** **

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C.  20549**

 

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**FORM 10-Q**

 

**(Mark One)**

 

| **ý** | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES** **EXCHANGE ACT OF 1934**                                                                                                                                      |
|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                 |
|       |       | **For the quarterly period ended  September 30, 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                  ** |

 

**CommissionFile Number 000-25469**

 

**iVillageInc.**

(ExactName of Registrant as Specified in Its Charter)

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

 

**(212) 600-6000**

(Registrant’sTelephone Number, Including Area Code)

 

 

(FormerName, Former Address and Former Fiscal Year,

ifChanged since Last Report)

 

Indicate by check mark whether the registrant:(1) has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes ýNo o

 

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

 

Indicate by check mark whetherthe registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct).  oYes  ýNo

 

Asof November 8, 2005, the registrant had outstanding  72,526,395shares of common stock.

 

 

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**iVillageInc.**

**Form 10-Q**

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

 

## **INDEX**

 
| **PART I.**                                                                                                        | **FINANCIAL INFORMATION**                                                                       |   |
|-------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------|--------|
|                                                                                                                    |                                                                                            |   |
| **Item 1.**                                                                                                             | **Financial Statements**                                                                        |   |
|                                                                                                                    |                                                                                            |   |
| *Condensed Consolidated Balance Sheets as of September 30, 2005  and December 31, 2004*                       |                                                                                            |
|                                                                                                                    |                                                                                            |   |
| *Condensed Consolidated Statements of Operations for the three and  nine months ended September 30, 2005 and 2004* |                                                                                            |
|                                                                                                                    |                                                                                            |
| *Condensed Consolidated Statements of Cash Flows for the nine months  ended September 30, 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 5.**                                                                                                             | **Other Information**                                                                           |   |
|                                                                                                                    |                                                                                            |   |
| **Item 6.**                                                                                                             | **Exhibits**                                                                                    |   |
|                                                                                                                    |                                                                                            |   |
| **Signatures**                                                                                                          |                                                                                            |
|                                                                                                                    |                                                                                            |   |
| **Exhibit Index**                                                                                                  |                                                                                            |

 

**TRADEMARKS**

 

iVillage®, iVillage.com®,gURL.com®, Newborn Channel®, WebStakes.com®, iVillage Consulting®, iVillageSolutions® and Healthology® are registered trademarks of iVillage Inc. Thestylized iVillage logo, “the Internet for Women”, Astrology.com, Baby Steps,Public Affairs Group, Inc., Business Women’s Network, Business Women’sNetwork Government, Diversity Best Practices, Best Practices In CorporateCommunications, Promotions.com, HealthCentersOnline, Inc. andiVillage.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 I**

**FINANCIAL INFORMATION**

 

**Item 1.Financial Statements.**

 

***iVillage Inc. and Subsidiaries***

***CondensedConsolidated Balance Sheets***

***(in thousands, except share data)***

***(Unaudited)***

*** ***
| ** **                                                                                                                                                                                                                                                                                               | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                                                               | ** ** | **2005**          | ** ** | **2004**              | ** ** |
| ** **                                                                                                                                                                                                                                                                                               | ** ** | ** **        | ** ** | ** **            | ** ** |
| **Assets**                                                                                                                                                                                                                                                                                               |       |              |       |                  |       |
| Current assets:                                                                                                                                                                                                                                                                                          |       |              |       |                  |       |
| Cash and cash equivalents                                                                                                                                                                                                                                                                                |       | $                 | 53,339     |                  | $          | 83,046 |   |
| Accounts receivable, less allowance for  doubtful accounts of $1,010 and $1,010 as of September 30, 2005 and  December 31, 2004, respectively                                                                                                                                                  |       | 15,657            |       | 9,159                 |       |
| Accounts receivable - related parties                                                                                                                                                                                                                                                                    |       | 490               |       | 549                   |       |
| Prepaid rent                                                                                                                                                                                                                                                                                             |       | 318               |       | 318                   |       |
| Other current assets                                                                                                                                                                                                                                                                                     |       | 4,206             |       | 3,740                 |       |
| Total current assets                                                                                                                                                                                                                                                                                     |       | 74,010            |       | 96,812                |       |
|                                                                                                                                                                                                                                                                                                     |       |              |       |                  |       |
| Fixed assets, net                                                                                                                                                                                                                                                                                        |       | 11,584            |       | 8,381                 |       |
| Goodwill, net                                                                                                                                                                                                                                                                                            |       | 43,002            |       | 23,241                |       |
| Intangible assets, net                                                                                                                                                                                                                                                                                   |       | 18,156            |       | 8,832                 |       |
| Prepaid rent, net of current portion                                                                                                                                                                                                                                                                     |       | 3,090             |       | 3,203                 |       |
| Other assets                                                                                                                                                                                                                                                                                             |       | 102               |       | 79                    |       |
| Total assets                                                                                                                                                                                                                                                                                             |       | $                 | 149,944    |                  | $          | 140,548 |   |
|                                                                                                                                                                                                                                                                                                     |       |              |       |                  |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                                                                                                                           |       |              |       |                  |       |
|                                                                                                                                                                                                                                                                                                     |       |              |       |                  |       |
| Current liabilities:                                                                                                                                                                                                                                                                                     |       |              |       |                  |       |
| Accounts payable and accrued expenses                                                                                                                                                                                                                                                                    |       | $                 | 11,494     |                  | $          | 9,933 |   |
| Accounts payable and accrued expenses -  related parties                                                                                                                                                                                                                                                 |       | 114               |       | 209                   |       |
| Deferred revenue                                                                                                                                                                                                                                                                                         |       | 6,044             |       | 2,080                 |       |
| Deferred rent                                                                                                                                                                                                                                                                                            |       | 144               |       | 144                   |       |
| Other current liabilities                                                                                                                                                                                                                                                                                |       | 24                |       | 24                    |       |
| Total current liabilities                                                                                                                                                                                                                                                                                |       | 17,820            |       | 12,390                |       |
|                                                                                                                                                                                                                                                                                                     |       |              |       |                  |       |
| Deferred rent, net of current portion                                                                                                                                                                                                                                                                    |       | 1,232             |       | 1,339                 |       |
| Total liabilities                                                                                                                                                                                                                                                                                        |       | 19,052            |       | 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 September 30,  2005 and December 31, 2004, respectively                                                                                                                            |       | —            |       | —                |       |
| Common stock - par value $.01, 200,000,000  shares authorized;  73,594,040 and  72,695,263 shares issued at September 30, 2005 and December 31,  2004, respectively; 72,502,542 and 71,634,412 shares outstanding as of  September 30, 2005 and December 31, 2004, respectively |       | 736               |       | 727                   |       |
| Additional paid-in capital                                                                                                                                                                                                                                                                               |       | 621,653           |       | 617,958               |       |
| Treasury stock at cost (1,091,498 and  1,060,851 shares as of September 30, 2005 and December 31, 2004,  respectively)                                                                                                                                                                         |       | (966              | )          | (766                  | )          |
| Unearned compensation                                                                                                                                                                                                                                                                                    |       | (56               | )          | —                |       |
| Accumulated other comprehensive income                                                                                                                                                                                                                                                                   |       | (8                | )          | —                |       |
| Accumulated deficit                                                                                                                                                                                                                                                                                      |       | (490,467          | )          | (491,100              | )          |
| Total stockholders’ equity                                                                                                                                                                                                                                                                          |       | 130,892           |       | 126,819               |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                                                                                          |       | $                 | 149,944    |                  | $          | 140,548 |   |

*** ***

***The accompanying notes are anintegral part of these condensed consolidated financial statements***

** **

**1**

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** **

***iVillage Inc. and Subsidiaries***

***CondensedConsolidated Statements of Operations***

***(in thousands, except per share amounts)***

***(Unaudited)***

* *
| ** **                                                                                          | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                          | ** ** | **2005**                                   | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                                |       |                                       |       |                                      |       |   |   |   |   |
| Revenues:                                                                                           |       |                                       |       |                                      |       |   |   |   |   |
| Revenues                                                                                            |       | $                                          | 21,156     |                                      | $          | 15,015 |   | $ | 56,648 |   | $ | 42,939 |   |
| Revenues – related parties                                                                     |       | 1,440                                      |       | 1,683                                     |       | 4,302 |   | 5,764 |   |
| Total revenues                                                                                      |       | 22,596                                     |       | 16,698                                    |       | 60,950 |   | 48,703 |   |
|                                                                                                |       |                                       |       |                                      |       |   |   |   |   |
| Operating expenses:                                                                                 |       |                                       |       |                                      |       |   |   |   |   |
| Editorial, product development and  technology                                                      |       | 8,285                                      |       | 7,740                                     |       | 25,445 |   | 22,264 |   |
| Sales and marketing                                                                                 |       | 6,604                                      |       | 4,562                                     |       | 19,541 |   | 13,670 |   |
| General and administrative                                                                          |       | 3,535                                      |       | 2,440                                     |       | 10,096 |   | 8,233 |   |
| Depreciation and amortization                                                                       |       | 2,398                                      |       | 1,140                                     |       | 6,513 |   | 4,897 |   |
| Total operating expenses                                                                            |       | 20,822                                     |       | 15,882                                    |       | 61,595 |   | 49,064 |   |
|                                                                                                |       |                                       |       |                                      |       |   |   |   |   |
| Income (loss) from operations                                                                       |       | 1,774                                      |       | 816                                       |       | (645 | ) | (361 | ) |
|                                                                                                |       |                                       |       |                                      |       |   |   |   |   |
| Interest income, net                                                                                |       | 399                                        |       | 236                                       |       | 1,109 |   | 304 |   |
| Other income, net                                                                                   |       | 52                                         |       | 11                                        |       | 68 |   | 97 |   |
| Gain on sale of joint venture interest                                                              |       | —                                     |       | 76                                        |       | 101 |   | 319 |   |
| Net income                                                                                          |       | $                                          | 2,225      |                                      | $          | 1,139 |   | $ | 633 |   | $ | 359 |   |
|                                                                                                |       |                                       |       |                                      |       |   |   |   |   |
| Per share data:                                                                                     |       |                                       |       |                                      |       |   |   |   |   |
|                                                                                                |       |                                       |       |                                      |       |   |   |   |   |
| Basic net income per share                                                                          |       | $                                          | 0.03       |                                      | $          | 0.02 |   | $ | 0.01 |   | $ | 0.01 |   |
| Diluted net income per share                                                                        |       | $                                          | 0.03       |                                      | $          | 0.02 |   | $ | 0.01 |   | $ | 0.01 |   |
| Weighted average shares of common stock  outstanding used in computing basic net income per share   |       | 72,427                                     |       | 70,891                                    |       | 72,197 |   | 62,834 |   |
| Weighted average shares of common stock  outstanding used in computing diluted net income per share |       | 76,586                                     |       | 75,230                                    |       | 76,346 |   | 67,902 |   |

* *

*The accompanying notes are anintegral part of these condensed consolidated financial statements*

* *

2

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***iVillage Inc. and Subsidiaries***

***CondensedConsolidated Statements of Cash Flows***

***(in thousands)***

***(Unaudited)***

* *
| ** **                                                                                   | ** ** | **Nine months ended September 30,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2005**                                 | ** ** | **2004** | ** ** |
|                                                                                         |       |                                     |       |   |   |
| Cash flows from operating activities:                                                        |       |                                     |       |   |   |
| Net income                                                                                   |       | $                                        | 633        |   | $ | 359 |   |
| Adjustments to reconcile net income to net  cash (used in) provided by operating activities: |       |                                     |       |   |   |
| Depreciation and amortization                                                                |       | 6,513                                    |       | 4,897 |   |
| Deferred rent amortization                                                                   |       | (107                                     | )          | (108 | ) |
| Bad debt expense                                                                             |       | 137                                      |       | (62 | ) |
| Expense recognized in connection with  issuance/modification of terms of stock options       |       | 37                                       |       | 19 |   |
| Gain on sale of joint venture interest                                                       |       | (101                                     | )          | (319 | ) |
| Changes in operating assets and liabilities  net of effects of acquisitions:                 |       |                                     |       |   |   |
| Accounts receivable                                                                          |       | (3,534                                   | )          | (324 | ) |
| Prepaid rent                                                                                 |       | 113                                      |       | 113 |   |
| Other assets                                                                                 |       | (153                                     | )          | (987 | ) |
| Accounts payable and accrued expenses                                                        |       | (1,451                                   | )          | 323 |   |
| Deferred revenue                                                                             |       | (2,232                                   | )          | 315 |   |
|                                                                                         |       |                                     |       |   |   |
| Net cash (used in) provided by operating  activities                                         |       | (145                                     | )          | 3,596 |   |
|                                                                                         |       |                                     |       |   |   |
| Cash flows from investing activities:                                                        |       |                                     |       |   |   |
| Purchase of fixed assets                                                                     |       | (4,551                                   | )          | (2,201 | ) |
| Purchase of intangible assets                                                                |       | (2,000                                   | )          | (75 | ) |
| Cash paid less cash acquired for  acquisition of Healthology, Inc.                      |       | (14,149                                  | )          | — |   |
| Cash paid for acquisition of The Virtual  Mirror, Inc.                                  |       | (6                                       | )          | — |   |
| Cash paid less cash acquired for acquisition  of HealthCentersOnline, Inc.              |       | (9,425                                   | )          | — |   |
| Cash paid for acquisition of assets of  iVillage UK Limited                                  |       | (414                                     | )          | — |   |
| Proceeds from the sale of joint venture  interest                                            |       | 101                                      |       | 227 |   |
|                                                                                         |       |                                     |       |   |   |
| Net cash used in investing activities                                                        |       | (30,444                                  | )          | (2,049 | ) |
|                                                                                         |       |                                     |       |   |   |
| Cash flows from financing activities:                                                        |       |                                     |       |   |   |
| Proceeds from exercise of stock options and  warrants                                        |       | 890                                      |       | 2,224 |   |
| Proceeds from securities offering, net of  offering costs                                    |       | —                                   |       | 64,674 |   |
| Principal payments on stockholders’ notes  receivable                                   |       | —                                   |       | 197 |   |
| Cash provided by financing activities                                                        |       | 890                                      |       | 67,095 |   |
|                                                                                         |       |                                     |       |   |   |
| Effect of foreign exchange rate changed on  cash and cash equivalents                        |       | (8                                       | )          | — |   |
|                                                                                         |       |                                     |       |   |   |
| Net (decrease) increase in cash for the  period                                              |       | (29,707                                  | )          | 68,642 |   |
| Cash and cash equivalents, beginning of  period                                              |       | 83,046                                   |       | 15,823 |   |
| Cash and cash equivalents, end of period                                                     |       | $                                        | 53,339     |   | $ | 84,465 |   |

** **

**Supplemental disclosure of non-cash investing andfinancing activities:**

** **

**On January 7, 2005, iVillage acquiredHealthology, Inc. partially through the issuance of our common stock andoptions to purchase our common stock (see Note 7).**

** **

**On April 8, 2005, iVillage acquiredHealthCentersOnline, Inc. partially through the issuance of our commonstock (see Note 7).**

** **

OnMay 5, 2005, iVillage received iVillage common stock in lieu of cash forthe exercise of stock options (see Note 9-Capital Stock- Treasury Stock).

 

**During the nine months ended September 30, 2005,iVillage wrote off approximately $2.0 million of fixed assets which were fullydepreciated.**

** **

*The accompanying notes are anintegral part of these condensed consolidated financial statements*

 

3

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***iVillage Inc. and Subsidiaries***

***Notes to CondensedConsolidated Financial Statements***

***(Unaudited)***

 

**Note 1 - Organization and Basis ofPresentation**

 

iVillage is “the Internet for women” andconsists of several online and offline media-based properties, including theiVillage.com Web site, or iVillage.com, Healthology, Inc., or Healthology,HealthCentersOnline, Inc., or HealthCentersOnline, iVillage Limited,operator of the iVillage.co.uk Web site, iVillage Consulting, The VirtualMirror, Inc., operator of the GardenWeb.com Web site, or GardenWeb.com,Promotions.com, Inc., Knowledgeweb, Inc., operator of theAstrology.com Web site, or Astrology.com, iVillage Parenting Network, Inc.,or IVPN, and Public Affairs Group, Inc., or PAG. Following is a synopsisof certain of our operational activities, subsidiaries and divisions:

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

 

4

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

 

Managementbelieves that iVillage’s current funds will be sufficient to enable iVillage tomeet its planned expenditures through at least the next twelve months. Factorsthat could adversely affect iVillage’s operations include the loss of any ofiVillage’s major customers, a significant downturn in the advertising market oreconomy in general, and iVillage’s ability to generate significantly increasedannual revenues.

 

iVillage issubject to the risks and uncertainties frequently encountered by companies inthe rapidly evolving markets for Internet and media products and services.These risks include the failure to develop and extend iVillage’s brands, thenon-acceptance or rejection of iVillage’s services by Web consumers, vendors,sponsors and/or advertisers and the inability of iVillage to maintain andincrease the levels of traffic on its online services. In the event iVillage doesnot successfully implement its business plan, certain assets may not berecoverable.

 

5

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*Unaudited Interim Financial Information*

 

The unaudited interim condensed consolidated financialstatements of iVillage as of September 30, 2005 and for the three and ninemonths ended September 30, 2005 and 2004, each, included herein, have beenprepared in accordance with the instructions for Form 10-Q under theSecurities Exchange Act of 1934, as amended, or the Exchange Act, and Article 10of Regulation S-X of the rules and regulations of the Securities andExchange Commission. Certain information and footnote disclosures normallyincluded in financial statements prepared in accordance with generally acceptedaccounting principles have been condensed or omitted pursuant to such rules andregulations relating to interim financial statements. These financialstatements should be read in conjunction with iVillage’s Annual Report on Form 10-Kfor the fiscal year ended December 31, 2004.

 

In the opinionof management, the accompanying unaudited interim condensed consolidatedfinancial statements reflect all adjustments, consisting only of normalrecurring adjustments and appropriate intercompany elimination adjustments, necessaryto state fairly the financial position of iVillage at September 30, 2005,the results of its operations for the three and nine months ended September 30,2005 and 2004, and the results of its cash flows for the nine months ended September 30,2005 and 2004. The results for the three and nine months ended September 30,2005 are not necessarily indicative of the expected results for the full fiscalyear or any future period.

 

*Principles of Consolidation*

 

The unaudited interim condensed consolidatedfinancial statements include the accounts of iVillage and its subsidiaries.Intercompany balances and transactions have been eliminated in consolidation.

 

In accordance with Statement of FinancialAccounting Standard, or SFAS, No. 131, “Disclosures About Segments of anEnterprise and Related Information”, or SFAS 131, segment information is beingreported consistent with iVillage’s method of internal reporting. In accordancewith SFAS 131, operating segments are defined as components of an enterprisefor which separate financial information is available that is evaluatedregularly by the chief operating decision maker in deciding how to allocateresources and in assessing performance. iVillage is organized primarily bysubsidiaries and divisions. iVillage’s subsidiaries and divisions have nooperating managers who report to the chief operating decision maker. The chiefoperating decision maker reviews information at a consolidated results ofoperations level, although the chief operating decision maker does reviewrevenue results of subsidiaries and divisions. As a result, iVillage’sdiscussion of revenue has been organized into separate subsidiaries anddivisions, however operating expenses and results of operations are discussedon a combined basis.

 

*Revenues, Receivables and Customer Concentration*

 

Our five largest customers accounted forapproximately 19% of total revenues for each of the three and nine months endedSeptember 30, 2005. No single customer accounted for more

 

6

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than 10% of our total revenues for thethree and nine months ended September 30, 2005. iVillage’s five largestcustomers accounted for approximately 30% of total revenues for the threemonths ended September 30, 2004, and approximately 31% of total revenuesfor the nine months ended September 30, 2004. Wal-Mart Stores, Inc.and its affiliates, or Wal-Mart accounted for approximately 11% of totalrevenues for the three months ended September 30, 2004. No other singlecustomer accounted for more than 10% of total revenues for the three monthsended September 30, 2004. Both Hearst, a related party, and Wal-Mart,accounted for approximately 11% of total revenues for the nine months ended September 30,2004. At September 30, 2005and December 31, 2004, no single customer accounted for more than 10% oftotal net accounts receivable. The significance of revenues from any of our customers can vary on a quarter to quarterbasis as a result of the number and timing of such customers’ advertising andmarketing initiatives. We anticipate that our results of operations inany given period will continue to depend to a significant extent on revenuesfrom a small number of customers.

 

Included in total revenues are bartertransactions which totaled approximately $1.2 million, or 5% of total revenues,for the three months ended September 30, 2005, and approximately $4.5million, or 7% of total revenues, for the nine months ended September 30,2005. For the corresponding period in 2004, barter transactions totaledapproximately $1.2 million, or 7% of total revenues, for the three months endedSeptember 30, 2004, and approximately $3.2 million, or 7% of totalrevenues, for the nine months ended September 30, 2004.

 

*Fixed Assets and Intangibles*

 

Depreciation of equipment, furniture andfixtures, and computer software is provided for by the straight-line methodover their estimated useful lives ranging from one to five years. Amortizationof leasehold improvements is provided for over the lesser of the term of the relatedlease or the estimated useful life of the improvement. The cost of additionsand expenditures which extend the useful lives of existing assets arecapitalized, and repairs and maintenance costs are charged to operations asincurred. Amortization of intangible assets are over the expected life of therelated asset and range from one to ten years. iVillage has adopted SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets”, or SFAS 144,regarding the recognition and measurement of the impairment of long-livedassets to be held and used.

 

iVillage assesses the recoverability of itsfixed assets and intangible assets by determining whether the unamortizedbalance over the assets remaining life can be recovered through undiscountedforecasted cash flows. If undiscounted forecasted cash flows indicate that theunamortized amounts will not be recovered, an adjustment will be made to reducethe net amounts to an amount consistent with forecasted future cash flowsdiscounted at a rate commensurate with the risk associated when estimatingfuture discounted cash flows. Future cash flows are based on trends ofhistorical performance and iVillage’s estimate of future performances, givingconsideration to existing and anticipated competitive and economic conditions.

 

7

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*Web SiteDevelopment Costs*

 

iVillage accounts for Website development costs in accordance with the provisions of Emerging IssuesTask Force, or EITF, Issue No. 00-2, “Accounting for Web Site DevelopmentCosts”, or EITF 00-2, which requires that certain costs to develop Web sites becapitalized or expensed, depending on the nature of the costs. Amortization ofWeb site development costs is provided for by the straight-line method over theestimated useful life of two years. Development costs of approximately $0.9million for the nine months ended September 30, 2005 were capitalized.Amortization expense of Web site development costs was approximately $0.2million for the three months ended September 30, 2005 and approximately$0.5 million for nine months ended September 30, 2005.  Development costs of approximately $0.3million for the three months ended September 30, 2004, and approximately$0.4 million for the nine months ended September 30, 2004, werecapitalized.  Amortization expense of Website development costs was approximately $30,000 for the three months ended September 30,2004 and approximately $0.1 million for the nine months ended September 30,2004.  Amortization expense of Web sitedevelopment costs is included in Depreciation and amortization in the condensedconsolidated statements of operations.

 

*Goodwill*

 

SFAS No. 141, “Business Combinations”,or SFAS 141, requires all business combinations to be accounted for using thepurchase method of accounting and that certain intangible assets acquired in abusiness combination shall be recognized as assets apart from goodwill.Goodwill is not subject to amortization and is tested for impairment annually,or more frequently if events or changes in circumstances indicate that theasset may be impaired in accordance with SFAS No. 142, “Goodwill andOther Intangible Assets”, or SFAS 142. The impairment test consists of acomparison of the fair value of the reporting unit with its carrying amount. Ifthe carrying amount of the reporting unit exceeds its fair value then ananalysis will be performed to compare the implied fair value of goodwill withthe 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 market basedcomparables. After an impairment loss is recognized, the adjusted carryingamount of goodwill is its new accounting basis. (See Note 2 – Goodwill).

 

*Foreign Currency Translation*

 

iVillage’s condensed consolidated financialstatements are reported in U.S. dollars as that is the reporting currency. TheCompany’s foreign subsidiary, iVillage Limited, maintains its records in BritishPounds, the currency of the country within which it operates. Under SFAS No. 52,“Foreign Currency Translation”, the British Pound is the functional currency. Accordingly,the balance sheet accounts of iVillage Limited are translated into U.S. dollarsat the rate of exchange in effect as of the balance sheet date. Revenue andexpenses are translated at the average exchange rate prevailing during theperiod. Translation adjustments are reported in other comprehensive incomewithin stockholders’ equity.  Thecumulative effect of the foreign currency translation was approximately $8,000at September 30, 2005.

 

8

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*Comprehensive Income*

 

iVillage reflects its comprehensive incomesuch as unrealized gains and losses on the Company’s foreign currencytranslation adjustments as a separate component of stockholders’ equity asrequired by SFAS No. 130, “ReportingComprehensive Income*”*. iVillagehas not recorded the tax effects related to the currency translationadjustments because such adjustments relate to indefinite investments ininternational subsidiaries. Comprehensive income consists of net income andforeign currency translation adjustments. Comprehensive income wasapproximately $2.2 million for the three months ended September 30, 2005and approximately $1.1 million for the three months ended September 30,2004. Comprehensive income was approximately $0.6 million for the nine monthsended September 30, 2005 and $0.4 million for the nine months ended September 30,2004.

 

*Use of Estimates*

 

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amount of assets and liabilities, disclosure of contingent assetsand liabilities at the date of the financial statements, and the reportedamounts of revenues and expenses during the reporting period.  Actual results could differ from theseestimates.  Significant estimates andassumptions made by iVillage include those related to fair values utilized toallocate revenue under the Financial Accounting Standards Board, or FASB,Emerging Issues Task Force, or EITF, Issue No. 00-21 “Accounting forRevenue Arrangements with Multiple Deliverables,” or EITF 00-21, the usefullives of fixed assets and intangible assets, the recoverability of fixedassets, goodwill, intangible assets and deferred tax assets, the allocation ofpurchase price to the net assets acquired in acquisitions and deferred taxassets, the allowance for doubtful accounts, the expected period we willprovide services for Healthology revenue contracts, which is tied to webcastrelease dates and the assessment of expected probable losses (if any) of claimsand potential claims.

 

*Accrued Expenses*

 

In the ordinary course of business, iVillageutilizes estimates to determine the accrual of certain operating expenses.These estimates are reviewed on an ongoing basis to determine the adequacy ofthese accruals. For the three and nine month periods ended September 30,2005, iVillage reversed approximately $0.4 million of accruals included inoperating expenses primarily due to the reversal of a vacation accrual sinceearned vacation days are no longer eligible for carry forward to the followingcalendar year. iVillage reversed approximately $0.1 million for the threemonths ended September 30, 2004, and approximately $0.4 million for thenine months ended September 30, 2004, of accruals included in operating expensesprimarily due to the renegotiation of a vendor contract with substantialchanges in the terms and conditions of the original contract which provided aone-time benefit of approximately $0.3 million in the nine month period ended September 30,2004.

 

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*Income Taxes*

 

iVillage recognizes deferred taxes by theasset and liability method of accounting for income taxes in accordance withthe provisions of SFAS No. 109, “Accounting for Income Taxes”.  Deferred income taxes are recognized fordifferences between the financial statement and tax bases of assets andliabilities at enacted statutory tax rates in effect for the years in which thedifferences are expected to reverse.  Theeffect on deferred taxes of a change in tax rates is recognized in income inthe period that includes the enactment date.  In assessing the realizability of deferred taxassets, iVillage considers whether it is more likely than not that some portionor all of the deferred tax assets will not be realized.  The ultimate realization of deferred taxassets is dependent upon the generation of future taxable income or reversal ofdeferred tax liabilities during the periods in which those temporarydifferences become deductible.  iVillageconsiders the scheduled reversal of deferred tax liabilities, projected futuretaxable income, and tax planning strategies in making this assessment.

 

The difference between our U.S. federalstatutory rate of 34%, as well as our state and local rate, net of our federalbenefit of 7%, when compared to our actual effective tax rate of 0%, isprincipally attributed to the valuation allowance provided for our deferred taxassets generated during the period.  iVillage has a full valuation allowance on ournet 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 decision to reverse the valuationallowance will, among other things, consider our profitability in recentperiods, as well as our future profitability and available tax planningstrategies.

 

*Net Income Per Share*

 

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

 

Included in the September 30, 2005 and September 30,2004 calculation of weighted average number of shares of common stockoutstanding are 54,605 shares and 58,394 shares, respectively, which have notbeen issued.  These shares are being heldfor former Women.com Networks, Inc., or Women.com, and Promotions.com, Inc.stockholders that have not yet exchanged their respective shares for shares ofiVillage during the periods presented, but are entitled to do so.

 

Stock options and warrants in the amount of 828,972**shares for the three months ended September 30, 2005and 1,457,894 shares for the nine months ended September 30, 2005 were notincluded in the computation of diluted net income per share as they wereanti-dilutive.  Stock options andwarrants in the amount of 2,039,900 shares for the three months ended September 30, 2004, and2,038,400 shares for the nine months ended September 30, 2004 were notincluded in the computation of diluted net income per share as they wereanti-dilutive.

 

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| ** **                                                   | ** ** | **Three months ended  September 30,**      | ** ** | **Nine months ended  September 30,** | ** ** |
|--------------------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                   | ** ** | **2005**                                        | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                   | ** ** | **($ in thousands except per share data)** | ** ** |
| Net income- as reported                                      |       | $                                               | 2,225      |                                      | $          | 1,139 |   | $ | 633 |   | $ | 359 |   |
| Weighted average shares of common Stock  outstanding - basic |       | 72,427                                          |       | 70,891                                    |       | 72,197 |   | 62,834 |   |
| Assumed conversion of dilutive Securities                    |       | 4,159                                           |       | 4,339                                     |       | 4,149 |   | 5,068 |   |
| Weight average shares of common Stock  outstanding - diluted |       | 76,586                                          |       | 75,230                                    |       | 76,346 |   | 67,902 |   |
| Basic net income per share                                   |       | $                                               | 0.03       |                                      | $          | 0.02 |   | $ | 0.01 |   | $ | 0.01 |   |
| Diluted net income per share                                 |       | $                                               | 0.03       |                                      | $          | 0.02 |   | $ | 0.01 |   | $ | 0.01 |   |

 

*Stock-Based Compensation*

 

iVillage applies Accounting Principles Board Opinion, or APB, No. 25,“Accounting for Stock Issued to Employees”, or APB 25, and relatedinterpretations in accounting for its stock option issuances, and has adoptedthe disclosure-only provisions of SFAS No. 123, “Accounting forStock-Based Compensation”, or SFAS 123. No compensation cost related to grantsof stock options was reflected in iVillage’s net income, as all options grantedunder the plans had an exercise price at least equal to the market value of theunderlying common stock on the date of grant. In January 2005, inconjunction with the acquisition of Healthology (See Note 7 – Business Acquisitions),all outstanding options to purchase Healthology common stock were convertedinto options to purchase shares of iVillage common stock at a predeterminedexchange ratio.  The fair value of theconverted options as determined by the Black Scholes model was $0.3 million. Adeferred compensation charge of approximately $0.1 million was calculated as aportion of the converted options were unvested at the time of acquisition dateand contained a continued service requirement. Compensation cost related to theconverted Healthology options, as well as a modification of stock option termsin general, is measured at the fair value of iVillage’s common stock at themeasurement date and is amortized to expense over the vesting period.Compensation costs related to the converted Healthology options wasapproximately $22,000 for the three months ended September 30, 2005 and $38,000for the nine months ended September 30, 2005. Compensation costs relatedto the Chief Executive Officer’s employment agreement was approximately $0.1million for both the three and nine months ended September 30, 2005 (SeeNote 6 – Related Party Transaction – Employment Agreement).  Forfeitures related to the convertedHealthology options were approximately $17,000 for the three and nine monthsended September 30, 2005. For the three and nine months ended September 30,2005, there was no compensation costs related to the modification of stockoption terms.  For the three and nine monthsended September 30, 2004, compensation costs related to the modificationof stock option terms was approximately $19,000. If compensation cost foriVillage’s stock options, utilizing the Black Scholes model, had beendetermined based on the fair value of the stock options at the grant date forawards in the three and nine months ended September 30, 2005 and 2004consistent with the provisions of SFAS 123, iVillage’s net income would havebeen adjusted to the pro forma amounts indicated below:

 

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| ** **                                                        | ** ** | **Three months ended  September 30,**      | ** ** | **Nine months ended  September 30,** | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                        | ** ** | **2005**                                        | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                        | ** ** | **($ in thousands except per share data)** | ** ** |
| Net income - as reported                                          |       | $                                               | 2,225      |                                      | $          | 1,139 |   | $ | 633 |   | $ | 359 |   |
| Add: Stock-based compensation expense  determined under APB 25    |       | 77                                              |       | —                                    |       | 92 |   | 19 |   |
| Less: Stock-based compensation expense  determined under SFAS 123 |       | (726                                            | )          | (752                                      | )          | (2,333 | ) | (2,350 | ) |
| Net income(loss) - pro forma                                      |       | $                                               | 1,576      |                                      | $          | 387 |   | $ | (1,608 | ) | $ | (1,972 | ) |
| Basic and diluted net income(loss) per  share – as reported  |       | $                                               | 0.03       |                                      | $          | 0.02 |   | $ | 0.01 |   | $ | 0.01 |   |
| Basic and diluted net income(loss) per  share – pro forma    |       | $                                               | 0.02       |                                      | $          | 0.01 |   | $ | (0.02 | ) | $ | (0.03 | ) |

 

Becauseoptions vest over several years and additional option grants are expected to bemade in future years, the above pro forma results are not representative of thepro forma results for the full fiscal year or any future periods.

 

Theweighted average assumptions used for grants made in 2005 and 2004 are asfollows:

 

| ** **               | ** ** | **Options granted during the  nine months ended  September 30,** | ** ** |
|--------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **               | ** ** | **2005**                                                              | ** ** | **2004** | ** ** |
|                     |       |                                                                  |       |   |   |
| Risk-free  interest rate |       | 3.78                                                                  | %          | 3.08 | % |
| Expected  option life    |       | 3.7 years                                                             |       | 4 years |   |
| Dividend  yield          |       | 0.00                                                                  | %          | 0.00 | % |
| Volatility               |       | 75                                                                    | %          | 91 | % |

 

*Recent Accounting Pronouncements*

 

In December 2004, the FASB issued SFASStatement No. 123(R), “Share-Based Payments”, or SFAS 123(R), whichrevises SFAS 123, supersedes APB 25 and amends FASB Statement No. 95 “Statementof Cash Flows”, or FAS 95. The statement requires companies to expense the fairvalue of employee stock options and other forms of stock-based compensation.  The statement addresses the accounting forshare-based payment transactions in which iVillage receives employee servicesin exchange for either equity instruments of iVillage or liabilities that arebased on the fair value of iVillage’s equity instruments or that may be settledby the issuance of such equity instruments. In addition, iVillage’s stock employeepurchase plan will need to be modified to comply with SFAS 123(R). Thisstatement is effective for public companies for annual periods beginning after June 15,2005.

 

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iVillage expects to adopt FAS123(R) using the modified prospective method on January 1, 2006. iVillageis currently evaluating option valuation methodologies and assumptions in lightof FAS 123(R), and the methodologies and assumptions iVillage ultimately use toadopt FAS 123(R) may be different than those currently applied. While iVillagehas not quantified the impact of FAS 123(R), upon adoption, it is expected tohave a material impact on the consolidated statement of operations as iVillagewill be required to expense the fair value of stock option grants.

 

In December 2004,the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, anamendment of APB Opinion No. 29”, or SFAS 153.  SFAS 153 eliminates an exception fornonmonetary exchanges of similar productive assets under APB Opinion No. 29,and replaces it with a general exception for exchanges of nonmonetary assetsthat do not have commercial substance. SFAS 153 is to be applied prospectively and is effective for nonmonetaryasset exchanges occurring in fiscal periods beginning after September 15,2005.  iVillage believes that the futureadoption of SFAS 153 will not have a material impact on its financialstatements.

 

In May 2005, FASB issued Statement No. 154,“Accounting Changes and Error Corrections”, or SFAS 154. SFAS 154 requiresretrospective application to prior periods’ financial statements of changes in anaccounting principle. It also requires that the new accounting principle beapplied to the balances of assets and liabilities as of the beginning of theearliest period for which retrospective application is practicable and that acorresponding adjustment be made to the opening balance of retained earningsfor that period rather than being reported in an income statement. Thestatement will be effective for accounting changes and corrections of errorsmade in fiscal years beginning after December 15, 2005. iVillage does notexpect the adoption of SFAS 154 to have a material effect on the Company’sconsolidated financial position or results of operations.

 

**Note 2 - Goodwill**

 

Intangible assets with indefinite lives andgoodwill are not amortized, but are tested at least annually for impairment, orif circumstances change that will more likely than not reduce the fair value ofthe reporting unit below its carrying amount. iVillage performs its annualimpairment analysis in the fourth quarter of the fiscal year. In December 2004,iVillage completed the annual impairment test and no impairment was recognized.

 

During the nine months ended September 30,2005, iVillage acquired Healthology, Inc., HealthCentersOnline, Inc.and iVillage Limited (See Note 7 – Business Acquisitions), and incurredapproximately $6,000 of additional costs related to the acquisition of GardenWeb, which was acquired in November 2004. The following table sets forththe components of goodwill, net as of December 31, 2004 and September 30,2005 (in thousands):

 

| ** **               | ** ** | **December 31,  2004** | ** ** | **Acquisition** | ** ** | **Impairment  losses** | ** ** | **September 30,  2005** | ** ** |
|--------------------------|------------|-----------------------------|------------|-----------------|------------|------------------------|------------|------------------------------|------------|
| Reporting  unit – 1 |       | $                           | 19,778     |            | $          | 19,761                 |       | $                            | —     |   | $ | 39,539 |   |
| Reporting  unit – 2 |       | 1,693                       |       | —          |       | —                 |       | 1,693                        |       |
| Reporting  unit – 3 |       | 1,770                       |       | —          |       | —                 |       | 1,770                        |       |
|                     |       | $                           | 23,241     |            | $          | 19,761                 |       | $                            | —     |   | $ | 43,002 |   |

 

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Reportingunit –         1 includes iVillage Inc., Women.com Networks, Inc.,Healthology, Inc., HealthCentersOnline, Inc., iVillage Limited, TheVirtual Mirror, Inc., Knowledgeweb, Inc., and Cooperative BeautyVentures, L.L.C.

 

Reportingunit –         2 includes iVillage Parenting Network, Inc.,Lamaze Publishing Company and iVillage Integrated Properties, Inc.

 

Reportingunit –         3 includes Public Affairs Group, Inc.

 

**Note 3 - Intangible Assets**

 

iVillage reviews for the impairment oflong-lived assets and certain identifiable intangibles whenever events orchanges in circumstances indicate that the carrying amount of an asset may notbe recoverable in accordance with the provisions of SFAS 144.  During the nine months ended September 30,2005, iVillage acquired Healthology, HealthCentersOnline and iVillage Limited(See Note 7 – Business Acquisitions).

 

In July 2005, iVillage purchased certainproprietary software products and related technology, and the intellectualrights from Corsis Technology Services, Inc., or Corsis, to further expandits Promotions.com operations for $1.0 million.  In addition, Corsis washired to further enhance and develop the software for an additional $1.0million, which was completed in August 2005.

 

Identifiable intangible assets are amortizedunder the straight-line or accelerated method over the period of expectedbenefit ranging from one to ten years. The following table sets forth the components of the intangible assetssubject to amortization as of September 30, 2005 and December 31,2004 (in thousands):

 
| ** **                                          | ** ** | ** **      | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------------------------------------------|------------|-----------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                          | ** ** | **Range****of** | ** ** | **Gross**                    | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | **Gross** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                          | ** ** | **useful**      | ** ** | **carrying**                 | ** ** | ** **                  | ** ** | **Accumulated** | ** ** | ** ** | ** ** | **carrying** | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
| ** **                                          | ** ** | **life**        | ** ** | **amount**                   | ** ** | **Acquisition**             | ** ** | **amortization** | ** ** | **Net** | ** ** | **amount** | ** ** | **amortization** | ** ** | **Net** | ** ** |
| Advertiser and  member lists and customer Contracts |       | 2-10 years      |       | $                            | 20,777     |                        | $          | 4,575 |   | $ | (15,964 | ) | $ | 9,388 |   | $ | 20,777 |   | $ | (13,719 | ) | $ | 7,058 |   |
|                                                |       |            |       |                         |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Trademarks and  domain names                        |       | 3 years         |       | 3,364                        |       | 1,473                       |       | (3,577 | ) | 1,260 |   | 3,364 |   | (3,200 | ) | 164 |   |
|                                                |       |            |       |                         |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Licensing  agreement                                |       | 10 years        |       | 2,900                        |       | —                      |       | (1,772 | ) | 1,128 |   | 2,900 |   | (1,555 | ) | 1,345 |   |
|                                                |       |            |       |                         |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Technology                                          |       | 3 years         |       | 935                          |       | 2,064                       |       | (1,013 | ) | 1,986 |   | 935 |   | (821 | ) | 114 |   |
|                                                |       |            |       |                         |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Non-competition  agreements                         |       | 1-2 years       |       | 810                          |       | 202                         |       | (881 | ) | 131 |   | 810 |   | (810 | ) | — |   |
|                                                |       |            |       |                         |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Content                                             |       | 3-4 years       |       | 757                          |       | 5,504                       |       | (1,998 | ) | 4,263 |   | 757 |   | (606 | ) | 151 |   |
|                                                |       |            |       |                         |       |                        |       |   |   |   |   |   |   |   |   |   |   |
|                                                |       |            |       | $                            | 29,543     |                        | $          | 13,818 |   | $ | (25,205 | ) | $ | 18,156 |   | $ | 29,543 |   | $ | (20,711 | ) | $ | 8,832 |   |

 

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Amortization expense for the three monthsended September 30, 2005 was approximately $1.7 million and $4.5 millionfor the nine months ended September 30, 2005. Amortization expense for thethree months ended September 30, 2004 was approximately $0.6 million and$2.9 million for the nine months ended September 30, 2004.

 

Estimated amortization expense for the twelve months ending September 30are as follows (in thousands):

 

| 2006   |   | $      | 6,375  |   |
|--------|--------|--------|--------|--------|
|   |   |   |   |
| 2007   |   | 5.913  |   |
|   |   |   |   |
| 2008   |   | 3,961  |   |
|   |   |   |   |
| 2009   |   | 1,907  |   |
|   |   |   |   |
|   |   | $      | 18,156 |   |

 

**Note 4 – Deferred Gain on Sale of JointVenture Interest**

 

In March 2003, iVillage and Tesco.comLimited, a division of Tesco, PLC, or Tesco, restructured the terms of theirjoint venture so that Tesco purchased iVillage’s entire ownership interest iniVillage 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. In April, 2005, in connection with an asset acquisition (SeeNote 7 – Business Acquisitions), iVillage UK Limited and iVillage terminated thislicense agreement.

 

All monies received by iVillage under the license agreement wereclassified as other income and were included in the condensed consolidatedstatements of operations as a gain on sale of joint venture interest. iVillagehas earned no amount for the three months ended September 30, 2005, andapproximately $0.1 million for the nine months ended September 30, 2005.iVillage earned approximately $0.1 million for the three months ended September 30,2004 and $0.3 million for the nine months ended September 30, 2004 forservices provided.  As of September 30,2005, iVillage was owed no amount and at December 31, 2004, iVillage wasowed approximately $0.1 million for license fees.

 

**Note 5 – Discontinued Operations**

 

As of September 30, 2005 and December 31, 2004,approximately $24,000 of current liabilities of discontinued operations areincluded in the caption “Other current liabilities” in the condensedconsolidated balance sheets, respectively.

 

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**Note 6 – Related Party Transactions**

 

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

 

America Online, Inc., a division of Time Warner Inc., or AOL, is astockholder of iVillage.  Additionally, amember of the board of directors was an employee of AOL through June 2004.  Since the fourth quarter of 2004, AOL is nolonger reported as a related party.

 

Included in the caption “Revenues-related parties” in the condensedconsolidated statements of operations is approximately $0.1 million for each ofthe three and nine months ended September 30, 2004 relating to revenuesrecognized from AOL.

 

***Hearst Communications, Inc.***

 

As of September 30,2005, Hearst owned approximately 25% of iVillage’s outstanding common stock.

 

From time totime, iVillage has provided production services outside the scope of its Website services and amended and restated magazine content and hosting agreementswith Hearst.

 

Revenues, netof royalty payments, from Hearst, were approximately $1.4 million for the threemonths ended September 30, 2005, and approximately $4.2 million for thenine months ended September 30, 2005. Revenues, net of royalty payments,from Hearst, were approximately $1.5 million for the three months ended September 30,2004, and approximately $5.3 million for the nine months ended September 30,2004. As of September 30, 2005 and December 31, 2004, iVillage wasowed a net receivable from this stockholder of approximately $0.4 million.

 

***Catalyst GroupDesign, Inc.***

 

Our SeniorVice President and Editor-in-Chief is the spouse of the Chief Executive Officerof Catalyst Group Design, Inc., or Catalyst Group Design. In 2004,iVillage entered into several agreements totaling approximately$0.3 million with Catalyst Group Design for services related to theredesign of iVillage’s Web site and several revenue contracts of iVillage. Inthe first quarter of 2005, iVillage entered into one agreement with CatalystGroup Design for services related to the redesign of iVillage’s Astrology.comWeb site for approximately $0.1 million. To date, iVillage has capitalizedapproximately $0.1 million of these fees as Web site development costs andapproximately $0.1 million as prepaid expenses. For the three months ended September 30,2005, approximately $17,000 was expensed and for the nine months ended September 30,2005, approximately $0.1 million was expensed. There are no comparable amountsfor the periods in 2004. As of September 30, 2005, iVillage owed CatalystGroup Design no amount and as of December 31, 2004, iVillage owed CatalystGroup Design approximately $0.1 million.

 

***Waterfront Media, Inc.***

 

Our ChiefExecutive Officer, or CEO, and another board member of iVillage, Habib Kairouz,both serve on the board of directors of one of our customers, WaterfrontMedia Inc., or Waterfront Media. Our CEO owns less than one percent ofWaterfront Media’s fully diluted securities. As a Managing Partner of RhoCapital Partners, Inc., Habib Kairouz may be deemed

 

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to have indirect beneficialownership of approximately 33% of Waterfront Media’s fully diluted votingsecurities as a result of shares owned directly by affiliates of Rho CapitalPartners, Inc.

 

During thefirst quarter of 2005, iVillage signed, launched and completed one newadvertising agreement with Waterfront Media, and also completed the remainingcontract from 2004. Revenues from Waterfront Media were no amount for the threemonths ended September 30, 2005 and approximately $0.1 million for thenine months ended September 30, 2005. Revenues from Waterfront Media wereapproximately $0.1 million for the three months ended September 30, 2004and approximately $0.3 million for the nine months ended September 30,2004. At September 30, 2005, iVillage was owed no amount, and at December 31,2004, iVillage was owed a receivable of approximately $44,000.

 

***Employment Agreement***

 

In August 2005, iVillage and its CEO,entered into an employment agreement which expires in May 2008. Theagreement provides for a salary increase, bonus potential and a stock optiongrant of 567,000 shares which vests in three equal installments over threeyears. In addition, the CEO will be awarded a grant of 50,000 restricted stockunits on or about January 1, 2006, June 30, 2006 and June 30,2007, which all vest on May 31, 2008, and 100,000 performance units willbe granted on January 1, 2006 which will also vest on May 31, 2008. Therestricted stock units and the performance units entitle the CEO to cashpayments based on the fair market value of iVillage’s common stock on thevesting date. The restricted stock unit and performance stock unit awards arerecorded as a liability equal to the fair value of the obligation.  Changes to the underlying fair market valueof the stock during the vesting period are included in the calculation of theexpense.  For the three months ended September 30,2005, the expense related to the restricted stock units was approximately $0.1million and is included in Accounts payable and accrued expenses in theCondensed Consolidated Balance Sheets. No expense was recorded for the performance stock unit awards, asiVillage’s common stock price did not exceed $8.00 at September 30, 2005.

 

**Note 7 – Business Acquisitions**

 

***Healthology, Inc.***

 

On January 7, 2005, iVillage acquiredall of the outstanding equity of Healthology, a privately held company that isa leading producer and distributor of physician-generated video- andarticle-based health and medical information (via the internet). The aggregatepurchase price, inclusive of closing costs of approximately $0.5 million, wasapproximately $17.5 million consisting of approximately $15.9 million in cash,205,908 shares of iVillage’s common stock with the fair value of $1.2 millionbased on the five day closing price of iVillage’s common stock as reported bythe NASDAQ National Market on the two days prior to, the day of and the twodays following the acquisition date, and $0.3 million of common stock options(See Note 1-Organization and Basis of Presentation-Stock Based Compensation).Approximately $1.7 million of the purchase price was deposited into an escrowfund to cover possible indemnification claims. Approximately $0.6 million of the escrow fund, representing the cashportion, is eligible

 

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for release after 18 months,with the remaining portion, consisting solely of stock, eligible for release after24 months.   The difference between thepurchase price and the fair value of the acquired net assets of Healthology ofapproximately $14.0 million was recorded as goodwill (See Note 2-Goodwill). Inthe second quarter of 2005, we recorded an additional approximately $0.3million of goodwill due primarily to additional transaction costs and to recordadditional pre-acquisition liabilities which are reflected in the below table.  In the third quarter of 2005, we reducedgoodwill by approximately $0.1 million to record additional pre-acquisitionother current assets which are reflected in the table below.

 

The cost of the acquisition was allocated tothe assets acquired and liabilities assumed based upon their estimated fairvalues as follows (in thousands):

 
| Cash                                   |   | $      | 1,788  |   |
|----------------------------------------|--------|--------|--------|--------|
| Accounts  receivable                   |   | 2,121  |   |
| Other  current assets                  |   | 204    |   |
| Accounts  payable and accrued expenses |   | (1,096 | )      |
| Deferred  revenue                      |   | (5,433 | )      |
| Deferred  compensation                 |   | 84     |   |
| Fixed assets                           |   | 54     |   |
| Content                                |   | 2,914  |   |
| Customer  contracts                    |   | 1,884  |   |
| Domain names                           |   | 913    |   |
| Non-competition  agreement             |   | 181    |   |
| Technology                             |   | 64     |   |
| Goodwill                               |   | 13,842 |   |
|                                   |   | $      | 17,520 |   |

 

A portion of the content intangible assetacquired is being amortized on an accelerated basis. The amortization expenserelating to the acquired intangible assets has no associated tax impact sincethe acquisition of Healthology was a stock purchase and any acquired intangibleassets would not be deductible for tax purposes.   In addition, goodwillis not tax deductible.   No pro forma information is includedas the acquisition of Healthology would not have had a material impact on theconsolidated results of operations of iVillage.

 

***HealthCentersOnline, Inc.***

 

On April 8, 2005, iVillage acquired allof the outstanding equity of HealthCentersOnline, Inc., a privately-held,online destination for physician-edited information on health conditions,treatments and preventative care for patients. The aggregate purchase price, inclusive of closing costs ofapproximately $0.2 million, was approximately $12.2 million, consisting ofapproximately $11.2 million in cash and 166,945 shares of iVillage common stockwith a fair value of $1.0 million based on the five day closing price ofiVillage’s common stock as reported by the NASDAQ National Market on the twodays prior to, the day of and the two days following the announcement date.$1.8 million of the purchase price was deposited into an escrow fund to coverpossible indemnification claims and is eligible for release after 18months.  The difference between the purchaseprice and the fair value of the acquired net assets of

 

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HealthCentersOnline ofapproximately $5.9 million was recorded as goodwill (See Note 2-Goodwill). Inthe third quarter of 2005, we recorded an additional approximately $0.1 millionof goodwill due primarily to additional transaction costs and to recordadditional pre-acquisition liabilities which are reflected in the below table.

 

The cost of the acquisition was allocated tothe assets acquired and liabilities assumed based upon their estimated fairvalues as follows (in thousands):

 
| Cash                                   |   | $      | 1,740  |   |
|----------------------------------------|--------|--------|--------|--------|
| Accounts  receivable                   |   | 635    |   |
| Other  current assets                  |   | 76     |   |
| Other assets                           |   | 26     |   |
| Accounts  payable and accrued expenses |   | (1,078 | )      |
| Deferred  revenue                      |   | (478   | )      |
| Fixed assets                           |   | 155    |   |
| Content                                |   | 2,590  |   |
| Customer  contracts                    |   | 2,052  |   |
| Trademarks/Domain  names               |   | 560    |   |
| Non-competition  agreements            |   | 21     |   |
| Goodwill                               |   | 5,912  |   |
|                                   |   | $      | 12,211 |   |

 

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

 

The accompanying unaudited pro forma summaryrepresents consolidated results of operations for iVillage as if theacquisition of HealthCentersOnline had been consummated on January 1,2004. The pro forma information does not necessarily reflect the actual resultsthat would have been achieved, nor is it necessarily indicative of futureconsolidated results of iVillage.

 
| ** **                              | ** ** | **Three months ended  September 30,**            | ** ** | **Nine months ended  September 30,** | ** ** |
|-----------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------|------------|
| ** **                              | ** ** | **2005**                                         | ** ** | **2004**                             | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                              | ** ** | **($ in thousands, expect per share data)** | ** ** |
| Total  revenues                         |       | $                                                | 22,596     |                                 | $          | 17,840 |   | $ | 61,951 |   | $ | 51,038 |   |
| Net income                              |       | $                                                | 2,303      |                                 | $          | 1,319 |   | $ | 535 |   | $ | 62 |   |
| Basic and  diluted net income per share |       | $                                                | 0.03       |                                 | $          | 0.02 |   | $ | 0.00 |   | $ | 0.00 |   |

 

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***iVillage UK Limited***

 

On April 29, 2005, iVillage, through itssubsidiary, iVillage Limited, acquired from iVillage UK Limited, a subsidiaryof Tesco, the iVillage.co.uk Web site and certain related assets. The purchaseprice, inclusive of closing costs, was approximately $0.6 million and wasstructured as an asset purchase. In connection with the acquisition, iVillageUK Limited and iVillage terminated a license agreement pursuant to whichiVillage previously licensed content and certain other intellectual property toiVillage UK Limited (See Note 4 –Deferred Gain on Sale of Joint VentureInterest). In the third quarter of 2005, iVillage incurred additionalacquisition costs of approximately $44,000.

 

The cost of the acquisition was allocated tothe assets acquired and liabilities assumed based upon their estimated fairvalues as follows (in thousands):

 
| Working capital         |   | $   | (27    | )      |
|-------------------------|--------|-----|--------|--------|
| Fixed assets            |   | 15  |   |
| Customer  relationships |   | 639 |   |
|                    |   | $   | 627    |   |

 

The customer relationships intangible assetacquired is being amortized on an accelerated basis. The amortization expenserelating to the acquired intangible assets has no associated tax impact sincethe UK entity has been operating in a net loss position and it is more likelythan not that any deferred tax asset will not be realized.  No pro forma information is included as theacquisition of iVillage UK Limited would not have had a material impact on theconsolidated results of operations of iVillage.

 

**Note 8 – Commitments and Contingencies**

 

*Leases*

 

iVillage leases office space and equipment undernon-cancelable operating leases expiring at various dates through April 2015.Effective July 1, 2005, iVillage amended its New York lease to add 14,668square feet, in which iVillage has consolidated its Healthology and IVPNsubsidiaries. The following is a schedule of future minimum lease paymentsunder non-cancelable operating leases as of September 30, 2005, for thenext five years:

 

| **Twelve months ending  September 30:** | ** ** | **(in thousands)** | ** ** |
|----------------------------------------------|------------|--------------------|------------|
| 2006                                         |       | $                  | 2,470      |   |
| 2007                                         |       | 2,261              |       |
| 2008                                         |       | 2,194              |       |
| 2009                                         |       | 2,048              |       |
| 2010                                         |       | 1,970              |       |
| Thereafter                                   |       | 6,721              |       |
|                                         |       | $                  | 17,664     |   |

 

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In addition, in the ordinary course ofbusiness, iVillage enters into agreements with various service providers for adserving, satellite transmissions and license/content arrangements.

 

*Technology*

 

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

 

In September 2005, iVillage outsourcedcertain of its information technology services functions to Corsis.  The agreement expires in August 2010 andcan be extended for up to five successive one year periods by iVillage.  Under this agreement, iVillage will pay Corisapproximately $3.3 million in year one, approximately $2.8 million in year twoand $2.5 million a year for years three through five.  The aggregate amount of the contract will beexpensed utilizing the straight-line method as the services will be performedevenly over the term.

 

***Litigation***

*** ***

In the normal course ofbusiness, iVillage is subject 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 September 30, 2005 cannot be ascertained.While these matters could affect the operating results of any one quarter whenresolved in future periods and while there can be no assurance with respectthereto, management believes, with the advice of outside legal counsel, thatafter final disposition any monetary liability or financial impact to iVillagefrom these matters would not be material to iVillage’s results of operationsand financial condition.

 

Several plaintiffs have filed class action lawsuits in federalcourt against iVillage, several of its present and former executives and itsunderwriters in connection with its March 1999 initial publicoffering.  A similar class action lawsuitwas filed against Women.com, several of its former executives and itsunderwriters in connection with Women.com’s October 1999 initial publicoffering.  The complaints generallyassert claims under the Securities Act of 1933, as amended, the Exchange Actand the rules and regulations of the SEC. The complaints seek class action certification, unspecified damages inan amount to be determined at trial, and costs associated with the litigation,including attorneys’ fees.

 

In February 2003, the defendants’ motionto dismiss certain of the plaintiffs’ claims was granted in part, but, for themost part, denied. In June 2003, a proposed settlement of this litigationwas structured between the plaintiffs, the issuer defendants, the issuerofficers and directors named as defendants, and the issuers’ insurancecompanies. The proposed settlement generally provides that the issuer defendantsand related individual defendants will be released from the litigation withoutany liability other than certain expenses incurred to date in connection withthe litigation, the issuer defendants’ insurers will guarantee $1.0 billion inrecoveries by plaintiff class members, the issuer defendants will assigncertain claims against the underwriter defendants to the plaintiff classmembers, and the issuer defendants will have the opportunity to

 

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recover certainlitigation-related expenses if the plaintiffs recover more than $5.0 billionfrom the underwriter defendants. The respective boards of directors of iVillageand Women.com each approved the proposed settlement in July 2003.

 

On June 25, 2004, the plaintiffs filed a motion for preliminaryapproval of the settlement with the court, which was accompanied by a brieffiled by the issuer defendants in support of the plaintiffs’ motion. The courtrequested that any objections to preliminary approval of the settlement besubmitted by July 14, 2004, and certain underwriter defendants formallyobjected to the settlement. The plaintiffs and issuer defendants separatelyfiled replies to the underwriter defendants’ objections to the settlement on August 4,2004.  On February 15, 2005, thecourt issued an opinion and order granting preliminary approval to thesettlement 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’s instruction, the parties to the settlement agreementsubmitted the revised settlement stipulation on May 2, 2005.  On August 31,2005, the Court granted preliminary approval to the amended settlementstipulation.  As part of its August 31,2005 preliminary order, the court set a deadline of March 24, 2006 for anyparty to file an objection to the settlement and scheduled a fairness hearingfor April 24, 2006.

 

We believe, based upon the advice of outside legal counsel, that theaforementioned lawsuit and claims asserted against us and our subsidiarypursuant to these complaints are without merit and we intend to vigorouslydefend against these claims.  If the proposed settlement in the initialpublic offering “laddering” cases is ultimately not approved by the courts,defending against these claims could require the expenditure of significantfinancial and managerial resources, which could harm our business.

 

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

 

**Note 9 – Capital Stock**

 

*Warrants*

 

As of September 30, 2005 and December 31,2004, there were outstanding warrants to purchase 5,282 shares of iVillagecommon stock with an exercise price of $14.35 per share. The warrants expire onJune 9, 2007.

 

*Treasury Stock*

 

OnMay 5, 2005, the former owners of StudentCenter LLC, the assets of whichwere purchased by iVillage in September 1997 and sold in May 1998,exercised 33,334 options.  The optionshad a grant price of $6.00 per share representing gross proceeds ofapproximately $0.2 million.  In lieu ofcash payment of the exercise price, the former owners of StudentCenter LLCremitted 30,647 shares with an average price of $6.53 per share to iVillage.

 

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**Note 10 – Subsequent Events**

 

*Commitments and Contingencies – Leases*

 

In October 2005, iVillage amended andextended a lease for its California office through November 30, 2008. Thefuture minimum payments have been included in the table in Note 8-****Commitments and Contingencies – Leases.

 

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

 

Statements inthis Quarterly Report on Form10-Q, including statements contained in “Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations”, constitute “forward-looking statements” within the meaning of Section 27Aof the Securities Act of 1933, as amended, or Securities Act, and Section 21Eof the Securities Exchange Act of 1934, as amended, or Exchange Act. The wordsor phrases “can be”, “expects”, “may affect”, “may depend”, “anticipates”, “believes”,“estimates”, “plans”, “projects”, and similar words and phrases are intended toidentify such forward-looking statements. These forward-looking statements aresubject to various known and unknown risks and uncertainties and we caution youthat any forward-looking information provided by or on behalf of us is not aguarantee of future results, performance or achievements. Actual results coulddiffer materially from those anticipated in these forward-looking statementsdue to a number of factors, some of which are beyond our control. In additionto the risks discussed below in “Item 2. Management’s Discussion and Analysisof Financial Condition and Results of Operations” and in our other publicfilings, press releases and statements by our management, factors that maycause our actual results, performance or achievements to differ materially fromany future results, performance or achievements expressed or implied in suchforward looking statements include:

 

•                  thevolatile and competitive nature of the media industry, in particular theInternet;

 

•                  changesin domestic and foreign economic, political and market conditions;

 

•                  theeffect of federal, state and foreign regulation on our business;

 

•                  theimpact of recent and future acquisitions and joint ventures on our business andfinancial condition;

 

•                  ourability to establish and maintain relationships with advertisers, sponsors, andother third-party providers and partners; and

 

•                  theimpact of pending litigation on our business and financial condition.

 

Allforward-looking statements in this report are current only as of the date onwhich the statements were made. We do not undertake any obligation to publiclyupdate any forward-looking statement to reflect events or circumstances afterthe date on which any statement is made or to reflect the occurrence ofunanticipated events.

 

When used inthis Quarterly Report on Form 10-Q and unless otherwise specified, “iVillage,”“we,” “our” and “us” refer to iVillage Inc. and its consolidatedsubsidiaries.

 

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**Overview**

 

The followingmanagement’s discussion and analysis is intended to provide informationnecessary to understand our consolidated financial statements and highlightcertain other information which, in the opinion of our management, will enhancea reader’s understanding of our financial condition, changes in financialcondition and results of operations. It is organized as follows:

 

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

 

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

 

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

 

•                  “Liquidityand Capital Resources” discusses our liquidity and cash flows for the ninemonths ended September 30, 2005 compared to those for the nine monthsended September 30, 2004, factors that may influence our future cashrequirements and the status of certain contractual obligations as of September 30,2005.

 

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

 

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

 

•                  “RiskFactors” discusses various risks and uncertainties associated with ourbusiness.

 

**iVillage Background**

 

Founded in 1995, iVillage is “the Internetfor women” and consists of several online and offline media-based properties,including iVillage.com, Healthology, HealthCentersOnline, iVillage Limited, iVillageConsulting, GardenWeb.com, Promotions.com, Astrology.com, IVPN and PAG.Following is a synopsis of certain of our operational activities, subsidiariesand divisions:

 

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

 

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| 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 discussionand analysis below includes the results of operations of GardenWeb.com since November 22,2004, Healthology, Inc. since January 7, 2005, HealthCentersOnline, Inc.since April 8, 2005 and the assets of iVillage UK Limited since April 29,2005.

 

**CriticalAccounting Policies**

 

**Revenue Recognition**

 

*iVillage.com*

 

The discussion and analysis below related toiVillage.com also includes information related to our Healthology, HealthCentersOnline,iVillage Limited, Promotions.com, Inc., Substance.com, Women.com andGardenWeb.com subsidiaries and gURL.com, iVillage Consulting andiVillageSolutions divisions.

 

Revenues from iVillage.com,HealthCentersOnline, iVillage Limited, Substance.com, Women.com and gURL.comare derived primarily from the sale of sponsorship and advertising contracts.Sponsorship revenues are derived principally from contracts designed to supporta customer’s broad marketing objectives, including brand promotion, awareness,product introductions and online research. Sponsorship agreements typicallyinclude the delivery of impressions on our Web sites and occasionally thedesign and development of customized sites that enhance the promotionalobjectives of the sponsor. An impression is the viewing of promotional materialon a Web page, which may include rich media and display or banneradvertisements, links, or other text or images. As part of a few sponsorshipagreements, sponsors selling products may provide us with a commission on salesof their products generated through our Web sites. To date, amounts receivedfrom the sale of sponsor’s products have not been significant.

 

Advertising revenues are derived principallyfrom short-term advertising contracts in which we typically guarantee a minimumnumber of impressions or pages to be delivered to users over a specifiedperiod of time for a fixed fee or based on actual impressions delivered.

 

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Sponsorship and advertisingrevenues for fixed fee contracts that are both time and impression based arerecognized ratably in the period in which the advertisement is displayed,provided that we have no continuing obligations and the collection of thereceivable is reasonably assured, at the lesser of the ratio of impressionsdelivered over total guaranteed impressions or the straight-line basis over theperiod of service. To the extent that minimum guaranteed impressions are notmet, we defer recognition of the corresponding revenues until the guaranteedimpressions are achieved. Sponsorship and advertising revenues in which thecustomer specifies the timing of the delivery of impressions and payment is dueupon delivery of impressions are recognized when the impressions are deliveredand the collection of the receivable is reasonably assured.  In certain instances the customer reports impressiondelivery to us.  These impression reportsare compared to our internal traffic reports for accuracy.

 

We also derive sponsorship and advertisingrevenues from sponsored links appearing on an iVillage Web page that isbased upon relevant content or a World Wide Web search query result. Theserevenues are earned on a cost per thousand impressions and/or a percentage ofthe advertiser’s net revenue and are recognized upon notification from thesearch engine provider.

 

Revenues from Healthology are also includedin sponsorship and advertising revenues. Healthology’s revenues are derivedprimarily from contracts in which Healthology creates, provides and distributeshealth related content and streaming media. We recognize revenue fromHealthology’s contracts straight-line over the expected period we will provideservices or upon completed contract when the content created is not owned byHealthology and when the collection of the receivable is reasonably assured.

 

For contracts with multiple elements, namelythose that include delivered and undelivered products, or advertising andproduction revenue, we allocate revenue to each element based on evidence ofits fair value under the Financial Accounting Standards Board, or FASB,Emerging Issues Task Force, or EITF, Issue No. 00-21, “Accounting forRevenue Arrangements with Multiple Deliverables,” or EITF 00-21. Evidence offair value is the price of a deliverable when it is regularly sold on astand-alone basis. We recognize revenue allocated to each element when thecriteria for revenue set forth above are met.

 

Barter revenues generally represent exchangesby us of advertising space on our Web sites for reciprocal advertising space onor traffic from other Web sites. Revenues and expenses from these barter transactionsare recorded based upon the fair value of the advertisements delivered inaccordance with EITF No. 99-17, “Accounting for Advertising BarterTransactions”. Fair value of advertisements delivered is based upon our recentpractice of receiving cash for similar advertisements. Barter revenues arerecognized when the advertisements are displayed on iVillage.com and itsaffiliated properties. Barter expenses are generally recognized when ouradvertisements are displayed on the reciprocal Web sites or properties,generally in the same period as when advertisements are displayed oniVillage.com and its affiliated properties. Barter expenses are included aspart of sales and marketing expenses.

 

We recognize revenues from iVillageConsulting’s services based upon a number of factors, including actual hoursworked at negotiated hourly rates, completed contract or straight-line over thelife of the contract.

 

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We receive or have received revenues frominitiatives involving subscription-based properties, the sale ofiVillage-branded products and services, the sale of third-party products, thelicensing of portions of our content and services, and the sale of research.Revenues from GardenWeb.com are included as part of subscription-basedproperties. We recognize revenues from these initiatives when products areshipped and/or provided to the customer, or straight-line over the life of theagreement and when the collection of the receivable is reasonably assured andno further obligation remains.

 

Promotions.com, Inc. generates revenuesthrough Promotions.com, an online and offline full service promotions servicesgroup, and Webstakes.com, a division dedicated to Internet sweepstakes andpromotions.

 

Promotions.com revenues are derivedprincipally from contracts in which Promotions.com provides custom services forthe creation, administration and implementation of a promotion on a customer’sWeb site. Promotions.com’s revenue recognition policy related to its servicesis to recognize revenues as deliverables are met and/or ratably over the periodof the promotion, provided that no significant obligations remain andcollection of the receivable is reasonably assured.

 

Webstakes.com revenues are derived primarilyfrom service contracts whereby Webstakes.com recognizes revenues based oneither a “cost-per-click” or a “cost-per-action” pricing model. Webstakes.comrecognizes revenue related to its cost-per-click pricing model when a user hasbeen delivered to the customer’s Web site, the customer has reported suchactivity to us and the collection of the corresponding receivable is reasonablyassured. Revenue is recognized differently in a cost-per-action pricing model,which requires Webstakes.com to not only deliver the aforementioned user to acustomer’s Web site, but also requires a specific user action such aspurchasing a product or registering for more information as a member of thecustomer’s Web site in order for Webstakes.com to earn revenue. Webstakes.comrecognizes revenue related to the cost-per-action pricing model when thespecific action has been performed on its customer’s Web site, the customer hasreported such activity to us, and the collection of the correspondingreceivable is reasonably assured.

 

*Astrology.com*

 

Revenues from Astrology.com consist of thesale of astrological charts and other related products to users of ourastrology-related Web sites. We recognize revenues from astrological productsales, net of any discounts, when products are delivered to customers, thecollection of the receivable is reasonably assured and no further obligationsremain. In addition, Astrology.com earns revenues through the licensing of itscontent and revenue share agreements. We recognize revenues from these productswhen the collection of the receivable is reasonably assured or as cash isreceived, and no further obligations remain.

 

*IVPN*

 

IVPN’s revenues are derived primarily fromadvertising placements in IVPN’s publications 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

 

29

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through a sampling and couponprogram, which offers advertisers the ability to distribute samples, couponsand promotional literature to new and expectant parents. Sponsorship andadvertising revenues are recognized on a straight-line basis over the term ofthe contract, provided that IVPN has no continuing obligations and thecollection of the receivable is reasonably assured.

 

IVPN also creates and distributes custompublications and mailings. Revenues from the sale of custom publications and mailingsare recognized when IVPN completes its creative responsibilities and receivesthe appropriate approvals from the customer and/or through the distribution ofthe custom publications, provided that evidence of fair value is obtained at aminimum on the undelivered deliverable, the other requirements of EITF 00-21are fulfilled, and the collection of the receivable is reasonably assured.

 

IVPNcharges an annual fee paid by hospitals for their receipt of broadcasts of theChannels. Contracts related to this fee typically range from three to fiveyears in length. IVPN recognizes revenues from these fees ratably over the termof the agreement provided the collection of the receivable is reasonablyassured.

 

*PAG*

 

Revenues from PAG are generated primarily throughsubscription-based programs that convey current best practices for bothdiversity issues in the workplace and corporate communications, the hosting ofevents, including notably an annual two-day summit and gala event that focuseson diversity and women, and consulting agreements. PAG recognizes revenue fromsubscriptions ratably over the term of the subscription agreement, from the eventswhen the events are held, and from the consulting agreements ratably over theterm of the agreement or upon completion of the deliverable, provided thecollection of the receivable is reasonably assured.

 

**Fixed Assets and Intangibles**

 

Depreciation of equipment, furniture andfixtures and computer software is provided for by the straight-line method overtheir estimated useful lives ranging from one to five years. Amortization ofleasehold improvements is provided for over the lesser of the term of therelated lease or the estimated useful life of the improvement. The cost ofadditions, and expenditures which extend the useful lives of existing assets,are capitalized, and repairs and maintenance costs are charged to operations asincurred. Amortization of intangible assets are over the expected life of therelated asset and range from one to ten years.

 

We assess the recoverability of our fixedassets and intangible assets by determining whether the unamortized balanceover the assets’ remaining life can be recovered through undiscountedforecasted cash flows. If undiscounted forecasted cash flows indicate that theunamortized amounts will not be recovered, an adjustment will be made to reducethe net amounts to an amount consistent with forecasted future cash flowsdiscounted at a rate commensurate with the risk associated when estimatingfuture discounted cash flows. Future cash flows are based on trends ofhistorical performance and our estimate of future performances, givingconsideration to existing and anticipated competitive and economic conditions.

 

30

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**Web SiteDevelopment Costs**

 

We account for Web sitedevelopment costs in accordance with the provisions of EITF 00-2 which requiresthat certain costs to develop Web sites be capitalized or expensed, dependingon the nature of the costs. Amortization of Web site development costs isprovided for by the straight-line method over the estimated useful life of twoyears.

 

**Goodwill**

 

SFAS No. 141 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 142. The impairment test consists of a comparison ofthe fair value of the reporting unit with its carrying amount. If the carryingamount of the reporting unit exceeds its fair value then an analysis will beperformed to compare the implied fair value of goodwill with the carryingamount of goodwill. An impairment loss will be recognized in an amount equal tothe difference. Fair value is typically based upon future cash flows discountedat a rate commensurate with the risk involved or market based comparables.After an impairment loss is recognized, the adjusted carrying amount ofgoodwill is its new accounting basis.

 

**Income Taxes**

 

We recognize deferred taxes by the asset andliability method of accounting for income taxes in accordance with theprovisions of SFAS No. 109, “Accounting for Income Taxes”. Deferred incometaxes are recognized for differences between the financial statement and taxbases of assets and liabilities at enacted statutory tax rates in effect forthe years in which the differences are expected to reverse. The effect ondeferred taxes of a change in tax rates is recognized in income in the periodthat includes the enactment date. In assessing the realizability of deferredtax assets, we consider whether it is more likely than not that some portion orall of the deferred tax assets will not be realized. The ultimate realizationof deferred tax assets is dependent upon the generation of future taxableincome or reversal of deferred tax liabilities during the periods in whichthose temporary differences become deductible. We consider the scheduledreversal of deferred tax liabilities, projected future taxable income, and taxplanning strategies in making this assessment.

 

The difference between our U.S. federalstatutory rate of 34%, as well as our state and local rate, net of our federalbenefit of 7%, when compared to our actual effective tax rate of 0%, isprincipally attributed to a valuation allowance provided for our deferred taxassets generated during the period. We have a full valuation allowance on ournet deferred tax assets. If we generate pre tax income in future periods, apartial or full reversal of the valuation allowance against the deferred taxassets may be required, and such reversal may be material in the period inwhich the reversal is recorded. The decision to reverse the valuation allowancewill, among other things, consider our profitability in recent periods, as wellas our future profitability and available tax planning strategies.

 

31

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**Allowance for Doubtful Accounts**

 

We assess the required amount of allowancefor doubtful accounts based on past experience, our review of the accountsreceivable agings and our analysis of specific customer accounts.

 

**Management Estimates and Assumptions**

 

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amount of assets and liabilities, disclosure of contingent assetsand liabilities at the date of the financial statements, and the reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from these estimates. Significant estimates and assumptions madeby us include those related to the useful lives of fixed assets and intangibleassets, the recoverability of fixed assets, the allocation of purchase price tothe fair value of net assets acquired in acquisition and deferred tax assets, theallowance for doubtful accounts, the expected period we will provide servicesfor Healthology revenue contracts, which is tied to webcast release dates, andthe assessment of expected probable losses (if any) of claims and potentialclaims.

 

**Results ofOperations**

 

In accordance with SFAS 131, segmentinformation is being reported consistent with our method of internal reporting.Operating segments, as defined by SFAS 131, are components of an enterprise forwhich separate financial information is available that is evaluated regularlyby the chief operating decision maker in deciding how to allocate resources andin assessing performance. We are organized primarily by subsidiaries anddivisions. Our subsidiaries and divisions have no operating managers who reportto the chief operating decision maker. The chief operating decision maker reviews information at a consolidatedresults of operations level, although the chief operating decision maker doesreview revenue results of subsidiaries and divisions. As a result, ourdiscussion of revenue has been organized into separate subsidiaries anddivisions, however, operating expenses and results of operations are discussedon a combined basis.

 

Our quarterly results of operations fluctuatedue to a variety of factors.  We believethe following factors may contribute to the variability of our results ofoperations from period to period:

 

•                  thetiming of our recognition of revenue;

 

•                  thevolatility of the online advertising market;

 

•                  thetiming of our sponsored events and symposiums;

 

•                  theloss of a contract from a major customer;

 

32

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•                  aninterruption or malfunction in service from our primary third party serviceproviders;

 

•                  thedate of commencement of a sponsorship and advertising campaign;

 

•                  thedate of completion, and the receipt of customer approval, for the creativeservices and/or distribution services of a custom publication, magazine or order,which is based upon a customer’s advertising and marketing initiatives; and

 

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

 

**Revenues**

 

The following table sets forth revenues byproperty:

 
| ** **      | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|-----------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **      | ** ** | **(dollars in thousands)**                | ** ** |
| ** **      | ** ** | **2005**                                  | ** ** | **(1)**                                  | ** ** | **2004** | ** ** | **(1)** | ** ** | **2005** | ** ** | **(1)** | ** ** | **2004** | ** ** | **(1)** | ** ** |
| iVillage.com    |       | $                                         | 17,074     |                                     | 76         | % | $ | 9,524 |   | 57 | % | $ | 45,173 |   | 74 | % | $ | 27,857 |   | 57 | % |
|            |       |                                      |       |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Astrology.com   |       | 1,294                                     |       | 6                                        | %          | 908 |   | 5 | % | 3,615 |   | 6 | % | 2,536 |   | 5 | % |
|            |       |                                      |       |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| IVPN            |       | 3,348                                     |       | 15                                       | %          | 5,351 |   | 32 | % | 9,859 |   | 16 | % | 15,741 |   | 32 | % |
|            |       |                                      |       |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| PAG             |       | 880                                       |       | 4                                        | %          | 915 |   | 5 | % | 2,303 |   | 4 | % | 2,569 |   | 5 | % |
| Total  revenues |       | $                                         | 22,596     |                                     | 100        | %(2) | $ | 16,698 |   | 100 | %(2) | $ | 60,950 |   | 100 | % | $ | 48,703 |   | 100 | %(2) |

 

----

(1) Percent of total revenues.

(2) The aggregate of this column does not equal 100% due to rounding.

 

*iVillage.com*

 
| ** **                         | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                         | ** ** | **(dollars in thousands)**                | ** ** |
| ** **                         | ** ** | **2005**                                  | ** ** | **(1)**                                  | ** ** | **2004** | ** ** | **(1)** | ** ** | **2005** | ** ** | **(1)** | ** ** | **2004** | ** ** | **(1)** | ** ** |
| Sponsorship & advertising |       | $                                         | 13,218     |                                     | 77         | % | $ | 5,706 |   | 60 | % | $ | 32,269 |   | 71 | % | $ | 17,297 |   | 62 | % |
|                               |       |                                      |       |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Barter                             |       | 1,228                                     |       | 7                                        | %          | 1,188 |   | 12 | % | 4,498 |   | 10 | % | 3,113 |   | 11 | % |
|                               |       |                                      |       |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| iVillage Consulting                |       | 1,304                                     |       | 8                                        | %          | 1,346 |   | 14 | % | 3,738 |   | 8 | % | 3,582 |   | 13 | % |
|                               |       |                                      |       |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Promotions.com                     |       | 925                                       |       | 5                                        | %          | 1,030 |   | 11 | % | 3,359 |   | 7 | % | 3,157 |   | 11 | % |
|                               |       |                                      |       |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Online services/other              |       | 399                                       |       | 2                                        | %          | 254 |   | 3 | % | 1,309 |   | 3 | % | 708 |   | 3 | % |
|                               |       | $                                         | 17,074     |                                     | 100        | %(2) | $ | 9,524 |   | 100 | % | $ | 45,173 |   | 100 | %(2) | $ | 27,857 |   | 100 | % |

 

33

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----

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

(2) The aggregate of this column does not equal 100% due to rounding.

 

*Three Months Ended September 30*

 

Revenues from iVillage.com accounted forapproximately 76% of total revenues for the three months ended September 30,2005, and approximately 57% of total revenues for the three months ended September 30,2004.  Revenues from iVillage.comincreased approximately $7.6 million, or 79%, for the three months ended September 30,2005, as compared to the corresponding period in 2004.

 

The increase in revenues for the three monthsended September 30, 2005, as compared to the corresponding period in 2004,was primarily due to an increase in sponsorship and advertising revenues, whichincludes revenues from sponsored links and our recent acquisitions, ofapproximately $7.5 million and an increase in online services revenues ofapproximately $0.1 million.  The increasein sponsorship and advertising revenues was primarily due to the acquisition ofHealthology which contributed approximately $2.7 million, HealthCentersOnlinewhich contributed approximately $1.3 million, iVillage Limited whichcontributed approximately $1.0 million and an increased number of advertisers,coupled with higher pricing of contracts, related to iVillage’s websites ofapproximately $2.3 million.

 

The increase in online services revenues ofapproximately 57% for the three months ended September 30, 2005, ascompared to the corresponding period in 2004, was primarily due to the acquisitionof HealthCentersOnline which offers subscription based and licensing services.

 

Included in iVillage Consulting is our Website agreements with Hearst (see Liquidity and Capital Resources).

 

*Nine Months Ended September 30*

 

Revenues from iVillage.com accounted forapproximately 74% of total revenues for the nine months ended September 30,2005, and approximately 57% of total revenues for the nine months ended September 30,2004.  Revenues from iVillage.comincreased approximately $17.3 million, or 62%, for the nine months ended September 30,2005, as compared to the corresponding period in 2004.

 

The increase in revenues for the nine monthsended September 30, 2005, as compared to the corresponding period in 2004,was primarily due to an increase in sponsorship and advertising revenues, whichincludes revenues from sponsored links and our recent acquisitions, ofapproximately $15.0 million, an increase in barter revenue of approximately $1.4million and an increase in online services revenues of approximately $0.6million.  The increase in sponsorship andadvertising revenues was primarily due to the acquisition of Healthology whichcontributed approximately $6.5 million, HealthCentersOnline which contributedapproximately $2.1 million, iVillage Limited which contributed approximately $1.5million and an increased number of advertisers, coupled with higher pricing ofcontracts, related to iVillage’s websites of approximately $4.4 million andincreased search revenue of approximately $0.5 million. The increase in barterrevenue was used to provide some traction for the iVillage.com Web siterelaunch which occurred in January 2005.

 

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The increase in online services revenues ofapproximately 85% for the nine months ended September 30, 2005, ascompared to the corresponding period in 2004, was primarily due to theacquisition of HealthCentersOnline which offers subscription based andlicensing services.

 

*Astrology.com*

 
| ** **       | ** ** | **Three  Months Ended September 30,** | ** ** | **Nine  Months Ended September 30,** | ** ** |
|------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **       | ** ** | **(dollars  in thousands)**                | ** ** |
| ** **       | ** ** | **2005**                                   | ** ** | **(1)**                                   | ** ** | **2004** | ** ** | **(1)** | ** ** | **2005** | ** ** | **(1)** | ** ** | **2004** | ** ** | **(1)** | ** ** |
| Online  services |       | $                                          | 698        |                                      | 54         | % | $ | 793 |   | 87 | % | $ | 2,356 |   | 65 | % | $ | 2,168 |   | 85 | % |
|             |       |                                       |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other            |       | 596                                        |       | 46                                        | %          | 115 |   | 13 | % | 1,259 |   | 35 | % | 368 |   | 15 | % |
|             |       | $                                          | 1,294      |                                      | 100        | % | $ | 908 |   | 100 | % | $ | 3,615 |   | 100 | % | $ | 2,536 |   | 100 | % |

 

----

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

 

*Three Months Ended September 30*

 

Revenues from Astrology.com accounted forapproximately 6% of total revenues for the three months ended September 30,2005, and approximately 5% of total revenues for the three months ended September 30,2004.  Revenues from Astrology.comincreased approximately $0.4 million, or 43%, for the three months ended September 30,2005, as compared to the corresponding period in 2004, due to an increase inother revenues of approximately $0.5 million offset by a decrease in onlineservices revenue of approximately $0.1 million. The decrease in online serviceswas primarily due to a decrease in direct electronic sales. The increase inother revenue was primarily due to an increase in revenue share paymentsreceived from third parties in connection with our distribution agreements.

 

*Nine Months Ended September 30*

 

Revenues from Astrology.com accounted forapproximately 6% of total revenues for the nine months ended September 30,2005, and approximately 5% of total revenues for the nine months ended September 30,2004.  Revenues from Astrology.comincreased approximately $1.1 million, or 43%, for the nine months ended September 30,2005, as compared to the corresponding period in 2004, due to an increase inrevenues from online services of approximately $0.2 million and other revenuesof approximately $0.9 million. The increase in online services was primarilydue to an increase in astrological charts sold and the introduction of newproducts. The increase in other revenue was primarily due to an increase inrevenue share payments received from third parties in connection with ourdistribution agreements.

 

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*IVPN*
| ** **                          | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|-------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                          | ** ** | **(dollars in thousands)**                | ** ** |
| ** **                          | ** ** | **2005**                                  | ** ** | **(1)**                                  | ** ** | **2004** | ** ** | **(1)** | ** ** | **2005** | ** ** | **(1)** | ** ** | **2004** | ** ** | **(1)** | ** ** |
| Sponsorship &  advertising |       | $                                         | 2,926      |                                     | 87         | % | $ | 3,031 |   | 57 | % | $ | 8,015 |   | 81 | % | $ | 8,819 |   | 56 | % |
|                                |       |                                      |       |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Custom  publications                |       | —                                    |       | —                                   | %          | 1,963 |   | 37 | % | 596 |   | 6 | % | 5,851 |   | 37 | % |
|                                |       |                                      |       |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Licensing  fees                     |       | 422                                       |       | 13                                       | %          | 357 |   | 7 | % | 1,248 |   | 13 | % | 1,071 |   | 7 | % |
|                                |       | $                                         | 3,348      |                                     | 100        | % | $ | 5,351 |   | 100 | %(2) | $ | 9,859 |   | 100 | % | $ | 15,741 |   | 100 | % |

 

----

(1) Percent of IVPN’s revenues.

(2) The aggregate of this column does not equal 100% due to rounding.

 

*Three Months Ended September 30*

 

Revenues from IVPN accounted forapproximately 15% of total revenues for the three months ended September 30,2005, and approximately 32% of total revenues for the three months ended September 30,2004. Revenues from IVPN decreased approximately $2.0 million, or 37%, for thethree months ended September 30, 2005, as compared to the correspondingperiod in 2004.

 

The decrease in revenues for the three monthsended September 30, 2005, as compared to the corresponding period in 2004,was primarily due to a decrease in revenue from custom publications ofapproximately $2.0 million. This decrease was primarily 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. Sponsorship and advertising revenues also decreasedapproximately $0.1 million, or 3%, for the three months ended September 30,2005, as compared to the corresponding period in 2004, primarily due to thediscontinuance of a video offering. Revenues from the video offering were noamount for the three months ended September 30, 2005 and approximately$0.1 million for the three months ended September 30, 2004.

 

As of September 30, 2005, 708 hospitalshad agreed to pay a fee for The Newborn Channel and 700 contracts hadcommenced. This compares to 566 hospitals that agreed to pay a fee for TheNewborn Channel and 518 contracts that commenced as of September 30,2004.  This led to the increase inrevenues from licensing of approximately $0.1 million, or 18%, for the threemonths ended September 30, 2005 as compared to the corresponding period in2004.

 

*Nine Months Ended September 30*

 

Revenues from IVPN accounted forapproximately 16% of total revenues for the nine months ended September 30,2005, and approximately 32% of total revenues for the nine months ended September 30,2004. Revenues from IVPN decreased approximately $5.9 million, or 37%, for thenine months ended September 30, 2005, as compared to the correspondingperiod in 2004.

 

The decrease in revenues for the nine monthsended September 30, 2005, as compared to the corresponding period in 2004,was primarily due to a decrease in revenue from custom publications ofapproximately $5.3 million and a decrease in sponsorship and advertisingrevenues of approximately $0.8 million. The decrease in revenues from custompublications was

 

36

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primarily due to Wal-Mart nolonger utilizing IVPN to create and distribute custom publications which wereused for baby promotions in its United States stores. The decrease in revenuesfrom sponsorship and advertising was mainly due to a decrease in the number ofcustomers advertising on The Newborn Channel and the discontinuance of thevideo offering. Revenues from the video offering were approximately $0.1 millionfor the nine months ended September 30, 2005 and approximately $0.4million for the nine months ended September 30, 2004.

 

Revenues from IVPN may vary based upon thetiming and volume of customers’ advertising and marketing initiatives.

 

*PAG*

 
| ** **                   | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                   | ** ** | **(dollars in thousands)**                | ** ** |
| ** **                   | ** ** | **2005**                                  | ** ** | **(1)**                                  | ** ** | **2004** | ** ** | **(1)** | ** ** | **2005** | ** ** | **(1)** | ** ** | **2004** | ** ** | **(1)** | ** ** |
| Subscription-based  programs |       | $                                         | 532        |                                     | 60         | % | $ | 456 |   | 50 | % | $ | 1,517 |   | 66 | % | $ | 1,366 |   | 53 | % |
|                         |       |                                      |       |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Events                       |       | 275                                       |       | 31                                       | %          | 339 |   | 37 | % | 587 |   | 25 | % | 740 |   | 29 | % |
|                         |       |                                      |       |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Consulting/other             |       | 69                                        |       | 8                                        | %          | 104 |   | 11 | % | 178 |   | 8 | % | 409 |   | 16 | % |
|                         |       |                                      |       |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Barter                       |       | 4                                         |       | 0                                        | %          | 16 |   | 2 | % | 21 |   | 1 | % | 54 |   | 2 | % |
|                         |       | $                                         | 880        |                                     | 100        | %(2) | $ | 915 |   | 100 | % | $ | 2,303 |   | 100 | % | $ | 2,569 |   | 100 | % |

 

----

(1)  Percent of PAG’s revenues.

(2) The aggregate of this column does not equal 100% due to rounding.

 

*Three Months Ended September 30*

 

Revenues from PAG accounted for approximately4% of total revenues for the three months ended September 30, 2005, andapproximately 5% of total revenues for the three months ended September 30,2004. Revenues from PAG decreased approximately $35,000, or 4%, for the threemonths ended September 30, 2005, as compared to the corresponding periodin 2004.  The decrease in revenues forthe three months ended September 30, 2005, as compared to thecorresponding period in 2004, was primarily due to the timing of events whichresulted in lower event revenues of approximately $0.1 million and a decreasein consulting/other revenues of approximately $35,000, or 34%, primarily due tothe non-renewal of a consulting contract in the second quarter of 2005. Thedecrease in revenues for the three months ended September 30, 2005, ascompared to the same period in 2004, was offset by an increase in revenues fromsubscriptions of approximately $0.1 million. The increase in subscriptionsrevenue was primarily due to an increase in the number of participating membersin subscription-based programs.

 

*Nine Months Ended September 30*

 

Revenues from PAG accounted for approximately4% of total revenues for the nine months ended September 30, 2005, andapproximately 5% of total revenues for the nine months ended September 30,2004. Revenues from PAG decreased approximately $0.3 million, or 10%, for thenine months ended September 30, 2005, as compared to the correspondingperiod in

 

37

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2004. The decrease in revenuesfor the nine months ended September 30, 2005, as compared to thecorresponding period in 2004, was primarily due to a decrease in events revenueof approximately $0.2 million and consulting revenues of approximately $0.2million. Events revenue decreased approximately 21% primarily due to severalevents that occurred in 2004, with no like events in 2005. The decrease inconsulting/other revenues of approximately 56% was primarily due to thenon-renewal of contracts that expired in the later part of 2004 and the secondquarter of 2005. The decrease in revenues for the nine months ended September 30,2005, as compared to the same period in 2004, was offset by an increase inrevenues from subscriptions of approximately $0.2 million. The increase insubscriptions revenue was primarily due to an increase in the number ofparticipating members in subscription-based programs.

 

**Revenues, Receivables and CustomerConcentration**

 

Our five largest customers accounted forapproximately 19% of total revenues for each of the three and nine months endedSeptember 30, 2005. No single customer accounted for more than 10% of our total revenuesfor the three and nine months ended September 30, 2005. iVillage’s fivelargest customers accounted for approximately 30% of total revenues for thethree months ended September 30, 2004, and approximately 31% of totalrevenues for the nine months ended September 30, 2004. Wal-Mart accountedfor approximately 11% of total revenues for the three months ended September 30,2004. No other single customer accounted for more than 10% of total revenuesfor the three months ended September 30, 2004. Both Hearst, a relatedparty, and Wal-Mart, accounted for approximately 11% of total revenues for thenine months ended September 30, 2004. At September 30, 2005 and December 31, 2004, no singlecustomer accounted for more than 10% of total net accounts receivable.The significance of revenues from anyof our customers can vary on a quarter to quarter basis as a result of thenumber and timing of such customers’ advertising and marketing initiatives.We anticipate that our results of operations in any given period will continueto depend to a significant extent on revenues from a small number of customers.Consequently, the loss of even a small number of our largest customers at anyone time may adversely affect our business, financial condition and results ofoperations, unless we are able to enter into contracts to replace lost revenue.

 

**Operating Expenses**

 

The following table sets forth our operatingexpenses by type (dollars in thousands):

 
| ** **                                     | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                                     | ** ** | **2005**                                  | ** ** | **(1)**                                  | ** ** | **2004** | ** ** | **(1)** | ** ** | **2005** | ** ** | **(1)** | ** ** | **2004** | ** ** | **(1)** | ** ** |
| Editorial, product development and  technology |       | $                                         | 8,285      |                                     | 37         | % | $ | 7,740 |   | 46 | % | $ | 25,445 |   | 42 | % | $ | 22,264 |   | 46 | % |
|                                           |       |                                      |       |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales and marketing                            |       | 6,604                                     |       | 29                                       | %          | 4,562 |   | 27 | % | 19,541 |   | 32 | % | 13,670 |   | 28 | % |
|                                           |       |                                      |       |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| General and administrative                     |       | 3,535                                     |       | 16                                       | %          | 2,440 |   | 15 | % | 10,096 |   | 17 | % | 8,233 |   | 17 | % |
|                                           |       |                                      |       |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                  |       | 2,398                                     |       | 11                                       | %          | 1,140 |   | 7 | % | 6,513 |   | 11 | % | 4,897 |   | 10 | % |
| Total operating expenses                       |       | $                                         | 20,822     |                                     | 93         | % | $ | 15,882 |   | 95 | % | $ | 61,595 |   | 102 | % | $ | 49,064 |   | 101 | % |

 

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(1)  Percent of total revenues.

 

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Total operating expenses increased for thethree and nine months ended September 30, 2005, as compared to thecorresponding period in 2004, primarily due to the acquisitions ofGardenweb.com on November 22, 2004, Healthology on January 7, 2005,HealthCentersOnline on April 8, 2005, and the assets of iVillage UKLimited on April 29, 2005, collectively, the Acquisitions.  The Company expects to stabilize and/ordecrease operating expenses through synergies achieved with our Acquisitions,as well as the outsourcing of certain of our information technology servicesfunctions.

 

**Editorial, Product Development and Technology**

 

Editorial, product development and technologyexpenses consist primarily of the following:

 

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

 

•                  thecost of communications;

 

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

 

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

 

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

 

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

 

*Three Months Ended September 30*

 

Editorial, product development and technologyexpenses for the three months ended September 30, 2005 were approximately$8.3 million, or 37% of total revenues. Editorial, product development andtechnology expenses for the three months ended September 30, 2004 wereapproximately $7.7 million, or 46% of total revenues.

 

Editorial, product development and technologyexpenses increased approximately $0.6 million, or 7%, for the three monthsended September 30, 2005, as compared to the corresponding period in 2004,primarily due to an increase in payroll, severance and related benefits ofapproximately $0.7 million primarily due to the Acquisitions, an increase inlicensing/ad serving fees of approximately $0.4 million, an increase inconsultant expenses of approximately $0.4 million as well as other editorial,product development and technology expenses incurred in the normal course ofbusiness of approximately $0.2 million by the Acquisitions. Licensing/adserving fees increased due to the increase in sponsorship and advertisingrevenue. Consultant expenses increased primarily due to outside contract costs

 

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incurred for the outsourcing ofthe information technology services functions to Corsis, as well as from theAcquisitions. The increase was partially offset by a decrease in costs ofapproximately $1.4 million associated with no custom publication created anddistributed in the three months ended September 30, 2005, as compared withthree custom publications created and/or distributed in the correspondingperiod in 2004. Wal-Mart no longer utilizes IVPN for custom publications in itsUnited States stores. Editorial, product development and technology expensesdecreased as a percentage of total revenues for the three months ended September 30,2005, when compared to the corresponding period in 2004, due to a largerpercent growth in revenues as compared to editorial, product development andtechnology expenses.

 

*Nine Months Ended September 30*

 

Editorial, product development and technologyexpenses for the nine months ended September 30, 2005 were approximately$25.4 million, or 42% of total revenues. Editorial, product development andtechnology expenses for the nine months ended September 30, 2004 wereapproximately $22.3 million, or 46% of total revenues.

 

Editorial, product development and technologyexpenses increased approximately $3.2 million, or 14%, for the nine monthsended September 30, 2005, as compared to the corresponding period in 2004,primarily due to the following increases: payroll, severance and relatedbenefits of approximately $2.0 million primarily due to the Acquisitions,consultant expenses of approximately $1.3 million, licensing/ad serving fees ofapproximately $0.8 million, expenses for IVPN’s non-custom publication productsof approximately $0.3 million,  anapproximate $0.2 million related to more robust video offerings on the Website, as well as other editorial, product development and technology expensesincurred in the normal course of business of approximately $0.5 million by theAcquisitions. Consultant expenses increased due to non-capitalizable costsassociated with the iVillage Web site redesign, outside contract costs incurredfor the outsourcing of the information technology services functions to Corsis,as well as from the Acquisitions. Licensing/ad serving fees increased due tohigher sponsorship and advertising revenue in 2005 coupled with a one-timebenefit of approximately $0.3 million realized in the second quarter of 2004stemming from the renegotiation of a vendor contract with substantial changesin the terms and conditions of the original contract. Expenses from IVPN’snon-custom publication products increased in part due to IVPN converting manyof its hospitals from the satellite broadcast to a new system that eliminatesthe need for a constant satellite feed leading to some duplicative costs asboth the satellite and new system were running through June 30, 2005. Theincrease was partially offset by a decrease in costs of approximately $2.3million associated with one custom publication created and distributed in thenine months ended in September 30, 2005, as compared with four custompublication created and distributed in the corresponding period in 2004 due toWal-Mart no longer utilizing IVPN for custom publications in its United Statesstores. Editorial, product development and technology expenses decreased as apercentage of total revenues for the three months ended September 30,2005, as compared to the corresponding period in 2004, due to a larger percentgrowth in revenues as compared to editorial, product development and technologyexpenses.

 

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**Sales and Marketing**

 

Sales and marketing expenses consistprimarily of the following:

 

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

 

•                  advertisingand other marketing-related expenses; and

 

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

 

*Three Months Ended September 30*

 

Sales and marketing expenses for the threemonths ended September 30, 2005 were approximately $6.6 million, or 29% oftotal revenues. Sales and marketing expenses for the three months ended September 30,2004 were approximately $4.6 million, or 27% of total revenues.

 

Sales and marketing expenses increasedapproximately $2.0 million, or 45%, for the three months ended September 30,2005, as compared to the corresponding period in 2004, primarily due to anincrease in advertising and marketing expenses of approximately $0.7 millionwhich was incurred primarily by the Acquisitions, an increase in payroll,commissions, severance and related benefits of approximately $0.7 millionprimarily as a result of the Acquisitions, an increase in consultant expensesof approximately $0.2 million, as well as other sales and marketing expensesincurred in the normal course of business of approximately $0.3 million as aresult of the Acquisitions. Sales and marketing expenses increased as apercentage of total revenues for the three months ended September 30,2005, when compared to the corresponding period in 2004, due to a largerpercent growth in sales and marketing expenses, stemming from the Acquisitions,as compared to total revenues.

 

Included in sales and marketing expenses arebarter transactions, which amounted to approximately 19% for the three monthsended September 30, 2005, and approximately 28% for the three months endedSeptember 30, 2004, of total sales and marketing costs.

 

*Nine Months Ended September 30*

 

Sales and marketing expenses for the ninemonths ended September 30, 2005 were approximately $19.5 million, or 32%of total revenues. Sales and marketing expenses for the nine months ended September 30,2004 were approximately $13.7 million, or 28% of total revenues.

 

Sales and marketing expenses increasedapproximately $5.9 million, or 43%, for the nine months ended September 30,2005, as compared to the corresponding period in 2004, primarily due to anincrease in advertising, marketing and barter expenses of approximately $3.1million which were used to provide some traction for the iVillage Web siterelaunch which occurred in January 2005 and keyword search buys incurredby the Acquisitions, an increase in payroll, commissions, severance and relatedexpenses of approximately $1.9 million primarily as a result of theAcquisitions, as well as other sales and marketing expenses incurred in thenormal course of business of approximately $0.7 million as a result of the Acquisitions.Sales and marketing expenses increased as a percentage of total revenues forthe nine months ended September 30, 2005, when

 

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compared to the correspondingperiod in 2004, due to a larger percent growth in sales and marketing expenses,stemming from the Acquisitions, as compared to total revenues.

 

Included in sales and marketing expenses arebarter transactions, which amounted to approximately 23% of total sales andmarketing costs for each of the nine month period ended September 30, 2005and 2004.

 

**General and Administrative**

 

General and administrative expenses consistprimarily of the following:

 

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

 

•                  directors’and officers’ insurance;

 

•                  generalcorporate overhead;

 

•                  professionalfees; and

 

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

 

*Three Months Ended September 30*

 

General and administrative expenses for thethree months ended September 30, 2005 were approximately $3.5 million, or16% of total revenues. General and administrative expenses for the three monthsended September 30, 2004 were approximately $2.4 million, or 15% of totalrevenues.

 

General and administrative expenses increasedapproximately $1.1 million for the three months ended September 30, 2005,or 45%, as compared to the corresponding period in 2004, primarily due to anincrease in payroll, severance and related expenses of approximately $0.5million primarily as a result of the Acquisitions, an increase in professionalfees of approximately $0.3 million, and from general corporate overhead ofapproximately $0.2 million as a result of the Acquisitions. General andadministrative expenses remained consistent as a percentage of total revenuesfor the three months ended September 30, 2005, when compared to thecorresponding period in 2004, due to a similar growth in general andadministrative expenses and revenues.

 

In the ordinary course of business, weutilize estimates to determine the accrual of certain operating expenses. Theseestimates are reviewed on an ongoing basis to determine the adequacy of theseaccruals. For the three months ended September 30, 2005, we reversedapproximately $0.4 million of accruals included in operating expenses primarilydue to the reversal of a vacation accrual since earned vacation days are nolonger eligible for carry forward to the following calendar year. For the threemonths ended September 30, 2004, we reversed approximately $0.1 million ofaccruals included in operating expenses.

 

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*Nine Months Ended September 30*

 

General and administrative expenses for thenine months ended September 30, 2005 were approximately $10.1 million, or17% of total revenues. General and administrative expenses for the nine monthsended September 30, 2004 were approximately $8.2 million, or 17% of totalrevenues.

 

General and administrative expenses increasedapproximately $1.9 million for the nine months ended September 30, 2005,or 23%, as compared to the corresponding period in 2004, primarily due to thefollowing increases: payroll, severance and related expenses of approximately$1.0 million primarily as a result of the Acquisitions, professional fees ofapproximately $0.3 million, rent expense of approximately $0.2 millionprimarily as a result of the Acquisitions, and from general corporate overheadof approximately $0.3 million from the Acquisitions. These increases werepartially offset by a decrease in insurance expenses of approximately $0.4million due to better pricing. General and administrative expenses decreased asa percentage of total revenues for the nine months ended September 30,2005, when compared to the corresponding period in 2004, due to a higher growthin revenues as compared to general and administrative expenses.

 

In the ordinary course of business, weutilize estimates to determine the accrual of certain operating expenses. Theseestimates are reviewed on an ongoing basis to determine the adequacy of theseaccruals. For the nine months ended September 30, 2005, we reversedapproximately $0.4 million of accruals included in operating expenses primarilydue to the reversal of a vacation accrual since earned vacation days are nolonger eligible for carry forward to the following calendar year. We reversedapproximately $0.4 million of accruals included in operating expenses for thenine months ended September 30, 2004, primarily due to the renegotiationof a vendor contract with substantial changes in the terms and conditions ofthe original contract which provided a one-time benefit of approximately $0.3million.

 

**Depreciation and Amortization**

 

*Three Months Ended September 30*

 

Depreciation and amortization expenses wereapproximately $2.4 million, or 11% of total revenues, for the three monthsended September 30, 2005 and approximately $1.1 million, or 7% of totalrevenues, for the three months ended September 30, 2004. Depreciation andamortization expenses increased approximately $1.3 million for the three monthsended September  30, 2005, or 110%, as compared to the correspondingperiod in 2004, primarily due to increased depreciation and amortization costsof approximately $1.2 million stemming from the Acquisitions, increaseddepreciation and amortization for iVillage of approximately $0.2 millionstemming from the purchase of certain proprietary software products and relatedtechnology, and the intellectual rights from Corsis, as well as higher fixedasset balances, offset by decreased amortization from intangibles acquired inthe Promotions.com acquisition which were fully amortized in April 2005.

 

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*Nine Months Ended September 30*

 

Depreciation and amortization expenses wereapproximately $6.5 million, or 11% of total revenues, for the nine months endedSeptember 30, 2005 and approximately $4.9 million, or 10% of totalrevenues, for the nine months ended September 30, 2004. Depreciation andamortization expenses increased approximately $1.6 million for the nine monthsended September 30, 2005, or 33%, as compared to the corresponding periodin 2004, primarily due to increased amortization costs of approximately $2.9million stemming from the Acquisitions offset by decreased amortization fromintangibles acquired in the Women.com acquisition which were fully amortized inJune 2004 and the Promotions.com acquisition which were fully amortized inApril 2005.

 

**Interest Income, Net**

 

Interest income, net includes primarilyinterest income from our cash balances and interest earned on stockholders’notes receivable.

 

*Three Months Ended September 30*

 

Interest income, net for the three monthsended September 30, 2005 was approximately $0.4 million, or 2% of totalrevenues, and approximately $0.2 million, or 1% of total revenues for the threemonths ended September 30, 2004. Interest income, net increased for thethree months ended September 30, 2005 as compared to the correspondingperiod in 2004, primarily due to higher prevailing interest rates.

 

*Nine Months Ended September 30*

 

Interest income, net for the nine monthsended September 30, 2005 was approximately $1.1 million, or 2% of totalrevenues, and approximately $0.3 million, or 1% of total revenues for the ninemonths ended September 30, 2004. Interest income, net increased for thenine months ended September 30, 2005 as compared to the correspondingperiod in 2004, primarily due to larger average cash balances maintained in2005 stemming from the public offering completed in July 2004 coupled withhigher prevailing interest rates.

 

**Other Income, Net**

 

*Three and Nine Months Ended September 30*

 

Other income net was approximately $0.1million for the three months ended September 30, 2005, and approximately$0.1 million for the nine months ended September 30, 2005. Both amountsrepresent less than 1% of total revenues. Other income net for the three monthsended September 30, 2004 was approximately $11,000, and for the ninemonths ended September 30, 2004 was approximately $0.1 million. Bothamounts represent less than 1% of total revenues. Other income, net primarilyincludes moneys received from the sale of securities received in a settlementagreement, a legal settlement and from a distribution in a bankruptcy claimacquired in the acquisition of Women.com and Promotions.com.

 

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**Gain on Sale of Joint Venture Interest**

 

*Three and Nine Months Ended September 30*

 

Gain on sale of joint venture interestresulted from the restructuring of our 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 tothe license agreement entered into with the Tesco division contemporaneouslywith such restructuring.

 

On April 29, 2005, iVillage, through itssubsidiary, iVillage Limited, acquired from iVillage UK Limited, a subsidiaryof Tesco, the iVillage.co.uk Web site and certain related assets. In connectionwith the Acquisition, iVillage UK Limited and iVillage terminated a licenseagreement pursuant to which iVillage previously licensed content and certainother intellectual property to iVillage UK Limited. As a result, theapproximate $0.1 million we received on a quarterly basis for licensing feesceased on April 29, 2005. We do not expect this to have a material affecton our results of operations.

 

Gain on sale of joint venture interest wasapproximately $0.1 million, or less than 1% of total revenues, for the ninemonths ended September 30, 2005. Gain on sale of joint venture interestwas approximately $0.1 million, or less than 1% of total revenues, for thethree months ended September 30, 2004, and approximately $0.3 million, orapproximately 1% of total revenues, for the nine months ended September 30,2004.

 

**Net Income**

 

*Three Months Ended September 30*

 

We recorded net income of approximately $2.2million, or $0.03 per share, for the three months ended September 30,2005. For the comparable period in 2004, we recorded net income ofapproximately $1.1 million, or $0.02 per share. Net income for the three monthsended September 30, 2005 increased approximately $1.1 million, or 95%, ascompared to the corresponding period in 2004, primarily due to the increasedrevenue at iVillage.com, which includes revenue of the companies acquired in theAcquisitions, and Astrology.com in 2005, offset by an increase in operatingexpenses associated with the companies acquired in Acquisitions in 2005 and theloss of Wal-Mart as a customer of custom publications at IVPN in 2004.

 

*Nine Months Ended September 30*

 

We recorded net income of approximately $0.6million, or $0.01 per share, for the nine months ended September 30, 2005.For the comparable period in 2004, we recorded net income of approximately $0.4million, or $0.01 per share. Net income for the nine months ended September 30,2005 increased approximately $0.3 million, or 76%, as compared to thecorresponding period in 2004, primarily due to an increase in iVillage.com’ssponsorship and advertising revenues, an increase in Astrology.com’s revenuesand by decreased amortization from intangibles acquired in the Women.comacquisition which were fully amortized in June 2004 and the Promotions.comacquisition which were fully amortized in April 2005. This was partiallyoffset by an increase in our marketing spend in 2005 which was used to providesome traction for the iVillage Web site relaunch which occurred in January 2005,an increase in amortization expense associated with the Acquisitions, coupledwith the loss of Wal-Mart as a customer of custom publications in 2004.

 

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**Liquidityand Capital Resources**

 

As of September 30, 2005, we hadapproximately $53.3 million in cash and cash equivalents. Cash equivalentsinclude money market accounts. We maintain our cash and cash equivalents inhighly rated financial institutions and at times these balances exceedinsurable amounts.

 

Net cash used in operating activities wasapproximately $0.1 million for the nine months ended September 30, 2005.For the comparable period in 2004, approximately $3.6 million of net cash was usedby operations. Net cash used in operating activities increased approximately$3.7 million within the comparable nine month period in part from the increasein total revenues which led to higher accounts receivable balances ofapproximately $3.2 million and a higher utilization of deferred revenue ofapproximately $1.9 million. In addition, the Company has decreased its accountspayable and accrued expense obligation by approximately $1.5 million for thenine months ended September 30, 2005, as compared to an increase inaccounts payable and accrued expenses of approximately $0.3 million for thenine months ended September 30, 2004. The change for the nine month period ended September 30, 2005 isprimarily from the payment of liabilities acquired in connection with theAcquisitions. These amounts are offset by an overall improvement in net incomeless adjustments of approximately $2.3 million and a smaller utilization ofcash for other assets of approximately $0.2 million in the nine months ended September 30,2005, as compared to approximately $1.0 million in the nine months ended September 30,2004. The increase in other assets for the nine month period was due to higherinsurance premiums paid and prepaid expenses on behalf of a custom publication.

 

Net cash used in investing activities wasapproximately $30.4 million for the nine months ended September 30, 2005.For the comparable period in 2004, approximately $2.0 million of net cash wasutilized in investing activities. The increase in net cash used in investingactivities of approximately $28.4 million for the nine months ended September 30,2005 compared to the corresponding period in 2004 was primarily due to theAcquisitions of approximately $27.5 million less cash acquired of approximately$3.5 million, a larger amount of fixed asset purchases and leaseholdimprovements for the nine months ended September 30, 2005 as compared tothe comparable period in 2004 of approximately $2.4 million and the purchase ofproprietary software products, related technology and the intellectual rightsfrom Corsis of $2.0 million. Fixed asset purchases increased primarily from thepurchase of some software, the purchase of hospital equipment by IVPN and thecapitalization of Web site development costs.

 

Net cash provided by financing activities wasapproximately $0.9 million for the nine months ended September 30,2005.  For the comparable period in 2004,approximately $67.1 million of cash was provided by financing activities. Thedecrease in net cash provided by financing activities for the nine months endedSeptember 30, 2005, as compared to the corresponding period in 2004, wasprimarily attributable to proceeds from the securities offering

 

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completed in July 2004 ofapproximately $69.4 million, net of offering costs of approximately $4.7million, a decrease in proceeds from the exercise of stock options and warrantsof approximately $1.3 million and a decrease in proceeds from principalpayments on stockholders’ note receivable of approximately $0.2 million. As of December 31,2004, iVillage no longer had an outstanding stockholders’ note receivable.

 

Except for the year ended December 31,2004, we have historically incurred net losses and negative cash flows on anannual basis. However, management believes that our current funds will besufficient to enable us to meet our planned expenditures through at least thenext twelve months.

 

IVPN currently broadcasts televisionprogramming to hospitals via a 24-hour, 7 days a week satellite broadcast. IVPNis in the process of converting many of its hospitals from the satellitebroadcast to a new system that eliminates the need for a constant satellitefeed. This new technology will only require a limited amount of satellite timeeach month resulting in reduced operating costs in the second half of 2005.IVPN estimates that it will cost approximately $3.0 million to $4.0 million toconvert to the new technology, of which approximately $2.9 million has beenincurred. To offset the costs of conversion and to provide a new revenuestream, IVPN initiated the collection of an annual fee from hospitals toreceive programming broadcast by IVPN. These fees result from agreementsbetween IVPN and the hospitals that generally have a length of three to fiveyears. As of September 30, 2005, approximately 70% of participatinghospitals have agreed to pay this fee. However, we can make no assurance thatall of the hospitals will agree to pay a fee. The total value of signedcontracts at September 30, 2005 is approximately $8.5 million, which willbe recognized as revenue over the next several years.

 

In December 2003, we signed a Web siteservices agreement in which Hearst will pay approximately $1.8 million forproduction, maintenance and hosting services for three teen Web sites:Seventeen.com, CosmoGirl.com and Teen.com. The agreement terminates in December 2005.As of September 30, 2005, we have received approximately $1.5 million andearned approximately $1.6 million in connection with this agreement.

 

In July 2004, we entered into athree-year Web site services agreement with Hearst that superseded and replacedthe amended and restated magazine content license and hosting agreement weassumed as part of the acquisition of Women.com. Pursuant to the Web siteservices agreement:

 

•                  Hearstwill pay to us a production and service fee of $4.0 million during the firstyear of the renewed agreement which would increase by approximately $0.2million in each subsequent year;

 

•                  Wewill continue to receive a commission on magazine subscription sales and ifmagazine subscription sales do not reach a certain threshold in the second yearof the

 

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new agreement, then we will not be entitledto any commission from magazine subscriptions sales in the third year of thenew agreement;

 

•                  Wewill no longer be required to offer Hearst, and Hearst would no longer beobligated to purchase, advertising on iVillage.com; and

 

•                  Hearstwill continue to receive a commission from us on a percentage of theadvertising sales from the Hearst magazine Web sites we host; the commissionspaid to and received from Hearst will vary based on performance.

 

Revenues from this agreement are recognizedon a straight line basis over the life of the contract.

 

Through September 30, 2005, we havereceived $5.0 million and earned approximately $5.2 million in connection withthis agreement.

 

On January 7, 2005, we acquired all ofthe outstanding equity of Healthology, a privately held company, which is aproducer and distributor of physician-generated videos and articles providinghealth and medical information on the internet. The aggregate purchase price,inclusive of closing costs, was approximately $17.5 million, consisting of approximately$15.9 million in cash and 205,908 shares of iVillage’s common stock.

 

On April 8, 2005, we acquired all of theoutstanding equity of HealthCentersOnline, Inc., a privately held company,that is an online destination for physician-edited information on healthconditions, treatments and preventative care for patients.  The aggregate purchase price wasapproximately $12.2 million, inclusive of closing costs, consisting ofapproximately $11.2 million in cash and $1.0 million in equity consideration, representing166,945 shares of iVillage’s common stock.

 

On April 29, 2005, we, through oursubsidiary, iVillage Limited, acquired from iVillage UK Limited, a subsidiaryof Tesco, the iVillage.co.uk Web site and certain assets related to Web site.The purchase price was approximately $0.6 million, inclusive of closing costs,consisting solely of cash and was structured as an asset purchase. Inconnection with the acquisition, we terminated a license agreement withiVillage UK Limited pursuant to which we previously licensed content andcertain other intellectual property to iVillage UK Limited.

 

In July 2005, we purchased certainproprietary software products and related technology, and the intellectualrights from Corsis to further expand our Promotions.com operations for $1.0million.  In addition, Corsis was hiredto further enhance and develop the software for an additional $1.0 million,which was completed in August 2005.

 

In September 2005, we outsourced certainof our information technology services functions to Corsis.  The pertinent agreement expires in August 2010and we can extended it for up to five successive one year periods.  Under this agreement, we will pay Corsisapproximately $3.3 million in year one, approximately $2.8 million in year twoand $2.5 million a year for years three through five.

 

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We lease office space and equipment undernon-cancelable operating leases expiring at various dates through April 2015.In addition, in the ordinary course of business we enter into agreements withvarious service providers for ad serving, satellite transmissions andlicense/content arrangements.

 

Effective July 1, 2005, we amended ourNew York lease to add 14,668 square feet, in which we consolidated ourHealthology and IVPN subsidiaries.  Thelease expires in April 2015, and the future minimum lease paymentsassociated with this amendment is approximately $4.2 million.

 

In October 2005, we amended and extendeda lease for our California office through November 30, 2008.  The future minimum lease payments associatedwith this amendment is approximately $0.5 million.

 

Capital expenditures were approximately $1.8million for the three months ended September 30, 2005, and approximately$4.6 million for the nine months ended September 30, 2005, and wereprimarily for hospital equipment, leasehold improvements, computer hardware andsoftware purchases, as well as, the capitalization of certain Web sitedevelopment costs. 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-BalanceSheet Arrangements**

 

In the ordinary course of business, we enterinto agreements that contingently require us to indemnify counterpartiesagainst third-party claims. These may include: agreements with advertisers andsponsors, under which we may indemnify them against claims arising from theiruse of our products or services; agreements with customers, under which we mayindemnify them against claims arising from their use of our products orservices; real estate and equipment leases, under which we may indemnifylessors against third-party claims relating to use of their property;agreements with licensees or licensors, under which we may indemnify thelicensee or licensor against claims arising from their use of our intellectualproperty or our use of their intellectual property; and agreements with initialpurchasers and underwriters of our securities, under which we indemnify themagainst claims relating to their participation in the transactions.

 

The nature and terms of theseindemnifications vary from contract to contract, and generally a maximumobligation is not stated. Because we are unable to estimate our potential

 

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obligation, historically wehave had no obligation arising from these indemnifications, and management doesnot expect these indemnifications to have a material and adverse effect on ourconsolidated financial position, results of operations or cash flows, norelated liabilities are recorded as of September 30, 2005. We holdinsurance policies that mitigate potential losses arising from certainindemnifications and, historically, we have not incurred significant costsrelated to performance under these obligations.

 

**RecentAccounting Pronouncements**

 

In December 2004, the FASB issued SFAS123(R), which revises SFAS 123, supersedes APB 25 and amends FAS 95. Thestatement requires companies to expense the fair value of employee stockoptions and other forms of stock-based compensation. The statement addressesthe accounting for share-based payment transactions in which we receiveemployee services in exchange for either our equity instruments or liabilitiesthat are based on the fair value of our equity instruments or that may besettled by the issuance of such equity instruments. In addition, our stockemployee purchase plan will need to be modified to comply with SFAS123(R).  This statement is effective forpublic companies for annual periods beginning after June 15, 2005. Weexpect to adopt FAS 123(R) using the modified prospective method on January 1,2006. We are currently evaluating option valuation methodologies andassumptions in light of FAS 123(R), and the methodologies and assumptions wewill ultimately use to adopt FAS 123(R) may be different than those currentlyapplied. While we have not quantified the impact of FAS 123(R), upon adoptionit is expected to have a material impact on the consolidated statement ofoperations as we will be required to expense the fair value of stock optiongrants.

 

In December 2004, the FASB issued SFAS153.  SFAS 153 eliminates an exceptionfor nonmonetary exchanges of similar productive assets under APB Opinion No. 29,and replaces it with a general exception for exchanges of nonmonetary assetsthat do not have commercial substance. SFAS 153 is to be applied prospectively and is effective for nonmonetaryasset exchanges occurring in fiscal periods beginning after September 15,2005.  We believe that the futureadoption of SFAS 153 will not have a material impact on our financialstatements.

 

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

 

**LegalProceedings**

 

iVillage and Women.com are defendants inclass-action lawsuits in federal court relating to each company’s initialpublic offering.  In June 2003, the plaintiffs, the issuerdefendants, the issuer officers and directors named as defendants, and theissuers’ insurance companies agreed in

 

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principle to settlethe matter, along with similar lawsuits against more than 300 otherissuers.  On February 15, 2005, the court issued an opinion and ordergranting preliminary approval to the settlement and ordering the plaintiffs andissuer defendants to submit to the court a revised settlement stipulationconsistent with the court’s order.  Pursuant to the court’s instruction,the parties to the settlement agreement submitted the revised settlementstipulation on May 2, 2005.  On August 31, 2005, the Courtgranted preliminary approval to the amended settlement stipulation.  As part of its August 31, 2005preliminary order, the court set a deadline of March 24, 2006 for anyparty to file an objection to the settlement and scheduled a fairness hearingfor April 24, 2006.

 

We believe, based upon the advice of outsidelegal counsel, that the aforementioned lawsuit and claims asserted against usand our subsidiary pursuant to these complaints are without merit and we intendto vigorously defend against these claims.  If the proposed settlement inthe initial public offering “laddering” cases is ultimately not approved by thecourts, defending against these claims could require the expenditure ofsignificant financial and managerial resources, which could harm our business.

 

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

 

**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 information setforth in this Form 10-Q and with iVillage’s Annual Report on Form 10-Kfor the fiscal year ended December 31, 2004.*

 

**Risks of Our Business**

 

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

 

Although we achieved net income on an annualbasis for the first time for the year ended December 31, 2004, we haveincurred significant net losses on an annual basis in every other year of ouroperations.  We had net income ofapproximately $2.2 million for the three months ended September 30, 2005,and approximately $0.6 million for the nine months ended September 30,2005.  We achieved net income ofapproximately $2.7 million for the year ended December 31, 2004, andincurred a net loss of approximately $27.1 million for the year ended December 31,2003.  As of September 30, 2005, wehad an accumulated deficit of approximately $490.5 million.

 

Although we had net income for the year endedDecember 31, 2004, and for certain interim periods in 2005 and 2004, wecannot assure you that we will be able to achieve, sustain or increase netincome on a quarterly or annual basis. If our revenues grow slower than weanticipate, or if our operating expenses exceed expectations or cannot beadjusted accordingly, we could continue to suffer losses.

 

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

 

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

 

**•     **fluctuations in the demand foradvertising or electronic commerce

 

•      the unpredictability of our success in newrevenue and cost reduction initiatives

 

•      the timing of the creative services and/ordistribution services performed on custom publications, magazines or otherproducts based upon customers’ advertising and marketing initiatives

 

•      volatility in the media market

 

•      fluctuations in marketing expenses andtechnology infrastructure costs

 

•      changes in the level of traffic on our networkof Web sites

 

•      bankruptcies or other payment defaults ofcompanies that are a source of revenues

 

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

 

**•**      advertisers’ and sponsors’ budgetaryconstraints

 

•      the possibility of cancellation or delaysof projects by advertisers or sponsors

 

•      advertisers’ and sponsors’ internal reviews

 

•      the success and continued internal supportof 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.

 

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***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 ourstock price to decline.

 

***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.

 

Our five largest customers accounted forapproximately 19% of total revenues for the three months ended September 30,2005 and approximately 30% of total revenues for the corresponding period in2004.  Our five largest customersaccounted for approximately 19% of total revenues for the nine months ended September 30,2005 and approximately 31% of total revenues for the corresponding period in2004. No single customer accounted for more than 10% of our total revenues forthe three month and nine months ended September 30, 2005. One customer, Wal-Mart, accounted forapproximately 11% of total revenues for the three months ended September 30,2004.  Both Wal-Mart and Hearst, arelated party, accounted for approximately 11% of total revenues for the ninemonths ended September 30, 2004.  AtSeptember 30, 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:

 

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**•**      enter into any agreement to include in ournetwork any Web sites for magazines that compete with Hearst magazines

 

•      display on the Hearst magazine Web sitesany advertising or other promotional materials from magazines that compete withHearst magazines

 

•      display on our Web pages the brands,logos, trademarks or proprietary content of both Hearst and a Hearst competitor

 

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

 

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

 

***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 is generally included in the reportedinformation regarding our network of Web sites. These properties include theHearst magazine Web sites and other parties who have agreed by contract to havetraffic from their Web sites incorporated within our network. The number ofusers visiting our Web sites may decline. In addition, Hearst or other thirdparties may discontinue allowing us to include their Web sites as part of ournetwork for traffic reporting purposes. Any decline in user traffic levels maycause our revenues to decrease and could have a material adverse affect on ourbusiness, financial condition and results of operations.

 

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

 

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

 

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***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 otheronline service companies, commonly referred to as portals, such as Time Warner’sAOL service, Microsoft Corporation’s MSN service and Yahoo! Inc.

 

•      cable networks targeting women, such asOxygen Media, Inc., Women’s Entertainment Network and Lifetime Television

 

•      online services or Web sites targeted atwomen, such as lifetime.com

 

•      publishers and distributors of traditionalmedia, such as television, radio and print

 

•      paid advertising providers servingadvertisements that are contextually relevant to search queries and contentkeywords, such as Google, Inc., Yahoo! Inc., and Microsoft Corporation

 

•      e-commerce companies such as Amazon.com, Inc.

 

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

 

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

 

Our future success depends to a significantextent on the continued services of our senior management and other key personnel,particularly Douglas W. McCormick, our Chairman of the Board and ChiefExecutive Officer. Mr. McCormick’s current employment agreement expires inMay 2008. The loss of the services of Mr. McCormick would likely harmour business. We currently do not maintain “key person” life insurance for anyof 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

 

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personnel, our business, andour ability to develop and execute on our business strategies, will bematerially harmed.

 

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

 

We depend on various third parties fortechnology, software, systems and related services.  In addition, we sometimes rely on our customer’ssoftware reporting tools to supply us, subject to our monitoring controls, withthe information to record our revenue. If for any reason one or more of theseservice providers becomes unable or unwilling to continue to provide servicesof acceptable quality, at acceptable costs and in a timely manner, our abilityto deliver our product and service offerings to our advertisers, sponsors andusers could be impaired. We would have to identify and qualify substituteservice providers, which could be time consuming and difficult and could resultin unforeseen operational difficulties. Although we are confident that alternative service providers areavailable, we cannot assure that we will be able to obtain such services on asfavorable terms as we currently receive or in a timely manner.

 

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

 

It is important to our advertisers that weaccurately measure the demographics of our user base and the delivery ofadvertisements on our Web sites. We depend on third parties to provide many ofthese measurement services and to do so accurately and reliably. If these thirdparties are unable or unwilling to provide these services to us in the future,we would need to perform them ourselves or obtain them from another provider.This could cause us to incur additional costs or cause interruptions in ourbusiness until these services are replaced. Companies may choose not toadvertise on our Web sites or may pay us less for our sponsorship or advertisingif they perceive our demographic measurements as not reliable.

 

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

 

From timeto time, we have been, and expect to continue to be, subject to legalproceedings that individually, or in the aggregate, could adversely affect ourbusiness. Notably, several plaintiffs have filed class action lawsuits infederal court against us, several of our current and former executives, and ourunderwriters in connection with our March 1999 initial public offering. Asimilar class action lawsuit was filed against Women.com, several of our formerexecutives and Women.com’s underwriters in connection with Women.com’s October 1999initial public offering. In June 2003, the plaintiffs, the issuer defendants, the issuerofficers and directors named as defendants, and the issuers’ insurancecompanies agreed in principleto settle the matter, along with similar lawsuits against other issuers. Theplaintiffs filed a motion for preliminary approval of the settlement with thecourt in June 2004, which was accompanied by a brief filed by the issuerdefendants in support of the plaintiffs’ motion. Certain of the underwriterdefendants formally objected to the proposed settlement. The plaintiffs andissuer defendants separately submitted replies to these objections on August 4,2004. On February 15, 2005, the Court issued an opinion and order grantingpreliminary approval to the settlement and ordering the plaintiffs and issuerdefendants to submit to the Court a revised settlement stipulation consistentwith the Court’s order. Pursuant to the court’s instruction, the partiesto the settlement agreement submitted the revised settlement stipulation on May 2,2005.  On August 31, 2005, the Court granted preliminary approval tothe amended settlement stipulation.  Aspart of its August 31, 2005

 

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preliminary order, the courtset a deadline of March 24, 2006 for any party to file an objection to thesettlement and scheduled a fairness hearing for April 24, 2006.  Ifthe proposed settlement is ultimately not approved by the Court, even if theseclaims 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 ourbusiness strategy.***

 

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

 

**•     **the competitiveness of the media,television and publishing industries

 

•      our ability to maintain and market theLamaze.com Web site

 

•      our ability to sell advertising andsponsorships on IVPN’s magazines, videos, the Channels and our Web sites

 

•      our ability to continue to commercializeand protect the Lamaze mark

 

•      demand for our custom publications andcontrolled circulation magazines

 

•      our ability to identify and predict trendsin a timely manner that may impact consumer tastes in baby- and health-relatedinformation on the Channels

 

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

 

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

 

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

 

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***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,the execution of a pertinent contract, and completion of the deliverablesrelated to such program, may be lengthy and subject to delays we cannotcontrol, including:

 

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

 

•      the internal approval process of theadvertiser or sponsor

 

•      seasonal factors relating to theprevalence of specific health conditions and other seasonal factors that mayaffect the timing of promotional campaigns

 

•      scheduling of conferences for physiciansand other healthcare professionals

 

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

 

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

 

We offer online continuing medical education,or CME, to physicians and other healthcare professionals throughHealthology.  Healthology typicallycollaborates with a medical society or other healthcare professionalassociation to create CME programs, which upon proper review and approvalreceive the accreditation of such organization. In some instances, Healthology or the accrediting entity receive aneducational grant from a pharmaceutical or medical device company to fund thecreation 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 revisions to Healthology’s CME offering,a slow 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

 

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placement on their sites. Wemay be unable to enter into or successfully renew relationships with theseentities or sites on commercially reasonable terms or at all. Many companiesthat Healthology may approach for a strategic relationship or who already havestrategic relationships with Healthology may also receive health and medicalinformation from other sources. As a result, these companies may be reluctantto enter into or maintain strategic relationships with Healthology. Healthology’srevenues could be negatively impacted if we do not establish additional, andmaintain Healthology’s existing, strategic relationships on commerciallyreasonable terms.

 

***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 to implementthis business strategy depends in large part on our ability to competesuccessfully with other entities for acquisition candidates and joint venturepartners. Factors affecting our ability to compete successfully in this regardinclude:

 

**•     **our financial condition relative tothe financial condition of our competitors

 

•      the attractiveness of our common stock aspotential consideration for entering into these types of transactions ascompared to the common stock of other entities competing for these opportunities

 

•      our ability to obtain additional financingfrom investors

 

•      our available cash, which in turn dependsupon 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 theoperations and personnel of the acquired companies and the potential disruptionof our ongoing business

 

•      the difficulties of establishing a newjoint venture, including the need to attract and retain qualified personnel andthe need to attract customers and advertisers

 

•      the difficulties of maintaining uniformstandards, controls, procedures and policies

 

•      the need to incorporate successfully theacquired or shared technology or content and rights into our products, servicesand media properties

 

•      the potential impairment of relationshipswith employees and customers as a result of any integration of new managementpersonnel or reduction of personnel

 

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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.

 

***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 thefinancial accounting standards that require us to recognize employee stockoptions as a compensation expense could substantially and adversely affect ourfinancial results.***

 

The accounting rules related to theexpensing of employee stock options could cause us to account for our businessin ways that may adversely affect our financial results and investor perceptionof those results.  As permitted by SFAS No. 123,*Accounting for Stock-Based Compensation*,or SFAS 123, currently we apply Accounting Principles Board (APB) Opinion No. 25,*Accounting for Stock Issued to Employees*,or APB No. 25, and related interpretations in accounting for our employeestock-based compensation. Under APB No. 25, no compensation expense isrecognized for options granted to employees where the exercise price equals themarket price of the underlying stock on the date of grant. On December 16,2004, FASB issued SFAS 123(R) which requires us, for the period beginningafter June 15, 2005, to recognize compensation expense in an amount equalto the fair value of share-based payments, such as stock options and restrictedstock, granted to employees. On April 14, 2005, the SEC announced anamendment to the date of compliance, and we are now required to implement SFAS123(R) beginning in the first quarter of 2006. This is expected to have a material impact on our

 

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consolidated results ofoperations, as the stock-based compensation expense would be charged directlyagainst 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 Communication Corporation’s facilities in New Jersey, VerioInc.’s facilities in California and Florida, and Globix Corporation’sfacilities in New York.  Fire, floods,earthquakes, power loss, telecommunications failures, break-ins and similarevents could damage these systems. We do not presently have any secondary “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. In addition,our users depend on Internet service providers, online service providers andother Web site operators for access to our Web sites. Many of them haveexperienced significant outages in the past, and could experience outages,delays and other difficulties due to system failures unrelated to our systems.If we experience outages or degraded service, user satisfaction would decrease,we would likely lose advertising revenue and our reputation and brands could bepermanently 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,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 advertising media,including television, radio and print, along with other high-traffic Web sites,for sponsorships and advertising expenditures. Although there are currentlyseveral standards to measure the effectiveness of Internet advertising, theindustry has had difficulty convincing potential advertisers that Internetadvertising is, at minimum, comparable to traditional forms of advertising.Advertisers and advertising agencies that have historically relied on thesetraditional forms may be reluctant or slow to adopt online advertising. Inaddition, advertisers and advertising agencies that use the Internet as anadvertising medium may find online advertising to be less effective forpromoting their products and services than traditional advertising media.Advertisers and advertising agencies that have invested substantial resourcesin traditional methods of advertising may also be reluctant to reallocate theirresources to online advertising. Moreover, software programs that limit orprevent advertising from being delivered to an Internet user’s computer areavailable. Widespread adoption of this software could adversely affect thecommercial viability of Internet

 

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advertising. If the market foronline advertising develops more slowly than we expect, or if we are unable toadapt to new forms of Internet advertising, we would have slower than expectedrevenue growth and could incur losses, and our business, results of operationsand 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 industry standard. Thisuncertainty makes it difficult to project our long-term advertising rates andrevenues.

 

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.

 

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

 

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

 

In addition, several jurisdictions, includingforeign countries, have proposed and/or adopted privacy-related laws thatrestrict or prohibit unsolicited e-mail solicitations, commonly known as “spamming,”and that impose significant monetary and other penalties for violations. Theselaws may increase concern on the part of advertisers regarding advertising inour 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, or in response topressure from anti-spam advocacy groups.

 

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

 

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

 

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

 

In addition to impacting our business throughdecreased collection and use of user data, the enactment of privacy and datasecurity laws may increase our legal compliance costs. While we believe that wecomply with currently applicable laws, as such laws proliferate there may beuncertainty regarding their application or interpretation, which increases ourrisk of non-compliance.

 

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Even if a claim ofnon-compliance against us does not ultimately result in liability,investigating a claim may present a significant cost. Future legislation mayalso require changes in our data collection practices, which may be expensiveto implement and may further increase the risk of non-compliance.

 

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

 

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

 

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

 

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

 

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

 

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

 

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could impair our ability toobtain information 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 opportunities from us, ouradvertisers and partners. Our network also requests and obtains personal datafrom users who register to become members of the network. Registration as amember is required in order for users to have full access to the servicesoffered by our network. Personal data gathered from members is used topersonalize or tailor content to them and is provided, on an aggregate basis,to advertisers to assist them in targeting their advertising campaigns toparticular demographic groups. Current or prospective advertisers evaluate ourability to provide user data to support targeted advertising. Privacy concernsmay ultimately cause users to resist providing personal data. If we becomeunable to collect personal data from a sufficient number of our users, we maylose 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.

 

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 of cookies.Other tracking technologies, such as so-called “pixel tags” or “clear GIFs,”are also coming under increasing scrutiny by legislators, regulators andconsumers, imposing liability risks on our business. In addition, legalrestrictions on cookies, pixel tags and other tracking technologies may make itmore difficult for us to tailor content to our users, making our network lessattractive to users. Similarly, the unavailability of cookies, pixel tags andother tracking technologies may restrict the use of targeted advertising,making our network less attractive to advertisers and causing us to losesignificant advertising revenues.

 

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

 

Our members and users are located in theUnited States and around the world.  As aresult, we collect and process the personal data of individuals who live inmany different countries.  Privacyregulators in certain of those countries have publicly stated that foreignentities (including entities based in the United States) may render themselvessubject to those countries’ privacy laws and the jurisdiction of suchregulators by collecting or processing the

 

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personal data of thosecountries’ residents, even if such entities have no physical or legal presencethere.  Consequently, we may be held tobe obligated to comply with the privacy and data security laws of certainforeign countries.

 

Our exposure to European and other foreigncountries’ privacy and data security laws impacts our ability to collect anduse personal data, and increases our legal compliance costs and may expose usto liability.  iVillage Limited, ourUnited Kingdom subsidiary, is directly subject to United Kingdom privacy anddata security laws.  While we believethat iVillage Limited complies with currently applicable laws, as such lawsproliferate there may be uncertainty regarding their application orinterpretation, which consequently increases our potential liability.  Even if a claim of non-compliance against usdoes not ultimately result in liability, investigating or responding to a claimmay present a significant cost.  Futurelegislation may also require changes in our data collection practices which maybe expensive to implement.

 

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

 

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

 

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

 

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

 

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

### ** **

***As of November 8, 2005, Hearst owned approximately 25%of our outstanding common stock and had three representatives on our board ofdirectors. As a result, Hearst is able to significantly influence our corporatedirection and policies.***

 

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

 

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As of November 8, 2005, Hearst ownedapproximately 25% of our outstanding common stock. Pursuant to an amended andrestated stockholder agreement we entered into with Hearst on June 20,2001, we appointed three Hearst representatives to our board of directors, withone Hearst designee appointed to each class of director. The amended andrestated stockholder agreement provides that the number of Hearstrepresentatives is subject to reduction if Hearst’s ownership of our commonstock falls below certain threshold levels. There is also a Hearstrepresentative on our nominating 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 toadvertisers or sponsors forecasted in a particular period may be delayed or maynot otherwise occur based upon the timing of our customers’ own marketinginitiatives. As a result, and because of the other risks and uncertaintiesnoted in this report, our actual results might not meet the expectations ofpublic

 

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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 thetrading price of our common stock.

 

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

 

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

 

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

 

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

 

Our consolidated financial statements aredenominated in U.S. dollars. For the three months ended September 30,2005, we derived 4% of our revenues from operations outside of the UnitedStates. For the nine months ended September 30, 2005, we derived 2% of ourrevenues from operations outside of the United States. There are no comparableamounts for the three and nine month periods ended September 30, 2004. Weface foreign currency risks primarily as a result of the revenues that wereceive from services delivered through our foreign subsidiary. This subsidiaryincurs most of its expenses in the local currency. Accordingly, our foreignsubsidiary uses the local currency as its functional currency. We are alsoexposed to foreign exchange rate fluctuations with respect to the British Poundas the financial results of the foreign subsidiary are translated into U.S.dollars for consolidation. As exchange rates vary, these results whentranslated may vary from expectations and adversely impact net income (loss)and operating performance. Currently, we do not hedge foreign currencytransactions into U.S. dollars because we believe that, over time, the cost ofa hedging program will outweigh any benefit of greater predictability in ourU.S. dollar-denominated results. However, we will from

 

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time to time reconsider theissue of whether a foreign currency-hedging program would be beneficial to ouroperations.

 

**Item 4.****    Controls and 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) underthe Exchange Act) as of the end of the period covered by this quarterly report,have concluded that, as of that date, our disclosure controls and procedureswere effective in ensuring that information required to be disclosed by us inreports that we file or submit under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in SEC rules andforms.

 

(b) *Changes in InternalControl over Financial Reporting*.

 

Other than the ongoing integration of thefinancial systems and key controls of our HealthCentersOnline and iVillageLimited subsidiaries into our New York headquarters, there were no changes inour internal control over financial reporting during the three months ended September 30,2005 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting. We expect the remainingfinancial systems and key controls of our HealthCentersOnline and iVillageLimited subsidiary to be fully integrated by March 31, 2006.

 

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

 

On November 9,2005, we entered into letter agreements with each of Steven A. Elkes, our ChiefFinancial Officer, Executive Vice President, Operations and Business Affairsand Secretary, and Jane Tollinger, our Executive Vice President, Operations andStrategy, or the Tollinger Letter Agreement, that amend certain provisions ofeach respective officer’s offer of employment letter. Pursuant to theseamendments, Mr. Elkes received an annual salary increase from $345,000 to$363,000 and Ms. Tollinger received an annual salary increase from $308,000to $339,000.  In addition, the amendmentsincrease from 40% to 50% the percentage of such executives’ annual base salarywhich may be paid as a bonus pursuant to the bonus plan in which suchexecutives participate.  The cashpayments to be received upon termination in certain circumstances were alsoamended to provide that if an officer’s employment is terminated “withoutcause,” or the officer resigns for “good reason,” as such terms are defined inthe offer letter, within a period of twelve (12) months after a change incontrol, as such term is defined in the offer letter, we will pay that officeran amount equal to his or her base salaryfor a period of two years after the effective date of such termination and anamount equal to the officer’s target bonus for the year in which thetermination becomes effective.

 

Thedescription of the terms and conditions of the letter agreements set forthabove does not purport to be complete and is qualified in its entirety byreference to the full text of such agreements, each of which we intend to filewith the Securities and Exchange Commission as an exhibit to our Form 10-K.

 

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**PART II**

**OTHERINFORMATION**

 

**Item 6.  Exhibits.**

 
| **Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                             |
|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                  |
| 3.1        |       | Restated Certificate of Incorporation, as  amended, of the Registrant (incorporated by reference from Exhibit 3.1  to the Registrant’s Form 8-A/A registration statement, filed on April 4,  2004).                                                                                                     |
|       |       |                                                                                                                                                                                                                                                                                                                        |
| 3.2        |       | By-Laws, as amended, of the Registrant  (incorporated by reference to Exhibit 3.2 to the Registrant’s Form 10-Q  Quarterly Report for the period ended June 30, 2004, filed on August 8,  2004).                                                                                                   |
|       |       |                                                                                                                                                                                                                                                                                                                        |
| 10         |       | Employment Agreement, effective as of May 31,  2005, between Douglas W. McCormick and the Registrant.                                                                                                                                                                                                                  |
|       |       |                                                                                                                                                                                                                                                                                                                        |
| 11         |       | Statement re: computation of earnings per  share.                                                                                                                                                                                                                                                                           |
|       |       |                                                                                                                                                                                                                                                                                                                        |
| 31.1       |       | Certifications of the Chief Executive  Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the  Securities Exchange Act of 1934, as amended.                                                                                                                                                             |
|       |       |                                                                                                                                                                                                                                                                                                                        |
| 31.2       |       | Certifications of the Chief Financial  Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the  Securities Exchange Act of 1934, as amended.                                                                                                                                                             |
|       |       |                                                                                                                                                                                                                                                                                                                        |
| 32         |       | Certifications of the Principal Executive  Officer and Principal Financial Officer furnished pursuant to Rules 13a-14(b) and  15d-14(b) under the Securities Exchange Act of 1934, as amended, and 18  U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

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**SIGNATURES**

 

Pursuant to the requirements of 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: November 9, 2005 | By:    | /s/ Douglas W. McCormick             |   |
|                         |   | Douglas W. McCormick                 |
|                         |   | Chairman and Chief Executive Officer |
|                         |   | (Principal Executive Officer)        |
|                         |   |                                 |
|                         |   |                                 |
| Dated: November 9, 2005 | By:    | /s/ Steven A. Elkes                  |   |
|                         |   | Steven A. Elkes                      |
|                         |   | Chief Financial Officer,             |
|                         |   | Executive Vice President, Operations |
|                         |   | and Business Affairs, and Secretary  |
|                         |   | (Principal Financial Officer)        |
|                              |        |                                      |  |  |

 

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**EXHIBIT INDEX**

 
| **Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                             |
|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                  |
| 3.1        |       | Restated Certificate of Incorporation, as  amended, of the Registrant (incorporated by reference from Exhibit 3.1  to the Registrant’s Form 8-A/A registration statement, filed on April 4,  2004).                                                                                                     |
|       |       |                                                                                                                                                                                                                                                                                                                        |
| 3.2        |       | By-Laws, as amended, of the Registrant  (incorporated by reference to Exhibit 3.2 to the Registrant’s Form 10-Q  Quarterly Report for the period ended June 30, 2004, filed on August 8,  2004).                                                                                                   |
|       |       |                                                                                                                                                                                                                                                                                                                        |
| 10         |       | Employment Agreement, effective as of May 31,  2005, between Douglas W. McCormick and the Registrant.                                                                                                                                                                                                                  |
|       |       |                                                                                                                                                                                                                                                                                                                        |
| 11         |       | Statement re: computation of earnings per  share.                                                                                                                                                                                                                                                                           |
|       |       |                                                                                                                                                                                                                                                                                                                        |
| 31.1       |       | Certifications of the Chief Executive  Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the  Securities Exchange Act of 1934, as amended.                                                                                                                                                             |
|       |       |                                                                                                                                                                                                                                                                                                                        |
| 31.2       |       | Certifications of the Chief Financial  Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the  Securities Exchange Act of 1934, as amended.                                                                                                                                                             |
|       |       |                                                                                                                                                                                                                                                                                                                        |
| 32         |       | Certifications of the Principal Executive  Officer and Principal Financial Officer furnished pursuant to Rules 13a-14(b) and  15d-14(b) under the Securities Exchange Act of 1934, as amended, and 18  U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

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