Goodwill is not subject to amortization and is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, or SFAS 142. The impairment test consists of a comparison of the fair value of goodwill with its carrying amount. If the carrying amount of goodwill exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess. Fair value is typically based upon future cash flows discounted at a rate commensurate with the risk involved. After an impairment loss is recognized, the adjusted carrying amount of goodwill is its new accounting basis. (See Note 2 – Goodwill).

Certain reclassifications have been made in the prior period condensed consolidated financial statements to conform to the current period presentation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates and assumptions made by iVillage include those related to the useful lives of fixed assets and intangible assets, the recoverability of fixed assets, goodwill, intangible assets and deferred tax assets, the allowance for doubtful accounts and the assessment of expected probable losses (if any) of claims and potential claims.

In the ordinary course of business, iVillage utilizes estimates to determine the accrual of certain operating expenses. These estimates are reviewed on an ongoing basis to determine the adequacy of these accruals. iVillage reversed approximately $0.3 million of accruals included in operating expenses primarily due to the renegotiation of a vendor contract with substantial changes in the terms and conditions of the original contract which provided a one-time benefit in each of the three and six months ended June 30, 2004. iVillage reversed no amount and approximately $0.1 million due to changes in estimates previously provided for in the three and six months ended June 30, 2003, respectively. These amounts were offset by additional accruals for various operating expenses.

Basic net income/(loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income/(loss) per share is computed using the weighted-average number of common shares and common stock equivalents outstanding during the period. Common stock equivalent shares are excluded from the computation if their effect is anti-dilutive.

Included in the June 30, 2004 and June 30, 2003 calculation of weighted average number of shares of common stock outstanding are 58,394 shares and 189,404 shares, respectively, which have not been issued. These shares are being held, respectively, for former Women.com Networks, Inc., or Women.com, and Promotions.com stockholders that have not yet exchanged their respective shares for shares of iVillage during the periods presented, but are entitled to do so.

Stock options and warrants in the amount of 901,811 shares for the three months ended June 30, 2004, were not included in the computation of diluted net income per share as they were anti-dilutive. Stock options and warrants in the amount of 8,445,590 shares for the six months ended June 30, 2004, were not included in the computation of diluted net loss per share as they were anti-dilutive as a result of net losses during the period. Stock options and warrants in the amount of 12,157,010 shares for each of the three and six months ended June 30, 2003, were not included in the computation of diluted net loss per share as they were anti-dilutive as a result of net losses during the periods presented.

iVillage applies Accounting Principles Board Opinion, or APB, No. 25, “Accounting for Stock Issued to Employees”, or APB 25, and related interpretations in accounting for its stock option issuances, and has adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, or SFAS 123. No compensation cost related to grants of stock options was reflected in iVillage’s net income/(loss), as all options granted under the plans had an exercise price at least equal to the market value of the underlying common stock on the date of grant. Compensation cost related to the modification of stock option terms is measured at the quoted market price of iVillage’s common stock at the measurement date and is amortized to expense over the vesting period. Compensation costs related to the modification of stock option terms was approximately $19,000 for the three months ended June 30, 2004, and $29,000 for the comparable period in 2003. For the six months ended June 30, 2004, compensation costs related to the modification of stock option terms was approximately $19,000, and $0.1 million for the comparable period in 2003. If compensation cost for iVillage’s stock options, utilizing the Black Scholes model, had been determined based on the fair value of the stock options at the grant date for awards in the three and six months ended June 30, 2004 and 2003 consistent with the provisions of SFAS 123, iVillage’s net income/(loss) would have been adjusted to the pro forma amounts indicated below:

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

The weighted average assumptions used for grants made in 2004 and 2003 are as follows:

In December 2003, the Financial Accounting Standards Board, or FASB, issued Interpretation No., or FIN, 46R, “Consolidation of Variable Entities”, or FIN 46R. FIN 46R replaces the same titled FIN 46 that was issued in January 2003. FIN 46R requires the consolidation of a variable interest entity by a company that bears the majority of risk of loss from the variable entity’s activities, is entitled to receive a majority of the variable interest entity’s residual returns, or both. The provisions of this interpretation are effective for iVillage beginning in the first quarter of fiscal 2004. iVillage’s adoption of this interpretation did not have a material impact on its financial position, cash flows or results of operations.

Intangible assets with indefinite lives and goodwill are not amortized, but are tested at least annually for impairment, or if circumstances change that will more likely than not reduce the fair value of the reporting unit below its carrying amount. iVillage performs its annual impairment analysis in the fourth quarter of the fiscal year. In December 2003, iVillage completed the annual impairment test and no impairment was recognized.

The following table sets forth the components of goodwill, net as of December 31, 2003 and June 30, 2004 (in thousands):

iVillage reviews for the impairment of long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with the provisions of SFAS 144.

Identifiable intangible assets are amortized under the straight-line method over the period of expected benefit ranging from one to ten years. The following table sets forth the components of the intangible assets subject to amortization as of June 30, 2004 and December 31, 2003 (in thousands):

Amortization expense for the three months ended June 30, 2004 was approximately $1.2 million and $2.3 million for the six months ended June 30, 2004. Amortization expense for the three months ended June 30, 2003 was approximately $1.3 million and $2.5 million for the six months ended June 30, 2003.

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

In March 2003, iVillage and Tesco.com Limited, a division of Tesco, PLC, or Tesco, restructured the terms of their joint venture so that Tesco purchased iVillage’s entire ownership interest in iVillage UK. iVillage and Tesco also entered into a twenty-year license agreement for the use of certain of iVillage’s content and intellectual property subject to earlier termination upon the occurrence of certain events, for the greater of a minimum monthly license fee or a percentage of iVillage UK’s gross revenues.

All monies received by iVillage under the license agreement will be classified as other income and will be included in the condensed consolidated statements of operations as a gain on sale of joint venture interest. iVillage has earned $0.8 million in year one and $0.1 million in year two of the license agreement for services provided. As of June 30, 2004, iVillage was owed approximately $0.1 million and at December 31, 2003, iVillage was owed approximately $49,000.

As of June 30, 2004 and December 31, 2003, included in “Other current liabilities” in the consolidated balance sheets is approximately $0.1 million of current liabilities of discontinued operations.

America Online, Inc., a division of Time Warner Inc., or AOL, is a stockholder of iVillage. Additionally, an employee of AOL is a member of the board of directors. During 2003, iVillage signed six advertising agreements with AOL to promote various AOL products. Of these six agreements, five were completed as of December 31, 2003 and the remaining agreement was completed in January 2004. In consideration of these services, AOL paid iVillage approximately $0.5 million, of which $0.1 million was received in the first quarter of 2004.

In January 2004, AOL signed a contract for various services offered by PAG, and in June 2004, iVillage signed an advertising agreement with AOL to promote various AOL products.

Revenues from AOL were approximately $47,000 for the three months ended June 30, 2004, and approximately $0.1 million for the six months ended June 30, 2004. Revenues from AOL were approximately $32,000 for each of the three and six months ended June 30, 2003. At each of June 30, 2004 and December 31, 2003, iVillage was owed a receivable of approximately $0.1 million. At each of June 30, 2004 and December 31, 2003, no amounts were owed by iVillage to AOL.

As of June 30, 2004, Hearst owned approximately 31% of iVillage’s outstanding common stock and had representation on iVillage’s board of directors. (For a further discussion of Hearst’s ownership of iVillage securities, please see Note 8 – Capital Stock – Warrants).

As part of the acquisition of Women.com, iVillage acquired approximately $4.9 million of prepaid print advertising in certain Hearst magazines. These ads appeared through December 2003. iVillage recognized a non-cash print advertising expense from this advertising of no amount for the three months ended June 30, 2003 and approximately $0.1 million for the six months ended June 30, 2003.

Additionally, from time to time, iVillage has provided other production services outside the scope of its Web site services and amended and restated magazine content and hosting agreements with Hearst.

Revenues, net of royalty payments, from Hearst were approximately $1.9 million for the three months ended June 30, 2004, and approximately $3.8 million for the six months ended June 30, 2004. Revenues, net of royalty payments, from Hearst were approximately $1.6 million for the three months ended June 30, 2003, and approximately $3.2 million for the six months ended June 30, 2003. iVillage was owed a net receivable from this stockholder of approximately $1.0 million as of June 30, 2004, and approximately $1.3 million as of December 31, 2003. (See Note 9 – Subsequent Events – Hearst Communications, Inc.).

The Chief Executive Officer and another board member of iVillage serve on the board of directors of one of iVillage’s customers, Waterfront Media Inc., or Waterfront Media. Through June 30, 2004, iVillage has signed five new advertising agreements with Waterfront Media. Amounts due from Waterfront Media were approximately $44,000 as of June 30, 2004, and approximately $0.1 million as of December 31, 2003. Revenues from Waterfront Media were no amount for the three months ended June 30, 2004, and approximately $0.2 million for the six months ended June 30, 2004. There were no revenues from Waterfront Media for each of the three and six months ended June 30, 2003.

During the first six months of 2004, we received approximately $0.2 million from the repayment of stockholder notes.

iVillage leases office space and equipment under non-cancelable operating leases expiring at various dates through April 2015. The following is a schedule of future minimum lease payments under non-cancelable operating leases as of June 30, 2004, for the next five years:

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

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

In the normal course of business, iVillage is subject to proceedings, lawsuits and other claims. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Consequently, the ultimate aggregate amount of monetary liability or financial impact with respect to these matters at June 30, 2004 cannot be ascertained. While these matters could affect the operating results of any one quarter when resolved in future periods and while there can be no assurance with respect thereto, management believes, with the advice of outside legal counsel, that after final disposition any monetary liability or financial impact to iVillage from these matters would not be material to iVillage’s results of operations and financial condition.

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

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

On June 25, 2004, the plaintiffs filed a motion for preliminary approval of the settlement with the court, which was accompanied by a brief filed by the issuer defendants in support of the plaintiffs’ motion. The court requested that any objections to preliminary approval of the settlement be submitted by July 14, 2004, and certain underwriter defendants formally objected to the settlement. The plaintiffs and issuer defendants separately filed replies to the underwriter defendants’ objections to the settlement on August 4, 2004. There can be no assurance that this proposed settlement would be approved and implemented in its current form, or at all.

In June 2001, Euregio.net commenced an action in Belgium against Women.com claiming damages in excess of one million Euros in connection with certain alleged copyright infringements. Despite Women.com’s arguments challenging the jurisdiction of the Belgian court, the alleged infringements and the amount of damages, in January 2003 a Belgian court issued a judgment against Women.com in the amount of approximately 850,000 Euros (approximately $1.0 million based on the Euro exchange rate as of June 30, 2004). Women.com has been advised by outside legal counsel that Euregio.net would have to commence legal proceedings in the United States to enforce this judgment. Women.com has appealed this judgment in the Belgian courts and will also oppose any effort by the plaintiffs to enforce this judgment in the United States court system.

iVillage, with the advice of outside legal counsel, believes that the lawsuits and claims asserted against iVillage and Women.com pursuant to these complaints are without merit and intends to vigorously defend against these claims. iVillage does not believe that any of these legal proceedings will have a material and adverse effect on iVillage’s results of operations or financial condition.

On January 14, 2004, Hearst exercised a warrant it received in connection with a securities purchase agreement related to iVillage's acquisition of Women.com and purchased 2,065,695 shares of common stock for $0.01 per share. Pursuant to its terms, the warrant became exercisable when the average closing price of our common stock had exceeded $3.75 for 15 consecutive trading days prior to January 14, 2004, entitling Hearst to purchase each share for $0.01.

During February 2004, an aggregate of 29,449 shares of common stock were issued to our existing investors in exchange for warrants they had acquired in connection with a securities purchase agreement related to our acquisition of Women.com. The remaining 4,856 warrants acquired in connection with our acquisition of Women.com went unexercised and expired on February 18, 2004.

As of June 30, 2004, there were outstanding warrants to purchase 5,282 shares of iVillage common stock with an exercise price of $14.35 per share.

On July 6, 2004, iVillage completed a public offering of 11,560,032 shares of its common stock generating total estimated proceeds, net of underwriting discounts and commissions and estimated costs of the offering, of approximately $64.8 million to iVillage.

In July 2004, iVillage and Hearst entered into a Web site services agreement that supersedes and replaces the amended and restated magazine content license and hosting agreement. Pursuant to the agreement, which has a three-year term, Hearst will pay iVillage approximately $12.5 million over three years for hosting and production services related to Hearst magazine Web sites residing on iVillage.com. In addition, iVillage will receive a commission on magazine subscription sales. Hearst will receive a revenue share from iVillage on a percentage of the advertising sales from Hearst magazine Web sites hosted by iVillage. These commissions to and from Hearst will vary based on performance.

Certain statements in this Quarterly Report on Form 10-Q, including certain statements contained in this Item 2, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The words or phrases “can be,” “expects,” “may affect,” “anticipates,” “may depend,” “believes,” “estimates,” “plans,” “projects” and similar words and phrases are intended to identify such forward-looking statements. These forward-looking statements are subject to various known and unknown risks and uncertainties and we caution you that any forward-looking information provided by or on our behalf is not a guarantee of future results, performance or achievements. Actual results could differ materially from those anticipated in these forward-looking statements due to a number of factors, some of which are beyond our control. In addition to those risks discussed below in the section entitled “Risk Factors” and in our other public filings, press releases and statements by our management, factors that may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied in such forward looking statements include: (i) the volatile and competitive nature of the Internet industry and media industry, (ii) changes in domestic and foreign economic, political and market conditions, (iii) the effect of federal, state and foreign regulation on our business, (iv) the impact of recent and future acquisitions and joint ventures by us on our business and financial condition, (v) our ability to establish and maintain relationships with advertisers, sponsors, and other third party providers and partners, (vi) our ability to maintain or increase user traffic levels, (vii) the loss of one or more of our largest customers, and (viii) the impact of pending litigation on our business, results of operations and financial condition. All such forward-looking statements are current only as of the date on which such statements were made. We do not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any such statement is made or to reflect the occurrence of unanticipated events.

In this Quarterly Report on Form 10-Q, “iVillage,” “we,” “our” and “us” refer to iVillage Inc. and its consolidated subsidiaries.

The following management’s discussion and analysis is intended to provide information necessary to understand our unaudited interim condensed consolidated financial statements and highlight certain other information which, in the opinion of management, will enhance a reader’s understanding of our financial condition, changes in financial condition and results of operations. It is organized as follows: