Everyday Health, Inc. - FORM S-1/A - March 26, 2010

As filed with the Securities and Exchange Commission on March 26, 2010

Registration No. 333-164474

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Amendment No. 1

to

Form S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

 

 

 

 

Everyday Health, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

45 Main St., Suite 800
Brooklyn, NY 11201
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

 

 

Benjamin Wolin
Chief Executive Officer
45 Main St., Suite 800
Brooklyn, NY 11201
(718) 797-0722
(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

 

Copies to:

 

 

 

 

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after this Registration Statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

(Do not check if a smaller reporting company)

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

Subject to Completion. Dated March 26, 2010.

 

           Shares

 

 

Common Stock

 

 

 

 

This is an initial public offering of shares of common stock of Everyday Health, Inc.

 

Everyday Health is offering           of the shares to be sold in the offering. The selling stockholders identified in this prospectus are offering           shares. Everyday Health will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.

 

Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $     and $     . We have applied to have our common stock listed on The Nasdaq Global Market under the symbol “EVDY.”

 

See “Risk Factors” on page 13 to read about factors you should consider before buying shares of our common stock.

 

 

 

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

 

 

To the extent that the underwriters sell more than           shares of common stock, the underwriters have the option to purchase up to an additional           shares from Everyday Health at the initial public offering price less underwriting discounts and commissions.

 

 

 

 

The underwriters expect to deliver the shares against payment in New York, New York on          , 2010.

 

 

 

 

 

 

 

Prospectus dated          , 2010.

 

TABLE OF CONTENTS

 

Prospectus

 

 

 

Through and including          , 2010 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

 

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

 

 

All website references in this prospectus are intended to be inactive textual references only. The content of such websites is not incorporated by reference in this prospectus.

 

PROSPECTUS SUMMARY

	•	consumers to readily access a variety of valuable content, interactive tools and community features across numerous health categories and empower them to better manage their health concerns;
	•	advertisers to reach a large and desirable base of consumers in a targeted and contextually-relevant manner; and
	•	partners to more effectively promote and monetize their content online.

	•	developing new and improved offerings to enhance the consumer experience;
	•	seeking to aggressively grow our advertiser and sponsorship base;
	•	continuing to build and enhance awareness of the Everyday Health brand;
	•	acquiring complementary businesses; and
	•	expanding into international markets.

Common stock offered by Everyday Health		shares
Common stock offered by the selling stockholders		shares
Common stock to be outstanding immediately after this offering		shares
Use of proceeds		We estimate that we will receive net proceeds from this offering of approximately $      million, based on an assumed public offering price of $      per share, the midpoint of the price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and offering expenses payable by us. We intend to use the net proceeds from this offering for working capital and general corporate purposes, which may include financing the development of new content and advertising-based services, as well as funding capital expenditures and operating losses. We may also use a portion of the net proceeds to repay borrowings under our credit facilities or acquire complementary businesses, products or technologies. However, we do not have agreements or commitments for any specific repayments or acquisitions at this time. We will not receive any proceeds from the sale of shares by the selling stockholders in this offering. See “Use of Proceeds.”
Proposed NASDAQ Global Market symbol		“EVDY”
Risk Factors		You should read the “Risk Factors” section beginning on page 13 and other information included in this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.

	•	4,751,879 shares of common stock issuable upon exercise of outstanding options with a weighted-average exercise price of $4.52 per share;

	•	659,780 shares of common stock reserved for future issuance under our 2003 Stock Option Plan; provided, however, that following the completion of this offering, no additional grants will be awarded under our 2003 Stock Option Plan and such shares will become available for issuance under our 2010 Equity Incentive Plan, which we plan to adopt prior to the consummation of this offering;

	•	shares of common stock reserved for future issuance under our 2010 Equity Incentive Plan, which we plan to adopt prior to the consummation of this offering; and

	•	222,977 shares of common stock issuable upon the exercise of outstanding warrants, which includes warrants to purchase our redeemable convertible preferred stock that will become exercisable for common stock after this offering, at a weighted-average exercise price of $5.47 per share.

	•	gives effect to the completion of the reverse stock split;
	•	gives effect to the automatic preferred stock conversion;
	•	assumes no exercise by the underwriters of their option to purchase up to          additional shares, consisting of shares to be purchased from us; and
	•	gives effect to the adoption of our amended and restated certificate of incorporation and our amended and restated bylaws that will occur immediately prior to the consummation of this offering.

 

SUMMARY CONSOLIDATED FINANCIAL DATA

	•	compensation for product development, sales and marketing, and general and administrative personnel who were employed by us for a short period of time following the RHG acquisition; and
	•	third-party product development expenses, such as content licensing fees, data center costs and other technology-related expenses.

														Three Months
														Ended
		Year Ended December 31,												December 31,
		2007				2008				2009				2008				2009
		(in thousands, except share and per share data)
Consolidated Statement of Operations Data:
Revenues		$	47,363			$	69,412			$	90,111			$	22,672			$	28,618
Operating expenses:
Cost of revenue			30,111				35,229				39,453				8,442				8,696
Sales and marketing			7,425				14,503				20,816				6,059				6,249
Product development			10,753				14,874				20,192				5,566				5,115
General and administrative			6,859				12,906				16,239				5,488				3,681
Depreciation and amortization			2,030				4,340				9,787				1,980				2,454
Total operating expenses			57,178				81,852				106,487				27,535				26,195
Income (loss) from operations			(9,815	)			(12,440	)			(16,376	)			(4,863	)			2,423
Interest expense, net			(323	)			(455	)			(1,314	)			(208	)			(491	)
Income (loss) before provision for income taxes			(10,138	)			(12,895	)			(17,690	)			(5,071	)			1,932
Provision for income taxes			—				(293	)			(1,331	)			(293	)			(497	)
Net income (loss)		$	(10,138	)		$	(13,188	)		$	(19,021	)		$	(5,364	)		$	1,435
Net income (loss) per common share:
Basic		$	(1.57	)		$	(2.01	)		$	(2.89	)		$	(0.82	)		$	0.22
Diluted		$	(1.57	)		$	(2.01	)		$	(2.89	)		$	(0.82	)		$	0.20
Pro forma basic (unaudited)(1)						$	(0.63	)		$	(0.63	)						$	0.05
Pro forma diluted (unaudited)(1)						$	(0.63	)		$	(0.63	)						$	0.05
Weighted-average common shares outstanding: Basic			6,444,696				6,559,614				6,581,793				6,564,654				6,617,235
Diluted			6,444,696				6,559,614				6,581,793				6,564,654				7,321,932
Pro forma basic (unaudited)(1)							20,955,330				30,229,627								30,265,069
Pro forma diluted (unaudited)(1)							20,955,330				30,229,627								30,969,766

(1)		Pro forma weighted average shares outstanding reflects the conversion of our redeemable convertible preferred stock (using the if-converted method) into common stock as though the conversion had occurred on the original dates of issuance.

														Three Months
														Ended
		Year Ended December 31,												December 31,
		2007				2008				2009				2008				2009
		(in thousands)
Other Financial Data:
Adjusted EBITDA		$	(6,795	)		$	(5,104	)		$	(2,664	)		$	(1,858	)		$	5,598
Stock-based compensation expense included in:
Sales and marketing		$	276			$	812			$	815			$	278			$	217
Product development			64				492				548				168				106
General and administrative			650				1,692				1,662				579				398
Total stock-based compensation expense		$	990			$	2,996			$	3,025			$	1,025			$	721

As of December 31, 2009

Pro Forma

Actual

Pro Forma

As Adjusted

(in thousands)

Consolidated Balance Sheet Data:

Cash and cash equivalents

$

16,360

Total assets

129,389

Deferred revenue

6,930

Long-term debt (including current portion)

17,000

Total liabilities

46,203

Redeemable convertible preferred stock

130,420

Total stockholders’ equity (deficit)

(47,234

)

	•	as a measure of operating performance;
	•	to allocate resources to enhance the financial performance of our business;
	•	to evaluate the effectiveness of our business strategies;
	•	in communications with our board of directors concerning our financial performance;
	•	for planning purposes, including the preparation of our annual operating budget; and
	•	as a factor when determining management’s incentive compensation.

	•	the amount of such non-cash expenses in any specific period may not directly correlate to the underlying performance of our business operations; and
	•	such expenses can vary significantly between periods as a result of new acquisitions, or the timing of new stock-based awards, as the case may be.

	•	Adjusted EBITDA does not reflect our future requirements for contractual commitments or our cash expenditures or future requirements for capital expenditures;
	•	Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital;
	•	Adjusted EBITDA does not reflect interest income or interest expense;
	•	Adjusted EBITDA does not reflect cash requirements for income taxes;
	•	Adjusted EBITDA does not reflect the non-cash component of employee compensation;
	•	although depreciation and amortization are non-cash charges, the assets being depreciated or amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for these replacements; and
	•	other companies in our industry may calculate similarly titled measures differently than we do, limiting their usefulness as comparative measures.

														Three Months
														Ended
		Year Ended December 31,												December 31,
		2007				2008				2009				2008				2009
		(in thousands)
Reconciliation of Adjusted EBITDA to Net Income (Loss):
Net income (loss)		$	(10,138	)		$	(13,188	)		$	(19,021	)		$	(5,364	)		$	1,435
Interest expense, net			323				455				1,314				208				491
Income tax expense			—				293				1,331				293				497
Depreciation and amortization expense			2,030				4,340				9,787				1,980				2,454
Stock-based compensation			990				2,996				3,025				1,025				721
Compensation expense related to acquisition earnout			—				—				900				—				—
Adjusted EBITDA		$	(6,795	)		$	(5,104	)		$	(2,664	)		$	(1,858	)		$	5,598

 

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this prospectus, before deciding whether to invest in our common stock. Our business, prospects, financial condition or operating results could be materially adversely affected by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. The trading price of our common stock could decline as a result of any of these risks, and you could lose part or all of your investment in our common stock. When deciding whether to invest in our common stock, you should also refer to the other information in this prospectus, including our consolidated financial statements and related notes and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus. You should read the section entitled “Special Note Regarding Forward-Looking Statements” immediately following these risk factors for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this prospectus.

 

Risks Related to Our Business

 

We have a limited operating history.

 

Our company has been in existence since 2002. We have a limited operating history and participate in new markets that are changing rapidly. Our limited operating history may make it difficult for you to evaluate our current business and our future prospects. Moreover, our business has undergone significant changes during its short history as a result of:

 

 

We expect our business to undergo further changes, making it difficult to forecast our future financial performance. Many companies seeking to provide consumer health products and services through the Internet have failed to become profitable, and some have ceased operations. We cannot assure you that our current strategy will be successful or that our business and revenues will continue to grow.

 

We have incurred significant losses since our inception and expect to incur losses in the future.

 

We have accumulated significant losses since our inception. We generated revenues of $90.1 million and recorded net losses of $19.0 million in the year ended December 31, 2009. As of December 31, 2009, our accumulated deficit was $58.2 million. We expect to continue to incur significant operating expenses and, as a result, we will need to generate significant revenues to achieve or maintain profitability. We may not be able to achieve or sustain profitability on a quarterly or annual basis in the future.

 

Failure to maintain and enhance our brands could have a material adverse effect on our business.

 

We believe that our brand identity is critical to the success of our business and in helping us achieve recognition as a trusted source of consumer health solutions. We also believe that maintaining and enhancing our brands are vital to expanding our consumer base and growing our relationships with advertisers. We believe that the importance of brand recognition and consumer loyalty will only increase in light of increasing competition in our markets. Some of our existing and potential

competitors, including search engines, media companies and other online content providers, have well established brands with greater recognition and market penetration. We have expended considerable resources on establishing and enhancing the Everyday Health brand and the other brands in the Everyday Health portfolio. We have developed policies and procedures that are intended to preserve and enhance these brands, including editorial procedures designed to control the quality of our content. We expect to continue to devote significant additional resources and efforts to enhance our brands. However, we may not be able to successfully maintain or enhance awareness of our brands, and events outside of our control may have a negative effect on our brands.

 

If we are unable to deliver content that attracts and retains consumers to websites in the Everyday Health portfolio, our ability to attract advertisers will be adversely affected, which in turn will negatively impact our business.

 

We generate a significant percentage of our revenues from advertising fees. Our future success depends on our ability to deliver timely, interesting, relevant and valuable content to attract and retain consumers to websites in the Everyday Health portfolio. Our ability to successfully develop, produce and license highly-specialized consumer health content is subject to numerous uncertainties, including our ability to:

 

 

If the content on the Everyday Health portfolio is not perceived as sufficiently appealing or valuable to our consumers, we will be unable to retain or grow our consumer base. If we cannot maintain and grow our consumer base, or if we experience a decline in traffic levels or the number of page views by our consumers, our ability to retain and attract advertisers will be adversely affected. This would in turn negatively affect our business and revenues.

 

Our inability to enter into new, or otherwise extend our existing, licensing arrangements for proprietary content or the decline in the popularity of a public figure that is associated with our partners would adversely affect our ability to grow our business and revenues.

 

We are highly dependent on the proprietary content that we license from third parties to attract and retain consumers to the Everyday Health portfolio. We believe that such proprietary content is an important element of our business and helps to differentiate us from our competitors. Moreover, we have historically derived a portion of our revenues from subscriptions to certain websites in the Everyday Health portfolio that are based on licensed proprietary content. We anticipate that a meaningful portion of our revenues in the foreseeable future will continue to be derived from both advertising and subscription arrangements associated with these websites.

 

Our licensing arrangements have varying duration and renewal terms. As these arrangements expire, renewals on favorable terms may be sought; however, third parties may outbid us for the rights to such content. In addition, owners of such content may elect to create their own online presence in lieu of granting us a license. Furthermore, renewal costs could substantially exceed the original contract cost and reduce the profitability of these agreements to us. Our inability to renew our existing licensing arrangements, or to otherwise enter into new licensing arrangements, in each case on commercially favorable terms, could adversely affect the appeal of our content offerings to our consumers, which in turn would negatively impact the traffic and page views of the Everyday Health

portfolio and its attractiveness to our consumers, advertisers and partners. The loss of the licensing arrangements associated with www.JillianMichaels.com or www.SouthBeachDiet.com, each of which accounted for more than 10% of our consolidated revenues for the year ended December 31, 2009, may have a material adverse effect on our business and revenues. In addition, the loss of the licensing arrangement associated with www.WhattoExpect.com may also have a material adverse effect on our business and revenues.

 

In addition, we rely on the popularity and credibility of public figures that are associated with certain websites in the Everyday Health portfolio. These individuals may not retain their current appeal or may become subject to negative publicity. The popularity and credibility of the websites associated with these public figures or content providers also depend on the quality and acceptance of competing content released into the marketplace at or near the same time, the availability of alternative sources for the information, general economic conditions and other tangible and intangible factors, all of which are difficult to predict. Consumer preferences change frequently and it is a challenge to anticipate what offerings will be successful at a certain point in time. Any decline in the popularity of the content offerings, or any negative publicity, whether individually or with respect to the content offerings associated with the websites associated with these public figures or content providers, may have an adverse impact on our business and revenues.

 

Our failure to attract and retain consumers in a cost-effective manner could compromise our ability to grow our revenues and become profitable.

 

Our continued success is highly dependent on our ability to attract and retain consumers in a cost-effective manner. In order to attract consumers to the Everyday Health portfolio, we must expend considerable amounts of money and resources for online and offline advertising and marketing. We use a diverse mix of marketing and advertising programs to promote the websites in our portfolio, and we have spent, and expect to continue to spend, significant amounts of money on these initiatives. Significant increases in the pricing of one or more of these initiatives will result in higher marketing costs. Our failure to attract and acquire new, and retain existing, consumers in a cost-effective manner would make it more difficult to maintain and grow our revenues and ultimately to achieve profitability.

 

Our revenues are subject to fluctuations due to the timing and amount of expenditures by our advertising customers.

 

Advertising and sponsorship revenue comprises a significant and growing component of our revenues. Our advertising and sponsorship revenue accounted for approximately 64.5% of our total revenues for the year ended December 31, 2009. Advertising spending in the markets in which we compete can fluctuate significantly as a result of a variety of factors, many of which are outside of our control. These factors include:

 

 

Our advertising and sponsorship revenue is primarily derived from short-term contracts that may not be renewed.

 

Many of our advertising and sponsorship contracts are short-term commitments and are subject to termination by the customer at any time. Despite the short-term nature of these commitments, we

typically must expend significant resources over a lengthy sales cycle to obtain these contracts. As of December 31, 2009, one advertising agency accounted for approximately 13% of our accounts receivable. Our current customers may not fulfill their obligations under their existing contracts or continue to advertise with us beyond the terms of their existing contracts. If a significant number of advertisers, or a few large advertisers, decide to reduce their expenditures with us or to discontinue advertising with us, we could experience a material decline in our revenues.

 

Our quarterly operating results are subject to significant fluctuations, and these fluctuations may adversely affect the trading price of our common stock.

 

We have experienced, and expect to continue to experience, significant fluctuations in our quarterly revenues and operating results. Our quarterly revenues and operating results may fluctuate significantly due to a number of factors, many of which are outside of our control. These factors include:

 

 

In addition, seasonal factors, including those relating to the prevalence of specific health conditions, can also affect our operating results. For example, we have historically experienced an increase in new subscriptions in the first calendar quarter. This increase typically coincides with the general trend towards making healthy lifestyle choices at the beginning of the new year.

 

As a result of these seasonal and quarterly fluctuations, we believe that comparisons of our quarterly results of operations are not necessarily meaningful and that these comparisons are not reliable as indicators of our future performance. In addition, these fluctuations could result in volatility in our operating results and may adversely affect our cash flows. As our business grows, these seasonal fluctuations may become more pronounced. Any seasonal or quarterly fluctuations that we report in the future may differ from the expectations of securities analysts and investors. This could cause the price of our common stock to decline.

 

Our inability to sustain or grow our advertising rates could adversely affect our operating results.

 

The rates charged for advertising on the Internet, particularly in the consumer health sector, have fluctuated over the past few years due to a variety of factors, including the growth in use of search engines, general economic conditions and competitive offerings. We have committed significant resources to delivering content and advertising-based services designed to appeal to our advertising customers by engaging consumers in a more interactive and meaningful manner, therefore providing a higher return on our advertisers’ expenditures. However, our customers may not perceive our content offerings and advertising-based services as sufficiently valuable to justify the payment of our rates. If we are unable to maintain our historical, or grow to anticipated, pricing levels for advertising, we will experience difficulties in maintaining or growing our revenues.

We face significant competition in attracting both consumers and advertising customers.

 

In order to attract consumers to websites in our portfolio, we have to compete with a variety of sources that provide different forms of consumer health information, including:

 

 

We believe that the depth and breadth of our content offerings and advertising-based services across the consumer health spectrum differentiate us from our competitors. However, since there are no meaningful barriers to entry into the markets in which we participate, we anticipate that competition for consumers will continue to intensify, particularly as our competitors broaden their product offerings. As we continue to diversify the breadth of our content offerings and advertising-based services and expand internationally, we expect our competitors to further expand as well. Our current and future competitors may offer new categories of content, products or services before we do, which may give them a competitive advantage when trying to attract consumers or advertisers. Moreover, both existing and potential consumers may perceive our competitors’ offerings to be superior to ours.

 

Recently, our industry has experienced consolidation which could increase competition in the future, particularly with respect to content acquisition, exclusivity of content and pricing. To compete effectively, we may need to expend significant resources on content acquisition, technology or marketing and advertising. We currently plan to distinguish ourselves from our competitors on the basis of the depth and breadth of our content offerings across the health spectrum, the quality of our advertising-based services and technological leadership. These efforts may be expensive and could reduce our margins.

 

We also compete for advertisers with the information sources mentioned above. Advertising customers seek to allocate expenditures in a way that will enable them to reach the broadest audience in the most targeted and cost-efficient manner. Advertisers may choose to work with our competitors due to a variety of factors, including:

 

 

Many of our current and potential competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we do. As a result, we could lose market share to our competitors, and our revenues could decline.

The market for Internet advertising is still developing, and if the Internet fails to gain further acceptance as a medium for advertising, we would experience slower revenue growth or a decrease in revenue, and greater losses than expected.

 

Our future success depends, in part, on continued growth in the use of the Internet as an advertising and marketing platform. The Internet advertising market is still developing, and we cannot compare this market with traditional advertising media to gauge its effectiveness. As a result, demand for and market acceptance of Internet advertising solutions remain uncertain. Many of our current and potential customers have limited experience with Internet advertising and have allocated only a relatively small portion of their aggregate advertising and marketing budgets to Internet activities. The adoption of Internet advertising, particularly by entities that have historically relied on traditional methods of advertising and marketing, requires the acceptance of new advertising and marketing methods. These customers may find Internet advertising to be less effective for meeting their business needs than traditional advertising and marketing methods. Furthermore, there are software programs designed to limit or prevent advertising from being delivered to a user’s computer. Widespread adoption of this software by users would significantly undermine the commercial viability of Internet advertising.

 

We depend on Internet search engines to attract a significant portion of the traffic to the Everyday Health portfolio, and if we are listed less prominently in search result listings, our business and operating results would be harmed.

 

We derive a significant portion of our traffic from consumers who search for consumer health information through Internet search engines, such as those operated by Google, Microsoft and Yahoo! A critical factor in attracting consumers to our portfolio of websites is whether our websites are prominently displayed in response to a relevant Internet search.

 

Search result listings are determined and displayed in accordance with a set of formulas or algorithms developed by the particular Internet search engine. The algorithms determine the order of the results in response to the relevant Internet search. From time to time, search engines revise these algorithms. In some instances, these modifications may cause websites within the Everyday Health portfolio to be listed less prominently in unpaid search results, which would result in decreased traffic from search engines to our websites. One of the most cost-effective efforts we employ to attract and acquire new, and retain existing, users is search engine optimization, or SEO. SEO involves developing websites in a manner that will enhance the likelihood that they will rank well in search engine results. An effective SEO effort can significantly reduce our marketing costs. Conversely, if our SEO efforts are ineffective, we could experience a substantial increase in our consumer acquisition costs and a decrease of free traffic to the Everyday Health portfolio.

 

The websites in our portfolio may also become listed less prominently in unpaid search results for other reasons, such as search engine technical difficulties, search engine technical changes and changes we make to our websites. In addition, search engines have deemed the practices of some companies to be inconsistent with search engine guidelines and have decided not to list their websites in search result listings at all. If listed less prominently or not at all in search result listings for any reason, the traffic to the websites in our portfolio would likely decline, which could harm our operating results. If we decide to attempt to replace this traffic, we may be required to increase our marketing expenditures, which could also harm our operating results. Any decrease in traffic would be costly to replace.

 

If we experience a decline in renewals from our premium subscription-based services, our revenues and business may decline.

 

Our premium services consist primarily of subscriptions sold to consumers who purchase access to one or more of the websites in our portfolio or to a specific interactive service or application, including licensing our CarePages social media application to healthcare service providers. We must

continually add new subscribers and licensees, both to increase our subscriber and licensee base and to replace subscribers and licensees who choose not to renew their subscriptions or licenses. Subscribers and licensees may choose not to renew their subscriptions or licenses for many reasons at any time prior to the renewal date, including:

 

 

Licensees may choose not to renew their licenses for many of the same reasons. If we are unable to attract new subscribers or licensees to our premium services to counterbalance our non-renewal rates, our subscriber and licensee base will decrease. If our subscriber and licensee non-renewal rate increases, we may be required to increase the rate at which we add new subscribers and licensees in order to maintain and grow our revenues from our premium services and may have to incur significantly higher marketing and advertising expenses than we currently anticipate.

 

Developing and implementing new and updated applications, features and services may be more difficult than expected, may take longer and cost more than expected and may not result in sufficient increases in revenue to justify the costs.

 

Attracting and retaining consumers require us to continue to improve the technology underlying our content offerings and content-delivery platform. Accordingly, we must continue to develop new and updated applications, features and services. If we are unable to do so on a timely basis or if we are unable to implement new applications, features and services that enhance our consumers’ experience without disruption to our existing ones, we may lose potential and existing consumers and advertising customers. We rely on a combination of internal development, strategic relationships, licensing and acquisitions to develop our content offerings and advertising-based services. These efforts may:

 

 

The revenue opportunities generated from these efforts may fail to justify the amounts spent.

 

Future acquisitions could disrupt our business and harm our financial condition and operating results.

 

We have acquired, and in the future may acquire or invest in, complementary businesses, products or technologies. Most recently, in October 2008, we acquired Revolution Health Group LLC and its subsidiaries. Following the closing of this offering, we expect that as a result of our access to the public markets, we will have enhanced opportunities to pursue acquisitions and investments in the future. Acquisitions and investments involve numerous risks, including:

 

 

 

Our inability to integrate any acquired business successfully or the failure to achieve any expected synergies could result in increased expenses and a reduction in expected revenues or revenue growth. In addition, we may not be able to identify or consummate any future acquisition on favorable terms, or at all. If we do pursue an acquisition, it is possible that we may not realize the anticipated benefits from the acquisition or that the financial markets or investors will negatively view the acquisition. As a result, our stock price could fluctuate or decline.

 

The costs associated with potential acquisitions or strategic partnerships could dilute your investment or adversely affect our results of operations.

 

In order to finance acquisitions, investments or strategic partnerships, we may use equity securities, debt, cash or a combination of the foregoing. Any issuance of equity securities or securities convertible into equity may result in substantial dilution to our existing stockholders, reduce the market price of our common stock or both. Any debt financing is likely to increase our interest expense and include financial and other covenants that could have an adverse impact on our business. In addition, an acquisition may involve non-recurring charges, including writedowns of significant amounts of intangible assets or goodwill. The related increases in expenses could adversely affect our results of operations. Any such acquisitions or strategic alliances may require us to obtain additional equity or debt financing, which may not be available on commercially acceptable terms, if at all. We do not intend to seek security holder approval for any such acquisition or security issuance unless required by applicable law, regulation or the terms of our existing securities.

 

There are a number of risks associated with expansion of our business internationally.

 

Expansion into international markets is one of the key elements of our growth strategy. In addition to facing many of the same challenges we face domestically, there are additional risks and costs inherent in expanding our business in international markets. These include:

 

 

 

We have limited experience in managing international operations. As a result, we may face difficulties and unforeseen expenses in expanding our business internationally, and even if we attempt to do so, we may be unsuccessful.

 

Given the tenure and experience of our Chief Executive Officer and President, and their guiding roles in developing our business and growth strategy since our inception, our growth may be inhibited, or our operations may be impaired, if we were to lose their services.

 

Our growth and success depends to a significant extent on our ability to retain Benjamin Wolin, our Chief Executive Officer, and Michael Keriakos, our President, both of whom founded our company and have led the growth and operation of our business since its inception. The loss of the services of either of these key executives could result in our inability to manage our operations effectively and to implement our business strategy. This may cause our stock price to fluctuate or decline. Further, we cannot assure you that we would be able to successfully integrate newly-hired executives or senior managers with our existing management team.

 

We may not be able to attract, hire and retain qualified personnel in a cost-effective manner, which could impact the quality of our content offerings and advertising-based services and the effectiveness and efficiency of our management, resulting in increased costs and losses in revenues.

 

Our success depends on our ability to attract, hire and retain, at commercially reasonable rates, qualified editorial and writing, sales and marketing, customer support, technical, financial and accounting, legal and other managerial personnel. The competition for personnel in the industries in which we operate is intense. Our personnel may terminate their employment at any time for any reason. Loss of personnel may result in increased costs for replacement hiring and training. If we fail to attract and hire new personnel, or retain and motivate our current personnel, we may not be able to operate our businesses effectively or efficiently, serve our consumers and customers properly or maintain the quality of our content offerings and advertising-based services.

 

In particular, our success depends in significant part on maintaining and growing an effective sales force. This dependence involves a number of challenges, including:

 

 

Our growth could strain our personnel, technology and infrastructure resources. If we are unable to implement appropriate controls and procedures to manage our growth, we may not be able to successfully implement our business plan.

 

Our growth in operations has placed a significant strain on our management, administrative, technological, operational and financial infrastructure. Anticipated future growth, including growth related to the broadening of our content offerings and advertising-based services and our expansion into new geographic areas, will continue to place similar strains on our personnel, technology and infrastructure. Our success will depend in part upon our ability to manage our growth. To manage the expected growth of our operations, we will need to continue to improve our operational, financial, technological and management controls and our reporting systems and procedures. The resulting additional capital investments will increase our costs, which will make it more difficult for us to offset any future revenue shortfalls by offsetting cost reductions in the short term.

 

As a creator and a distributor of content over the Internet, we face potential liability for legal claims based on the nature and content of the materials that we create or distribute.

 

Consumers access health-related content through our portfolio of websites, including information regarding particular medical conditions, diagnosis and treatment and possible adverse reactions or side effects from medications. If our content, or content we obtain from third parties, contains inaccuracies, it is possible that consumers who rely on that content or others may sue us for various causes of action. Although the websites in our portfolio contain terms and conditions, including disclaimers of liability, that are intended to reduce or eliminate our liability, the law governing the validity and enforceability of online agreements is still evolving. Moreover, many of these terms and conditions relate to websites that are operated by our partners and are not under our control. We could be subject to claims by third parties that these online agreements are unenforceable. A finding by a court that these agreements are invalid and that we are subject to liability could harm our business and require us to make costly changes.

 

We have editorial procedures in place to control the quality of our content offerings. However, our editorial and other quality control procedures may not be sufficient to ensure that there are no errors or omissions in our content offerings or to prevent such errors and omissions in content that is controlled by our partners. Even if potential claims do not result in liability to us, investigating and defending against these claims could be expensive and time consuming and could divert management’s attention away from our operations.

 

In addition, we could be exposed to liability in connection with material posted to the websites in our portfolio by our consumers. Many of these websites offer consumers an opportunity to post comments and opinions. Some of this user-generated content may infringe on third-party intellectual property rights or privacy rights or may otherwise be subject to challenge under copyright laws. Moreover, we could face claims for making such user-generated content available on the websites in our portfolio if consumers rely on such information to their detriment, particularly if the information relates to medical diagnosis and treatment. Such claims could divert management’s time and attention away from our business and result in significant costs to us, regardless of the merit of these claims.

 

If we become subject to these types of claims and are not successful in our defense, we may be forced to pay substantial damages. Our insurance may not adequately protect us against these claims. The filing of these claims may result in negative publicity and also damage our reputation as a high quality and trusted provider of consumer health content and services.

 

The effects of the recent global economic crisis may impact our business, operating results or financial condition.

 

The recent global economic crisis has caused disruptions and extreme volatility in global financial markets and increased rates of default and bankruptcy, and has impacted levels of consumer spending. These macroeconomic developments have negatively affected, and may continue to affect,

our business, operating results or financial condition in a number of ways. For example, current or potential customers may delay or decrease spending with us, may have difficulty paying us or may delay paying us for previously purchased products and services. This may also require us to increase our bad debt reserve and may affect how we recognize accounts receivables. In addition, if consumer spending continues to decrease, this may result in lower click through rates on advertisements displayed on our portfolio of websites. A slow or uneven pace of economic recovery would negatively impact our business and operating results.

 

Risks Related to Our Intellectual Property and Technology Platform

 

If our intellectual property and technologies are not adequately protected to prevent use or misappropriation by our competitors, the value of our brand and other intangible assets may be diminished, and our business may be adversely affected.

 

Our future success and competitive position depend in part on our ability to protect our proprietary technologies and intellectual property. We rely, and expect to continue to rely, on a combination of confidentiality and licensing agreements with our employees, consultants and third parties with whom we have relationships, along with trademark, copyright, patent and trade secret protection laws, to protect our proprietary technologies and intellectual property. Many of our trademarks contain words or terms having a common usage and, as a result, may not be protectable under applicable law. Competitors may adopt service marks or trademarks similar to ours or use identical or similar terms as keywords in Internet search engine advertising programs, thereby impeding our ability to build brand identity and possibly leading to confusion by our consumers and customers. We also possess intellectual property rights in aspects of our content, search technology, software products and other processes. However, we do not register our copyrights in any of our content. Rather, this content is primarily protected by user agreements that limit access to and use of our content. Compliance with use restrictions is difficult to monitor, and our proprietary rights may be more difficult to enforce than other forms of intellectual property rights.

 

Although we rely on copyright laws to protect the works of authorship created by us, we do not register the copyrights in any of our copyrightable works. Copyrights of U.S. origin must be registered before the copyright owner may bring an infringement suit in the U.S. Furthermore, if a copyright of U.S. origin is not registered within three months of publication of the underlying work, the copyright owner is precluded from seeking statutory damages or attorneys fees in any U.S. enforcement action, and is limited to seeking actual damages and lost profits. Accordingly, if one of our unregistered copyrights of U.S. origin is infringed by a third party, we will need to register the copyright before we can file an infringement suit in the U.S., and our remedies in any such infringement suit may be limited.

 

We cannot assure you that the steps we take will be adequate to protect our technologies and intellectual property, that our patent and trademark applications will lead to issued patents and registered trademarks, that others will not develop or patent similar or superior technologies, products or services, or that our patents, trademarks and other intellectual property will not be challenged, invalidated or circumvented by others. Furthermore, the intellectual property laws of other countries where our websites are directed or can be accessed may not protect our products and intellectual property rights to the same extent as the laws of the U.S. The legal standards relating to the validity, enforceability and scope of protection of intellectual property rights in Internet-related industries are uncertain and still evolving, both in the U.S. and in other countries. If the protection of our technologies and intellectual property is inadequate to prevent use or appropriation by third parties, the value of our brand and other intangible assets may diminish.

 

In addition, third parties may knowingly or unknowingly infringe our patents, trademarks and other intellectual property rights, and litigation may be necessary to protect and enforce our intellectual property rights. Any such litigation could be costly and divert management’s attention and resources away from our business. We also expect that the more successful we are, the more likely that competitors will claim that

we infringe on their intellectual property or proprietary rights. Even if these claims do not result in liability to us, we could incur significant costs in investigating and defending against these claims. If we are unable to protect our proprietary rights or if third parties independently develop or gain access to our or similar technologies, our business, revenue, reputation and competitive position could be harmed.

 

Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information. Failure to protect our proprietary information could make it easier for third parties to compete with our products and harm our business.

 

In order to protect our proprietary rights, we rely in part on security measures, as well as confidentiality agreements with our employees, licensees, independent contractors and other advisors. These measures and agreements may not effectively prevent disclosure of confidential information, including trade secrets, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. We could potentially lose future trade secret protection if any unauthorized disclosure of such information occurs. In addition, others may independently discover our trade secrets and proprietary information. In such cases we could not assert any trade secret rights against such parties. Laws regarding trade secret rights in certain markets in which we operate may afford little or no protection to our trade secrets. The loss of trade secret protection could make it easier for third parties to compete with our products by copying functionality. In addition, any changes in, or unexpected interpretations of, the trade secret and other intellectual property laws in any country in which we operate may compromise our ability to enforce our trade secret and intellectual property rights. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights. Failure to obtain or maintain trade secret protection could adversely affect our business, revenue, reputation and competitive position.

 

Intellectual property claims against us could be costly and result in the loss of significant rights related to, among other things, our websites and advertising and marketing activities.

 

Trademark, copyright, patent and other intellectual property rights are important to us and our business. Our intellectual property rights extend to our technologies, applications and the content on our websites. We rely on intellectual property licensed from third parties. From time to time, third parties may allege that we have violated their intellectual property rights. If we are forced to defend ourselves against intellectual property infringement claims, regardless of the merit or ultimate result of such claims, we may face costly litigation, diversion of technical and management personnel, limitations on our ability to use our current websites or inability to market or provide our content offerings or advertising-based services. As a result of any such dispute, we may have to:

 

 

These actions, if required, may be costly or unavailable on terms acceptable to us. In addition, many of our partnering agreements require us to indemnify our partners for third-party intellectual property infringement claims, which could increase the cost to us of an adverse ruling in such an action.

 

In addition, we face potential liability for negligence, copyright, patent or trademark infringement or other claims based on the nature of our content. These claims could potentially arise with respect to both company-acquired content and user-generated content. Litigation to defend these claims could be costly, and any other liabilities we incur in connection with the claims could be significant.

Our possession and use of personal information presents risks and expenses that could harm our business. Unauthorized disclosure or manipulation of such data, whether through breach of our network security or otherwise, could expose us to costly litigation and damage our reputation.

 

Maintaining our network security is of critical importance because we use and store confidential registered user, employee and other sensitive data, such as names, addresses, credit card numbers and other personal information, including information about a consumer’s health interests. In particular, a substantial majority of our consumers who subscribe to a premium service use credit and debit cards to pay for those subscriptions. If we or our processing vendors were to have problems with our billing software, our consumers could encounter difficulties in accessing websites within our portfolio or otherwise have a dissatisfying experience. In addition, if our billing software fails to work properly and, as a result, we do not automatically charge our consumers’ credit cards on a timely basis or at all, our ability to generate revenue would be compromised.

 

We and our vendors use commercially available encryption technology to transmit personal information. We also use security and business controls to limit access and use of personal information. Third parties may be able to circumvent these security and business measures by developing and deploying viruses, worms and other malicious software programs that are designed to attack or infiltrate our systems and networks. In addition, employee error, malfeasance or other errors in the storage, use or transmission of personal information could result in a breach of registered user or employee privacy.

 

If third parties improperly obtain and use the personal information of our registered users or employees, we may be required to expend significant resources to resolve these problems. A major breach of our network security and systems could have serious negative consequences for our businesses, including:

 

 

Similarly, if a well-publicized breach of data security at any other major consumer website were to occur, there could be a general public loss of confidence in the use of the Internet for commercial transactions.

 

Finally, privacy concerns in general may cause visitors to avoid online websites that collect information and may indirectly inhibit market acceptance of our products and services. In addition, if our privacy practices are deemed unacceptable by watchdog groups or privacy advocates, such groups may attempt to block access to our websites or disparage our reputation and business.

 

We rely on Internet bandwidth and data center providers and other third parties for key aspects of the process of providing services to our clients, and any failure or interruption in the services and products provided by these third parties could harm our business.

 

We rely on third-party vendors, including data center and Internet bandwidth providers. Any disruption in the network access or co-location services provided by these third-party providers or any failure of these third-party providers to handle current or higher volumes of use could significantly harm our business. Any financial or other difficulties our providers face may have negative effects on our business, the nature and extent of which we cannot predict. We exercise little control over these third-party vendors, which increases our vulnerability to problems with the services they provide. We

license technology and related databases from third parties to facilitate analysis, storage of data and delivery of offerings. We have experienced interruptions and delays in service and availability for data centers, bandwidth and other technologies in the past. Any future errors, failures, interruptions or delays experienced in connection with these third-party technologies and services could adversely affect our business.

 

Interruption or failure of our information technology and communications systems could impair our ability to effectively deliver our services, which could cause us to lose clients and harm our operating results.

 

Our business depends on the continuing operation of our technology infrastructure and systems. Any damage to or failure of our systems could result in interruptions in our ability to deliver offerings quickly and accurately and/or process visitors’ responses emanating from our various websites. Interruptions in our service could reduce our revenue and profits, and our reputation could be damaged if people believe our systems are unreliable. Our systems and operations are vulnerable to damage or interruption from earthquakes, terrorist attacks, floods, fires, power loss, break-ins, hardware or software failures, telecommunications failures, computer viruses or other attempts to harm our systems and similar events.

 

We lease or maintain server space in various locations around the U.S. Our facilities are also subject to break-ins, sabotage, intentional acts of vandalism and potential disruptions if the operators of these facilities have financial difficulties. The occurrence of a natural disaster, a decision to close a facility we are using without adequate notice or other unanticipated problems at our facilities could result in lengthy interruptions in our service.

 

Any unscheduled interruption in our service would result in an immediate loss of revenue. Frequent or persistent system failures that result in the unavailability of any of the websites in our portfolio or slower response times could reduce the number of consumers accessing our websites, impair our delivery of advertisements and harm the perception of our portfolio of websites as reliable, trustworthy and consistent sources of information. Our insurance policies provide only limited coverage for service interruptions and may not adequately compensate us for any losses that may occur due to any failures or interruptions in our systems.

 

Any constraints on the capacity of our technology infrastructure could delay the effectiveness of our operations or result in system failures, which would result in the loss of clients and harm our business and results of operations.

 

Our future success depends in part on the efficient performance of our software and technology infrastructure. As the number of websites in our portfolio and users who access our portfolio of websites increases, our technology infrastructure may not be able to meet the increased demand. A sudden and unexpected increase in the volume of consumer usage could strain the capacity of our technology infrastructure. Any capacity constraints we experience could lead to slower response times or system failures and adversely affect the availability of websites and the level of consumer usage, which could result in the loss of clients or revenue or harm to our business and results of operations.

 

If we cannot protect our domain names, our ability to successfully promote our brands will be impaired.

 

We currently own various web domain names, including www.EverydayHealth.com, www.RevolutionHealth.com, www.DailyGlow.com and www.CarePages.com, that are critical to the operation of our business. The acquisition and maintenance of domain names, or Internet addresses, is generally regulated by governmental agencies and their designees. The regulation of domain names in the U.S. and in foreign countries is subject to change. Governing bodies may establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we may be unable to acquire or maintain relevant domain names in all

countries in which we conduct business. Furthermore, it is unclear whether laws protecting trademarks and similar proprietary rights will be extended to protect domain names. Therefore, we may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights. We may not be able to successfully implement our business strategy of establishing a strong brand for Everyday Health if we cannot prevent others from using similar domain names or trademarks. This failure could impair our ability to increase market share and revenues.

 

Risks Related to Regulation of Our Industry

 

Laws and standards relating to data collection and use practices and the privacy of Internet users and other individuals could impair our efforts to maintain and grow our consumer audience and thereby decrease our advertising and sponsorship revenue.

 

We collect information from consumers who register to access certain content on our websites. Subject to each consumer’s permission or right to decline, which we refer to as an opt-out, we may use this information to inform our consumers of content that may be of interest to them. We may also share this information with our advertising customers for registered users who have elected to receive additional promotional materials and have granted us permission to share their information with third parties. Internet user privacy and the use of consumer information to track online activities are issues that are subject to rigorous discussions and analysis both in the U.S. and abroad. We have privacy policies posted on our websites that we believe comply with applicable laws requiring notice to consumers about our information collection, use and disclosure practices. The U.S. federal and various state governments have adopted or proposed limitations on the collection, distribution and use of personal information of Internet users. Several foreign jurisdictions, including the European Union and Canada, have adopted legislation, including directives or regulations, that may limit our collection and use of information from Internet users in these jurisdictions. In addition, growing public concern about privacy, data security and the collection, distribution and use of personal information has led to self-regulation of these practices by the Internet advertising and direct marketing industry, and to increased federal and state regulation. Because many of the proposed laws or regulations are in early stages, we cannot yet determine the impact these regulations may have on our business over time. We cannot assure you that the privacy policies and other statements we provide to users of websites in our portfolio, or our practices with respect to these matters, will be found sufficient to protect us from liability or adverse publicity in this area. A determination by a state or federal agency or court that any of our practices do not meet applicable standards, or the implementation of new standards or requirements, could adversely affect our business. Furthermore, we cannot assure you that our advertisers are currently in compliance, or will remain in compliance, with their own privacy policies, regulations governing consumer privacy or other applicable legal requirements. We may be held liable if these parties advertise on one of the websites in our portfolio or use the data we collect on their behalf in a manner that is not in compliance with applicable laws or regulations or posted privacy standards.

 

In addition, we may be subject to the Children’s Online Privacy Protection Act, or COPPA, which applies to operators of commercial websites and online services directed to U.S. children under the age of 13 that collect personal information from children, and to operators of general audience websites with actual knowledge that they are collecting information from U.S. children under the age of 13. Our websites are not directed at children under the age of 13, and our registration process utilizes age screening in order to prevent under-age registrations. We believe that we are in compliance with COPPA. COPPA, however, is a relatively new law, can be applied broadly and is subject to interpretation by courts and other governmental authorities. The failure to accurately anticipate the application, interpretation or legislative expansion of this law could create liability for us, result in adverse publicity and negatively affect our business.

 

Additional, more burdensome laws or regulations, including consumer privacy and data security laws, could be enacted or applied to us or our advertising customers. Such laws or regulations could

impair our ability to collect user information that helps us to provide more targeted advertising to our consumers, thereby impairing our ability to maintain and grow our consumer audience and maximize advertising and sponsorship revenue from our customers.

 

Our business could be harmed if we are unable to correspond with existing and potential consumers by e-mail.

 

We use e-mail as a significant means of communicating with our existing and potential consumers. The laws and regulations governing the use of e-mail for marketing purposes continue to evolve, and the growth and development of the market for commerce over the Internet may lead to the adoption of additional legislation or changes to existing laws. If new laws or regulations are adopted, or existing laws and regulations are interpreted, amended or modified, to impose additional restrictions on our ability to send e-mail to our consumers or potential consumers, we may not be able to communicate with them in a cost-effective manner.

 

Notably, the CAN-SPAM Act regulates commercial e-mails, provides a right on the part of the recipient to request the sender to stop sending messages, and establishes penalties for the sending of e-mail messages that are intended to deceive the recipient as to source or content. An action alleging our failure to comply with CAN-SPAM and the adverse publicity associated with any such action could result in less consumer participation and lead to reduced revenues from advertisers. If we were found to be in violation of the CAN-SPAM Act, applicable state laws not preempted by the CAN-SPAM Act, or foreign laws regulating the distribution of e-mail, whether as a result of violations by our partners or if we were deemed to be directly subject to and in violation of these requirements, we could be exposed to damages or penalties. We also may be required to change one or more aspects of the way we operate our business, which could impair our ability to market our goods and services or increase our operating costs.

 

In addition to legal restrictions on the use of e-mail, Internet service providers and others typically attempt to block the transmission of unsolicited e-mail, commonly known as spam. If an Internet service provider or software program identifies e-mail from us as spam, we could be placed on a restricted list that would block our e-mail to consumers or potential consumers who maintain e-mail accounts with these Internet service providers or who use these software programs.

 

If we are unable to communicate by e-mail with our consumers and potential consumers as a result of legislation, blockage or otherwise, we might lose consumers, and it would be more difficult to attract new consumers.

 

We face potential liability related to the privacy and security of health-related information we collect from or on behalf of our consumers.

 

The privacy and security of information about the past, present, or future physical or mental health or condition of an individual is a major issue in the U.S., because of heightened privacy concerns and the potential for significant consumer harm from the misuse of such sensitive data. We have procedures and technology in place intended to safeguard the information we receive from users of our services from unauthorized access or use.

 

The Privacy Standards and Security Standards under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, establish a set of basic national privacy and security standards for the protection of individually identifiable health information by health plans, healthcare clearinghouses and healthcare providers, referred to as covered entities, and the business associates with whom such covered entities contract for services. Notably, whereas HIPAA previously directly regulated only these covered entities, the Health Information for Economic and Clinical Health Act of 2009, or HITECH, which was signed into law as part of the stimulus package in February 2009, makes certain of HIPAA’s privacy and security standards also directly applicable to covered entities’ business associates. As a result, business associates are now subject to significant civil and criminal penalties for failure to comply with applicable privacy and security rule requirements. Moreover,

HITECH creates a new requirement to report certain breaches of unsecured, individually identifiable health information and imposes penalties on entities that fail to do so. Additionally, certain states have adopted comparable privacy and security laws and regulations, some of which may be more stringent than HIPAA.

 

We have contractual arrangements with some HIPAA covered entities to make our CarePages social support website service available to patients and their friends and families. As part of those arrangements, we do not receive, process, or store any information from the covered entities about a patient. Instead, we only receive and store information from our users. Accordingly, we believe that we do not receive protected health information on behalf of these covered entities, and are not required to comply with HIPAA or HITECH. However, we have signed business associate agreements with certain covered entities who offer our CarePages service to their patients and their families and friends. If, in spite of the lack of access to and processing of individually identifiable health information on behalf of covered entities, we are subject to the requirements of HIPAA or HITECH and our data practices do not comply with such requirements, we may be directly subject to liability under HIPAA or HITECH. In addition, if our security practices do not comply with our contractual obligations, we may be subject to liability for breach of those obligations. Any liability from a failure to comply with the requirements of HIPAA or HITECH, to the extent such requirements are deemed to apply to our operations, or contractual obligations, could adversely affect our financial condition. The costs of complying with privacy and security related legal and regulatory requirements are burdensome and could have a material adverse effect on our results of operations. In addition, we are unable to predict what changes to the Privacy Standards and Security Standards might be made in the future or how those changes could affect our business. Any new legislation or regulation in the area of privacy and security of personal information, including personal health information, could also adversely affect our business operations.

 

Developments in the healthcare industry could adversely affect our business.

 

A significant portion of our advertising and sponsorship revenue is derived from the healthcare industry, including pharmaceutical, over-the-counter and consumer-packaged-goods companies, and could be affected by changes affecting healthcare spending. General reductions in expenditures by healthcare industry participants could result from, among other things:

 

 

Even if general expenditures by industry participants remain the same or increase, developments in the healthcare industry may result in reduced spending in some or all of the specific market segments that we serve now or in the future. For example, use of our content offerings and advertising-based services could be affected by:

 

 

In addition, our advertising customers’ expectations regarding pending or potential industry developments may also affect their budgeting processes and spending plans with us.

 

The healthcare industry has changed significantly in recent years, and we expect that significant changes will continue to occur. However, the timing and impact of developments in the healthcare industry are difficult to predict. We cannot assure you that the demand for our offerings will continue to exist at current levels or that we will have adequate technical, financial and marketing resources to react to changes in the healthcare industry.

 

Government regulation of healthcare creates risks and challenges with respect to our compliance efforts and our business strategies.

 

The healthcare industry is highly regulated and subject to changing political, legislative, regulatory and other influences. Existing and future laws and regulations affecting the healthcare industry could create unexpected liabilities for us, cause us to incur additional costs and restrict our operations. Many healthcare laws are complex, and their application may not be clear. Our failure to accurately anticipate the application of these laws and regulations, or other failure to comply with such laws and regulations, could create liability for us.

 

For example, there are federal and state laws that govern patient referrals, physician financial relationships and inducements to healthcare providers and patients. The federal healthcare programs’ anti-kickback law prohibits any person or entity from offering, paying, soliciting or receiving anything of value, directly or indirectly, for the referral of patients covered by Medicare, Medicaid and other federal healthcare programs or the leasing, purchasing, ordering or arranging for or recommending the lease, purchase or order of any item, good, facility or service covered by these programs. Many states also have similar anti-kickback laws that are not necessarily limited to items or services for which payment is made by a federal healthcare program. An advisory opinion issued by the Department of Health and Human Services, Office of the Inspector General, the agency with responsibility for interpreting the federal anti-kickback law, concluded that the sale of advertising and sponsorships to healthcare providers and vendors by web-based information services implicates the federal anti-kickback law. However, the advisory opinion suggests that enforcement action will not result if the fees paid represent fair market value for the advertising or sponsorship arrangements, the fees do not vary based on the volume or value of business generated by the advertising, and the advertising or sponsorship relationships are clearly identified as such to users. We review our practices to ensure that we comply with all applicable laws. However, the laws in this area are broad and we cannot determine precisely how the laws will be applied to our business practices. Any determination by a state or federal regulatory agency that any of our practices violate any of these laws could subject us to liability and require us to change or terminate some portions of our business.

 

Further, we derive revenues from the sale of advertising and promotion of prescription and over-the-counter drugs. If the FDA or the FTC finds that any of the information provided on our portfolio of websites violates FDA or FTC regulations, they may take regulatory or judicial action against us and/or the advertiser of that information. State attorneys general may also take similar action based on their state’s consumer protection statutes. Any increase or change in regulation of advertising and promotion in the healthcare industry could make it more difficult for us to generate and grow our advertising and sponsorship revenue. Members of Congress, physician groups and others have criticized the FDA’s current policies and have called for more stringent regulation of prescription drug advertising that is directed at consumers and have urged the FDA to become more active in enforcing its current policies. We cannot predict what actions the FDA or industry participants may take in response to these criticisms. It is also possible that new laws, regulations or FDA policies could be promulgated that would impose additional restrictions on such advertising. In November 2009, the FDA convened a public meeting to seek guidance on the marketing of prescription drugs on the Internet and in social media, and subsequently solicited comments from the public on the issue. It is not clear what steps, if any, the FDA will take in response to the public meeting and the comments it subsequently received from the public or whether it will seek specific regulation of Internet

advertising of prescription drugs. Our advertising and sponsorship revenue could be materially reduced by additional restrictions on the advertising of prescription drugs and medical devices to consumers, whether imposed by law or regulation or required under policies adopted by industry members.

 

In addition, the practice of most healthcare professions requires licensing under applicable state law and state laws may further prohibit business entities from practicing medicine, which is referred to as the prohibition against the corporate practice of medicine. Similar state prohibitions may exist with respect to other licensed professions. We believe that we do not engage in the practice of medicine or any other licensed healthcare profession, or provide, through our portfolio of websites, professional medical advice, diagnosis, treatment or other advice that is tailored in such a way as to implicate state licensing or professional practice laws. However, a state may determine that some portion of our business violates these laws and may seek to have us discontinue those portions or subject us to penalties or licensure requirements. Any determination that we are a healthcare provider and acted improperly as a healthcare provider may result in liability to us.

 

Lastly, the Federal False Claims Act imposes liability on any person or entity who, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal healthcare program. The whistleblower, or qui tam, provisions of the False Claims Act allow a private individual to bring actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federal government and to share in any monetary recovery. After the filing of such a suit, the federal government must determine whether it will intervene and control the case and, if it does not, the private individual may pursue the claim. In addition, various states have enacted false claim laws analogous to the Federal False Claims Act, and many of these state laws apply where a claim is submitted to any third-party payor and not merely a federal healthcare program. When an entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties. It is not clear whether there is a basis for the application of the False Claims Act to the types of services that we provide, however we are aware of allegations in a complaint filed against a similar online consumer health information provider relating to the alleged off-label promotion of prescription drugs by a pharmaceutical manufacturer. To the extent that the court first finds liability on the part of the pharmaceutical manufacturer and then extends liability to the online provider for posting the pharmaceutical company’s allegedly off-label advertisement, this may create a risk of liability under the False Claims Act in connection with the advertising services we provide.

 

Changes in regulations could hurt our business and financial results of operations.

 

It is possible that new laws and regulations or new interpretations of existing laws and regulations in the U.S. and elsewhere will be adopted covering issues affecting our business, including:

 

 

Increased government regulation, or the application of existing laws to online activities, could:

 

 

For example, Internet user privacy and the use of consumer information to track online activities are debated issues both in the U.S. and abroad. In February 2009, the FTC published Self-Regulatory

Principles to govern the tracking of consumers’ activities online in order to deliver advertising targeted to the interests of individual consumers, sometimes referred to as behavioral advertising. These principles serve as industry guidelines. In addition, there is the possibility of proposed legislation and enforcement relating to behavioral advertising. We have privacy policies posted throughout our portfolio of websites that we believe comply with applicable laws requiring notice to consumers about our information collection, use and disclosure practices. We also notify consumers about our information collection, use and disclosure practices relating to data we receive from our consumers. We cannot assure you that the privacy policies and other statements we provide to our consumers or our practices will be sufficient to protect us from liability or adverse publicity in this area. A determination by a state or federal agency or court or foreign jurisdiction that any of our practices do not meet applicable standards, or the implementation of new standards or requirements, could adversely affect our business.

 

Risks Related to This Offering and Ownership of Our Common Stock

 

An active, liquid and orderly trading market for our common stock may not develop, our share price may be volatile, and you may be unable to sell your shares at or above the offering price.

 

Prior to this offering, there has not been a public market for our common stock. We cannot predict the extent to which a trading market will develop or how liquid that market might become. The initial public offering price for our shares will be determined by negotiations between us and representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. The market price of shares of our common stock may be subject to wide fluctuations in response to the many risk factors listed in this section and other factors beyond our control, including:

 

 

Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may cause our common stock price to decline. If our common stock price after this offering does not exceed the initial public offering price, you will not realize any return on your investment in our common stock and may lose some or all of your investment. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns.

We will be subject to additional regulatory compliance matters, including Section 404 of the Sarbanes-Oxley Act of 2002, as a result of becoming a public company, and our management has no experience managing a public company. Failure to comply with these regulatory matters could harm our business.

 

We have never operated as a public company and will incur significant legal, accounting and other expenses that we did not incur as a private company. Our management team and other personnel will need to devote a substantial amount of time and company resources to new compliance initiatives and to meeting the obligations that are associated with being a public company. We may not successfully or efficiently manage this transition to public company status. We expect rules and regulations such as the Sarbanes-Oxley Act of 2002 to increase our legal and finance compliance costs and to make some activities more time-consuming. We may need to hire a number of additional employees with public accounting and disclosure experience in order to meet our ongoing obligations as a public company. Furthermore, Section 404 of the Sarbanes-Oxley Act of 2002 requires that our management report on, and our independent registered public accounting firm attest to, the effectiveness of our internal control structure and procedures for financial reporting in our annual report on Form 10-K for the fiscal year ending December 31, 2011. Section 404 compliance may divert internal resources and will take a significant amount of time and effort to complete. We may not be able to successfully complete the procedures and certification and attestation requirements of Section 404 by the required time. If we fail to do so, or if in the future our chief executive officer, chief financial officer or independent registered public accounting firm determines that our internal controls over financial reporting are not effective as defined under Section 404, we could be subject to sanctions or investigations by the Nasdaq Stock Market, the SEC or other regulatory authorities. Furthermore, investor perceptions of our company may change, causing a decline in the market price of our stock. Irrespective of compliance with Section 404, any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. If we are unable to implement these changes effectively or efficiently, our operations, financial reporting or financial results could be harmed and could result in an adverse opinion on internal controls from our independent registered public accounting firm.

 

Our reported financial results may be adversely affected by changes in accounting principles applicable to us.

 

Generally accepted accounting principles in the U.S. are subject to interpretation by the Financial Accounting Standards Board, or FASB, the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change. In addition, the SEC has announced a multi-year plan that could ultimately lead to the use of International Financial Reporting Standards by U.S. issuers in their SEC filings. Any such change could have a significant effect on our reported financial results.

 

Our ability to raise capital in the future may be limited.

 

Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds through the issuance of new equity securities, debt or a combination of both. Additional financing may not be available on favorable terms, or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements. If we issue new debt securities, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity securities, existing stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.

If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

 

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have any, and may never obtain, research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts who covers us downgrades our stock, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

 

Provisions of our certificate of incorporation, bylaws and Delaware law could deter takeover attempts.

 

Various provisions in our certificate of incorporation and bylaws, as they will be in effect following this offering, could delay, prevent or make more difficult a merger, tender offer, proxy contest or other attempt to acquire control of our company. Our stockholders might view any transaction of this type as being in their best interest since the transaction could result in a higher stock price than the then-current market price for our common stock. Among other things, our certificate of incorporation and bylaws:

 

 

In addition, following this offering, we will be subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers and which has an anti-takeover effect with respect to transactions not approved in advance by our board of directors, including discouraging takeover attempts that might result in a premium over the market price for shares of our common stock. In general, those provisions prohibit a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder, unless:

 

 

In general, Section 203 defines a business combination to include the following:

 

 

 

In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by any such entity or person.

 

A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of, and do not currently intend to opt out of, this provision.

 

Future sales of shares of our common stock by existing stockholders could depress the market price of our common stock.

 

If our existing stockholders sell, or indicate an intent to sell, substantial amounts of our common stock in the public market following this offering, the trading price of our common stock could decline significantly, even below the initial public offering price. Based on shares outstanding as of          , 2010, upon completion of this offering, we will have outstanding approximately           shares of common stock, assuming no exercise of the underwriters’ option to purchase additional shares. Our officers, directors and the holders of substantially all of our common stock have entered into lock-up agreements with the underwriters prohibiting them from selling any of their shares for a period of 180-days following the date of this prospectus, which period may be extended for up to 17 days in some circumstances. Goldman, Sachs & Co. and J.P. Morgan Securities Inc. may, in their sole discretion, permit our officers, directors, employees and current stockholders to sell shares prior to the expiration of the lock-up agreements.

 

After the lock-up agreements expire, and based on shares outstanding as of          , an additional           shares will be eligible for sale in the public market,          of which are held by directors, executive officers and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, and various vesting agreements. In addition, the shares subject to outstanding options under our 2003 Stock Option Plan as of          , 2010, the shares reserved for future issuance under our 2003 Stock Option Plan and 2010 Equity Incentive Plan and shares issuable upon exercise of warrants will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline substantially.

 

A limited number of stockholders will have the ability to influence the outcome of director elections and other matters requiring stockholder approval.

 

Immediately after this offering, our directors, executive officers and their affiliated entities will beneficially own     % percent of our outstanding common stock. These stockholders, if they act together, could exert substantial influence over matters requiring approval by our stockholders, including the election of directors, the amendment of our certificate of incorporation and bylaws and the approval of mergers or other business combination transactions. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive our stockholders of an opportunity to receive a premium for their stock as part of a sale of our company and may reduce our stock price. These actions may be taken even if they are opposed by other stockholders, including those who purchase shares in this offering.

Our management will have broad discretion over the use of the proceeds we receive in this offering and may not apply the proceeds in ways that increase the value of your investment.

 

Our management will have broad discretion to use the net proceeds from this offering, and you will be relying on the judgment of our management regarding the application of these proceeds. Our management may not apply the net proceeds of this offering in ways that increase the value of your investment. We intend to use the net proceeds from this offering for working capital and general corporate purposes, which may include funding the development of new content and advertising-based services, as well as funding capital expenditures and operating losses. We may use a portion of the net proceeds from this offering to repay borrowings under our credit facilities or acquire complementary businesses. Until we use the net proceeds from this offering, we plan to invest them, and these investments may not yield a favorable rate of return. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.

 

You will experience immediate and substantial dilution.

 

The initial public offering price will be substantially higher than the pro forma net tangible book value of each outstanding share of common stock immediately after this offering. If you purchase our common stock in this offering, you will suffer immediate and substantial dilution. If previously granted warrants or options are exercised, you will experience additional dilution. As of          , warrants to purchase           shares of our common stock at a weighted-average exercise price of $      per share and options to purchase          shares of common stock at a weighted-average exercise price of $      were outstanding. For more information refer to the section of this prospectus entitled “Dilution.”

 

We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend solely on appreciation in the price of our common stock.

 

We have never declared or paid any cash dividends on our common stock and do not intend to do so for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. In addition, the provisions of our credit facilities prohibit us from paying cash dividends, without first obtaining the consent of our lender. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future, and the success of an investment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.

 

This prospectus contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this prospectus regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are subject to all of the risks, uncertainties and assumptions described under the section titled “Risk Factors” and elsewhere in this prospectus, including, among other things:

 

 

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this prospectus, particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

 

You should read this prospectus and the documents that we have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

We obtained the industry and market data in this prospectus from our own research as well as from industry and general publications and surveys and studies conducted by third parties, including a study prepared on our behalf by Forrester Research. Industry and general publications, studies and surveys generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurances as to the accuracy or completeness of such information. With respect to the monthly unique visitor data provided by comScore, you should note that, beginning in August 2009, comScore adopted a new methodology for calculating unique visitors. Accordingly, the comScore unique visitor information contained in this prospectus for periods subsequent to July 2009 reflects the inclusion of unique monthly visitor numbers that are derived from the use of comScore’s new methodology. While we believe that these publications, studies and surveys are reliable, we have not independently verified the data contained in them. In addition, while we believe that the results and estimates from our internal research are reliable, such results and estimates have not been verified by any independent source. Moreover, these third parties may, in the future, alter the manner in which they conduct surveys and studies regarding the markets in which we operate our business. As a result, you should carefully consider the inherent risks and uncertainties associated with the industry and market data contained in this prospectus, including those discussed under the heading “Risk Factors.”

 

We estimate that we will receive net proceeds from this offering of approximately $      million, or $      million if the underwriters exercise their option to purchase additional shares in full, based on an assumed initial public offering price of $      per share, the midpoint of the estimated price range shown on the cover of this prospectus, and after deducting estimated underwriting discounts and commissions and offering expenses payable by us. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders.

 

A $1.00 increase or decrease in the assumed initial public offering price of $      per share, the midpoint of the estimated price range shown on the cover of this prospectus, would increase or decrease the net proceeds to us from this offering by $      million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and offering expenses payable by us.

 

We intend to use the net proceeds from this offering for working capital and general corporate purposes, which may include financing the development of new content and advertising-based services, as well as funding capital expenditures and operating losses. We may also use a portion of the net proceeds to repay borrowings under our credit facilities or acquire complementary businesses, products or technologies. However, we do not have agreements or commitments for any specific repayments or acquisitions at this time, and cannot assure you that we will make any acquisitions in the future. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Long-Term Debt” for a description of our credit facilities which we may choose to repay with the net proceeds of this offering.

 

In addition, the other principal purposes for this offering are to:

 

 

We have not yet determined with any certainty the manner in which we will allocate our net proceeds. Our management will retain broad discretion in the allocation and use of our net proceeds of this offering. The amounts and timing of these expenditures will vary depending on a number of factors, including the amount of cash generated by our operations, competitive and technological developments, and the rate of growth, if any, of our business.

 

Pending specific utilization of the net proceeds as described above, we intend to invest the net proceeds of the offering in short-term investment grade and U.S. government securities.

 

We have never declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends on our common stock in the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. In addition, our credit facilities prohibit us from paying dividends on our common stock, without first obtaining the consent of our lenders.

 

The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2009:

 

 

You should read this table together with our financial statements and the related notes appearing at the end of this prospectus and the “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this prospectus.

 

A $1.00 increase or decrease in the assumed initial public offering price of $      per share, the midpoint of the estimated price range shown on the cover of this prospectus, would increase or decrease pro forma as adjusted additional paid-in capital and total stockholders’ equity by $      million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and offering expenses payable by us.

 

The information set forth in the table excludes:

 

 

 

 

 

If you invest in our common stock, your interest will be diluted immediately to the extent of the difference between the initial public offering price per share you will pay in this offering and the pro forma as adjusted net tangible book value per share of our common stock after this offering. Net tangible book value per share represents our total tangible assets less total liabilities and redeemable convertible preferred stock, divided by the number of shares of our common stock outstanding.

 

As of                    , 2010, our net tangible book value was $        million, or $        per share of common stock. On a pro forma basis, after giving effect to the automatic preferred stock conversion, our tangible book value would have been $        million, or $        per share of common stock. After giving further effect to our issuance and sale of           shares of common stock in this offering at an assumed initial public offering price of $      per share, the midpoint of the estimated price range shown on the cover of this prospectus, after deducting estimated underwriting discounts and commissions and offering expenses payable by us, the pro forma as adjusted net tangible book value as of December 31, 2009 would have been $      million, or $      per share. This represents an immediate increase in pro forma net tangible book value to existing stockholders of $      per share. Accordingly, new investors who purchase shares of common stock in this offering will suffer an immediate dilution of their investment of $      per share. The following table illustrates this per share dilution to the new investors purchasing shares of common stock in this offering:

 

 

A $1.00 increase or decrease in the assumed initial public offering price of $      per share, the midpoint of the estimated price range shown on the cover of this prospectus, would increase or decrease the pro forma as adjusted net tangible book value after this offering by $      per share and the dilution in net tangible book value per share to investors in this offering by $      per share, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and offering expenses payable by us.

 

If the underwriters exercise their option to purchase additional shares in full, the pro forma as adjusted net tangible book value will increase to $      per share, representing an immediate increase in pro forma net tangible book value to existing stockholders of $      per share and an immediate dilution in pro forma net tangible book value of $      per share to new investors.

 

If all our outstanding stock options and outstanding warrants are assumed to have been exercised as of December 31, 2009, assuming the treasury stock method, the pro forma as adjusted net tangible book value will increase to $           per share, representing an immediate increase in pro forma net tangible book value to existing stockholders of $           per share and an immediate dilution in pro forma net tangible book value of $           per share to new investors.

 

The following table summarizes, on the pro forma basis described above as of December 31, 2009, the differences between the number of shares of common stock purchased from us, the total consideration paid to us, and the average price per share paid by existing stockholders and by new investors purchasing shares of common stock in this offering. The calculation below is based on an assumed initial public offering price of $      per share, the midpoint of the estimated price range shown on the cover of this prospectus, before the deduction of estimated underwriting discounts and commissions and offering expenses payable by us:

 

 

The foregoing table and calculations are based on the number of shares of our common stock outstanding as of December 31, 2009, after giving effect to the automatic preferred stock conversion, and excludes:

 

 

 

 

 

The following table summarizes, on the pro forma basis described above as of December 31, 2009, the differences between the number of shares of common stock purchased from us, the total consideration paid to us, and the average price per share paid by existing stockholders and by new investors purchasing shares of common stock in this offering. The calculation below is based on an assumed initial public offering price of $      per share, the midpoint of the estimated price range shown on the cover of this prospectus, before the deduction of estimated underwriting discounts and commissions and offering expenses payable by us and assuming that all our outstanding stock options and outstanding warrants have been exercised as of December 31, 2009.

 

 

The foregoing tables do not reflect proceeds to be realized by existing stockholders in connection with sales made in this offering. The sale of           shares of common stock to be sold by the

selling stockholders in this offering will reduce the number of shares held by existing stockholders to          , or     % of the total shares outstanding, or to          , or     % of the total shares outstanding assuming that all our outstanding stock options and outstanding warrants had been exercised as of December 31, 2009, and will increase the number of shares held by new investors to          , or     % of the total shares outstanding, or to          , or     % of the total shares outstanding assuming that all our outstanding stock options and outstanding warrants had been exercised as of December 31, 2009. If the underwriters exercise their option to purchase additional shares in full, the shares held by existing stockholders will further decrease to          , or     % of the total shares outstanding, or to          , or     % of the total shares outstanding assuming that all our outstanding stock options and outstanding warrants had been exercised as of December 31, 2009, and the number of shares held by new investors will further increase to          , or     % of the total shares outstanding, or to          , or     % of the total shares outstanding assuming that all our outstanding stock options and outstanding warrants had been exercised as of December 31, 2009.

 

The following tables summarize our consolidated financial data for the periods presented. You should read the following selected consolidated financial data in conjunction with our consolidated financial statements and the related notes appearing at the end of this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus.

 

We derived the consolidated statement of operations data for the years ended December 31, 2007, 2008 and 2009 and the consolidated balance sheet data as of December 31, 2008 and 2009 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the consolidated statement of operations data for the years ended December 31, 2005, 2006 and 2007 and the consolidated balance sheet data as of December 31, 2006 and 2007 from our audited consolidated financial statements, which are not included in this prospectus. We derived the consolidated balance sheet data as of December 31, 2005 from our unaudited consolidated financial statements, which are not included in this prospectus. We derived the consolidated statement of operations data for the three months ended December 31, 2008 and 2009 from our unaudited consolidated financial statements, which have been prepared on the same basis as our audited financial statements and, in the opinion of our management, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for the fair statement of the financial information set forth in those statements. Our historical results for any prior periods are not necessarily indicative of results to be expected for a full year or any future period.

 

On October 7, 2008, we acquired Revolution Health Group LLC and its subsidiaries, which we collectively refer to as RHG. Accordingly, the following tables include RHG’s financial data from the closing date of the acquisition. Our operating expenses in the fourth quarter of 2008 and the first and second quarters of 2009 included various transition-related expenses that we incurred following the closing of the RHG acquisition. We eliminated a majority of these redundant transition-related expenses by the beginning of the third quarter of 2009. These transition-related expenses consisted of:

 

 

The fourth quarter of 2008 is the first calendar quarter which reflects the RHG acquisition in our financial results. Accordingly, the fourth quarter of 2009 is the first calendar quarter which can be used to compare our quarterly financial performance subsequent to the RHG acquisition on a year-over-year basis. In the fourth quarter of 2009, our revenues were approximately $28.6 million, an increase of 26.0% over our revenues of approximately $22.7 million in the fourth quarter of 2008. Similarly, our Adjusted EBITDA was approximately $5.6 million in the fourth quarter of 2009, as compared to approximately $(1.9) million in the fourth quarter of 2008.