##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009
 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 0-22019
 HEALTH GRADES, INC.
  DELAWARE
(State or other jurisdiction 
of incorporation or organization)
    
    62-1623449
(I.R.S. Employer Identification No.)500 Golden Ridge Road, Suite 100GOLDEN, CO
    
    80401(Address of Principal Executive Offices)
    
    (Zip Code)
   Title of each class
    
    Name of each exchange on which registeredCommon Stock, $0.001 par value per share
    
    The Nasdaq Stock Market LLC(Nasdaq Global Select Market)
   Yes o No þ
 Yes o No þ
 þ o
 Yes o No o
 o
  Large Accelerated Filer o
    
    Accelerated Filer þ
    
    Non-Accelerated Filer o
    
    Smaller Reporting Company o(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




---



##### 



PART IItem 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    16Item 1B. Unresolved Staff Comments
    
    
    23Item 2. Properties
    
    
    24Item 3. Legal Proceedings
    
    
    24Item 4. Reserved
    
    
    27PART IIItem 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    28Item 6. Selected Financial Data
    
    
    31Item 7. Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    32Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    39Item 8. Financial Statements and Supplementary Data
    
    
    40Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
    
    
    66Item 9A. Controls and Procedures
    
    
    66Item 9B. Other Information
    
    
    68PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    68Item 11. Executive Compensation
    
    
    68Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    68Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    68Item 14. Principal Accounting Fees and Services
    
    
    68PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    69Exhibit 10.6Exhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
  Special Note Regarding Forward-Looking Statements
   2




---



##### Table of Contents



Item 1.
    
    Business
 BUSINESS
 Overview
   www.healthgrades.com
 
    
    Over 5,500 hospitals;
 
    
    Over 800,000 physicians in more than 125 specialties;
 
    
    Over 175,000 dentists in 10 specialties;
 
    
    Over one million alternative specialty providers (e.g., acupuncturists,
chiropractors, mental health professionals) in more than 40 specialties; and
 
    
    Over 15,000 nursing homes.
  www.healthgrades.com
 TM www.healthgrades.com
  3




---



##### Table of Contents



www.healthgrades.com
 www.WrongDiagnosis.com www.CureResearch.com
 Healthcare Provider Quality Information
  www.healthgrades.com
 Hospital Specialty and Programmatic Ratings 
    4




---



##### Table of Contents



Institutional and Service Line Hospital Awards 
  1.
    
    Calculated the average overall star rating for each hospital by averaging all their
MedPAR-based ratings.
 2.
    
    Calculated the average z-score (standard score) for each hospital by averaging all their
MedPAR-based z-scores.
 3.
    
    Ranked hospitals in descending order by their average star rating.
 4.
    
    Broke ranking ties by average z-score.
 5.
    
    Selected the top 269 hospitals as 2010 DHA-CE recipients.
  1.
    
    Hospitals that were DHA-CE recipients for all of the last seven or eight years were
identified.
 2.
    
    Hospitals that were DHA-CE recipients for all of the last six years were identified.
 
    
    The six-year recipients were sorted by z-score, using the average z-score from the
most recent DHA-CE analysis.
 
    
    The top hospitals from this list were then added to the list from step 1 to create a
list of Americas 50 Best Hospitals.
     5




---



##### Table of Contents




    
    More than 100 survey responses;
 
    
    At least 50 acute care beds; and
 
    
    A minimum HealthGrades average star rating of 2.5.
   
    
    Three-year patient survival  Hospitals must have a statistically higher than expected
three-year patient survival rate.
 
    
    Waitlist mortality rate  Hospitals must have a waitlist mortality rate that is
statistically lower or not statistically different than expected.
 Physician Quality Reports
  
    
    Be affiliated with a hospital that is highly rated for quality of care by us, or
recognized by the National Cancer Institute or Commission on Cancer, in the clinical area
related to the physicians specialty.
 
    
    Not had their license on probation, suspended, surrendered or revoked since 2000.
 
    
    Be free of state or federal disciplinary actions or sanctions for the last five years.
 
    
    Be free of malpractice judgments, adverse arbitration awards or monetary settlements for
the last five years.
 
    
    Be board certified in their practice specialty by the American Board of Medical
Specialties®, the American Osteopathic Association Bureau of Osteopathic Specialists or the
American Board of Facial Plastic and Reconstructive Surgery.
 WatchDog Subscription
  6




---



##### Table of Contents



Connecting Point 
 Patient Direct Connect www.healthgrades.com
 Nursing Home Ratings
 Information and Related Services for Hospitals, Employers, Consumers, Benefits Consulting Firms,
Payers, Professionals, and Pharmaceutical and Medical Device Solutions
 www.healthgrades.com
 Services for Hospitals
 
    
    Cardiac;
 
    
    Orthopedics;
 
    
    Vascular;
 
    
    Pulmonary;
 
    
    Neurosciences;
 
    
    Gastrointestinal;
 
    
    Critical care;
 
    
    General surgery;
 
    
    Bariatric surgery;
 
    
    Prostate surgery;
 
    
    Maternity care; and
 
    
    Womens health.
  7




---



##### Table of Contents



Strategic Quality Initiative (SQI)
 
    
    Our name, logo, stars and current ratings data including performance score;
 
    
    National designation (e.g., Top 5% in the Nation, Top 10% in the Nation) as applicable;
 
    
    Specialty Excellence Award for a licensed service line as applicable;
 
    
    State rank (e.g., Best in State, Best in Region) as applicable (not available for
maternity care or womens health);
 
    
    Marketing messages developed and approved by HealthGrades;
 
    
    Quality Ratings Analysis (QRA) to help hospitals understand the data methodology
underlying their ratings and what they can do to continue to improve their quality;
 
    
    Ratings comparisons developed and approved by us;
 
    
    Detailed analysis of client outcomes to understand individual star ratings; and
 
    
    Competitive comparisons to use in service line market positioning.
  Strategic Quality Partnership (SQP)
 Americas 50 Best Hospitals
 
    
    All of the SQP features described above;
 
    
    Either the Americas 50 Best Hospitals trophy or the standard DHA-CE trophy;
 
    
    Customized video featuring a HealthGrades executive congratulating the hospital on the
Americas 50 Best Hospitals Award;
 
    
    One additional on-site visit by a HealthGrades senior consultant for Chief Executive
Officer media training; and
 
    
    Services for the clients Chief Executive Officer to help the client learn how to best
discuss quality with the media.
 Patient Safety Excellence Award (PSEA)
 
    
    HealthGrades name and logo;
 
    
    Patient Safety Excellence Award designation and trophy for that year; and
 
    
    Marketing messages developed by HealthGrades.
  Outstanding Patient Experience Award (OPEA)
 Quality Assessment and Implementation (QAI)
  8




---



##### Table of Contents



Quality Assessment (QA)
 Quality Report for Hospital Professionals  Clinical Service Line
 Quality Report for Hospital Professionals  Patient Safety
 Health Management Suite
 Find a High-Quality Provider:
 Hospitals
 Physicians
 Nursing Homes
 Home Health
 Estimate Healthcare Costs:
 Treatment Cost Calculator
 Healthcare Quality Reports for Professionals
 Nursing Home Quality Report for Professionals
 Hospital Quality Report for Professionals
 
    
    Risk and severity-adjusted performance measures for cardiac, neurosciences, stroke,
vascular, orthopedics and pulmonary service lines, as well as the underlying medical issue
for each service line;
 
    
    Programmatic ratings for womens health and obstetrics;
 
    
    Comparative statistics and state/national benchmarks;
 
    
    Infections, complication and mortality rates; and
 
    
    Cases At Risk analysis, which projects how many cases are likely to have adverse
outcomes based upon our proprietary mortality or complication rate analysis.
  9




---



##### Table of Contents



Healthcare Quality Reports for Consumers
 Hospital Quality Report
 
    
    Ratings for all procedures and diagnoses rated by HealthGrades for the hospital;
 
    
    Survey data prepared in connection with the Leapfrog Group;
 
    
    Our methodology and helpful hints for choosing a hospital; and
 
    
    Cost data.
 Nursing Home Quality Report
 
    
    Our rating for the particular nursing home;
 
    
    Health survey history with descriptions and severity of the deficiencies for the last
four licensing surveys;
 
    
    Instances of repeated deficiencies;
 
    
    How the nursing home compares to others in the state; and
 
    
    Our methodology and helpful hints for choosing a nursing home.
 Physician Quality Report
 
    
    Addresses and phone numbers;
 
    
    Specialties;
 
    
    Board certification information;
 
    
    Education information, including medical school, year graduated and residency,
fellowships and internships;
 
    
    Physician memberships and associations;
 
    
    Malpractice data;
 
    
    State and federal sanction information (if any) within the last 5 years;
 
    
    Name and address of area hospitals and affiliated hospitals;
 
    
    Group practice;
 
    
    Gender;
 
    
    Languages spoken;
 
    
    National comparative statistics in board certification, years in practice and sanction
activity regarding physicians in the same specialty field; and
 
    
    Information on how to choose a physician with a checklist and guide.
  
    
    Physician profile (free)  includes physicians name, specialties and health plans
accepted among other items;
 
    
    Office locations (free)  includes address, phone number and other physicians
practicing at the same office;
 
    
    Ratings (free)  experience surveys completed by our users;
 
    
    Hospital ratings (free)  hospital name and our ratings by clinical services area for
hospitals at which the physician is affiliated;
 
    
    Awards and recognition (fee-based)  displays HealthGrades Five-Star and Recognized
recognition, as well as memberships (i.e., AMA);
 
    
    Education (fee-based)  displays medical school and residency;
 
    
    Background check (fee-based)  a premium physician quality report that includes
information on board certification, malpractice history, federal and state sanctions from
all 50 states, among other items; and,
    
    Procedure costs (fee-based)  detailed cost information for a variety of medical
procedures.
  10




---



##### Table of Contents



Content and Data Licensing
 Pharmaceutical and Medical Device Solutions
 Internet Advertising www.WrongDiagnosis.com www.CureResearch.com
 Competition
  www.healthgrades.com www.WrongDiagnosis.com www.CureResearch.com
  Company History
  Government Regulation
   11




---



##### Table of Contents



12




---



##### Table of Contents



Health Care Legislation
 Privacy of Information and the Health Insurance Portability and Accountability Act of 1996 (HIPAA)
  
    
    state privacy and confidentiality laws;
 
    
    state laws regulating healthcare professionals, such as physicians, pharmacists and
nurse practitioners;
 
    
    Medicaid laws;
 
    
    the U.S. Health Insurance Portability and Accountability Act of 1996, or HIPAA, as
described in detail below, and related rules promulgated by the United States Department of
Health and Human Services (HHS); and
 
    
    CMS standards for electronic transmission of health data
     13




---



##### Table of Contents



Government Regulation of the Internet, Data and Privacy
     Intellectual Property
   14




---



##### Table of Contents



Employees
  Available Information
 www.healthgrades.com
  15




---



##### Table of Contents



Item 1A.
    
    Risk Factors
  RISKS RELATED TO OUR BUSINESS
 Our business will suffer if we are not able to obtain reliable data as a basis for our healthcare
information.
  Failure to effectively manage the growth of our operations and infrastructure could disrupt our
operations and prevent us from maintaining or increasing profitability.
  Our proprietary rights may not be fully protected.
  The nature of our business and our reliance on intellectual property subjects us to the risk of
litigation.
   16




---



##### Table of Contents



We may lose business if hospitals and others utilize our name and ratings without our permission.
  We may be sued for information we obtain or information retrieved from our websites or otherwise
provided to employers and others.
 www.healthgrades.com
   If we do not strengthen recognition of our brand name, our ability to expand our business will be
impaired.
  If we were to lose the services of Kerry Hicks or other members of our executive management team,
we may not be able to execute our business strategy.
   17




---



##### Table of Contents



Our business will suffer if we are unable to attract, retain and motivate highly skilled employees.
  We may experience system failures that could interrupt our services.
 www.healthgrades.com www.WrongDiagnosis.com
  
    
    damage from fire, power loss and other natural disasters;
 
    
    communications failures;
 
    
    software and hardware errors, failures or crashes;
 
    
    security breaches, computer viruses and similar disruptive problems; and
 
    
    other potential interruptions.
  Failure by third party vendors of technology.
   We may lose business if we are unable to keep up with rapid technological or other changes.
   18




---



##### Table of Contents



We rely largely on advertising and search engine placement to generate traffic to our website.
  We may be unsuccessful in our efforts to increase advertising and sponsorship revenue.
 www.healthgrades.com
 
    
    Our advertising initiative is in its early stages. Many of our competitors have greater
financial, technical, product development and other resources than we do. These organizations
may be better known than we are and have more customers or users than we do. We cannot
provide assurance that we will be able to compete successfully against these organizations or
any alliances they have formed or may form. As there are no substantial barriers to entry
into the online advertising market, we expect that competitors will continue to enter this
market.
    
    Our websites face competition from numerous other companies, both in attracting users and
in generating revenue from advertisers and sponsors. We compete for users with online
services and websites that provide health-related information, including both commercial sites
and not-for-profit sites. We also compete for advertisers and sponsors with providers of both
healthcare-related and non-healthcare related content and services.
    
    There are numerous items outside of our control that may limit our ability to accurately
forecast or generate revenues from this area, including, but not limited to: advertisers
budgets and buying patterns, the time between the initial contact with an advertising network,
agency or potential advertiser or sponsor and the execution of a contract, which may be
lengthy, and seasonal factors relating to the prevalence of specific health conditions that
may affect the timing of promotional campaigns for specific products, among other items.
    
    If unable to provide quality graphics and content to attract users and advertisers to our
websites, our advertising revenues may be adversely affected.
    
    Technologies have been developed that can block the display of our ads.
    
    We are exposed to the risk of fraudulent clicks and other invalid clicks on our ads from a
variety of potential sources. Invalid clicks are clicks that we have determined are not
intended by the user to link to the underlying content. Click fraud occurs when a user
intentionally clicks on an ad displayed on a website for a reason other than to view the
underlying content. If we are unable to stop these invalid clicks, we will be required to
provide refunds to our advertisers, which would negatively affect our profitability and our
reputation.
  Our online business has a limited operating history.
  Our business will suffer if we are not able to compete successfully.
  
    
    data providers that provide detailed utilization and outcomes information to hospitals;
    
    healthcare consulting companies;
  19




---



##### Table of Contents




    
    companies or organizations that provide or maintain online healthcare information;
    
    vendors of healthcare information, products and services distributed through other means,
including direct sales, mail and fax messaging;
    
    companies and organizations that provide or maintain general purpose consumer online
services that provide access to healthcare content and services;
    
    companies and organizations that provide or maintain public sector and non-profit websites
that provide healthcare information and services without advertising or commercial
sponsorships;
    
    companies and organizations that provide or maintain web search and retrieval services and
other high-traffic websites; and
    
    publishers and distributors of traditional media, some of which have established or may
establish websites.
  The recent global economic downturn may impact our business, operating results or financial
condition.
  Acquisitions could be risky and may place significant strain on our management systems and
resources, which could negatively impact our operations.
  
    
    potential inability to successfully integrate acquired operations and products or to
realize cost savings or other anticipated benefits from integration;
    
    loss of key employees of acquired operations;
    
    the difficulty of assimilating geographically dispersed operations and personnel of the
acquired companies;
    
    the potential disruption of our ongoing business;
    
    unanticipated expense related to acquisitions, including significant transaction costs,
which, under accounting rules, are required to be expensed rather than capitalized;
    
    the impairment of relationships with employees and customers of either an acquired company
or our own business;
    
    the potential for acquisitions to result in dilutive issuances of our equity securities;
and
    
    the potential unknown liabilities associated with acquired business.
  20




---



##### Table of Contents



RISKS RELATED TO HEALTHCARE INFORMATION AND THE INTERNET
 Healthcare reform and the cost of regulatory compliance could negatively affect our business.
  
    
    result in limitation or prohibition of business activities;
 
    
    subject us or our customers to legal fees and expenses and adverse publicity; or
 
    
    increase the costs of regulatory compliance and, if found by a court of competent
jurisdiction to have engaged in improper practices, subject us or our customers to criminal or
civil monetary fines or other penalties
      21




---



##### Table of Contents



The internet is subject to many legal uncertainties and potential government laws and regulations
that may decrease usage of our websites, increase our cost of doing business or otherwise have a
damaging effect on our business.
  We may be subject to claims brought against us as a result of content we provide.
  If we fail to comply with current or future laws or regulations governing the collection,
dissemination, use and confidentiality of patient health information, our business could suffer.
  
    
    state privacy and confidentiality laws;
 
    
    state laws regulating healthcare professionals, such as physicians, pharmacists and nurse
practitioners;
 
    
    Medicaid and Medicare laws;
 
    
    HIPAA and related rules proposed by the Healthcare Financing Administration; and
 
    
    CMS standards for electronic transmission of health data.
   22




---



##### Table of Contents



Online security breaches could harm our business.
    OTHER RISKS
 Our certificate of incorporation and bylaws include anti-takeover provisions that may deter or
prevent a change of control.
   We have no intention to pay dividends on our common stock.
  
 Item 1B.
    
    Unresolved Staff Comments
   23




---



##### Table of Contents



Item 2.
    
    Properties
  
 Item 3.
    
    Legal Proceedings
 Indemnification of our Chief Executive Officer and Derivative Complaint
        24




---



##### Table of Contents



25




---



##### Table of Contents



Gotham/Primarius Complaint
     26




---



##### Table of Contents



Item 4.
    
    Reserved
   NAME
    
    AGE
    
    POSITIONKerry R. Hicks
    
    
    50
    
    
    Chairman, President and Chief Executive OfficerDavid G. Hicks
    
    
    51
    
    
    Executive Vice PresidentSamantha Collier, MD
    
    
    42
    
    
    Executive Vice President and Chief Medical OfficerWes Crews
    
    
    46
    
    
    Chief Operating OfficerAllen Dodge
    
    
    41
    
    
    Executive Vice President, Chief Financial
Officer, Secretary and TreasurerAndrea Pearson
    
    
    41
    
    
    Executive Vice President
         27




---



##### Table of Contents



Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
 Market Information
  HIGH
    
    
    LOWYear Ended December 31, 2008
First Quarter
    
    $
    6.13
    
    
    $
    5.00Second Quarter
    
    
    5.80
    
    
    
    4.29Third Quarter
    
    
    4.54
    
    
    
    2.81Fourth Quarter
    
    
    3.10
    
    
    
    1.16Year Ended December 31, 2009 First Quarter
    
    $
    2.82
    
    
    $
    1.90Second Quarter
    
    
    4.49
    
    
    
    1.63Third Quarter
    
    
    5.30
    
    
    
    3.76Fourth Quarter
    
    
    5.08
    
    
    
    3.99
 Holders of Record
  Dividend Policy
   28




---



##### Table of Contents



Performance Graph
   
 The stock price performance included in this graph is not necessarily indicative of future stock price performance.
 12/31/04
    
    
    12/30/05
    
    
    12/29/06
    
    
    12/31/07
    
    
    12/31/08
    
    
    12/31/09Health Grades, Inc.
    
    $
    100.00
    
    
    $
    217.97
    
    
    $
    154.82
    
    
    $
    205.16
    
    
    $
    71.04
    
    
    $
    147.92$
    (2.90
    )*
    
    $
    (6.32
    )*
    
    $
    (4.49
    )*
    
    $
    (5.95
    )*
    
    $
    (2.06
    )*
    
    $
    (4.29
    )*Nasdaq Stock Market (US)
    
    $
    100.00
    
    
    $
    102.13
    
    
    $
    112.18
    
    
    $
    121.67
    
    
    $
    58.64
    
    
    $
    84.30Nasdaq Computer & Data
Processing Index
    
    $
    100.00
    
    
    $
    103.39
    
    
    $
    116.07
    
    
    $
    141.83
    
    
    $
    81.65
    
    
    $
    133.45
 *
    
    Health Grades, Inc. closing share price as of respective year-end date  29




---



##### Table of Contents



Purchases of Equity Securities by the Issuer
   Issuer Purchases of Equity Securities
 TotalNumber of
    
    
    MaximumShares
    
    
    Number ofPurchased
    
    
    Shares Thatas Part of
    
    
    May Yet BeTotal
    
    
    
    
    
    
    Publicly
    
    
    PurchasedNumber of
    
    
    Average
    
    
    Announced
    
    
    Under theShares
    
    
    Price Paid
    
    
    Plans or
    
    
    Plans orPeriod
    
    Purchased (1)
    
    
    per Share
    
    
    Programs
    
    
    ProgramsOctober 1, 2009 through October 31, 2009
    
    
    2,917
    
    
    $
    4.78
    
    
    
    
    
    
    
    757,798November 1, 2009 through November 30, 2009
    
    
    463
    
    
    
    4.34
    
    
    
    
    
    
    
    757,798December 1, 2009 through December 31, 2009
    
    
    16,344
    
    
    
    4.13
    
    
    
    
    
    
    
    757,798Total
    
    
    19,724
    
    
    $
    4.23
    
    
    
    
    
    
    
    757,798
 (1)
    
    Shares purchased represent shares withheld to cover employee payroll taxes
associated with the vesting restricted stock awards.  30




---



##### Table of Contents



Item 6.
    
    Selected Financial Data
  Year Ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Ratings and advisory revenue
    
    $
    52,498,159
    
    
    $
    39,663,384
    
    
    $
    32,741,610
    
    
    $
    27,764,021
    
    
    $
    20,794,173Income from operations
    
    
    10,466,547
    
    
    
    6,685,521
    
    
    
    9,198,853
    (1)
    
    
    4,817,122
    
    
    
    3,942,424Net income
    
    $
    7,102,688
    
    
    $
    4,690,769
    
    
    $
    6,748,171
    (2)
    
    $
    3,181,510
    
    
    $
    4,139,853
    (4)Net income per common share (basic)
    
    $
    0.26
    
    
    $
    0.17
    
    
    $
    0.23
    (3)
    
    $
    0.11
    
    
    $
    0.15Weighted average number of common shares
used in computation (basic)
    
    
    27,618,892
    
    
    
    28,405,348
    
    
    
    29,053,717
    
    
    
    28,883,381
    
    
    
    27,039,057Net income per common share (diluted)
    
    $
    0.23
    
    
    $
    0.14
    
    
    $
    0.20
    (3)
    
    $
    0.09
    
    
    $
    0.12Weighted average number of common
shares and common share equivalents
used in computation (diluted)
    
    
    31,195,096
    
    
    
    32,836,987
    
    
    
    34,060,414
    
    
    
    34,079,526
    
    
    
    34,833,521
  (1)
    
    Income from operations for the year ended December 31, 2007 includes
approximately $4.3 million of an arbitration award from Hewitt Associates.(2)
    
    Net income for the year ended December 31, 2007 includes the arbitration award from
Hewitt in the amount of approximately $2.8 million, net of tax.(3)
    
    Net income per common share basic and diluted for the year ended December 31, 2007
includes approximately $0.10 and $0.08 attributed to the Hewitt award, respectively.(4)
    
    Net income for the year ended December 31, 2005 includes a $1.5 million reversal of
the valuation allowance for deferred tax assets previously reflected in our financial statements.
The valuation allowance resulted from uncertainty regarding our ability to realize the benefits of
the related deferred tax assets.  DECEMBER 31, 
2009
    
    
    DECEMBER 31, 
2008
    
    
    DECEMBER 31, 
2007
    
    
    DECEMBER 31, 
2006
    
    
    DECEMBER 31, 
2005Working capital (deficit)
    
    $
    5,578,246
    
    
    $
    (2,059,954
    )(1)
    
    $
    10,222,065
    
    
    $
    7,027,821
    
    
    $
    5,024,057Total assets
    
    
    46,877,938
    
    
    
    35,085,170
    
    
    
    36,935,329
    
    
    
    31,019,585
    
    
    
    23,844,473Total long-term debt
    
    
    
    
    
    
    984
    
    
    
    2,387
    
    
    
    3,863
    
    
    
    5,254
 (1)
    
    Deficit resulted from use of cash in stock repurchase activity.  31




---



##### Table of Contents



Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
  www.healthgrades.com www.WrongDiagnosis.com
 Provider Services
     Internet Business Group
 www.healthgrades.com www.WrongDiagnosis.com www.WrongDiagnosis.com
  32




---



##### Table of Contents



Ratings and advisory revenue.
 www.healthgrades.com www.WrongDiagnosis.com
   Cost of ratings and advisory revenue.
  33




---



##### Table of Contents



Sales and marketing costs
 Product development costs.
 General and administrative expenses.
   Year ended
    
    
    Year ended
    
    
    Year endedProduct Area
    
    December 31, 2009
    
    
    December 31, 2008
    
    
    December 31, 2007Provider Services
    
    $
    31,696,825
    
    
    $
    29,261,442
    
    
    $
    25,130,997Internet Business Group
    
    
    18,557,246
    
    
    
    8,392,948
    
    
    
    6,132,250Strategic Health Solutions
    
    
    2,244,088
    
    
    
    2,008,994
    
    
    
    1,478,363Total
    
    $
    52,498,159
    
    
    $
    39,663,384
    
    
    $
    32,741,610
  Ratings and advisory revenue
 Provider Services.
 Internet Business Group www.WrongDiagnosis.com www.WrongDiagnosis.com
  34




---



##### Table of Contents



Strategic Health Solutions.
 Cost of ratings and advisory revenue
 Sales and marketing costs. www.WrongDiagnosis.com www.CureResearch.com
 Product development costs
 General and administrative expenses
 Other Income
 Interest income.
  Ratings and advisory revenue
  35




---



##### Table of Contents



Provider Services.
 Internet Business Group www.WrongDiagnosis.com www.healthgrades.com
 Strategic Health Solutions.
 Cost of ratings and advisory revenue
 Other Revenue
 Sales and marketing costs.
 Product development costs
 General and administrative expenses
 Interest income.
  36




---



##### Table of Contents



www.WrongDiagnosis.com www.CureResearch.com
  37




---



##### Table of Contents



Payments Due by PeriodLess than 1
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsCapital Lease Obligations
    
    $
    1,000
    
    
    $
    1,000
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating Lease Obligations
    
    
    1,866,199
    
    
    
    1,252,204
    
    
    
    613,995
    
    
    
    
    
    
    
    Employee Contracts
    
    
    878,835
    
    
    
    638,991
    
    
    
    239,844
    
    
    
    
    
    
    
    Purchase Obligations
    
    
    332,258
    
    
    
    248,258
    
    
    
    84,000
    
    
    
    
    
    
    
    Total
    
    $
    3,078,292
    
    
    $
    2,140,453
    
    
    $
    937,839
    
    
    $
    
    
    
    $
    
   Recently Adopted Accounting Pronouncements
      38




---



##### Table of Contents



Recently Issued Accounting Pronouncements Not Yet Adopted
  ,
  
 Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
     39




---



##### Table of Contents



Item 8.
    
    Financial Statements and Supplementary Data
  HEALTH GRADES, INC.:Report of Independent Registered Public Accounting Firm
    
    
    41Consolidated Balance Sheets
    
    
    42Consolidated Statements of Income
    
    
    43Consolidated Statements of Stockholders Equity
    
    
    44Consolidated Statements of Cash Flows
    
    
    45Notes to Consolidated Financial Statements
    
    
    46
  40




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal ControlIntegrated Framework )
  
  41




---



##### Table of Contents



2009
    
    
    2008ASSETSCash and cash equivalents
    
    $
    19,160,529
    
    
    $
    11,327,741Accounts receivable, net
    
    
    11,389,295
    
    
    
    9,563,163Prepaid income taxes
    
    
    93,451
    
    
    
    12,603Deferred income taxes
    
    
    68,416
    
    
    
    Prepaid expenses and other current assets
    
    
    1,923,000
    
    
    
    1,087,914Total current assets
    
    
    32,634,691
    
    
    
    21,991,421Property and equipment, net
    
    
    3,214,974
    
    
    
    2,451,210Intangible assets, net
    
    
    481,102
    
    
    
    854,613Goodwill
    
    
    10,015,770
    
    
    
    9,104,060Deferred income taxes
    
    
    531,401
    
    
    
    683,866Total assets
    
    $
    46,877,938
    
    
    $
    35,085,170LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable
    
    $
    208,437
    
    
    $
    224,252Accrued payroll, incentive compensation and related expenses
    
    
    4,199,848
    
    
    
    3,352,294Accrued expenses
    
    
    2,143,317
    
    
    
    629,359Current portion of capital lease obligations
    
    
    984
    
    
    
    1,898Current portion of deferred rent
    
    
    254,797
    
    
    
    Deferred revenue
    
    
    20,249,062
    
    
    
    19,713,079Deferred income taxes
    
    
    
    
    
    
    130,493Total current liabilities
    
    
    27,056,445
    
    
    
    24,051,375Long-term portion of capital lease obligations
    
    
    
    
    
    
    984Long-term portion of deferred rent
    
    
    36,427
    
    
    
    309,131Total liabilities
    
    
    27,092,872
    
    
    
    24,361,490Commitments and contingenciesStockholders equity:Preferred stock, $0.001 par value, 2,000,000 shares authorized, no shares issued or outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value, 100,000,000 shares authorized, and 54,137,333 and 52,744,438 shares issued as of December 31, 2009 and 2008, respectively
    
    
    54,137
    
    
    
    52,743Additional paid-in capital
    
    
    100,415,961
    
    
    
    98,242,403Accumulated deficit
    
    
    (46,923,476
    )
    
    
    (54,026,164
    )Treasury stock, 24,418,730 and 23,982,694 shares as of December 31, 2009 and 2008, respectively
    
    
    (33,761,556
    )
    
    
    (33,545,302
    )Total stockholders equity
    
    
    19,785,066
    
    
    
    10,723,680Total liabilities and stockholders equity
    
    $
    46,877,938
    
    
    $
    35,085,170
   42




---



##### Table of Contents



2009
    
    
    2008
    
    
    2007Revenue:Ratings and advisory revenue
    
    $
    52,498,159
    
    
    $
    39,663,384
    
    
    $
    32,741,610Other
    
    
    21,867
    
    
    
    24,952
    
    
    
    3,425,46552,520,026
    
    
    
    39,688,336
    
    
    
    36,167,075Cost of revenue:Cost of ratings and advisory revenue
    
    
    7,839,463
    
    
    
    6,759,233
    
    
    
    5,323,672Gross margin
    
    
    44,680,563
    
    
    
    32,929,103
    
    
    
    30,843,403Operating expenses:Sales and marketing
    
    
    13,143,398
    
    
    
    10,845,768
    
    
    
    9,147,911Product development
    
    
    9,376,357
    
    
    
    7,279,283
    
    
    
    5,491,725General and administrative
    
    
    11,694,261
    
    
    
    8,118,531
    
    
    
    7,004,914Income from operations
    
    
    10,466,547
    
    
    
    6,685,521
    
    
    
    9,198,853Other:Other income
    
    
    183,038
    
    
    
    
    
    
    
    Interest income
    
    
    18,052
    
    
    
    429,757
    
    
    
    1,330,903Interest expense
    
    
    (1,705
    )
    
    
    (2,912
    )
    
    
    (1,771
    )Equity earnings of investment
    
    
    34,000
    
    
    
    
    
    
    
    Income before income taxes
    
    
    10,699,932
    
    
    
    7,112,366
    
    
    
    10,527,985Income tax expense
    
    
    3,914,152
    
    
    
    2,725,601
    
    
    
    4,107,649Net income
    
    
    6,785,780
    
    
    
    4,386,765
    
    
    
    6,420,336Net loss attributable to noncontrolling interest
    
    
    316,908
    
    
    
    304,004
    
    
    
    327,835Net income attributable to Health Grades, Inc.
    
    $
    7,102,688
    
    
    $
    4,690,769
    
    
    $
    6,748,171Net income per common share (basic)
    
    $
    0.26
    
    
    $
    0.17
    
    
    $
    0.23Weighted-average number of common shares
used in computation (basic)
    
    
    27,618,892
    
    
    
    28,405,348
    
    
    
    29,053,717Net income per common share (diluted)
    
    $
    0.23
    
    
    $
    0.14
    
    
    $
    0.20Weighted-average number of common shares
used in computation (diluted)
    
    
    31,195,096
    
    
    
    32,836,987
    
    
    
    34,060,414
   43




---



##### Table of Contents



HEALTH GRADES, INC. STOCKHOLDERSCOMMON STOCK
    
    
    ADDITIONAL$0.001 PAR VALUE
    
    
    PAID-IN
    
    
    ACCUMULATED
    
    
    TREASURY
    
    
    NONCONTROLLINGSHARES
    
    
    AMOUNT
    
    
    CAPITAL
    
    
    DEFICIT
    
    
    STOCK
    
    
    INTEREST
    
    
    TOTALBalance at January 1, 2007
    
    
    48,775,357
    
    
    $
    48,775
    
    
    $
    94,604,033
    
    
    $
    (65,465,104
    )
    
    $
    (17,044,656
    )
    
    $
    
    
    
    $
    12,143,048Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    961,715
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    961,715Employee stock option exercise
    
    
    704,184
    
    
    
    704
    
    
    
    568,921
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    569,625Restricted stock awards
    
    
    1,416,082
    
    
    
    1,416
    
    
    
    (1,416
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax benefit from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    898,597
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    898,5971,102,326 shares repurchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,612,566
    )
    
    
    
    
    
    
    (5,612,566
    )Noncontrolling member capital contribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    404,000
    
    
    
    404,000Change in ownership of noncontrolling
interest
    
    
    
    
    
    
    
    
    
    
    (171,846
    )
    
    
    
    
    
    
    
    
    
    
    171,846
    
    
    
    Noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (327,835
    )
    
    
    (327,835
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,748,171
    
    
    
    
    
    
    
    
    
    
    
    6,748,171Balance at December 31, 2007
    
    
    50,895,623
    
    
    
    50,895
    
    
    
    96,860,004
    
    
    
    (58,716,933
    )
    
    
    (22,657,222
    )
    
    
    248,011
    
    
    
    15,784,755Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    450,627
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450,627Employee stock option exercise
    
    
    1,272,034
    
    
    
    1,272
    
    
    
    595,565
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    596,837Restricted stock awards
    
    
    576,781
    
    
    
    576
    
    
    
    (576
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax benefit from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    336,783
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    336,7832,558,458 shares repurchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,888,080
    )
    
    
    
    
    
    
    (10,888,080
    )Noncontrolling member capital contribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,000
    
    
    
    56,000Noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (304,011
    )
    
    
    (304,011
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,690,769
    
    
    
    
    
    
    
    
    
    
    
    4,690,769Balance at December 31, 2008
    
    
    52,744,438
    
    
    
    52,743
    
    
    
    98,242,403
    
    
    
    (54,026,164
    )
    
    
    (33,545,302
    )
    
    
    
    
    
    
    10,723,680Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    1,620,696
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,620,696Employee stock option exercise
    
    
    592,445
    
    
    
    593
    
    
    
    450,258
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450,851Restricted stock awards
    
    
    800,450
    
    
    
    801
    
    
    
    (801
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrants issued
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000Tax benefit from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    269,473
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    269,473436,036 shares repurchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (216,254
    )
    
    
    
    
    
    
    (216,254
    )Change in ownership of noncontrolling
interest
    
    
    
    
    
    
    
    
    
    
    (266,068
    )
    
    
    
    
    
    
    
    
    
    
    316,908
    
    
    
    50,840Noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (316,908
    )
    
    
    (316,908
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,102,688
    
    
    
    
    
    
    
    
    
    
    
    7,102,688Balance at December 31, 2009
    
    
    54,137,333
    
    
    $
    54,137
    
    
    $
    100,415,961
    
    
    $
    (46,923,476
    )
    
    $
    (33,761,556
    )
    
    $
    
    
    
    $
    19,785,066
   44




---



##### Table of Contents



2009
    
    
    2008
    
    
    2007OPERATING ACTIVITIESNet income attributable to Health Grades, Inc.
    
    $
    7,102,688
    
    
    $
    4,690,769
    
    
    $
    6,748,171Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    1,712,850
    
    
    
    1,226,164
    
    
    
    1,046,254Bad debt expense
    
    
    112,459
    
    
    
    20,000
    
    
    
    Loss on disposal of assets
    
    
    258,841
    
    
    
    1,061
    
    
    
    25,996Loss on dissolution of subsidiary
    
    
    50,840
    
    
    
    
    
    
    
    Stock based compensation expense
    
    
    1,620,696
    
    
    
    450,627
    
    
    
    961,715Tax benefit from stock option exercises
    
    
    (269,542
    )
    
    
    (308,329
    )
    
    
    (871,469
    )Deferred income taxes
    
    
    (46,444
    )
    
    
    22,346
    
    
    
    (238,570
    )Noncontrolling interest
    
    
    (316,908
    )
    
    
    (304,011
    )
    
    
    (327,835
    )Changes in operating assets and liabilities, net of acquisition:Accounts receivable
    
    
    (1,938,591
    )
    
    
    (2,647,822
    )
    
    
    1,960,368Prepaid expenses and other current assets
    
    
    (839,409
    )
    
    
    (210,265
    )
    
    
    (124,201
    )Accounts payable
    
    
    (15,815
    )
    
    
    (101,787
    )
    
    
    (14,703
    )Accrued payroll, incentive compensation
and related expenses
    
    
    847,554
    
    
    
    1,129,324
    
    
    
    384,688Accrued expenses
    
    
    195,072
    
    
    
    159,661
    
    
    
    113,461Income taxes payable
    
    
    188,625
    
    
    
    310,337
    
    
    
    836,152Deferred revenue
    
    
    535,983
    
    
    
    1,973,927
    
    
    
    1,841,778Deferred rent
    
    
    (13,584
    )
    
    
    6,943
    
    
    
    (45,601
    )Net cash provided by operating activities
    
    
    9,185,315
    
    
    
    6,418,945
    
    
    
    12,296,204INVESTING ACTIVITIESPurchases of property and equipment
    
    
    (1,854,038
    )
    
    
    (1,860,066
    )
    
    
    (788,346
    )Business acquisition
    
    
    (730
    )
    
    
    (6,670,983
    )
    
    
    Sale of property and equipment
    
    
    
    
    
    
    
    
    
    
    10,000Net cash used in investing activities
    
    
    (1,854,768
    )
    
    
    (8,531,049
    )
    
    
    (778,346
    )FINANCING ACTIVITIESPayments under capital lease obligation
    
    
    (1,898
    )
    
    
    (2,609
    )
    
    
    (1,391
    )Excess tax benefits from stock-based payment arrangements
    
    
    269,542
    
    
    
    308,329
    
    
    
    871,469Purchases of treasury stock
    
    
    (216,254
    )
    
    
    (10,888,080
    )
    
    
    (5,612,566
    )Exercise of common stock options and warrants
    
    
    450,851
    
    
    
    596,837
    
    
    
    569,625Noncontrolling member capital contribution
    
    
    
    
    
    
    56,000
    
    
    
    Net cash provided by (used in) financing activities
    
    
    502,241
    
    
    
    (9,929,523
    )
    
    
    (4,172,863
    )Net increase (decrease) in cash and cash equivalents
    
    
    7,832,788
    
    
    
    (12,041,627
    )
    
    
    7,344,995Cash and cash equivalents at beginning of period
    
    
    11,327,741
    
    
    
    23,369,368
    
    
    
    16,024,373Cash and cash equivalents at end of period
    
    $
    19,160,529
    
    
    $
    11,327,741
    
    
    $
    23,369,368SUPPLEMENTAL CASH FLOW INFORMATIONInterest paid
    
    $
    1,705
    
    
    $
    2,912
    
    
    $
    1,771Income tax paid
    
    $
    3,750,538
    
    
    $
    2,397,979
    
    
    $
    3,523,998NON CASH FINANCING AND INVESTING ACTIVITYData acquired with stock warrants
    
    $
    100,000
    
    
    $
    
    
    
    $
    Accrued contingent consideration in business combination
    
    $
    910,980
    
    
    $
    
    
    
    $
    Property and equipment acquired with capital lease
    
    $
    
    
    
    $
    1,628
    
    
    $
    Property and equipment acquired in accounts payable or accrued
expenses
    
    $
    407,906
    
    
    $
    36,770
    
    
    $
    7,526Change in ownership interest of subsidiary
    
    $
    266,068
    
    
    $
    
    
    
    $
    171,846Non-competition agreements contributed to HCS by HealthCo
    
    $
    
    
    
    $
    
    
    
    $
    404,000
   45




---



##### Table of Contents



1.
    
    DESCRIPTION OF BUSINESS
   www.healthgrades.com
 www.WrongDiagnosis.com www.CureResearch.com
  2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      46




---



##### Table of Contents



Strategic Quality Initiative, Strategic Quality Partnerships and Quality Assessment and
Implementation Programs:
 www.healthgrades.com
     Health Management Suite:
   Content Licensing:
   47




---



##### Table of Contents



Healthcare Quality Reports:
  WatchDog Subscription:
  Connecting Point:
   Patient Direct Connect:
 www.healthgrades.com
  Internet Advertising:
    48




---



##### Table of Contents



49




---



##### Table of Contents



Computer equipment and software
    
    3-5 yearsInternally developed software
    
    3 yearsFurniture and fixtures
    
    5-7 yearsLeasehold improvements
    
    6 years
               50




---



##### Table of Contents



2009
    
    
    2008
    
    
    2007Numerator for both basic and diluted earnings
per share:Net income
    
    $
    7,102,688
    
    
    $
    4,690,769
    
    
    $
    6,748,171Denominator:Denominator for basic net income per
common shareweighted-average shares
    
    
    27,618,892
    
    
    
    28,405,348
    
    
    
    29,053,717Effect of dilutive securities:Outstanding employee stock options, warrants
and restricted stock awards
    
    
    3,576,204
    
    
    
    4,431,639
    
    
    
    5,006,697Denominator for diluted net income per
common shareadjusted weighted-average
shares and assumed conversion
    
    
    31,195,096
    
    
    
    32,836,987
    
    
    
    34,060,414
    Recently Adopted Accounting Pronouncements
     51




---



##### Table of Contents



Recently Issued Accounting Pronouncements Not Yet Adopted
  ,
 3.
    
    ACCOUNTS RECEIVABLE
  2009
    
    
    2008Trade accounts receivable
    
    $
    11,452,461
    
    
    $
    9,583,220Less: allowance for doubtful accounts
    
    
    63,166
    
    
    
    20,057$
    11,389,295
    
    
    $
    9,563,163
  52




---



##### Table of Contents



4.
    
    PROPERTY AND EQUIPMENT
 Property and equipment consisted of the following as of December 31: 2009
    
    
    2008Furniture and fixtures
    
    $
    465,828
    
    
    $
    455,344Computer equipment and software
    
    
    7,170,176
    
    
    
    5,512,932Leasehold improvements and other
    
    
    475,963
    
    
    
    479,6868,111,967
    
    
    
    6,447,962Accumulated depreciation and amortization
    
    
    (4,896,993
    )
    
    
    (3,996,752
    )Net property and equipment
    
    $
    3,214,974
    
    
    $
    2,451,210
  5.
    
    INTERNALLY DEVELOPED SOFTWARE
  6.
    
    BUSINESS ACQUISITION
 www.WrongDiagnosis.com www.CureResearch.com
 EstimatedAmount
    
    
    Useful LifePrepaid expenses and other current assets
    
    $
    37,104Identifiable intangible assets
    
    
    636,000
    
    
    5 yearsGoodwill
    
    
    5,997,879
    
    
    
    n/aTotal assets acquired
    
    
    6,670,983Liabilities assumed
    
    
    Total preliminary purchase price
    
    $
    6,670,983
    53




---



##### Table of Contents



Year Ended December 31,2008
    
    
    2007(unaudited)
    
    
    (unaudited)Revenue
    
    $
    40,900,359
    
    
    $
    37,980,539Net income
    
    $
    4,817,274
    
    
    $
    7,015,797Net income per share  diluted
    
    $
    0.15
    
    
    $
    0.21
  7.
    
    GOODWILL & INTANGIBLE ASSETS
  Balance at December 31, 2007
    
    $
    3,106,181Goodwill acquired
    
    
    5,997,879Balance at December 31, 2008
    
    
    9,104,060Goodwill acquired
    
    
    911,710Balance at December 31, 2009
    
    $
    10,015,770
  2009
    
    
    2008Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Value
    
    
    Amount
    
    
    Amortization
    
    
    ValueIntangible assets with finite lives:Domain names
    
    $
    636,000
    
    
    $
    154,898
    
    
    $
    481,102
    
    
    $
    636,000
    
    
    $
    27,697
    
    
    $
    608,303Non-competition agreements
    
    
    404,000
    
    
    
    404,000
    
    
    
    
    
    
    
    404,000
    
    
    
    157,690
    
    
    
    246,310Acquired software and tools
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    212,300
    
    
    
    212,300
    
    
    
    Total
    
    $
    1,040,000
    
    
    $
    558,898
    
    
    $
    481,102
    
    
    $
    1,252,300
    
    
    $
    397,687
    
    
    $
    854,613
   2010
    
    $
    127,2002011
    
    
    127,2002012
    
    
    127,2002013
    
    
    99,5022014
    
    
    
 8.
    
    DEFERRED RENT
   54




---



##### Table of Contents



9.
    
    LINE OF CREDIT AND LETTER OF CREDIT
 Line of Credit
  Letter of Credit
   10.
    
    COMMON STOCK
 Stock Repurchase Program
  Stock Warrants
  Equity Compensation Plan
    55




---



##### Table of Contents



.
    Stock-Based Compensation Expense
  2009
    
    
    2008
    
    
    2007Cost of ratings and advisory revenue
    
    $
    109,764
    
    
    $
    86,146
    
    
    $
    101,426Sales and marketing
    
    
    645,395
    
    
    
    131,048
    
    
    
    417,802Product development
    
    
    109,052
    
    
    
    86,401
    
    
    
    158,391General and administrative
    
    
    756,485
    
    
    
    147,032
    
    
    
    284,096Total stock-based compensation expense
    
    $
    1,620,696
    
    
    $
    450,627
    
    
    $
    961,715Related tax benefit
    
    $
    607,896
    
    
    $
    237,330
    
    
    $
    237,184
   56




---



##### Table of Contents



Equity Plan
  Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Price
    
    
    Term (in years)
    
    
    ValueOutstanding at December 31, 2008
    
    
    4,576,405
    
    
    $
    0.41Granted
    
    
    
    
    
    
    Exercised
    
    
    (592,445
    )
    
    
    0.76Forfeited
    
    
    
    
    
    
    Expired
    
    
    (6,667
    )
    
    
    4.08Outstanding at December 31, 2009
    
    
    3,977,293
    
    
    $
    0.36
    
    
    
    2.15
    
    
    $
    15,678,871Vested or expected to vest at
December 31, 2009
    
    
    3,977,293
    
    
    $
    0.36
    
    
    
    2.15
    
    
    $
    15,678,871Exercisable at December 31, 2009
    
    
    3,969,793
    
    
    $
    0.35
    
    
    
    2.14
    
    
    $
    15,678,871
    2009
    
    
    2008
    
    
    2007WEIGHTED-
    
    
    
    
    
    
    WEIGHTED-
    
    
    
    
    
    
    WEIGHTED-AVERAGE
    
    
    
    
    
    
    AVERAGE
    
    
    
    
    
    
    AVERAGEEXERCISE
    
    
    
    
    
    
    EXERCISE
    
    
    
    
    
    
    EXERCISEOPTIONS
    
    
    PRICE
    
    
    OPTIONS
    
    
    PRICE
    
    
    OPTIONS
    
    
    PRICEOutstanding at beginning of year
    
    
    4,576,405
    
    
    $
    0.41
    
    
    
    5,873,272
    
    
    $
    0.45
    
    
    
    6,649,543
    
    
    $
    0.56Granted
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Exercised
    
    
    (592,445
    )
    
    $
    0.76
    
    
    
    (1,272,034
    )
    
    $
    0.47
    
    
    
    (704,184
    )
    
    $
    0.81Forfeited
    
    
    
    
    
    $
    
    
    
    
    (834
    )
    
    $
    4.62
    
    
    
    (36,616
    )
    
    $
    4.41Expired
    
    
    (6,667
    )
    
    $
    4.08
    
    
    
    (23,999
    )
    
    $
    6.60
    
    
    
    (35,471
    )
    
    $
    9.91Outstanding at end of year
    
    
    3,977,293
    
    
    $
    0.36
    
    
    
    4,576,405
    
    
    $
    0.41
    
    
    
    5,873,272
    
    
    $
    0.45Exercisable at end of year
    
    
    3,969,793
    
    
    $
    0.35
    
    
    
    4,559,153
    
    
    $
    0.40
    
    
    
    5,813,842
    
    
    $
    0.41
 2009
    
    
    2008
    
    
    2007Weighted-average fair value of options
granted during the year:
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AIntrinsic value of options exercised during
the year:
    
    $
    908,500
    
    
    $
    2,632,566
    
    
    $
    3,376,505Fair value of options vested during the year:
    
    $
    375,136
    
    
    $
    129,833
    
    
    $
    408,213
  OPTIONS OUTSTANDING
    
    
    OPTIONS EXERCISABLEWEIGHTED-AVERAGE
    
    
    WEIGHTED-
    
    
    
    
    
    
    WEIGHTED-RANGE OF
    
    
    
    
    
    REMAINING
    
    
    AVERAGE
    
    
    
    
    
    
    AVERAGEEXERCISE
    
    NUMBER
    
    
    CONTRACTUAL
    
    
    EXERCISE
    
    
    NUMBER
    
    
    EXERCISEPRICES
    
    OUTSTANDING
    
    
    LIFE (YEARS)
    
    
    PRICE
    
    
    EXERCISABLE
    
    
    PRICE$0.06$0.10
    
    
    2,953,104
    
    
    
    2.11
    
    
    $
    0.10
    
    
    
    2,953,104
    
    
    $
    0.10$0.30$0.88
    
    
    716,888
    
    
    
    1.27
    
    
    
    0.62
    
    
    
    716,888
    
    
    
    0.62$1.01$1.53
    
    
    214,967
    
    
    
    4.22
    
    
    
    1.28
    
    
    
    214,967
    
    
    
    1.28$2.85$2.94
    
    
    4,000
    
    
    
    1.98
    
    
    
    2.90
    
    
    
    4,000
    
    
    
    2.90$3.00$3.98
    
    
    15,500
    
    
    
    5.12
    
    
    
    3.33
    
    
    
    15,500
    
    
    
    3.33$4.10$4.70
    
    
    60,834
    
    
    
    5.35
    
    
    
    4.51
    
    
    
    53,334
    
    
    
    4.51$5.36$6.10
    
    
    12,000
    
    
    
    6.01
    
    
    
    5.90
    
    
    
    12,000
    
    
    
    5.90$0.06$6.10
    
    
    3,977,293
    
    
    
    2.15
    
    
    $
    0.36
    
    
    
    3,969,793
    
    
    $
    0.35
  57




---



##### Table of Contents



2006 Plan
  Weighted-AverageGrant-Date
    
    
    AggregateFair Value
    
    
    IntrinsicNumber of RSAs
    
    
    Per Share
    
    
    ValueNonvested at December 31, 2008
    
    
    1,725,360
    
    
    $
    4.15Granted
    
    
    800,450
    
    
    
    3.49Vested
    
    
    (209,599
    )
    
    
    4.24Forfeited
    
    
    (383,187
    )
    
    
    4.04Nonvested at December 31, 2009
    
    
    1,933,024
    
    
    $
    3.89
    
    
    $
    8,292,673Expected to vest at December 31, 2009
    
    
    989,585
    
    
    $
    3.78
    
    
    $
    4,245,320
 2009
    
    
    2008
    
    
    2007Weighted-average fair value of RSAs
granted during the year:
    
    $
    3.49
    
    
    $
    3.00
    
    
    $
    6.33Intrinsic value of RSAs vested during the year:
    
    $
    862,129
    
    
    $
    431,207
    
    
    $
    257,873Fair value of shares vested during the year:
    
    $
    888,281
    
    
    $
    595,379
    
    
    $
    191,736
   11.
    
    OPERATING LEASES
   2010
    
    $
    1,252,2042011
    
    
    533,5992012
    
    
    80,3962013
    
    
    Thereafter
    
    
    Total
    
    $
    1,866,199
  12.
    
    INCOME TAXES
   58




---



##### Table of Contents



2009
    
    
    2008Deferred tax assets:Stock-based compensation expense
    
    $
    465,592
    
    
    $
    195,399Capitalized start-up costs
    
    
    417,973
    
    
    
    160,361Accrued liabilities
    
    
    200,451
    
    
    
    150,104Deferred rent
    
    
    110,665
    
    
    
    115,827Allowance for doubtful accounts
    
    
    24,003
    
    
    
    7,622Other
    
    
    47,593
    
    
    
    29,782Net operating loss carryforwards
    
    
    239,609
    
    
    
    259,5761,505,886
    
    
    
    918,671Valuation allowance for deferred
tax assets
    
    
    
    
    
    
    Gross deferred tax asset
    
    
    1,505,886
    
    
    
    918,671Deferred tax liabilities:Prepaid expenses
    
    
    704,644
    
    
    
    308,186Intangible assets, net
    
    
    151,212
    
    
    
    31,490Property and equipment, net
    
    
    50,213
    
    
    
    25,622Gross deferred tax liability
    
    
    906,069
    
    
    
    365,298Net deferred tax asset
    
    $
    599,817
    
    
    $
    553,373
  2009
    
    
    2008
    
    
    2007Current:Federal
    
    $
    3,492,509
    
    
    $
    2,387,855
    
    
    $
    3,846,923State
    
    
    468,087
    
    
    
    315,400
    
    
    
    499,2963,960,596
    
    
    
    2,703,255
    
    
    
    4,346,219Deferred:Federal
    
    
    (38,577
    )
    
    
    19,559
    
    
    
    (209,424
    )State
    
    
    (7,867
    )
    
    
    2,787
    
    
    
    (29,146
    )(46,444
    )
    
    
    22,346
    
    
    
    (238,570
    )Total income tax expense
    
    $
    3,914,152
    
    
    $
    2,725,601
    
    
    $
    4,107,649
    2009
    
    
    2008
    
    
    2007Federal statutory income tax rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State income taxes, net of federal benefit
    
    
    2.8
    
    
    
    3.0
    
    
    
    2.9Incentive stock option compensation
    
    
    
    
    
    
    (1.1
    )
    
    
    0.7Non-deductible expenses
    
    
    1.1
    
    
    
    0.8
    
    
    
    0.2Noncontrolling interest
    
    
    (1.0
    )
    
    
    1.5
    
    
    
    1.0Miscellaneous
    
    
    (0.3
    )
    
    
    0.1
    
    
    
    0.2Effective income tax rate
    
    
    36.6
    %
    
    
    38.3
    %
    
    
    39.0
    %
   59




---



##### Table of Contents



13.
    
    LEGAL PROCEEDINGS
 Indemnification of our Chief Executive Officer and Derivative Complaint
       60




---



##### Table of Contents



61




---



##### Table of Contents



Gotham/Primarius Complaint
     62




---



##### Table of Contents



14.
    
    COMMITMENTS
   15.
    
    EMPLOYEE BENEFIT PLAN
   16.
    
    RELATED PARTY TRANSACTION
 www.healthgrades.com
   63




---



##### Table of Contents



17.
    
    QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
  2009
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Revenue:Ratings and advisory
    
    $
    12,383,883
    
    
    $
    12,476,011
    
    
    $
    13,302,333
    
    
    $
    14,335,932Other
    
    
    5,013
    
    
    
    6,012
    
    
    
    11,712
    
    
    
    (870
    )Total revenue
    
    
    12,388,896
    
    
    
    12,482,023
    
    
    
    13,314,045
    
    
    
    14,335,062Expenses:Cost of ratings and advisory revenue
    
    
    1,910,730
    
    
    
    1,819,329
    
    
    
    1,773,750
    
    
    
    2,335,654Gross margin
    
    
    10,478,166
    
    
    
    10,662,694
    
    
    
    11,540,295
    
    
    
    11,999,408Operating expenses:Sales and marketing
    
    
    3,293,945
    
    
    
    3,077,792
    
    
    
    3,240,474
    
    
    
    3,531,187Product development
    
    
    2,151,406
    
    
    
    2,245,227
    
    
    
    2,214,636
    
    
    
    2,765,088General and administrative
    
    
    2,508,264
    
    
    
    2,687,349
    
    
    
    3,209,594
    
    
    
    3,289,054Income from operations
    
    
    2,524,551
    
    
    
    2,652,326
    
    
    
    2,875,591
    
    
    
    2,414,079Other:Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183,038
    (1)Interest income
    
    
    7,079
    
    
    
    6,598
    
    
    
    2,841
    
    
    
    1,534Interest expense
    
    
    (67
    )
    
    
    (545
    )
    
    
    (31
    )
    
    
    (1,062
    )Equity earnings of investment
    
    
    
    
    
    
    34,000
    
    
    
    
    
    
    
    Income before income taxes
    
    
    2,531,563
    
    
    
    2,692,379
    
    
    
    2,878,401
    
    
    
    2,597,589Income tax expense
    
    
    946,049
    
    
    
    1,044,889
    
    
    
    1,109,762
    
    
    
    813,452Net income
    
    
    1,585,514
    
    
    
    1,647,490
    
    
    
    1,768,639
    
    
    
    1,784,137Net loss attributable to
noncontrolling interest
    
    
    50,708
    
    
    
    83,959
    
    
    
    45,420
    
    
    
    136,821Net income attributable to Health
Grades, Inc.
    
    
    1,636,222
    
    
    
    1,731,449
    
    
    
    1,814,059
    
    
    
    1,920,958Net income per share (basic)
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.07
    
    
    $
    0.07Weighted average shares outstanding
(basic)
    
    
    27,228,819
    
    
    
    27,620,616
    
    
    
    27,782,227
    
    
    
    27,829,234Net income per share (diluted)
    
    $
    0.05
    
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.06Weighted average shares outstanding
(diluted)
    
    
    30,640,208
    
    
    
    31,075,566
    
    
    
    31,431,346
    
    
    
    31,484,920
 2008
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Revenue:Ratings and advisory
    
    $
    9,129,817
    
    
    $
    9,291,370
    
    
    $
    10,023,373
    
    
    $
    11,218,824Other
    
    
    5,992
    
    
    
    6,113
    
    
    
    6,684
    
    
    
    6,163Total revenue
    
    
    9,135,809
    
    
    
    9,297,483
    
    
    
    10,030,057
    
    
    
    11,224,987Expenses:Cost of ratings and advisory revenue
    
    
    1,572,732
    
    
    
    1,545,410
    
    
    
    1,604,983
    
    
    
    2,036,108Gross margin
    
    
    7,563,077
    
    
    
    7,752,073
    
    
    
    8,425,074
    
    
    
    9,188,879Operating expenses:Sales and marketing
    
    
    2,377,774
    
    
    
    2,380,652
    
    
    
    2,677,158
    
    
    
    3,410,184Product development
    
    
    1,689,829
    
    
    
    1,712,168
    
    
    
    1,889,339
    
    
    
    1,987,947General and administrative
    
    
    1,978,627
    
    
    
    2,000,486
    
    
    
    1,894,964
    
    
    
    2,244,454Income from operations
    
    
    1,516,847
    
    
    
    1,658,767
    
    
    
    1,963,613
    
    
    
    1,546,294Other:Interest income
    
    
    201,110
    
    
    
    127,291
    
    
    
    94,428
    
    
    
    6,928Interest expense
    
    
    (65
    )
    
    
    (51
    )
    
    
    (90
    )
    
    
    (2,706
    )Income before income taxes
    
    
    1,717,892
    
    
    
    1,786,007
    
    
    
    2,057,951
    
    
    
    1,550,516Income tax expense
    
    
    627,588
    
    
    
    695,799
    
    
    
    789,065
    
    
    
    613,149Net income
    
    
    1,090,304
    
    
    
    1,090,208
    
    
    
    1,268,886
    
    
    
    937,367Net loss attributable to
noncontrolling interest
    
    
    66,191
    
    
    
    117,966
    
    
    
    53,069
    
    
    
    66,778Net income attributable to Health
Grades, Inc.
    
    
    1,156,495
    
    
    
    1,208,174
    
    
    
    1,321,955
    
    
    
    1,004,145Net income per share (basic)
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.05
    
    
    $
    0.04Weighted average shares outstanding
(basic)
    
    
    29,078,090
    
    
    
    28,297,065
    
    
    
    28,185,206
    
    
    
    28,084,004Net income per share (diluted)
    
    $
    0.03
    
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.03Weighted average shares outstanding
(diluted)
    
    
    33,793,491
    
    
    
    32,904,871
    
    
    
    32,635,913
    
    
    
    31,895,270
 (1)
    
    Amount represents legal settlement.  64




---



##### Table of Contents



18.
    
    SUBSEQUENT EVENTS
 Indemnification and Derivative Complaint
     65




---



##### Table of Contents



Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A.
    
    Controls and Procedures
        Internal ControlIntegrated Framework
  
 Internal ControlIntegrated Fram
  66




---



##### Table of Contents



Internal
ControlIntegrated Framework
   
  67




---



##### Table of Contents



Item 9B.
    
    Other Information
  
  
 Item 10.
    
    Directors, Executive Officers and Corporate Governance
   
 Item 11.
    
    Executive Compensation
  
 Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
 Equity Compensation Plan Information
  Number of securitiesremaining availablefor future issuanceNumber of securities
    
    
    
    
    
    
    under equityto be issued upon
    
    
    Weighted-average
    
    
    compensation plansexercise of
    
    
    exercise price of
    
    
    (excluding securitiesoutstanding options,
    
    
    outstanding options,
    
    
    reflected in columnwarrants and rights
    
    
    warrants, rights and RSAs
    
    
    (a))Plan category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved
by security holders
    
    
    3,977,293
    
    
    $
    0.24
    
    
    
    3,545,376Equity compensation
plans not approved
by security holders
    
    
    125,000
    (1)
    
    $
    5.00
    
    
    
    N/ATotal
    
    
    4,102,293
    
    
    
    
    
    
    
    3,545,376
 (1)
    
    Represents warrants issued on January 16, 2009 in connection with the
purchase of certain data assets.  
 Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
  
 Item 14.
    
    Principal Accounting Fees and Services
   68




---



##### Table of Contents



Item 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)
    
    1. Financial Statements.
  2. Financial Statement Schedules.
     ALLOWANCE FOR DOUBTFUL
    
    BALANCE AT
    
    
    CHARGED TO
    
    
    CHARGED TO
    
    
    
    
    
    
    BALANCE ATACCOUNTS ON TRADE
    
    BEGINNING
    
    
    COSTS AND
    
    
    OTHER
    
    
    
    
    
    
    END OFRECEIVABLES
    
    OF PERIOD
    
    
    EXPENSES
    
    
    ACCOUNTS
    
    
    DEDUCTIONS(1)
    
    
    PERIODYear ended December 31, 2009
    
    $
    20,057
    
    
    $
    93,656
    
    
    $
    
    
    
    $
    50,547
    
    
    $
    63,166Year ended December 31, 2008
    
    $
    19,207
    
    
    $
    20,000
    
    
    $
    
    
    
    $
    19,150
    
    
    $
    20,057Year ended December 31, 2007
    
    $
    19,207
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    19,207
 (1)
    
    Represents actual amounts charged against the allowance for the
periods presented.   EXHIBITNUMBER
    
    DESCRIPTION3.1
    
    
    Form of Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to our Annual Report on Form 10-K for the year ended December 31, 2001)3.2
    
    
    Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to our amendment to our Quarterly Report on Form
10-Q/A for the quarter ended September 30, 2004, filed on May 2, 2005)10.1
    *
    
    2006 Equity Compensation Plan as Amended and Restated (incorporated by reference to Exhibit 10.1 to our Form 10-K, filed on
March 16, 2009)10.1.2
    *
    
    Form of Grant Notice of Restricted Stock Award (incorporated by reference to Exhibit 10.1.2 to our Form 10-K for the year
ended December 31, 2006)10.2
    *
    
    Loan and Security Agreement dated April 13, 2009 between Health Grades, Inc. and Silicon Valley Bank (incorporated by
reference to Exhibit 10.1 to our Form 10-Q for the quarter ended June 30, 2009).10.3
    *
    
    Employment Agreement dated as of April 1, 1996 by and between Specialty Care Network, Inc. and Kerry R. Hicks (incorporated
by reference to Exhibit 10.3 to our Registration Statement on Form S-1 (File No. 333-17627))10.3.1
    *
    
    Amended and Restated Employment Agreement dated August 6, 2008 by and between Health Grades, Inc. and Kerry R. Hicks
(incorporated by reference to Exhibit 10.3.1 to our Form 10-Q for the quarter ended June 30, 2008)10.3.2
    *
    
    Confidentiality and Non-Competition Agreement dated August 6, 2008 by and between Health Grades, Inc. and Kerry R. Hicks
(incorporated by reference to Exhibit 10.3.2 to our Form 10-Q for the quarter ended June 30, 2008)
  69




---



##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTION10.4.1
    *
    
    Employment Agreement between Specialty Care Network, Inc. and David Hicks, dated March 1, 1996 (incorporated by reference
to Exhibit 10.8 to our Registration Statement on Form S-1 (File No. 333-17627))10.4.2
    *
    
    Amendment to Employment Agreement between Specialty Care Network, Inc. and David Hicks, dated December 2, 1997.
(incorporated by reference to Exhibit 10.8.1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1997)10.5
    
    
    Building Lease between GR Development One, LLC, Landlord and Health Grades, Inc., Tenant. (incorporated by reference to
exhibit 10.6 to our Form 10-K for the year ended December 31, 2005)10.5.1
    
    
    Building Lease Amendment (incorporated by reference to exhibit 10.5.1 to our Form 10-K for the year ended December 31, 2006)10.6
    *+
    
    Directors Compensation10.7
    *
    
    Wes Crews Offer of Employment Letter (incorporated by reference to exhibit 10.1 to our Form 8-K, filed on April 9, 2009)10.8
    
    
    Asset Purchase Agreement dated October 13, 2008 by and among HealthGrades, Inc. and Adviware Pty Ltd. (incorporated by
reference to Exhibit 2.1 to our Form 8-K, filed on October 14, 2008)21.1
    +
    
    List of subsidiaries of Registrant23.1
    +
    
    Consent of Grant Thornton LLP31.1
    +
    
    Certification of the Chief Executive Officer pursuant to Rule 15d-14(a) under the Securities Exchange Act.31.2
    +
    
    Certification of the Chief Financial Officer pursuant to Rule 15d-14(a) under the Securities Exchange Act.32.1
    +
    
    Certification of the Chief Executive Officer pursuant to Rule 15d-14(b) under the Securities Exchange Act.32.2
    +
    
    Certification of the Chief Financial Officer pursuant to Rule 15d-14(b) under the Securities Exchange Act.
 *
    
    - Constitutes a management contract, compensatory plan or arrangement required to be filed
as an exhibit to this report.+
    
    - Filed herewith.  70




---



##### Table of Contents



HEALTH GRADES, INC.Date: March 16, 2010
    /s/   Kerry R. HicksKerry R. HicksChairman, President and Chief Executive Officer  NAME
    
    TITLE
    
    DATE/s/ Kerry R. Hicks

Kerry R. Hicks
    
    Chairman, President and
Chief Executive Officer
(Principal
Executive Officer)
    
    March 16, 2010/s/ Allen Dodge

Allen Dodge
    
    Executive Vice
President, Chief
Financial Officer,
Secretary and Treasurer
(Principal Financial and
Accounting Officer
    
    March 16, 2010/s/ Mary Boland

Mary Boland
    
    Director
    
    March 16, 2010/s/ Leslie S. Matthews, M.D.

Leslie S. Matthews, M.D.
    
    Director
    
    March 16, 2010/s/ John Quattrone

John Quattrone
    
    Director
    
    March 16, 2010/s/ Mats Wahlström

Mats Wahlström
    
    Director
    
    March 16, 2010