** **

**UNITEDSTATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

** **

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**FORM 10-Q**

 

**(MarkOne)**

 
| **ý** | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                                                              |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| ** ** | ** ** | **For  the quarterly period ended March 31, 2005**                                                                                                                                                                                                                                                                                                                                        |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| **OR**     |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| **o**      | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                                                             |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| ** ** | ** ** | **For  the transition period from                               to                             ** |

 

**Commission File Number 000-25469**

 

**iVillage Inc.**

(Exact Name of Registrant as Specified in Its Charter)

 
| **Delaware**                                                    | ** ** | **13-3845162**                     |
|-----------------------------------------------------------------|------------|------------------------------------|
| (State or Other Jurisdiction of  Incorporation or Organization) |       | (IRS Employer  Identification No.) |
|                                                            |       |                               |
| **500 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 May 9, 2005, the registrant had outstanding 72,157,081 shares ofcommon stock.

 

 

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**iVillage Inc.**

**Form 10-Q**

**For the Quarter ended March 31, 2005**

 

## **INDEX**

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

 

**TRADEMARKS**

 

iVillage®,iVillage.com®, gURL.com®, Newborn Channel®, WebStakes.com®, iVillageConsulting®, iVillage Solutions® and Healthology® are registered trademarks ofiVillage Inc. The stylized iVillage logo, “the Internet for Women”,Astrology.com, Baby Steps, Public Affairs Group, Inc., Business Women’sNetwork, Business Women’s Network Government, Diversity Best Practices, BestPractices In Corporate Communications, Promotions.com, HealthCentersOnline,Inc. and iVillage.co.uk are trademarks of iVillage Inc. All other brand names,trademarks or service marks referred to in this report are the property oftheir owners.

 

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**PART IFINANCIAL INFORMATION**

 

**Item 1. FinancialStatements.**

 

***iVillageInc. and Subsidiaries***

***CondensedConsolidated Balance Sheets***

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

**(Unaudited)**

*** ***
| ** **                                                                                                                                                                                                                                                            | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|------------------------|------------|
| ** **                                                                                                                                                                                                                                                            | ** ** | ** **          | ** ** | ** **             | ** ** |
| **Assets**                                                                                                                                                                                                                                                            |       |                |       |                   |       |
| Current assets:                                                                                                                                                                                                                                                       |       |                |       |                   |       |   |   |
| Cash and cash equivalents                                                                                                                                                                                                                                             |       | $                   | 70,281     |                   | $          | 83,046 |   |
| Accounts receivable, less allowance for  doubtful accounts of $980 and $1,010 as of March 31, 2005 and December 31,  2004, respectively                                                                                                                               |       | 9,523               |       | 9,159                  |       |
| Accounts receivable - related parties                                                                                                                                                                                                                                 |       | 592                 |       | 549                    |       |
| Prepaid rent                                                                                                                                                                                                                                                          |       | 318                 |       | 318                    |       |
| Other current assets                                                                                                                                                                                                                                                  |       | 4,118               |       | 3,740                  |       |
| Total current assets                                                                                                                                                                                                                                                  |       | 84,832              |       | 96,812                 |       |
|                                                                                                                                                                                                                                                                  |       |                |       |                   |       |
| Fixed assets, net                                                                                                                                                                                                                                                     |       | 8,669               |       | 8,381                  |       |
| Goodwill,                                                                                                                                                                                                                                                             |       | 36,885              |       | 23,241                 |       |
| Intangible assets, net                                                                                                                                                                                                                                                |       | 13,576              |       | 8,832                  |       |
| Prepaid rent, net of current portion                                                                                                                                                                                                                                  |       | 3,165               |       | 3,203                  |       |
| Other assets                                                                                                                                                                                                                                                          |       | 79                  |       | 79                     |       |
| Total assets                                                                                                                                                                                                                                                          |       | $                   | 147,206    |                   | $          | 140,548 |   |
|                                                                                                                                                                                                                                                                  |       |                |       |                   |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                                                                                        |       |                |       |                   |       |
|                                                                                                                                                                                                                                                                  |       |                |       |                   |       |
| Current liabilities:                                                                                                                                                                                                                                                  |       |                |       |                   |       |
| Accounts payable and accrued expenses                                                                                                                                                                                                                                 |       | $                   | 11,361     |                   | $          | 9,933 |   |
| Accounts payable and accrued expenses -  related parties                                                                                                                                                                                                              |       | 130                 |       | 209                    |       |
| Deferred revenue                                                                                                                                                                                                                                                      |       | 7,019               |       | 2,080                  |       |
| Deferred rent                                                                                                                                                                                                                                                         |       | 144                 |       | 144                    |       |
| Other current liabilities                                                                                                                                                                                                                                             |       | 24                  |       | 24                     |       |
| Total current liabilities                                                                                                                                                                                                                                             |       | 18,678              |       | 12,390                 |       |
|                                                                                                                                                                                                                                                                  |       |                |       |                   |       |
| Deferred rent, net of current portion                                                                                                                                                                                                                                 |       | 1,304               |       | 1,339                  |       |
| Total liabilities                                                                                                                                                                                                                                                     |       | 19,982              |       | 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 March 31, 2005 and  December 31, 2004, respectively                                                                                                            |       | —              |       | —                 |       |
| Common stock - par value $.01, 200,000,000  shares authorized; 73,033,226 and 72,695,263 shares issued at March 31, 2005  and December 31, 2004, respectively; 71,972,375 and 71,634,412 shares  outstanding as of March 31, 2005 and December 31, 2004, respectively |       | 731                 |       | 727                    |       |
| Additional paid-in capital                                                                                                                                                                                                                                            |       | 619,732             |       | 617,958                |       |
| Treasury stock at cost (1,060,851 shares as  of March 31, 2005 and December 31, 2004, respectively)                                                                                                                                                                   |       | (766                | )          | (766                   | )          |
| Unearned compensation                                                                                                                                                                                                                                                 |       | (107                | )          | —                 |       |
| Accumulated deficit                                                                                                                                                                                                                                                   |       | (492,366            | )          | (491,100               | )          |
| Total stockholders’ equity                                                                                                                                                                                                                                       |       | 127,224             |       | 126,819                |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                                                       |       | $                   | 147,206    |                   | $          | 140,548 |   |

 

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

 

**CONFIDENTIAL**

 

1

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***iVillageInc. and Subsidiaries***

***CondensedConsolidated Statements of Operations***

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

***(Unaudited)***

* *
| ** **                                                                                                  | ** ** | **Three months ended  March 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                                  | ** ** | **2005**                          | ** ** | **2004** | ** ** |
|                                                                                                        |       |                              |       |   |   |
| Revenues:                                                                                                   |       |                              |       |   |   |
| Revenues                                                                                                    |       | $                                 | 15,722     |   | $ | 13,400 |   |
| Revenues – related parties                                                                             |       | 1,552                             |       | 2,107 |   |
| Total revenues                                                                                              |       | 17,274                            |       | 15,507 |   |
|                                                                                                        |       |                              |       |   |   |
| Operating expenses:                                                                                         |       |                              |       |   |   |
| Editorial, product development and  technology                                                              |       | 8,239                             |       | 7,511 |   |
| Sales and marketing                                                                                         |       | 5,936                             |       | 4,385 |   |
| General and administrative                                                                                  |       | 2,989                             |       | 2,908 |   |
| Depreciation and amortization                                                                               |       | 1,804                             |       | 1,804 |   |
| Total operating expenses                                                                                    |       | 18,968                            |       | 16,608 |   |
|                                                                                                        |       |                              |       |   |   |
| Loss from operations                                                                                        |       | (1,694                            | )          | (1,101 | ) |
|                                                                                                        |       |                              |       |   |   |
| Interest income, net                                                                                        |       | 352                               |       | 18 |   |
| Other income, net                                                                                           |       | —                            |       | 52 |   |
| Gain on sale of joint venture interest                                                                      |       | 76                                |       | 167 |   |
| Net loss                                                                                                    |       | $                                 | (1,266     | ) | $ | (864 | ) |
|                                                                                                        |       |                              |       |   |   |
| Per share data:                                                                                             |       |                              |       |   |   |
|                                                                                                        |       |                              |       |   |   |
| Basic and diluted net loss per share                                                                        |       | $                                 | (0.02      | ) | $ | (0.01 | ) |
| Weighted average shares of common stock  outstanding used in computing basic and diluted net loss per share |       | 71,928                            |       | 58,443 |   |

 

*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)***

* *
| ** **                                                                       | ** ** | **Three months ended  March 31,** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                       | ** ** | **2005**                          | ** ** | **2004** | ** ** |
|                                                                             |       |                              |       |   |   |
| Cash flows from operating activities:                                            |       |                              |       |   |   |   |   |
| Net loss                                                                         |       | $                                 | (1,266     | ) | $ | (864 | ) |
| Adjustments to reconcile net loss to net  cash provided by operating activities: |       |                              |       |   |   |
|                                                                             |       |                              |       |   |   |
| Depreciation and amortization                                                    |       | 1,804                             |       | 1,804 |   |
| Deferred rent amortization                                                       |       | (36                               | )          | (36 | ) |
| Bad debt expense                                                                 |       | 12                                |       | — |   |
| Expense recognized in connection with  issuance of stock options                 |       | 3                                 |       | — |   |
| Gain on sale of joint venture interest                                           |       | (76                               | )          | (167 | ) |
|                                                                             |       |                              |       |   |   |
| Changes in operating assets and  liabilities:                                    |       |                              |       |   |   |
| Accounts receivable                                                              |       | 1,715                             |       | 900 |   |
| Prepaid rent                                                                     |       | 38                                |       | 38 |   |
| Other assets                                                                     |       | (242                              | )          | (258 | ) |
| Accounts payable and accrued expenses                                            |       | 50                                |       | (923 | ) |
| Deferred revenue                                                                 |       | (475                              | )          | (172 | ) |
|                                                                             |       |                              |       |   |   |
| Net cash provided by operating activities                                        |       | 1,527                             |       | 322 |   |
|                                                                             |       |                              |       |   |   |
| Cash flows from investing activities:                                            |       |                              |       |   |   |
| Purchase of fixed assets                                                         |       | (499                              | )          | (545 | ) |
| Cash paid less cash acquired for  acquisition of Healthology, Inc.               |       | (14,042                           | )          | — |   |
| Cash paid for acquisition of The Virtual  Mirror, Inc.                           |       | (5                                | )          | — |   |
| Proceeds from the sale of joint venture  interest                                |       | 76                                |       | 75 |   |
|                                                                             |       |                              |       |   |   |
| Net cash used in investing activities                                            |       | (14,470                           | )          | (470 | ) |
|                                                                             |       |                              |       |   |   |
| Cash flows from financing activities:                                            |       |                              |       |   |   |
| Proceeds from exercise of stock options and  warrants                            |       | 178                               |       | 576 |   |
| Principal payments on stockholders’ notes  receivable                       |       | —                            |       | 114 |   |
| Net cash provided by financing activities                                        |       | 178                               |       | 690 |   |
|                                                                             |       |                              |       |   |   |
| Net (decrease) increase in cash for the  period                                  |       | (12,765                           | )          | 542 |   |
| Cash and cash equivalents, beginning of  period                                  |       | 83,046                            |       | 15,823 |   |
| Cash and cash equivalents, end of period                                         |       | $                                 | 70,281     |   | $ | 16,365 |   |

 

Supplemental disclosure of non-cash investingand financing activities:

 

During the three months ended March 31, 2005,iVillage acquired Healthology Inc. partially through the issuance of our commonstock and options to purchase our common stock (see Note 7).

 

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

 

3

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**iVillage Inc. and Subsidiaries**

**Notes to Condensed Consolidated FinancialStatements**

**(Unaudited)**

 

**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, oriVillage.com, Healthology, Inc., or Healthology, iVillage Consulting, TheVirtual Mirror, Inc., operator of the GardenWeb.com Web site, orGardenWeb.com, Promotions.com, Inc., Knowledgeweb, Inc., operator ofthe Astrology.com Web site, or Astrology.com, iVillage ParentingNetwork, Inc., or IVPN, and Public Affairs Group, Inc., or PAG.Following is a synopsis of certain of our operational activities, subsidiariesand divisions:

 
| **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.                                                                   |
|                       |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| 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. |

 

4

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| 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. |
|-----|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

iVillage has had positive cash flows from operations for the last sixquarters. Management believes that iVillage’s current funds are 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.

 

*UnauditedInterim Financial Information*

 

Theunaudited interim condensed consolidated financial statements of iVillage as ofMarch 31, 2005 and for the three months ended March 31, 2005 and 2004,respectively, included herein, have been prepared in accordance with theinstructions 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 rules andregulations of the Securities and Exchange Commission, or SEC. Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with generally accepted accounting principles have beencondensed or omitted pursuant to such rules and regulations relating to interimfinancial statements. These financial statements should be read in conjunctionwith iVillage’s Annual Report on Form 10-K for the fiscal year ended December31, 2004.

 

In the opinion of management, the accompanying unaudited interimcondensed consolidated financial statements reflect all adjustments, consistingonly of normal recurring adjustments and appropriate intercompany eliminationadjustments, necessary to present fairly the financial position of iVillage atMarch 31, 2005 and the results of its operations and its cash flows for thethree months ended March 31, 2005 and 2004, respectively. The results for thethree months ended March 31, 2005 are not necessarily indicative of theexpected results for the full fiscal year or any future period.

 

5

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*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 financialinformation directly to the chief operating decision maker. The chief operatingdecision maker reviews information at a consolidated results of operationslevel, although the chief operating decision maker does review revenue resultsof subsidiaries and divisions. As a result, iVillage’s discussion of revenuehas been organized into separate subsidiaries and divisions, however operatingexpenses and results of operations are discussed on a combined basis.

 

*Revenues, Receivables and Customer Concentration*

 

Our five largest customers accounted for approximately 23% of totalrevenues for the three months ended March 31, 2005, and approximately 37% oftotal revenues for the corresponding period in 2004.  No single customer accounted for more than 10% of our total revenuesfor the three months ended March 31, 2005. Wal-Mart Stores, Inc. and itsaffiliates, or Wal-Mart, accounted for approximately 15%, and HearstCommunications, Inc. and its affiliates, or Hearst, a related party, accountedfor approximately 12%, of total revenues for the three months ended March 31,2004. At March 31, 2005 and December31, 2004, no single customer accounted for more than 10% of total net accountsreceivable. The significance ofrevenues from any of our customers can vary on a quarter to quarter basis as aresult of the number and timing of such customers’ advertising and marketinginitiatives. We anticipate that our results of operations in any givenperiod will continue to depend to a significant extent on revenues from a smallnumber of customers.

 

Included in total revenues are barter transactions which totaledapproximately $1.7 million, or 10% of total revenues, for the three monthsended March 31, 2005.  For thecorresponding period in 2004, barter transactions totaled approximately $0.8million, or 5% of total revenues.

 

6

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*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 ratecommensurate with the risk associated when estimating future discounted cashflows. Future cash flows are based on trends of historical performance andiVillage’s estimate of future performances, giving consideration to existingand anticipated competitive and economic conditions.

 

*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 $0.3million for the three months ended March 31, 2005 were capitalized.Amortization expense of Web site development costs was approximately $0.1million for the three months ended March 31, 2005.  Development costs of approximately $0.1million were capitalized for the three months ended March 31, 2004.  No amortization expense was recorded for thethree months ended March 31, 2004.

 

*Goodwill*

 

SFAS No. 141, “Business Combinations” requires all businesscombinations to be accounted for using the purchase method of accounting andthat certain intangible assets acquired in a business combination shall berecognized as assets apart from goodwill. Goodwill is not subject toamortization and is tested for impairment annually, or more frequently ifevents or changes in circumstances indicate that the asset may be impaired inaccordance with SFAS No. 142, ‘‘Goodwill and Other Intangible Assets”, or SFAS142. The impairment test consists of

 

7

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a comparison of the fair value of the reporting unit with its carryingamount. If the carrying amount of the reporting unit exceeds its fair valuethen an analysis will be performed to compare the implied fair value ofgoodwill with the carrying amount of goodwill.  An impairment loss will be recognized in anamount equal to the difference. Fair value is typically based upon future cashflows discounted at a rate commensurate with the risk involved or other marketbased comparables. After an impairment loss is recognized, the adjustedcarrying amount of goodwill is its new accounting basis.  (See Note 2 – Goodwill).

 

*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, Issued No. 00-21 "Accounting for Revenue Arrangements withMultiple Deliverables," or EITF 00-21, the useful lives of fixed assetsand intangible assets, the recoverability of fixed assets, goodwill, intangibleassets and deferred tax assets, the allocation of purchase price to the fairvalue of net assets acquired in acquisitions, the allowance for doubtfulaccounts and the assessment of expected probable losses (if any) of claims andpotential 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. Forthe three months ended March 31, 2005, iVillage reversed no previously establishedaccruals. For the three months ended March 31, 2004, iVillage reversedapproximately $30,000 of accruals included in operating expenses due to changesin estimates previously provided for.

 

*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 all of the deferred tax assetswill not be realized. The ultimate realization of deferred tax assets isdependent upon the generation of future taxable income or reversal of deferredtax liabilities during the periods in which those temporary differences becomedeductible. iVillage considers the scheduled reversal of deferred taxliabilities, projected future taxable income, and tax planning strategies inmaking this assessment.

 

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The difference between iVillage's U.S. federal statutory rate of 34%,as well as iVillage's state and local rate, net of its federal benefit of 7%,when compared to its actual effective tax rate of 0%, is principally attributedto valuation allowance provided for its deferred tax assets generated duringthe period. iVillage has a full valuation allowance on iVillage's net deferredtax assets. If iVillage generates pre tax income in future periods, a partialor full reversal of the valuation allowance against the deferred tax assets maybe required, and such reversal may be material in the period in which thereversal is recorded. The decision to reverse the valuation allowance will,among other things, consider iVillage's profitability in recent periods, aswell as our future profitability and available tax planning strategies.

 

*Net Loss Per Share*

 

Basic net loss per share is computed using the weighted-average numberof common shares outstanding during the period. Diluted net loss per share is computed using the weighted-average numberof common shares and common stock equivalents outstanding during the period.  Common stock equivalent shares are excludedfrom the computation if their effect is anti-dilutive.

 

Included in the March 31, 2005 and March 31, 2004 calculation ofweighted average number of shares of common stock outstanding are 56,995 sharesand 62,467 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 9,081,329 shares for the three monthsended March 31, 2005 were not included in the computation of diluted net incomeper share as they were anti-dilutive. Stock options and warrants in the amount of 9,810,612 shares for thethree months ended March 31, 2004, were not included in the computation ofdiluted net loss per share as they were anti-dilutive as a result of net lossesduring the period presented.

 

*Stock-Based Compensation*

 

iVillageapplies Accounting Principles Board Opinion, or APB, No. 25, “Accounting forStock Issued to Employees”, or APB 25, and related interpretations inaccounting for its stock option issuances, and has adopted the disclosure-onlyprovisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, or SFAS123. No compensation cost related to grants of stock options was reflected iniVillage’s net loss, as all options granted under the plans had an exerciseprice at least equal to the market value of the underlying common stock on thedate of grant. In January 2005, in conjunction with the acquisition ofHealthology (See Note 7 – Business Acquisitions), all outstanding options topurchase Healthology common stock were converted into options to purchaseshares of iVillage common stock at a predetermined exchange ratio. The fairvalue of the converted options as determined by the Black Scholes model was$0.3 million. A deferred compensation charge of approximately $0.1 million wascalculated as a portion of the converted options were unvested at the acquisitiondate and contained a continued service

 

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requirement. Compensation cost related to the converted Healthologyoptions, as well as a modification of stock option terms in general, ismeasured at the fair value of iVillage’s common stock at the measurement dateand is amortized to expense over the vesting period. Compensation costs relatedto the modification of stock option terms were no amount for the three monthsended March 31, 2005 and 2004. If compensation cost for iVillage’s stockoptions, utilizing the Black Scholes model, had been determined based on thefair value of the stock options at the grant date for awards in the threemonths ended March 31, 2005 and 2004 consistent with the provisions of SFAS123, iVillage’s net loss would have been adjusted to the pro forma amountsindicated below:

 

| ** **                                                  | ** ** | **Three months ended  March 31,**               | ** ** |
|-------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                  | ** ** | **2005**                                        | ** ** | **2004** | ** ** |
| ** **                                                  | ** ** | **($ in thousands except per share data)** | ** ** |
| Net loss- as reported                                       |       | $                                               | (1,266     | ) | $ | (864 | ) |
| Stock-based compensation expense determined  under SFAS 123 |       | (768                                            | )          | (960 | ) |
| Net loss - pro forma                                        |       | $                                               | (2,034     | ) | $ | (1,824 | ) |
| Basic and diluted net loss per share – as  reported    |       | $                                               | (0.02      | ) | $ | (0.01 | ) |
| Basic and diluted net loss per share – pro  forma      |       | $                                               | (0.03      | ) | $ | (0.03 | ) |

 

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  three months ended  March 31,** | ** ** |
|-------------------------|------------|---------------------------------------------------------------|------------|
| ** **              | ** ** | **2005**                                                      | ** ** | **2004** | ** ** |
|                    |       |                                                          |       |   |   |
| Risk-free interest rate |       | 3.24                                                          | %          | 2.65 | % |
| Expected option life    |       | 3 years                                                       |       | 4 years |   |
| Dividend yield          |       | 0.00                                                          | %          | 0.00 | % |
| Volatility              |       | 80                                                            | %          | 101.00 | % |

 

*Recent Accounting Pronouncements*

 

In December 2004, 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.

 

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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 a significantimpact on the consolidated statement of operations as iVillage will be requiredto expense the fair value of stock option grants. iVillage has not yetdetermined 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 nonmonetary exchanges of similar productive assetsunder APB Opinion No. 29, and replaces it with a general exception for exchangesof 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.

 

**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 first quarter of 2005, iVillage acquired Healthology (SeeNote 7 – Business Acquisitions), and incurred approximately $5,000 ofadditional costs related to the acquisition of The Virtual Mirror, Inc., whichwas acquired in November 2004.  Thefollowing table sets forth the components of goodwill as of December 31, 2004and March 31, 2005 (in thousands):

 
| ** **              | ** ** | **December 31,  2004** | ** ** | **Acquisition** | ** ** | **Impairment  losses** | ** ** | **March 31,  2005** | ** ** |
|-------------------------|------------|------------------------|------------|-----------------|------------|------------------------|------------|---------------------|------------|
| Reporting unit – 1 |       | $                      | 19,778     |            | $          | 13,644                 |       | $                   | —     |   | $ | 33,422 |   |
| Reporting unit – 2 |       | 1,693                  |       | —          |       | —                 |       | 1,693               |       |
| Reporting unit – 3 |       | 1,770                  |       | —          |       | —                 |       | 1,770               |       |
|                    |       | $                      | 23,241     |            | $          | 13,644                 |       | $                   | —     |   | $ | 36,885 |   |

 

Reporting unit – 1 includes iVillage Inc., Women.comNetworks, Inc., Healthology, Inc., 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 thefirst quarter of 2005, iVillage acquired Healthology (See Note 7 – BusinessAcquisitions).

 

Identifiable intangible assets are amortized under the straight-linemethod over the period of expected benefit ranging from one to ten years.  The following table sets forth the componentsof the intangible assets subject to amortization as of March 31, 2005 andDecember 31, 2004 (in thousands):

 
| ** **                                         | ** ** | ** **                                | ** ** | **March 31, 2005**          | ** ** | **December 31, 2004** | ** ** |
|----------------------------------------------------|------------|-------------------------------------------|------------|-----------------------------|------------|-----------------------|------------|
| ** **                                         | ** ** | **Range**** ****of****useful  life** | ** ** | **Gross  carrying  amount** | ** ** | **Acquisition**       | ** ** | **Accumulated  amortization** | ** ** | **Net** | ** ** | **Gross  carrying  amount** | ** ** | **Accumulated  amortization** | ** ** | **Net** | ** ** |
| Advertiser and member lists and customer contracts |       | 2-10 years                                |       | $                           | 20,777     |                  | $          | 1,884 |   | $ | (14,282 | ) | $ | 8,379 |   | $ | 20,777 |   | $ | (13,719 | ) | $ | 7,058 |   |
|                                               |       |                                      |       |                        |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Trademarks and domain names                        |       | 3 years                                   |       | 3,364                       |       | 913                   |       | (3,309 | ) | 968 |   | 3,364 |   | (3,200 | ) | 164 |   |
|                                               |       |                                      |       |                        |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Licensing agreement                                |       | 10 years                                  |       | 2,900                       |       | —                |       | (1,627 | ) | 1,273 |   | 2,900 |   | (1,555 | ) | 1,345 |   |
|                                               |       |                                      |       |                        |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Technology                                         |       | 3 years                                   |       | 935                         |       | 64                    |       | (904 | ) | 95 |   | 935 |   | (821 | ) | 114 |   |
|                                               |       |                                      |       |                        |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Non-competition agreements                         |       | 1 years                                   |       | 810                         |       | 181                   |       | (824 | ) | 167 |   | 810 |   | (810 | ) | — |   |
|                                               |       |                                      |       |                        |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Content                                            |       | 3 years                                   |       | 757                         |       | 2,914                 |       | (977 | ) | 2,694 |   | 757 |   | (606 | ) | 151 |   |
|                                               |       |                                      |       | $                           | 29,543     |                  | $          | 5,956 |   | $ | (21,923 | ) | $ | 13,576 |   | $ | 29,543 |   | $ | (20,711 | ) | $ | 8,832 |   |

 

Amortization expense for the three months ended March 31, 2005 and 2004were approximately $1.2 million, respectively.

 

Estimatedamortization expense for the twelve months ending March 31 are as follows (inthousands):

 

| 2006   |   | $     | 4,224  |
|--------|--------|-------|--------|
| 2007   |   | 3,743 |
| 2008   |   | 3,164 |
| 2009   |   | 1,760 |
| 2010   |   | 685   |
|   |   | $     | 13,576 |

 

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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 Limited, oriVillage UK. iVillage and Tesco also entered into a twenty-year licenseagreement for the use of certain of iVillage’s content and intellectualproperty subject to earlier termination upon the occurrence of certain events,for the greater of a minimum monthly license fee or a percentage of iVillage UK’sgross revenues. (See Note 10 - Subsequent Events – iVillage UK Limited)

 

All moniesreceived by iVillage under the license agreement will be classified as otherincome and will be included in the condensed consolidated statements ofoperations as a gain on sale of joint venture interest. iVillage has earnedapproximately $0.1 million for the three months ended March 31, 2005 andapproximately $0.2 million for the three months ended March 31, 2004 forservices provided.  As of March 31, 2005and December 31, 2004, iVillage was owed approximately $0.1 million for licensefees.

 

**Note 5 –Discontinued Operations**

 

As of March31, 2005 and December 31, 2004, approximately $24,000 of current liabilities ofdiscontinued operations are included in the caption “Other current liabilities”in the consolidated balance sheets, respectively.

 

**Note 6 – Related Party Transactions**

 

***American Online, Inc., a division of TimeWarner Inc.***

 

                AmericanOnline, Inc., a division of Time Warner Inc., or AOL, is a stockholder ofiVillage. Additionally a member of the board of directors was an employee ofAOL through June 2004. Commenced with the fourth quarter of 2004, AOL is nolonger reported as a related party.

 

                Included inthe caption "Revenues-related parties" in the condensed consolidatedstatements of operations is approximately $38,000 for the three months endedMarch 31, 2004 relating to revenues recognized from AOL.

*** ***

***HearstCommunications, Inc.***

 

                As of March 31, 2005, Hearst ownedapproximately 25% of iVillage’s outstanding common stock.

 

                From time to time, iVillage has providedproduction services outside the scope of its Web site services and amended andrestated magazine content and hosting agreements with Hearst.

 

                Revenues, net of royalty payments, fromHearst, were approximately $1.5 million for the three months endedMarch 31, 2005, and approximately $1.9 million for the three monthsended March 31, 2004.  As ofMarch 31, 2005 and December 31 2004, iVillage had a net receivable fromthis stockholder of approximately $0.4 million.

 

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***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 servicesrelated to 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,approximately $0.1 million as prepaid expenses and approximately$0.1 million have been expensed. As of March 31, 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 Officerowns less 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 wereapproximately $0.1 million for the three months ended March 31, 2005, andapproximately $0.2 million for the three months ended March 31, 2004.At March 31, 2005, iVillage was owed a receivable of approximately $0.1million, and at December 31, 2004, iVillage was owed a receivable ofapproximately $44,000 from Waterfront Media.

 

**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 producer and distributor ofphysician-generated video- and article-based health and medical information (viathe internet). The aggregate purchase price, inclusive of closing costs, wasapproximately $17.4 million, consisting of approximately $15.8 million in cash,205,908 shares of iVillage’s common stock and $0.3 million of common stockoptions (See Note 1 – Organization and Basis of Presentation – Stock-BasedCompensation).  Approximately $1.7million, in the aggregate, of cash and common stock with the fair value of $1.2million based on the five day average closing price of iVillage's common stock asreported by the NASDAQ National Market prior to the acquisition date, of thepurchase 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 for release after 18 months, withthe remaining approximately $1.1 million, representing the stock

 

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portion, eligible for release after 24 months.  The difference between the purchase price andthe fair value of the acquired net assets of Healthology of approximately $13.6million was recorded as goodwill (See Note 2-Goodwill). iVillage has notfinalized the allocation of the purchase price. iVillage, however, does notexpect the final allocation to differ materially from the preliminaryallocation.

 

The cost of the acquisition was preliminarily allocated to the assetsacquired and liabilities assumed based upon their estimated fair values asfollows (in thousands):

 
| Working capital           |   | $      | (2,220 | )      |
|---------------------------|--------|--------|--------|--------|
| Fixed assets              |   | 54     |   |
| Content                   |   | 2,914  |   |
| Customer contracts        |   | 1,884  |   |
| Domain names              |   | 913    |   |
| Non-competition agreement |   | 181    |   |
| Technology                |   | 64     |   |
| Goodwill                  |   | 13,639 |   |
|                      |   | $      | 17,429 |   |

 

No pro forma information is included as the acquisition of Healthologywould not have had a material impact on the consolidated results of operationsof iVillage.

 

**Note 8 – Commitments and Contingencies**

 

*Leases*

 

iVillageleases office space and equipment under non-cancelable operating leasesexpiring at various dates through April 2015. The following is a schedule offuture minimum lease payments under non-cancelable operating leases as of March31, 2005, for the next five years:

 
| **Twelve months ending March 31:** | ** ** | **(in thousands)** | ** ** |
|------------------------------------|------------|--------------------|------------|
| 2006                               |       | $                  | 1,964      |   |
| 2007                               |       | 1,729              |       |
| 2008                               |       | 1,532              |       |
| 2009                               |       | 1,517              |       |
| 2010                               |       | 1,475              |       |
| Thereafter                         |       | 5,512              |       |
|                               |       | $                  | 13,729     |   |

 

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

 

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*Technology*

 

Upon the expiration of the contract related to the satellite technologyused by iVillage Parenting Network, Inc. to transmit its television channels, orin the event of an unforeseen earlier interruption of such service, iVillagewould need to either negotiate a new contract, find another satellite providerand/or invest in 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 asdefendants, and the issuers’ insurance companies. The proposed settlementgenerally provides that the issuer defendants and related individual defendantswill be released from the litigation without any liability other than certainexpenses incurred to date in connection with the litigation, the issuerdefendants’ insurers will guarantee $1.0 billion in recoveries by plaintiffclass members, the issuer defendants will assign certain claims against theunderwriter defendants to the plaintiff class members, and the issuer defendantswill have the opportunity to recover certain litigation-related expenses if theplaintiffs recover more than $5.0 billion from the underwriter defendants. Therespective boards of directors of iVillage and Women.com each approved theproposed 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

 

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to thesettlement. The plaintiffs and issuer defendants separately filed replies tothe underwriter defendants’ objections to the settlement on August 4,2004.  On February 15, 2005, the courtissued an opinion and order granting preliminary approval to the settlement andordering the plaintiffs and issuer defendants to submit to the court a revisedsettlement stipulation consistent with the court’s order.  Pursuant to the court’s instruction, theparties to the settlement agreement submitted the revised settlementstipulation on May 2, 2005, and the underwriters have until May 16, 2005 tosubmit any comments or objections to the revised settlement stipulation. The courthas indicated that assuming the revised settlement stipulation is timelysubmitted and is acceptable to the court, notice to the plaintiff class memberswill be sent out in the beginning of September 2005 and a final hearing toallow for any plaintiff to object to the settlement will take place on January9, 2006.

 

iVillage, with the advice of outside legal counsel, believes that thelawsuits and claims asserted against iVillage pursuant to this complaint arewithout merit and intends to vigorously defend against these claims. iVillagedoes not believe that any of these legal proceedings will have a material andadverse effect on iVillage’s results of operations or financial condition.

 

**Note 9 – Capital Stock**

 

*Warrants*

 

As of March 31, 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.

 

**Note 10 – Subsequent Events**

 

*HealthCentersOnline, Inc.*

 

On April 8, 2005, iVillage acquired all of the outstanding equity ofHealthCentersOnline, Inc., or HealthCentersOnline, a privately-held, onlinedestination for physician-edited information on health conditions, treatmentsand preventative care for patients.  Theaggregate purchase price was approximately $12.0 million, consisting ofapproximately $11.0 million in cash and $1.0 million in equity consideration,representing 166,945 shares of iVillage’s common stock with a deemed stockvalue of $5.99 per share.

 

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*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 was approximately $0.2million in cash and was structured as an asset purchase. In connection with theacquisition, iVillage UK Limited and iVillage terminated a license agreementpursuant to which iVillage previously licensed content and certain otherintellectual property to iVillage UK Limited (See Note 4 – Deferred Gain onSale of Joint Venture Interest).

 

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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”within the meaning of Section 27A of the Securities Act of 1933, asamended, or Securities Act, and Section 21E of the Securities Exchange Actof 1934, as amended, or Exchange Act. The words or phrases “can be”, “expects”,“may affect”, “may depend”, “anticipates”, “believes”, “estimates”, “plans”, “projects”,and similar 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 anyforward-looking information provided by or on behalf of us is not a guaranteeof future results, performance or achievements. Actual results could differmaterially from those anticipated in these forward-looking statements due to anumber of factors, some of which are beyond our control. In addition to therisks discussed below in “Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and in our other public filings,press releases and statements by our management, factors that may cause ouractual results, performance or achievements to differ materially from anyfuture results, 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:

 

•                  The sectionentitled “iVillage Background,” briefly describes the organization of ourbusiness 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 months ended March 31, 2005 compared to the threemonths ended March 31, 2004.

 

•                  “Liquidity andCapital Resources” discusses our liquidity, cash flows for the three monthsended March 31, 2005 compared to those for the three months ended March 31,2004, factors that may influence our future cash requirements and the status ofcertain contractual obligations as of March 31, 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, iVillage Consulting, GardenWeb.com, Promotions.com, Astrology.com,IVPN and PAG. Following is a synopsis 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. |
|                       |       |                                                                                                                                                                                                                                                                                                                    |
| 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 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 and Healthology, Inc. sinceJanuary 7, 2005.

 

21

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**Critical Accounting Policies**

 

**Revenue Recognition**

 

*iVillage.com*

 

The discussion and analysis below related to iVillage.com also includesinformation related to our Healthology, Promotions.com, Inc., Substance.com,Women.com and GardenWeb.com subsidiaries and gURL.com, iVillage Consulting andiVillageSolutions divisions.

 

Our revenues are derived primarily from the sale of sponsorship andadvertising contracts. Sponsorship revenues are derived principally fromcontracts designed to support a customer’s broad marketing objectives,including brand promotion, awareness, product introductions and onlineresearch. Sponsorship agreements typically include the delivery of impressionson our Web sites and occasionally the design and development of customizedsites that enhance the promotional objectives of the sponsor. An impression isthe viewing of promotional material on a Web page, which may include rich mediaand display or banner advertisements, links, or other text or images. As partof a few sponsorship agreements, sponsors selling products may provide us witha commission on sales of their products generated through our Web sites. Todate, amounts received from the sale of sponsor’s products have not beensignificant.

 

Advertising revenues are derived principally from short-termadvertising contracts in which we typically guarantee a minimum number ofimpressions or pages to be delivered to users over a specified period of timefor a fixed fee or based on actual impressions delivered. Sponsorship andadvertising revenues for fixed fee contracts that are both time and impressionbased are recognized ratably in the period in which the advertisement isdisplayed, provided that we have no continuing obligations and the collectionof the receivable is reasonably assured, at the lesser of the ratio ofimpressions delivered over total guaranteed impressions or the straight-linebasis over the period of service. To the extent that minimum guaranteedimpressions are not met, we defer recognition of the corresponding revenues untilthe guaranteed impressions are achieved. Sponsorship and advertising revenuesin which the customer specifies the timing of the delivery of impressions andpayment is due upon delivery of impressions are recognized when the impressionsare delivered and the collection of the receivable is reasonably assured.  In certain instances the customer reportsimpression delivery to us.  Theseimpression reports are compared to our internal traffic reports for 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 contracts straight-lineover the expected period we will provide services and when the collection ofthe receivable is reasonably assured.

 

22

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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 EITF00-21. Evidence of fair value is the price of a deliverable when it isregularly sold on a stand-alone basis. We recognize revenue allocated to eachelement when the criteria for revenue set forth above are 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.

 

We have received revenues from initiatives involving subscription-basedproperties, the sale of iVillage-branded products and services, the sale ofthird-party products, the licensing of portions of our content and services,and the sale of research. Revenues from GardenWeb.com are included as part ofsubscription-based properties. We recognize revenues from these initiativeswhen products are shipped and/or provided to the customer, or straight-lineover the life of the agreement and when the collection of the receivable isreasonably 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 recognized differentlyin a cost-per-action pricing model, which requires Webstakes.com to

 

23

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not only deliver theaforementioned user to a customer’s Web site, but also requires a specific useraction such as purchasing a product or registering for more information as amember of the customer’s Web site in order for Webstakes.com to earn revenue.Webstakes.com recognizes revenue related to the cost-per-action pricing modelwhen the specific action has been performed on its customer’s Web site, thecustomer has reported such activity to us, and the collection of thecorresponding 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 have been derived primarily from advertising placementsin IVPN’s publications, videos and Web site, and broadcasts of The NewbornChannel, The Newborn Channel-Spanish, currently offered as an audio overlay toThe Newborn Channel, and The Wellness Channel, or collectively, the Channels. In addition, sponsorship and advertising revenues are generated through asampling and coupon program, which offers advertisers the ability to distributesamples, coupons and promotional literature to new and expectant parents.Sponsorship and advertising revenues are recognized on a straight-line basisover the term of the contract, provided that IVPN has no continuing obligationsand the collection of the receivable is reasonably assured.

 

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, including anannual two-day summit and gala event that focuses on diversity and women, andconsulting agreements. PAG recognizes revenue from subscriptions ratably overthe term of the subscription agreement, from the events when the

 

24

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events are held, and from theconsulting agreements ratably over the term of the agreement or upon completionof the deliverable, provided the collection of the receivable is reasonablyassured.

 

**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. Effective January 1, 2002, we adopted SFAS 144 regardingthe recognition and measurement of the impairment of long-lived assets to beheld and used.

 

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 futureperformance, giving consideration to existing and anticipated competitive andeconomic conditions.

 

**Web SiteDevelopment Costs**

 

We account for Web site development costs inaccordance with the provisions of EITF 00-2 which requires that certain coststo develop Web sites be capitalized or expensed, depending on the nature of thecosts. Amortization of Web site development costs is provided for by thestraight-line method over the 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.

 

25

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**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 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, we consider whether it ismore likely than not that some portion or all of the deferred tax assets willnot be realized. The ultimate realization of deferred tax assets is dependentupon the generation of future taxable income or reversal of deferred taxliabilities during the periods in which those temporary differences becomedeductible. We consider the scheduled reversal of deferred tax liabilities,projected future taxable income, and tax planning strategies in making thisassessment.

 

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.

 

**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 these estimates.Significant estimates and assumptions made by us include those related to fairvalues utilized to allocate revenue under EITF 00-21, the useful lives offixed assets and intangible assets, the recoverability of fixed assets, goodwillintangible assets and deferred tax assets the allocation of purchase price tothe fair value of net assets acquired in acquisitions, the allowance fordoubtful accounts and the assessment of expected probable losses (if any) ofclaims and potential claims.

 

26

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**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. Our subsidiariesand divisions have no operating managers who report to the chief operatingdecision maker.  The chief operatingdecision maker reviews information at a consolidated results of operationslevel, although the chief operating decision maker does review revenue resultsof subsidiaries and divisions. As a result, our discussion of revenue has beenorganized into separate subsidiaries and divisions, however, operating expensesand results of operations are discussed on a combined basis.

 

Our quarterly results of operations fluctuate due to a variety offactors.  We believe the followingfactors may contribute to the variability of our results of operations fromperiod 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;

 

•                  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

 

•                  the determinationof final purchase price allocations on recent acquisitions which may lead tohigher than anticipated amortization costs.

 

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**Revenues**

 

The following table sets forth revenues by property:

 
| ** **     | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------|------------|----------------------------------|------------|
| ** **     | ** ** | **(dollars in thousands)**       | ** ** |
| ** **     | ** ** | **2005**                         | ** ** | **(1)** | ** ** | **2004** | ** ** | **(1)** | ** ** |
| iVillage.com   |       | $                                | 12,056     |   | 70 | % | $ | 8,616 |   | 56 | % |
| Astrology.com  |       | 1,151                            |       | 7 | % | 840 |   | 5 | % |
| IVPN           |       | 3,404                            |       | 20 | % | 5,377 |   | 35 | % |
| PAG            |       | 663                              |       | 4 | % | 674 |   | 4 | % |
| Total revenues |       | $                                | 17,274     |   | 100 | %(2) | $ | 15,507 |   | 100 | % |
|                |            |                                  |            |  |  |  |  |  |  |  |  |  |

 

----

(1) Percent of total revenues.

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

 

*iVillage.com*

 
| ** **                    | ** ** | **Three Months Ended March 31,** | ** **                 |
|-------------------------------|------------|----------------------------------|----------------------------|
|                          | ** ** | ** **                       | **(dollars in thousands)** | ** ** |
| ** **                    | ** ** | **2005**                         | ** **                 | **(1)** | ** ** | **2004** | ** ** | **(1)** | ** ** |
| Sponsorship & advertising |       | $                                | 7,364                      |   | 61 | % | $ | 5,308 |   | 62 | % |
| Barter                        |       | 1,670                            |                       | 14 | % | 833 |   | 10 | % |
| iVillage Consulting           |       | 1,327                            |                       | 11 | % | 1,153 |   | 13 | % |
| Promotions.com                |       | 1,370                            |                       | 11 | % | 1,056 |   | 12 | % |
| Online services/other         |       | 325                              |                       | 3 | % | 266 |   | 3 | % |
|                          |       | $                                | 12,056                     |   | 100 | % | $ | 8,616 |   | 100 | % |
|                               |            |                                  |                            |  |  |  |  |  |  |  |  |  |  |  |

 

----

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

 

Revenues from iVillage.com accounted for approximately 70% of totalrevenues for the three months ended March 31, 2005, and approximately 56% oftotal revenues for the three months ended March 31, 2004.  Revenues from iVillage.com increasedapproximately $3.4 million, or 40%, for the three months ended March 31, 2005,as compared to the corresponding period in 2004.

 

The increase in revenues for the three months ended March 31, 2005, ascompared to the corresponding period in 2004, was primarily due to an increasein sponsorship and advertising revenues, which includes revenues from sponsoredlinks and Healthology, of approximately $2.1 million, an increase in barter revenueof approximately $0.8 million, an increase in Promotions.com revenue ofapproximately $0.3 million and an increase in iVillage Consulting revenues ofapproximately $0.2 million.  The increasein sponsorship and advertising revenues was primarily due to the acquisition ofHealthology which contributed approximately $1.4 million, and an increased numberof advertisers, coupled with higher pricing of contracts, related to iVillage’swebsites of approximately $0.6 million. Included in sponsorship and advertisingrevenue for the period ended March 31, 2004 was approximately $0.7 millionfrom Hearst, with no comparable amounts for the period ended March 31, 2005. Theincrease in barter revenue was used to provide additional traffic directed tothe site relaunch.

 

28

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The increase in iVillage Consulting revenues of approximately 15% forthe three months ended March 31, 2005, as compared to the corresponding periodin 2004, was primarily due to the three-year renewal of a Web Site servicesagreement signed in July 2004 with Hearst to provide hosting and productionservices related to several of Hearst magazine Web sites. The renewal providesfor an increase in fees and lower royalty payments.

 

Revenues from Promotions.com increased approximately $0.3 million, or 30%for the three months ended March 31, 2005, as compared to the correspondingperiod in 2004, primarily due to a larger number of customers for whichPromotions.com preformed services in 2005, as compared to the correspondingperiod in 2004.

 

*Astrology.com*

 
| ** **      | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------|------------|----------------------------------|------------|
| ** **      | ** ** | **(dollars in thousands)**       | ** ** |
| ** **      | ** ** | **2005**                         | ** ** | **(1)** | ** ** | **2004** | ** ** | **(1)** | ** ** |
| Online services |       | $                                | 867        |   | 75 | % | $ | 723 |   | 86 | % |
|            |       |                             |       |   |   |   |   |   |   |   |   |
| Other           |       | 284                              |       | 25 | % | 117 |   | 14 | % |
|            |       | $                                | 1,151      |   | 100 | % | $ | 840 |   | 100 | ***%*** |
|                 |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 

----

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

 

Revenues from Astrology.com accounted for approximately 7% of totalrevenues for the three months ended March 31, 2005, and approximately 5% oftotal revenues for the three months ended March 31, 2004.  Revenues from Astrology.com increasedapproximately $0.3 million, or 37%, for the three months ended March 31, 2005,as compared to the corresponding period in 2004, primarily due to an increase inrevenues from online services of approximately $0.1 million and other revenuesof approximately $0.2 million. The increase in online services was primarilydue to an increase in astrological charts sold. The increase in other revenuewas primarily due to an increase in revenue share payments received from thirdparties.

 

*IVPN*

 
| ** **                    | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------------------------|------------|----------------------------------|------------|
| ** **                    | ** ** | **(dollars in thousands)**       | ** ** |
| ** **                    | ** ** | **2005**                         | ** ** | **(1)** | ** ** | **2004** | ** ** | **(1)** | ** ** |
| Sponsorship & advertising |       | $                                | 2,400      |   | 71 | % | $ | 2,697 |   | 50 | % |
|                          |       |                             |       |   |   |   |   |   |   |   |   |
| Custom publications           |       | 596                              |       | 18 | % | 2,265 |   | 42 | % |
|                          |       |                             |       |   |   |   |   |   |   |
| Licensing fees                |       | 408                              |       | 12 | % | 415 |   | 8 | % |
|                          |       | $                                | 3,404      |   | 100 | %(2) | $ | 5,377 |   | 100 | % |

 

----

(1) Percent of IVPN’s revenues.

(2) The aggregate of this column does notequal 100% due to rounding.

 

29

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Revenues from IVPN accounted for approximately 20% of total revenuesfor the three months ended March 31, 2005, and approximately 35% of totalrevenues for the three months ended March 31, 2004.  Revenues from IVPN decreased approximately $2.0million, or 37%, for the three months ended March 31, 2005, as compared to thecorresponding period in 2004.

 

The decrease in revenues for the three months ended March 31, 2005, ascompared to the corresponding period in 2004, was primarily due to a decreasein revenue from custom publications of approximately $1.7 million and adecrease in sponsorship and advertising revenues of approximately $0.3 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 video and on The Newborn Channel.

 

As of March 31, 2005, 658 hospitals had agreed to pay a fee for TheNewborn Channel and 643 contracts had commenced. This compares to 445 hospitalsthat agreed to pay a fee for The Newborn Channel and 426 contracts thatcommenced as of March 31 2004.

 

Revenues from licensing remained consistent for the three months endedMarch 31, 2005 as compared to the corresponding period in 2004 due to anadjustment recorded in the first quarter of 2004 increasing licensing revenueby approximately $0.1 million.

 

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

 

*PAG*

* *
| ** **                  | ** ** | **Three Months Ended March 31** | ** ** |
|-----------------------------|------------|---------------------------------|------------|
| ** **                  | ** ** | **(dollars in thousands)**      | ** ** |
| ** **                  | ** ** | **2005**                        | ** ** | **(1)** | ** ** | **2004** | ** ** | **(1)** | ** ** |
| Subscription-based programs |       | $                               | 476        |   | 72 | % | $ | 451 |   | 67 | % |
|                        |       |                            |       |   |   |   |   |   |   |   |   |
| Events and publications     |       | 111                             |       | 16 | % | 42 |   | 6 | % |
|                        |       |                            |       |   |   |   |   |   |   |
| Consulting/other            |       | 65                              |       | 10 | % | 170 |   | 25 | % |
|                        |       |                            |       |   |   |   |   |   |   |
| Barter                      |       | 11                              |       | 2 | % | 11 |   | 2 | % |
|                        |       | $                               | 663        |   | 100 | % | $ | 674 |   | 100 | % |

 

----

(1) Percent of PAG’s revenues.

 

Revenues from PAG accounted for approximately 4% of total revenues for boththe three months ended March 31, 2005 and 2004. Revenues from PAG were flat forthe three months period ended March 31, 2005 as compared to the correspondingperiod in 2004. Events and publications revenues increased approximately $0.1million mainly from an event in March 2005 with no like event in 2004, offsetby a decrease in consulting revenue of approximately $0.1 million due to a non-renewalof a contract that expired in 2004.

 

30

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**Revenues, Receivables and Customer Concentration**

 

Our five largest customers accounted for approximately 23% of totalrevenues for the three months ended March 31, 2005, and approximately 37% oftotal revenues for the corresponding period in 2004.  No single customer accounted for more than 10%of our total revenues for the three months ended March 31, 2005. Wal-Martaccounted for approximately 15%, and Hearst, a related party, accounted forapproximately 12%, of total revenues for the three months ended March 31, 2004.At March 31, 2005 and December 31, 2004, no single customer accounted for morethan 10% of total net accounts receivable. The significance of revenues fromany of our customers can vary on a quarter to quarter basis as a result of thenumber and timing of such customers’ advertising and marketing initiatives. Weanticipate that our results of operations in any given period will continue todepend to a significant 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 March 31,** | ** ** |
|------------------------------------------------|------------|----------------------------------|------------|
| ** **                                     | ** ** | **2005**                         | ** ** | **(1)** | ** ** | **2004** | ** ** | **(1)** | ** ** |
| ** **                                     | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Editorial, product development and  technology |       | $                                | 8,239      |   | 48 | % | $ | 7,511 |   | 48 | % |
|                                           |       |                             |       |   |   |   |   |   |   |   |   |
| Sales and marketing                            |       | 5,936                            |       | 34 | % | 4,385 |   | 28 | % |
|                                           |       |                             |       |   |   |   |   |   |   |
| General and administrative                     |       | 2,989                            |       | 17 | % | 2,908 |   | 19 | % |
|                                           |       |                             |       |   |   |   |   |   |   |
| Depreciation and amortization                  |       | 1,804                            |       | 10 | % | 1,804 |   | 12 | % |
| Total operating expenses                       |       | $                                | 18,968     |   | 110 | %(2) | $ | 16,608 |   | 107 | % |

 

----

(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 months ended March 31,2005, as compared to the corresponding period in 2004, primarily due to theacquisition of Healthology on January 7, 2005 and an increase in our marketingand barter expenses.

 

**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;

 

•                  the cost ofcommunications;

 

31

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

 

•                  consultant costsassociated with the custom services provided by Promotions.com;

 

•                  costs associatedwith IVPN’s magazines, custom publications, onsert program, which bundlessamples and promotional literature in a poly-bag with a magazine, and thebroadcasting of its programs; and

 

•                  an allocation offacility expenses, which is based on the number of personnel in editorial,product development and technology roles.

 

Editorial, product development and technology expenses for the threemonths ended March 31, 2005 were approximately $8.2 million, or 48% of totalrevenues. Editorial, product development and technology expenses for the three monthsended March 31, 2004 were approximately $7.5 million, or 48% of total revenues.

 

Editorial, product development and technology expenses increasedapproximately $0.7 million, or 10%, for the three months ended March 31, 2005,as compared to the corresponding period in 2004, primarily due to an increasein payroll and related benefits of approximately $0.3 million primarily due tothe Healthology acquisition and an increase in consultant expenses ofapproximately $0.6 million. Consultant expenses increased due to higherrevenues from the Promotions.com division and costs associated with theiVillage Web site redesign. The increase was partially offset by a decrease in costsof approximately $0.4 million associated with only one custom publicationcreated and distributed in the three months ended in March 31, 2005, as comparedwith two custom publication created and distributed in the corresponding periodin 2004 due to Wal-Mart no longer utilizing IVPN for custom publications in itsUnited States stores. Editorial, product development and technology expenses remainedconsistent as a percentage of total revenues for the three months ended March31, 2005, as compared to the corresponding period in 2004, due to a similargrowth in editorial, 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;

 

•                  advertising andother marketing-related expenses; and

 

•                  an allocation offacility expenses, which is based on the number of personnel in sales andmarketing roles.

 

Sales and marketing expenses for the three months ended March 31, 2005were approximately $5.9 million, or 34% of total revenues. Sales and marketing expensesfor the three months ended March 31, 2004 were approximately $4.4 million, or 28%of total revenues.

 

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Sales and marketing expenses increased approximately $1.6 million, or 35%,for the three months ended March 31, 2005, as compared to the correspondingperiod in 2004, primarily due to an increase in advertising, marketing and barterexpenses of approximately $1.3 million which were used to provide some tractionfor the site relaunch and increased salaries of approximately $0.2 millionprimarily from the acquisition of Healthology. Sales and marketing expenses increasedas a percentage of total revenues for the three months ended March 31, 2005,when compared to the corresponding period in 2004, due to a larger percentgrowth in sales and marketing expenses as compared to total revenues.

 

Included in sales and marketing expenses are barter transactions, whichamounted to approximately 27% of total sales and marketing costs during thethree months ended March 31, 2005, compared to approximately 19% of such costs forthe corresponding period in 2004.

 

**General and Administrative**

 

General and administrative expenses consist primarily of the following:

 

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

 

•                  directors’ andofficers’ insurance;

 

•                  generalcorporate overhead;

 

•                  professionalfees; and

 

•                  an allocation offacility expenses, which is based on the number of personnel in general andadministrative roles.

 

General and administrative expenses for the three months ended March 31,2005 were approximately $3.0 million, or 17% of total revenues. General and administrativeexpenses for the three months ended March 31, 2004 were approximately $2.9million, or 19% of total revenues.

 

General and administrative expenses increased approximately $0.1 millionfor the three months ended March 31, 2005, or 3%, as compared to thecorresponding period in 2004, primarily due to an increase in professional feesof approximately $0.1 million and from general corporate overhead of approximately$0.1 million which stems from the Healthology acquisition.   The increase was partially offset by anapproximately $0.1 million decrease in insurance expenses due to better pricing.General and administrative expenses decreased as a percentage of total revenuesfor the three months ended March 31, 2005, when compared to the correspondingperiod in 2004, primarily as a result of an increase in total 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 March 31, 2004, we reversed approximately $30,000 of accruals included inoperating expenses due to a change in estimate on services previously providedfor.

 

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**Depreciation and Amortization**

 

Depreciation and amortization expenses were approximately $1.8 million,or 10% of total revenues, for the three months ended March 31, 2005 and approximately$1.8 million, or 12% of total revenues, for the three months ended March 31,2004. Depreciation and amortization remained consistent between thecorresponding periods, primarily due to increased amortization costs of approximately$0.6 million stemming from the Healthology acquisition offset by decreasedamortization from intangibles acquired in the Women.com acquisition which werefully amortized in June 2004.

 

**Interest Income, Net**

 

Interest income, net includes primarily interest income from our cashbalances and interest earned on stockholders’ notes receivable. Interestincome, net for the three months ended March 31, 2005 was approximately $0.4million, or 2% of total revenues, and approximately $18,000, or less than 1% oftotal revenues for the three months ended March 31, 2004. Interest income, netincreased for the three months ended March 31, 2005 as compared to thecorresponding period in 2004, primarily due to larger cash balances maintainedin the first quarter of 2005 stemming from the public offering completed in July2004.

 

**Other Income, Net**

 

Other income, net for the three months ended March 31, 2004 wasapproximately $0.1 million, or less than 1% of total revenues. There was noamount for the comparable period in 2005. Other income, net primarily includesmoneys received from a legal settlement and from a distribution in a bankruptcyclaim acquired in the acquisition of Promotions.com.

 

**Gain on Sale of Joint Venture Interest**

 

Gain on sale of joint venture interest was approximately $0.1 million,or less than 1% of total revenues, for the three months ended March 31, 2005,and approximately $0.2 million, or approximately 1% of total revenues for the threemonths ended March 31, 2004. Gain on sale of joint venture interest resultedfrom the restructuring of our Tesco, PLC, or Tesco, relationship in March 2003,under which a division of Tesco purchased our entire ownership interest iniVillage UK. The gain on sale also related to amounts we received pursuant to thelicense agreement entered into with the Tesco division contemporaneously withsuch restructuring.

 

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,iVillage UK Limited and iVillage terminated a license agreement pursuant towhich iVillage previously licensed content and certain other intellectualproperty to iVillage UK Limited. As a result, the approximate $0.1 million wereceived on a quarterly basis for licensing fees will cease. We do not,however, expect this to have a material affect on our results of operations.

 

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**Net Loss**

 

We recorded a net loss of approximately $1.3 million, or $0.02 pershare, for the three months ended March 31, 2005. For the comparable period in2004, we recorded a net loss of approximately $0.9 million, or $0.01 per share.The increase in net loss for the three months ended March 31, 2005 compared tothe same period in 2004 was primarily due to an increase in our marketing spendin 2005 which was used to provide some traction for the site relaunch, coupledwith the loss of Wal-Mart in 2004 resulting in lower revenues from our IVPNsubsidiary. This was partially offset by an increase in iVillage.com’s sponsorshipand advertising revenues.

 

**Recent Events**

 

On April 8, 2005, iVillage acquired all of the outstanding equity ofHealthCentersOnline, Inc., a privately-held, leading online destination forphysician-edited information on health conditions, treatments and preventativecare for patients.  The aggregatepurchase price was approximately $12.0 million consisting of approximately$11.0 million in cash and $1.0 million in equity consideration, representing166,945 shares of iVillage’s common stock with a deemed stock value of $5.99per share.

 

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 assets related to Web site. The purchase price wasapproximately $0.2 million in cash and was structured as an asset purchase. Inconnection with the acquisition, iVillage UK Limited and iVillage terminated alicense agreement pursuant to which iVillage previously licensed content andcertain other intellectual property to iVillage UK Limited.

 

**Liquidity and Capital Resources**

 

As of March 31, 2005, we had approximately $70.3 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 provided by operating activities was approximately $1.5 millionfor the three months ended March 31, 2005. For the comparable period in 2004,approximately $0.3 million of net cash was provided by operations. Net cashprovided by operating activities for the comparable three months increased due primarilyto higher collections of accounts receivable of approximately $0.8 million anda reduced level of payments made for accounts payable and accrued expenses ofapproximately $1.0 million. Theses amounts were offset by a lower net loss lessnon-cash adjustments of approximately $0.3 million and a smaller decrease indeferred revenue of approximately $0.3 million for the three months ended March31, 2004. The increased collections of accounts receivable in the first quarterof 2005 was primarily due to the receipt of moneys from receivables acquired inthe Healthology acquisition. Cash flows used for accounts payable and accruedexpenses decreased during the first quarter of 2005 compared to the comparableperiod in 2004 due to approximately $0.7 million of payments made for accruedpayroll and bonus for the three months ended March 31, 2004 with no comparableamounts for the period ended March 31, 2005.

 

Net cash used in investing activities increased approximately $14.0million to $14.5 million for the three months ended March 31, 2005, fromapproximately $0.5 million for the

 

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three months ended March 31,2005. The increase in net cash used in investing activities for the threemonths ended March 31, 2005 compared to the corresponding period in 2004 wasprimarily due to the acquisition of Healthology for approximately $15.8 millionless cash acquired of approximately $1.8 million.

 

Net cash provided by financing activities decreased approximately $0.5 millionto $0.2 million for the three months ended March 31, 2005, from approximately$0.7 million for the three months ended March 31, 2004. The decrease in netcash provided by financing activities for the three months ended March 31, 2005,as compared to the corresponding period in 2004, was primarily attributable to adecrease in proceeds from the exercise of stock options and warrants ofapproximately $0.4 million and a decrease in proceeds from principal paymentson stockholders’ note receivable of approximately $0.1 million. As of December31, 2004, iVillage no longer had an outstanding stockholders’ note receivable.

 

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 are sufficient to enable us to meet ourplanned 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’s Discussionand Analysis of Financial Condition and Results of Operations.”

 

IVPN currently broadcasts television programming to hospitals via a24-hour, 7 days a week satellite broadcast. Our contract with our currentsatellite provider has expired and we are currently negotiating a new contractwith this provider. Although this service provider continues to provide itsservices to IVPN, there can be no assurance that it will continue to do so. Ifwe are unable to enter into a new contract with this service provider, we wouldneed to find another satellite provider and/or invest in alternative technologyto distribute the service. IVPN is in the process of converting many of itshospitals from the satellite broadcast to a new system that eliminates the needfor a constant satellite feed. This new technology will only require a limitedamount of satellite time each month resulting in reduced operating costs in thesecond half of 2005. IVPN estimates that it will cost approximately $3.0million to $4.0 million to convert to the new technology, of whichapproximately $1.5 million has been incurred. To offset the costs of conversionand to provide a new revenue stream, IVPN initiated the collection of an annualfee from hospitals to receive programming broadcast by IVPN. These fees resultfrom agreements between IVPN and the hospitals that generally have a length ofthree to five years. As of March 31, 2005, approximately 63% of participatinghospitals have agreed to pay this fee. However, we can make no assurance that allof the hospitals will agree to pay a fee. The total value of signed contractsat March 31, 2005 is in excess of $8.0 million, which will be recognized asrevenue 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 March 31, 2005, wehave received approximately $1.0 million and earned approximately $1.1 millionin connection with this agreement.

 

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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;

 

•                  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 March 31, 2005, we have received $3.0 million and earnedapproximately $3.1 million in connection with this agreement.

 

                In March 2003, we restructured the terms ofour joint venture so that a division of Tesco purchased our entire ownershipinterest in iVillage UK. We also entered into a twenty-year agreement with thatdivision, subject to earlier termination upon the occurrence of certain events,whereby we licensed to iVillage UK certain of our content and intellectualproperty, including trademarks and copyrights, for use in the United Kingdomand Ireland in exchange for the greater of a minimum monthly license fee or apercentage of iVillage UK’s gross revenues. In connection with our recentacquisition of the iVillage.co.uk Web site, the license agreement wasterminated on April 29, 2005.

 

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, 205,908 shares of iVillage’s common stock, and $0.3 million ofoptions to purchase our common stock.

 

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 serviceproviders for ad serving, satellite transmissions and license/contentarrangements.

 

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Capital expenditures were approximately $0.5 million for the three monthsended March 31, 2005 and were primarily for computer hardware and softwarepurchases, as well as, the capitalization of certain Web site developmentcosts. Our capital requirements depend on numerous factors, including:

 

•                  marketacceptance of our services;

 

•                  the amount ofresources we devote to investments in our business, including entering intojoint ventures with and/or the acquisition of other entities;

 

•                  the resources wedevote to marketing;

 

•                  the resources wedevote to building the infrastructure necessary to enable us to sell subscription-basedproducts and services; and

 

•                  the resources wedevote 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 or services;agreements with customers, under which we may indemnify them against claimsarising from their use of our products or services; real estate and equipmentleases, under which we may indemnify lessors against third-party claimsrelating to use of their property; agreements with licensees or licensors,under which we may indemnify the licensee or licensor against claims arisingfrom their use of our intellectual property or our use of their intellectualproperty; and agreements with initial purchasers and underwriters of oursecurities, under which we indemnify them against claims relating to theirparticipation 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 March 31, 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

 

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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 expensethe fair value of stock option grants. We have not yet determined whichadoption method we will utilize.

 

In December 2004, theFASB 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.

 

**Legal Proceedings**

 

iVillageand Women.com are defendants in class-action lawsuits in federal court relatingto each company’s initial public offering. In June 2003, the plaintiffs, the issuer defendants, the issuer officersand directors named as defendants, and the issuers’ insurance companies agreedin principle to settle the matter, along with similar lawsuits against morethan 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 to thecourt a revised settlement stipulation consistent with the court’s order.  Pursuant to the court’sinstruction, the parties to the settlement agreement submitted the revisedsettlement stipulation on May 2, 2005 and the underwriters have until May 16,2005 to submit any comments or objections to the revised settlementstipulation.  The court has indicatedthat assuming the revised settlement stipulation is timely submitted and isacceptable to the court, notice to the class-members will be sent out in thebeginning of September 2005 and a final hearing to allow for any plaintiff toobject to the settlement will 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 theproposed settlement in the initial public offering “laddering” cases isultimately not approved by the courts, defending against these claims couldrequire the expenditure of significant financial and managerial resources,which could harm our business.

 

We arenot currently subject to any other material 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-K forthe fiscal year ended December 31, 2004.*

 

**Risks of Our Business**

** **

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

 

We achieved net income on an annual basis forthe first time for the year ended December 31, 2004, and incurred a netloss for the three months ended March 31, 2005. Except for the year ended December 31,2004, we have incurred significant net losses on an annual basis in each yearof our operations and have had a history of negative cash flows. We incurred anet loss of approximately $1.3 million for the three months ended March 31,2005, achieved net income of approximately $2.7 million for the year endedDecember 31, 2004, and incurred a net loss of approximately$27.1 million for the year ended December 31, 2003.  As of March 31, 2005, we had anaccumulated deficit of approximately $492.4 million.

 

Although we achieved net income for the yearended December 31, 2004, we cannot assure you that we will be able toachieve, sustain or increase net income on a quarterly or annual basis. If ourrevenues grow slower than we anticipate, or if our operating expenses exceed expectationsor cannot be adjusted accordingly, we could continue to suffer losses.

 

***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 to fluctuate.***

 

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 could materiallyharm our business. Some of these factors include:

 

 
| •     fluctuations in the demand  for advertising or electronic commerce                                                                                               |   | •     fluctuations in marketing  expenses and technology infrastructure costs   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                            |   |                                                                                                     |
| •                  the  unpredictability of our success in new revenue and cost reduction initiatives |   | •     changes in the level of  traffic on our network of Web sites              |
|                                                                                                                                                                                            |   |                                                                                                     |
| •     the timing of the creative  services and/or distribution services                                                                                                |   | •     bankruptcies or other  payment defaults of companies that are a source of |

 

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| performed on custom publications, magazines or other products based  upon customers’ advertising and marketing initiatives |   | revenues |
|---------------------------------------------------------------------------------------------------------------------------------|--------|----------|
|                                                                                                                            |   |     |
| •     volatility in the media  market                                                                  |   |     |

 

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 and theexecution 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                       |   | •                  advertisers’  and sponsors’ internal reviews                                                       |
|------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                             |   |                                                                                                                                                                                                                      |
| •     the possibility of  cancellation or delays of projects by advertisers or sponsors |   | •                  the success  and continued internal support of advertisers’ and sponsors’ own development  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 and third calendar quarters 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 and third calendar quarters. Further,securities analysts and investors may inaccurately estimate the effects ofseasonality on our results of operations in one or more future quarters and, consequently,our operating 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 23% of total revenues for the three months ended March 31,2005, and approximately 37% of total revenues for the corresponding period in2004.  No single customer accounted formore than 10% of our total revenues for the three months ended March 31,2005. Wal-Mart accounted for approximately 15%, and Hearst, a related party,accounted for approximately 12%, of total revenues for the three months ended March 31,2004. At March 31, 2005 and December 31, 2004, no single customeraccounted for more than 10% of total net accounts receivable.

 

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:

 

 
| •     enter into any agreement to  include in our network any Web sites for magazines that compete with Hearst  magazines                         |   | •                  display on our  Web pages the brands, logos, trademarks or proprietary content of both Hearst  and a Hearst competitor |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                       |   |                                                                                                                                                                                                                                |
| •     display on the Hearst  magazine Web sites any advertising or other promotional materials from  magazines that compete with Hearst magazines |   |                                                                                                                                                                                                                                |

 

***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 sitesthat are non-proprietary to iVillage are 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:

 

 
| •     Web search and retrieval  and other online service companies, commonly referred to as portals, such as  Time Warner’s AOL service, Microsoft Corporation’s MSN service and Yahoo!  Inc. |   | •                  publishers and  distributors of traditional media, such as television, radio and print |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                             |   |                                                                                                                                                                                                |
| •     cable networks targeting  women, such as Oxygen Media, Inc., Women’s Entertainment Network and Lifetime  Television                                                                          |   | •     e-commerce companies such  as Amazon.com, Inc.                                                                                                                       |
|                                                                                                                                                                                                                             |   |                                                                                                                                                                                                |
| •     online services or Web  sites targeted at women, such as lifetime.com                                                                                                                             |   |                                                                                                                                                                                                |

 

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Lamaze Publishing’s magazines directly compete withpublishers of pre- and post-natal publications such as Gruner and Jahr,Primedia and Time Inc. These publishers have substantially greatermarketing, research and financial resources than Lamaze Publishing. Increasedcompetition may result in less advertising in Lamaze Publishing’s magazines anda decline in Lamaze Publishing’s advertising rates, which could adverselyaffect our business, 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 2005. Although we are currently in discussions withMr. McCormick related to the renewal of his employment agreement, wecannot assure you that we will be able to retain his services. The loss of theservices of Mr. McCormick would likely harm our business. We currently donot maintain “key person” life insurance 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 toexperience, difficulty in hiring and retaining highly skilled employees withappropriate qualifications as a result of our financial condition andrelatively low common stock price. As a result, we have in the past and may inthe future incur increased salary and benefit costs. If we do not succeed inattracting new personnel or retaining and motivating our current personnel, ourbusiness, and our ability to develop and execute on our business strategies,will be materially 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., or Verio, Globix Corporation, or Globix,Google, Inc., DoubleClick Inc., Tacoda Systems Inc. and Prospero Technologies,LLC. In addition, we sometimes rely on our customer’s software reporting toolsto supply us, subject to our monitoring controls, with the information torecord our revenue. If for any reason one or more of these service providersbecomes unable or unwilling to continue to provide services of acceptablequality, at acceptable costs and in a timely manner, our ability to deliver ourproduct and service offerings to our advertisers, sponsors and users could beseverely impaired. We would have to identify and qualify substitute serviceproviders, which could be time consuming and difficult and could result inunforeseen operational difficulties. Although we are confident that alternativeservice providers are available, we cannot assure that we will be able toobtain such services on as favorable terms as we currently receive or in atimely 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 May2, 2005 and the underwriters have until May 16, 2005 to submit any comments orobjections to the revised settlement stipulation.  The court has indicated that assuming therevised settlement stipulation is timely submitted and is acceptable to the court, notice to the class-memberswill be sent out in the beginning of September 2005 and a final hearing toallow for any plaintiff to object to the settlement will take place on January 9,2006.  If the proposed settlement is ultimately not approved by thecourt, evenif these claims are not meritorious, defending against them could require theexpenditure of significant financial and managerial resources, which could harmour business.

 

***Our operation ofIVPN poses a number of risks that could materially adversely affect our businessstrategy.***

 

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:

 
| •     the competitiveness of the  media, television and publishing industries |   | •                  our ability to  continue to commercialize and protect the Lamaze mark |
|--------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                   |   |                                                                                                                                                                               |
| •     our ability to maintain and  market the Lamaze.com Web                  |   | •     demand for our custom  publications and controlled circulation magazines                                                                            |

 

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| site                                                                                                                                               |   |                                                                                                                                                                                   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                               |   |                                                                                                                                                                                   |
| •     our ability to sell  advertising and sponsorships on IVPN’s magazines, videos, the Channels and  our Web sites |   | •     our ability to identify and  predict trends in a timely manner that may impact consumer 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 damage or disable receivers and transmitterson the ground hindering transmission of the Channels’ signal. Our contract withAscent has expired and we are currently negotiating a new contract with Ascent.Although Ascent continues to provide us with its services, there can be noassurance that Ascent will continue to do so. If we are not able to enter intoa definitive agreement or in the event of an unforeseen earlier interruption ofservice, we would need to negotiate a new contract, find another satelliteprovider and/or invest in alternative technology to distribute the service. Ifany of these events occur, there may be a period of time before transmission ofall or some of the Channels could resume. Any interruption in our ability totransmit the Channels could jeopardize our viewer base and negatively impactour 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 new products sold by an advertiser or sponsor, or for new  approved uses for existing products sold by an advertiser or sponsor |   | •                  seasonal  factors relating to the prevalence of specific health conditions and other  seasonal factors that may affect the timing of promotional campaigns |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                    |
| •                  the internal  approval process of the advertiser or sponsor                                                                                                 |   | •                  scheduling of  conferences for physicians and other healthcare professionals                                                                               |

 

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If such adelay affects our ability to recognize revenue from a sponsorship oradvertising program, our results of operations from our health-relatedproperties could be negatively impacted.

 

***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 through Healthology.Healthology typically collaborates with a medical society or other healthcareprofessional association to create CME programs, which upon proper review and approvalreceive the accreditation of such organization. In some instances, Healthologyor the accrediting 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:

 

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| •                  our financial  condition relative to the financial condition of our competitors                                                                                                                        |   | **•****                 **our  ability to obtain additional financing from investors                                               |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                |   |                                                                                                                                                                                                                         |
| •                  the  attractiveness of our common stock as potential consideration for entering  into these types of transactions as compared to the common stock of other  entities competing for these opportunities |   | •                  our available  cash, which in turn depends upon our results of operations and the cash  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:

 
| • | the  difficulties of assimilating the operations and personnel of the acquired  companies and the potential disruption of our ongoing business                          |   | • | the need to  incorporate successfully the acquired or shared technology or content and  rights into our products, services and media properties                |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                    |   |   |                                                                                                                                                           |
| • | the  difficulties of establishing a new joint venture, including the need to  attract and retain qualified personnel and the need to attract customers and  advertisers |   | • | the  potential impairment of relationships with employees and customers as a  result of any integration of new management personnel or reduction of  personnel |
|   |                                                                                                                                                                    |   |   |                                                                                                                                                           |
| • | the  difficulties of maintaining uniform standards, controls, procedures and  policies                                                                                  |   |   |                                                                                                                                                           |

 

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 ourfinancial results and investor perception of those results. As permitted bySFAS No. 123, *Accounting forStock-Based Compensation*, or SFAS 123, currently we applyAccounting 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, beginning in the firstquarter of 2006, to recognize compensation expense in an amount equal to thefair value of share-based payments, such as stock options and restricted stock,granted to employees. This is expected to have a material impact on ourconsolidated results of operations, as the stock-based compensation expensewould be charged directly 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 ExodusCommunications, Inc. both of which had filed for bankruptcy protection),Verio and Globix will be able to provide sufficient services for us or that wewould be able to engage satisfactory 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 liability for information retrieved from ortransmitted over the Internet, online content regulation, user privacy,taxation and the quality of products and services. There is a trend toward moreburdensome regulations and stiffer penalties, all of which could negativelyimpact our business. There is also a trend toward giving consumers greaterinformation and greater control over how their personal data is used, andrequiring notification where unauthorized access to such data occurs.

 

In particular, several jurisdictions,including foreign countries, have recently proposed and/or adoptedprivacy-related laws that restrict or prohibit unsolicited e-mailsolicitations, commonly known as “spamming,” and that impose significantmonetary and other penalties for violations. These laws may increase concern onthe part of advertisers regarding advertising in 

 

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our e-mail newsletters, and advertisers may seek to impose indemnityobligations on us in an attempt to mitigate any liability under these laws.Moreover, Internet service providers may increasingly block legitimatemarketing e-mails in an effort to comply with these laws.

 

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 CAN-SPAM has yet to be interpreted by the courts. Depending onhow it is interpreted, CAN-SPAM may impose burdens on our e-mail marketingpractices, on joint marketing initiatives that we undertake with our businesspartners, and on features of our services. CAN-SPAM also requires the FederalTrade Commission, or FTC, to report to Congress regarding the advisability of afederal “Do-Not-E-Mail Registry.” If the registry is created, it could have adetrimental effect on our ability to continue our e-mail marketing practices aswell as advertisers’ willingness to participate in e-mail marketing.

 

Also regarding CAN-SPAM, the FTC has issuedits final rule, to take effect on March 28, 2005, establishing criteriafor determining whether the primary purpose of an e-mail message is commercialfor purposes of compliance with CAN-SPAM. In adopting the final rule, the FTCrejected many pro-business interpretations of the “primary purpose” standardthat had been proposed by marketing companies, and the final rule will imposefurther burdens on our business.

 

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 standard securitymeasures, there is a risk that we may fail to prevent such activities and thatusers or others may assert claims against us. In addition, the FTC and stateconsumer protection authorities have brought a number of enforcement actionsagainst U.S. companies for alleged deficiencies in those companies’ datasecurity practices, and they may continue to bring such actions. Enforcementactions, which may or may not be based upon actual cyber attacks or otherbreaches in such companies’ data security, present an ongoing risk of liabilityto us, could result in a loss of users 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, 

 

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the FTC has investigated companies that have used personallyidentifiable information without permission or in violation of a stated privacypolicy. If we are accused of violating the stated terms of any of our privacypolicies, we may face a loss of users and damage to our reputation and beforced to expend significant amounts of financial and managerial resources todefend against these accusations and we may face potential 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, each of which providehealth-related content and marketing offers to consumers. Many jurisdictions,including the United States, have adopted complex and burdensome regulations inconnection with marketing activities involving personally identifiable medicalinformation; to the extent that such regulations may apply to us, they createadditional business and liability risks, 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 ourusers’ personal information or credit card information. If our network securityis compromised, we could be subject to liability arising from claims relatedto, 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.Consumer protection privacy regulations could impair our ability to obtaininformation about our users, which could result in decreased advertisingrevenues.

 

In general, we ask our members and users to“opt-in” to receive special offers and other direct marketing opportunitiesfrom us, our advertisers and partners. Our network also requests and obtainspersonal data from users who register to become members of the network.Registration as a member is required in order for users to have full access tothe services offered by our network. Personal data gathered from members is usedto personalize or tailor content to them and is provided, on an aggregatebasis, to advertisers to assist them in targeting their advertising campaignsto particular demographic groups. Current or prospective advertisers evaluateour ability to provide user data to support targeted advertising. Privacyconcerns may ultimately cause users to resist providing personal data. If webecome unable to collect personal data from a sufficient number of our users,we may lose significant advertising revenues.

 

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.

 

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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 increase 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.

 

***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 in the United States inrecent years disrupted global commerce. The continued threat of futureterrorist attacks in the United States, and particularly in New York City whereour headquarters are located, acts of war involving the United States, or anyresponse of the United States government to any future terrorist actions oracts of war, may cause future significant disruptions in commerce throughoutthe world. The proximity of our headquarters to certain possible targets in NewYork City could, in the event of war or future terrorist attacks, result indamage to or destruction of our headquarters as well as the permanent ortemporary loss of key personnel. We have not developed a disaster recovery planand we cannot assure that our insurance coverage would adequately reimburse usfor any damages suffered as a result of a terrorist attack or act of war.

 

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

### ** **

***As of May 9, 2005,Hearst owned approximately 25% of our outstanding common stock and had threerepresentatives on our board of directors. As a result, Hearst is able tosignificantly influence our corporate direction 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, 

 

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including transactions in which our stockholders would otherwisereceive a premium for their shares.

 

As of May 9, 2005, Hearst owned approximately25% of our outstanding common stock. Pursuant to an amended and restatedstockholder agreement we entered into with Hearst on June 20, 2001, weappointed 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 ownership of our common stock falls belowcertain threshold levels. There is also a Hearst representative on ournominating and compensation committees.

 

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 to advertisersor sponsors forecasted in a particular period may be delayed or may nototherwise occur based upon the 

 

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timing of our customers’ own marketing initiatives. As a result, andbecause of the other risks and uncertainties noted in this report, our actualresults might not meet the expectations of public market analysts and investorsin future periods. If this occurs, the price of our common stock will likelydecrease.

 

***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 the tradingprice 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 QualitativeDisclosures About Market Risk.**

 

As of March 31, 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 exceedinsurable amounts.

 

**Item 4****.****           Controlsand Procedures.**

 

(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)under the Exchange Act) as of the end of the period covered by this quarterlyreport, have concluded that, as of that date, our disclosure controls andprocedures were effective in ensuring that information required to be disclosedby us in reports that we file or submit under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in SECrules and forms.

 

56

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

 

Other than the ongoing integration of the financial systems and key controls of our Healthology subsidiary into our New York headquarters, there were no changes in our internal controls over financial reporting during the three months ended March 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. We expect the remaining financial systems and key controls of our Healthology subsidiary to be fully integrated by June 30, 2005.

 

**PART II**

**OTHER INFORMATION**

 

**Item6****.  Exhibits.**

 
| **Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 2.1        |       | Stock Exchange and Merger Agreement  dated as of January 7, 2005, among the Registrant, Virtue Acquisition  Corporation, Healthology, Inc. and certain stockholders of Healthology, Inc.  (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report  on Form 8-K, filed on January 13, 2005) (schedules and exhibits listed in the  table of contents for this agreement have been omitted. Copies there of will  be furnished to the Securities and Exchange commission supplementally upon  request). |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 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).                                                                                                                                                                                                                                                                                                                           |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.1       |       | Healthology Stock Option  Plan of the Registrant (incorporated by reference to Exhibit 99.1 to the  Registrant’s Current Report on Form 8-K, filed on January 13, 2005).                                                                                                                                                                                                                                                                                                                                                   |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.2       |       | Employment Agreement, dated January 7, 2005, between Steven Haimowitz  and Healthology, Inc., a subsidiary of the Registrant (incorporated by  reference to Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K,  filed on March 16, 2005).                                                                                                                                                                                                                                                                       |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 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.                                                                                                                                                                                                                              |

 

57

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**SIGNATURES**

 

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

 
|                |   | iVILLAGE INC.                        |
|---------------------|--------|--------------------------------------|
|                |   | (Registrant)                         |
|                |   |                                 |
|                |   |                                 |
| Dated: May 10, 2005 | By:    |  /s/ Douglas W. McCormick       |   |
|                |   | Douglas W. McCormick                 |
|                |   | Chairman and Chief Executive Officer |
|                |   | (Principal Executive Officer)        |
|                |   |                                 |
|                |   |                                 |
| Dated: May 10, 2005 | By:    |  /s/ Steven A. Elkes            |   |
|                |   | Steven A. Elkes                      |
|                |   | Chief Financial Officer,             |
|                |   | Executive Vice President, Operations |
|                |   | and Business Affairs, and Secretary  |
|                |   | (Principal Financial Officer)        |
|                     |        |                                      |  |  |

 

58

 

**EXHIBIT INDEX**

 
| **Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 2.1        |       | Stock  Exchange and Merger Agreement dated as of January 7, 2005, among the  Registrant, Virtue Acquisition Corporation, Healthology, Inc. and certain  stockholders of Healthology, Inc. (incorporated by reference to Exhibit 2.1  to the Registrant’s Current Report on Form 8-K, filed on January 13, 2005  (schedules and exhibits listed in the table of contents for this agreement  have been omitted. Copies there of will be furnished to the Securities and  Exchange commission supplementally upon request). |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 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).                                                                                                                                                                                                                                                                                                              |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.1       |       | Healthology  Stock Option Plan of the Registrant (incorporated by reference to Exhibit  99.1 to the Registrant’s Current Report on Form 8-K, filed on January 13,  2005).                                                                                                                                                                                                                                                                                                                                                 |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.2       |       | Employment Agreement, dated  January 7, 2005, between Steven Haimowitz and Healthology, Inc., a subsidiary  of the Registrant (incorporated by reference to Exhibit 10.34 to the  Registrant’s Annual Report on Form 10-K, filed on March 16, 2005).                                                                                                                                                                                                                                                                      |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 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.                                                                                                                                                                                                                             |

 

59