** **

**UNITEDSTATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

** **

----

 

**FORM 10-Q/A**

 

**AMENDMENT NO. 1**

 

**(MarkOne)**

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

 

**Commission File Number 000-25469**

 

**iVillage Inc.**

(Exact Name of Registrant as Specified in Its Charter)

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

 

**(212) 600-6000**

(Registrant’s Telephone Number, Including Area Code)

 

 

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

 

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

 

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

 

As of May 9, 2005, the registrant had outstanding 72,157,081 shares ofcommon stock.

 

 

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**iVillage Inc.**

**Form 10-Q**

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

 

**EXPLANATORY NOTE**

 

We are filingthis Amendment No.1 to our Quarterly Report on Form 10-Q for thequarter ended March 31, 2005, solely to amend and restate “Note 1-Organization and Basis of Presentation-*Principlesof Consolidation*” and “Note 7—Business Acquisitions-*Healthology, Inc.*” to our CondensedConsolidated Financial Statements set forth in “Part I. FinancialInformation — Item 1. Financial Statements (Unaudited).”  This Amendment No. 1does not reflect events occurring after the filing of the original QuarterlyReport on Form 10-Q for the quarter ended March 31, 2005 and,other than the amendment and restatement of the aforementioned sections ofNotes 1 and 7, the filing of new versions of Exhibits 31.1 and 31.2 and thefurnishing of a new version of Exhibit 32.1, does not modify or update inany way the disclosures in the original Quarterly Report on Form 10-Qfor the quarter ended March 31,

 

## **INDEX**

 
| **PART I.**                                                                                           | **FINANCIAL INFORMATION**              |   |
|-------------------------------------------------------------------------------------------------------|----------------------------------------|--------|
|                                                                                                  |                                   |   |
| **Item 1.**                                                                                           | **Financial Statements  (Unaudited):** |   |
|                                                                                                  |                                   |   |
| *Condensed Consolidated Balance Sheets as of  March 31, 2005 and December 31, 2004*                   |                                   |
|                                                                                                  |                                   |   |
| *Condensed Consolidated Statements of  Operations for the three months ended March 31, 2005 and 2004* |                                   |
|                                                                                                  |                                   |   |
| *Condensed Consolidated Statements of Cash  Flows for the three months ended March 31, 2005 and 2004* |                                   |
|                                                                                                  |                                   |   |
| *Notes to Condensed Consolidated Financial  Statements*                                               |                                   |
|                                                                                                  |                                   |   |
| **Signatures**                                                                                        |                                   |   |
|                                                                                                  |                                   |   |
| **Exhibit  Index**                                                                                    |                                   |   |

 

**TRADEMARKS**

 

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

 

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**PART IFINANCIAL INFORMATION**

 

**Item 1. FinancialStatements.**

 

***iVillageInc. and Subsidiaries***

***CondensedConsolidated Balance Sheets***

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

**(Unaudited)**

*** ***
| ** **                                                                                                                                                                                                                                                            | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|------------------------|------------|
| ** **                                                                                                                                                                                                                                                            | ** ** | ** **          | ** ** | ** **             | ** ** |
| **Assets**                                                                                                                                                                                                                                                            |       |                |       |                   |       |
| Current assets:                                                                                                                                                                                                                                                       |       |                |       |                   |       |   |   |
| Cash and cash equivalents                                                                                                                                                                                                                                             |       | $                   | 70,281     |                   | $          | 83,046 |   |
| Accounts receivable, less allowance for  doubtful accounts of $980 and $1,010 as of March 31, 2005 and December 31,  2004, respectively                                                                                                                               |       | 9,523               |       | 9,159                  |       |
| Accounts receivable - related parties                                                                                                                                                                                                                                 |       | 592                 |       | 549                    |       |
| Prepaid rent                                                                                                                                                                                                                                                          |       | 318                 |       | 318                    |       |
| Other current assets                                                                                                                                                                                                                                                  |       | 4,118               |       | 3,740                  |       |
| Total current assets                                                                                                                                                                                                                                                  |       | 84,832              |       | 96,812                 |       |
|                                                                                                                                                                                                                                                                  |       |                |       |                   |       |
| Fixed assets, net                                                                                                                                                                                                                                                     |       | 8,669               |       | 8,381                  |       |
| Goodwill,                                                                                                                                                                                                                                                             |       | 36,885              |       | 23,241                 |       |
| Intangible assets, net                                                                                                                                                                                                                                                |       | 13,576              |       | 8,832                  |       |
| Prepaid rent, net of current portion                                                                                                                                                                                                                                  |       | 3,165               |       | 3,203                  |       |
| Other assets                                                                                                                                                                                                                                                          |       | 79                  |       | 79                     |       |
| Total assets                                                                                                                                                                                                                                                          |       | $                   | 147,206    |                   | $          | 140,548 |   |
|                                                                                                                                                                                                                                                                  |       |                |       |                   |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                                                                                        |       |                |       |                   |       |
|                                                                                                                                                                                                                                                                  |       |                |       |                   |       |
| Current liabilities:                                                                                                                                                                                                                                                  |       |                |       |                   |       |
| Accounts payable and accrued expenses                                                                                                                                                                                                                                 |       | $                   | 11,361     |                   | $          | 9,933 |   |
| Accounts payable and accrued expenses -  related parties                                                                                                                                                                                                              |       | 130                 |       | 209                    |       |
| Deferred revenue                                                                                                                                                                                                                                                      |       | 7,019               |       | 2,080                  |       |
| Deferred rent                                                                                                                                                                                                                                                         |       | 144                 |       | 144                    |       |
| Other current liabilities                                                                                                                                                                                                                                             |       | 24                  |       | 24                     |       |
| Total current liabilities                                                                                                                                                                                                                                             |       | 18,678              |       | 12,390                 |       |
|                                                                                                                                                                                                                                                                  |       |                |       |                   |       |
| Deferred rent, net of current portion                                                                                                                                                                                                                                 |       | 1,304               |       | 1,339                  |       |
| Total liabilities                                                                                                                                                                                                                                                     |       | 19,982              |       | 13,729                 |       |
|                                                                                                                                                                                                                                                                  |       |                |       |                   |       |
| Commitments and contingencies (Note 8)                                                                                                                                                                                                                                |       | —              |       | —                 |       |
|                                                                                                                                                                                                                                                                  |       |                |       |                   |       |
| Stockholders’ equity:                                                                                                                                                                                                                                            |       |                |       |                   |       |
| Preferred stock - par value $.01, 5,000,000  shares authorized; no shares issued and outstanding as of March 31, 2005 and  December 31, 2004, respectively                                                                                                            |       | —              |       | —                 |       |
| Common stock - par value $.01, 200,000,000  shares authorized; 73,033,226 and 72,695,263 shares issued at March 31, 2005  and December 31, 2004, respectively; 71,972,375 and 71,634,412 shares  outstanding as of March 31, 2005 and December 31, 2004, respectively |       | 731                 |       | 727                    |       |
| Additional paid-in capital                                                                                                                                                                                                                                            |       | 619,732             |       | 617,958                |       |
| Treasury stock at cost (1,060,851 shares as  of March 31, 2005 and December 31, 2004, respectively)                                                                                                                                                                   |       | (766                | )          | (766                   | )          |
| Unearned compensation                                                                                                                                                                                                                                                 |       | (107                | )          | —                 |       |
| Accumulated deficit                                                                                                                                                                                                                                                   |       | (492,366            | )          | (491,100               | )          |
| Total stockholders’ equity                                                                                                                                                                                                                                       |       | 127,224             |       | 126,819                |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                                                       |       | $                   | 147,206    |                   | $          | 140,548 |   |

 

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

 

1

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***iVillageInc. and Subsidiaries***

***CondensedConsolidated Statements of Operations***

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

***(Unaudited)***

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

 

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

 

2

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***iVillageInc. and Subsidiaries***

***CondensedConsolidated Statements of Cash Flows***

***(inthousands)***

***(Unaudited)***

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

 

Supplemental disclosure of non-cash investingand financing activities:

 

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

 

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

 

3

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**iVillage Inc. and Subsidiaries**

**Notes to Condensed Consolidated FinancialStatements**

**(Unaudited)**

 

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

 

iVillage is “the Internet for women” and consists of several online andoffline media-based properties, including the iVillage.com Web site, oriVillage.com, Healthology, Inc., or Healthology, iVillage Consulting, TheVirtual Mirror, Inc., operator of the GardenWeb.com Web site, orGardenWeb.com, Promotions.com, Inc., Knowledgeweb, Inc., operator ofthe Astrology.com Web site, or Astrology.com, iVillage ParentingNetwork, Inc., or IVPN, and Public Affairs Group, Inc., or PAG.Following is a synopsis of certain of our operational activities, subsidiariesand divisions:

 
| **Subsidiary or Division** | ** ** | **Operational Activity**                                                                                                                                                                                                                                                                                                                                                                  |
|----------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                       |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| iVillage.com               |       | An online destination providing practical solutions on a range of topics  and everyday support for women 18 years of age and over.                                                                                                                                                                                                                                                        |
|                       |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| Healthology                |       | Acquired on January 7, 2005, Healthology distributes  physician-generated videos and articles providing health and medical  information via the Healthology.com Web site, or Healthology.com, and a  syndication network, and provides Web site creation and development services  to healthcare related organizations.                                                                   |
|                       |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| iVillage Consulting        |       | Assists companies in the creation and development of Web sites,  digital commerce platforms and other aspects of technological  infrastructures, primarily for Hearst Communications, Inc., and its  affiliates, or Hearst, a related party.                                                                                                                                              |
|                       |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| GardenWeb.com              |       | An online destination offering an online community and reference  tools focused on horticulture.                                                                                                                                                                                                                                                                                          |
|                       |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| Promotions.com, Inc.       |       | Comprised of two divisions: Promotions.com and Webstakes.com, which  offer online and offline promotions and direct marketing programs that are  integrated with customers’ marketing initiatives.                                                                                                                                                                                   |
|                       |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| Astrology.com              |       | An online destination for individuals seeking daily horoscopes, astrological  content and personalized forecasts online.                                                                                                                                                                                                                                                                  |
|                       |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| IVPN                       |       | A holding company for iVillage Integrated Properties, Inc., or IVIP,  the operator of The Newborn Channel and Lamaze Publishing Company, or Lamaze  Publishing, publisher of Lamaze Parents, which collectively provide  informational and instructional magazines, custom publications, television  programming, videos and online properties of interest to expectant and new  parents. |

 

4

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| PAG |   | Comprised of three divisions: Business Women’s Network, Diversity  Best Practices and Best Practices in Corporate Communications, each offering  an extensive database of pertinent information and events to subscribing  companies and members, and relevant publications. |
|-----|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

iVillage has had positive cash flows from operations for the last sixquarters. Management believes that iVillage’s current funds are sufficient toenable iVillage to meet its planned expenditures through at least the nexttwelve months. Factors that could adversely affect iVillage’s operationsinclude the loss of any of iVillage’s major customers, a significant downturnin the advertising market or economy in general, and iVillage’s ability togenerate significantly increased annual revenues.

 

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

 

*UnauditedInterim Financial Information*

 

Theunaudited interim condensed consolidated financial statements of iVillage as ofMarch 31, 2005 and for the three months ended March 31, 2005 and 2004,respectively, included herein, have been prepared in accordance with theinstructions for Form 10-Q under the Securities Exchange Act of 1934, asamended, or the Exchange Act, and Article 10 of Regulation S-X of the rules andregulations of the Securities and Exchange Commission, or SEC. Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with generally accepted accounting principles have beencondensed or omitted pursuant to such rules and regulations relating to interimfinancial statements. These financial statements should be read in conjunctionwith iVillage’s Annual Report on Form 10-K for the fiscal year ended December31, 2004.

 

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

 

5

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*Principles of Consolidation*

 

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

 

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

 

The following table sets forth revenues by property as reviewed byiVillage’s chief operating decision maker:

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

 

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(1) Percent of total revenues.

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

 

*Revenues, Receivables and Customer Concentration*

 

Our five largest customers accounted for approximately 23% of totalrevenues for the three months ended March 31, 2005, and approximately 37% oftotal revenues for the corresponding period in 2004.  No single customer accounted for more than 10% of our total revenuesfor the three months ended March 31, 2005. Wal-Mart Stores, Inc. and its affiliates,or Wal-Mart, accounted for approximately 15%, and Hearst Communications, Inc.and its affiliates, or Hearst, a related party, accounted for approximately12%, of total revenues for the three months ended March 31, 2004. At March 31, 2005 and December 31, 2004, nosingle customer accounted for more than 10% of total net accounts receivable.The significance of revenues from anyof our customers can vary on a quarter to quarter basis as a result of thenumber and timing of such customers’ advertising and marketing initiatives.We anticipate that our results of operations in any given period will continueto depend to a significant extent on revenues from a small number of customers.

 

Included in total revenues are barter transactions which totaled approximately$1.7 million, or 10% of total revenues, for the three months ended March 31,2005.  For the corresponding period in2004, barter transactions totaled approximately $0.8 million, or 5% of totalrevenues.

 

6

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*Fixed Assets and Intangibles*

 

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

 

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

 

*Web Site DevelopmentCosts*

 

iVillage accounts for Web site developmentcosts in accordance with the provisions of Emerging Issues Task Force, or EITF,Issue No. 00-2, “Accounting for Web Site Development Costs”, or EITF 00-2,which requires that certain costs to develop Web sites be capitalized orexpensed, depending on the nature of the costs. Amortization of Web sitedevelopment costs is provided for by the straight-line method over theestimated useful life of two years. Development costs of approximately $0.3million for the three months ended March 31, 2005 were capitalized.Amortization expense of Web site development costs was approximately $0.1million for the three months ended March 31, 2005.  Development costs of approximately $0.1million were capitalized for the three months ended March 31, 2004.  No amortization expense was recorded for the threemonths ended March 31, 2004.

 

*Goodwill*

 

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

 

7

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

 

*Use of Estimates*

 

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

 

*Accrued Expenses*

 

In the ordinary course of business, iVillage utilizes estimates todetermine the accrual of certain operating expenses. These estimates arereviewed on an ongoing basis to determine the adequacy of these accruals. Forthe three months ended March 31, 2005, iVillage reversed no previouslyestablished accruals. For the three months ended March 31, 2004, iVillagereversed approximately $30,000 of accruals included in operating expenses dueto changes in estimates previously provided for.

 

*Income Taxes*

 

iVillage recognizes deferred taxes by the asset and liability method ofaccounting for income taxes in accordance with the provisions of SFAS No. 109, “Accountingfor Income Taxes”. Deferred income taxes are recognized for differences betweenthe financial statement and tax bases of assets and liabilities at enactedstatutory tax rates in effect for the years in which the differences areexpected to reverse. The effect on deferred taxes of a change in tax rates isrecognized in income in the period that includes the enactment date. Inassessing the realizability of deferred tax assets, iVillage considers whetherit is more likely than not that some portion or all of the deferred tax assetswill not be realized. The ultimate realization of deferred tax assets isdependent upon the generation of future taxable income or reversal of deferredtax liabilities during the periods in which those temporary differences becomedeductible. iVillage considers the scheduled reversal of deferred taxliabilities, projected future taxable income, and tax planning strategies inmaking this assessment.

 

8

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

 

*Net Loss Per Share*

 

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

 

Included in the March 31, 2005 and March 31, 2004 calculation ofweighted average number of shares of common stock outstanding are 56,995 sharesand 62,467 shares, respectively, which have not been issued.  These shares are being held for formerWomen.com Networks, Inc., or Women.com, and Promotions.com stockholders thathave not yet exchanged their respective shares for shares of iVillage duringthe periods presented, but are entitled to do so.

 

Stockoptions and warrants in the amount of 9,081,329 shares for the three monthsended March 31, 2005 were not included in the computation of diluted net incomeper share as they were anti-dilutive. Stock options and warrants in the amount of 9,810,612 shares for thethree months ended March 31, 2004, were not included in the computation ofdiluted net loss per share as they were anti-dilutive as a result of net lossesduring the period presented.

 

*Stock-Based Compensation*

 

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

 

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

 

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

 

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

 

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

 

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

 

*Recent Accounting Pronouncements*

 

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

 

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

 

In December 2004, theFASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APBOpinion No. 29”, or SFAS 153.  SFAS 153eliminates an exception for nonmonetary exchanges of similar productive assetsunder APB Opinion No. 29, and replaces it with a general exception forexchanges of nonmonetary assets that do not have commercial substance.  SFAS 153 is to be applied prospectively andis effective for nonmonetary asset exchanges occurring in fiscal periodsbeginning after June 15, 2005.  iVillagebelieves that the future adoption of SFAS 153 will not have a material impacton its financial statements.

 

**Note 2 - Goodwill**

 

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

 

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

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

 

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

 

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

 

Reportingunit – 3 includes Public Affairs Group, Inc.

 

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**Note 3 -Intangible Assets**

 

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

 

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

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

 

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

 

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

 

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

 

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

 

In March 2003, iVillage and Tesco.com Limited, a division of Tesco,PLC, or Tesco, restructured the terms of their joint venture so that Tescopurchased iVillage’s entire ownership interest in iVillage UK Limited, oriVillage UK. iVillage and Tesco also entered into a twenty-year licenseagreement for the use of certain of iVillage’s content and intellectualproperty subject to earlier termination upon the occurrence of certain events,for the greater of a minimum monthly license fee or a percentage of iVillage UK’sgross revenues. (See Note 10 - Subsequent Events – iVillage UK Limited)

 

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

 

**Note 5 –Discontinued Operations**

 

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

 

**Note 6 – Related Party Transactions**

 

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

 

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

 

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

*** ***

***HearstCommunications, Inc.***

 

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

 

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

 

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

 

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***Catalyst GroupDesign, Inc.***

 

Our Senior Vice President and Editor in-Chief is the spouse of theChief Executive Officer of Catalyst Group Design, Inc., or Catalyst GroupDesign. In 2004, iVillage entered into several agreements totalingapproximately $0.3 million with Catalyst Group Design, for servicesrelated to the redesign of iVillage’s Web site and several revenue contracts ofiVillage. In the first quarter of 2005, iVillage entered into one agreementwith Catalyst Group Design for services related to the redesign of iVillage’sAstrology.com Web site for approximately $0.1 million.  To date, iVillage has capitalizedapproximately $0.1 million of these fees as Web site development costs,approximately $0.1 million as prepaid expenses and approximately$0.1 million have been expensed. As of March 31, 2005 and December 31,2004, iVillage owed Catalyst Group Design approximately $0.1 million.

 

***WaterfrontMedia, Inc.***

 

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

 

During the first quarter of 2005, iVillage signed, launched andcompleted one new advertising agreement with Waterfront Media, and also completedthe remaining contract from 2004. Revenues from Waterfront Media wereapproximately $0.1 million for the three months ended March 31, 2005, andapproximately $0.2 million for the three months ended March 31, 2004.At March 31, 2005, iVillage was owed a receivable of approximately $0.1million, and at December 31, 2004, iVillage was owed a receivable ofapproximately $44,000 from Waterfront Media.

 

**Note 7 – Business Acquisitions**

 

***Healthology, Inc.***

 

On January 7, 2005, iVillage acquired all of the outstanding equity ofHealthology, a privately held company that is a producer and distributor ofphysician-generated video- and article-based health and medical information (viathe internet). The aggregate purchase price, inclusive of closing costs, wasapproximately $17.4 million, consisting of approximately $15.8 million in cash,205,908 shares of iVillage’s common stock with the fair value of $1.2 millionbased on the average 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 (SeeNote 1 – Organization and Basis of Presentation – Stock-Based Compensation).  Approximately $1.7 million of the purchaseprice was deposited into an escrow fund to cover possible indemnificationclaims.  Approximately $0.6 million of the escrow fund, representing thecash portion, is eligible for release after 18 months, with the remaining portion,consisting solely of stock,

 

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eligible for release after 24 months. The difference between the purchase price and the fair value of theacquired net assets of Healthology of approximately $13.6 million was recordedas goodwill (See Note 2-Goodwill). iVillage has not finalized the allocation ofthe purchase price. iVillage, however, does not expect the final allocation todiffer materially from the preliminary allocation.

 

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

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

 

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

 

**Note 8 – Commitments and Contingencies**

 

*Leases*

 

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

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

 

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

 

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*Technology*

 

Upon the expiration of the contract related to the satellite technologyused by iVillage Parenting Network, Inc. to transmit its television channels,or in the event of an unforeseen earlier interruption of such service, iVillagewould need to either negotiate a new contract, find another satellite providerand/or invest in alternative technology to distribute this service.

 

***Litigation***

 

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

 

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

 

In February 2003, the defendants’ motion to dismiss certain of theplaintiffs’ claims was granted in part, but, for the most part, denied. In June2003, a proposed settlement of this litigation was structured between theplaintiffs, the issuer defendants, the issuer officers and directors named asdefendants, and the issuers’ insurance companies. The proposed settlementgenerally provides that the issuer defendants and related individual defendantswill be released from the litigation without any liability other than certainexpenses incurred to date in connection with the litigation, the issuerdefendants’ insurers will guarantee $1.0 billion in recoveries by plaintiffclass members, the issuer defendants will assign certain claims against the underwriterdefendants to the plaintiff class members, and the issuer defendants will havethe opportunity to recover certain litigation-related expenses if theplaintiffs recover more than $5.0 billion from the underwriter defendants. Therespective boards of directors of iVillage and Women.com each approved theproposed settlement in July 2003.

 

On June 25,2004, the plaintiffs filed a motion for preliminary approval of the settlementwith the court, which was accompanied by a brief filed by the issuer defendantsin support of the plaintiffs’ motion. The court requested that any objectionsto preliminary approval of the settlement be submitted by July 14, 2004, andcertain underwriter defendants formally objected

 

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to thesettlement. The plaintiffs and issuer defendants separately filed replies tothe underwriter defendants’ objections to the settlement on August 4,2004.  On February 15, 2005, the courtissued an opinion and order granting preliminary approval to the settlement andordering the plaintiffs and issuer defendants to submit to the court a revisedsettlement stipulation consistent with the court’s order.  Pursuant to the court’s instruction, theparties to the settlement agreement submitted the revised settlementstipulation on May 2, 2005, and the underwriters have until May 16, 2005 tosubmit any comments or objections to the revised settlement stipulation. The courthas indicated that assuming the revised settlement stipulation is timely submittedand is acceptable to the court, notice to the plaintiff class members will besent out in the beginning of September 2005 and a final hearing to allow forany plaintiff to object to the settlement will take place on January 9, 2006.

 

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

 

**Note 9 – Capital Stock**

 

*Warrants*

 

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

 

**Note 10 – Subsequent Events**

 

*HealthCentersOnline, Inc.*

 

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

 

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*iVillage UK Limited*

 

On April 29, 2005, iVillage, through its subsidiary, iVillage Limited,acquired from iVillage UK Limited, a subsidiary of Tesco, the iVillage.co.ukWeb site and certain related assets. The purchase price was approximately $0.2million in cash and was structured as an asset purchase. In connection with theacquisition, iVillage UK Limited and iVillage terminated a license agreementpursuant to which iVillage previously licensed content and certain otherintellectual property to iVillage UK Limited (See Note 4 – Deferred Gain onSale of Joint Venture Interest).

 

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**SIGNATURES**

 

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

 
|                |   | iVILLAGE INC.                        |
|---------------------|--------|--------------------------------------|
|                |   | (Registrant)                         |
|                |   |                                 |
|                |   |                                 |
| Dated: May 11, 2005 | By:    |  /s/ Douglas W. McCormick       |   |
|                |   | Douglas W. McCormick                 |
|                |   | Chairman and Chief Executive Officer |
|                |   | (Principal Executive Officer)        |
|                |   |                                 |
|                |   |                                 |
| Dated: May 11, 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**                                                                                                                                                                                                                                                                                    |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                               |
| 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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