount of satellite time each month resulting inreduced operating costs in the second half of 2005. IVPN estimates that it willcost approximately $3.0 million to $4.0 million to convert to the newtechnology, of which approximately $2.5 million has been incurred. To offset thecosts of conversion and to provide a new revenue stream, IVPN initiated thecollection of an annual fee from hospitals to receive programming broadcast byIVPN. These fees result from agreements between IVPN and the hospitals thatgenerally have a length of three to five years. As of June 30, 2005,approximately 66% of participating hospitals have agreed to pay this fee.However, we can make no assurance that all of the hospitals will agree to pay afee. The total value of signed contracts at June 30, 2005 is in excess of $8.2million, which will be recognized as revenue over the next several years.

 

In December 2003, we signed a Web site services agreement in whichHearst will pay approximately $1.8 million for production, maintenance andhosting services for three teen Web sites: Seventeen.com, CosmoGirl.com andTeen.com. The agreement terminates in December 2005. As of June 30, 2005, wehave received approximately $1.3 million and earned approximately $1.4 millionin connection with this agreement.

 

In July 2004, we entered into a three-year Web site services agreementwith Hearst that superseded and replaced the amended and restated magazinecontent license and hosting agreement we assumed as part of the acquisition ofWomen.com. Pursuant to the Web site services agreement:

 

•                  Hearst will payto us a production and service fee of $4.0 million during the first year of therenewed agreement which would increase by approximately $0.2 million in eachsubsequent year;

 

•                  We will continueto receive a commission on magazine subscription sales and if magazinesubscription sales do not reach a certain threshold in the second year of thenew agreement, then we will not be entitled to any commission from magazinesubscriptions sales in the third year of the new agreement;

 

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•                  We will nolonger be required to offer Hearst, and Hearst would no longer be obligated topurchase, advertising on iVillage.com; and

 

•                  Hearst willcontinue to receive a commission from us on a percentage of the advertisingsales from the Hearst magazine Web sites we host; the commissions paid to andreceived from Hearst will vary based on performance.

 

Revenues from this agreement are recognized on a straight line basisover the life of the contract.

 

As of June 30, 2005, we have received $4.0 million and earnedapproximately $4.1 million in connection with this agreement.

 

On January 7, 2005, we acquired all of the outstanding equity ofHealthology, a privately held company that is a producer and distributor ofphysician-generated videos and articles providing health and medicalinformation on the internet. The aggregate purchase price, inclusive of closingcosts, was approximately $17.4 million, consisting of approximately $15.8million in cash and 205,908 shares of iVillage’s common stock.

 

On April 8, 2005, we acquired all of the outstanding equity ofHealthCentersOnline, Inc., a privately-held, online destination forphysician-edited information on health conditions, treatments and preventativecare for patients.  The aggregatepurchase price was approximately $12.2 million, inclusive of closing costs,consisting of approximately $11.2 million in cash and $1.0 million in equityconsideration, representing 166,945 shares of iVillage’s common stock.

 

On April 29, 2005, we, through our subsidiary, iVillage Limited,acquired from iVillage UK Limited, a subsidiary of Tesco, the iVillage.co.ukWeb site and certain assets related to Web site. The purchase price wasapproximately $0.6 million, inclusive of closing costs, consisting solely ofcash and was structured as an asset purchase. In connection with theacquisition, we terminated a license agreement with iVillage UK Limitedpursuant to which we previously licensed content and certain other intellectualproperty to iVillage UK Limited.

 

We lease office space and equipment under non-cancelable operatingleases expiring at various dates through April 2015. In addition, in theordinary course of business we enter into agreements with various service providersfor ad serving, satellite transmissions and license/content arrangements.

 

Effective July 1, 2005, we amended our New York lease to add 14,668square feet, in which we consolidated our Healthology and IVPNsubsidiaries.  The lease expires in April2015, and the future minimum lease payments associated with this amendment isapproximately $4.2 million.

 

Capital expenditures were approximately $2.3 million for the threemonths ended June 30, 2005, and approximately $2.8 million for the six monthsended June 30, 2005, and were primarily for hospital equipment, computerhardware and software purchases, as well as, the capitalization of certain Website development costs. Our capital requirements depend on numerous factors,including:

 

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•      marketacceptance of our services;

 

•                  theamount of resources we devote to investments in our business, includingentering into joint ventures with and/or the acquisition of other entities;

 

•      theresources we devote to marketing;

 

•                  theresources we devote to building the infrastructure necessary to enable us tosell subscription-based products and services; and

 

•                  theresources we devote to selling our products and services.

 

**Off-Balance Sheet Arrangements**

 

In the ordinary course of business, we enter into agreements thatcontingently require us to indemnify counterparties against third-party claims.These may include: agreements with advertisers and sponsors, under which we mayindemnify them against claims arising from their use of our products orservices; agreements with customers, under which we may indemnify them againstclaims arising from their use of our products or services; real estate andequipment leases, under which we may indemnify lessors against third-partyclaims relating to use of their property; agreements with licensees orlicensors, under which we may indemnify the licensee or licensor against claimsarising from their use of our intellectual property or our use of theirintellectual property; and agreements with initial purchasers and underwritersof our securities, under which we indemnify them against claims relating totheir participation in the transactions.

 

The nature and terms of these indemnifications vary from contract tocontract, and generally a maximum obligation is not stated. Because we areunable to estimate our potential obligation, historically we have had noobligation arising from these indemnifications, and management does not expectthese indemnifications to have a material and adverse effect on ourconsolidated financial position, results of operations or cash flows, norelated liabilities are recorded as of June 30, 2005. We hold insurancepolicies that mitigate potential losses arising from certain indemnificationsand, historically, we have not incurred significant costs related toperformance under these obligations.

 

**Recent Accounting Pronouncements**

 

In December 2004, the FASB issued SFAS 123(R), which revises SFAS 123,supersedes APB 25 and amends FAS 95. The statement requires companies toexpense the fair value of employee stock options and other forms of stock-basedcompensation. The statement addresses the accounting for share-based paymenttransactions in which iVillage receives employee services in exchange foreither equity instruments of iVillage or liabilities that are based on the fairvalue of iVillage’s equity instruments or that may be settled by the issuanceof such equity instruments. In addition, iVillage’s stock employee purchaseplan will need to be modified to comply with SFAS 123(R).  This statement is effective for publiccompanies for interim or annual periods beginning January 1, 2006.  The statement could have a significant impacton the consolidated statement of operations as we will be required to expense thefair value of stock option grants. We have not yet determined which adoptionmethod we will utilize.

 

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In December 2004,the FASB issued SFAS 153.  SFAS 153eliminates an exception for nonmonetary exchanges of similar productive assetsunder APB Opinion No. 29, and replaces it with a general exception forexchanges of nonmonetary assets that do not have commercial substance.  SFAS 153 is to be applied prospectively andis effective for nonmonetary asset exchanges occurring in fiscal periodsbeginning after June 15, 2005.  Webelieve that the future adoption of SFAS 153 will not have a material impact onour financial statements.

 

In May 2005, FASB issued SFAS 154. SFAS154 requires retrospective application to prior periods’ financial statementsof changes in accounting principle. It also requires that the new accountingprinciple be applied to the balances of assets and liabilities as of thebeginning of the earliest period for which retrospective application ispracticable and that a corresponding adjustment be made to the opening balanceof retained earnings for that period rather than being reported in an incomestatement. The statement will be effective for accounting changes andcorrections of errors made in fiscal years beginning after December 15,2005. The Company does not expect the adoption of SFAS 154 to have a materialeffect on the Company’s consolidated financial position or results ofoperations.

 

**LegalProceedings**

 

iVillage and Women.com are defendants inclass-action lawsuits in federal court relating to each company’s initialpublic offering.  In June 2003, the plaintiffs, the issuer defendants,the issuer officers and directors named as defendants, and the issuers’insurance companies agreed in principle to settle the matter, along withsimilar lawsuits against more than 300 other issuers.  On February 15,2005, the court issued an opinion and order granting preliminary approval tothe settlement and ordering the plaintiffs and issuer defendants to submit tothe court a revised settlement stipulation consistent with the court’sorder.  Pursuant to the court’s instruction, the parties to the settlementagreement submitted the revised settlement stipulation on May 2,2005.  The Court has indicated that assuming the revised settlementstipulation is acceptable to the Court, notice to the class-members would besent out in the beginning of September 2005 and a final hearing to allowfor any plaintiff to object to the settlement will take place on January 9,2006.  We believe, based upon the adviceof outside legal counsel, that the aforementioned lawsuit and claims assertedagainst us and our subsidiary pursuant to these complaints are without meritand we intend to vigorously defend against these claims.  If the proposedsettlement in the initial public offering “laddering” cases is ultimately notapproved by the courts, defending against these claims could require theexpenditure of significant financial and managerial resources, which could harmour business.

 

We are not currently subject to any othermaterial legal proceedings.  We may from time to time, however, become aparty to various legal proceedings arising in the ordinary course of business.

 

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**RISK FACTORS**

 

*We operate in an environmentthat involves a number of risks and uncertainties. The risks and uncertaintiesdescribed below are not the only ones we face. Additional risks anduncertainties not presently known to us or that we currently deem immaterialmay also impair our business. If any of the following risks actually occur, ourbusiness, operating results and financial position could be harmed. This couldcause the trading price of our stock to decline, and you could lose all or partof your investment.**These risks should be read in conjunction with the other informationset forth in this Form 10-Q and with iVillage’s Annual Report on Form 10-Kfor the fiscal year ended December 31, 2004.*

 

**Risks of Our Business**

 

***We have a limitedhistory of profitability, and recent net losses.***

 

Although we achieved net income on an annualbasis for the first time for the year ended December 31, 2004, we haveincurred significant net losses on an annual basis in every other year of ouroperations.  We had net losses ofapproximately $0.3 million for the three months ended June 30, 2005, andapproximately $1.6 million for the six months ended June 30, 2005.  We achieved net income of approximately$2.7 million for the year ended December 31, 2004, and incurred a netloss of approximately $27.1 million for the year ended December 31,2003.  As of June 30, 2005, we hadan accumulated deficit of approximately $492.7 million.

 

Although we had net income for the year endedDecember 31, 2004, we cannot assure you that we will be able to achieve,sustain or increase net income on a quarterly or annual basis. If our revenuesgrow slower than we anticipate, or if our operating expenses exceedexpectations or cannot be adjusted accordingly, we could continue to sufferlosses.

 

***Our quarterly andannual revenues and operating results are not indicative of future performance,are difficult to forecast and have been and are likely to continue tofluctuate.***

 

We do not believe that period-to-periodcomparisons of our operating results are necessarily meaningful nor should theybe relied upon as reliable indicators of future performance. This makes itdifficult to forecast with certainty quarterly and annual revenues and resultsof operations. In addition, our operating results are likely to fluctuatesignificantly from fiscal quarter to quarter and year to year as a result ofseveral factors, many of which are outside our control, and any of which couldmaterially harm our business. Some of these factors include:

 

•                  fluctuationsin the demand for advertising or electronic commerce

 

•                  theunpredictability of our success in new revenue and cost reduction initiatives

 

•                  thetiming of the creative services and/or distribution services performed oncustom publications, magazines or other products based upon customers’advertising and marketing initiatives

 

•                  fluctuationsin marketing expenses and technology infrastructure costs

 

•                  changesin the level of traffic on our network of Web sites

 

•                  bankruptciesor other payment defaults of companies that are a source of revenues magazinesor other products based upon customers’ advertising and marketing initiatives

 

•                  volatilityin the media market

 

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Our revenues for the foreseeable future will remainprimarily dependent on user traffic levels and advertising activity on our Websites and, as a result, are difficult to forecast. In addition, the timebetween the date of initial contact with a potential advertiser or sponsor andthe execution of a contract with the advertiser or sponsor may be lengthy,especially for larger, higher rate contracts, and is subject to delays overwhich we have little or no control, including:

 

•                  advertisers’and sponsors’ budgetary constraints          

 

•                  thepossibility of cancellation or delays of projects by advertisers or sponsors   

 

•                  advertisers’and sponsors’ internal reviews

 

•                  thesuccess and continued internal support of advertisers’ and sponsors’ owndevelopment efforts

 

We may be unable to adjust spending quicklyenough to offset any unexpected reduction in revenues in a particular fiscalquarter or year, which may materially and adversely affect our results ofoperations.

 

***Our operatingresults may fluctuate depending on the season, and such fluctuations may affectour stock price.***

 

We have experienced and expect to continue toexperience fluctuations in our operating results because of seasonalfluctuations in traditional online advertising purchasing patterns. The numberof our sponsorships and advertisements tend to be significantly lower in thefirst quarter than the fourth quarter of each year, due primarily to decreasedspending because of advertising budgets and retail promotions for the holidayseason. However, there can be no assurance that our sales in the remainingquarters will exceed those of the first calendar quarter. Further, securitiesanalysts and investors may inaccurately estimate the effects of seasonality onour results of operations in one or more future quarters and, consequently, ouroperating results may fall below expectations, causing our stock price todecline.

 

***We have a smallnumber of major customers and the loss of any number of these customers or amaterial reduction in business we receive from any of these customers couldadversely affect our business, financial condition and results of operations.***

 

We anticipate that our results of operationsin any given period will continue to depend to a significant extent on revenuesfrom a small number of customers. As a result, the loss of even a small numberof our largest customers or a material reduction in the business we receivefrom any of these customers at any one time could significantly reduce ourrevenue, which in turn could adversely affect our business, financial conditionand results of operations, unless we are able to enter into contracts toreplace lost revenues.

 

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Our five largest customers accounted forapproximately 20% of total revenues for the three months ended June 30,2005 and approximately 28% of total revenues for the corresponding period in2004.  Our five largest customersaccounted for approximately 21% of total revenues for the six months ended June 30,2005 and approximately 32% of total revenues for the corresponding period in2004. No single customer accounted for more than 10% of our total revenues forthe three month and six months ended June 30, 2005. One customer, Hearst, a related party,accounted for approximately 12% of total revenues for the three months ended June 30,2004.  Wal-Mart and Hearst each accountedfor approximately 12% of total revenues for the six months ended June 30,2004.  At June 30, 2005 and December 31,2004, no single customer accounted for more than 10% of total net accountsreceivable.

 

Because our largest customers have variedover time in the past, we anticipate that they will continue to do so in thefuture. The significance of revenues from any one of our customers can vary.

 

***Restrictions on ourability to enter into sponsorship, advertising or other business relationshipswith Hearst’s competitors may adversely affect our business.***

 

Our Web site services agreement governing ourmagazine content license and hosting relationship with Hearst restricts ourability to enter into relationships with competitors of Hearst. Theserestrictions may prevent us from expanding our network and enhancing ourcontent and the visibility of our brand, and may cause us to forego potentialadvertising revenues from competitors of Hearst. Specifically, the agreementprovides that we may not, without Hearst’s consent:

 

•                  enterinto any agreement to include in our network any Web sites for magazines thatcompete with Hearst magazines

 

•                  displayon the Hearst magazine Web sites any advertising or other promotional materialsfrom magazines that compete with Hearst magazines

 

•                  displayon our Web pages the brands, logos, trademarks or proprietary content ofboth Hearst and a Hearst competitor

 

***Our principalinvestors’ investments in our competitors may result in conflicts of interestthat could harm our business.***

 

Our principal investors, such as Hearst andRho Capital Partners, Inc., may have conflicts of interest by virtue oftheir own businesses, as in the case of Hearst, or investments in othercompanies that may compete with us. These investments may result in a conflictof interest for our principal investors or result in the diversion ofattractive business opportunities from our principal investors to othercompanies. We are unable to determine all of the competing investments held bythese principal investors. In addition, we do not have the ability to constrainthe investment activity of any of our principal investors and therefore cannotpredict the extent of any future investments in businesses that are competitivewith us.

 

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***Our business ishighly dependent upon user traffic.***

 

Our business is inherently dependent uponhigh user traffic levels. The rates we charge to advertisers and sponsors andthe number of products and services we sell are directly related to the numberof users visiting iVillage’s Web sites. User traffic from certain Web sites thatare non-proprietary to iVillage is generally included in the reportedinformation regarding our network of Web sites. These properties include theHearst magazine Web sites and other parties who have agreed by contract to havetraffic from their Web sites incorporated within our network. The number ofusers visiting our Web sites may decline. In addition, Hearst or other thirdparties may discontinue allowing us to include their Web sites as part of ournetwork for traffic reporting purposes. Any decline in user traffic levels maycause our revenues to decrease and could have a material adverse affect on ourbusiness, financial condition and results of operations.

 

***Our business will bematerially adversely affected if we cannot maintain the popularity of our Website offerings among Internet users.***

 

We will be successful only if a critical massof Internet users, especially women, continue to view our Web sites as populardestinations on the Internet. It is difficult to predict the rate at whichusers will sample our offerings and the extent to which they will becomemembers and/or return users. At any time, users of our services might revert toother offerings. We cannot assure you that widespread use and acceptance of ourofferings will occur. If we cannot maintain the popularity of our offeringsamong Internet users, our business, results of operations and financialcondition will be materially adversely affected.

 

***There is intensecompetition among media companies focused on women, and this competition couldresult in price reductions, reduced margins or loss of market share.***

 

Increased competition could result inadvertising and sponsorship price reductions, reduced margins or loss of marketshare, any of which could adversely affect our business, financial conditionand results of operations. There are a large number of Web sites competing forthe attention and spending of members, users and advertisers. Our Web sitescompete for members, users and advertisers with the following types ofcompanies:

 

•                  Websearch and retrieval and other online service companies, commonly referred toas portals, such as Time Warner’s AOL service, Microsoft Corporation’s MSNservice and Yahoo! Inc.

 

•                  cablenetworks targeting women, such as Oxygen Media, Inc., Women’s EntertainmentNetwork and Lifetime Television

 

•                  onlineservices or Web sites targeted at women, such as lifetime.com

 

•                  publishersand distributors of traditional media, such as television, radio and print

 

•                  e-commercecompanies such as Amazon.com, Inc.

 

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Lamaze Publishing’s magazines directly compete withpublishers of pre- and post-natal publications such as Meredith Corporation andTime Inc. These publishers have substantially greater marketing, researchand financial resources than Lamaze Publishing. Increased competition mayresult in less advertising in Lamaze Publishing’s magazines and a decline inLamaze Publishing’s advertising rates, which could adversely affect ourbusiness, financial condition and results of operations.

 

***If we fail toattract and retain key personnel, our business would be materially adverselyaffected.***

 

Our future success depends to a significantextent on the continued services of our senior management and other keypersonnel, particularly Douglas W. McCormick, our Chairman of the Board andChief Executive Officer. Mr. McCormick’s current employment agreementexpires in May 2008. The loss of the services of Mr. McCormick wouldlikely harm our business. We currently do not maintain “key person” lifeinsurance for any of our senior management.

 

We may be unable to retain our key employeesor attract, assimilate or retain other highly qualified employees in thefuture. We have from time to time experienced, and expect to continue to experience,difficulty in hiring and retaining highly skilled employees with appropriatequalifications as a result of our financial condition and relatively low commonstock price. As a result, we have in the past and may in the future incurincreased salary and benefit costs. If we do not succeed in attracting newpersonnel or retaining and motivating our current personnel, our business, andour ability to develop and execute on our business strategies, will bematerially harmed.

 

***We rely on thirdparties to provide reliable software, systems and related services.***

 

We depend on various third parties forsoftware, systems and related services, including SAAVIS CommunicationCorporation, or SAAVIS, Verio Inc., Globix Corporation, Google, Inc.,DoubleClick Inc., Tacoda Systems Inc. and Prospero Technologies, LLC. Inaddition, we sometimes rely on our customer’s software reporting tools tosupply us, subject to our monitoring controls, with the information to recordour revenue. If for any reason one or more of these service providers becomesunable or unwilling to continue to provide services of acceptable quality, atacceptable costs and in a timely manner, our ability to deliver our product andservice offerings to our advertisers, sponsors and users could be severelyimpaired. We would have to identify and qualify substitute service providers,which could be time consuming and difficult and could result in unforeseenoperational difficulties. Although we are confident that alternative serviceproviders are available, we cannot assure that we will be able to obtain suchservices on as favorable terms as we currently receive or in a timely manner.

 

***We rely on thirdparties to adequately measure the demographics of our user base.***

 

It is important to our advertisers that weaccurately measure the demographics of our user base and the delivery ofadvertisements on our Web sites. We depend on third parties to provide many ofthese measurement services and to do so accurately and reliably. If these thirdparties are unable or unwilling to provide these services to us in the future,we would need to perform

 

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them ourselves or obtain them from another provider. This could causeus to incur additional costs or cause interruptions in our business until theseservices are replaced. Companies may choose not to advertise on our Web sitesor may pay us less for our sponsorship or advertising if they perceive ourdemographic measurements as not reliable.

 

***We are subject tolegal proceedings that could result in liability and adversely affect ourbusiness.***

 

From timeto time, we have been, and expect to continue to be, subject to legalproceedings that individually, or in the aggregate, could adversely affect ourbusiness. Notably, several plaintiffs have filed class action lawsuits infederal court against us, several of our current and former executives, and ourunderwriters in connection with our March 1999 initial public offering. Asimilar class action lawsuit was filed against Women.com, several of our formerexecutives and Women.com’s underwriters in connection with Women.com’s October 1999initial public offering. In June 2003, the plaintiffs, the issuer defendants, the issuerofficers and directors named as defendants, and the issuers’ insurancecompanies agreed in principleto settle the matter, along with similar lawsuits against other issuers. Theplaintiffs filed a motion for preliminary approval of the settlement with thecourt in June 2004, which was accompanied by a brief filed by the issuerdefendants in support of the plaintiffs’ motion. Certain of the underwriterdefendants formally objected to the proposed settlement. The plaintiffs andissuer defendants separately submitted replies to these objections on August 4,2004. On February 15, 2005, the Court issued an opinion and order grantingpreliminary approval to the settlement and ordering the plaintiffs and issuerdefendants to submit to the Court a revised settlement stipulation consistentwith the Court’s order. Pursuant to the Court’s instruction, the partiesto the Settlement Agreement submitted the revised settlement stipulation on May 2,2005 and the underwriters have until May 16, 2005 to submit any commentsor objections to the revised settlement stipulation.  The Court has indicated that assuming therevised settlement stipulation is timely submitted and is acceptable to theCourt, notice to the class-members will be sent out in the beginning of September 2005and a final hearing to allow for any plaintiff to object to the settlement willtake place on January 9, 2006.  If the proposed settlement is ultimately notapproved by the Court, even if these claims are not meritorious, defendingagainst them could require the expenditure of significant financial and managerialresources, which could harm our business.

 

***Our operation ofIVPN poses a number of risks that could materially adversely affect ourbusiness strategy.***

 

There are a number of risks in operating IVPNrelated to Lamaze Publishing, Baby Steps magazine and The Newborn Channel,including a Spanish audio overlay, and the Wellness Channel, all of which werefer to as the Channels, which are all primarily non-Internet businesses,including:

 

•                  thecompetitiveness of the media, television and publishing industries

 

•                  ourability to maintain and market the Lamaze.com Web site

 

•                  ourability to continue to commercialize and protect the Lamaze mark

 

**•**                  demand for our custom publicationsand controlled circulation magazines 

 

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**•**                  our ability to sell advertising andsponsorships in IVPN’s publications, and on the Channels and our Web sites

 

•                  ourability to identify and predict trends in a timely manner that may impactconsumer tastes in baby- and health-related information on the Channels

 

Our failure to perform the functions requiredfor the operation of IVPN in an efficient and timely manner could result in adisruption of IVPN’s operations that could result in a loss of revenues andhave a material adverse effect on our business strategy.

 

***Our business couldbe adversely affected if transmission of the Channels were interrupted.***

 

There is a risk that the satellite or thein-hospital delivery system which transmits the Channels may malfunction, whichwould result in an interruption of broadcasts. Extreme adverse weatherconditions or third parties could also damage or disable receivers andtransmitters hindering transmission of the Channels’ signal.  Although, IVIP has entered into a ServicesAgreement with Ascent Media System and Technology Services, LLC, or Ascent,dated as of January 1, 2005, for distribution, maintenance andinstallation services related to the technology that transmits the Channels,there can be no assurance that such maintenance or repair will be performedsatisfactorily and without an interruption in transmission.  If any of these events occur, there may be aperiod of time before transmission of all or some of the Channels could resume.Any interruption in our ability to transmit the Channels could jeopardize ourviewer base and negatively impact our revenues related to the Channels.

 

***Revenues from ourhealth-related properties may be adversely affected by factors that we cannotcontrol.***

 

Certain factors beyond our control may affectthe quarterly and annual revenues of our health-related properties, includingour recent acquisitions of Healthology and HealthCentersOnline.   The time between our initial contact with apotential advertiser or sponsor regarding a specific health-related program, theexecution of a pertinent contract, and completion of the deliverables relatedto such program, may be lengthy and subject to delays we cannot control,including:

 

**•**                  timing of FDA approval for newproducts sold by an advertiser or sponsor, or for new approved uses forexisting products sold by an advertiser or sponsor

 

•                  theinternal approval process of the advertiser or sponsor

 

•                  seasonalfactors relating to the prevalence of specific health conditions and otherseasonal factors that may affect the timing of promotional campaigns

 

•                  schedulingof conferences for physicians and other healthcare professionals

 

If such a delay affects our ability torecognize revenue from a sponsorship or advertising program, our results ofoperations from our health-related properties could be negatively impacted.

 

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***Our ability to offercontinuing medical education programs through Healthology could be adverselyaffected by changes in governmental regulation and industry guidelines.***

 

We offer online continuing medical education,or CME, to physicians and other healthcare professionals throughHealthology.  Healthology typicallycollaborates with a medical society or other healthcare professional associationto create CME programs, which upon proper review and approval receive theaccreditation of such organization. In some instances, Healthology or theaccrediting entity receive an educational grant from a pharmaceutical ormedical device company to fund the creation and production of the CME program.

 

In an effort to ensure that CME programsremain independent from the interests of healthcare goods and servicesproviders who fund the development of CME programs, many entities have revisedtheir standards of accreditation. In addition these sponsorships may be subjectto regulation by state and federal agencies. In the event that the sponsorshipof CME programs by pharmaceutical or medical device companies should becomesubject to additional regulatory scrutiny, any resulting changes to existingregulations or accreditation standards, or changes in internal complianceprocedures of sponsors, may result in revision to Healthology’s CME offering, aslow approval process for the accreditation, and a reduction in the number ofCME sponsorships.

 

***If we are unable toestablish or maintain relationships with Healthology’s distribution network,our business could be adversely affected.***

 

Healthology’s business depends, in part, onestablishing and maintaining syndication distribution partners who are willingto pay content license fees and/or provide revenue to Healthology foradvertising proximate to such content. Several of these partners arehigh-traffic web sites for which there is intense competition for relationshipswith these entities and placement on their sites. We may be unable to enterinto or successfully renew relationships with these entities or sites oncommercially reasonable terms or at all. Many companies that Healthology mayapproach for a strategic relationship or who already have strategicrelationships with Healthology may also receive health and medical informationfrom other sources. As a result, these companies may be reluctant to enter intoor maintain strategic relationships with Healthology. Healthology’s revenuescould be negatively impacted if we do not establish additional, and maintainHealthology’s existing, strategic relationships on commercially reasonableterms.

 

***We may not be ableto expand our business through acquisitions and joint ventures and, even if weare successful, our operations may be materially adversely affected as a resultof an acquisition or joint venture.***

 

Our business strategy includes growth throughbusiness combinations, acquisitions and joint ventures. Our ability toimplement this business strategy depends in large part on our ability tocompete successfully with other entities for acquisition candidates and jointventure partners. Factors affecting our ability to compete successfully in thisregard include:

 

•                  ourfinancial condition relative to the financial condition of our competitors

 

•                  ourability to obtain additional financing from investors

 

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•                  theattractiveness of our common stock as potential consideration for entering intothese types of transactions as compared to the common stock of other entitiescompeting for these opportunities

 

•                  ouravailable cash, which in turn depends upon our results of operations and thecash demands of our business

 

Many of the entities with which we compete foracquisition candidates and joint venture partners have greater financialresources than we do. In addition, our ability to make acquisitions using ourstock may be adversely affected by the volatility in the trading price of ourcommon stock.

 

If, despite these factors, we are successful inentering into additional business combinations, acquisitions and jointventures, our business, financial condition and results of operations could bematerially adversely affected if we are unable to integrate the operations ofthe acquired companies or joint ventures. Our ability to integrate theoperations of the acquired companies or joint ventures will depend, in part, onour ability to overcome or address:

 

•                  thedifficulties of assimilating the operations and personnel of the acquiredcompanies and the potential disruption of our ongoing business

 

•                  thedifficulties of establishing a new joint venture, including the need to attractand retain qualified personnel and the need to attract customers and advertisers

 

•                  thedifficulties of maintaining uniform standards, controls, procedures andpolicies

 

•                  theneed to incorporate successfully the acquired or shared technology or contentand rights into our products, services and media properties

 

•                  thepotential impairment of relationships with employees and customers as a resultof any integration of new management personnel or reduction of personnel

 

In addition, completing acquisitions couldrequire use of a significant amount of our available cash.  Furthermore, we may have to issue equity orequity-linked securities to pay for future acquisitions, and any of theseissuances could be dilutive to existing and future stockholders.  Acquisitions and investments may also havenegative effects on our reported results of operations due toacquisition-related charges, amortization of acquired technology and otherintangibles, and/or actual or potential liabilities, known and unknown,associated with the acquired businesses or joint ventures.  Any of these acquisition-related risks orcosts could materially adversely affect our business, financial condition andresults of operations.

 

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***If we fail tomaintain effective internal financial and managerial systems, controls andprocedures, our results of operations may be materially adversely affected.***

 

In the past, we have sought cost reductionsthrough increased managerial efficiencies and expense reduction initiatives,including targeted staff reductions. These reductions in workforce placed asignificant strain on our managerial staff, financial controls and operationalresources as our employees have assumed greater responsibilities and learned tomanage their increased workload with reduced resources. We continue to evaluateour operational and financial systems and our managerial controls andprocedures to determine what additional changes, if any, might help us tomanage our current operations better. We face the risk that our systems,procedures and controls might not be adequate to support our operations or tomaintain accountability for our assets. Any such failure could have a materialadverse effect on our business, financial condition and results of operations.

 

***Changes in financialaccounting standards or practices, including those that require us to recognizeemployee stock options as a compensation expense, could substantially andadversely affect our financial results.***

 

The accounting rules applicable to ourbusiness have undergone significant changes in recent years, and future changesin accounting regulations and related interpretations and policies,particularly those related to the expensing of employee stock options, couldcause us to account for our business in ways that may adversely affect our financialresults and investor perception of those results. As permitted by SFAS No. 123,*Accounting for Stock-Based Compensation*,or SFAS 123, currently we apply Accounting Principles Board (APB) Opinion No. 25,*Accounting for Stock Issued to Employees*,or APB No. 25, and related interpretations in accounting for our employeestock-based compensation. Under APB No. 25, no compensation expense isrecognized for options granted to employees where the exercise price equals themarket price of the underlying stock on the date of grant. On December 16,2004, FASB issued SFAS 123(R) which requires us, for the period beginningafter June 15, 2005, to recognize compensation expense in an amount equalto the fair value of share-based payments, such as stock options and restrictedstock, granted to employees. On April 14, 2005, the SEC announced anamendment to the date of compliance, and we are now required to implement SFAS123(R) beginning in the first quarter of 2006. This is expected to have a material impact on our consolidated resultsof operations, as the stock-based compensation expense would be chargeddirectly against our reported earnings.

 

**Risks Related to OurIndustry**

** **

***The operatingperformance of computer systems and Web servers is critical to our business andreputation.***

 

Any system failure, including network,software or hardware failure, due to a computer virus or otherwise, that causesan interruption in our Internet offerings could result in reduced traffic onour Web sites and reduced revenues for our business. Substantially all of ourcommunications hardware and some of our other computer hardware operations arelocated at SAAVIS’ facilities in New Jersey, Verio’s facilities in Californiaand Globix’s facilities in New York. Fire, floods, earthquakes, power loss,telecommunications failures, break-ins and similar

 

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events could damage these systems. We do not presently have anysecondary “off-site” systems or a formal comprehensive disaster recovery plan.

 

Our Web sites could also be affected bycomputer viruses, electronic break-ins or other similar disruptive problems,such as those historically experienced by several leading Web sites. Inaddition, our users depend on Internet service providers, online serviceproviders and other Web site operators for access to our Web sites. Many ofthem have experienced significant outages in the past, and could experienceoutages, delays and other difficulties due to system failures unrelated to oursystems. If we experience outages or degraded service, user satisfaction woulddecrease, we would likely lose advertising revenue and our reputation andbrands could be permanently harmed.

 

Our insurance policies may not adequatelycompensate us for any losses that may occur due to any failures orinterruptions in our systems. In addition, we cannot assure you that SAAVIS(which purchased the assets of Cable and Wireless Plc and Exodus Communications, Inc.both of which had filed for bankruptcy protection), Verio and Globix will beable to provide sufficient services for us or that we would be able to engagesatisfactory alternative service providers.

 

***If the Internetfails to gain further acceptance as a medium for advertising, we would haveslower revenue growth than expected and could incur losses.***

 

We compete with traditional advertisingmedia, including television, radio and print, along with other high-traffic Websites, for sponsorships and advertising expenditures. Although there arecurrently several standards to measure the effectiveness of Internetadvertising, the industry has had difficulty convincing potential advertisersthat Internet advertising is, at minimum, comparable to traditional forms ofadvertising. Advertisers and advertising agencies that have historically reliedon these traditional forms may be reluctant or slow to adopt onlineadvertising. In addition, advertisers and advertising agencies that use theInternet as an advertising medium may find online advertising to be lesseffective for promoting their products and services than traditionaladvertising media. Advertisers and advertising agencies that have investedsubstantial resources in traditional methods of advertising may also bereluctant to reallocate their resources to online advertising. Moreover,software programs that limit or prevent advertising from being delivered to anInternet user’s computer are available. Widespread adoption of this softwarecould adversely affect the commercial viability of Internet advertising. If themarket for online advertising develops more slowly than we expect, or if we areunable to adapt to new forms of Internet advertising, we would have slower thanexpected revenue growth and could incur losses, and our business, results ofoperations and financial condition could be materially adversely affected.

 

***Web-based businessmodels are still evolving and make it difficult to predict our long-termrevenues.***

 

A decrease in revenues relating to changes inInternet advertising pricing models or our inability to convert users topurchasers of our products and services could materially adversely affect ourbusiness, results of operations and financial condition. Different pricingmodels are used to sell advertising on the Internet, including models based onthe number of impressions delivered, the number of click-throughs by users andthe number of key words to which an advertisement is linked. It is difficult topredict which, if any, of the models will emerge as the

 

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industry standard. This uncertainty makes it difficult to project ourlong-term advertising rates and revenues.

 

Furthermore, consumer reluctance to subscribeto or pay for Internet content may limit our ability to supplement Internetadvertising as our most significant source of revenue in the foreseeablefuture. Inability to supplement our advertising revenues could limit our growthand adversely affect our business.

 

***We may be unable torespond to the rapid technological change in our industry.***

 

Our product and service offerings compete ina market characterized by rapidly changing technologies, frequent innovationsand evolving industry standards. A growing number of individuals access theInternet through devices other than personal computers, such as cell phones,personal digital assistants or television set-top devices. The low resolution,functionality and memory currently associated with some of these alternativedevices might prevent or impede users from accessing our graphics-rich Websites. Our future success will depend on our ability to adapt to rapidlychanging technologies by continually improving the performance features andreliability of our offerings. We could incur substantial costs to modify ourservices or infrastructure to adapt to the changing technology environment.

 

***Possibleinfringement by third parties of our intellectual property rights could have amaterial adverse effect on our business, financial condition and results ofoperations.***

 

We cannot be certain that the steps we havetaken to protect our intellectual property rights will be adequate or thatthird parties will not infringe or misappropriate our proprietary rights.Enforcing our intellectual property rights could entail significant expense andcould prove difficult or impossible. Any infringement or misappropriation bythird parties could have a material adverse effect on our business, financialcondition and results of operations. Furthermore, we have invested resources inacquiring domain names for existing and potential future use. We cannotguarantee that we will be entitled to use these domain names under applicabletrademark and similar laws or that other desired domain names will beavailable.

 

***New privacy and datasecurity laws may require changes in our practices, and there is a potentialfor enforcement actions due to noncompliance.***

 

Any new law or regulation pertaining to theInternet, or the application or interpretation of existing laws, could decreasethe demand for our services, increase our cost of doing business or otherwiseseriously harm our business. There is, and will likely continue to be, anincreasing number of laws and regulations pertaining to the Internet. Theselaws or regulations may relate to, among other things, liability forinformation retrieved from or transmitted over the Internet, online contentregulation, user privacy, taxation and the quality of products and services.There is a trend toward more burdensome regulations and stiffer penalties, allof which could negatively impact our business. There is also a trend towardgiving consumers greater information and greater control over how theirpersonal data is used, and requiring notification where unauthorized access tosuch data occurs.  Several recent datasecurity breaches involving well-known companies have resulted in many statesadopting notification statutes that can contain inconsistent requirements.

 

In addition, several jurisdictions, includingforeign countries, have proposed and/or adopted privacy-related laws thatrestrict or prohibit unsolicited e-mail solicitations, commonly

 

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known as “spamming,” and that impose significant monetary and otherpenalties for violations. These laws may increase concern on the part ofadvertisers regarding advertising in our e-mail newsletters, and advertisersmay seek to impose indemnity obligations on us in an attempt to mitigate anyliability under these laws. Moreover, Internet service providers mayincreasingly block legitimate marketing e-mails in an effort to comply withthese laws, or in response to pressure from anti-spam advocacy groups.

 

One such law, the CAN-SPAM Act of 2003, orCAN-SPAM, became effective in the United States on January 1, 2004.CAN-SPAM imposes complex and often burdensome requirements in connection withthe sending of commercial e-mail. The language of CAN-SPAM containsambiguities, and there is limited case law interpreting CAN-SPAM.  Depending on how it is interpreted, CAN-SPAMmay impose burdens on our e-mail marketing practices, on joint marketinginitiatives that we undertake with our business partners, and on features ofour services. In addition, many legislators have endorsed the concept of a “Do-Not-E-MailRegistry.” If such a registry is created, it could have a detrimental effect onour ability to continue our e-mail marketing practices as well as advertisers’willingness to participate in e-mail marketing.

 

Also regarding CAN-SPAM, the FTC has issuedits final rule which took effect on March 28, 2005, establishingcriteria for determining whether the primary purpose of an e-mail message iscommercial for purposes of compliance with CAN-SPAM. In adopting the finalrule, the FTC rejected many pro-business interpretations of the “primarypurpose” standard that had been proposed by marketing companies, and the final rule willimpose further burdens on our business.

 

Under CAN-SPAM, the Federal CommunicationsCommission, or FCC, regulates commercial e-mail and certain text messages sentto wireless devices.  On August 4,2004, the FCC issued an order prohibiting the sending of commercial messages tocertain wireless devices without express prior authorization from therecipient.  This additional FCCregulation will increase the burdens on our e-mail marketing practices, onjoint marketing initiatives that we undertake with our business partners, andon features of our services.

 

In addition to impacting our business throughdecreased collection and use of user data, the enactment of privacy and datasecurity laws may increase our legal compliance costs. While we believe that wecomply with currently applicable laws, as such laws proliferate there may beuncertainty regarding their application or interpretation, which increases ourrisk of non-compliance. Even if a claim of non-compliance against us does notultimately result in liability, investigating a claim may present a significantcost. Future legislation may also require changes in our data collectionpractices, which may be expensive to implement and may further increase therisk of non-compliance.

 

Data security laws are becoming morestringent in the United States and abroad. Third parties are engaging inincreased cyber-attacks against companies doing business on the Internet, andindividuals are increasingly subjected to identity and credit card theft on theInternet. Although we seek to use what we consider to be industry standardsecurity measures, there is a risk that we may fail to prevent such activitiesand that users or others may assert claims against us. In addition, the FTC andstate consumer protection authorities have brought a number of enforcementactions against U.S. companies for alleged deficiencies in those companies’data security practices, and they may continue to bring such actions.Enforcement actions, which may or may not be based upon actual cyber attacks orother breaches in such companies’ data security,

 

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present an ongoing risk of liability to us, could result in a loss ofusers and could damage our reputation.

 

***We may facepotential liability, loss of users and damage to our reputation for violationof privacy practices.***

 

Our privacy policies generally prohibit thesale or disclosure to any third party of any member’s personal identifyinginformation for marketing purposes, absent prior consent. Growing publicconcern about privacy and the collection, distribution and use of informationabout individuals may subject us to increased regulatory scrutiny and/orlitigation. In the past, the FTC has investigated companies that have usedpersonally identifiable information without permission or in violation of astated privacy policy. If we are accused of violating the stated terms of anyof our privacy policies, we may face a loss of users and damage to ourreputation and be forced to expend significant amounts of financial andmanagerial resources to defend against these accusations and we may facepotential liability.

 

In addition, part of our business involvesmarketing to consumers who have expressed an interest in receivinghealth-related information from us. This aspect of our business has grown withour recent acquisitions of Healthology and HealthCentersOnline, Inc.,companies that provide health-related content and marketing offers to consumers.Many jurisdictions, including the United States, have adopted complex andburdensome regulations in connection with marketing activities involvingpersonally identifiable medical information; to the extent that suchregulations may apply to us, they create additional business and liabilityrisks, and greater legal compliance costs, for us.

 

***We may be liable ifthird parties misappropriate our users’ personal information.***

 

Third parties may be able to hack into orotherwise compromise our network security or otherwise misappropriate our users’personal information or credit card information. If our network security iscompromised, we could be subject to liability arising from claims related to,among other things, unauthorized purchases with credit card information,impersonation or other similar fraud claims or other misuse of personalinformation, such as claims for unauthorized marketing purposes. In suchcircumstances, we also could be liable for failing to provide timely notice ofa data-security breach affecting certain types of personal information inaccordance with the growing patchwork of notification statutes. Consumerprotection privacy regulations could impair our ability to obtain informationabout our users, which could result in decreased advertising revenues.

 

In general, we ask our members and users to “opt-in”to receive special offers and other direct marketing opportunities from us, ouradvertisers and partners. Our network also requests and obtains personal datafrom users who register to become members of the network. Registration as amember is required in order for users to have full access to the servicesoffered by our network. Personal data gathered from members is used topersonalize or tailor content to them and is provided, on an aggregate basis,to advertisers to assist them in targeting their advertising campaigns toparticular demographic groups. Current or prospective advertisers evaluate ourability to provide user data to support targeted advertising. Privacy concerns mayultimately cause users to resist providing personal data. If we become unableto collect personal data from a sufficient number of our users, we may losesignificant advertising revenues.

 

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Changes in public acceptance of e-mailmarketing, and the perception of security and privacy concerns, may indirectlyinhibit market acceptance of our use of personal data. Our failure to implementindustry-standard Platform for Privacy Preferences protocols could discourageusers from using our Web sites, products and services and from providing theirpersonal data to us. In addition, pending and recently enacted legislative orregulatory requirements that businesses notify consumers that their data may beused by or disclosed to marketing entities to direct product promotion andadvertising to the consumer may heighten these concerns. Moreover, thereappears to be a trend in newer privacy laws to treat a company’s affiliates asthird parties for purposes of consumer disclosure or notification requirements,which further restricts our business and creates potential liability.

 

Our network also uses “cookies” to track userbehavior and preferences. A cookie is information keyed to a specific server,file pathway or directory location that is stored on a user’s hard drive orbrowser, possibly without the user’s knowledge, but is generally removable bythe user. Information gathered from cookies is used by us to tailor content tousers of our network and may also be provided to advertisers on an aggregatebasis. In addition, advertisers may themselves use cookies to track userbehavior and preferences. A number of Internet commentators, advocates andgovernmental bodies in the United States and other countries have urged thepassage of laws directly or indirectly limiting or abolishing the use ofcookies. Other tracking technologies, such as so-called “pixel tags” or “clearGIFs,” are also coming under increasing scrutiny by legislators, regulators andconsumers, imposing liability risks on our business. In addition, legalrestrictions on cookies, pixel tags and other tracking technologies may make itmore difficult for us to tailor content to our users, making our network lessattractive to users. Similarly, the unavailability of cookies, pixel tags andother tracking technologies may restrict the use of targeted advertising,making our network less attractive to advertisers and causing us to losesignificant advertising revenues.

 

***The location of ourusers and subsidiaries exposes us to foreign privacy and data security laws andmay increase our liability, subject us to non-uniform standards and require usto modify practices.***

 

Our members and users are located in theUnited States and around the world.  As aresult, we collect and process the personal data of individuals who live inmany different countries.  Privacyregulators in certain of those countries have publicly stated that foreignentities (including entities based in the United States) may render themselvessubject to those countries’ privacy laws and the jurisdiction of suchregulators by collecting or processing the personal data of those countries’residents, even if such entities have no physical or legal presence there.  Consequently, we may be held to be obligatedto comply with the privacy and data security laws of certain foreign countries.

 

Following our acquisition of certain assetsof iVillage UK Limited on April 29, 2005, our United Kingdom subsidiary,iVillage Limited, became the data controller of the member and user personaldata used in the operation of the iVillage.co.uk business pursuant to UnitedKingdom law.  As a result, iVillageLimited’s operation of that business is directly subject to United Kingdomprivacy and data security laws.  TheUnited Kingdom’s privacy laws are primarily derived from Directive 95/46/EC, orthe EU Data Protection Directive, as well as Directive 2002/58/EC, or the EUPrivacy and Electronic Communications Directive.

 

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Our exposure to European and other foreigncountries’ privacy and data security laws impacts our ability to collect anduse personal data, and increases our legal compliance costs and may expose usto liability. While we believe that iVillage Limited complies with currentlyapplicable laws, as such laws proliferate there may be uncertainty regardingtheir application or interpretation, which increases our potential liability.Even if a claim of non-compliance against us does not ultimately result inliability, investigating or responding to a claim may also present asignificant cost. Future legislation may also require changes in our datacollection practices which may be expensive to implement.

 

***We may facepotential products liability claims based upon our iVillageSolutions products.***

 

Although we phased out our vitamin andneutraceutical product offerings in 2004, as with other retailers, distributorsand manufacturers of products that are ingested, we face an inherent risk ofexposure to product liability claims in the event that such products result ininjury or death. We may still be subjected to various product liability claims,including, among others, that our products contained contaminants or includedinadequate instructions as to use or inadequate warnings concerning sideeffects and interactions with other substances. Our insurance may not beadequate to cover any liabilities and may not continue to be available at areasonable cost.

 

***Our business couldbe affected by future terrorist attacks or acts of war.***

 

The terrorist attacks of September 2001disrupted global commerce and the continued threat of future terrorist attacks,acts of war, or governmental responses to terrorist actions or acts of war, maycause future disruptions.  Several of ouroffices are located in cities that have been the targets of terrorist attacks,including New York, Washington, D.C. and London.  These offices, including our New York Cityheadquarters, are in proximity to certain possible targets that could, in theevent of war or future terrorist attacks, result in damage to or thedestruction of such offices, as well as the permanent or temporary loss of keypersonnel.  We have not developed adisaster recovery plan and we cannot assure that our insurance coverage wouldadequately reimburse us for any damages suffered as a result of a terroristattack or act of war.

 

### **RisksRelated to Our Common Stock**

 

**As of August 8,2005,**Hearst owned approximately25% of our outstanding common stock and had three representatives on our board ofdirectors. As a result, Hearst is able to significantly influence our corporatedirection and policies.**

 

Hearst’s board representation and stockownership allows Hearst to significantly influence our corporate direction andpolicies, including any mergers, acquisitions, consolidations, strategicrelationships or sales of assets. Hearst’s board representation and stockownership may also discourage or prevent transactions involving an actual orpotential change of control, including transactions in which our stockholderswould otherwise receive a premium for their shares.

 

As of August 8, 2005, Hearst ownedapproximately 25% of our outstanding common stock. Pursuant to an amended andrestated stockholder agreement we entered into with Hearst on June 20, 2001,we appointed three Hearst representatives to our board of directors, with oneHearst designee appointed to each class of director. The amended and restatedstockholder agreement provides that the number of Hearst representatives issubject to reduction if Hearst’s

 

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ownership of our common stock falls below certain threshold levels.There is also a Hearst representative on our nominating and compensationcommittees.

 

Although Hearst is required to vote allshares that it holds in excess of 25% (subject to adjustment) of ouroutstanding voting securities in accordance with the recommendation of ourboard of directors, Hearst may effectively control certain stockholder actions,including approving changes to our certificate of incorporation or by-laws andadopting or changing equity incentive plans. Hearst’s effective control overstockholder actions may also determine the outcome of any merger,consolidation, sale of all or substantially all of our assets or other form ofchange of control that we might consider. In addition, the interests of Hearst,which owns or has significant investments in other businesses, including cabletelevision networks, newspapers, magazines and electronic media, may from timeto time compete with, or otherwise diverge from, our interests, particularlywith respect to new business opportunities and future acquisitions.

 

***Market fluctuationsor volatility could cause the trading price of our common stock to decline andlimit our ability to raise capital.***

 

The stock market in general and the marketfor stocks of Internet-based companies in particular have experienced extremeprice and volume fluctuations, often unrelated to the operating performance ofthe affected companies. The trading price of the securities of Internetcompanies has been highly volatile and is likely to remain so in the future. Webelieve that in the past similar levels of volatility have contributed to thedecline in the trading price of our common stock, and may do so again in thefuture. Trading volumes of our common stock can increase or decreasedramatically, resulting in a volatile trading price for our common stock. Inaddition, the trading price of our common stock could decline significantly asa result of sales of a substantial number of shares of our common stock, or theperception that significant sales could occur. In the past, securities classaction litigation has been brought against companies that experiencedvolatility in the trading price of their securities. Market fluctuations in theprice of our common stock could also adversely affect our ability to sellequity securities at a price we deem appropriate.

 

***If we fail to meetthe expectations of public market analysts and investors, the market price ofour common stock may decrease significantly.***

 

Public market analysts and investors have notbeen able to develop consistent financial models for the Internet marketbecause of the unpredictable rate of growth of Internet use, the rapidlychanging models of doing business on the Internet and the Internet’s relativelylow barriers to entry. Our sales cycle is also unpredictable and sales toadvertisers or sponsors forecasted in a particular period may be delayed or maynot otherwise occur based upon the timing of our customers’ own marketinginitiatives. As a result, and because of the other risks and uncertaintiesnoted in this report, our actual results might not meet the expectations ofpublic market analysts and investors in future periods. If this occurs, theprice of our common stock will likely decrease.

 

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***Our futurecapital-raising activities could involve the issuance of equity securities,which would dilute the ownership of our existing stockholders and could resultin a decline in the trading price of our common stock.***

 

We may sell securities in the public orprivate equity markets if and when conditions are favorable, even if we do nothave an immediate need for additional capital at that time. Raising fundsthrough the issuance of equity securities will dilute the ownership of ourexisting stockholders. Furthermore, we may enter into financing transactions atprices that represent a substantial discount to the market price of our commonstock. A negative reaction by investors and securities analysts to anydiscounted sale of our equity securities could result in a decline in thetrading price of our common stock.

 

***Future sales of ourstock could affect our share price.***

 

If our stockholders sell substantial amountsof our common stock, including shares sold by directors or officers and sharesissued upon the exercise of outstanding options or in connection withacquisitions, the trading price of our common stock could fall. These salesalso might make it more difficult for us to sell equity or equity-relatedsecurities in the future at a time and price that we deem appropriate.

 

**Item 3.  Quantitative and Qualitative Disclosures About Market Risk.**

 

As of June 30, 2005 and 2004, ourfinancial instruments include cash and cash equivalents. Cash equivalentsincluded interest bearing accounts. We do not use derivative financialinstruments in our investment portfolio. Our exposure to market risk forchanges in interest rates relates primarily to our interest bearing accounts.We do not expect interest rate fluctuations to materially affect the aggregatevalue of our financial assets. While we maintain our cash and cash equivalentsin highly rated financial institutions, at times these balances exceed insurableamounts.

 

Our consolidated financial statements aredenominated in U.S. dollars. For the three months ended June 30, 2005, wederived 2% of our revenues from operations outside of the United States. Forthe six months ended June 30, 2005, we derived 1% of our revenues fromoperations outside of the United States. There are no comparable amounts forthe three and six month periods ended June 30, 2004. We face foreigncurrency risks primarily as a result of the revenues that we receive fromservices delivered through our foreign subsidiary. This subsidiary incurs mostof its expenses in the local currency. Accordingly, our foreign subsidiary usesthe local currency as its functional currency. We are also exposed to foreignexchange rate fluctuations with respect to the British Pound as the financialresults of the foreign subsidiary are translated into U.S. dollars forconsolidation. As exchange rates vary, these results when translated may varyfrom expectations and adversely impact net income (loss) and operatingperformance. Currently, we do not hedge foreign currency transactions into U.S.dollars because we believe that, over time, the cost of a hedging program willoutweigh any benefit of greater predictability in our U.S. dollar-denominatedresults. However, we will from time to time reconsider the issue of whether aforeign currency-hedging program would be beneficial to our operations.

 

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**Item 4.   Controls andProcedures.**

 

(a) *Evaluation of Disclosure Controls and Procedures*.

 

Our chief executive officer and our chieffinancial officer, after evaluating the effectiveness of our “disclosurecontrols and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) underthe Exchange Act) as of the end of the period covered by this quarterly report,have concluded that, as of that date, our disclosure controls and procedureswere effective in ensuring that information required to be disclosed by us inreports that we file or submit under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in SEC rules andforms.

 

(b) *Changes in Internal Control over Financial Reporting*.

 

Other than the ongoing integration of thefinancial systems and key controls of our Healthology, HealthCentersOnline andiVillage Limited subsidiaries into our New York headquarters, there were nochanges in our internal control over financial reporting during the threemonths ended June 30, 2005 that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting. Healthology’s financial systems and key controls were fullyintegrated by June 30, 2005.  Weexpect the remaining financial systems and key controls of ourHealthCentersOnline and iVillage Limited subsidiary to be fully integrated by December 31,2005.

 

**PART II**

**OTHER INFORMATION**

 

**Item 5.****   ****Other Information.**

 

On August 9, 2005, we entered into anemployment agreement with Douglas W. McCormick, our Chairman and ChiefExecutive Officer, for the period May 31, 2005 to May 31, 2008.  This agreement represents a renewal insubstantially the same form as his existing agreement as required by suchagreement.  The agreement provides for anannual base salary of $600,000 and eligibility to receive a target bonus ofninety percent (90%) of his base salary under our bonus plan, with the amountof each bonus to be determined based upon the satisfaction of specifiedcriteria.  For 2005, the criteria isEBITDA, as defined in the employment agreement, with Mr. McCormickentitled to bonuses ranging from fifty percent (50%) of the target forachieving ninety-five percent (95%) of the goal to two hundred percent (200%)of the target for achieving one hundred-fifty percent (150%) of the goal.  Bonus criteria for fiscal years 2006 and 2007will be set by our Compensation Committee. The employment agreement also provides that Mr. McCormick willreceive the standard package of fringe benefits that we offer our other seniorexecutives.

 

Pursuant to the employment agreement, we arerequired to pay Mr. McCormick only his base salary and benefits throughthe effective date of his termination if any of the following events occur:

 

•              Mr. McCormickis terminated for “cause,” as defined in the employment agreement;

 

•              Mr. McCormickvoluntarily terminates his employment without “good reason,” as defined in theemployment agreement;

 

•              Mr. McCormickdies or becomes permanently disabled; or

 

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•              Mr. McCormickretires, as defined in the employment agreement, or the employment agreement isnot renewed or a new agreement is not executed as a result of his retirement(provided, however, that in this event, Mr. McCormick’s then outstandingvested stock options will remain exercisable until the earlier of five (5) yearsafter the effective date of termination or their scheduled termination dates).

 

If Mr. McCormick is terminated withoutcause or he resigns for good reason (which includes upon a change in control(as defined in the employment agreement) unless he does not become the ChiefExecutive Officer or its equivalent of the successor entity prior to theexpiration of the term of the employment agreement, then Mr. McCormickwill be entitled to severance, including:

 

•              accruedbase compensation and benefits through the effective date of termination;

 

•              alump-sum cash payment equal to Mr. McCormick’s base salary for theremainder of the term of the employment agreement;

 

•              a lumpsum cash payment equal to any bonus Mr. McCormick would have earned (atthe ninety percent (90%) of base salary target) had he remained employedthrough the end of the term; provided that if the termination occurs in 2008,then the payment will be prorated to reflect the portion of the year he wasemployed;

 

•              continuedinsurance coverage for the remainder of the term of the employment agreement;

 

•              immediateacceleration of the vesting of any unvested stock options and performanceunits; and

 

•              apost-termination exercise period for Mr. McCormick’s then outstandingstock options ending on the earlier of three (3) years after the effectivedate of termination or their scheduled termination dates.

 

The employment agreement provides that in no event shall the amount ofthe lump-sum cash payments of salary (excluding accrued, but unpaid salary) andbonus described above that are payable to Mr. McCormick as severance beless than the greater of $870,000 or an amount equal to his base salary andhighest paid bonus for any completed year during the term of the employmentagreement.

 

The employment agreement also provides forlong-term incentives in the form of stock options, restricted stock units andperformance units, as follows:

 

•              Stockoptions — The employment agreement provides for the grant of nonstatutory stockoptions for 567,000 shares, with an exercise price equal to the fair marketvalue on the date of grant, vesting in three equal installments on the first,second and third anniversaries of the employment agreement.

 

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•              Restrictedstock units – The employment agreement provides for the grant of 50,000restricted stock units on or about each of January 1, 2006, June 30,2006 and June 30, 2007, all of which are scheduled to vest on May 31,2008.  If there is a change in controlduring the term of the employment agreement, any restricted stock units not yetgranted are to be granted as of the effective date of the change in control andall the restricted stock units may be exchanged for cash in an amount equal tothe number of restricted stock units granted multiplied by the fair marketvalue, as defined in the underlying agreement, of our common stock on that date.  Upon a termination without cause, or if Mr.McCormick resigns for good reason (as each is defined in the employmentagreement) before January 2006, Mr. McCormick will be granted a pro-rataportion of the restricted stock units he would have received had he remainedemployed until January 1, 2006.  In theevent of a termination of employment without cause or resignation for goodreason, Mr. McCormick will receive a cash payment in exchange for hisrestricted stock units (with the number of such units determined as describedin the following three sentences) multiplied by the fair market value of ourstock at the termination date.  If the termination date is prior to July1, 2006, then the number of restricted stock units will be 50,000 plus apro-rata amount of 50,000 with such pro-rata portion based on the number ofdays Mr. McCormick was employed between July 1, 2005 and June 30, 2006. If the termination date is on or after July 1, 2006 and before July 1, 2007,then the number of restricted stock units will be 100,000 plus a pro-rataportion of 50,000 with such pro-rata amount based on the number of days Mr.McCormick was employed between July 1, 2006 and June 30, 2007.  If thetermination date is on or after July 1, 2007, then the number of restrictedstock units will be 150,000. 

 

•              Performanceunits – The employment agreement provides for the one-time grant of 100,000performance units on or about January 1, 2006.  Such units shall vest infull if Mr. McCormick remains employed through May 31, 2008.  If there isa change in control during the term of the employment agreement or if Mr.McCormick's employment is terminated without cause or he resigns for goodreason, any performance units not yet granted shall then be granted andall the performance units will then vest in full.  Any vestedperformance units will be exchanged for a lump sum cash payment equalto 100,000 multiplied by the Company's share price on the vestingdate multiplied by an applicable percentage which isbased on the Company's share price (with such applicable percentageranging from zero percent (0%) if the share price is less than $8.00 toone hundred fifty percent (150%) if the share price is at least$10.00).

 

 

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**Item 6.  Exhibits.**

 
| **Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                             |
|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                  |
| 3.1        |       | Restated Certificate of Incorporation, as  amended, of the Registrant (incorporated by reference from Exhibit 3.1  to the Registrant’s Form 8-A/A registration statement, filed on April 4,  2004).                                                                                                     |
|       |       |                                                                                                                                                                                                                                                                                                                        |
| 3.2        |       | By-Laws, as amended, of the Registrant  (incorporated by reference to Exhibit 3.2 to the Registrant’s Form 10-Q  Quarterly Report for the period ended June 30, 2004, filed on August 8,  2004).                                                                                                   |
|       |       |                                                                                                                                                                                                                                                                                                                        |
| 11         |       | Statement re: computation of earnings per  share.                                                                                                                                                                                                                                                                           |
|       |       |                                                                                                                                                                                                                                                                                                                        |
| 31.1       |       | Certifications of the Chief Executive  Officer pursuant to Rules 13a-14(a) and 15d-14(a) under  the Securities Exchange Act of 1934, as amended.                                                                                                                                                             |
|       |       |                                                                                                                                                                                                                                                                                                                        |
| 31.2       |       | Certifications of the Chief Financial  Officer pursuant to Rules 13a-14(a) and 15d-14(a) under  the Securities Exchange Act of 1934, as amended.                                                                                                                                                             |
|       |       |                                                                                                                                                                                                                                                                                                                        |
| 32         |       | Certifications of the Principal Executive  Officer and Principal Financial Officer furnished pursuant to Rules 13a-14(b) and  15d-14(b) under the Securities Exchange Act of 1934, as amended,  and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002. |

 

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**SIGNATURES**

 

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

 
|                       |   | iVILLAGE INC.                        |
|----------------------------|--------|--------------------------------------|
|                       |   | (Registrant)                         |
|                       |   |                                 |
| Dated: August 9, 2005 | By:    | /s/ Douglas W. McCormick             |   |
|                       |   | Douglas W. McCormick                 |
|                       |   | Chairman and Chief Executive Officer |
|                       |   | (Principal Executive Officer)        |
|                       |   |                                 |
|                       |   |                                 |
| Dated: August 9, 2005 | By:    | /s/ Steven A. Elkes                  |   |
|                       |   | Steven A. Elkes                      |
|                       |   | Chief Financial Officer,             |
|                       |   | Executive Vice President, Operations |
|                       |   | and Business Affairs, and Secretary  |
|                       |   | (Principal Financial Officer)        |
|                            |        |                                      |  |  |

 

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**EXHIBIT INDEX**

 
| **Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                             |
|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                  |
| 3.1        |       | Restated Certificate of Incorporation, as  amended, of the Registrant (incorporated by reference from Exhibit 3.1  to the Registrant’s Form 8-A/A registration statement, filed on April 4,  2004).                                                                                                     |
|       |       |                                                                                                                                                                                                                                                                                                                        |
| 3.2        |       | By-Laws, as amended, of the Registrant  (incorporated by reference to Exhibit 3.2 to the Registrant’s Form 10-Q  Quarterly Report for the period ended June 30, 2004, filed on August 8,  2004).                                                                                                   |
|       |       |                                                                                                                                                                                                                                                                                                                        |
| 11         |       | Statement re: computation of earnings per  share.                                                                                                                                                                                                                                                                           |
|       |       |                                                                                                                                                                                                                                                                                                                        |
| 31.1       |       | Certifications of the Chief Executive  Officer pursuant to Rules 13a-14(a) and 15d-14(a) under  the Securities Exchange Act of 1934, as amended.                                                                                                                                                             |
|       |       |                                                                                                                                                                                                                                                                                                                        |
| 31.2       |       | Certifications of the Chief Financial  Officer pursuant to Rules 13a-14(a) and 15d-14(a) under  the Securities Exchange Act of 1934, as amended.                                                                                                                                                             |
|       |       |                                                                                                                                                                                                                                                                                                                        |
| 32         |       | Certifications of the Principal Executive  Officer and Principal Financial Officer furnished pursuant to Rules 13a-14(b) and  15d-14(b) under the Securities Exchange Act of 1934, as amended,  and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002. |

 

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