UNITED STATES ~~SECURITIES AND EXCHANGE COMMISSION~~

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

xý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, ~~2011~~2012


o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________.

Commission file number: 001-35062

Epocrates, Inc.

(Exact name of registrant as specified in its charter)



Delaware		94-3326769
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1100 Park Place, Suite 300

San Mateo, California 94403

(Address of principal executive offices, including zip code)

(650) 227-1700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share		The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes xý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes xý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the registrant’'s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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):~~

Large accelerated filer o Accelerated filer ox Non-accelerated filer xo Smaller reporting company o (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No xý

The approximate aggregate market value of voting stock held by non-affiliates of the registrant, based upon the last sale price of the registrant’'s common stock on the last business day of the registrant’'s most recently completed second fiscal quarter, June 30, ~~2011~~2012 (based upon the closing sale price of the registrant’'s common stock listed as reported on the NASDAQ Global Select Market), was approximately $~~335~~163,~~213~~747,000. This calculation excludes approximately 54,~~248~~343,000 shares held by directors, executive officers and by each person or investor affiliated with a member of the Board of Directors as of June 30, ~~2011~~2012. Exclusion of these shares does not constitute a determination that each such person is an affiliate of the registrant.

The number of shares of common stock outstanding as of ~~February~~March 294, ~~2012~~2013 was 24,~~573~~970,~~455~~894.

Table of Contents

EPOCRATES, INC.

~~FOR~~ANNUAL ~~THE~~REPORT ~~FISCAL~~ON ~~YEAR ENDED DECEMBER 31, 2011~~FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2012

TABLE OF CONTENTS

		Page	~~Page~~
PART I.
Item 1.	~~Item 1.~~Business	~~Business~~3	3
Item 1A.	~~Item~~Risk ~~1A.~~Factors	~~Risk Factors~~9	9
Item 1B.	~~Item~~Unresolved ~~1B.~~Staff Comments	~~Unresolved Staff Comments~~23	24
Item 2.	~~Item 2.~~Properties	~~Properties~~23	24
Item 3.	~~Item~~Legal 3.Proceedings	~~Legal Proceedings~~23	24
Item 4.	~~Item~~Mine 4.Safety Disclosures	~~Mine Safety Disclosures~~24	24
PART II.
Item 5.	~~Item~~Market 5.for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	~~Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities~~24	25
Item 6.	~~Item~~Selected 6.Financial Data	~~Selected Financial Data~~25	25
Item 7.	~~Item~~Management’s 7.Discussion and Analysis of Financial Condition and Results of Operations	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~26	27
Item 7A.	~~Item~~Quantitative ~~7A.~~and Qualitative Disclosures About Market Risk	~~Quantitative and Qualitative Disclosures About Market Risk~~37	41
Item 8.	~~Item~~Financial 8.Statements and Supplementary Data	~~Financial Statements and Supplementary Data~~38	41
Item 9.	~~Item~~Changes 9.In and Disagreements with Accountants on Accounting and Financial Disclosure	~~Changes In and Disagreements with Accountants on Accounting and Financial Disclosure~~69	73
Item 9A.	~~Item~~Controls ~~9A.~~and Procedures	~~Controls and Procedures~~69	73
Item 9B.	~~Item~~Other ~~9B.~~Information	~~Other Information~~70	74
PART III.
Item 10.	~~Item~~Directors, ~~10.~~Executive Officers and Corporate Governance	~~Directors, Executive Officers and Corporate Governance~~70	74
Item 11.	~~Item~~Executive ~~11.~~Compensation	~~Executive Compensation~~73	76
Item 12.	~~Item~~Security ~~12.~~Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters~~94	~~100~~
Item 13.	~~Item~~Certain ~~13.~~Relationships and Related Transactions, and Director Independence	~~Certain Relationships and Related Transactions, and Director Independence~~97	~~103~~
Item 14.	~~Item~~Principal ~~14.~~Accounting Fees and Services	~~Principal Accounting Fees and Services~~98	~~104~~
PART IV.
Item 15.	~~Item~~Exhibits, ~~15.~~Financial Statement Schedules	~~Exhibits, Financial Statement Schedules~~99	~~105~~

Table of Contents

PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This ~~report~~Annual Report on Form 10-K contains forward-looking statements. ~~All~~that ~~statements~~involve ~~other~~risks ~~than~~and ~~statements~~uncertainties, ofas ~~historical~~well ~~facts~~as assumptions that, ~~including~~if ~~statements~~they ~~regarding~~never ~~our~~materialize ~~future~~or ~~financial~~prove ~~condition~~incorrect, ~~business~~could ~~strategy~~cause ~~and~~our ~~plans~~results ~~and~~to ~~objectives~~differ ofmaterially ~~management~~from ~~for~~those expressed or implied by such forward-looking statements. The statements contained in this Annual Report on Form 10-K that are not purely historical and refer to future ~~operations,~~events or results are forward-looking statements intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Terminology such as “believe,” “may,” “might,” “objective,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “potential,” or the negative of these terms or other similar expressions is intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions described under the section titled “Risk Factors” and elsewhere in this report.

~~The~~We ~~events~~have ~~and~~based ~~circumstances~~these ~~reflected in the~~ forward-looking statements ~~may~~largely ~~not~~on beour ~~achieved~~current orexpectations ~~occur~~and projections about future events and ~~actual~~financial ~~results~~trends that we believe may ~~differ~~affect ~~materially~~our ~~from~~financial ~~those~~condition, ~~contained~~results inof ~~any~~operations, business strategy and financial needs. Such forward-looking statements. ~~Although~~are wesubject ~~believe~~to risks, uncertainties and other important factors that ~~the~~could ~~expectations~~cause ~~reflected~~actual inresults and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. ~~are~~Factors ~~reasonable,~~that wecould ~~cannot~~cause ~~guarantee~~or ~~future~~contribute ~~results,~~to ~~levels~~such ofdifferences ~~activity~~include, ~~performance~~but orare ~~achievements.~~not ~~Moreover~~limited to, ~~neither~~those weidentified ~~nor~~in ~~any~~"Part ~~other~~I ~~person~~– ~~assume~~Item ~~responsibility~~1A. ~~for~~Risk ~~the~~Factors" ~~accuracy~~ and ~~completeness~~elsewhere ofin ~~the~~this report. Furthermore, such forward-looking statements speak only as of the date of this report. ~~You~~Except ~~should~~as ~~not~~required ~~place~~by ~~undue~~law, ~~reliance~~we onundertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

~~Except~~Item ~~as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason to conform these statements to actual results or to changes in our expectations~~1. ~~We qualify all of our forward-looking statements by these cautionary statements.~~ Business

~~Item 1. Business~~Overview

~~Overview~~Epocrates, Inc. is a leading physician platform for essential clinical content, practice tools and health industry engagement at the point of care. The Epocrates network consists of well over one million healthcare professionals, including approximately 330,000, or more than 50% of, U.S. physicians. Epocrates’ portfolio features top-ranked medical applications, including the industry’s #1 used mobile drug reference, which provides convenient, point-of-care access to information such as dosing, drug interactions, pricing and insurance coverage for thousands of brand, generic and over-the-counter drugs. The features available through our unique platform are referenced multiple times per day and help healthcare professionals make more informed prescribing decisions, improve workflow and enhance patient safety. We offer our products on major U.S. mobile platforms including Apple iOS, Android and BlackBerry.

~~Epocrates~~We isgenerate aapproximately ~~leading~~80% ~~physician~~of ~~platform~~our ~~for~~revenue ~~essential~~from ~~clinical~~healthcare ~~content,~~companies ~~practice~~by ~~tools~~providing ~~and~~interactive ~~health~~services ~~industry~~to ~~engagement~~communicate atwith ~~the~~our ~~point~~network of ~~care.~~members ~~Our~~(60%) ~~user~~and ~~network~~by ~~consists~~leveraging ofour ~~well~~network ~~over~~of ~~one million~~ healthcare professionals; ~~including~~for ~~approximately~~market ~~340,000,~~research orservices ~~more than 50~~(20% ~~of, U~~).S. ~~physicians.~~Our ~~Epocrates’~~client ~~portfolio~~base ~~features~~is ~~top-ranked~~located ~~medical~~almost ~~apps,~~entirely ~~including~~within the ~~industry’s~~U.S. #1We ~~used~~also ~~mobile~~generate ~~drug~~revenue ~~reference,~~from ~~which~~the ~~provides~~sale ~~convenient, point-~~of~~-care~~ ~~access to information such as dosing, drug interactions, pricing and insurance coverage for thousands of brand, generic and over-the-counter drugs. The features available through~~ our ~~unique~~subscription ~~physician~~products ~~platform~~to ~~are referenced multiple times per day and help~~ healthcare professionals ~~make more informed prescribing decisions~~, ~~improve~~which ~~workflow~~accounts ~~and~~for ~~enhance~~the ~~patient~~remaining ~~safety.~~20% Weof ~~offer~~ our ~~products on major U~~revenue.~~S. mobile platforms including Apple iOS, Android and BlackBerry.~~

In 2011, we entered a controlled release of the Epocrates electronic health record, or “EHR,” mobile and web-based EHR offering focused on the solo and small group practices sector. We did not generate ~~approximately~~any ~~80%~~material ofrevenues from our ~~revenue~~EHR ~~from~~offering ~~providing~~in ~~healthcare~~2011. ~~companies~~In ~~with~~early ~~interactive~~2012, ~~services~~the toAudit ~~communicate~~Committee ~~with~~of ~~our~~the ~~network~~Board of ~~users~~Directors ~~(60%)~~of ~~and~~Epocrates, byas ~~leveraging~~authorized ~~our~~by ~~network~~the Board of ~~healthcare~~Directors, ~~professionals~~approved ~~for~~the ~~market~~discontinuation ~~research~~of ~~services~~Epocrates’ ~~(20%)~~EHR product. In ~~Our~~connection ~~user~~with ~~network~~this isdecision, ~~one~~Epocrates recorded an impairment charge of ~~our~~approximately ~~most~~$8.5 ~~valuable~~million ~~assets~~in ~~and~~the wefourth ~~strive~~quarter toof ~~strengthen~~2011, ~~this~~which ~~network~~represents bythe ~~increasing~~write-down ~~physician~~of ~~engagement~~the carrying value of the goodwill, intangible and byother ~~introducing~~long-lived ~~additional~~assets ~~tools~~related to ~~support~~the ~~healthcare~~EHR ~~professionals~~product atto ~~the~~their ~~point~~estimated fair value of ~~care~~zero. WeThis ~~also~~charge ~~generate~~is ~~revenues~~recorded in loss from ~~the~~discontinued ~~sale~~operations, net of tax, in our ~~subscription~~consolidated ~~products~~statements toof ~~healthcare~~operations ~~professionals~~for the year ended December 31, ~~which~~2011. ~~accounts~~In ~~for~~June 2012, we sold certain assets related to the ~~remaining~~EHR ~~20%~~iPad ofapplication to a third party pursuant to a purchase agreement that was not material to our ~~revenues~~consolidated financial statements.

InOn ~~July~~January 7, ~~2011~~2013, we entered ainto ~~controlled~~an ~~release~~agreement ofand ~~the~~plan ~~Epocrates~~of ~~electronic~~merger ~~health~~with ~~record~~athenahealth, ~~or “EHR,” mobile and web-based EHR offering focused on the solo and small group practices sector~~Inc. ~~We did not generate any material revenues from our EHR offering in 2011. On February 24~~, ~~2012,~~pursuant ~~the Board of Directors of Epocrates approved the discontinuation of further development of Epocrates’ EHR product. The Board of Directors made this determination in order~~ to ~~focus~~which ~~Epocrates’~~athenahealth ~~efforts~~will onacquire ~~its core business~~Epocrates, ~~Subscriptions~~subject ~~and Interactive Services, and due~~ to ~~the~~completion ~~future~~or ~~uncertainty~~waiver ~~and~~of ~~ongoing investment required for~~ the ~~EHR~~conditions ~~product. Epocrates will explore strategic alternatives~~ for closing the ~~EHR product. In connection with this decision~~acquisition, ~~Epocrates~~for ~~recorded an impairment charge of approximately~~ $811.575 ~~million~~per ~~in its fourth fiscal quarter of 2011~~share, ~~which~~as ~~represents~~more ~~the~~fully ~~write-down~~described ~~of the carrying value of the goodwill, intangible and other long-lived assets related to the EHR product to their estimated fair value of zero. This charge is recorded~~ in ~~Impairment~~“Merger ofwith ~~Long-lived~~athenahealth” ~~Assets and Goodwill in our consolidated statements of operations for the year ended December 31, 2011~~below.

3Reportable Segments

~~Table~~In 2011, we had two reportable segments: (1) Subscriptions and Interactive Services and (2) EHR. On February 24, 2012, the Audit Committee of ~~Contents~~the Board of Directors of Epocrates, as authorized by the Board of Directors, approved the discontinuation of Epocrates’ EHR business. Upon such approval, we qualified for discontinued operations presentation under GAAP, and at such time, the EHR results were reported in loss from discontinued operations on our condensed consolidated statements of comprehensive (loss) income. Prior period amounts have been revised in order to conform to the current period presentation.

~~Reportable Segments~~3

~~Subscriptions~~Table ~~and~~of ~~Interactive Services~~Contents

~~Subscriptions~~Financial ~~revenue~~information for the years ended December 31, 2012, 2011 and 2010, is reported in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

~~The~~Subscriptions ~~majority of healthcare professionals in our network use our free products~~ and ~~services~~Interactive and do not purchase any of our premium subscriptions. Premium subscriptions are available to our mobile physician platform and our online drug and clinical reference product, and site licenses or codes may be purchased for access to either our mobile or online products. We also sell subscriptions to nearly 65 education, learning and clinical applications, which we own as a result of our acquisition of Modality, Inc. in late 2010, for the Apple iOS platform. This channel’s revenues are not significant to our consolidated total revenues, net. Approximately 20% of our revenue is derived from premium subscriptions.Services

~~Epocrates~~Interactive ~~mobile~~Services ~~physician platform~~

~~Our~~We ~~proprietary~~generate ~~drug~~approximately ~~content~~80% ~~included~~of inour total revenues, net by working with third parties to engage with our ~~drug~~clinician ~~reference~~network. ~~tool~~Specifically, ~~provides~~providing ~~convenient~~an ~~access~~effective channel for pharmaceutical companies to ~~information~~communicate ~~healthcare~~with ~~professionals~~their ~~need~~target ataudience ~~the~~in ~~point~~a cost-effective manner generates 60% of ~~care~~revenue, ~~such~~and asan ~~dosing,~~additional ~~drug~~20% ~~interactions,~~is ~~pricing~~generated ~~and~~through ~~insurance~~market ~~coverage~~research ~~for~~services ~~thousands~~with ofour ~~brands~~extensive physician network. To date, ~~generic~~our ~~and~~interactive ~~over-~~services clients have included all of the~~-counter~~ ~~drugs.~~top ~~Physicians~~20 ~~trust~~global ~~Epocrates~~pharmaceutical ~~for~~companies ~~accurate~~by sales and ~~timely~~hundreds ~~content~~of individual pharmaceutical brands. Our interactive services include:

InDocAlert ~~October 2011,~~clinical wemessaging. ~~launched~~DocAlerts aare ~~redesign~~short, ofclinically ~~our~~relevant ~~drug~~messages ~~reference~~that ~~tool~~deliver tonews ~~create~~and aalerts ~~new~~including ~~platform~~product ~~that~~approvals, ~~provides~~clinical ~~healthcare~~study ~~professionals with improved~~results, ~~faster~~practice ~~access~~management ~~to our trusted drug content~~information, asindustry ~~well~~guidelines asand ~~additional~~formulary ~~tools.~~status Inchanges ~~addition~~ to ~~access to~~ our ~~proprietary~~members. ~~drug~~The ~~reference~~majority ~~tool~~of ~~with~~these ~~dosing,~~DocAlert ~~drug~~messages ~~interactions,~~are ~~pricing~~not ~~and~~sponsored. ~~insurance~~The ~~coverage~~balance ~~for thousands~~ of ~~brand,~~DocAlert ~~generic~~messages ~~and~~are ~~over-the-counter~~sponsored ~~drugs,~~by ~~physicians~~our ~~now~~clients ~~have better access~~ and ~~increased~~are ~~awareness~~marked ofas ~~other~~such. ~~resources~~These ~~from~~messages ~~Epocrates~~serve ~~and~~as ~~its~~a ~~partners.~~vehicle ~~The~~for ~~Epocrates~~our ~~physician~~clients ~~platform~~to ~~condenses~~communicate ~~all~~key ~~available~~scientific and ~~relevant~~ medical information onto ~~one~~clinicians ~~dashboard~~as ~~which~~a ~~may~~way ~~be customized according~~ to ~~each~~keep ~~user’s~~them ~~unique needs~~informed. ~~Our~~Depending ~~new~~on ~~platform~~the ~~should raise awareness of our interactive services such as EssentialPoints~~alert, ~~Contact~~clinicians ~~Manufacturer~~may ~~and Mobile Sample Closet. We~~ have ~~also~~the ~~built~~option anto ~~app~~view ~~directory~~additional ~~that~~information ~~resides~~ on ~~the~~their ~~Epocrates~~mobile ~~platform and provides healthcare professionals with convenient~~devices, ~~centralized~~save ~~access~~the tomessage afor ~~portfolio~~future of reference, ~~education~~forward ~~and~~the ~~clinical~~message ~~apps.~~to ~~Our new platform serves as~~ a ~~channel~~colleague ~~for~~or ~~Epocrates~~request toadditional ~~partner~~information onvia ~~development and distribution of apps~~e-mail.

Virtual Representative Services. Through Epocrates’ ~~online~~Essential ~~drug~~Points, ~~and~~our ~~clinical~~pharmaceutical ~~reference~~clients ~~products~~may sponsor activities on relevant topics which Epocrates communicates via two to seven minute overviews on physicians’ mobile devices. Our pharmaceutical clients also leverage the Epocrates’ App Network, a service which provides our clients with development, distribution (or a combination of these two offerings) or sponsorship of applications which are offered to targeted groups of physicians in our network.

Epocrates market research. We ~~offer~~recruit ~~online~~healthcare ~~drug~~professionals ~~and~~based ~~clinical~~on ~~reference~~occupation, ~~tools~~specialty, ~~for~~years ~~free~~in orpractice, ~~through~~practice asetting ~~premium~~and ~~subscription.~~geography ~~The~~to ~~free~~participate ~~online~~in ~~product~~market ~~includes~~research ~~the~~activities ~~same~~such ~~drug~~as online surveys, Q&A sessions and ~~formulary~~one-on-one ~~information~~interviews. ~~found~~Customers incontract ~~the~~with ~~free~~us ~~mobile~~and ~~product.~~pay Ita ~~also~~fee ~~includes~~to ~~complimentary~~us for access to ~~disease~~a ~~content~~targeted ~~developed~~group inof ~~conjunction~~our ~~with~~members ~~the~~whom ~~BMJ~~they ~~Group,~~wish ~~publishers~~to survey. We pay a portion of ~~the~~this ~~British~~fee ~~Medical~~to ~~Journal,~~the assurvey ~~well~~participants as ~~patient~~an ~~education~~incentive ~~handouts~~for ~~available~~them into ~~English~~participate. Numerous market research firms have used our services to recruit healthcare professionals for market research surveys on behalf of the healthcare and ~~Spanish~~financial services industries.

Formulary hosting. Our ~~online~~clients ~~premium~~contract ~~product~~with ~~includes~~us to host their formulary and make it available to our members for a one to three year period. Healthcare professionals have the ~~items~~option ~~mentioned~~to ~~above,~~download asplan ~~well~~formulary aslists anby ~~alternative~~geographic ~~medicine~~area ~~database~~or patient demographic at no cost. We work with large national health insurance, ~~hundreds~~regional ofand ~~medical~~Medicaid ~~equations~~plans, ~~clinical~~and ~~criteria~~we collaborate with the Centers for Medicare and ~~unit/dose~~Medicaid ~~converters.~~Services, ~~The~~or ~~online~~CMS, ~~premium~~to ~~version~~offer ~~may~~formulary beinformation ~~purchased~~for byall ~~individuals~~Medicare onPart D ~~the~~plans. ~~Epocrates~~For ~~website~~each orplan, bywe ~~groups~~integrate ~~through~~co-pay levels, quantity limits and prior authorization requirements into our ~~institutional~~core ~~sales~~drug ~~team~~reference products and display lower-cost and generic alternatives so physicians may select a less expensive treatment, reducing costs to patients and health plans.

~~Interactive~~Subscriptions ~~Services~~revenue

WeThe ~~generate~~majority ~~approximately~~of ~~80%~~healthcare ofprofessionals in our ~~total~~network ~~revenues,~~use ~~net~~our byfree ~~working~~products ~~with~~and ~~third~~services. ~~parties~~Premium tosubscriptions ~~engage~~are ~~with~~available to our ~~clinician~~mobile ~~network.~~physician ~~Specifically,~~platform ~~providing~~and anour ~~effective~~online ~~channel~~drug ~~for~~and ~~pharmaceutical~~clinical ~~companies~~reference toproduct, ~~communicate~~and ~~with~~site ~~their~~licenses ~~target~~or ~~audience~~codes inmay abe ~~cost-effective~~purchased ~~manner~~for ~~generates~~access ~~60%~~to ofeither ~~revenue,~~our ~~and~~mobile anor ~~additional~~online ~~20%~~products. isWe ~~generated~~also ~~through~~sell ~~market~~subscriptions ~~research~~to ~~services~~various ~~with~~education, ~~our~~learning ~~extensive~~and ~~physician~~clinical ~~network.~~applications Tofor ~~date,~~the ~~our~~Apple ~~interactive~~iOS ~~services~~platform. ~~clients~~This ~~have~~channel’s ~~included~~revenues ~~all~~are ofnot ~~the~~significant ~~top~~to 20our ~~global~~consolidated ~~pharmaceutical~~total ~~companies~~revenues, bynet. ~~sales~~Approximately ~~and~~20% ~~hundreds~~ of ~~individual~~our ~~pharmaceutical~~revenue ~~brands.~~is ~~Our~~derived ~~interactive~~from ~~services~~premium ~~include:~~subscriptions.

~~DocAlert~~Epocrates clinical messaging. DocAlerts are short, clinically relevant messages that deliver news and alerts including product approvals, clinical study results, practice management information, industry guidelines and formulary status changes to our users. The majority of these DocAlert messages are not sponsored. The balance of DocAlert messages are sponsored by our clients and are marked as such. These messages serve as a vehicle for our clients to communicate key scientific and medical information to clinicians as a way to keep them informed. Depending on the alert, clinicians may have the option to view additional information on their mobile ~~devices,~~physician ~~save the messages for future reference, forward the message to a colleague or request additional information via e-mail.~~platform

~~Virtual Representative Services.~~ Our ~~fully-integrated~~proprietary ~~mobile~~drug ~~promotional~~content ~~programs~~included ~~supplement~~in ~~and~~our ~~replicate the traditional sales model with services typically provided during representative interactions – such as~~ drug ~~detailing,~~reference ~~sampling~~tool ~~and~~provides ~~patient~~convenient ~~literature~~access ~~delivery, which we provide through Epocrates’ Mobile Sample Closet – as well as the ability~~ to ~~contact~~information ~~drug~~healthcare ~~manufacturers~~professionals need at the point of care~~. Through Epocrates’ Essential Points~~, ~~our~~such ~~pharmaceutical~~as clients may sponsor activities on relevant topics which Epocrates communicates via two to seven minute overviews on physicians’ mobile devices. Our pharmaceutical clients also leverage the Epocrates’ App Networkdosing, adrug ~~service which provides our clients with development~~interactions, ~~distribution~~pricing ~~(or~~and ainsurance ~~combination~~coverage offor ~~these~~thousands ~~two offerings) or sponsorship~~ of ~~apps~~brands, ~~which~~generic ~~are~~and ~~offered~~over-the-counter todrugs. ~~targeted~~Physicians ~~groups~~trust ofEpocrates ~~physicians~~for inaccurate ~~our~~and ~~network~~timely content.

4Epocrates online drug and clinical reference products

~~Table~~We ofoffer ~~Contents~~online drug and clinical reference tools for free or through a premium subscription. The free online product includes the same drug and formulary information found in the free mobile product. It also includes complimentary access to disease content

Epocrates market research. We recruit healthcare professionals based on occupation, specialty, years in practice, practice setting and geography to participate in market research activities such as online surveys, Q&A sessions and one-on-one interviews. Customers contract with us and pay a fee to us for access to a targeted group of our users whom they wish to survey. We pay a portion of this fee to the survey participants as an incentive for them to participate. Numerous market research firms have used our services to recruit healthcare professionals for market research surveys on behalf of the healthcare and financial services industries.4

~~Formulary~~Table ~~hosting. Our~~of clients contract with us to host their formulary and make it available to our users for a one to three year period. Healthcare professionals have the option to download plan formulary lists by geographic area or patient demographic at no cost. We work with large national health insurance, regional and Medicaid plans, and we collaborate with the Centers for Medicare and Medicaid Services, or “CMS,” to offer formulary information for all Medicare Part D plans. For each plan, we integrate co-pay levels, quantity limits and prior authorization requirements into our core drug reference products and display lower-cost and generic alternatives so physicians may select a less expensive treatment, reducing costs to patients and health plans.Contents

Mobile resource centers. This educational service allows healthcare professionals to stay current on clinical developments for a variety of diseases, conditions and topics. Typically sponsored by a pharmaceutical company for a year at a time, each resource center is developed in conjunction with athe ~~key~~BMJ ~~opinion~~Group, ~~leader~~publishers ~~for~~of ~~that~~the ~~specific~~British ~~disease~~Medical orJournal, ~~condition.~~as ~~The~~well ~~content is updated on a regular basis and includes information such~~ as ~~news~~patient ~~abstracts,~~education ~~conference~~handouts ~~highlights~~available ~~and commentary on medical advances~~ in ~~the~~English ~~field~~and Spanish.

~~Electronic~~Our ~~Health~~online ~~Records~~premium product includes the items mentioned above, as well as an alternative medicine database, hundreds of medical equations, clinical criteria and unit/dose converters. The online premium version may be purchased by individuals on the Epocrates website or by groups through our institutional sales team.

InIntellectual July 2011, we entered a controlled release of the Epocrates EHR mobile and web-based EHR offering, with the intent to offer a full product in 2012. Our EHR solution was designed to meet the distinct needs of primary care practices with 10 or fewer physicians and position users to qualify for subsidies under the Health Information Technology for Economic and Clinical Health Act, passed as part of the American Recovery and Reinvestment Act of 2009. Our solution is a secure, mobile and web-based Software-as-a-Service system featuring core capabilities including patient encounter notes, electronic lab integration, ePrescribing and Epocrates’ market-leading drug content. The market for EHR products is competitive, crowded and we have limited experience in that market. In 2011, the EHR segment did not generate a significant amount of revenue.Property

AsWe ~~indicated~~rely inupon ~~the~~a ~~Overview~~combination ~~section~~of ~~above,~~trade ~~on February 24~~secret, ~~2012~~copyright, ~~the~~trademark ~~Board~~and ofpatent ~~Directors of Epocrates approved the discontinuation of further development of Epocrates’ EHR product. In connection with this decision~~laws, ~~Epocrates~~license ~~recorded an impairment charge of approximately $8.5 million in its fourth quarter of 2011~~agreements, ~~which~~confidentiality ~~represents the write-down of the carrying value of the goodwill~~procedures, ~~intangible~~employee and ~~other~~client ~~long~~non-~~lived~~disclosure ~~assets~~agreements ~~related~~ to protect the ~~EHR~~intellectual ~~product~~property toused ~~their~~in ~~estimated~~our ~~fair~~business. ~~value~~We ofcurrently ~~zero.~~have ~~This~~nine ~~charge~~issued ispatents, ~~recorded~~which inexpire ~~Impairment~~between of2020 ~~Long-lived~~and ~~Assets~~2025, and ~~Goodwill~~one inpending ~~our~~patent ~~consolidated statements of operations for the year ended December 31, 2011~~application.

~~Financial~~We ~~Information~~use ~~About~~trademarks, ~~Segments~~trade names and service marks for our drug and clinical reference products and interactive services, including DocAlert®, Epocrates®, Epocrates Honors®, Epocrates ID®, Epocrates Lab™, Epocrates MedTools®, Epocrates Rx®, Epocrates Rx Pro®, Epocrates QuickSurvey®, Epocrates QuickRecruit®, Epocrates MedInsight®, EssentialPoints® and MedCafe®. We also use other registered and unregistered trademarks and service marks for our various services. In addition to our trademark registrations and applications, we have registered the domain names that either are or may be relevant to conducting our business, including http://www.epocrates.com. We also rely on a variety of intellectual property rights that we license from third parties, including various software and healthcare content used in our services.

~~Segment information for the years ended December 31, 2011, 2010 and 2009 is reported in Note 16 – Segment Information.~~Backlog

~~Intellectual~~Our ~~Property~~backlog consists of firm purchase orders by customers for delivery as well as deferred revenue recorded on the balance sheet. As of December 31, 2012, backlog was approximately $67.8 million, compared to approximately $79.0 million as of December 31, 2011. A majority of our unfilled orders will be recognized as revenue in the 2013 fiscal year. Backlog on any particular date, while indicative of short-term revenue performance, is not necessarily a reliable indicator of medium or long-term revenue performance.

We rely upon a combination of trade secret, copyright, trademark and patent laws, license agreements, confidentiality procedures, employee and client non-disclosure agreements to protect the intellectual property used in our business. We currently have six issued patents, which expire between 2020 and 2023, and three pending patent applications.Competition

WeThe ~~use~~markets ~~trademarks,~~in ~~trade~~which ~~names~~we ~~and~~participate ~~service~~are ~~marks~~competitive ~~for our drug~~ and ~~clinical reference products and interactive services~~dynamic, ~~including~~subject ~~DocAlert®,~~to ~~Epocrates®,~~developments ~~Epocrates~~in ~~Honors®,~~technology ~~Epocrates~~and ~~ID®,~~the ~~Epocrates~~healthcare ~~Lab™,~~industry. ~~Epocrates~~Our ~~MedTools®,~~management ~~Epocrates~~team ~~Rx®,~~includes ~~Epocrates~~experienced ~~Rx Pro®~~healthcare, ~~Epocrates~~pharmaceutical ~~Dx®,~~and ~~Epocrates~~information ~~QuickSurvey®,~~technology ~~Epocrates~~industry ~~QuickRecruit®, Epocrates MedInsight®, EssentialPoints® and MedCafe®~~executives. We ~~also~~benefit ~~use~~from ~~other~~their ~~registered~~operational ~~and unregistered trademarks and service marks for our various services. In addition to our trademark registrations and applications~~experience, wethorough ~~have~~understanding ~~registered~~of the ~~domain~~marketplace ~~names~~and ~~that~~extensive ~~either~~relationships ~~are~~with orpharmaceutical ~~may~~companies beand ~~relevant~~other toexisting ~~conducting our business, including http://www.epocrates.com. We also rely on a variety of intellectual property rights that we license from third parties, including various software~~ and ~~healthcare~~potential ~~content used in our services~~clients.

5Drug and clinical reference tools. Healthcare professionals use mobile, online and print media to reference clinical information. All of these media compete for the attention of healthcare professionals on the basis of providing access to relevant and reliable clinical information as well as the compatibility on mobile platforms. Our mobile and online drug and clinical reference tools primarily compete with Medscape, a division of WebMD Health Corp. and UpToDate Inc., a division of Wolters Kluwer Health.

~~Table~~We compete primarily on the ability to reach and communicate with healthcare professionals. The Epocrates brand is recognized and endorsed among healthcare professionals as a trusted and accurate source of ~~Contents~~drug and clinical information. Our brand has enabled us to build a large and active network of members, which enhances our ability to market our interactive services. Our network of healthcare professionals has grown primarily through word-of-mouth marketing; the breadth and loyalty of our member network are not easily replicated. Management continuously monitors the strength of our brand through net promoter scores.

~~Backlog~~Our proprietary drug content is developed and continually updated by a team of physicians and pharmacists who work to ensure accuracy and relevance. To develop our drug content, our team researches and reviews primary literature, specialty society recommendations, evidence‑based medicine, clinical guidelines and manufacturer labeling. We believe the quality, relevance and ease of use of our content drive our ability to attract and retain members.

Our ~~backlog~~mobile ~~consists~~products ofare ~~firm~~not ~~purchase~~dependent ~~orders~~on bycontinuous ~~customers~~access ~~for~~to ~~delivery as well as deferred revenue recorded on~~ the ~~balance sheet. As of December 31~~Internet, ~~2011,~~and ~~backlog~~therefore ~~was~~are ~~approximately~~fast ~~$79.0~~and ~~million,~~accessible ~~compared~~ to ~~approximately~~our ~~$86~~members.0 ~~million~~Our asinfrastructure ofis ~~December 31,~~designed ~~2010.~~to Aseamlessly ~~majority~~control ofand ~~our~~deploy ~~unfilled~~robust ~~orders~~and ~~will~~customized becontent ~~recognized~~to asa ~~revenue~~large innumber ~~the~~of ~~2012~~members, ~~fiscal~~allowing ~~year.~~for ~~Backlog~~simple onand ~~any~~efficient ~~particular~~downloads ~~date,~~and ~~while~~updates ~~indicative~~ of ~~short-term~~our ~~revenue~~clinical ~~performance,~~information. isThese ~~not~~attributes ~~necessarily~~continue ato ~~reliable~~be ~~indicator~~significant ofadvantages ~~medium~~in orsupporting ~~long-term~~our ~~revenue performance~~network.

~~Competition~~Interactive services. Our interactive services business competes with traditional sales and marketing methods, including sales representatives, for promotional spend by pharmaceutical companies. It also competes with companies marketing pharmaceutical

The markets in which we participate are competitive and dynamic, subject to developments in technology and the healthcare industry. Our management team includes experienced healthcare, pharmaceutical and information technology industry executives. We benefit from their operational experience, thorough understanding of the marketplace and extensive relationships with pharmaceutical companies and other existing and potential clients.5

~~Drug~~Table ~~and clinical reference tools. Healthcare professionals use mobile, online and print media to reference clinical information. All~~ of these media compete for the attention of healthcare professionals on the basis of providing access to relevant and reliable clinical information as well as the compatibility on mobile platforms. Our mobile and online drug and clinical reference tools primarily compete with Medscape, a division of WebMD Health Corp. and UpToDate Inc., a division of Wolters Kluwer Health.Contents

Wecompany ~~compete~~products, ~~primarily~~programs onand ~~the~~services ~~ability~~ to ~~reach and communicate with~~ healthcare professionals. ~~The~~These ~~Epocrates~~competitors ~~brand~~include isMedscape ~~recognized~~ and ~~endorsed~~Physicians ~~among healthcare professionals as a trusted and accurate source of drug and clinical information~~Interactive. Our brand has enabled us to build a large and active network of users, which enhances our ability to market our interactive services. Our network of healthcare professionals has grown primarily through word-of-mouth marketing; the breadth and loyalty of our user network are not easily replicated. Management continuously monitors the strength of our brand through market research.

Our ~~proprietary~~interactive ~~drug~~services ~~content~~enable ispharmaceutical ~~developed~~companies ~~and~~to ~~continually~~achieve ~~updated~~returns byon atheir ~~team~~marketing ofinvestments, ~~physicians~~increase ~~and~~the ~~pharmacists~~reach ~~who~~and ~~work~~frequency toof ~~ensure~~interactions ~~accuracy~~with ~~and~~prescribing ~~relevance.~~physicians Toon ~~develop~~new, ~~our~~niche ~~drug~~and ~~content~~established brands, ~~our~~and ~~team~~more ~~researches~~effectively ~~and~~support ~~reviews~~underserved ~~primary~~geographic ~~literature,~~markets. ~~specialty~~We ~~society~~compete ~~recommendations,~~on ~~evidence-based~~the ~~medicine~~basis of several factors, ~~clinical~~including ~~guidelines~~the breadth and ~~manufacturer~~depth ~~labeling.~~of Weour ~~believe~~services, ~~the~~our ~~quality~~reputation, the relevance and ~~ease~~reliability of ~~use of~~ our content ~~drive~~and our ~~ability~~extensive tophysician ~~attract~~member ~~and retain users~~network.

Epocrates market research. Our ~~mobile~~market ~~products~~research ~~are~~business ~~not~~competes ~~dependent~~with onfirms ~~continuous~~such ~~access~~as Medefield America and All Global. Both of these firms recruit physicians to ~~the~~participate ~~Internet~~in surveys, ~~and~~often ~~therefore~~by ~~are~~phone, ~~fast~~fax, ~~and~~e-mail ~~accessible~~or totraditional ~~our~~mail. ~~users~~It also competes with market research companies that have assembled their own panels of healthcare professionals. ~~Our~~Epocrates ~~infrastructure~~competes isin ~~designed~~this tospace ~~seamlessly~~by ~~control~~leveraging its extensive and ~~deploy~~loyal ~~robust~~physician ~~and~~member ~~customized~~network ~~content~~whose tomembers aare ~~large~~more ~~number~~likely ofto ~~users,~~be ~~allowing~~responsive ~~for~~to ~~simple~~a company and ~~efficient~~brand ~~downloads~~they know and ~~updates~~trust. ofAdditionally, ~~our~~in ~~clinical~~January ~~information.~~2012, ~~These~~Epocrates ~~attributes~~announced ~~continue~~a partnership with M3 Global Research to becreate ~~significant~~the ~~advantages~~world's largest verified physician and healthcare provider panel. By combining their high-quality, opted-in ~~supporting~~physician ~~our~~panels, ~~network~~the companies can now offer a global market research sampling solution.

~~Interactive~~Research ~~services. Our interactive services business competes with traditional sales~~ and marketing methods, including sales representatives, for promotional spend by pharmaceutical companies. It also competes with companies marketing pharmaceutical company products, programs and services to healthcare professionals. These competitors include Medscape and Physicians Interactive.Development

Our ~~interactive~~expenditures ~~services~~for ~~enable~~research ~~pharmaceutical companies to achieve returns on their marketing investments, increase the reach~~ and ~~frequency~~development ofassociated ~~interactions~~ with ~~prescribing~~our ~~physicians~~continuing onoperations ~~new,~~were ~~niche~~$20.7 ~~and~~million, ~~established~~$21.1 ~~brands,~~million and ~~more effectively support underserved geographic markets~~$15.7 Wemillion ~~compete~~for on the ~~basis~~years ofended ~~several~~December 31, ~~factors~~2012, ~~including~~2011 ~~the breadth~~ and ~~depth of our services~~2010, ~~our reputation, the relevance and reliability of our content and our extensive physician user network~~respectively.

~~Epocrates~~User ~~market~~Privacy ~~research. Our market research business competes with firms such as Medefield America~~ and ~~All~~Trust Global. Both of these firms recruit physicians to participate in surveys, often by phone, fax, e-mail or traditional mail. It also competes with market research companies that have assembled their own panels of healthcare professionals. Epocrates competes in this space by leveraging its extensive and loyal physician member network whose users are more likely to be responsive to a company and brand they know and trust. Additionally, in January 2012, Epocrates announced a partnership with M3 Inc. to create the world’s largest verified physician and healthcare provider panel. By combining their high-quality, opted-in physician panels, the companies can now offer a global market research sampling solution.

~~Electronic~~We ~~health~~have ~~records. During~~internal ~~2011~~policies and practices relating to, weamong ~~competed~~other ~~with~~things, ~~companies~~content ~~selling~~standards ~~EHR~~and ~~solutions~~user privacy, designed to ~~solo~~foster ~~and~~relationships ~~small~~with ~~group~~our ~~physician~~members. ~~practices~~In addition, ~~including~~we ~~eClinicalWorks~~are ~~and~~a ~~Allscripts.~~licensee Weof ~~competed~~the inTRUSTe ~~this~~Privacy ~~space~~Program. ~~through~~TRUSTe ~~brand~~is ~~recognition~~an ~~and~~independent, bynon-profit ~~leveraging~~organization ~~our~~whose ~~extensive~~goal ~~physician~~is ~~user~~to ~~network~~build members’ trust and ~~developing~~confidence ain ~~solution~~the ~~tailored~~Internet. ~~specifically~~Our ~~for~~privacy ~~use~~policy ininforms ~~solo~~website users and ~~small~~visitors ~~group~~of ~~practices.~~the Weinformation ~~did~~we ~~not~~collect ~~have~~about athem ~~strong~~and ~~competitive~~about ~~position~~their inuse ~~the~~of ~~EHR~~our ~~market~~services. inWe ~~2011,~~also ~~which~~explain ~~contributed~~the tochoices ~~our~~available ~~decision~~as to ~~discontinue~~how ~~the~~their ~~development~~personal ofinformation ~~our~~is ~~EHR~~used ~~offering~~and inhow ~~2011~~we protect that information.

6Government Regulation

~~Table~~Most of ~~Contents~~our revenue is derived directly from the healthcare industry, and from pharmaceutical companies in particular. The healthcare industry is highly regulated and is subject to changing political, regulatory and other influences. These factors affect the purchasing practices and operations of healthcare organizations, as well as the behavior and attitudes of our members. Recently, healthcare reform has been enacted at the federal level, and there have been enforcement initiatives targeting the healthcare industry’s promotional practices, as well as proposals to increase the regulation of pharmaceutical companies. We expect federal and state legislatures and agencies to continue to consider programs to reform or revise aspects of the U.S. healthcare system and the approval and promotion of pharmaceuticals. These programs may contain proposals to increase governmental involvement in healthcare or otherwise change the environment in which healthcare industry participants operate. Healthcare industry participants may respond by reducing their spending or postponing decisions, including purchasing our products and services.

~~Research~~Laws and ~~Development~~regulations have also been adopted, and may be adopted in the future, that address Internet‑related issues, including mobile and online content, privacy, online marketing, unsolicited commercial e-mail, taxation, pricing and quality of services. Many laws are complex and their application to specific services may not be clear. In particular, many existing laws and regulations, when enacted, do not anticipate the clinical information and interactive services that we provide. However, these laws and regulations may nonetheless be applied to our services. Refer to “Item 1A. Risk Factors,” and particularly the risk factors entitled “Healthcare and consumer protection regulations and legislation create risks and challenges with respect to our compliance efforts and our business strategies” and “We face potential liability related to the privacy and security of personal information we collect from healthcare professionals through our products and interactive services,” for specific information regarding how certain governmental regulations pertain to us.

~~Our~~Long-lived ~~expenditures~~Assets ~~for research~~ and development were $22.8, $19.7 and $14.7 million for the years ended December 31, 2011, 2010 and 2009, respectively, of which $1.7 million, $4.0 million and zero related to EHR. Additionally, we capitalized $6.5 million and $0.7 million of costs related to EHR in 2011 and 2010. In the fourth quarter of 2011, we recorded a charge of approximately $6.7 million to write off the carrying value of capitalized software related to the EHR reporting unit down to its estimated fair value of zero.Revenues

~~User~~All ~~Privacy~~of our long-lived assets are located within the U.S. Our revenue is derived primarily from clients in the healthcare industry (pharmaceutical companies, managed care companies and ~~Trust~~market research firms) within the U.S. Revenue from clients outside the U.S. is not material for the years ended December 31, 2012, 2011 or 2010, and no single customer accounted for more than 10% of net revenue for the same periods. For the years ended December 31, 2012, 2011 and 2010, interactive services revenue accounted for $92.1 million, $90.8 million and $79.3 million of our revenues, respectively, and subscription revenues accounted for $19.0 million, $22.5 million and $24.7 million of our revenues, respectively.

We have internal policies and practices relating to, among other things, content standards and user privacy, designed to foster relationships with our users. In addition, we are a licensee of the TRUSTe Privacy Program. TRUSTe is an independent, non-profit organization whose goal is to build users’ trust and confidence in the Internet. We have also provided certification to the U.S. Department of Commerce to qualify for the safe harbor exception to the European Union Data Protection Directive established for U.S. based corporations. Our privacy policy informs website users and visitors of the information we collect about them and about their use of our services. We also explain the choices available as to how their personal information is used and how we protect that information. Additionally, we comply with the Payment Card Industry Data Security Standard, a set of requirements designed to ensure that all companies that process, store or transmit credit card information maintain a secure environment.6

~~Government~~Table ~~Regulation~~of Contents

~~Most~~The timing of our revenue ishas ~~derived~~been ~~directly~~affected ~~from~~by ~~the~~seasonal ~~healthcare industry~~factors, ~~and~~primarily ~~from~~as ~~pharmaceutical~~a ~~companies~~result inof ~~particular. The healthcare industry is highly regulated and is subject to changing political, regulatory and other influences. These factors affect~~ the ~~purchasing~~annual ~~practices~~budget ~~and~~approval ~~operations~~process of ~~healthcare~~many ~~organizations,~~of asour ~~well~~customers asin the ~~behavior~~pharmaceutical ~~and~~industry. ~~attitudes~~As ofa ~~our users. Recently~~result, ~~healthcare~~our ~~reform~~contract ~~has~~bookings ~~been enacted at the federal level,~~ and ~~there~~revenue have historically been ~~enforcement~~highest ~~initiatives~~in ~~targeting~~ the ~~healthcare~~fourth ~~industry’s~~quarter ~~promotional practices, as well as proposals to increase the regulation~~ of ~~pharmaceutical~~each ~~companies.~~calendar Weyear ~~expect federal~~ and ~~state~~we ~~legislatures~~expect ~~and~~this ~~agencies~~trend to continue ~~to consider programs to reform or revise aspects of the U~~.S. healthcare system and the approval and promotion of pharmaceuticals. These programs may contain proposals to increase governmental involvement in healthcare or otherwise change the environment in which healthcare industry participants operate. Healthcare industry participants may respond by reducing their spending or postponing decisions, including purchasing our products and services.

Laws and regulations have also been adopted, and may be adopted in the future, that address Internet-related issues, including mobile and online content, privacy, online marketing, unsolicited commercial e-mail, taxation, pricing and quality of services. Many laws are complex and their application to specific services may not be clear. In particular, many existing laws and regulations, when enacted, do not anticipate the clinical information and interactive services that we provide. However, these laws and regulations may nonetheless be applied to our services. Refer to “Item 1A. Risk Factors,” and particularly the risk factors entitled “Healthcare and consumer protection regulations and legislation create risks and challenges with respect to our compliance efforts and our business strategies” and “We face potential liability related to the privacy and security of personal information we collect from healthcare professionals through our products and interactive services,” for specific information regarding how certain governmental regulations pertain to us.Employees

~~Long-lived~~As ~~Assets~~of ~~and~~December 31, ~~Revenues~~2012, we had approximately 320 employees. None of our employees is covered by a collective bargaining agreement.

~~All~~Merger ofwith our long-lived assets are located within the U.S. Our revenue is derived primarily from clients in the healthcare industry (pharmaceutical companies, managed care companies and market research firms) within the U.S. Revenue from clients outside the U.S. is not material for the years ended December 31, 2011, 2010 or 2009, and no single customer accounted for more than 10% of net revenue for the same periods. For the years ended December 31, 2011, 2010 and 2009, interactive services revenue accounted for $90.8 million, $79.3 million and $74.7 million of our revenues, respectively, and subscription revenues accounted for $22.5 million, $24.7 million and $19.0 million of our revenues, respectively.athenahealth

~~The~~On ~~timing~~January 7, of2013, ~~our~~Epocrates, ~~revenue~~athenahealth, ~~has~~Inc., ~~been~~and ~~affected~~a bywholly ~~seasonal~~owned ~~factors,~~subsidiary ~~primarily~~of asathenahealth a(which ~~result~~we ofrefer ~~the~~to ~~annual~~as ~~budget~~merger ~~approval~~sub), ~~process~~entered ofinto ~~many~~an agreement and plan of ~~our~~merger, ~~customers~~which inwe ~~the~~refer ~~pharmaceutical~~to ~~industry.~~as Asthe amerger ~~result~~agreement, ~~our~~pursuant ~~contract~~to ~~bookings~~which ~~and~~Epocrates ~~revenue~~will ~~have~~merge ~~historically~~with ~~been~~and ~~highest~~into inmerger ~~the~~sub, ~~fourth~~with ~~quarter~~Epocrates ofsurviving ~~each~~the ~~calendar~~merger ~~year~~as ~~and~~a wewholly ~~expect~~owned ~~this~~subsidiary ~~trend~~of ~~to continue~~athenahealth.

7Upon the consummation of the merger, each issued and outstanding share of Epocrates common stock (other than treasury shares; shares held by athenahealth, merger sub, or any subsidiary of athenahealth or Epocrates; and dissenting shares) will be canceled and automatically converted into the right to receive $11.75 in cash, without interest. All outstanding options and restricted stock unit awards under Epocrates' equity compensation plans will be assumed by athenahealth in the merger. Each outstanding option and restricted stock unit award shall be exercisable or shall be settled upon the same terms and conditions as under the applicable Epocrates equity compensation plan, except that each option shall be exercisable for, and each restricted stock unit shall be converted into the right to receive, shares of athenahealth common stock using an exchange ratio based on the average closing sales prices per share of athenahealth's common stock for the ten trading days ending on the second trading day prior to the closing of the merger.

~~Table~~The merger agreement contains customary representations, warranties, and covenants of ~~Contents~~Epocrates and athenahealth, including, among others: (a) representations relating to the accuracy of Epocrates' filings with the U.S. Securities and Exchange Commission; (b) Epocrates' ownership of and other rights in its intellectual property; (c) athenahealth's authority to enter into the merger agreement; and (d) covenants by Epocrates to conduct its business in the ordinary course during the interim period between the execution of the merger agreement and the merger and not to engage in certain kinds of transactions during such period. Epocrates is also subject to customary “no-shop” restrictions on its ability to solicit alternative acquisition proposals from third parties and to provide information to and participate in discussions and engage in negotiations with third parties regarding alternative acquisition proposals.

~~Employees~~The consummation of the merger is subject to customary closing conditions, including requisite Epocrates stockholder approval, which stockholder vote is currently scheduled to occur on March 11, 2013. The merger agreement contains certain termination rights for the parties. Upon the termination of the merger agreement under specified circumstances, including as a result of Epocrates entering into an alternative acquisition agreement that constitutes a superior proposal (as defined in the merger agreement), Epocrates will be required to pay athenahealth a termination fee equal to $9 million. In addition, subject to certain limitations, either party may terminate the merger agreement if the merger is not consummated by May 15, 2013.

AsThe ofmerger ~~December 31,~~agreement ~~2011,~~is wefiled ~~had~~as ~~approximately~~Exhibit ~~360 employees~~2.1 ~~None~~to of our ~~employees~~Current isReport ~~covered~~on byForm a8-K ~~collective~~filed ~~bargaining~~with ~~agreement~~the SEC on January 7, 2013.

Executive Officers of the Registrant

Our current executive officers and their respective ages and positions are:

Name	~~Age~~	Age	~~Position~~	Position
Peter C. Brandt	54		Interim President and Chief Executive Officer
Andrew J. Hurd		49		President, Chief Executive Officer and Interim Chief Financial Officer
Patrick D. Spangler	56		Chief Financial Officer
Matthew A. Kaminer		39		General Counsel and Secretary
Matthew A. Kaminer	38		General Counsel and Secretary
Heather A. Gervais		42		Senior Vice President, Commercial Operations
David B. Burlington	48		Chief Operations Officer
Adam E. Budish		52		Senior Vice President, Sales
Heather A. Gervais	41		Senior Vice President, Commercial Operations
David Ward		52		Executive Vice President, Business Development
Adam E. Budish	51		Senior Vice President, Sales
Amy Ferretti		54		Senior Vice President, Marketing

Peter C. Brandt has served on our Board since February 2011, and has served as our Interim President and Chief Executive Officer since November 16, 2011. Since September 2009, Mr. Brandt has been serving on the boards of directors for various healthcare companies. From April 2008 to August 2009, Mr. Brandt served as President and CEO of Noven Pharmaceuticals, Inc., a specialty pharmaceutical company, where he was responsible for the overall management of the company. From May 2007 to April 2008, Mr. Brandt served as a consultant for various healthcare companies. From January 2006 to May 2007, Mr. Brandt served as President of U.S. Pharmaceutical Operations of Pfizer, Inc., a biomedical and pharmaceutical company, and as President of Latin American Pharmaceutical Operations and Senior Vice President of Global Pharmaceuticals overseeing Finance, Information Technology, Planning and Business Development departments, as well as the Pfizer Health Solutions department from January 2004 to December 2005. Mr. Brandt holds a B.A. from the University of Connecticut and an M.B.A. from Columbia University. Mr. Brandt previously served on the Board of Directors of Noven Pharmaceuticals, Inc. and currently serves as a director of Rexahn Pharmaceuticals, Inc. and Auxilium Pharmaceuticals, Inc. The Nominating Committee believes that Mr. Brandt’s extensive experience in the pharmaceutical industry and financial matters makes him a valuable member of the Board. Mr. Brandt was identified by a recruiter and elected to the Board to fill a vacancy created by the resignation of a member of the Board and, prior to his appointment as Interim President and CEO, to serve as a member of our Audit Committee.7

~~Patrick~~Table D. Spangler has served as our CFO since September 2010. From May 2010 to September 2010, Mr. Spangler served as Operating Partner at Three Fields Capital, a private equity and venture capital firm, where he was responsible for evaluating the merits of investment opportunities and functioned as operating partner. From June 2009 to April 2010, Mr. Spangler served as CFO for High Jump Software Inc., a supply chain management software company. From April 2005 to January 2009, Mr. Spangler served as Senior Vice President and CFO for ev3 Inc., a medical device company, and as its Treasurer from April 2005 to February 2008, where he was responsible for various finance functions, including corporate planning, tax, treasury operations, corporate development, risk management and audit. From June 1997 to January 2005, Mr. Spangler served as Executive Vice President, CFO and Assistant Secretary for Empi, Inc., a company specializing in rehabilitative medical devices. From January 2005 to March 2005, Mr. Spangler served as a consultant to Empi, Inc. Mr. Spangler holds a B.S. from the University of Minnesota, an M.B.A. from the University of Chicago and an M.B.T. from the University of Minnesota. Mr. Spangler serves on the Board of Directors of Urologix, Inc.Contents

~~Matthew~~Andrew AJ. ~~Kaminer~~ Hurd has served ason our ~~General~~Board ~~Counsel~~since March 2012 and ~~Secretary~~has served as our President and CEO since ~~June~~March 26, 2012. Mr. Hurd was appointed Interim Chief Financial Officer in October 2012. From July 2005 to December 2011, Mr. Hurd served as Chairman and CEO of Carefx, a healthcare technology company acquired by Harris Corporation in 2011, where he was responsible for the overall management of the company. From ~~March~~January ~~2010~~2003 ~~until~~to June ~~2011~~2005, Mr. ~~Kaminer~~Hurd served as ~~General~~Senior ~~Counsel~~Vice President of WebMD Health Corp., a healthcare software company, where he was responsible for ~~MediMedia~~sales, ~~USA~~marketing and customer support operations. From May 2000 to June 2002, ~~Inc~~ Mr. Hurd served as EVP of Sales and Marketing for Centerbeam, a technology outsourcing company ~~that~~in ~~provides~~Silicon ~~specialty~~Valley. ~~healthcare~~From ~~communications~~January 1998 to January 2000, ~~publishing~~Mr. ~~and~~Hurd ~~medical~~served ~~education~~as President, Health Information Division of QuadraMed Corporation, a healthcare software company, where he was responsible for ~~various~~full ~~legal~~profit ~~functions~~and loss of the Health Information Management division of the company. From ~~May 2004~~June ~~through~~1989 ~~December~~to January ~~2009~~1995, Mr. ~~Kaminer~~ Hurd served as ~~Assistant~~National ~~General~~Sales ~~Counsel~~Manager ~~and~~for ~~Chief~~AMSCO, ~~Privacy~~a ~~Officer~~healthcare atcapital ~~WebMD~~equipment ~~Health Corp.~~company, where he was responsible for various ~~legal~~sales ~~affairs~~and marketing operations. Mr. ~~Kaminer~~Hurd ~~earned~~holds ~~his~~a ~~Juris~~bachelors ~~Doctor~~degree in business administration from ~~George~~Northern ~~Washington~~Arizona University. Mr. Hurd currently serves as a director of ABILITY Network, Inc. The Nominating Committee believes that Mr. Hurd's extensive experience in the healthcare information technology industry and ~~his~~prior ~~Bachelor~~leadership experience make him a valuable member of ~~Science~~the Board. Mr. Hurd was appointed to the Board in ~~Computer~~connection ~~Science~~with ~~from~~his ~~Pennsylvania~~appointment ~~State~~as ~~University~~President and CEO of Epocrates.

~~David~~Matthew BA. ~~Burlington~~Kaminer has served as our ~~Chief~~General ~~Operations~~Counsel ~~Officer~~and Secretary since ~~October 2010~~June 2011. From ~~August 2005~~March ~~to August~~ 2010 until June 2011, Mr. ~~Burlington~~ Kaminer served as ~~Group~~General ~~Vice~~Counsel ~~President~~for MediMedia USA, ~~Applications~~Inc., a company that provides specialty healthcare communications, publishing and ~~Technology~~medical education, where he was responsible for ~~Taleo~~various ~~Corporation~~legal functions. From May 2004 through December 2009, aMr. ~~talent~~Kaminer ~~management~~served ~~software~~as ~~company~~Assistant General Counsel and Chief Privacy Officer at WebMD Health Corp., where he was responsible for various ~~business~~legal ~~development~~affairs. Mr. Kaminer earned his Juris Doctor from George Washington University and ~~operational~~his ~~functions,~~Bachelor ~~including~~of Science in Computer Science from Pennsylvania State University.

8Heather A. Gervais has served as our Senior Vice President of Commercial Operations since November 2011. Ms. Gervais joined Epocrates in September 2010 as the Vice President of Client Services. Prior to her employment at Epocrates, Ms. Gervais served as Vice President, Group Director at Digitas Health from March 2010 to August 2010, where she was responsible for healthcare marketing. From July 2008 to March 2010, Ms. Gervais ran her own consulting firm, Gervais & Associates. Ms. Gervais also held several management positions at Cadient Group, an interactive marketing agency, from 2002 through June 2008, including the position of Vice President of Operations. Throughout her career, she has held positions in interactive marketing, IT consulting and healthcare finance, and has over 15 years of extensive management experience developing and re-engineering business processes, developing and managing multi-disciplinary teams, creating strategic business partnerships and optimizing financial results. Ms. Gervais holds a B.S. in Finance and Marketing from LaSalle University and a B.S. in Computer Information Systems from Florida Atlantic University.

~~Table~~Adam E. Budish has served as our Senior Vice President of ~~Contents~~Sales since November 2011. Mr. Budish was previously Senior Vice President of Sales at Medimedia Health, a division of MediMedia USA, Inc., where he led non-personal promotion sales to pharmaceutical companies from April 2010 to November 2011. Prior to joining MediMedia, Mr. Budish was Executive Vice President for dLife, where he led sales of disease management ‘lite’ programs to health plans and institutions from March 2009 to April 2010. Prior to joining dLife, Mr. Budish was Head of Sales/Pre-Sales for Cigna Health Solutions, where he led sales in Disease Management, EAP, Behavioral Health and Lifestyle Management programs to employers from March 2008 to March 2009. Mr. Budish also held various management positions at WebMD Health Services, Inc., from 2001 through March 2008, including the position of Vice President of Strategic Accounts, where he and his team successfully orchestrated sale, implementation and account management for payer accounts. Mr. Budish also led the Reuters Health Information business, where he developed and managed a very profitable electronic wholesale and retail subscription-based business for distribution of news and information to healthcare professionals, consumers and business people. Mr. Budish holds an MBA from the Pennsylvania University Wharton School of Business, a Juris Doctor from George Washington University and a B.A. from University of Virginia.

~~administration~~David ofWard ~~strategic~~has ~~relationships~~served ~~and~~as ~~product~~our ~~development~~Executive Vice President, ~~strategy~~Business ~~and~~Development ~~management.~~since ~~From~~April ~~March~~2012. ~~2001~~From toOctober ~~July~~ 2005 to April 2012, Mr. ~~Burlington~~ Ward served as ~~Senior~~Executive Vice President of ~~Product~~Business Development at Carefx, a healthcare technology company acquired by Harris Corporation in 2011, where he was responsible for ~~Comergent~~channel ~~Technologies~~development and indirect sales channel relationships, as well as all aspects of partner management. From January 1997 to July 2005, Mr. Ward served in various senior leadership positions in sales and business development at WebMD Health Corp. and acquired predecessor companies. From June 1992 to January 1997, Mr. Ward served as Vice President at Companion Technologies, Inc., ana ewholly-~~business~~owned ~~software~~subsidiary ~~company~~of Blue Cross Blue Shield of South Carolina, where he was responsible for sales and business development. From June 1982 to June 1992, Mr. Ward served in sales and sales management roles at IBM Corporation. ~~Burlington~~Mr. Ward holds a B.S. ~~from~~degree ~~Santa~~in ~~Clara~~Business Administration-Marketing from the University of South Carolina.

~~Heather~~Amy A.Ferretti ~~Gervais~~ has served as our Senior Vice President, ofMarketing ~~Commercial Operations~~ since ~~November 2011.~~June Ms2012. ~~Gervais~~From ~~joined~~August ~~Epocrates~~2005 ~~in September 2010 as the Vice President of Client Services. Prior~~ to ~~her~~June ~~employment at Epocrates~~2012, Ms. ~~Gervais~~ Ferretti served as Vice President, ~~Group~~of ~~Director~~Marketing at ~~Digitas Health from March 2010 to August 2010~~Carefx, ~~where~~a ~~she was responsible for~~ healthcare ~~marketing.~~technology ~~From~~company ~~July 2008~~acquired toby ~~March 2010,~~Harris ~~Ms. Gervais~~Corporation ~~ran~~in ~~her own consulting firm~~2011, ~~Gervais &~~where ~~Associates.~~she ~~Ms. Gervais~~led ~~also~~the ~~held several management positions at Cadient Group, an interactive~~ marketing ~~agency,~~strategy ~~from~~and ~~2002 through June 2008~~operations, including ~~the~~market ~~position of Vice President of Operations. Throughout her career~~positioning, ~~she~~brand ~~has held positions in interactive marketing, IT consulting and healthcare finance, and has over 15 years of extensive~~ management ~~experience developing and re-engineering business processes~~, ~~developing~~demand ~~and managing multi-disciplinary teams~~generation, creating strategic business partnerships and optimizing financial results. Ms. Gervais holds a B.S. in Finance and Marketing from LaSalle University and a B.S. in Computer Information Systems from Florida Atlantic University.

Adam E. Budish has served as our Senior Vice President of Sales since November 2011. Mr. Budish was previously Senior Vice President of Sales at Medimedia Health, a division of MediMedia USA, Inc., where he led non-personal promotion sales to pharmaceutical companies from April 2010 to November 2011. Prior to joining MediMedia, Mr. Budish was Executive Vice President for dLife, where he led sales of disease management ‘lite’ programs to health plans and institutions from March 2009 to April 2010. Prior to joining dLife, Mr. Budish was Head of Sales/Pre-Sales for Cigna Health Solutions, where he led sales in Disease Management, EAP, Behavioral Health and Lifestyle Management programs to employers from March 2008 to March 2009. Mr. Budish also held various management positions at WebMD Health Services, Inc., from 2001 through March 2008, including the position of Vice President of Strategic Accounts, where he and his team successfully orchestrated sale, implementation and account management for payer accounts. Mr. Budish also led the Reuters Health Information business, where he developed and managed a very profitable electronic wholesale and retail subscription-based business for distribution of news and information to healthcare professionals, consumers and business people. Mr. Budish holds an MBA from the Pennsylvania University Wharton School of Business, a Juris Doctor from George Washington University and a B.A. from University of Virginia.8

~~Available~~Table ~~Information~~of Contents

~~Epocrates,~~communications and interactive initiatives. From October 2003 to June 2004, Ms. Ferretti served as Vice President, Marketing at Concuity, Inc., where she was ~~originally~~responsible ~~incorporated~~for inthe ~~California~~brand development and re-launch of the company, which was acquired by the Advisory Board Company in ~~August~~2010. ~~1998~~From asJune ~~nCircle~~2000 ~~Communications~~to October 2003, ~~Inc~~ Ms. InFerretti ~~September 1999~~served as VP, weMarketing ~~changed~~at ~~our~~Misys ~~name~~Healthcare toSystems ~~ePocrates~~(formerly Sunquest Information Systems, Inc.), where she was responsible for marketing strategy and inoperations ~~May 2006~~including marketing communications, webusiness ~~reincorporated~~development, inand ~~Delaware~~product management. From September 1999 to June 2000, Ms. Ferretti served as ~~Epocrates~~Director, ~~Inc~~ Marketing at Lumedx, where she was responsible for the brand development and re-launch of the company. Ms. Ferretti attended the University of South Dakota and the Executive Marketing Program at the University of Colorado.

~~Epocrates~~Available files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements and amendments to reports filed or furnished pursuant to Sections 13(a), 14 and 15(d) of the Securities Exchange Act of 1934, as amended. The public may read and copy these materials at the Securities and Exchange Commission (“SEC”)’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding Epocrates and other companies that file materials with the SEC electronically. Copies of Epocrates’ annual reports on Form 10-K, Forms 10-Q and Forms 8-K, may be obtained, free of charge, on the company’s website at http://investor.epocrates.com/financials.cfm, by contacting ir@epocrates.com or by calling 650-227-1700, extension 3.Information

~~Item~~Epocrates, 1AInc. ~~Risk~~was ~~Factors~~originally incorporated in California in August 1998 as nCircle Communications, Inc. In September 1999, we changed our name to ePocrates, Inc. and in May 2006, we reincorporated in Delaware as Epocrates, Inc. Our website is www.epocrates.com. The information that can be accessed through our website, however, is not part of this Annual Report.

~~Investing~~Epocrates infiles ~~our~~annual ~~common~~reports ~~stock~~on ~~involves~~Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements and amendments to reports filed or furnished pursuant to Sections 13(a), ~~high~~14 ~~degree~~and 15(d) of ~~risk.~~the ~~You~~Securities ~~should~~Exchange ~~carefully~~Act ~~consider~~of ~~the~~1934, ~~risks~~as ~~described~~amended. ~~below~~The public may read and copy these materials at the ~~other~~Securities ~~information~~and inExchange ~~this~~Commission ~~report~~(“SEC”)’s onPublic ~~Form 10-K~~Reference Room at 100 F Street, NE, Washington, DC 20549. IfThe ~~any~~public may obtain information on the operation of ~~such~~the ~~risks~~Public ~~actually~~Reference ~~occur,~~Room ~~our~~by ~~business,~~calling ~~operating~~the ~~results~~SEC orat ~~financial~~1-800-SEC-0330. ~~condition~~The ~~could~~SEC bealso ~~adversely~~maintains ~~affected~~a website at http://www.sec.gov Inthat ~~those~~contains ~~cases~~reports, proxy and information statements and other information regarding Epocrates and other companies that file materials with the ~~trading~~SEC ~~price~~electronically. Copies of ~~our~~Epocrates’ ~~common~~annual ~~stock~~reports ~~could~~on ~~decline~~Form 10-K, Forms 10-Q and ~~you~~Forms 8-K, may ~~lose~~be ~~all~~obtained, free of charge, on the company’s website at http://investor.epocrates.com/financials.cfm, by contacting ir@epocrates.com or ~~part~~by ofcalling ~~your~~650-227-1700, ~~investment~~extension 3.

9Item 1A. Risk Factors

~~Table~~Investing in our common stock involves a high degree of ~~Contents~~risk. You should carefully consider the risks described below and the other information in this report on Form 10-K. If any of such risks actually occur, our business, operating results or financial condition could be adversely affected. In those cases, the trading price of our common stock could decline and you may lose all or part of your investment.

Risks Related to Our Business and Industry

If we are unable to retain our existing ~~users~~members and attract new ~~users~~members, especially physician ~~users~~members, our revenue will decline and our business will suffer.

A necessary condition to our long-term success is our ability to retain our existing ~~users~~members and attract new ~~users~~members, especially physician ~~users~~members in specialties of interest to our healthcare clients, to our interactive services and drug and clinical reference tools. If we are unable to do so, our revenue could decline materially.

Most of our ~~users~~members use only our free drug reference product and may stop using the products at any time without loss. Most of the paid subscriptions to our premium drug and clinical reference products have a term of one year and our ~~users~~members have no obligation to renew their subscriptions when such subscriptions expire. Under certain circumstances, our ~~users~~members may cancel their subscriptions prior to expiration.

Factors that may affect the retention rate of our existing ~~users~~members and the rate at which we attract new ~~users~~members for our drug and clinical reference tools include:

· • our ability to provide current, relevant and reliable healthcare content, drug and clinical reference tools, formulary hosting and other services that meet the needs of healthcare professionals, including physicians;

· • our ability to provide reliable applications and to enhance the functionality, availability, performance and features of our existing and future services to meet the evolving requirements and expectations of our existing and future ~~users~~members;

· • deterioration of our reputation and brand for any reason, including ~~user~~member concerns with our privacy practices or our relationships with the healthcare industry; and

· • the ability of the developers of mobile operating systems and mobile devices with which our products are compatible to remain competitive in the marketplace and to be adopted into medical practice and practice workflow.

In addition, the availability, price, performance and functionality of competing products and services, including mobile, Web-based and traditional products and services offered by competitors or through online resources and searches may affect our retention rate and the rate at which we attract new users for our drug and clinical reference tools. The availability of download sites such as the Apple App Store SM that offer numerous free or low-priced competing products at one location has also reduced the demand for our paid subscription products. We expect the use of such sites to expand, reducing the number of paying users for our drug and clinical reference tools as a percentage of total users.9

InTable ~~addition to the loss~~ of subscription revenue, our inability to attract or retain users, especially physician users, may cause an even more significant decline in revenue from our interactive services. Revenue from such services is tied directly to our ability to maintain a large user network of healthcare professionals that is attractive to our industry clients.Contents

IfIn weaddition, ~~have~~the anavailability, ~~insufficient~~price, ~~number~~performance and functionality of ~~users,~~competing ~~especially~~products ~~physician~~and ~~users~~services, ~~with~~including ~~desired~~mobile, ~~characteristics~~Web-based ~~for~~and ~~some~~traditional ofproducts ~~our~~and ~~interactive~~ services offered by competitors or ~~those~~through ~~users~~online doresources ~~not~~and ~~update~~searches ~~their~~may ~~mobile~~affect ~~devices~~our ~~with~~retention ~~sufficient~~rate ~~frequency,~~and the rate at which we ~~may~~attract ~~become~~new ~~unable~~members tofor ~~timely~~our ~~fulfill~~drug and clinical reference tools. The availability of download sites such as the Apple App Store SM that offer numerous free or low-priced competing products at one location has also reduced the demand for ~~some~~our paid subscription products. We expect the use of such sites to expand, reducing the number of paying members for our ~~interactive~~drug ~~services~~and ~~from~~clinical ~~healthcare~~reference ~~companies~~tools as a percentage of total members.

~~Our~~In ~~ability~~addition to ~~meet~~ the ~~demand~~loss ~~for~~of ~~delivering~~subscription ~~clinical messages~~revenue, ~~formularies~~our ~~and~~inability ~~other sponsored content~~ to ~~users’~~attract ~~mobile~~or ~~devices~~retain ~~is dependent upon our having a sufficient number of users~~members, especially physician ~~users~~members, ~~with~~may ~~desired~~cause ~~characteristics,~~an ~~such~~even asmore ~~specialty~~significant ~~and~~decline prescribing habits, updating their mobile devices through our servers with sufficient frequency during the period for delivery of the service. In addition, we have established business rules and structured our technology to limit the number of DocAlert messages and the mix of sponsored and non-sponsored messages delivered during any single update by a user in ~~order~~revenue tofrom ~~promote the quality of the user’s experience with the clinical messaging service. It is possible that an insufficient number of users will update during a given service period for~~ our interactive services~~, or that demand for promotional clinical messaging sponsorship will exceed the available supply for all or a subset of our users~~. InRevenue ~~either~~from ofsuch ~~these~~services ~~events,~~is ~~our~~tied ~~healthcare~~directly ~~clients~~to ~~could become dissatisfied with~~ our ~~service.~~ability ~~As a result, we may be unable~~ to ~~grow~~maintain ~~our~~a ~~interactive~~large ~~services~~member ~~revenue~~network ~~beyond the bounds~~ of ~~our~~healthcare ~~business~~professionals ~~rules and~~that ~~technology~~is ~~structure,~~attractive ~~and changes~~ to ~~such business rules or technology structure could cause~~ our ~~users’~~industry ~~satisfaction with and response to our interactive services to decrease, which could make such changes ineffective in addressing such inability to grow these revenues~~clients.

If ~~the~~we ~~response~~have ofan ~~our~~insufficient ~~users~~number of members, especially physician ~~users~~members, towith desired characteristics for some of our interactive services ~~decreases~~or those members do not update their mobile devices with sufficient frequency, ~~the~~we ~~value~~may ofbecome ~~these~~unable ~~services~~to ~~will~~timely befulfill ~~reduced~~the ~~and~~demand for some of our ~~revenue~~interactive ~~will~~services ~~decline~~from healthcare companies.

InOur ability to meet the ~~past~~demand for delivering clinical messages, weformularies ~~have~~and ~~obtained~~other asponsored ~~positive~~content ~~response~~to ~~from~~members' mobile devices is dependent upon our ~~users~~having toa sufficient number of members, especially physician members, with desired characteristics, such as specialty and prescribing habits, updating their mobile devices through our ~~interactive~~servers ~~services~~with sufficient frequency during the period for delivery of the service. In addition, ~~including~~we ~~offers~~have established business rules and structured our technology to ~~participate~~limit inthe ~~market~~number ~~research~~of ~~studies,~~DocAlert messages and the mix of sponsored and non-sponsored messages delivered during any single update by a member in order to promote the quality of the member's experience with the clinical messaging ~~and~~service. ~~other~~It ~~forms~~is possible that an insufficient number of ~~communication.~~members ~~If,~~will ~~however,~~update during a given service period for our ~~users~~interactive services, ~~particularly~~or ~~physician~~that ~~users,~~demand ~~become~~for ~~less~~promotional ~~responsive~~clinical tomessaging ~~receiving~~sponsorship ~~communications~~will exceed the available supply for all or ~~participating~~a insubset ~~such~~of ~~services~~our members. In either of these events, orour ~~elect~~healthcare ~~not~~clients tocould ~~use~~become ~~new~~dissatisfied ~~services~~with ~~that~~our service. As a result, we may ~~offer,~~be ~~the~~unable ~~value~~to ofgrow ~~these~~our interactive services ~~will~~revenue ~~likely~~beyond ~~decline.~~the ~~This~~bounds of our business rules and technology structure, and changes to such business rules or technology structure could cause our ~~revenue~~members' satisfaction with and response to ~~remain~~our ~~flat~~interactive orservices to ~~decline~~decrease, which could make such changes ineffective in addressing such inability to grow these revenues.

10If the response of our members, especially physician members, to our interactive services decreases, the value of these services will be reduced and our revenue will decline.

~~Table~~In the past, we have obtained a positive response from our members to our interactive services, including offers to participate in market research studies, sponsored clinical messaging and other forms of ~~Contents~~communication. If, however, our members, particularly physician members, become less responsive to receiving communications or participating in such services, or elect not to use new services that we may offer, the value of these interactive services will likely decline. This could cause our revenue to remain flat or to decline.

If we are unable to continue to provide current, relevant and reliable drug and clinical reference tools and services, we will be unable to retain and attract ~~users~~members to our services and our revenue may decline.

Use of our clinical information and interactive services is based upon our ability to make available current, relevant and reliable drug and clinical reference tools, formulary hosting and other services that meet the needs of our ~~users~~members. Our ability to do so depends on our ability to:

· • hire and retain qualified physician and pharmacist editors and authors;

· • license accurate and relevant content from third parties;

· • contract with health plans and insurers to host formulary information; and

· • monitor and respond to changes in ~~user~~member interest in specific topics.

For several of the clinical references included in our Epocrates® Essentials ~~and Epocrates® Essentials Deluxe~~ products, we are particularly dependent on third-party content providers. For example, we license Stedman’'s Medical Dictionary 28th Edition and information regarding ICD-9 and CPT® codes from third parties.

We cannot assure you that we will be able to continue to develop or acquire needed content at a reasonable cost, that there will not be errors or omissions in our developed or licensed content, or that our competitors will not obtain exclusive access to or develop content that healthcare professionals consider superior to ours. If any of these risks materialize for any reason, the value of the content and services that we offer would diminish. As a result, we may be unable to attract and retain users.

~~If we are unable to maintain credibility of our brand, our business and financial condition could suffer.~~10

~~The~~Table ~~credibility~~ of our brand is dependent in large part on the medical community’s continued perception of us as independent from our healthcare industry clients, particularly pharmaceutical companies. If healthcare professionals believe that we are too closely associated with such clients as a result of the revenue we receive from their purchase or sponsorship of our interactive services, the credibility of our brand will diminish. Although we take precautions to remain independent from our healthcare industry clients, including separating the development of our application content from our commercial dealings with such clients and clearly labeling the source and responsibility of sponsored messages, programs and activities, we cannot assure you that the medical community will view our content as sufficiently unbiased. If the credibility of our brand is damaged, it will be difficult, expensive and time-consuming to restore the quality of our brand with healthcare professionals and our business could suffer.Contents

Wedevelop ~~are~~content ~~dependent~~that ~~upon~~healthcare ~~our~~professionals ~~senior~~consider ~~executive~~superior ~~management~~to ~~and~~ours. ~~other~~If ~~highly~~any ~~specialized~~of ~~personnel~~these ~~and~~risks ~~the~~materialize ~~loss~~for orany ~~failure~~reason, tothe ~~identify,~~value ~~hire,~~of ~~motivate~~the content and ~~retain~~services ~~additional~~that ~~highly~~we ~~specialized~~offer ~~personnel~~would ~~could~~diminish. ~~negatively~~As ~~impact~~a ~~our~~result, ~~ability~~we may be unable to ~~grow~~attract ~~our~~and ~~business~~retain members.

~~Our~~If success and the execution of our growth strategy depend largely on the continued service of our senior executive management team. We have recently had significant turnover in our senior executive management team. In the last year, we ~~have~~are ~~had~~unable four members of the senior executive management team leave the company and be replaced by members of our current management team. Although these executives have joined us with a significant amount of professional experience, our future success could be hindered by their limited exposure to ~~our~~maintain ~~business.~~credibility ~~Moreover, the loss~~ of ~~key members of~~ our management team could have a negative impact on our ability to manage and grow our business effectively. We cannot assure you that in such an event we would be able to replace any member of our management team in a timely mannerbrand, ~~or at all, on acceptable terms. In addition,~~ our ~~search for a chief executive officer may cause uncertainty regarding the future of our~~ business, ~~impact employee hiring~~ and ~~retention, increase the volatility in our stock price and adversely impact our revenue, operating results and~~ financial condition could suffer.

~~Our~~The ~~future~~credibility ~~success~~of ~~and~~our brand is dependent in large part on the ~~execution~~medical community's continued perception of us as independent from our ~~growth~~healthcare ~~strategy~~industry ~~also~~clients, ~~depend~~particularly ~~largely~~pharmaceutical oncompanies. ~~our~~If ~~continuing~~healthcare ~~ability~~professionals tobelieve ~~identify,~~that ~~hire,~~we ~~develop,~~are ~~motivate~~too ~~and~~closely ~~retain~~associated ~~highly~~with ~~specialized~~such ~~personnel,~~clients ~~including~~as ~~software~~a ~~engineers,~~result ~~clinician~~of ~~authors~~the ~~and~~revenue ~~other~~we ~~technical~~receive from their purchase or sponsorship of our interactive services, ~~sales~~the ~~and~~credibility ~~marketing~~of ~~personnel~~our brand will diminish. ~~Our~~Although ~~competitors,~~we ~~employers~~take inprecautions ~~other~~to ~~industries,~~remain independent from our healthcare ~~providers~~industry clients, ~~academic~~including ~~institutions~~separating ~~and~~the ~~governmental~~development ~~entities~~of ~~and~~our ~~organizations~~application ~~also~~content ~~often~~from ~~seek~~our ~~persons~~commercial dealings with ~~similar~~such ~~qualifications.~~clients Weand clearly labeling the source and responsibility of sponsored messages, programs and activities, we cannot assure you that wethe medical community will beview ~~able~~our tocontent ~~hire~~as orsufficiently ~~retain~~unbiased. aIf ~~sufficient~~the ~~number~~credibility of ~~qualified~~our ~~personnel~~brand tois ~~meet our requirements~~damaged, orit ~~that we~~ will be ~~able~~difficult, expensive and time-consuming to dorestore sothe atquality ~~salary~~of ~~and~~our ~~benefit~~brand ~~costs~~with ~~that~~healthcare ~~are~~professionals ~~acceptable~~and toour usbusiness could suffer.

11We are dependent upon our senior executive management and other highly specialized personnel and the loss or failure to identify, hire, motivate and retain additional highly specialized personnel could negatively impact our ability to grow our business.

~~Table~~Our success and the execution of ~~Contents~~our growth strategy depend largely on the continued service of our senior executive management team. We have recently had significant turnover in our senior executive management team. In the last year, we have had members of the senior executive management team leave the company and we have retained new members who are part of our current management team. Although these executives have joined us with a significant amount of professional experience, our future success could be hindered by their limited exposure to our business. Moreover, the loss of key members of our management team could have a negative impact on our ability to manage and grow our business effectively. We cannot assure you that in such an event we would be able to replace any member of our management team in a timely manner, or at all, on acceptable terms. In addition, our search for replacements for departed executives may cause uncertainty regarding the future of our business, impact employee hiring and retention, increase the volatility in our stock price and adversely impact our revenue, operating results and financial condition.

IfOur wefuture ~~are~~success ~~unable~~and the execution of our growth strategy also depend largely on our continuing ability to ~~adopt~~identify, ~~new~~hire, ~~technologies~~develop, motivate and ~~offer~~retain ~~our~~highly ~~products~~specialized personnel, including software engineers, clinician authors and ~~services~~other ontechnical, ~~new~~sales and ~~existing~~marketing ~~mobile~~personnel. ~~platforms~~Our competitors, employers in other industries, healthcare providers, academic institutions and governmental entities and organizations also often seek persons with similar qualifications. We cannot assure you that we will be ~~unable~~able to hire or retain ~~and~~a ~~attract~~sufficient ~~users~~number of qualified personnel to meet our ~~services~~requirements, or that we will be able to do so at salary and ~~our~~benefit ~~revenue~~costs ~~may~~that ~~decline~~are acceptable to us.

ToIf ~~keep pace with technological developments, satisfy increasingly sophisticated client requirements and sustain market acceptance,~~ we ~~will~~are ~~need~~unable to ~~continue~~adopt ~~to deploy~~ new ~~tools~~technologies and ~~features~~offer ~~for~~ our ~~clinical~~products ~~information~~ and ~~interactive~~ services ~~and~~on ~~develop~~ new ~~offerings with enhanced performance~~ and ~~functionality~~existing atmobile ~~competitive prices. Accordingly~~platforms, we will ~~need~~be unable to ~~properly~~retain ~~identify user needs, anticipate technological advances~~ and ~~potentially~~attract ~~offer~~members to our ~~products and~~ services ~~on new~~ and ~~existing~~our ~~mobile~~revenue ~~platforms~~may decline.

~~The~~To ~~development~~keep ~~and~~pace ~~application~~with oftechnological ~~new~~developments, ~~technologies~~satisfy ~~involve~~increasingly ~~time,~~sophisticated ~~substantial~~client ~~costs~~requirements and ~~risks.~~sustain ~~Our~~market ~~inability~~acceptance, ~~for~~we ~~technological~~will orneed ~~other reasons,~~ to ~~enhance,~~continue ~~develop and introduce services in a timely manner, or at all, in response~~ to ~~changing~~deploy ~~market~~new ~~conditions~~tools orand ~~client~~features ~~requirements~~for ~~could result in~~ our ~~services~~clinical ~~losing~~information ~~market acceptance,~~ and ~~therefore~~interactive ~~adversely~~services ~~affect~~and ~~our~~develop ~~operating results. The~~ new ~~technologies~~offerings ~~may~~with beenhanced ~~significant~~performance and ~~expensive,~~functionality ~~and~~at wecompetitive ~~cannot~~prices. ~~assure~~Accordingly, ~~you that~~ we will beneed ~~able~~ to ~~implement~~properly ~~them~~identify ~~quickly~~member ~~and efficiently~~needs, oranticipate attechnological ~~all.~~advances ~~Failure~~and topotentially dooffer ~~so could inhibit~~ our ~~ability~~products toand ~~attract~~services oron ~~retain~~new ~~users,~~and ~~which~~existing ~~may~~mobile ~~cause our revenue to decline~~platforms.

The development and application of new technologies involve time, substantial costs and risks. Our ~~software~~inability, ~~applications~~for technological or other reasons, to enhance, develop and ~~systems~~introduce ~~may~~services ~~contain~~in ~~defects~~a timely manner, or ~~errors~~at ~~which~~all, in response to changing market conditions or client requirements could ~~negatively~~result ~~affect~~in our ~~reputation~~services losing market acceptance, and ~~impair~~therefore adversely affect our ~~ability~~operating results. The new technologies may be significant and expensive, and we cannot assure you that we will be able to ~~retain~~implement them quickly and ~~attract~~efficiently, ~~users~~or at all. Failure to do so could inhibit our ~~applications~~ability ~~and~~to ~~clients~~attract ~~purchasing~~or retain members, which may cause our ~~services~~revenue to decline.

~~While~~Our wesoftware ~~test our~~ applications and systems ~~for~~may ~~defects~~contain ~~and errors prior to release,~~ defects or errors ~~have~~which ~~been~~could ~~identified~~negatively ~~from~~affect ~~time to time by~~ our ~~internal~~reputation ~~team~~ and byimpair our ~~users~~ability ~~and~~to ~~clients~~retain ~~after~~and ~~release.~~attract ~~Any~~members ~~defects~~to ~~or errors that affect the quality or reliability of~~ our ~~products~~applications and ~~services~~clients orpurchasing ~~that cause interruptions to the availability of~~ our services ~~could result in:~~.

~~· lost~~While we test our applications and systems for defects and errors prior to release, defects or ~~delayed~~errors ~~market~~have ~~acceptance~~been identified from time to time by our internal team and ~~sales~~by our members and clients after release. Any defects or errors that affect the quality or reliability of our ~~applications~~products and services; or that cause interruptions to the availability of our services could result in:

~~· loss of users and clients;~~11

~~· inability~~Table toof ~~attract new users and clients;~~Contents

~~· product~~• ~~liability~~lost or ~~breach~~delayed market acceptance and sales of ~~contract~~our ~~suits~~applications ~~against~~and usservices;

~~· diversion~~• loss of ~~development~~members ~~resources~~and clients;

~~· injury~~• inability to ~~our~~attract ~~brand~~new members and ~~reputation~~clients; ~~and~~

~~· increased~~• ~~maintenance~~product ~~and~~liability ~~warranty~~or ~~costs.~~breach of contract suits against us;

~~While~~• ~~our~~diversion ~~subscription and interactive services agreements typically contain limitations~~ of ~~liability~~development and disclaimers that purport to limit our liability for damages related to defects in our software or content, such limitations and disclaimers may not be enforced by a court or other tribunal or otherwise effectively protect us from related claims. We maintain liability insurance coverage, including coverage for errors and omissions. However, it is possible that claims could exceed the amount of our applicable insurance coverage, if any, or that this coverage may not continue to be available on acceptable terms or in sufficient amounts. Even if these claims do not result in liability to us, investigating and defending against them could be expensive and time consuming and could divert management’s attention away from our operations. In addition, negative publicity caused by these events may delay or hinder market acceptance of our services, including unrelated services.resources;

~~The~~• ~~healthcare~~injury ~~information~~to ~~market is highly competitive and we face significant competition for~~ our ~~drug~~brand and ~~clinical~~reputation; ~~reference tools~~ and ~~interactive services.~~

~~The~~• ~~markets~~increased inmaintenance ~~which we participate are competitive, dynamic~~ and ~~subject~~warranty ~~to developments in technology and the healthcare industry~~costs. Currently, we compete with other companies for users of the types of drug and clinical reference tools that we offer and for budget dollars from our pharmaceutical, managed care and market research clients.

WeWhile ~~compete~~our ~~within~~subscription aand ~~broad~~interactive ~~industry~~services agreements typically contain limitations of ~~healthcare~~liability ~~content~~and ~~providers~~disclaimers ~~for~~that ~~the~~purport ~~attention~~to oflimit ~~healthcare~~our ~~professionals~~liability ~~who~~for ~~can~~damages ~~choose~~related to ~~use~~defects ~~mobile~~in our software or content, ~~online~~such limitations and disclaimers may not be enforced by a court or ~~print~~other ~~media~~tribunal toor ~~reference~~otherwise ~~clinical~~effectively ~~information.~~protect ~~Companies~~us ~~providing~~from ~~clinical~~related ~~content~~claims. ~~include~~We ~~Medscape~~maintain liability insurance coverage, aincluding ~~division~~coverage offor ~~WebMD, LLC,~~errors and ~~UpToDate~~omissions. However, ~~Inc,~~ ait ~~division~~is ofpossible ~~Wolters~~that ~~Kluwer~~claims ~~Health.~~could ~~Competition~~exceed ~~from~~the ~~each~~amount of ~~these~~our ~~sources~~applicable ofinsurance ~~clinical~~coverage, ~~reference~~if ~~content~~any, or that this coverage may ~~lead~~not continue to abe ~~reduction~~available on acceptable terms or in ~~the~~sufficient ~~retention~~amounts. ofEven ~~our~~if ~~existing~~these ~~users~~claims do not result in liability to us, investigating and ~~the~~defending ~~rate~~against atthem ~~which~~could webe ~~attract~~expensive ~~new~~and ~~users~~time ~~for~~consuming and could divert management's attention away from our ~~clinical~~operations. ~~information~~In addition, negative publicity caused by these events may delay or hinder market acceptance of our services, including unrelated services.

12The healthcare information market is highly competitive and we face significant competition for our drug and clinical reference tools and interactive services.

~~Table~~The markets in which we participate are competitive, dynamic and subject to developments in technology and the healthcare industry. Currently, we compete with other companies for members of ~~Contents~~the types of drug and clinical reference tools that we offer and for budget dollars from our pharmaceutical, managed care and market research clients.

~~Our~~We ~~primary~~compete ~~competition~~within a broad industry of healthcare content providers for the ~~promotional~~attention ~~spend~~of ~~available~~healthcare ~~from~~professionals ~~our~~who ~~clients~~can inchoose ~~the~~to ~~area~~use ofmobile, ~~interactive~~online ~~services~~or isprint ~~from~~media ~~companies~~to reference clinical information. Companies providing clinical content include Medscape, ~~including~~a division of WebMD, LLC, ~~that~~and ~~help~~UpToDate, Inc, ~~pharmaceutical~~a ~~companies~~division ~~market~~of ~~their~~Wolters ~~products,~~Kluwer ~~programs~~Health. ~~and~~Competition ~~services~~from each of these sources of clinical reference content may lead to ~~healthcare~~a ~~professionals~~reduction in the retention of our existing members and the rate at which we attract new members for our clinical information.

Our ~~market~~primary ~~research~~competition ~~business~~for ~~competes~~the ~~with~~promotional ~~numerous~~spend ~~companies~~available ~~which~~from ~~recruit~~our ~~physicians~~clients ~~to participate~~ in ~~surveys,~~the ~~often~~area byof ~~phone,~~interactive ~~fax,~~services ~~email~~is orfrom ~~surface mail~~companies, asincluding ~~well~~WebMD, asthat ~~the~~help ~~recruitment~~pharmaceutical ~~arms~~companies of market ~~research companies that have assembled~~ their ~~own survey panels of healthcare professionals. To the extent competing channels are available to access healthcare professionals~~products, ~~including~~programs ~~physicians,~~and ~~the value of our interactive~~ services to ~~our~~healthcare ~~clients is reduced~~professionals.

~~Many~~Our ofmarket ~~our~~research ~~competitors~~business ~~have~~competes ~~greater~~with ~~financial,~~numerous ~~technical,~~companies ~~product~~which ~~development,~~recruit ~~marketing~~physicians ~~and other resources than we do. They may also be better able~~ to ~~develop~~participate ~~and~~in ~~deploy new products and services or to take advantage of new technologies than we are. Our inability~~surveys, ~~for~~often ~~technological~~by ~~or other reasons~~phone, ~~to enhance~~fax, ~~develop~~email ~~and~~or ~~introduce~~surface ~~services in a timely manner~~mail, oras atwell ~~all,~~as inthe ~~response~~recruitment toarms ~~changing~~of market ~~conditions,~~research ~~technology~~companies orthat ~~client~~have ~~requirements~~assembled ~~could~~their ~~result~~own insurvey ~~our~~panels ~~services~~of ~~losing~~healthcare ~~market acceptance, and therefore adversely affect our operating results~~professionals. ~~New~~To ~~technologies~~the ~~may~~extent becompeting ~~significant~~channels ~~and~~are ~~expensive,~~available ~~and we cannot assure you that we will be able~~ to ~~implement~~access ~~them~~healthcare ~~quickly~~professionals, ~~and~~including ~~efficiently~~physicians, orthe atvalue ~~all.~~of Weour ~~cannot~~interactive ~~assure~~services ~~you that we will be able~~ to ~~compete~~our ~~successfully~~clients ~~against~~is ~~these organizations or any alliances they have formed or may form~~reduced.

~~Moreover~~Many of our competitors have greater financial, ~~the~~technical, ~~competitive~~product ~~market~~development, inmarketing ~~which~~and other resources than we ~~participate~~do. They may ~~require~~also usbe better able to ~~reduce~~develop ~~the~~and ~~prices~~deploy ofnew ~~our~~products and services or ~~the~~to ~~rates~~take weadvantage ~~charge~~of ~~our~~new ~~clients.~~technologies Ifthan ~~our~~we ~~competitors~~are. ~~offer~~Our ~~discounts~~inability, onfor ~~certain~~technological ~~applications~~ or ~~services~~other reasons, weto ~~may~~enhance, bedevelop ~~required~~and tointroduce ~~reduce~~services ~~prices~~in ora ~~offer~~timely ~~our~~manner, ~~products~~or onat ~~terms~~all, ~~less~~in ~~favorable~~response to uschanging tomarket ~~compete~~conditions, ~~successfully.~~technology Aor ~~reduction~~client inrequirements ~~the~~could ~~prices~~result ofin our services ~~would~~losing ~~reduce~~market ~~our~~acceptance, ~~margins.~~and ~~Some~~therefore ofadversely affect our ~~competitors~~operating results. New technologies may ~~offer~~be ~~bundled~~significant ~~products~~and ~~for~~expensive, ~~promotional~~and ~~purposes~~we orcannot asassure ayou ~~long-term~~that ~~pricing~~we ~~strategy.~~will ~~These~~be ~~practices~~able ~~could,~~to ~~over~~implement ~~time,~~them ~~limit~~quickly ~~the~~and ~~prices~~efficiently, ~~that~~or weat ~~can~~all. ~~charge~~We ~~for~~cannot ~~our~~assure ~~services.~~you Ifthat we ~~cannot~~will ~~offset~~be ~~price~~able ~~reductions~~to ~~with~~compete asuccessfully ~~corresponding~~against ~~increase~~these inorganizations ~~sales~~or ~~volume,~~any ~~our~~alliances ~~operating~~they ~~results~~have ~~would~~formed beor ~~adversely~~may ~~affected~~form.

WeMoreover, ~~have~~the ~~determined~~competitive market in which we participate may require us to ~~explore~~reduce ~~strategic~~the ~~alternatives~~prices ~~for~~of our ~~EHR~~services ~~business,~~or ~~and~~the rates we ~~will~~charge ~~receive~~our aclients. ~~negative~~If ~~return~~our competitors offer discounts on ~~investment~~certain ~~whether~~applications or ~~not~~services, we ~~are~~may ~~able~~be required to ~~sell~~reduce itprices or offer our products on terms less favorable to us to compete successfully. A reduction in the prices of our services would reduce our margins. Some of our competitors may offer bundled products for promotional purposes or as a long-term pricing strategy. These practices could, over time, limit the prices that we can charge for our services. If we cannot offset price reductions with a corresponding increase in sales volume, our operating results would be adversely affected.

We have determined to explore strategic alternatives for the EHR business, which could include a joint venture, partnership, a sale of the business, or transitioning out of the business. We have expended a tremendous amount of time, effort and expense in developing this business, and we may not be able to enter into a joint venture or partnership with respect to this business or sell this business.12

WeTable ~~are~~of ~~not compatible with all mobile platforms.~~Contents

~~Our~~We ~~mobile~~are ~~clinical information is~~ not compatible with all mobile platforms. While we offer online services, the majority of our users and our interactive services are on mobile devices. We depend on the continuing compatibility of our clinical information and services with mobile operating systems and mobile devices and with evolving industry standards and protocols to run our mobile clinical information.

InOur ~~addition, we are dependent on the ability of the developers of~~ mobile ~~platforms with which our drug and~~ clinical ~~reference~~information ~~tools~~is ~~are~~not compatible towith ~~remain~~all ~~competitive in the medical community and the general marketplace. To remain competitive, developers of such~~ mobile platforms. ~~may~~While ~~need~~we tooffer ~~timely~~online ~~enhance their products~~services, ~~develop~~the ~~new~~majority ~~operating~~of ~~systems~~our ormembers ~~devices~~and orour ~~take~~interactive ~~other~~services ~~actions which~~ are ~~outside~~on ofmobile ~~our control~~devices. IfWe adepend ~~mobile~~on ~~platform~~the ~~that~~continuing iscompatibility ~~incompatible~~of ~~with~~ our ~~products~~clinical ~~achieves~~information ~~widespread use~~ and ~~acceptance~~services inwith ~~the medical community, or if Internet resources or other non-~~mobile ~~device~~operating ~~resources~~systems ~~become~~and ~~more attractive than what is offered for~~ mobile ~~platforms,~~devices weand ~~may~~with beevolving ~~unable~~industry tostandards ~~retain~~and orprotocols ~~attract users~~ to ~~our~~run ~~products. In particular,~~ our mobile ~~products~~clinical ~~are not compatible with Symbian-based devices~~information.

WeIn ~~may~~addition, ~~not~~we ~~sustain~~are dependent on the ability of the developers of mobile platforms with which our ~~revenue~~drug ~~growth~~and clinical reference tools are compatible to remain competitive in the medical community and the general marketplace. To remain competitive, developers of such mobile platforms may need to timely enhance their products, develop new operating systems or devices or take other actions which are outside of our control. If a mobile platform that is incompatible with our products achieves widespread use and acceptance in the medical community, or if Internet resources or other non-mobile device resources become more attractive than what is offered for mobile platforms, we may ~~not~~ be ~~able~~unable to ~~manage~~retain ~~future~~or ~~growth~~attract ~~effectively~~members to our products. In particular, our mobile products are not compatible with Symbian-based devices.

~~We have experienced significant revenue growth in a short period of time.~~ Our revenue ~~increased~~may ~~21% to $113.3 million for the year ended December 31~~fluctuate, ~~2011~~and ~~from~~we ~~$93.7~~may ~~million for the year ended December 31, 2009. You should~~ not ~~rely~~be onable ~~our~~to ~~revenue~~manage ~~growth, gross margins or operating results for any prior quarter or annual period as an indication of our~~ future ~~operating performance. If we are unable to maintain adequate revenue~~ growth ~~in absolute dollars, we may not sustain our recent profitability and our share price could decline~~effectively.

13Our revenue decreased 2% to $111.1 million for the year ended December 31, 2012, from $113.3 million for the year ended December 31, 2011. You should not rely on our revenue performance, gross margins or operating results for any prior quarter or annual period as an indication of our future operating performance. If we are unable to attain revenue growth in absolute dollars, we may not achieve profitability and our share price could decline.

~~Table~~Our offuture ~~Contents~~operating results depend to a large extent on our ability to successfully manage our anticipated expansion and growth. To manage our growth successfully, among other things, we must effectively:

~~Our~~• ~~future~~add ~~operating~~additional ~~results~~sales ~~depend to a large extent on our ability to successfully manage our anticipated expansion~~ and ~~growth.~~marketing Topersonnel ~~manage~~in ~~our~~various ~~growth successfully, among other things, we must effectively:~~locations;

·• ~~add additional sales and marketing personnel in various locations; ·~~ control expenses; · maintain and enhance our information technology support for enterprise resource planning, accounting and design engineering by adapting and expanding our systems and tool capabilities; · recruit, hire, train and manage additional qualified people; and · manage operations in multiple locations and time zones.

We• ~~are~~maintain ~~increasing~~and enhance our ~~investment~~information intechnology ~~research~~support ~~and~~for ~~development,~~enterprise ~~sales~~resource ~~and marketing~~planning, ~~general~~accounting and ~~administrative~~design ~~and~~engineering ~~other~~by ~~functions~~adapting toand ~~grow~~expanding our ~~business.~~systems ~~We are likely to recognize the costs associated with these increased investments earlier than some of the anticipated benefits~~ and ~~the~~tool ~~return on these investments, if any, may be lower, may develop more slowly than we expect, or may not materialize.~~capabilities;

If• ~~we are unable to manage our growth effectively~~recruit, ~~we may not be able to take advantage of market opportunities or develop new products or enhancements to existing products and we may fail to satisfy client requirements~~hire, ~~maintain~~train ~~product quality, execute our business plan, or respond to competitive pressures, which could result in lower revenue~~ and ~~profitability~~manage ~~and~~additional aqualified ~~decline~~people; ~~in our share price.~~and

~~Our~~• ~~operating~~manage ~~results~~operations ~~have~~in ~~fluctuated~~multiple ~~and~~locations ~~are likely to continue to fluctuate, which might make our quarterly results difficult to predict~~ and ~~could~~time ~~cause our stock price to decline or exhibit volatility~~zones.

~~Our~~We ~~operating results have fluctuated, and are likely to~~ continue to ~~fluctuate~~invest asin aresearch ~~result~~and ofdevelopment, asales ~~variety~~and ~~of factors~~marketing, ~~many~~general ofand ~~which~~administrative ~~are~~and ~~outside~~other offunctions ~~our~~to ~~control.~~grow ~~As a result, comparing~~ our ~~operating~~business. ~~results~~We onare alikely ~~period-~~to~~-period~~ ~~basis~~recognize ~~may~~the ~~not~~costs beassociated ~~meaningful~~with ~~and~~these ~~you~~investments ~~should~~earlier ~~not~~than ~~rely~~some onof ~~our~~the ~~past~~anticipated ~~results~~benefits asand anthe ~~indication~~return ofon ~~future~~these ~~performance.~~investments, ~~Each~~if ofany, ~~the~~may ~~following~~be ~~factors~~lower, ~~among~~may ~~others,~~develop ~~could~~more ~~cause~~slowly ~~our~~than ~~operating~~we ~~results~~expect, toor ~~fluctuate~~may ~~from~~not ~~quarter to quarter:~~materialize.

·If ~~demand~~we ~~for~~are ~~and~~unable ~~market~~to ~~acceptance~~manage of our ~~services;~~growth ·effectively, ~~factors~~we ~~relating~~may tonot ~~pharmaceutical~~be ~~company~~able ~~budget~~to ~~cycles~~take ~~and~~advantage ~~other factors that may affect the timing~~ of ~~promotional~~market ~~campaigns~~opportunities ~~for~~or ~~specific~~develop new products or ~~demand~~enhancements ~~for~~to ~~our~~existing ~~services~~products byand ~~our~~we ~~clients;~~may ·fail ~~changes~~to insatisfy ~~pharmaceutical~~client ~~company~~requirements, ~~demand~~maintain ~~as a result of delays or changes in~~ product ~~approvals~~quality, ~~changes~~execute inour ~~marketing~~business ~~strategies~~plan, ~~modifications~~or ofrespond ~~client budgets and similar matters; · the length of sales cycles and fulfillment periods of our services~~ to ~~pharmaceutical~~competitive ~~companies~~pressures, ~~and~~which ~~other~~could ~~segments~~result ofin ~~the~~lower ~~healthcare~~revenue ~~industry; · expansion of marketing~~ and ~~support~~profitability ~~operations; · the timing of new product introductions~~ and ~~product~~a ~~enhancements~~decline byin ~~us or~~ our ~~competitors;~~share ~~and · the cost of being a public company~~price.

~~The~~Our ~~majority~~operating ofresults ~~our clinical information subscriptions~~ have ~~terms~~fluctuated ~~of one year~~ and ~~our~~are ~~contracts~~likely ~~with~~to ~~our~~continue ~~other~~to ~~healthcare~~fluctuate, ~~industry~~which ~~clients~~might ~~for~~make our ~~interactive~~quarterly ~~services~~results ~~typically~~difficult ~~range from one~~ to ~~three~~predict ~~years.~~and Wecould ~~cannot~~cause ~~assure you that~~ our ~~current~~stock ~~users~~price ~~and other clients will continue~~ to ~~participate~~decline ~~in our existing programs beyond the terms of their existing contracts~~ or ~~that~~exhibit ~~they will enter into any additional contracts for new programs that we offer~~volatility.

InOur ~~addition,~~operating ~~the~~results ~~time~~have ~~between~~fluctuated, ~~the~~and ~~date~~are oflikely ~~the~~to ~~signing~~continue ofto ~~the~~fluctuate ~~contract~~as ~~with~~ a ~~client~~result ~~for~~of a ~~program,~~variety ~~the~~of ~~actual~~factors, ~~fulfillment~~many of ~~the~~which ~~services~~are ~~under~~outside ~~such~~of ~~contract~~our ~~and~~control. ~~the~~As ~~revenue~~a ~~recognition~~result, ~~associated~~comparing ~~with~~our ~~such~~operating ~~revenues~~results ~~may~~on bea ~~lengthy,~~period-to-period ~~especially~~basis ~~for~~may ~~larger~~not ~~contracts~~be ~~with~~meaningful ~~multiple deliverables,~~ and ~~may~~you beshould ~~subject~~not torely ~~delays~~on ~~over~~our ~~which~~past weresults ~~have~~as ~~little~~an orindication noof ~~control,~~future ~~including~~performance. ~~those~~Each ~~that~~of ~~result from~~ the ~~client’s~~following ~~need for internal approvals. Other~~ factors, ~~that~~among others, could ~~affect~~cause ~~the~~our ~~timing~~operating ofresults ~~our~~to ~~interactive~~fluctuate ~~services~~from ~~revenue~~quarter ~~include~~to quarter:

14• demand for and market acceptance of our services;

~~Table~~• factors relating to pharmaceutical company budget cycles and other factors that may affect the timing of ~~Contents~~promotional campaigns for specific products or demand for our services by our clients;

·• ~~variations~~changes in ~~the~~pharmaceutical ~~marketing~~company ~~budgets~~demand ~~allocated~~as ~~for~~a ~~the~~result ~~types~~ of ~~services~~delays weor ~~offer;~~changes ·in ~~the~~product ~~timing~~approvals, ofchanges ~~federal~~in ~~Food~~marketing ~~and Drug Administration~~strategies, ormodifications ~~“FDA,” approval for new pharmaceutical products or for new approved uses for existing products; · regulatory concerns related to the marketing~~ of ~~pharmaceutical~~client ~~products;~~budgets and ·similar ~~factors that may affect the timing of promotional campaigns for specific products.~~matters;

Because we recognize revenue from our drug and clinical reference tool subscriptions and certain of our interactive services over the term or at the end of the service period, a significant downturn in our business may not be reflected immediately in our operating results, which may make it more difficult to evaluate our prospects.13

WeTable ~~recognize revenue from subscription agreements monthly over the terms~~ of these agreements, which are typically one year. In most cases, we recognize revenue from our interactive services over the terms of these agreements or upon delivery of each service element. As a result, a significant portion of the revenue we report in each quarter is generated from subscription and service agreements entered into during prior periods. Consequently, a decline in new or renewed subscriptions or service agreements in any one quarter may not materially affect our financial performance in that quarter but will negatively affect our revenue in future quarters. In addition, we may be unable to adjust our costs, many of which are fixed, in response to reduced revenue. Accordingly, the effect of significant declines in sales and market acceptance of our services may not be reflected in our short-term results of operations, which would make our reported results less indicative of our future prospects.Contents

~~Developments~~• in the ~~healthcare~~length ~~industry~~of ~~could~~sales ~~negatively~~cycles ~~affect~~and fulfillment periods of our ~~business.~~services to pharmaceutical companies and other segments of the healthcare industry;

~~Most~~• expansion of ~~our~~marketing ~~revenue is derived from the healthcare industry~~ and ~~could~~support ~~be reduced by changes affecting healthcare spending. General reductions in expenditures by healthcare companies could result from, among other things:~~operations;

·• ~~government regulation or private initiatives that affect~~ the ~~manner~~timing ~~in which healthcare providers interact with patients, pharmaceutical companies, payors or other healthcare industry participants, including changes in pricing or means~~ of ~~delivery~~new ofproduct ~~healthcare~~introductions ~~products~~ and ~~services;~~product ·enhancements ~~consolidation~~by ofus ~~healthcare~~or ~~companies;~~our ~~· reductions in governmental funding for healthcare~~competitors; and ~~· adverse changes in business or economic conditions affecting healthcare payors or providers, the pharmaceutical industry or other healthcare companies.~~

We• ~~are particularly dependent upon pharmaceutical companies for our interactive services revenue. Our business will be harmed if business or economic conditions or government regulations result in~~ the ~~reduction~~cost of ~~purchases~~being bya ~~such~~public ~~clients, the non-renewal of our agreements with such clients, or the need to materially revise our offerings~~company.

~~Even~~The ifmajority ~~general~~of ~~expenditures~~our byclinical ~~healthcare~~information ~~companies~~subscriptions ~~remain~~have ~~the~~terms ~~same~~of orone ~~increase,~~year ~~developments~~and inour ~~the~~contracts with our other healthcare industry ~~may~~clients ~~result~~for inour ~~reduced~~interactive ~~spending~~services intypically ~~some~~range orfrom ~~all~~one ofto ~~the~~three ~~specific~~years. ~~segments~~We ofcannot ~~the~~assure ~~market~~you wethat ~~serve~~our orcurrent ~~are~~members ~~planning~~and other clients will continue to ~~serve.~~participate ~~For~~in ~~example,~~our ~~purchase~~existing programs beyond the terms of ~~our~~their ~~services~~existing ~~could~~contracts beor ~~affected~~that ~~by:~~they will enter into any additional contracts for new programs that we offer.

·In aaddition, ~~decrease~~the intime between the ~~number~~date of, or the ~~market~~signing ~~exclusivity~~of ~~available~~the ~~to,~~contract ~~new~~with ~~drugs~~a ~~coming~~client tofor ~~market;~~a ·program, ~~decreases~~the inactual ~~marketing~~fulfillment ~~expenditures~~of bythe ~~pharmaceutical~~services ~~companies~~under assuch acontract ~~result~~and ofthe ~~governmental~~revenue ~~regulation~~recognition orassociated ~~private~~with ~~initiatives~~such ~~that~~revenues ~~discourage~~may orbe ~~prohibit~~lengthy, ~~advertising~~especially orfor ~~sponsorship~~larger ~~activities~~contracts bywith ~~pharmaceutical~~multiple ~~companies;~~deliverables, ·and ~~state~~may orbe ~~federal~~subject ~~legislation~~to ~~requiring~~delays ~~the~~over ~~disclosure~~which ~~of,~~we have little or ~~otherwise~~no ~~regulating~~control, ~~honorarium~~including ~~payments~~those tothat ~~physicians~~result ~~for~~from ~~participation~~the inclient's ~~market~~need ~~research~~for ~~activities;~~internal ~~and~~approvals. ·Other ~~changes~~factors inthat could affect the ~~design~~timing of ~~health~~our ~~insurance~~interactive ~~plans.~~services revenue include:

In• ~~addition,~~variations ~~our~~in ~~clients’~~the ~~expectations~~marketing ~~regarding~~budgets ~~pending~~allocated orfor ~~potential~~the ~~industry~~types ~~developments~~of ~~may also affect their budgeting processes and spending plans with respect to~~ services ~~of the types~~ we ~~provide.~~offer;

15• the timing of federal Food and Drug Administration, or FDA, approval for new pharmaceutical products or for new approved uses for existing products;

~~Table~~• regulatory concerns related to the marketing of ~~Contents~~pharmaceutical products; and

~~The~~• ~~healthcare~~factors ~~industry has changed significantly in recent years and we expect~~ that ~~significant~~may ~~changes~~affect ~~will continue to occur. However,~~ the timing ~~and impact~~ of ~~developments~~promotional incampaigns ~~the healthcare industry are difficult to predict. We cannot assure you that the markets~~ for ~~our~~specific ~~services will continue to exist at current levels or that we will have adequate technical, financial and marketing resources to react to changes in those markets~~products.

WeBecause ~~may~~we berecognize ~~subject~~revenue tofrom ~~claims~~our ~~brought~~drug ~~against~~and usclinical asreference atool ~~result~~subscriptions and certain of ~~the~~our interactive services weover ~~provide~~the term or at the end of the service period, a significant downturn in our business may not be reflected immediately in our operating results, which may make it more difficult to evaluate our prospects.

~~Healthcare~~We ~~professionals~~recognize ~~access~~revenue ~~information,~~from ~~including~~subscription ~~information~~agreements ~~regarding~~monthly ~~particular~~over ~~medical conditions and~~ the ~~use~~terms of ~~particular~~these ~~medications~~agreements, ~~through~~which ~~our~~are ~~drug~~typically ~~and~~one ~~clinical reference tools, interactive services and our EHR product~~year. IfIn ~~our~~most ~~content~~cases, ~~or content~~ we ~~obtain~~recognize revenue from ~~third~~our ~~parties,~~interactive ~~contains~~services ~~inaccuracies,~~over ~~or we introduce inaccuracies in~~ the ~~process~~terms of ~~implementing~~these ~~third~~agreements ~~party~~or ~~content,~~upon itdelivery isof ~~possible~~each ~~that~~service ~~patients,~~element. ~~physicians,~~As ~~consumers~~a result, ~~the~~a ~~providers~~significant portion of the ~~third~~revenue ~~party~~we ~~content~~report orin ~~others~~each ~~may~~quarter ~~sue~~is usgenerated iffrom ~~they~~subscription ~~are~~and ~~harmed~~service asagreements aentered ~~result~~into ofduring ~~such~~prior ~~inaccuracies~~periods. WeConsequently, ~~have~~a ~~editorial~~decline ~~procedures~~ in ~~place~~new toor ~~provide~~renewed ~~quality~~subscriptions ~~control~~or ofservice ~~the~~agreements ~~information~~in ~~that~~any weone ~~publish~~quarter ormay ~~provide.~~not ~~However,~~materially weaffect ~~cannot assure you that~~ our ~~editorial~~financial ~~and~~performance ~~other~~in ~~quality~~that ~~control~~quarter ~~procedures~~but will benegatively ~~sufficient~~affect toour ~~ensure~~revenue ~~that there are no errors or omissions~~ in ~~particular~~future ~~content~~quarters. ~~and~~In addition, we ~~have~~may ~~had~~be ~~content~~unable ~~errors~~to inadjust ~~the past. Although~~ our ~~agreements~~costs, ~~for~~many ~~the performance~~ of ~~our~~which ~~services~~are ~~contain terms and conditions~~fixed, ~~including~~in ~~disclaimers~~response ~~of liability, that are intended~~ to ~~reduce~~reduced orrevenue. ~~eliminate our liability~~Accordingly, the ~~law~~effect ~~governing~~of ~~the~~significant ~~validity~~declines ~~and~~in ~~enforceability~~sales ~~of online agreements~~ and ~~other~~market ~~electronic~~acceptance ~~transactions~~of isour ~~evolving.~~services Wemay ~~could~~not be ~~subject~~reflected toin ~~claims by users or third parties that~~ our ~~online~~short-term ~~agreements~~results ~~are~~of ~~unenforceable.~~operations, Awhich ~~finding~~would bymake ~~a court that these agreements are invalid and that we are subject to liability could harm~~ our ~~business~~reported ~~and~~results ~~financial~~less ~~condition~~indicative ~~and~~of ~~require costly changes to~~ our ~~business~~future prospects.

InDevelopments ~~addition,~~in third parties may assert claims against us alleging infringement of copyrights, trademark rights, or other proprietary rights, or alleging unfair competition or violations of privacy rights. We could also be subject to claims for indemnification resulting from infringement claims made against our clients and third-party service providers for third-party products and content that are incorporated into our clinical information if they are found to infringe the ~~intellectual~~healthcare ~~property~~industry ~~rights of others, which~~ could ~~increase~~negatively ~~our~~affect ~~defense costs and potential damages. Any of these events could be expensive and time consuming to resolve or defend, may require us to change~~ our business ~~practices and could have a negative effect on our business, operating results and financial condition~~.

WeMost ~~could be required to spend significant amounts~~ of ~~time~~our ~~and~~revenue ~~money~~is toderived ~~defend~~from ~~ourselves against any such claims. Although we may be indemnified against such costs,~~ the ~~indemnifying~~healthcare ~~party~~industry ~~may~~and ~~be unable to fulfill its obligations. If any of these claims were to prevail, we~~ could be ~~forced~~reduced toby ~~pay~~changes ~~damages,~~affecting ~~comply~~healthcare ~~with injunctions, or stop distributing our products and services while we re-engineer them or seek licenses to necessary technology, which might not be available on reasonable terms, or at all~~spending. ~~Even~~General ifreductions ~~potential claims do not result~~ in ~~liability~~expenditures toby ~~us,~~healthcare ~~investigating~~companies ~~and defending against these claims~~ could beresult ~~expensive and time consuming and could divert management’s attention away~~ from ~~our operations. We maintain general liability insurance coverage~~, ~~including~~among ~~coverage~~other for errors and omissions, however this coverage may not be sufficient to cover one or more large claims against us or otherwise continue to be available on acceptable terms. Further, the insurer could disclaim coverage as to any future claim. In addition, our business is based on establishing the reputation of our services as trustworthy and reliable sources of clinical information. Allegations of impropriety or inaccuracy, even if unfounded, could therefore harm our reputation and business.things:

~~Healthcare~~• ~~and~~government ~~consumer~~regulation ~~protection~~or ~~regulations~~private ~~and~~initiatives ~~legislation~~that ~~create~~affect ~~risks~~the ~~and~~manner ~~challenges~~in which healthcare providers interact with ~~respect~~patients, topharmaceutical ~~our~~companies, ~~compliance~~payors ~~efforts~~or ~~and~~other ~~our~~healthcare ~~business~~industry ~~strategies.~~participants, including changes in pricing or means of delivery of healthcare products and services;

~~The~~• ~~healthcare~~consolidation industry is highly regulated and is subject to changing political, legislative, regulatory and other influences. Existing and new 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 to specific products and services may not be clear, particularly as we develop and release new and more sophisticated products and services. In particular, many existing healthcare laws and regulations, when enacted, did not contemplate the clinical information and interactive services that we provide. However, these laws and regulations may nonetheless be applied to our services. We are also subject to various federal and state consumer protection laws. Our failure to accurately anticipate the application of ~~these laws and regulations, or other failure to comply with them, could create liability for us, result in adverse publicity and negatively affect our businesses. Some of the risks we face from~~ healthcare ~~and consumer protection regulations are as follows:~~companies;

~~Regulation~~• ofreductions ~~drug and medical device advertising and promotion. We provide services involving promotion of prescription and over-the-counter drugs and medical devices. Any increase~~ in ~~regulation of these areas by the FDA, the Federal Trade Commission, or FTC, or other~~ governmental ~~bodies~~funding ~~at the federal, state or local level, could make it more difficult~~ for ushealthcare; ~~to contract for certain of our interactive services. Physician groups~~ and ~~others have criticized the FDA’s current policies and have called for restrictions on advertising of prescription drugs and for increased FDA enforcement. In response, the FDA has~~

16• adverse changes in business or economic conditions affecting healthcare payors or providers, the pharmaceutical industry or other healthcare companies.

~~Table~~We are particularly dependent upon pharmaceutical companies for our interactive services revenue. Our business will be harmed if business or economic conditions or government regulations result in the reduction of ~~Contents~~purchases by such clients, the non-renewal of our agreements with such clients, or the need to materially revise our offerings.

conducted hearings and sought public comment regarding its regulation of information concerning drugs on the Internet and the relationships between pharmaceutical companies and those disseminating information on drugs. We cannot predict what actions the FDA or industry participants may take in response to these criticisms. It is also possible that new laws would be enacted that impose restrictions on such marketing and advertising. Our interactive services revenues could be materially reduced by additional restrictions on the marketing or advertising of prescription drugs and medical devices, whether imposed by law or regulation or by policies adopted by industry members.14

IfTable the FDA, the FTC or another governmental body finds that any information available on our website or distributed by us violates FDA, FTC or other laws or regulations, they may take regulatory or judicial action against us or the advertiser or sponsor of ~~that information. State attorneys general may also take similar action based on their state’s consumer protection statutes or other new or existing laws.~~Contents

~~Anti-kickback~~Even ~~laws.~~if ~~Healthcare~~general ~~anti-kickback~~expenditures ~~laws prohibit any person or entity from offering, paying, soliciting or receiving anything of value, directly or indirectly, for the referral of patients covered~~ by ~~federal~~ healthcare ~~programs~~companies orremain the ~~leasing,~~same ~~purchasing, ordering~~ or ~~arranging~~increase, ~~for~~developments orin ~~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.~~industry ~~These laws~~ may ~~restrict~~result ~~how we and some of our clients market products to healthcare providers. The laws~~ in ~~this~~reduced ~~area~~spending ~~are broadly written and it is often difficult to determine precisely how the laws will be applied~~ in ~~specific~~some ~~circumstances. Penalties for violating the federal anti-kickback laws include imprisonment, fines and exclusion from participating, directly~~ or ~~indirectly,~~all ~~in federal healthcare programs. Any determination by a state or federal regulatory agency that any~~ of ~~our~~the ~~practices~~specific ~~violate~~segments ~~any~~ of ~~these~~the ~~laws~~market ~~could~~we ~~subject~~serve ~~us to civil~~ or ~~criminal~~are ~~penalties~~planning ~~and require us~~ to ~~change or terminate some portions of our operations~~serve. ~~Even~~For anexample, ~~unsuccessful~~purchase ~~challenge by regulatory authorities~~ of our ~~practices~~services could ~~result in negative publicity and it could~~ be ~~costly~~affected ~~for us to respond.~~by:

~~Legislation~~• ~~relating~~a todecrease ~~payments to physicians. Recent legislation enacted or pending~~ in ~~several states and enacted at~~ the ~~federal~~number ~~level as part~~ of ~~the Patient Protection and Affordable Care Act and the Healthcare and Education Reconciliation Act of 2010 mandates public disclosure of~~, or ~~otherwise regulates or limits~~ the ~~providing of, certain gifts and payments by pharmaceutical companies to physicians. These state laws may be interpreted to cover honorarium payments made to physicians for participation in~~ market ~~research~~exclusivity ~~activities~~available sponsored by pharmaceutical companies. Because we currently provide market research services involving participants from our user network, the increased adoption and enforcement of these laws and the application of any public disclosure requirements or other limitations may have a negative impact on the ability of pharmaceutical companies to ~~sponsor these activities or the willingness of physicians to participate in the market research. To date~~, wenew ~~have~~drugs ~~not~~coming experienced a significant reduction in our market research services business as a result of these laws in the few jurisdictions in which they have been enacted and become effective. However, we cannot predict how pharmaceutical companies or physicians will respond if such legislation becomes more widespread or becomes effective at the federal level. A significant decline in the sponsorship of our market research services by pharmaceutical companies or the agencies that represent such companies, or a significant decline in physicians’ willingness to ~~participate in such studies could negatively impact our operating results.~~market;

~~Medical~~• ~~professional~~decreases ~~regulation. The practice of most healthcare professions requires licensing under applicable state law. In addition, the laws~~ in ~~some~~marketing ~~states~~expenditures ~~prohibit~~by ~~business~~pharmaceutical ~~entities~~companies ~~from~~as ~~practicing~~a ~~medicine.~~result ~~We do not believe that we engage in the practice~~ of ~~medicine~~governmental ~~and~~regulation we have attempted to structure our services, strategic relationships and other operations to avoid violating these state licensing and professional practice laws. We employ and contract with physicians who provide only medical information to users, some of whom may be consumers, and we do not intend to provide medical care or ~~advice.~~private ~~Any~~initiatives ~~determination~~ that wediscourage ~~are~~or aprohibit ~~healthcare~~advertising ~~provider~~or ~~and~~sponsorship ~~acted~~activities ~~improperly~~by aspharmaceutical ~~a healthcare provider may result in liability to us.~~companies;

~~Anti-spam~~• ~~regulation. We~~state ~~may also be required to comply with current~~ or ~~future~~federal ~~anti-spam~~ legislation byrequiring ~~limiting or modifying some of our interactive services, such as our clinical messaging, which may result in a reduction in our revenue. One such law,~~ the ~~Controlling~~disclosure ~~the Assault~~ of ~~Non-Solicited Pornography and Marketing Act of 2003~~, or ~~“CAN-SPAM,”~~otherwise ~~became effective in the United States on January 1~~regulating, ~~2004.~~honorarium ~~CAN-SPAM~~payments ~~imposes~~to ~~complex~~physicians ~~and~~for ~~often~~participation ~~burdensome requirements~~ in ~~connection~~market ~~with~~research ~~the~~activities; ~~sending of commercial e-mail. CAN-SPAM or similar laws may impose burdens on our user communication practices~~ and ~~on certain of our services, which in turn could harm our ability to attract new clients and increase revenues.~~

~~Privacy~~• ~~and~~changes other consumer protection regulation. The Children’s Online Privacy Protection Act, or “COPPA,” 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 operators of general audience sites with actual knowledge that they are collecting information from U.S. children under the age of 13. Our sites are not directed at children and we employ a kick-out procedure whereby anyone identifying themselves as being under the age of 13 during the registration process is not allowed to register to obtain our clinical information or participate in ~~our services. 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~~design ~~or interpretation~~ of ~~this~~health ~~law~~insurance ~~could create liability for us, result in adverse publicity and negatively affect our business~~plans.

17In addition, our clients' expectations regarding pending or potential industry developments may also affect their budgeting processes and spending plans with respect to services of the types we provide.

~~Table~~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 ~~Contents~~developments in the healthcare industry are difficult to predict. We cannot assure you that the markets for our services will continue to exist at current levels or that we will have adequate technical, financial and marketing resources to react to changes in those markets.

~~The~~We FTC and many state attorneys general are applying federal and state consumer protection laws to require that the online collection, use and dissemination of data, and the presentation of website or other electronic content, comply with certain standards for notice, choice, security and access. Courts may ~~also~~be adopt these developing standards. A number of states, including California, have enacted laws or are considering the enactment of laws governing the release of credit card or other personal information received from consumers. In many cases, the specific limitations imposed by these standards are subject to ~~interpretation~~claims bybrought ~~courts~~against ~~and~~us ~~other~~as ~~governmental authorities. A determination by~~ a ~~state or federal agency or court that any of our practices do not meet these standards could~~ result ~~in liability and adversely affect our business. New interpretations~~ of ~~these~~the ~~standards~~services ~~could~~we ~~also require us to incur additional costs and restrict our business operations~~provide.

InHealthcare ~~addition,~~professionals ~~several~~access ~~foreign~~information, ~~governments~~including ~~have~~information ~~regulations~~regarding ~~dealing~~particular ~~with~~medical ~~the~~conditions ~~collection~~ and the use of ~~personal~~particular ~~information~~medications, ~~obtained~~through ~~from~~our ~~their~~drug ~~citizens~~and clinical reference tools and interactive services. ~~Those~~If ~~governments~~our ~~may~~content, ~~attempt~~or tocontent ~~apply~~we ~~such~~obtain ~~laws~~from ~~extraterritorially~~third parties, contains inaccuracies, or ~~through~~we ~~treaties~~introduce inaccuracies in the process of implementing third party content, it is possible that patients, physicians, consumers, the providers of the third party content or ~~other~~others ~~arrangements~~may ~~with~~sue ~~U.S.~~us ~~governmental~~if ~~entities~~they are harmed as a result of such inaccuracies. We ~~might~~have ~~unintentionally~~editorial ~~violate~~procedures ~~such~~in ~~laws~~place to provide quality control of the information that we publish or provide. However, ~~such~~we ~~laws~~cannot ~~may~~assure beyou ~~modified~~that our editorial and ~~new~~other ~~laws~~quality ~~may~~control procedures will be ~~enacted~~sufficient to ensure that there are no errors or omissions in particular content and we have had content errors in the ~~future~~past. ~~which~~Although ~~may~~our ~~increase~~agreements for the ~~chance~~performance of our services contain terms and conditions, including disclaimers of liability that weare ~~violate~~intended ~~them~~to ~~unintentionally.~~reduce ~~Any~~or ~~such~~eliminate ~~developments~~our liability, orthe ~~developments~~law ~~stemming~~governing ~~from~~the ~~enactment~~validity orand ~~modification~~enforceability of online agreements and other ~~laws,~~electronic ortransactions ~~the~~is ~~failure~~evolving. toWe ~~accurately~~could ~~anticipate~~be ~~the~~subject ~~application~~to claims by members or ~~interpretation~~third ofparties that our online agreements are unenforceable. A finding by a court that these ~~laws~~agreements ~~could~~are ~~create~~invalid ~~liability~~and that we are subject to ~~us,~~liability ~~result~~could inharm ~~adverse~~our ~~publicity~~business and ~~negatively~~financial ~~affect~~condition and require costly changes to our business.

WeIn ~~rely~~addition, onthird ~~Internet~~parties ~~service~~may ~~providers,~~assert ~~co-location~~claims ~~data~~against ~~center~~us ~~providers~~alleging infringement of copyrights, ~~other~~trademark ~~third~~rights, ~~parties~~or ~~and~~other ~~our~~proprietary ~~own~~rights, ~~systems~~or ~~for~~alleging ~~key~~unfair ~~aspects~~competition or violations of ~~the~~privacy ~~process~~rights. ofWe ~~providing~~could ~~and~~also ~~updating~~be ~~content~~subject to claims for indemnification resulting from infringement claims made against our ~~users~~clients and ~~performing~~third-party ~~services~~service providers for ~~our~~third-party ~~clients,~~products and ~~any~~content ~~failure~~that orare ~~interruption~~incorporated ininto our clinical information if they are found to infringe the ~~services~~intellectual ~~provided~~property byrights of others, which could increase our defense costs and potential damages. Any of these ~~third~~events ~~parties~~could be expensive and time consuming to resolve or defend, may require us to change our ~~own~~business ~~systems~~practices and could ~~harm~~have a negative effect on our business, operating results and financial condition.

~~Our~~We ~~users~~could ~~expect~~be required to bespend ~~able~~significant amounts of time and money to ~~update~~defend ~~our~~ourselves ~~applications~~against ~~and~~any ~~access~~such ~~our~~claims. ~~services~~Although ~~24 hours~~we ~~per~~may ~~day,~~be ~~seven~~indemnified ~~days~~against ~~per~~such ~~week~~costs, ~~without~~the ~~interruption~~indemnifying party may be unable to fulfill its obligations. ~~However~~If any of these claims were to prevail, we ~~have~~could ~~experienced~~be forced to pay damages, comply with injunctions, or stop distributing our products and ~~expect~~services ~~that~~while we ~~will~~re-engineer inthem ~~the~~or ~~future~~seek ~~experience~~licenses ~~interruptions~~to ~~and~~necessary ~~delays~~technology, which might not be available on reasonable terms, or at all. Even if potential claims do not result in ~~services~~liability to us, investigating and ~~availability~~defending ~~from~~against ~~time~~these toclaims could be expensive and time consuming and could divert management's attention away from our operations. We ~~rely~~maintain general liability insurance coverage, including coverage for errors and omissions, however this coverage may not be sufficient to cover one or more large claims against us or otherwise continue to be available on ~~internal~~acceptable ~~systems~~terms. Further, asthe ~~well~~insurer could disclaim coverage as ~~third~~to ~~party~~any ~~vendors~~future claim. In addition, ~~including~~our abusiness ~~co-location~~is ~~service~~based ~~provider~~on establishing the reputation of our services as trustworthy and ~~Internet~~reliable ~~service~~sources ~~providers~~of clinical information. Allegations of impropriety or inaccuracy, toeven ~~provide~~if unfounded, could therefore harm our ~~online~~reputation ~~services~~and business.

We have computing and communications hardware operations located at our facilities in San Mateo, California, and in a co-location service administered by AT&T, Inc. in Redwood City, California. In the event of a catastrophic event at one of these sites, we may experience an extended period of system unavailability which could negatively impact our relationship with users and adversely affect our brand and our business. In particular, both of our co-location facilities are located in the same seismically active location in the San Francisco Bay Area.15

~~Any~~Table ~~disruption in the network access or co-location services provided by these third party providers or any failure~~ of or by these third party providers or our own systems to handle current or higher volume of use could significantly harm our business. We exercise little control over these third party vendors, which increases our vulnerability to problems with services they provide.Contents

~~Any~~Healthcare ~~errors,~~and ~~failures,~~consumer ~~interruptions~~protection orregulations ~~delays~~and ~~experienced~~legislation increate ~~connection~~risks ~~with these third party technologies~~ and ~~interactive~~challenges ~~services or our own systems could negatively impact our relationships~~ with ~~users~~respect ~~and~~to ~~clients, adversely affect~~ our ~~brand~~compliance ~~and~~efforts ~~our business~~ and ~~potentially expose us to liability to third parties. Although we maintain insurance for~~ our business, ~~the coverage under our policies generally only covers losses due to our negligence, and therefore may not be adequate to compensate us for all losses that may occur~~strategies. ~~In addition, we cannot provide assurance that we will continue to be able to obtain adequate insurance coverage at an acceptable cost.~~

IfThe healthcare industry is highly regulated and is subject to changing political, legislative, regulatory and other influences. Existing and new laws and regulations affecting the ~~systems~~healthcare weindustry ~~use~~could create unexpected liabilities for us, cause us to ~~provide~~incur ~~our~~additional ~~services~~costs ~~experience~~and ~~security~~restrict ~~breaches~~our oroperations. Many healthcare laws are ~~otherwise~~complex ~~perceived~~and their application to specific products and services may not be ~~insecure~~clear, particularly as we develop and release new and more sophisticated products and services. In particular, many existing healthcare laws and regulations, when enacted, did not contemplate the clinical information and interactive services that we provide. However, these laws and regulations may nonetheless be applied to our ~~business~~services. We are also subject to various federal and state consumer protection laws. Our failure to accurately anticipate the application of these laws and regulations, or other failure to comply with them, could ~~suffer~~create liability for us, result in adverse publicity and negatively affect our businesses. Some of the risks we face from healthcare and consumer protection regulations are as follows:

WeRegulation ~~retain~~of drug and ~~transmit~~medical ~~confidential~~device ~~information~~advertising inand ~~the~~promotion. We ~~processing~~provide ~~centers~~services ~~and~~involving ~~other~~promotion ~~facilities~~of weprescription ~~use~~and toover-the-counter ~~provide~~drugs ~~online~~and ~~services~~medical devices. ItAny isincrease ~~critical~~in ~~that~~regulation ~~such~~of ~~facilities~~these ~~and~~areas ~~infrastructure~~by ~~remain~~the ~~secure~~FDA, ~~and~~the beFederal ~~perceived~~Trade byCommission, ~~the~~or ~~marketplace~~FTC, asor ~~secure.~~other Agovernmental ~~security~~bodies ~~breach~~at ~~could~~the ~~damage~~federal, ~~our~~state ~~reputation~~ or ~~result~~local inlevel, ~~liability.~~could Wemake ~~may~~it bemore ~~required~~difficult for us to ~~expend~~contract ~~significant~~for ~~capital~~certain of our interactive services. Physician groups and ~~other~~others ~~resources~~have tocriticized ~~protect~~the ~~against~~FDA's ~~security~~current ~~breaches~~policies and ~~hackers~~have orcalled tofor ~~alleviate~~restrictions ~~problems~~on ~~caused~~advertising byof ~~breaches.~~prescription ~~Despite~~drugs ~~the~~and ~~implementation~~for ofincreased ~~security~~FDA ~~measures~~enforcement. In response, ~~this~~the ~~infrastructure~~FDA orhas ~~other~~conducted ~~systems~~hearings ~~that~~and wesought ~~interface~~public ~~with,~~comment ~~including~~regarding ~~the~~its ~~Internet~~regulation ~~and~~of ~~related~~information ~~systems,~~concerning ~~may~~drugs beon ~~vulnerable~~the toInternet ~~physical~~and ~~break-ins,~~the ~~hackers,~~relationships ~~improper~~between ~~employee~~pharmaceutical orcompanies ~~contractor~~and ~~access,~~those ~~computer~~disseminating ~~viruses,~~information ~~programming~~on ~~errors,~~drugs. ~~attacks~~We bycannot ~~third~~predict ~~parties~~what actions the FDA or ~~similar~~industry ~~disruptive~~participants ~~problems.~~may ~~Any~~take ~~compromise~~in ofresponse ~~our~~to ~~security,~~these ~~whether~~criticisms. asIt ais ~~result~~also ofpossible ~~our~~that ~~own~~new ~~systems~~laws orwould ~~the~~be ~~systems~~enacted that ~~they~~impose ~~interface~~restrictions ~~with,~~on ~~could~~such ~~reduce~~marketing ~~demand~~and ~~for~~advertising. ~~our~~Our interactive services ~~and~~revenues could ~~subject~~be usmaterially toreduced ~~legal~~by ~~claims~~additional ~~from~~restrictions ~~our~~on ~~clients~~the ~~and~~marketing ~~users,~~or ~~including~~advertising ~~claims~~of ~~for~~prescription ~~breach~~drugs ofand ~~contract~~medical ordevices, ~~breach~~whether ofimposed ~~warranty,~~by law or ~~regulatory~~regulation ~~enforcement~~or ~~actions~~by ~~against~~policies usadopted by ~~the~~industry ~~government~~members.

18If the FDA, the FTC or another governmental body finds that any information available on our website or distributed by us violates FDA, FTC or other laws or regulations, they may take regulatory or judicial action against us or the advertiser or sponsor of that information. State attorneys general may also take similar action based on their state's consumer protection statutes or other new or existing laws.

~~Table~~Anti-kickback laws. Healthcare anti-kickback laws prohibit any person or entity from offering, paying, soliciting or receiving anything of ~~Contents~~value, directly or indirectly, for the referral of patients covered by 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. These laws may restrict how we and some of our clients market products to healthcare providers. The laws in this area are broadly written and it is often difficult to determine precisely how the laws will be applied in specific circumstances. Penalties for violating the federal anti-kickback laws include imprisonment, fines and exclusion from participating, directly or indirectly, in federal healthcare programs. Any determination by a state or federal regulatory agency that any of our practices violate any of these laws could subject us to civil or criminal penalties and require us to change or terminate some portions of our operations. Even an unsuccessful challenge by regulatory authorities of our practices could result in negative publicity and it could be costly for us to respond.

WeLegislation ~~may~~relating ~~not~~to payments to physicians. Recent legislation enacted or pending in several states and enacted at the federal level as part of the Patient Protection and Affordable Care Act and the Healthcare and Education Reconciliation Act of 2010 mandates public disclosure of, or otherwise regulates or limits the providing of, certain gifts and payments by pharmaceutical companies to physicians. These laws may be ~~successful~~interpreted to cover honorarium payments made to physicians for participation in ~~protecting~~market research activities sponsored by pharmaceutical companies. Because we currently provide market research services involving participants from our ~~intellectual~~member ~~property~~network, the increased adoption and ~~proprietary~~enforcement ~~rights~~of these laws and the application of any public disclosure requirements or other limitations may have a negative impact on the ability of pharmaceutical companies to sponsor these activities or the willingness of physicians to participate in the market research. To date, we have not experienced a significant reduction in our market research services business as a result of these laws in the few jurisdictions in which they have been enacted and become effective. However, we cannot predict how pharmaceutical companies or physicians will respond when such legislation becomes more widespread or becomes effective at the federal level. A significant decline in the sponsorship of our market research services by pharmaceutical companies or the agencies that represent such companies, or a significant decline in physicians' willingness to participate in such studies could negatively impact our operating results.

~~Our~~Medical ~~success~~professional ~~depends to a significant degree on our proprietary technology and ability to establish, maintain and enforce our intellectual property rights~~regulation. The Wepractice ~~rely on a combination~~ of ~~copyright,~~most ~~trademark,~~healthcare ~~trade~~professions ~~secret,~~requires ~~patent~~licensing ~~and~~under ~~other~~applicable ~~intellectual~~state ~~property laws and confidentiality procedures to protect our proprietary rights~~law. ~~Despite~~In ~~these measures~~addition, ~~any~~the oflaws our intellectual property rights could, however, be challenged, invalidated, circumvented or misappropriated, or such intellectual property rights may not be sufficient to permit us to take advantage of current market trends or otherwise to provide competitive advantages, which could result in ~~redesign~~some ~~efforts,~~states ~~discontinuance~~prohibit ofbusiness ~~certain~~entities ~~product~~from ~~offerings~~practicing ~~or other competitive harm~~medicine. ~~Further,~~We ~~the laws of certain countries~~ do not ~~protect~~believe ~~proprietary~~that ~~rights~~we toengage ~~the~~in ~~same extent as~~ the ~~laws~~practice of ~~the~~medicine ~~United~~and ~~States. Therefore, in certain jurisdictions,~~ we ~~may~~have beattempted ~~unable~~ to ~~protect~~structure our ~~proprietary~~services, ~~technology~~strategic ~~adequately~~relationships ~~against~~and ~~unauthorized~~other ~~third~~operations ~~party~~to ~~copying~~avoid orviolating ~~use, which could adversely affect our competitive position.~~

Our pending patent and trademark registration applications may not be allowed, and our competitors or other third parties may challenge the validity or scope of our patents or trademark registrations. If the patents or trademark registrations we seek do not issue, or if other problems arise with our intellectual property, our competitiveness could be significantly impaired and our business, operations and prospects may suffer. There can also be no assurance that any of our issued patents or registered trademarks, or any patents and trademarks that may issue in the future, will adequately protect our intellectual property, or that such patents and trademarks will not be challenged by our competitors or other third parties or found by a judicial authority to be invalid or unenforceable.16

WeTable enter into confidentiality and invention assignment agreements with our employees and consultants and with the parties with whom we have strategic relationships and business alliances, and our agreements with subscribers limit their use of the software and content provided to them. These agreements may be breached and we may not have adequate remedies for any such breach. Further, no assurance can be given that these agreements will be effective in preventing the unauthorized access to, or use of, our clinical and other proprietary information or the reverse engineering of our technology. In any event, these agreements do not prevent our competitors from independently developing technology or authoring clinical information that is substantially equivalent or superior to our technology or the information we distribute.Contents

~~Litigation~~these ~~may~~state belicensing ~~necessary~~and inprofessional ~~the~~practice ~~future~~laws. toWe ~~enforce~~employ ~~our~~and ~~intellectual~~contract ~~property~~with ~~rights~~physicians ~~and~~who toprovide ~~protect~~only ~~our~~medical ~~trade~~information ~~secrets.~~to ~~Litigation~~members, ~~could~~some ~~result~~of inwhom ~~substantial~~may ~~costs~~be consumers, and ~~diversion~~we ofdo ~~management~~not ~~resources~~intend ~~and~~to ~~can~~provide ~~put~~medical ~~our~~care ~~patents~~or atadvice. ~~risk~~Any ofdetermination ~~being~~that ~~invalidated~~we orare ~~interpreted~~a ~~narrowly.~~healthcare ~~The~~provider ~~occurrence~~and ofacted ~~any~~improperly ofas ~~these~~a ~~events~~healthcare provider may ~~seriously~~result ~~harm~~in ~~our~~liability ~~business~~to us.

Anti-spam regulation. We may also be ~~subject~~required to ~~claims~~comply with current or future anti-spam legislation by ~~third~~limiting ~~parties~~or ~~that~~modifying wesome ~~are~~of ~~infringing~~our ~~their~~interactive ~~intellectual~~services, ~~property~~such as our clinical messaging, wewhich may beresult ~~prevented~~in ~~from~~a ~~selling~~reduction ~~certain~~in ~~services~~our revenue. One such law, the Controlling the Assault of Non-Solicited Pornography and weMarketing Act of 2003, or CAN-SPAM, became effective in the United States on January 1, 2004. CAN-SPAM imposes complex and often burdensome requirements in connection with the sending of commercial e-mail. CAN-SPAM or similar laws may ~~incur~~impose ~~significant~~burdens ~~expenses~~on our member communication practices and on certain of our services, which in ~~resolving~~turn ~~these~~could ~~claims~~harm our ability to attract new clients and increase revenues.

~~Much~~Privacy ofand ~~our~~other ~~business~~consumer ~~relies~~protection onregulation. The ~~technology~~Children's ~~and~~Online ~~content~~Privacy ~~developed~~Protection Act, or ~~licensed~~COPPA, byapplies ~~third~~to ~~parties.~~operators Weof ~~also~~commercial ~~expect~~websites toand ~~seek~~online services directed to ~~license~~U.S. ~~technology~~children under the age of 13 that collect personal information from children and ~~content~~operators of general audience sites with actual knowledge that they are collecting information from ~~third~~U.S. ~~parties~~children ~~for~~under ~~future~~the ~~products~~age ~~and~~of ~~services~~13. WeOur ~~may~~sites are not bedirected ~~able~~at tochildren ~~obtain~~and orwe ~~continue~~employ toa ~~obtain~~kick-out ~~licenses,~~procedure ~~content~~whereby ~~and~~anyone ~~technologies~~identifying ~~from~~themselves ~~these~~as ~~third~~being ~~parties~~under onthe ~~commercially~~age ~~reasonable~~of ~~terms~~13 orduring atthe ~~all.~~registration ~~Our~~process ~~inability~~is not allowed to ~~retain~~register ~~our~~to ~~current~~obtain ~~third~~our ~~party~~clinical ~~licenses~~information or ~~obtain~~participate ~~third~~in ~~party~~our ~~licenses~~services. ~~required~~COPPA, tohowever, ~~develop~~is a relatively new ~~products~~law, orcan ~~product~~be ~~enhancements~~applied ~~could~~broadly ~~require~~and ~~that~~is wesubject ~~change~~to ~~our~~interpretation ~~product~~by courts and ~~design~~other ~~plans,~~governmental ~~any~~authorities. ofThe ~~which~~failure ~~could~~to ~~harm~~accurately anticipate the application or ~~delay~~interpretation ~~our~~of ~~ability~~this tolaw ~~sell~~could ~~our~~create ~~products~~liability for us, result in adverse publicity and ~~adversely~~negatively affect our business.

WeThe ~~may~~FTC ~~receive~~and ~~claims~~many ofstate ~~intellectual~~attorneys ~~property~~general ~~infringement~~are ~~from~~applying ~~third~~federal ~~parties~~and orstate ~~otherwise~~consumer ~~become~~protection ~~aware~~laws ofto ~~relevant~~require ~~patents~~that orthe ~~other~~online ~~intellectual~~collection, ~~property~~use ~~rights~~and dissemination of ~~third~~data, ~~parties~~and ~~that~~the ~~may~~presentation ~~lead~~of towebsite ~~disputes~~or ~~and~~other ~~litigation.~~electronic ~~Any~~content, ~~claims~~comply ~~made~~with ~~against~~certain usstandards ~~regarding~~for ~~patents~~notice, orchoice, ~~other~~security ~~intellectual~~and ~~property~~access. ~~rights~~Courts ~~could~~may bealso ~~expensive~~adopt ~~and~~these ~~time~~developing ~~consuming~~standards. toA ~~resolve~~number orof ~~defend~~states, ~~and~~including ~~could~~California, have aenacted ~~negative~~laws ~~effect~~or onare ~~our~~considering ~~business.~~the Weenactment ~~expect~~of ~~that~~laws ~~software~~governing ~~application~~the ~~developers~~release ~~will~~of ~~increasingly~~credit becard ~~subject~~or toother ~~infringement~~personal ~~claims~~information asreceived from consumers. In many cases, the ~~number~~specific oflimitations ~~products~~imposed ~~and~~by ~~competitors~~these ~~grows~~standards ~~and~~are ~~the~~subject ~~functionality~~to ofinterpretation ~~products~~by incourts ~~different~~and ~~industry~~other ~~segments~~governmental ~~overlaps~~authorities. ~~Our~~A ~~competitors~~determination orby ~~other~~a ~~third~~state ~~parties~~or ~~may~~federal ~~challenge~~agency ~~the~~or ~~validity~~court orthat ~~scope~~any of our ~~intellectual~~practices ~~property~~do ~~rights.~~not ~~Third~~meet ~~parties~~these ~~may~~standards ~~also~~could ~~claim~~result ~~that~~in ~~the~~liability ~~technology~~and ~~that~~adversely weaffect ~~acquire~~our orbusiness. ~~license~~New ~~from~~interpretations ~~other~~of ~~third~~these ~~parties~~standards ~~infringes~~could ~~their~~also ~~intellectual~~require ~~property~~us ~~rights~~to ~~and~~incur weadditional ~~may~~costs ~~not~~and berestrict ~~indemnified~~our ~~for~~business ~~such claims~~operations.

WeIn ~~may~~addition, ~~also~~several beforeign ~~required~~governments tohave ~~indemnify~~regulations ~~our~~dealing ~~clients~~with the collection and ~~third-party~~use ~~service~~of ~~providers~~personal ~~for~~information ~~third-party~~obtained ~~products~~from ~~and~~their ~~content~~citizens. ~~that~~Those ~~are~~governments ~~incorporated~~may ~~into~~attempt ~~our~~to ~~clinical~~apply ~~information~~such iflaws ~~they~~extraterritorially ~~are~~or ~~found~~through totreaties ~~infringe~~or ~~the~~other ~~intellectual~~arrangements ~~property~~with ~~rights~~U.S. ofgovernmental ~~others~~entities. ~~Although~~We ~~many~~might ofunintentionally ~~our~~violate ~~third-party~~such ~~service~~laws, ~~providers~~such ~~are~~laws ~~obligated~~may tobe ~~indemnify~~modified usand ifnew ~~their~~laws ~~products~~may ~~infringe~~be enacted in the ~~rights~~future ofwhich ~~others,~~may increase the chance that we violate them unintentionally. Any such ~~indemnification~~developments, ~~may~~or ~~not~~developments bestemming ~~effective~~from enactment or ~~adequate~~modification toof ~~protect~~other uslaws, or the ~~indemnifying~~failure ~~party~~to ~~may~~accurately beanticipate ~~unable~~the application or interpretation of these laws could create liability to ~~uphold~~us, ~~its~~result ~~contractual~~in ~~obligations~~adverse publicity and negatively affect our business.

19We rely on Internet service providers, co-location data center providers, other third parties and our own systems for key aspects of the process of providing and updating content to our members and performing services for our clients, and any failure or interruption in the services provided by these third parties or our own systems could harm our business.

~~Table~~Our ofmembers ~~Contents~~expect to be able to update our applications and access our services 24 hours per day, seven days per week, without interruption. However, we have experienced and expect that we will in the future experience interruptions and delays in services and availability from time to time. We rely on internal systems, as well as third-party vendors, including a co-location service provider and Internet service providers, to provide our online services.

~~Litigation~~We ~~could~~have becomputing ~~costly for us to defend, distract management’s attention~~ and ~~resources,~~communications ~~have~~hardware aoperations ~~negative~~located ~~effect~~at on our ~~operating~~facility ~~results~~in ~~and~~San ~~financial~~Mateo, ~~condition~~California, ~~or require us to devote additional research~~ and ~~development~~in ~~resources~~a toco-location ~~change~~service ~~our~~administered ~~products~~by orAT&T, Inc. toin ~~obtain~~Redwood ~~licenses~~City, toCalifornia. ~~any~~In ~~intellectual~~the ~~property~~event weof ~~may~~a becatastrophic ~~found~~event toat ~~infringe.~~one ~~Claims~~ of ~~intellectual~~these ~~property infringement might require us to redesign affected products~~sites, ~~delay~~we ~~affected~~may ~~product~~experience ~~offerings,~~an ~~enter~~extended ~~into~~period ~~costly~~of ~~settlement~~system orunavailability ~~license~~which ~~agreements~~could ornegatively ~~pay~~impact ~~costly~~our ~~damage~~relationship ~~awards~~with ormembers ~~face~~and aadversely ~~temporary~~affect orour ~~permanent~~brand ~~injunction~~and ~~prohibiting~~our ~~us from marketing, selling or distributing the affected products~~business. IfIn ~~we cannot or do not license the infringed technology on reasonable terms or at all~~particular, orboth ~~substitute~~of ~~similar technology from another source,~~ our ~~revenue~~co-location ~~and~~facilities ~~earnings~~are ~~could~~located bein ~~adversely~~the ~~impacted.~~same ~~There~~seismically ~~can~~active belocation noin ~~assurance~~the ~~that~~San ~~any~~Francisco ~~such~~Bay ~~litigation can be avoided or successfully concluded~~Area.

~~Our~~Any ~~use~~disruption in the network access or co-location services provided by these third-party providers or any failure of ~~“open~~or ~~source”~~by ~~software~~these ~~could~~third-party ~~adversely~~providers ~~affect~~or our ~~ability~~own systems to ~~sell~~handle current or higher volume of use could significantly harm our ~~products~~business. ~~and~~We ~~subject~~exercise uslittle control over these third-party vendors, which increases our vulnerability to ~~possible~~problems ~~litigation~~with services they provide.

AAny ~~significant~~errors, ~~portion of the products or technologies licensed~~failures, ~~developed~~interruptions ~~and/~~or ~~distributed~~delays byexperienced ~~us incorporate so-called “open source” software and we may incorporate open source software into other products~~ in the future. Such open source software is generally licensed by its authors or other third parties under open source licenses. Some open source licenses contain requirements that we disclose source code for modifications we make to the open source software and that we license such modifications to third parties at no cost. In some circumstances, distribution of our software in connection with ~~open~~these ~~source~~third-party ~~software~~technologies ~~could require that we disclose~~ and ~~license~~interactive ~~some~~services or ~~all of~~ our ~~proprietary~~own ~~code~~systems incould ~~that~~negatively ~~software~~impact ~~as well as distribute~~ our ~~products~~relationships ~~that~~with ~~use~~members ~~particular~~and ~~open~~clients, ~~source~~adversely ~~software~~affect ~~at no cost to the user. We monitor~~ our ~~use~~brand of open source software in an effort to avoid uses in a manner that would require us to disclose or grant licenses under our proprietary source code, however, there can be no assurance that such efforts will be successful. Open source license terms are often ambiguous and ~~such use could inadvertently occur. There is little legal precedent governing the interpretation of many of the terms of certain of these licenses, and the potential impact of these terms on~~ our business ~~may result in unanticipated obligations regarding our products~~ and ~~technologies.~~potentially ~~Companies~~expose ~~that~~us ~~incorporate~~to ~~open~~liability ~~source~~to ~~software~~third ~~into their products have, in the past, faced claims seeking enforcement of open source license provisions and claims asserting ownership of open source software incorporated into their product~~parties. IfAlthough ~~an author or other third party that distributes such open source software were to allege that~~ we ~~had~~maintain ~~not~~insurance ~~complied~~for ~~with~~our ~~the conditions of an open source license~~business, ~~we could incur significant legal costs defending ourselves against such allegations. In~~ the ~~event~~coverage ~~such~~under ~~claims~~our ~~were~~policies ~~successful,~~generally weonly ~~could~~covers belosses ~~subject~~due to ~~significant damages or be enjoined from the distribution of~~ our ~~products. In addition~~negligence, ifand wetherefore ~~combine~~may ~~our~~not ~~proprietary software with open source software in certain ways, under some open source licenses we could~~ be ~~required~~adequate to ~~release~~compensate ~~the~~us ~~source~~for ~~code~~all oflosses ~~our proprietary software, which could substantially help our competitors develop products~~ that ~~are similar to or better than ours and otherwise adversely affect our business.~~

~~We face potential liability related to the privacy and security of personal information we collect from healthcare professionals through our products and interactive services.~~17

~~Online~~Table user privacy is a major concern in both the United States and abroad. The European Union, or “EU,” adopted the Data Protection Directive, or “DPD,” imposing strict regulations and establishing a series of requirements regarding the collection and use of personally identifiable information online. The DPD provides for specific regulations requiring all non-EU countries doing business with EU member states to provide adequate data privacy protection when receiving personal data from any of the EU member states. Similarly, Canada’s Personal Information and Protection of Electronic Documents Act provides Canadian residents with privacy protections in regard to transactions with businesses and organizations in the private sector and sets out ground rules for how private sector organizations may collect, use or disclose personal information in the course of commercial activities. We have privacy policies posted with our services that we believe comply with applicable laws requiring notice to users about our information collection, use and disclosure practices. However, whether and how existing local and international privacy and consumer protection laws in various jurisdictions apply to the Internet and other online technologies is still uncertain and may take years to resolve. United States and international privacy laws and regulations, if drafted or interpreted broadly, could be deemed to apply to the technology we use, and could restrict our information collection methods or decrease the amount and utility of the information that we would be permitted to collect. Any legislation or regulation in the area of privacy of personal information could affect the way we operate our online services and could harm our business. The costs of compliance with, and the other burdens imposed by, these and other laws or regulatory actions may prevent us from selling our products or increase the costs associated with selling our products, and may affect our ability to invest in or jointly develop products in the United States and in foreign jurisdictions. Further, we cannot assure you that the privacy policies and other statements on our applications or our practices will be found sufficient to protect us from liability or adverse publicity relating to the privacy and security of personal information. In the conduct of our market research activities outside the United States, we rely upon a third party to identify and recruit respondents for the market research and to comply with the applicable privacy laws in each jurisdiction in which it operates. If this third party failed to comply with such laws, it could affect its ability to continue to support our business or negatively affect our reputation.Contents

~~The~~may ~~Privacy~~occur. ~~Standards~~In ~~under HIPAA establish a set of basic national privacy standards for the protection of individually identifiable health information by health plans~~addition, ~~healthcare~~we ~~clearinghouses,~~cannot ~~healthcare~~provide ~~providers~~assurance ~~and~~that ~~their business associates. With our entry into the EHR market,~~ we ~~have~~will ~~become~~continue ~~subject~~ to ~~HIPAA~~be ~~and~~able ~~other similar state and federal laws governing the collection, dissemination, use, access~~ to ~~and~~obtain ~~confidentiality~~adequate ofinsurance ~~patient-identifiable~~coverage ~~information,~~at ~~and~~an ~~will~~acceptable ~~remain so for so long as we remain in the EHR market~~cost.

20If the systems we use to provide our services experience security breaches or are otherwise perceived to be insecure, our business could suffer.

~~Table~~We retain and transmit confidential information in the processing centers and other facilities we use to provide online services. It is critical that such facilities and infrastructure remain secure and be perceived by the marketplace as secure. A security breach could damage our reputation or result in liability. We may be required to expend significant capital and other resources to protect against security breaches and hackers or to alleviate problems caused by breaches. Despite the implementation of ~~Contents~~security measures, this infrastructure or other systems that we interface with, including the Internet and related systems, may be vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses, programming errors, attacks by third parties or similar disruptive problems. Any compromise of our security, whether as a result of our own systems or the systems that they interface with, could reduce demand for our services and could subject us to legal claims from our clients and members, including claims for breach of contract or breach of warranty, or regulatory enforcement actions against us by the government.

~~Some~~We ~~users~~may ofnot ~~our~~be ~~products~~successful ~~and services are located outside of the United States, we recruit for market research internationally and we may~~ in ~~the~~protecting ~~future~~our ~~establish~~intellectual ~~international~~property ~~operations~~ and, asproprietary ~~a result, face diverse risks related to engaging in international business~~rights.

~~Although~~Our ~~the~~success ~~substantial~~depends ~~majority~~to ofa ~~our~~significant ~~users~~degree ~~are~~on ~~located~~our inproprietary ~~the~~technology ~~United~~and ~~States~~ability to establish, wemaintain ~~currently~~and ~~have~~enforce ~~users~~our inintellectual ~~numerous~~property rights. We rely on a combination of copyright, trademark, trade secret, patent and other ~~countries~~intellectual property laws and confidentiality procedures to protect our proprietary rights. WeDespite ~~are~~these measures, any of our intellectual property rights could, however, be challenged, invalidated, circumvented or misappropriated, or such intellectual property rights may ~~become~~not be sufficient to permit us to take advantage of current market trends or otherwise to provide competitive advantages, ~~subject~~which could result in redesign efforts, discontinuance of certain product offerings or other competitive harm. Further, the laws of certain countries do not protect proprietary rights to the ~~risks~~same extent as the laws of ~~conducting~~the ~~business~~United ~~internationally~~States. Therefore, ~~including:~~in certain jurisdictions, we may be unable to protect our proprietary technology adequately against unauthorized third-party copying or use, which could adversely affect our competitive position.

·Our ~~unexpected~~pending ~~changes~~patent inand ~~regulatory~~trademark ~~requirements,~~registration ~~taxes,~~applications ~~trade~~may ~~laws,~~not ~~tariffs,~~be ~~export quotas~~allowed, ~~custom~~and ~~duties~~our competitors or other ~~trade~~third ~~restrictions;~~parties ·may ~~exposure~~challenge tothe avalidity ~~broader,~~or ~~more~~scope ~~diverse~~of ~~set~~our ofpatents ~~regulations;~~or ·trademark ~~more~~registrations. ~~stringent~~If ~~regulations~~the ~~relating~~patents toor ~~data~~trademark ~~privacy~~registrations ~~and~~we ~~the~~seek ~~unauthorized~~do ~~use~~not ofissue, or ~~access~~if toother problems arise with our intellectual property, ~~commercial~~our competitiveness could be significantly impaired and ~~personal~~our ~~information~~business, ~~particularly~~operations inand ~~Europe~~prospects ~~and~~may ~~Canada;~~suffer. ·There ~~changes~~can inalso abe ~~specific~~no ~~country’s~~assurance that any of our issued patents or ~~region’s~~registered ~~political~~trademarks, or ~~economic~~any ~~conditions;~~patents ·and ~~unfavorable~~trademarks ~~currency~~that ~~exchange~~may ~~rates;~~issue ·in ~~exposure~~the tofuture, ~~competitors~~will ~~who~~adequately ~~are~~protect ~~more~~our ~~familiar~~intellectual ~~with~~property, ~~local~~or ~~markets;~~that ·such ~~limited~~patents and trademarks will not be challenged by our competitors or ~~unfavorable~~other ~~intellectual~~third ~~property~~parties ~~protection;~~or ~~and~~found ·by ~~restrictions~~a onjudicial ~~repatriation~~authority ofto ~~earnings~~be invalid or unenforceable.

InWe ~~addition,~~enter ininto ~~the~~confidentiality ~~future,~~and weinvention ~~may~~assignment ~~expand~~agreements ~~geographically~~with ~~through~~our ~~product~~employees ~~development~~and consultants and with the parties with whom we have strategic ~~alliances.~~relationships ~~However,~~and ~~our~~business ~~products~~alliances, and ~~services~~our ~~may~~agreements ~~not~~with besubscribers ~~accepted~~limit intheir ~~international~~use ~~markets~~of the software and ~~any~~content ~~potential~~provided ~~international~~to ~~operations~~them. ~~involve~~These aagreements ~~variety~~may ofbe ~~risks.~~breached Weand we may not have ~~limited~~adequate ~~experience~~remedies infor ~~marketing~~any such breach. Further, ~~selling~~no ~~and~~assurance ~~supporting~~can ~~our~~be ~~services~~given ~~abroad.~~that Inthese ~~addition,~~agreements ~~while~~will ~~Symbian~~be iseffective ~~the~~in ~~most~~preventing ~~widely~~the ~~used~~unauthorized ~~mobile~~access ~~operating~~to, ~~system~~or inuse ~~Europe~~of, our clinical ~~information~~ and ~~interactive~~other ~~services~~proprietary ~~are~~information ~~not~~or ~~compatible~~the ~~with~~reverse ~~Symbian~~engineering ~~based~~of ~~devices~~our technology. IfIn weany ~~invest~~event, ~~substantial~~these ~~time~~agreements ~~and~~do ~~resources~~not toprevent ~~expand~~ our ~~international~~competitors ~~operations~~from ~~and~~independently ~~are~~developing ~~unable~~technology toor doauthoring soclinical ~~successfully~~information ~~and~~that inis asubstantially ~~timely~~equivalent ~~manner,~~or superior to our ~~business~~technology ~~and~~or ~~operating~~the ~~results~~information ~~will~~we ~~suffer~~distribute.

IfLitigation wemay ~~acquire~~be ornecessary ~~invest~~ in ~~other~~the ~~companies,~~future ~~assets~~to orenforce ~~technologies~~our ~~and~~intellectual weproperty ~~are~~rights ~~not~~and ~~able~~ to ~~effectively~~protect ~~integrate~~our ~~them~~trade ~~with~~secrets. ~~our~~Litigation ~~business,~~could orresult wein dosubstantial ~~not~~costs ~~realize~~and ~~the~~diversion ~~anticipated~~of ~~financial~~management resources and ~~strategic~~can ~~goals~~put ~~for~~our ~~any~~patents at risk of ~~these~~being ~~transactions,~~invalidated ~~our~~or ~~financial~~interpreted ~~performance~~narrowly. The occurrence of any of these events may beseriously ~~impaired~~harm our business.

IfWe ~~appropriate opportunities present themselves, we~~ may ~~consider~~be ~~acquiring~~subject orto ~~making~~claims ~~investments~~by inthird ~~companies,~~parties ~~assets or technologies~~ that we ~~believe~~are toinfringing betheir ~~strategic,~~intellectual ~~such as our recent acquisition of Modality~~property, ~~Inc.~~ Wewe domay ~~not~~be ~~have~~prevented ~~significant~~from ~~experience~~selling incertain ~~acquisitions~~services and ~~investments in other companies, and our acquisition of Modality exposes us, and if~~ we ~~acquire~~may orincur ~~invest~~significant expenses in ~~additional~~resolving ~~companies,~~these ~~assets or technologies, we will be further exposed, to a number of risks, including:~~claims.

·Much weof ~~may~~our ~~find~~business ~~that~~relies ~~the~~on ~~acquired company, asset or~~ technology ~~does~~and ~~not~~content ~~further~~developed ~~our~~or ~~business~~licensed ~~strategy,~~by ~~that~~third weparties. ~~overpaid~~We ~~for~~also ~~the~~expect ~~company,~~to ~~asset~~seek orto license technology orand ~~that~~content ~~the~~from ~~economic~~third ~~conditions~~parties ~~underlying~~for ~~our~~future ~~acquisition~~products ~~decision~~and ~~have~~services. ~~changed;~~We ~~· we~~ may ~~have~~not ~~difficulty~~be ~~integrating~~able ~~the~~to ~~assets,~~obtain ~~technologies, operations~~ or ~~personnel~~continue ofto anobtain ~~acquired company~~licenses, orcontent ~~retaining~~and ~~the~~technologies ~~key~~from ~~personnel~~these ofthird ~~the~~parties ~~acquired~~on ~~company;~~commercially ·reasonable ~~our~~terms ~~ongoing business and management’s attention may be disrupted~~ or ~~diverted~~at byall. ~~transition~~Our orinability ~~integration~~to ~~issues~~retain ~~and~~our ~~the~~current ~~complexity~~third ofparty ~~managing~~licenses ~~geographically~~ or ~~culturally~~obtain ~~diverse~~third ~~enterprises;~~party ·licenses werequired ~~may~~to ~~encounter~~develop ~~difficulty~~new ~~entering~~products ~~and~~or ~~competing in new~~ product orenhancements ~~geographic~~could ~~markets,~~require ~~and~~that we ~~may~~change ~~face~~our ~~increased~~product ~~competition, including price competition or intellectual property litigation;~~ and ·design weplans, ~~may~~any ~~experience~~of ~~significant~~which ~~problems~~could harm or ~~liabilities~~delay ~~associated~~our ~~with~~ability ~~product quality, technology and legal contingencies relating~~ to ~~the~~sell ~~acquired~~our ~~business~~products orand ~~technology,~~adversely ~~such~~affect asour ~~intellectual property or employment matters~~business.

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Table of Contents

InWe ~~addition,~~may ~~from~~receive ~~time~~claims toof ~~time~~intellectual weproperty ~~may~~infringement ~~enter~~from ~~into~~third ~~negotiations~~parties ~~for acquisitions~~ or ~~investments~~otherwise ~~that~~become ~~are~~aware ~~not~~of ~~ultimately~~relevant ~~consummated.~~patents ~~These~~or ~~negotiations~~other ~~could~~intellectual ~~result~~property inrights ~~significant diversion~~ of ~~management~~third ~~time,~~parties asthat ~~well~~may aslead ~~substantial~~to ~~out-of-pocket~~disputes ~~costs~~and litigation. IfAny weclaims ~~were~~made toagainst ~~proceed~~us ~~with~~regarding ~~one~~patents or ~~more~~other ~~significant~~intellectual ~~acquisitions~~property orrights ~~investments~~could inbe ~~which~~expensive ~~the~~and ~~consideration~~time ~~included~~consuming ~~cash,~~to weresolve ~~could~~or bedefend ~~required~~and tocould ~~use~~have a ~~substantial~~negative ~~portion~~effect ofon our ~~available~~business. ~~cash,~~We ~~including~~expect ~~the~~that ~~proceeds~~software ofapplication ~~this~~developers ~~offering.~~will Toincreasingly ~~the~~be ~~extent~~subject weto ~~issue~~infringement ~~shares~~claims as the number of ~~capital~~products ~~stock~~and orcompetitors ~~other~~grows ~~rights~~and tothe ~~purchase~~functionality ~~capital~~of ~~stock,~~products ~~including~~in ~~options~~different ~~and~~industry ~~warrants,~~segments ~~existing~~overlaps. ~~stockholders~~Our ~~might~~competitors beor ~~diluted~~other ~~and~~third ~~earnings~~parties ~~per~~may ~~share~~challenge ~~amounts~~the ~~might~~validity ~~decrease.~~or Inscope ~~addition,~~of ~~acquisitions~~our ~~and~~intellectual ~~investments~~property rights. Third parties may ~~result~~also inclaim that the ~~incurrence~~technology ofthat ~~debt,~~we ~~large~~acquire ~~one-time~~or ~~write-offs,~~license ~~such~~from asother ofthird ~~acquired~~parties ~~in-process~~infringes ~~research~~their ~~and~~intellectual ~~development~~property ~~costs,~~rights and ~~restructuring~~we ~~charges~~may not be indemnified for such claims.

We ~~intend~~may also be required to ~~expand~~indemnify our ~~operations~~clients and ~~increase~~third-party service providers for third-party products and content that are incorporated into our ~~expenditures~~clinical ininformation anif ~~effort~~they are found to ~~grow~~infringe ~~our~~the ~~business~~intellectual property rights of others. IfAlthough wemany ~~are~~of ~~not~~our ~~able~~third-party toservice ~~manage~~providers ~~this~~are ~~growth~~obligated ~~and~~to ~~expansion,~~indemnify orus if ~~our~~their ~~business~~products ~~does~~infringe the rights of others, such indemnification may not ~~grow~~be aseffective weor ~~expect,~~adequate ~~our~~to ~~operating~~protect ~~results~~us or the indemnifying party may ~~suffer~~be unable to uphold its contractual obligations.

WeLitigation ~~significantly~~could ~~expanded~~be ~~our~~costly ~~operations~~for inus ~~2010~~to ~~and~~defend, ~~2011.~~distract ~~From~~management's ~~December 31,~~attention ~~2009~~and ~~to December 31~~resources, ~~2011,~~have wea ~~increased~~negative ~~the~~effect ~~number~~on of our ~~employees~~operating byresults ~~over~~and ~~30%,~~financial ~~from~~condition ~~approximately~~or ~~270~~require us to ~~approximately~~devote ~~360.~~additional Weresearch ~~anticipate that further expansion of our infrastructure~~ and ~~headcount~~development ~~will~~resources ~~be required~~ to ~~achieve~~change ~~planned expansion of~~ our ~~product~~products ~~offerings,~~or ~~projected~~to ~~increases~~obtain inlicenses ~~our~~to ~~user~~any ~~network~~intellectual ~~and~~property ~~anticipated~~we ~~growth~~may inbe ~~the~~found ~~number of product deployments. Our rapid growth has placed, and will continue~~ to ~~place, a significant strain on our administrative and operational infrastructure~~infringe. ~~Our~~Claims ~~ability~~of tointellectual ~~manage~~property ~~our~~infringement ~~operations~~might ~~and growth will~~ require us to ~~continue~~redesign toaffected ~~refine our operational~~products, ~~financial~~delay ~~and~~affected ~~management controls, human resource policies and reporting systems and procedures. Further, we intend to grow our business by developing new~~ product ~~and service~~ offerings, ~~and~~enter ~~pursuing~~into ~~new~~costly ~~clients.~~settlement Ifor welicense ~~fail~~agreements ~~to timely~~ or ~~efficiently~~pay ~~expand~~costly ~~operational~~damage ~~and~~awards ~~financial systems in connection with such growth~~ or ifface wea ~~fail~~temporary ~~to implement~~ or ~~maintain~~permanent ~~effective~~injunction ~~internal~~prohibiting ~~controls~~us ~~and~~from ~~procedures~~marketing, ~~resulting~~selling ~~operating~~or ~~inefficiencies~~distributing ~~could~~the ~~increase~~affected ~~costs~~products. ~~and~~If ~~expenses more than~~ we ~~planned~~cannot ~~and~~or ~~might~~do ~~cause~~not uslicense ~~to lose~~ the ~~ability~~infringed totechnology ~~take~~on ~~advantage~~reasonable ofterms ~~market~~or ~~opportunities,~~at ~~enhance existing products~~all, ~~develop new products, satisfy client requirements, respond to competitive pressures~~ or ~~otherwise~~substitute ~~execute~~similar ~~our~~technology ~~business~~from ~~plan.~~another ~~Additionally~~source, ifour werevenue ~~increase~~and ~~our~~earnings ~~operating~~could ~~expenses~~be inadversely ~~anticipation~~impacted. ofThere ~~the~~can ~~growth~~be ofno ~~our~~assurance ~~business~~that ~~and~~any such ~~growth~~litigation ~~does~~can ~~not~~be ~~meet~~avoided ~~our~~or ~~expectations,~~successfully ~~our financial results likely would be negatively impacted~~concluded.

~~Business~~Our ~~interruptions~~use ~~due~~of to"open ~~natural~~source" ~~disasters~~software ~~and other events~~ could adversely affect our ~~business~~ability to sell our products and subject us to possible litigation.

~~Our~~A ~~operations~~significant ~~can~~portion beof ~~subject~~the toproducts ~~natural~~or ~~disasters~~technologies licensed, developed and/or distributed by us incorporate so-called "open source" software and we may incorporate open source software into other ~~events~~products ~~beyond~~in ~~our~~the ~~control,~~future. Such open source software is generally licensed by its authors or other third parties under open source licenses. Some open source licenses contain requirements that we disclose source code for modifications we make to the open source software and that we license such modifications to third parties at no cost. In some circumstances, distribution of our software in connection with open source software could require that we disclose and license some or all of our proprietary code in that software as ~~earthquakes~~well as distribute our products that use particular open source software at no cost to the member. We monitor our use of open source software in an effort to avoid uses in a manner that would require us to disclose or grant licenses under our proprietary source code, ~~fires~~however, ~~power~~there ~~failures,~~can ~~telecommunication~~be ~~losses,~~no ~~terrorist~~assurance ~~attacks~~that such efforts will be successful. Open source license terms are often ambiguous and ~~acts~~such ofuse ~~war~~could inadvertently occur. ~~For~~There ~~example~~is little legal precedent governing the interpretation of many of the terms of certain of these licenses, and the ~~majority~~potential impact of these terms on our ~~operations~~business ~~are~~may ~~based~~result in ~~Northern~~unanticipated ~~California~~obligations ~~near~~regarding ~~major~~our ~~earthquake~~products ~~faults~~and technologies. Companies that ~~are~~incorporate ~~considered~~open ~~seismically~~source ~~active.~~software ~~Such~~into ~~events~~their products have, ~~whether~~in ~~natural~~the past, faced claims seeking enforcement of open source license provisions and claims asserting ownership of open source software incorporated into their product. If an author or ~~manmade~~other third party that distributes such open source software were to allege that we had not complied with the conditions of an open source license, we could ~~cause~~incur ~~severe~~significant ~~destruction~~legal orcosts ~~interruption~~defending ourselves against such allegations. In the event such claims were successful, we could be subject to significant damages or be enjoined from the distribution of our ~~operations~~products. In addition, ~~and~~if aswe acombine ~~result~~our proprietary software with open source software in certain ways, under some open source licenses we could be required to release the source code of our ~~business~~proprietary software, which could ~~suffer~~substantially ~~serious~~help ~~harm~~our competitors develop products that are similar to or better than ours and otherwise adversely affect our business.

~~Although~~We weface ~~carry business interruption insurance, it only covers some, but not all, of these~~ potential ~~events,~~liability ~~and~~related ~~even for those events that are covered, it may not be sufficient~~ to ~~compensate~~the usprivacy ~~fully~~and ~~for~~security ~~losses or damages that may occur as a result~~ of ~~such~~personal ~~events,~~information ~~including,~~we ~~for~~collect ~~example,~~from ~~loss~~healthcare ofprofessionals ~~market~~through ~~share and diminution of~~ our ~~brand,~~products ~~reputation~~ and ~~client~~interactive ~~loyalty~~services.

~~Risks~~Online ~~related~~user privacy is a major concern in both the United States and abroad. The European Union, or EU, adopted the Data Protection Directive, or DPD, imposing strict regulations and establishing a series of requirements regarding the collection and use of personally identifiable information online. The DPD provides for specific regulations requiring all non-EU countries doing business with EU member states to ~~ownership~~provide adequate data privacy protection when receiving personal data from any of the EU member states. Similarly, Canada's Personal Information and Protection of Electronic Documents Act provides Canadian residents with privacy protections in regard to transactions with businesses and organizations in the private sector and sets out ground rules for how private sector organizations may collect, use or disclose personal information in the course of commercial activities. We have privacy policies posted with our ~~common~~services ~~stock~~that we believe comply with applicable laws requiring notice to members about our information collection, use and disclosure practices. However, whether and how existing local and international privacy and consumer protection laws in various jurisdictions apply to the Internet and other online technologies is still uncertain and may take years to resolve. United States and international privacy laws and regulations, if drafted or interpreted broadly, could be

~~As our common stock has only recently become publicly traded, we expect that the price of our common stock may fluctuate substantially.~~19

~~Our~~Table ~~common stock has only been publicly traded since our initial public offering on February 2, 2011. The trading price~~ of our common stock has fluctuated significantly since then. For example, between February 2, 2011 and December 31, 2011, the closing trading price of our common stock was very volatile, ranging between $7.74 and $26.51 per share. The market price for our common stock will be affected by a number of factors, including:Contents

~~· quarterly~~deemed ~~variations~~to apply to the technology we use, and could restrict our information collection methods or decrease the amount and utility of the information that we would be permitted to collect. Any legislation or regulation in the area of privacy of personal information could affect the way we operate our ~~operating~~online ~~results~~services and could harm our business. The costs of compliance with, and the other burdens imposed by, these and other laws or regulatory actions may prevent us from selling our products or increase the ~~operating~~costs ~~results~~associated with selling our products, and may affect our ability to invest in or jointly develop products in the United States and in foreign jurisdictions. Further, we cannot assure you that the privacy policies and other statements on our applications or our practices will be found sufficient to protect us from liability or adverse publicity relating to the privacy and security of personal information. In the conduct of our ~~competitors;~~market research activities outside the United States, we rely upon a third party to identify and recruit respondents for the market research and to comply with the applicable privacy laws in each jurisdiction in which it operates. If this third party failed to comply with such laws, it could affect its ability to continue to support our business or negatively affect our reputation.

~~· the~~Some ~~timing~~users of ~~revenue~~our ~~recognition;~~products and services are located outside of the United States, and we recruit for market research internationally and we may, in the future, establish international operations and, as a result, face diverse risks related to engaging in international business.

· Although the ~~volume~~substantial ~~and~~majority ~~timing~~ of ~~orders~~our ~~from~~members ~~our~~are ~~clients~~located ~~and~~in ~~users;~~the United States, we currently have members in numerous other countries. We are, or may become, subject to the risks of conducting business internationally, including:

~~· the~~• ~~announcement~~unexpected ofchanges ~~new~~in ~~products~~regulatory orrequirements, ~~service~~taxes, ~~enhancements~~trade bylaws, ustariffs, export quotas, custom duties or ~~our~~other ~~competitors~~trade restrictions;

~~· announcements~~• ~~related~~exposure to ~~litigation~~a broader, more diverse set of regulations;

~~· changes~~• inmore ~~earnings~~stringent ~~estimates,~~regulations ~~investors’~~relating ~~perceptions,~~to ~~recommendations~~data byprivacy ~~securities~~and ~~analysts~~the orunauthorized ~~our~~use ~~failure~~of, or access to, ~~achieve~~commercial ~~analysts’~~and ~~earnings~~personal ~~estimates~~information, particularly in Europe and Canada;

22• changes in a specific country's or region's political or economic conditions;

~~Table~~• ofunfavorable ~~Contents~~currency exchange rates;

~~· the~~• ~~depth~~exposure ~~and~~to ~~liquidity~~competitors ofwho ~~the~~are ~~market~~more ~~for~~familiar ~~our~~with ~~common~~local ~~stock~~markets;

~~· changing~~• ~~legal~~limited or ~~regulatory~~unfavorable ~~requirements~~intellectual property protection; and

~~· developments~~• inrestrictions ~~our~~on ~~industry~~repatriation orof ~~the medical or pharmaceutical industries generally; and~~earnings.

~~· general~~In ~~market~~addition, ~~conditions~~in the future, we may expand geographically through product development and ~~other~~strategic ~~factors~~alliances. ~~unrelated~~However, toour products and services may not be accepted in international markets and any potential international operations involve a variety of risks. We have limited experience in marketing, selling and supporting our ~~operating~~services ~~performance~~abroad. orIn addition, while Symbian is the most widely used mobile operating ~~performance~~system ofin Europe, our ~~competitors~~clinical information and interactive services are not compatible with Symbian-based devices. If we invest substantial time and resources to expand our international operations and are unable to do so successfully and in a timely manner, our business and operating results will suffer.

InBusiness ~~addition,~~interruptions ~~the~~due ~~stock~~to ~~market~~natural ~~has~~disasters ~~experienced substantial price~~ and ~~volume~~other ~~volatility~~events that is often seemingly unrelated to the operating performance of particular companies. These broad market fluctuations may cause the trading price of our common stock to decline. In the past, securities class action litigation has often been brought against a company after a period of volatility in the market price of its common stock. We may become involved in this type of litigation in the future. Any securities litigation claims brought against us could ~~result~~adversely inaffect ~~substantial expense and the diversion of~~ our ~~management’s attention from our~~ business.

~~Securities~~Our ~~analysts~~operations ~~may~~can ~~not~~be ~~initiate~~subject ~~coverage~~to ofnatural disasters and other events beyond our ~~common~~control, ~~stock~~such oras ~~may~~earthquakes, ~~issue~~fires, ~~negative~~power ~~reports~~failures, ~~and~~telecommunication ~~this~~losses, ~~may~~terrorist ~~have~~attacks aand ~~negative~~acts ~~impact~~of onwar. ~~the~~For ~~market~~example, ~~price~~the majority of our ~~common~~operations ~~stock~~are based in Northern California near major earthquake faults that are considered seismically active. Such events, whether natural or manmade, could cause severe destruction or interruption to our operations, and as a result, our business could suffer serious harm.

~~Securities~~Although ~~analysts~~we ~~may~~carry ~~elect~~business ~~not~~interruption toinsurance, ~~provide~~it ~~research~~only ~~coverage~~covers ofsome, ~~our~~but ~~common stock. If securities analysts do~~ not ~~cover our common stock~~all, ~~the lack~~ of ~~research~~these ~~coverage~~potential ~~may adversely affect the market price of our common stock. In addition~~events, ~~the~~and ~~trading~~even ~~market~~ for ~~our~~those ~~common~~events ~~stock may be affected in part by the research and reports~~ that ~~industry~~are orcovered, ~~financial~~it ~~analysts~~may donot ~~publish~~be ~~about~~sufficient ~~us or our business. If one or more of the analysts who elect~~ to ~~cover~~compensate us ~~downgrades~~fully ~~our~~for ~~stock,~~losses ~~our~~or ~~stock~~damages ~~price~~that may ~~decline.~~occur Ifas ~~one~~a orresult ~~more~~ of ~~these~~such ~~analysts ceases coverage of us~~events, ~~we could lose visibility in the market~~including, ~~which in turn could cause our stock price to decline. It may be difficult~~ for ~~companies such as ours~~example, ~~with~~loss ~~smaller~~of market ~~capitalizations,~~share toand ~~attract~~diminution ~~independent~~of ~~financial analysts that will cover~~ our ~~common~~brand, ~~stock.~~reputation ~~This~~and ~~could~~client ~~have a negative effect on the market price of our stock~~loyalty.

~~Our directors, officers and principal stockholders have significant voting power and may take actions that may not be in the best interests of our other stockholders.~~20

AsTable of January 31, 2012, our officers, directors and principal stockholders each holding more than 5% of our common stock collectively controlled approximately 68.0% of our outstanding common stock. As a result, these stockholders, if they act together, will be able to control our management and affairs and most matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change of control and might adversely affect the market price of our common stock. This concentration of ownership may not be in the best interests of our other stockholders.Contents

~~Anti-takeover~~Risks ~~provisions~~Related into ~~our~~Ownership ~~amended and restated certificate~~ of ~~incorporation~~our ~~and~~Common ~~amended and restated bylaws, and Delaware law, contain provisions that could discourage a takeover.~~Stock

InAs ~~addition to the effect that the concentration of ownership by~~ our ~~officers,~~common ~~directors~~stock ~~and~~has ~~significant~~only ~~stockholders~~recently ~~may~~become ~~have,~~publicly ~~our amended and restated certificate of incorporation and our amended and restated bylaws which became effective upon completion of our initial public offering on February 7~~traded, ~~2011~~we ~~contain~~expect ~~provisions~~ that may enable our management to resist a change of control. These provisions may discourage, delay or prevent a change in our ownership or a change in our management. In addition, these provisions could limit the price ~~that investors would be willing to pay in the future for shares~~ of our common stock. ~~Such~~may ~~provisions,~~fluctuate to be set forth in our amended and restated certificate of incorporation or amended and restated bylaws that became effective upon the completion of our initial public offering on February 7, 2011, include:substantially.

· Our common stock has only been publicly traded since our ~~Board~~initial ofpublic ~~Directors~~offering ~~will~~on beFebruary ~~authorized~~2, ~~without~~2011. ~~prior~~The ~~stockholder~~trading ~~approval~~price of our common stock has fluctuated significantly since then. For example, tobetween ~~create~~February ~~and~~2, ~~issue~~2011 ~~preferred~~and ~~stock~~December 31, ~~commonly~~2012, ~~referred~~the toclosing astrading ~~“blank~~price ~~check”~~of ~~preferred~~our common stock was very volatile, ~~with~~ranging ~~rights~~between ~~senior~~$6.93 toand ~~those~~$26.51 ofper share. The market price for our common stock; will be affected by a number of factors, including:

~~· advance~~• ~~notice~~quarterly ~~will~~variations bein ~~required of stockholders to nominate candidates to serve on~~ our ~~Board~~operating ofresults, ~~Directors~~ or tothe ~~propose~~operating ~~matters~~results ~~that~~of ~~can~~our ~~be acted upon at stockholder meetings~~competitors;

~~· stockholder~~• ~~action~~the bytiming ~~written~~of ~~consent~~revenue ~~will be prohibited~~recognition;

23• the volume and timing of orders from our clients and members;

~~Table~~• the announcement of ~~Contents~~new products or service enhancements by us or our competitors;

~~· special~~• ~~meetings~~announcements ofrelated ~~the stockholders will be permitted~~ to ~~be called only by a majority of our Board of Directors, the chairman of our Board of Directors or our Chief Executive Officer~~litigation;

~~· stockholders~~• ~~will~~changes ~~not~~in beearnings ~~permitted~~estimates, toinvestors' ~~cumulate~~perceptions, ~~their~~recommendations ~~votes~~by ~~for~~securities ~~the~~analysts ~~election~~or ofour ~~directors~~failure to achieve analysts' earnings estimates;

~~· newly~~• ~~created directorships resulting from an increase in~~ the ~~authorized~~depth ~~number~~and ofliquidity ~~directors or vacancies on our Board~~ of ~~Directors will be filled only by majority vote of~~ the ~~remaining~~market ~~directors,~~for ~~even~~our ~~though~~common ~~less than a quorum is then in office~~stock;

~~· our~~• ~~Board~~changing oflegal ~~Directors will be expressly authorized to modify, alter~~ or ~~repeal~~regulatory ~~our amended and restated bylaws~~requirements; ~~and~~

~~· stockholders~~• ~~will~~developments bein ~~permitted to amend~~ our ~~amended~~industry ~~and~~or ~~restated bylaws only upon receiving at least two-thirds of~~ the ~~votes~~medical ~~entitled~~or topharmaceutical beindustries ~~cast by holders of all outstanding shares then entitled to vote~~ generally; ~~in the election of directors, voting together as a single class.~~and

We• ~~are~~general ~~also~~market ~~subject~~conditions ~~to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These~~ and other ~~provisions~~factors inunrelated ~~our amended and restated certificate of incorporation, our amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirors~~ to ~~obtain control of~~ our ~~Board~~operating ofperformance ~~Directors~~ or initiate actions that are opposed by our then-current Board of Directors, including delaying or impeding a merger, tender offer or proxy contest involving us. Any delay or prevention of a change of control transaction or changes in our Board of Directors could cause the ~~market~~operating ~~price~~performance of our ~~common stock to decline~~competitors.

~~Item~~In 1Baddition, the stock market has experienced substantial price and volume volatility that is often seemingly unrelated to the operating performance of particular companies. ~~Unresolved~~These ~~Staff~~broad ~~Comments~~market fluctuations may cause the trading price of our common stock to decline. In the past, securities class action litigation has often been brought against a company after a period of volatility in the market price of its common stock. We may become involved in this type of litigation in the future. Any securities litigation claims brought against us could result in substantial expense and the diversion of our management's attention from our business.

~~None~~Securities analysts may not initiate coverage of our common stock or may issue negative reports, and this may have a negative impact on the market price of our common stock.

~~Item~~Securities 2analysts may elect not to provide research coverage of our common stock. ~~Properties~~If securities analysts do not cover our common stock, the lack of research coverage may adversely affect the market price of our common stock. In addition, the trading market for our common stock may be affected in part by the research and reports that industry or financial analysts do publish about us or our business. If one or more of the analysts who elect to cover us downgrades our stock, our stock price may decline. If one or more of these analysts ceases coverage of us, we could lose visibility in the market, which in turn could cause our stock price to decline. It may be difficult for companies such as ours, with smaller market capitalizations, to attract independent financial analysts that will cover our common stock. This could have a negative effect on the market price of our stock.

WeOur ~~have offices located in San Mateo~~directors, ~~California,~~officers ~~Ewing, New Jersey~~ and ~~Durham,~~principal ~~North~~stockholders ~~Carolina.~~have ~~Our~~significant ~~San~~voting ~~Mateo~~power ~~office~~and ~~consists~~may oftake ~~approximately~~actions ~~59,000 square feet of office space pursuant to a lease~~ that ismay ~~set~~not tobe ~~expire~~in onthe ~~December 31,~~best ~~2014.~~interests ~~Our Ewing, New Jersey office consists~~ of ~~approximately~~our ~~20,000~~other ~~square feet of office space pursuant to a lease that is set to expire on March 31, 2014~~stockholders. ~~Our Durham, North Carolina office consists of approximately 8,000 square feet of office space pursuant to a lease that is set to expire on December 31, 2014.~~

~~Item~~As 3of January 31, 2013, our officers, directors and principal stockholders each holding more than 5% of our common stock collectively controlled approximately 63.2% ~~Legal~~of ~~Proceedings~~our outstanding common stock. As a result, these stockholders, if they act together, will be able to control our management and affairs and most matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change of control and might adversely affect the market price of our common stock. This concentration of ownership may not be in the best interests of our other stockholders.

On February 25, 2011, we received a letter from the SEC informing us that the SEC was conducting an investigation and attaching a subpoena for certain information and documents related to our expert network services, including our relationship with Hudson Street Services, a Goldman, Sachs & Co. business. On January 5, 2012, we received a letter from the SEC notifying us that the SEC has terminated its inquiry regarding Epocrates’ expert network services and that no enforcement action has been recommended.21

~~Item~~Table 4.of ~~Mine Safety Disclosures~~Contents

~~Not~~Anti-takeover ~~applicable~~provisions in our amended and restated certificate of incorporation and amended and restated bylaws, and Delaware law, contain provisions that could discourage a takeover.

24In addition to the effect that the concentration of ownership by our officers, directors and significant stockholders may have, our amended and restated certificate of incorporation and our amended and restated bylaws which became effective upon completion of our initial public offering on February 7, 2011 contain provisions that may enable our management to resist a change of control. These provisions may discourage, delay or prevent a change in our ownership or a change in our management. In addition, these provisions could limit the price that investors would be willing to pay in the future for shares of our common stock. Such provisions, to be set forth in our amended and restated certificate of incorporation or amended and restated bylaws that became effective upon the completion of our initial public offering on February 7, 2011, include:

~~Table~~• our Board of ~~Contents~~Directors will be authorized, without prior stockholder approval, to create and issue preferred stock, commonly referred to as "blank check" preferred stock, with rights senior to those of common stock;

~~PART II~~• advance notice will be required of stockholders to nominate candidates to serve on our Board of Directors or to propose matters that can be acted upon at stockholder meetings;

~~Item~~• 5.stockholder ~~Market~~action ~~for~~by ~~Registrant’s~~written ~~Common~~consent ~~Equity,~~will ~~Related~~be ~~Stockholder Matters and Issuer Purchases of Equity Securities~~prohibited;

As• ofspecial ~~December 31,~~meetings ~~2011, there were 105 stockholders~~ of ~~record of our common stock. Our common stock has been traded on~~ the ~~NASDAQ~~stockholders ~~Global~~will ~~Market~~be ~~under~~permitted ~~the symbol “EPOC” since February 2, 2011. Prior~~ to ~~this~~be ~~date,~~called ~~there~~only ~~was~~by noa ~~public~~majority ~~market~~of ~~for~~ our ~~common~~Board ~~stock.~~of ~~The~~Directors, ~~table below sets forth~~ the ~~high~~chairman ~~and~~of ~~low~~our ~~closing~~Board ~~sales~~of ~~prices~~Directors ~~for~~or our ~~common~~Chief ~~stock~~Executive ~~as reported on the NASDAQ Global Select Market during the periods indicated.~~Officer;

	High		Low
Year Ended December 31, 2011:
1st Quarter	$	26.51	$	19.25
2nd Quarter	24.28		15.92
3rd Quarter	19.40		8.54
4th Quarter	8.96		7.74


•	stockholders will not be permitted to cumulate their votes for the election of directors;

We• ~~have~~newly ~~never~~created ~~declared~~directorships orresulting ~~paid,~~from ~~and~~an doincrease ~~not~~in ~~anticipate declaring or paying, any cash dividends on our common stock. Any future determination as to~~ the ~~declaration~~authorized ~~and~~number ~~payment~~ of ~~dividends,~~directors ifor ~~any,~~vacancies ~~will~~on ~~be at the discretion of~~ our Board of Directors ~~and~~ will ~~depend~~be onfilled ~~then~~only ~~existing~~by ~~conditions,~~majority ~~including~~vote ~~our~~of ~~financial~~the ~~condition,~~remaining ~~operating results~~directors, ~~contractual~~even ~~restrictions,~~though ~~capital~~less ~~requirements,~~than ~~business~~a ~~prospects~~quorum ~~and~~is ~~other~~then ~~factors our Board of Directors may deem relevant at that point~~ in ~~time.~~office;

~~COMPARISON~~• OFour 11Board ~~MONTH~~of ~~CUMULATIVE~~Directors ~~TOTAL~~will RETURN*be expressly authorized to modify, alter or repeal our amended and restated bylaws; and

~~Among~~• ~~Epocrates,~~stockholders ~~Inc.,~~will ~~the~~be ~~Russell~~permitted ~~MicroCap~~to ~~Index~~amend our amended and restated bylaws only upon receiving at least two-thirds of the ~~RDG~~votes ~~MicroCap~~entitled ~~Biotechnology~~to ~~Index~~be cast by holders of all outstanding shares then entitled to vote generally in the election of directors, voting together as a single class.

*$100We ~~invested~~are onalso ~~2/2/11~~subject into ~~stock~~the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or ~~1/31/11~~more of our outstanding voting stock. These and other provisions in ~~index~~our amended and restated certificate of incorporation, our amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirors to obtain control of our Board of Directors or initiate actions that are opposed by our then-current Board of Directors, including ~~reinvestment~~delaying or impeding a merger, tender offer or proxy contest involving us. Any delay or prevention of ~~dividends~~a change of control transaction or changes in our Board of Directors could cause the market price of our common stock to decline.

~~Fiscal~~Risks ~~year~~Related ~~ending~~to ~~December~~our 31Potential Merger with athenahealth, Inc.

~~Item~~If 6.the ~~Selected~~proposed ~~Financial~~merger ~~Data~~is not completed, our business could be materially and adversely affected and our stock price could decline.

~~The~~On ~~following~~January 7, ~~selected~~2013, ~~consolidated~~we ~~financial~~entered ~~data~~into ~~should~~a bedefinitive ~~read~~agreement ~~together~~ with ~~“Risk~~athenahealth, ~~Factors~~a leading provider of cloud-based electronic health record,” ~~“Management’s~~or ~~Discussion~~EHR, practice management and ~~Analysis~~care ofcoordination ~~Financial~~services ~~Condition~~to medical groups and ~~Results~~health ofsystems, ~~Operations”~~pursuant to which, upon the terms and subject to the ~~consolidated~~conditions ~~financial~~set ~~statements~~forth therein, we would merge with and ~~accompanying~~into ~~notes~~a ~~appearing~~wholly-owned ~~elsewhere~~subsidiary inof ~~this~~athenahealth ~~report~~and continue on as a surviving entity and wholly-owned subsidiary of athenahealth. The ~~selected~~merger ~~consolidated~~is ~~financial~~subject ~~data~~to inclosing ~~this~~conditions, ~~section~~including isthe adoption of the merger agreement by the holders of a majority of the outstanding shares of our common stock. Therefore, the merger may not ~~intended~~be tocompleted ~~replace~~or may not be completed as quickly as expected. If the merger agreement is terminated, the market price of our ~~consolidated~~common ~~financial~~stock ~~statements~~will ~~and~~likely decline, as we believe that our market price reflects an assumption that the ~~accompanying~~merger ~~notes~~will be completed. ~~The~~For ~~results~~example, ofon January 4, 2013, the ~~acquired~~closing ~~businesses~~price ~~have~~for ~~been~~our ~~included~~common instock was $9.62, and on the next trading day, following the announcement of our ~~consolidated~~entering ~~financial~~into ~~statements~~the ~~since~~merger ~~their~~agreement, ~~respective~~our ~~dates~~stock price increased to a closing price of ~~acquisition~~$11.68 ~~Our~~per ~~historical~~share. ~~results~~In ~~are~~addition, ~~not~~our ~~necessarily~~stock ~~indicative~~price may be adversely affected as a result of ~~our~~the ~~future~~fact ~~results~~that we have incurred and will continue to incur significant expenses related to the merger that will not be recovered if the merger is not completed. If the merger agreement is terminated under certain circumstances, we may be obligated to pay athenahealth a termination fee of $9.0

We derived the consolidated statements of operations data for the fiscal years ended December 31, 2011, 2010 and 2009 and the consolidated balance sheets data as of December 31, 2011 and 2010 from our audited consolidated financial statements appearing elsewhere in this report. The consolidated statements of operations data for the years ended December 31, 2008 and 2007 and the consolidated balance sheets data as of December 31, 2009, 2008 and 2007 are derived from our audited consolidated financial statements, which are not included in this report.22

25Table of Contents

~~Table~~million. As a consequence of ~~Contents~~the failure of the merger to be completed, as well as of some or all of these potential effects of the termination of the merger agreement, our business could be materially and adversely affected.

	December 31,
	2011			2010		2009		2008		2007
	(in thousands except per share information)
Total revenues, net	$	113,346		$	103,988	$	93,654	$	83,345	$	65,611
Net (loss) income	(3,573		)	3,803		7,659		7,434		25,739
Net (loss) income per common share - basic	(0.17		)	0.01		0.22		0.21		1.18
Net (loss) income per common share - diluted	(0.17		)	0.01		0.20		0.19		1.06
Total assets	$	152,224		$	127,216	$	125,465	$	116,359	$	135,565
Deferred revenue	54,517			54,896		62,308		58,439		58,250
Financing liability (1)	—			—		20,314		20,314		20,314
Other long-term obligations	1,893			16,929		2,642		1,577		694
Mandatorily redeemable convertible preferred stock (2)	—			73,342		70,502		67,662		64,822

The fact that there is a merger pending could have an adverse effect on our business, revenue and results of operations.

~~(1) Represents~~While the merger is pending, it creates uncertainty about our future. As a ~~financing~~result ~~liability~~of ~~incurred~~this inuncertainty, ~~connection~~customers ~~with~~may ~~the~~decide ~~build-out~~to delay, defer, or cancel purchases of our ~~San~~products ~~Mateo~~and/or ~~facility~~services pending completion of the merger or termination of the merger agreement. ~~Please~~ ~~refer~~If tothese ~~Note~~decisions 8represent a significant portion of our ~~audited~~anticipated ~~financial~~revenue, ~~statements~~our results of operations and quarterly revenues could be substantially below the expectations of market analysts.

~~(2) Mandatorily~~In ~~redeemable~~addition, ~~convertible~~while ~~preferred~~the ~~stock~~merger ~~includes~~is ~~$29.3~~pending, ~~million~~we ofare ~~cumulative~~subject ~~dividends~~ to bea ~~paid~~number inof ~~cash~~risks ~~from~~that ~~the~~may ~~proceeds~~adversely ofaffect our ~~initial~~business, ~~public~~revenue ~~offering~~and asresults of ~~December 31~~operations, ~~2010.~~including:

~~Other~~• ~~Financial~~the ~~Data~~diversion of management and employee attention and the unavoidable disruption to our relationships with customers and vendors may detract from our ability to grow revenues and minimize costs;

~~Adjusted~~• ~~EBITDA~~we ishave anincurred ~~unaudited number~~ and ~~represents~~will ~~net~~continue ~~income before income and expenses unrelated~~ to ~~core~~incur ~~business~~significant ~~activities, such as interest income, other income (expense), net and (benefit from) provision for income taxes; non-recurring income and~~ expenses, ~~such as gain on settlement and change in fair value of contingent consideration, gain on sale-leaseback of building, impairment of intangible and long-lived assets~~ related to EHR, loss on impairment related to EHR business and other expenses (including legal expenses, facilities exit costs, employee severance charges, current period depreciation and amortization expense related to assets assigned to the ~~EHR business and a refund of rent)~~merger; ~~and non-cash charges, such as depreciation and amortization expense (including intangible assets) related to core business and stock-based compensation.~~

~~Adjusted~~• ~~EBITDA~~the ismerger ~~not~~agreement arestricts ~~measure~~us offrom ~~operating~~engaging ~~performance or liquidity calculated~~ in ~~accordance~~business ~~with~~activities ~~U.S.~~outside ~~generally~~of ~~accepted~~our ~~accounting~~ordinary ~~principles,~~course orof ~~“GAAP,”~~business ~~and~~without ~~should~~athenahealth's bepermission ~~viewed as a supplement to,~~ and ~~not a substitute for~~, ~~our~~if ~~results~~we ofdetermine ~~operations~~that ~~presented~~doing onso awould ~~GAAP~~be ~~basis.~~advantageous ~~Adjusted~~and ~~EBITDA~~athenahealth does not ~~purport to represent cash flow provided by~~consent, orwe ~~used~~would ~~in, operating activities as defined by GAAP. Our statements of cash flows present our cash flow activity in accordance with GAAP. Furthermore, adjusted EBITDA is~~ not ~~necessarily~~be ~~comparable~~able to ~~similarly-titled~~pursue ~~measures~~those ~~reported~~advantageous byactivities; ~~other companies.~~and

We• ~~believe~~we ~~adjusted~~may ~~EBITDA~~be isunable ~~used by and is useful~~ to ~~investors~~respond ~~and~~effectively ~~other users of our financial statements in evaluating our operating performance because it provides them with an additional tool~~ to ~~compare~~competitive ~~business~~pressures, ~~performance~~industry ~~across~~developments ~~companies~~ and ~~across~~future ~~periods~~opportunities. ~~We believe that:~~

~~· EBITDA~~If isthe ~~widely~~merger ~~used~~occurs, byour ~~investors~~stockholders towill ~~measure~~not abe ~~company’s~~able ~~operating performance without regard~~ to ~~such~~participate ~~items~~in asany ~~interest~~upside ~~income or expense, taxes, depreciation and amortization, which can vary substantially from company~~ to ~~company~~our ~~depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired; and~~business.

~~· investors~~Upon ~~commonly~~consummation ~~adjust~~of ~~EBITDA~~the ~~information~~merger, toour ~~eliminate~~stockholders ~~the~~will ~~effect~~receive $11.75 in cash per share of Epocrates common stock~~-based~~ ~~compensation~~owned ~~expenses~~by ~~and~~them, ~~other~~but ~~charges~~will not receive any shares of athenahealth common stock. As a result, ~~which~~if ~~can~~our ~~vary~~business ~~widely~~following ~~from~~the ~~company~~merger toperforms ~~company~~well, you will not receive any additional consideration, and ~~impair~~will ~~comparability~~therefore not receive any benefit from the performance of our business.

~~Our~~A ~~management~~lawsuit ~~uses~~has ~~adjusted~~been ~~EBITDA:~~filed against Epocrates, the members of its board of directors, athenahealth and Echo Merger Sub, Inc. challenging the merger, and an adverse judgment in any such lawsuit may prevent the merger from becoming effective or from becoming effective within the expected timeframe.

· Epocrates, the members of the Epocrates board of directors, and certain executive officers of Epocrates have been named as defendants in a ~~measure~~purported ofclass ~~operating~~action ~~performance~~lawsuit brought by an individual Epocrates stockholder challenging the proposed merger and seeking, among other things, to ~~assist~~enjoin the defendants from completing the merger pursuant to the terms of the merger agreement. Consequently, if the plaintiffs are successful in ~~comparing~~obtaining ~~performance~~an injunction prohibiting the parties from ~~period~~completing the merger pursuant to ~~period~~the onterms aof ~~consistent~~the ~~basis;~~merger agreement, such an injunction may prevent the completion of the merger in the expected timeframe (or altogether).

~~· as~~Item a1B. Unresolved ~~measure~~Staff ~~for planning and forecasting overall expectations and for evaluating actual results against such expectations;~~Comments

26None.

~~Table~~Item ~~of Contents~~2. Properties

· We have offices located in ~~communications~~San ~~with~~Mateo, ~~the~~California, ~~Board~~Ewing, New Jersey and Durham, North Carolina. Our San Mateo office consists of ~~Directors~~approximately 59,000 ~~stockholders~~square feet of office space pursuant to a lease that is set to expire on December 31, ~~analysts~~2014. ~~and~~Our ~~investors~~Ewing, ~~concerning~~New ~~our~~Jersey ~~financial~~office ~~performance;~~consists ~~and~~of approximately 20,000 square feet of office space pursuant to a lease that is set to expire on March 31, 2014. Our Durham, North Carolina office consists of approximately 12,000 square feet of office space pursuant to a lease that is set to expire on December 31, 2014.

~~· as~~Item a3. Legal ~~significant~~Proceedings ~~performance measurement included in our bonus plan.~~

~~The~~On ~~table~~January 11, ~~below~~2013, ~~sets~~a ~~forth~~complaint was filed in San Mateo County Superior Court captioned Bushansky v. Epocrates, Inc., et al., Case No. 519078, on behalf of a ~~reconciliation~~putative class of ~~net~~Epocrates' ~~(loss)~~shareholders ~~income~~against toEpocrates ~~adjusted~~and ~~EBITDA~~each ~~(in~~member ~~thousands):~~of the Epocrates

	Years Ended December 31,
	2011			2010			2009			2008			2007
	(in thousands)
	(unaudited)
Net (loss) income, as reported under U.S. GAAP	$	(3,573	)	$	3,803		$	7,659		$	7,434		$	25,739
Add: (Income) expenses unrelated to core business activities
Interest income	(75		)	(93		)	(127		)	(1,180		)	(1,714		)
Other (income) expense, net	(183		)	—			73			(545		)	233
(Benefit from) provision for income taxes	(2,198		)	5,187			6,788			6,510			(21,126		)
Add: Non-recurring and non-cash expenses (income)
Non-recurring (income) expense
Gain on settlement and change in fair value of contingent consideration (1)	(8,145		)	(1,034		)	—			—			—
Gain on sale-leaseback of building	—			(1,689		)	—			—			—
Impairment of intangible and long-lived assets related to EHR	7,281			—			—			—			—
Loss on impairment related to EHR business	1,220			—			—			—			—
Other expenses (2)	3,484			701			—			—			—
Non-cash expenses
Depreciation and amortization expense (including intangible assets) related to core business	8,065			4,395			2,889			2,645			1,906
Stock-based compensation	7,342			6,356			4,534			3,620			3,187
Adjusted EBITDA	$	13,218		$	17,626		$	21,816		$	18,484		$	8,225

~~(1) For~~Table ~~the year ended December 31, 2011, includes a gain~~ of $449 from the write-down of the contingent consideration liability related to an earn-out agreement recognized in the fourth quarter of 2011 for Caretools, Inc. and a $6.4 million gain recognized in the second quarter of 2011 associated with the settlement of the contingent consideration liability with the sellers of MedCafe, Inc., a company we acquired in 2010.Contents

~~(2) For~~board challenging the ~~year~~proposed ~~ended~~merger ~~December~~with 31athenahealth. On January 25, ~~2011~~2013, ~~includes~~a ~~legal~~similar ~~expenses~~complaint ofwas $1filed in San Mateo County Superior Court captioned DeJoice v. Epocrates,~~033~~ et al., ~~facilities~~Case ~~exit~~No. 519461. ~~costs~~This complaint alleges similar allegations against Epocrates and each member of ~~$618~~the Epocrates board and includes a claim against athenahealth, ~~employee~~for ~~severance~~aiding ~~charges~~and abetting a breach of ~~$986~~fiduciary duty. On January 31, ~~current~~2013, ~~period~~the ~~depreciation~~Bushansky complaint was amended to include additional allegations. Plaintiffs allege, among other things, that the Epocrates directors breached their fiduciary duties by allegedly agreeing to sell Epocrates at an unfair and ~~amortization~~inadequate ~~expense~~price, ~~of $673~~by ~~related~~allegedly failing to ~~assets~~take ~~assigned~~steps to maximize the ~~EHR~~sale ~~business~~price of Epocrates and ~~$174~~by ~~relating~~allegedly making material omissions to athe ~~refund~~preliminary ofproxy ~~rent~~statement dated January 25, 2013. ~~For~~The complaints seek to enjoin the ~~year~~merger, ~~ended~~other ~~December~~equitable 31relief and money damages. On March 5, ~~2010~~2013, ~~includes~~Epocrates ~~employee~~and ~~severance~~the ~~charges~~plaintiffs signed a memorandum of ~~$694~~understanding ~~and~~in ~~amortization~~which ~~expense~~the parties agreed to enter into a stipulation of $7settlement whereby the plaintiffs and all class members will release all claims related to ~~intangible~~the ~~assets~~merger ~~assigned~~in exchange for Epocrates filing a supplement to its definitive proxy statement regarding the ~~EHR~~merger ~~business~~with athenahealth with the Securities and Exchange Commission in which the Company will make additional disclosures regarding the merger agreement and an agreement to negotiate in good faith regarding the amount of attorneys' fees and expenses for which plaintiffs may seek approval from the Court. We expect this range to be between $0.3 million to $0.6 million; however, our maximum exposure for our defense and the plaintiffs' costs is our insurance deductible of $0.5 million.

~~Note~~On March 1, 2013, a complaint was filed in the United States District Court for the Northern District of California captioned Police and Fire Retirement System of the City of Detroit v. Epocrates, Inc. et al., Case No. 5:13cv945, ~~prior~~on ~~period~~behalf ~~amounts~~of ~~have~~a ~~been~~putative ~~revised~~class toof ~~conform~~Epocrates' stockholders against Epocrates and its officers and directors. The complaint asserts claims under sections 11, 12 and 15 of the Securities Act of 1933 on behalf of all stockholders that purchased Epocrates stock in its Initial Public Offering and claims under sections 10(b) and 20 of the Securities Exchange Act of 1934 on behalf of all stockholders that purchased shares between the IPO and August 9, 2011. The complaint alleges that Epocrates made false or misleading statements with respect to the ~~current~~fact ~~period~~that ~~presentation~~Epocrates' pharmaceutical clients were awaiting guidance from the Food and Drug Administration on the use of advertising and social media, which caused the clients to delay spending on marketing and negatively impacted Epocrates' sales and revenue growth. The complaint seeks money damages, costs and expenses.

Item 74. Mine ~~Management’s~~Safety ~~Discussion and Analysis of Financial Condition and Results of Operations~~Disclosures

~~You~~Not should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this reportapplicable. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in the sections titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors.”

~~Business Overview~~PART II

~~Epocrates~~Item is5. Market ~~a leading physician platform~~ for essential clinical content, practice tools and health industry engagement at the point of care. Our user network consists of well over one million healthcare professionals; including approximately 340,000, or more than 50% of, U.S. physicians. Epocrates’ portfolio features top-ranked medical apps, including the industry’Registrant's #1Common ~~used mobile drug reference~~Equity, ~~which~~Related ~~provides~~Stockholder ~~convenient,~~Matters ~~point-of-care access to information such as dosing, drug interactions, pricing~~ and ~~insurance~~Issuer ~~coverage~~Purchases ~~for thousands~~ of ~~brand,~~Equity generic and over-the-counter drugs. The features available through our unique physician platform are referenced multiple times per day and help healthcare professionals make more informed prescribing decisions, improve workflow and enhance patient safety. We offer our products on major U.S. mobile platforms including Apple, Android and Blackberry.Securities

27As of February 7, 2013, there were 62 stockholders of record of our common stock. Our common stock has been traded on the NASDAQ Global Select Market under the symbol “EPOC” since February 2, 2011. Prior to this date, there was no public market for our common stock. The table below sets forth the high and low sales prices for our common stock as reported on the NASDAQ Global Select Market during the periods indicated.

Table of Contents



	High		Low
Year Ended December 31, 2012:
1^st Quarter	$	10.73	$	7.20
2^nd Quarter		8.85		6.90
3^rd Quarter		11.97		6.93
4^th Quarter		11.77		8.38

Recent Developments



	High		Low
Year Ended December 31, 2011:
1^st Quarter	$	30.24	$	19.02
2^nd Quarter		25.14		15.90
3^rd Quarter		19.82		7.51
4^th Quarter		9.13		7.55

~~In April~~ ~~2011,~~We wehave ~~announced~~never ~~the~~declared ~~recent~~or ~~launch~~paid, ofand ~~our~~do ~~new~~not ~~mobile~~anticipate ~~drug~~declaring ~~sampling~~or ~~service~~paying, ~~Epocrates®~~any ~~Mobile~~cash ~~Sample~~dividends ~~Closet.~~on ~~This~~our ~~new~~common ~~service~~stock. ~~provides~~Any ~~pharmaceutical~~future ~~companies~~determination ~~with~~as ~~the ability~~ to ~~provide~~the ~~custom~~declaration ~~sample~~and ~~offers~~payment ~~to U.S. physicians who are members~~ of ~~Epocrates’~~dividends, ~~network~~if ~~via their mobile devices. In addition to drug samples~~any, ~~sponsoring~~will ~~companies~~be ~~may~~at ~~provide~~the ~~physicians~~discretion ~~with~~of ~~access~~our toBoard ~~patient~~of ~~starter~~Directors ~~kits, vouchers~~ and ~~educational~~will ~~materials.~~

In July 2011, we entered a controlled release of the Epocrates EHR mobile and web-based EHR offering, with the intent to introduce the second phase of the product in 2012. Our EHR solution was designed to meet the distinct needs of primary care practices with 10 or fewer physicians and includes an intuitive user interface, affordable cost structure and a comprehensive support and service program. Our EHR solution is a secure, web-based Software-as-a-Service, or “SaaS,” system featuring core capabilities including patient encounter notes, electronic lab integration, ePrescribing and Epocrates’ market-leading drug content. We did not generate any material revenues from our EHR offering in 2011.24

InTable ~~October 2011, we launched a redesign~~ of our drug reference tool to create a new platform that provides healthcare professionals with improved, faster access to our trusted drug content. It now also serves as a way to surface rich medical content tailored for the user. Our new platform should raise awareness of our interactive services such as EssentialPoints, Contact Manufacturer and Mobile Sample Closet. We have also built an app directory that resides on the Epocrates platform and provides healthcare professionals with convenient, centralized access to a portfolio of reference, education and clinical apps. Our new platform serves as a channel for Epocrates to partner on the development and distribution of apps.Contents

Ondepend ~~February 3,~~on ~~2012,~~then weexisting ~~announced~~conditions, ~~that~~including weour ~~had~~financial ~~satisfied the federal government’s “meaningful use” criteria by earning complete Electronic Health Record~~condition, oroperating ~~“EHR~~results,” ~~ambulatory~~contractual ~~certification for Epocrates EHR v2. The designation officially deems the EHR software capable of enabling providers to qualify for funding under the American Recovery and Reinvestment Act~~restrictions, orcapital ~~“ARRA.” Also in February~~requirements, webusiness ~~entered~~prospects aand ~~release~~other offactors our ~~iPad~~Board ~~EHR~~of ~~application~~Directors ~~and~~may ~~previewed~~deem ~~the~~relevant ~~application~~ at ~~the~~that ~~2012~~point ~~Healthcare Information and Management Systems Society, or “HIMSS,” conference~~ in ~~Las Vegas~~time. ~~Designed to support and document patient encounters with the ease of templates, gesture-based motions and quick navigation, the application provided an elegant and intuitive user experience.~~

~~Despite~~Performance ~~achieving~~Graph ~~the meaningful use certification on February~~(1) 3, 2012, management determined in early 2012 that the forecasted revenues from and the projected subscribers for the EHR product had not materialized and that the costs to develop, continue to enhance and support the EHR product had a significant adverse effect on our operating margin in 2011 and would likely continue to have such an adverse effect for the foreseeable future. On February 24, 2012, the Board of Directors of Epocrates approved the discontinuation of further development of Epocrates’ EHR product. The Board of Directors made this determination in order to focus Epocrates’ efforts on its core business, Subscriptions and Interactive Services, and due to the future uncertainty and ongoing investment required for the EHR product. Epocrates will explore strategic alternatives for the EHR product. In connection with this decision, Epocrates recorded an impairment charge of approximately $8.5 million in its fourth fiscal quarter of 2011, which represents the write-down of the carrying value of the goodwill, intangible and other long-lived assets related to the EHR product to their estimated fair value of zero. This charge is recorded in Impairment of Long-lived Assets and Goodwill in our consolidated statements of operations for the year ended December 31, 2011.

~~Financial~~The ~~Operations~~performance ~~Overview~~line graph below compares the cumulative total stockholder return on our common stock with the cumulative total return of the Russell MicroCap Index, and the RDG MicroCap Biotechnology Index, for the period from February 2, 2011, through December 31, 2012. The graph assumes that $100 was invested on February 2, 2011, in our common stock, the Russell MicroCap Index and the RDG MicroCap Biotechnology Index, and that all the dividends were reinvested.

We(1) ~~generate~~This ~~revenue~~Section byis ~~providing~~not ~~healthcare~~"soliciting ~~companies~~material," ~~with~~is ~~interactive~~not ~~services~~deemed to"filed" ~~communicate~~ with ~~our network of users, through~~ the ~~sale~~SEC ~~of subscriptions to our premium drug~~ and ~~clinical~~is ~~reference~~not ~~tools~~ to ~~healthcare~~be ~~professionals~~incorporated ~~and,~~by reference in ~~2011,~~any ~~through~~filing ~~our~~of ~~recently~~iPass ~~released~~under ~~EHR solution. For~~ the ~~year~~1933 ~~ended~~Act ~~December 31,~~or ~~2011,~~the we1934 ~~recorded~~Act ~~total~~whether ~~net~~made ~~revenues~~before ofor ~~$113.3 million,~~after ~~a 9% increase from~~ the ~~year~~date ~~ended~~hereof ~~December 31,~~and ~~2010.~~irrespective ~~For the year ended December 31, 2010, we recorded total net revenues~~ of ~~$104.0 million,~~any angeneral ~~11%~~incorporation ~~increase~~language ~~from~~in ~~the~~any ~~year~~such ~~ended December 31, 2009~~filing.

~~Our~~Item ~~users pay for one year of our premium subscriptions upfront~~6. Selected ~~This~~Financial amount is deferred and recognized ratably over the term of the subscription. Typically, interactive services clients are billed a portion of the contracted fee upon signing of the contract with the balance billed upon one or more future milestones. The amounts collected are deferred and recognized as services are delivered. Deferred revenue at December 31, 2011 was $54.5 million versus $54.9 million at December 31, 2010. Our total backlog was $79.2 million at December 31, 2011 compared to $86.4 million at December 31, 2010. The decline in backlog in 2011 is attributable to weaker than expected bookings in the second, third and fourth quarters of 2011. While this booking shortfall had little revenue impact in 2011, it will have a considerable impact on 2012 revenue.Data

28The following selected consolidated financial data should be read together with “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes appearing elsewhere in this report. The selected consolidated financial data in this section is not intended to replace our consolidated financial statements and the accompanying notes. The results of the acquired businesses have been included in our consolidated financial statements since their respective dates of acquisition. Our historical results are not necessarily indicative of our future results.

~~Table~~We derived the consolidated statements of ~~Contents~~comprehensive (loss) income data for the fiscal years ended December 31, 2012, 2011 and 2010, and the consolidated balance sheets data as of December 31, 2012 and 2011, from our audited consolidated financial statements appearing elsewhere in this report. The consolidated statements of comprehensive (loss) income data for the years ended December 31, 2009 and 2008, and the consolidated balance sheets data as of December 31, 2010, 2009 and 2008, are derived from our audited consolidated financial statements that are not included in this report.

To date we have not experienced significant price pressure from competitors other than for our market research services. Competition is high among market research firms, and price has become a major driver in a client’s decision about which vendor to use. We have attempted to limit reductions in price because we believe our sizable network of healthcare professionals contributes significantly to a superior result for our clients. This price pressure has caused revenue from market research services to remain essentially unchanged since 2008.25

~~Currently,~~Table ~~our customer base is located almost entirely within the United States. No single customer accounted for more than 10%~~ of our net revenue during the years ended December 31, 2011, 2010 and 2009. One customer accounted for 15% and 11% of the net accounts receivable as of December 31, 2011 and 2009, respectively. No single customer accounted for more than 10% of the net accounts receivable as of December 31, 2010.Contents

We have invested significant development and marketing resources during the years ended December 31, 2011 and 2010 to develop and deliver new products. Specifically, we recorded $12.6 million and $8.0 million in operating expenses related to the EHR product during the years ended December 31, 2011 and 2010, respectively. This investment of resources has caused operating margins to decrease significantly in 2011 and 2010. As mentioned above, our Board of Directors approved the discontinuation of further development of our EHR offering, and our operating results include an impairment charge of approximately $8.5 million in the fourth quarter of 2011, representing the write-down of the carrying value of the long-lived assets and goodwill related to the EHR product to an estimated fair value of zero.



	December 31,
	2012			2011			2010			2009		2008

	(in thousands except per share information)

Total revenues, net	$	111,129		$	113,321		$	103,988		$	93,654	$	83,345

(Loss) income from continuing operations	$	(1,753	)	$	5,253		$	8,196		$	7,659	$	7,434
Loss from discontinued operations, net of tax (includes 2012 proceeds from sale of component technology of $1.5 million)	(1,666		)	(8,826		)	(4,393		)	—		—
Net (loss) income	$	(3,419	)	$	(3,573	)	$	3,803		$	7,659	$	7,434

Net (loss) income per share – basic
Continuing operations	$	(0.07	)	$	0.23		$	0.59		$	0.22	$	0.21
Discontinued operations, net of tax	(0.07		)	(0.40		)	(0.58		)	—		—
Net (loss) income per share attributable to common stockholders	$	(0.14	)	$	(0.17	)	$	0.01		$	0.22	$	0.21
Net (loss) income per share – diluted
Continuing operations	$	(0.07	)	$	0.23		$	0.59		$	0.20	$	0.19
Discontinued operations, net of tax	(0.07		)	(0.40		)	(0.58		)	—		—
Net (loss) income per share attributable to common stockholders	$	(0.14	)	$	(0.17	)	$	0.01		$	0.20	$	0.19

Total assets	$	143,176		$	152,224		$	127,216		$	125,465	$	116,359
Deferred revenue	43,930			54,517			54,896			62,308		58,439
Financing liability ⁽¹⁾	—			—			—			20,314		20,314
Other long-term obligations	1,330			1,893			16,929			2,642		1,577
Mandatorily redeemable convertible preferred stock ⁽²⁾	—			—			73,342			70,502		67,662

⁽¹⁾Represents a financing liability incurred in connection with the build-out of our San Mateo facility. Please refer to "Item 8. Financial Statements and Supplementary Data - Note 8. Financing Liability."

⁽²⁾Mandatorily redeemable convertible preferred stock includes $29.3 million of cumulative dividends to be paid in cash from the proceeds of our initial public offering as of December 31, 2010.

~~Total cash, cash equivalents and short-term investments at December~~Item ~~31, 2011 were $85~~7.2 Management’s ~~million,~~Discussion anand ~~increase~~Analysis of ~~$30.5~~Financial ~~million~~Condition ~~compared~~and toResults ~~December 31, 2010; however, this was primarily as a result~~ of ~~our initial public offering of our common stock in the first quarter of 2011.~~Operations

~~Critical~~You ~~Accounting~~should ~~Policies~~read the following discussion of our financial condition and ~~Estimates~~results of operations in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in the sections titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors.”

~~Our~~Business management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements and notes to the consolidated financial statements, which were prepared in accordance with GAAP. The preparation of the financial statements requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We evaluate our estimates on an ongoing basis, including those related to revenue recognition and deferred revenue, stock-based compensation, impairment of goodwill and intangible assets and the valuation of deferred tax assets. We base our estimates and judgments on our historical experience, knowledge of factors affecting our business and our belief as to what could occur in the future considering available information and assumptions that are believed to be reasonable under the circumstances.Overview

~~The~~Epocrates ~~accounting~~is ~~estimates~~a weleading ~~use~~physician inplatform ~~the~~for ~~preparation~~essential ofclinical ~~our~~content, ~~financial~~practice ~~statements~~tools ~~will~~and ~~change~~health asindustry ~~new~~engagement ~~events~~at ~~occur,~~the ~~more~~point ~~experience~~of iscare. ~~acquired,~~The ~~additional~~Epocrates ~~information~~network isconsists ~~obtained~~of ~~and~~well ~~our~~over ~~operating~~one million ~~environment~~healthcare ~~changes.~~professionals, ~~Changes~~including inapproximately ~~estimates~~330,000, ~~are~~or ~~made~~more ~~when~~than ~~circumstances~~50% ~~warrant~~of, U.S. ~~Such~~physicians. ~~changes~~Epocrates’ inportfolio ~~estimates~~features ~~and~~top-ranked ~~refinements~~medical inapplications, ~~estimation~~including ~~methodologies~~the ~~are~~industry’s ~~reflected~~#1 inused ~~our~~mobile ~~reported~~drug ~~results~~reference, which provides convenient, point-of-care ~~operations~~access ~~and~~to information such as dosing, ifdrug ~~material~~interactions, ~~the~~pricing ~~effects~~and ofinsurance ~~changes~~coverage infor ~~estimates~~thousands ~~are~~of ~~disclosed~~brand, ingeneric and over-the-counter ~~notes~~drugs. toThe features available through our ~~consolidated~~unique ~~financial~~platform ~~statements.~~are Byreferenced ~~their~~multiple ~~nature,~~times ~~these~~per ~~estimates~~day and ~~judgments~~help ~~are~~healthcare ~~subject~~professionals tomake anmore ~~inherent~~informed ~~degree~~prescribing ofdecisions, ~~uncertainty~~improve workflow and ~~actual~~enhance ~~results~~patient ~~could~~safety. ~~differ~~We ~~materially~~offer ~~from~~our ~~the~~products ~~amounts~~on ~~reported~~major ~~based~~U.S. onmobile ~~these~~platforms ~~estimates~~including Apple iOS, Android and BlackBerry.

While our significant accounting policies are more fully described in Note 2 – Summary of Significant Accounting Policies, we believe the following reflect our critical accounting policies and our more significant judgments and estimates used in the preparation of our financial statements.26

~~Revenue~~Table ~~recognition~~of ~~and deferred revenue~~Contents

~~Revenue~~Recent ~~is recognized only when:~~Developments

~~· there~~On isJanuary 7, ~~persuasive~~2013, ~~evidence~~we ~~that~~entered aninto ~~arrangement~~a ~~exists~~definitive inagreement with athenahealth, Inc. ("athenahealth"), a leading provider of cloud-based electronic health record, or EHR, practice management and care coordination services to medical groups and health systems, pursuant to which, upon the ~~form~~terms and subject to the conditions set forth therein, we would merge with and into a wholly-owned subsidiary of athenahealth and continue on as a ~~written~~surviving ~~contract~~entity and wholly-owned subsidiary of athenahealth. The completion of the proposed acquisition is subject to the satisfaction of various closing conditions, ~~amendments~~including the approval of the merger by our stockholders. The merger is expected to ~~that~~be ~~contract~~completed in the first quarter of 2013 at a price of $11.75 per common share, orfor an aggregate purchase ~~orders~~price ~~from~~of approximately $293 million. The purchase price represents a ~~third~~22% ~~party;~~premium over the closing price per share of Epocrates' stock on January 4, 2013, the last trading day immediately preceding the date of our announcement of the signing of the merger agreement. We were not obligated to pay any material fees incurred in connection with the transaction until and unless an agreement was reached. As the agreement was not signed until 2013, the fees associated with the transaction are not reflected in our consolidated financial statements for the year ended December 31, 2012.

~~· delivery~~As ~~has~~previously ~~occurred~~reported, the Audit Committee of the Board of Directors of Epocrates, as authorized by the Board of Directors, approved the discontinuation of Epocrates’ Electronic Health Record, or ~~services~~EHR, business in early 2012. In connection with this decision, we recorded an impairment charge of approximately $8.5 million in the fourth fiscal quarter of 2011, which represented the write-down of the carrying value of the goodwill, intangible and other long-lived assets related to the EHR product to their estimated fair value of zero. This charge is reflected in loss from discontinued operations, net of tax, in our consolidated statements of comprehensive (loss) income for the year ended December 31, 2011. Prior period results have been ~~rendered;~~revised to conform to the current period presentation.

· In June 2012, we sold certain assets related to the ~~price~~EHR isiPad ~~fixed~~application orto ~~determinable~~a ~~after~~third ~~evaluating~~party pursuant to a purchase agreement that was not material to our consolidated financial statements. The consideration received from the ~~risk~~sale of ~~concession;~~the EHR iPad application together with all other miscellaneous wind-down costs resulted in a net loss from discontinued operations of approximately $1.7 million for the year ended December 31, 2012. Refer to "Note 6. Acquisitions and Dispositions" for further details.

~~· collectability~~In isthe ~~probable~~fourth ~~and/or~~quarter ~~reasonably~~of ~~assured~~2012, revenue has been reduced by $87 thousand for the correction of immaterial errors in deferred revenue balances, stock-based oncompensation ~~customer~~has ~~creditworthiness~~been reduced by $65 thousand for the correction of immaterial errors in additional paid-in capital and ~~past~~royalty ~~history~~expenses have been increased by $20 thousand for the correction of ~~collection~~immaterial errors in accrued royalties. These errors reflect the cumulative correction of errors not material to historical or current year results.

29The $87 thousand decrease in revenue reflects excess revenue recorded in the year ended December 31, 2011. The $65 thousand decrease in stock-based compensation reflects $35 thousand and $30 thousand of expense that should not have been recorded in the years ended December 31, 2011 and 2010, respectively. The $20 thousand increase in expense reflects $20 thousand of royalty expenses that should have been recorded in the year ended December 31, 2011. Based upon our evaluation of relevant factors related to this matter, we concluded that the uncorrected adjustments in our previously issued consolidated financial statements for any of the periods affected are immaterial and that the impact of recording the cumulative correction in the fourth quarter of 2012 is not material to our earnings for the full year ending December 31, 2012.

~~Table of Contents~~Highlights

~~Determining~~• ~~whether~~For ~~and~~the ~~when~~year ~~some~~ended ofDecember ~~these~~31, ~~criteria~~2012, ~~have~~we ~~been~~recorded ~~satisfied~~total ~~often~~revenues ~~involves~~of ~~judgments~~$111.1 ~~that~~million, ~~can~~a ~~have~~decrease aof ~~significant~~approximately ~~impact~~$2.2 onmillion, ~~the~~or ~~timing~~2%, ~~and~~from ~~amount~~the ofyear ~~revenue~~ended weDecember ~~report~~31, 2011. ~~For~~The ~~example,~~decrease ~~our~~was ~~assessment~~primarily ofdue ~~the~~to ~~likelihood~~an ofunusually ~~collection~~high isnumber aof ~~critical~~unused ~~element~~pharmaceutical inlicense ~~determining~~code ~~the~~expirations ~~timing~~for ofwhich we recognized revenue ~~recognition.~~in Ifthe weyear doended ~~not~~December ~~believe~~31, ~~that~~2011, ~~collection~~as iswell ~~probable~~as ~~and/or~~lower ~~reasonably~~iTunes ~~assured,~~App ~~revenue~~StoreSM issales ~~deferred~~for ~~until~~the ~~cash~~year isended ~~received~~December 31, 2012.

~~Subscriptions~~• ~~are~~Net ~~recognized~~loss aswas ~~revenue ratably over the term of the subscription as services are delivered~~$3.4 ~~Billings~~million for ~~subscriptions~~the ~~occur~~year inended ~~advance~~December of31, ~~services being performed; therefore~~2012, ~~these~~versus ~~amounts~~net ~~are~~loss ~~recorded~~of ~~as deferred revenue when billed~~$3.6 Amillion ~~license~~for ~~code allows a holder to redeem~~ the ~~code~~year ~~for~~ended aDecember ~~subscription. Typically~~31, ~~license codes must be redeemed within six months to one year of issuance~~2011. ~~When~~Results ~~a license code is redeemed~~ for a2012 ~~mobile~~include ~~subscription,~~$1.5 ~~revenue~~million isof ~~recognized~~proceeds ~~ratably~~from ~~over~~ the ~~term~~sale of the ~~subscription.~~EHR Ifcomponent atechnology ~~license~~for ~~code~~the ~~expires~~year ~~before~~ended itDecember ~~is redeemed~~31, ~~revenue is recognized upon expiration~~2012.

We• ~~often~~Net ~~enter~~loss ~~into~~per ~~multiple~~share ~~element~~was ~~arrangements~~$0.14 ~~that~~for ~~contain various combinations of services from~~ the ~~above~~year ~~described~~ended ~~subscriptions~~December ~~and~~31, ~~interactive services. Typically~~2012, ~~interactive~~compared ~~services~~to ~~clients~~net ~~are~~loss ~~billed~~per ashare ~~portion~~ of ~~the contracted fee upon signing of the contract with the balance billed upon one or more future milestones~~$0.17 ~~Because billings~~ for ~~sponsored content occur in advance of services being performed, these amounts are recorded as deferred revenue when billed. Revenue is recognized over~~ the ~~contracted~~year ~~term~~ended asDecember ~~delivery occurs. Each element typically has a delivery period of one year~~31, ~~but the various elements may or may not be delivered concurrently~~2011.

In• ~~October 2009~~Loss from continuing operations was $1.8 million for the year ended December 31, 2012 versus income from continuing operations of $5.3 million for the ~~FASB~~year ~~amended~~ended December 31, 2011. Income from continuing operations for the ~~accounting~~year ~~guidance~~ended December 31, 2011 includes a $6.4 million gain on settlement as a result of an agreement entered into with the sellers of MedCafe, Inc. during June 2011. Excluding the gain on settlement and change in fair value of contingent consideration, results for ~~multiple~~both ~~deliverable~~the ~~revenue~~year ~~arrangements~~ended ~~to:~~December 31, 2012 and 2011 would have been comparable.

~~· provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated and how the consideration should be allocated;~~27

~~· require~~Table ~~an entity to allocate revenue in an arrangement using best evidence~~ of ~~selling price, or “BESP,” if a vendor does not have vendor specific objective evidence, or “VSOE,” of fair value or third party evidence, “TPE,” of fair value; and~~Contents

~~· eliminate~~• ~~the~~Loss ~~use~~from ofcontinuing operations per share was $0.07 for the ~~residual~~year ~~method~~ended ~~and~~December ~~require~~31, an2012, ~~entity~~compared to ~~allocate~~income ~~revenue~~from ~~using~~continuing operations of $0.23 per share for the ~~relative~~year ~~selling~~ended ~~price~~December ~~method~~31, 2011.

We• ~~adopted~~Earnings ~~this~~before ~~guidance~~interest, ~~early~~taxes, ~~for~~non-cash ~~all~~and ~~contracts~~other ~~signed~~items or("adjusted ~~materially modified on or after January 1~~EBITDA"), ~~2009,~~ as wedefined ~~believe~~in ~~that~~ the ~~new~~GAAP ~~guidance~~to ~~will~~non-GAAP ~~better~~reconciliation ~~align~~provided ~~revenue~~in ~~recognition~~"Non-GAAP ~~with~~Financial ~~the~~Measures," ~~delivery~~for ofthe ~~services.~~year ~~Under~~ended ~~the~~December ~~new guidance~~31, ~~if we cannot establish VSOE of fair value~~2012, wewas ~~then~~$13.0 ~~determine~~million ifcompared weto ~~can~~$20.2 ~~establish~~million ~~TPE~~for ofthe ~~fair~~year ~~value.~~ended ~~TPE~~December is31, ~~determined~~2011, ~~based~~or ona ~~competitor~~35% ~~prices~~decrease ~~for~~from ~~similar~~the ~~deliverables~~prior ~~when sold separately~~year. ~~Our~~The ~~services~~decrease ~~differ~~in ~~significantly~~adjusted ~~from~~EBITDA ~~those~~for ofthe ~~our~~year ~~peers~~ended ~~and~~December ~~our~~31, ~~offerings~~2012, ~~contain~~was aprimarily ~~significant~~attributable ~~level~~to ofincreased ~~customization~~operating ~~and~~expenses ~~differentiation~~as ~~such~~well ~~that~~as ~~the~~decreased ~~comparable~~revenues ~~pricing~~coupled ~~of products~~ with ~~similar~~an ~~functionality~~increase ~~cannot~~in ~~generally~~cost beof ~~obtained.~~revenues ~~Furthermore,~~compared ~~we are unable~~ to ~~reliably~~the ~~determine~~year ~~what~~ended ~~similar~~December ~~competitor products’ selling prices are on a stand-alone basis. Therefore~~31, ~~we are typically not able to determine TPE~~2011.

If• ~~both~~Total ~~VSOE and TPE do not exist~~cash, wecash ~~then~~equivalents ~~use BESP to establish fair value~~ and toshort-term ~~allocate~~investments ~~total~~declined ~~consideration~~by to8% ~~each element in the arrangement and consideration related~~ to ~~each element is then recognized as each element is delivered~~$78.2 ~~Any~~million ~~discount~~at orDecember ~~premium~~31, ~~inherent~~2012, incompared ~~the arrangement is allocated~~ to ~~each~~$85.2 ~~element~~million inat ~~the~~December ~~arrangement~~31, ~~based on the relative fair value of each element~~2011.

~~The~~Critical ~~objective~~Accounting ofPolicies BESP is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. We determine BESP for a product or service by considering multiple factors including an analysis of recent stand-alone sales of that product, market conditions, competitive landscape, internal costs, gross margin objectives and pricing practices. As these factors are mostly subjective, the determination of BESP requires significant judgment. If we had chosen different values for BESP, our revenue and deferred revenue could have been materially different.Estimates

WeOur ~~have~~management’s ~~established~~discussion aand ~~hierarchy~~analysis toof ~~determine~~financial ~~BESP.~~condition ~~First,~~and weresults ~~consider~~of ~~recent~~operations ~~stand-alone~~is ~~sales~~based ofupon ~~each~~our ~~product.~~consolidated Iffinancial ~~the~~statements ~~quantity~~and ofnotes ~~stand-alone~~to ~~sales~~the isconsolidated ~~not~~financial ~~substantive~~statements, wewhich ~~calculate~~were ~~BESP~~prepared asin aaccordance ~~percentage~~with ~~discount~~GAAP. ~~off~~The preparation of the ~~approved~~financial ~~selling~~statements ~~price~~requires asus ~~established~~to bymake ~~our~~estimates ~~pricing~~and ~~committee.~~assumptions ~~This~~that ~~discount~~affect isthe ~~calculated~~amounts asreported in the ~~average~~financial ~~discount~~statements inand ~~recent~~accompanying ~~deals~~notes. ~~where~~We ~~the~~evaluate ~~product~~our ~~was~~estimates ~~bundled~~on ~~with~~an ~~other~~ongoing ~~products.~~basis, Ifincluding ~~there~~those ~~are~~related ~~not~~to arevenue ~~substantive~~recognition ~~number~~and ofdeferred ~~deals~~revenue, ~~where~~stock‑based ~~the~~compensation, ~~product~~impairment ~~was~~of ~~bundled~~goodwill ~~with~~and ~~other~~intangible ~~products,~~assets weand ~~use~~ the ~~approved~~valuation ~~selling~~of ~~price~~deferred astax ~~established~~assets. byWe base our ~~pricing~~estimates ~~committee~~and ~~until~~judgments weon ~~have~~our ~~sufficient~~historical ~~history~~experience, knowledge of ~~transactions~~factors affecting our business and our belief as to ~~compute~~what ~~BESP~~could ~~using~~occur ~~either~~in the ~~stand-alone~~future orconsidering ~~bundled~~available ~~methodology~~information ~~discussed~~and ~~above~~assumptions that are believed to be reasonable under the circumstances.

WeThe ~~regularly~~accounting ~~review~~estimates ~~VSOE~~we use in the preparation of our financial statements will change as new events occur, ~~TPE~~more experience is acquired, additional information is obtained and ~~BESP~~our operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and ~~maintain~~refinements ~~internal~~in ~~controls~~estimation ~~over~~methodologies ~~the~~are ~~establishment~~reflected in our reported results of operations and, ~~updates~~if material, the effects of ~~these~~changes in estimates. ~~There~~are ~~was~~disclosed noin ~~material~~the ~~effect~~notes ~~during~~to ~~the~~our ~~year~~consolidated ~~ended~~financial ~~December 31~~statements. By their nature, ~~2011~~these ~~nor~~estimates doand wejudgments ~~currently~~are ~~expect~~subject ato ~~material~~an ~~effect~~inherent indegree ~~the~~of ~~near~~uncertainty ~~term~~and actual results could differ materially from ~~changes~~the inamounts ~~VSOE,~~reported ~~TPE~~based oron ~~BESP~~these estimates.

30While our significant accounting policies are more fully described in Note 2. Summary of Significant Accounting Policies, we believe the following reflect our critical accounting policies and our more significant judgments and estimates used in the preparation of our financial statements.

~~Table~~Revenue ofrecognition ~~Contents~~and deferred revenue

~~Stock-based~~Revenue ~~compensation~~is recognized only when:

~~The~~• ~~following~~there ~~table~~is ~~summarizes~~persuasive ~~stock-based~~evidence ~~compensation~~that ~~charges~~an ~~for~~arrangement exists in the ~~years~~form ~~ended~~of ~~December 31~~a written contract, ~~2011~~amendments to that contract, ~~2010~~or ~~and~~purchase ~~2009~~orders ~~(in~~from ~~thousands):~~a third party;

	Years Ended December 31,
	2011			2010		2009
Stock-based compensation expense	$	7,805		$	5,962	$	4,760
Amortization of deferred stock-based compensation	—			—		14
Stock-based compensation associated with outstanding repriced options	(463		)	394		(240		)
Total stock-based compensation	$	7,342		$	6,356	$	4,534


•	delivery has occurred or services have been rendered;

~~For~~• ~~stock~~the ~~options~~price ~~and~~is ~~restricted~~fixed ~~stock units,~~ or ~~RSUs,~~determinable ~~granted on or~~ after ~~January 1,~~evaluating ~~2006, stock-based compensation is measured at grant date based on~~ the ~~fair~~risk ~~value~~ of ~~the~~concession; ~~award~~ and is expensed on a straight-line basis over the requisite service period. For options granted prior to January 1, 2006, we continue to recognize compensation expense on the remaining unvested awards under the intrinsic value method unless such grants are materially modified.

We• ~~considered~~collectability ~~the~~is ~~fair~~probable ~~value of our common stock~~ and/or ~~the~~reasonably ~~exercise~~assured ~~price of the grant as variables in the Black-Scholes option pricing model to determine stock-~~based ~~compensation. This model requires the input of assumptions~~ on ~~each~~customer ~~grant~~creditworthiness ~~date,~~and ~~some~~past ofhistory ~~which are highly subjective, including the expected term~~ of ~~the option, expected stock price volatility and expected forfeitures~~collection.

WeDetermining ~~determined~~whether ~~the expected term of our options based upon historical exercises, post-vesting cancellations~~ and ~~the~~when ~~contractual~~some ~~term~~ of ~~the~~these ~~option.~~criteria Wehave ~~concluded~~been ~~that~~satisfied itoften ~~was~~involves ~~not~~judgments ~~practicable to use our share price as the sole basis for calculating volatility due to the fact~~ that ~~our~~can ~~securities~~ have ~~been~~a ~~publicly~~significant ~~traded~~impact ~~for less than one year. Therefore, we based expected volatility~~ on athe ~~combination~~timing ~~of Epocrates volatility~~ and ~~the~~amount ~~historical volatility~~ of arevenue ~~peer~~we ~~group~~report. ofFor ~~publicly~~example, ~~traded entities for the same expected term of~~ our ~~options~~assessment with a heavier weighting being given to the peer group. We intend to continue to consistently apply this process using the same or similar entities and more fully weight the Epocrates volatility in the calculation as a sufficient amount of ~~historical information regarding~~ the ~~volatility~~likelihood of ~~our~~collection ~~own~~is ~~share~~a ~~price~~critical ~~becomes~~element available, or unless circumstances change such that the identified entities are no longer similar to us. In this latter case, more suitable entities whose share prices are publicly available would be utilized in ~~the~~determining ~~calculation. We based~~ the ~~risk-free~~timing ~~rate for the expected term~~ of ~~the~~revenue ~~option on the U~~recognition.S. ~~Treasury Constant Maturity Rate as of the grant date. We determined the forfeiture rate based upon our historical experience with pre-vesting option cancellations.~~ If we ~~had~~do ~~made~~not ~~different~~believe ~~assumptions~~that ~~and~~collection ~~estimates~~is ~~than~~probable ~~those described above, the amount of our recognized~~ and/or toreasonably ~~be recognized stock-based compensation expense~~assured, ~~net~~revenue ~~loss~~is ~~and~~deferred ~~net~~until ~~loss~~cash ~~per~~is ~~share amounts could have been materially different~~received.

~~Certain~~Subscriptions ~~employees~~are ~~have~~recognized ~~received~~as ~~grants~~revenue ~~for~~ratably ~~which~~over the ~~ultimate~~term ~~number~~ of ~~shares that will be subject to vesting is dependent upon~~ the ~~achievement~~subscription ofas ~~certain~~services ~~financial~~are ~~targets for the year~~delivered. ~~Such~~Billings ~~determination~~for issubscriptions ~~not~~occur ~~made~~in ~~until~~advance ~~the~~of ~~grant’s~~services ~~vesting~~being ~~determination~~performed; ~~date~~therefore, ~~which~~these isamounts ~~the~~are ~~date~~recorded ~~our~~as ~~audited~~deferred ~~financial~~revenue ~~statements~~when ~~are available~~billed. ~~The~~A ~~grant~~license iscode ~~initially~~allows ~~recorded~~a ~~for~~holder ~~that~~to ~~number~~redeem ofthe ~~shares~~code ~~that~~for isa ~~most~~subscription. ~~likely~~Typically, tolicense becodes ~~subject~~must tobe ~~vesting~~redeemed ~~based~~within onsix ~~available~~months ~~financial~~to ~~forecasts~~one asyear of ~~the~~issuance. ~~date~~When ofa ~~grant.~~license ~~This~~code ~~amount~~ is ~~adjusted~~redeemed onfor a ~~quarterly~~mobile ~~basis~~subscription, asrevenue ~~new financial forecasts become available. Stock-based compensation expense for these grants~~ is ~~recorded~~recognized ratably over the ~~requisite~~term ~~service~~of ~~period,~~the ~~generally~~subscription. ~~four~~If ~~years.~~a ~~Such~~license ~~options~~code ~~generally~~expires ~~vest~~before ~~ratably~~it ~~for~~is ~~36 months~~redeemed, ~~from~~revenue ~~the~~is ~~vesting~~recognized ~~determination~~upon ~~date~~expiration.

~~Impairment of Goodwill and Intangible Assets~~28

~~Significant~~Table ~~judgments are required in assessing impairment~~ of goodwill and intangible assets, including indentifying reporting units, assigning assets and liabilities to reporting units and determining the fair value of each reporting unit, which includes estimating future cash flows, determining appropriate discount and growth rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value, whether an impairment exists and, if so, the amount of that impairment. Circumstances that could affect the valuation of goodwill and intangible assets include, among other things, a significant change in our business climate and buying habits of our customers along with increased costs to provide systems and technologies required to support the technology.Contents

~~Goodwill.~~We ~~Goodwill~~often isenter ~~currently~~into ~~our~~multiple ~~only~~element ~~indefinite-lived~~arrangements ~~intangible~~that ~~asset~~contain various combinations of services from the above described subscriptions and interactive services. ~~Goodwill~~Interactive isservices ~~tested~~clients ~~for~~are ~~impairment~~billed ata percentage of the ~~reporting~~contracted ~~unit~~fee ~~level~~upon atsigning ~~least~~of ~~annually~~the oncontract ~~December 31~~with ofthe ~~each~~balance ~~calendar~~billed ~~year~~upon achievement of certain milestones or ~~more~~a ~~often~~specific ifdate. ~~events~~Because orbillings ~~changes~~for sponsored content occur in ~~circumstances~~advance ~~indicate~~of ~~the~~services ~~carrying~~being ~~value~~performed, ~~may~~these ~~not~~amounts beare ~~recoverable~~recorded as deferred revenue when billed. WeRevenue is recognized over the contracted term as delivery occurs. Most elements have ~~identified~~a ~~two~~delivery ~~reporting~~period ~~units,~~of ~~“Subscriptions~~one year, and ~~Interactive~~in ~~Services”~~some ~~and~~cases up to 24 months, but the various elements may or may not be delivered concurrently.

31We allocate revenue in an arrangement using BESP if a vendor does not have vendor specific objective evidence ("VSOE") of fair value or third-party evidence ("TPE") of fair value.

~~Table~~If we cannot establish VSOE of ~~Contents~~fair value, we then determine if we can establish TPE of fair value. TPE is determined based on competitor prices for similar deliverables when sold separately. Our services differ significantly from that of our peers and our offerings contain a significant level of customization and differentiation such that the comparable pricing of products with similar functionality cannot be obtained. Furthermore, we are unable to reliably determine what similar competitor products’ selling prices are on a stand‑alone basis. Therefore, we are typically not able to determine TPE.

~~“Electronic~~If ~~Health~~both ~~Records”~~VSOE and weTPE ~~have~~do ~~assigned~~not ~~a portion of goodwill to each of our two reporting units. Based on our analysis in 2011~~exist, we ~~recorded~~use anBESP ~~impairment charge of $1.1 million in the fourth quarter of 2011~~ to ~~write~~establish ~~down~~fair ~~the carrying~~ value ofand ~~the~~to ~~goodwill~~allocate ~~associated~~total ~~with~~consideration ~~the EHR reporting unit~~ to ~~its~~each ~~estimated~~element ~~fair value of zero. We have determined that a 10% change~~ in the ~~probability~~arrangement ofand ~~the~~consideration ~~possible~~related ~~strategic~~to ~~alternatives~~each ~~would~~element ~~not~~is ~~change~~then ~~the~~recognized ~~amount~~ratably ofover the ~~impairment.~~delivery Asperiod of ~~December 31,~~each ~~2011,~~element. weAny ~~had~~discount ~~$18.0 million~~or ofpremium ~~goodwill,~~inherent ~~all~~in ofthe ~~which~~arrangement is ~~assigned~~allocated to ~~the~~each ~~Subscriptions~~element ~~and Interactive Services reporting unit. We have determined that a 10% change~~ in the ~~future~~arrangement ~~undiscounted~~based ~~cash~~on ~~flows as of~~ the ~~date~~relative offair ~~our~~value ~~most recent goodwill impairment test would not have changed the outcome~~ of ~~the~~each ~~test for the Subscriptions and Interactive Services reporting unit~~element. ~~No goodwill impairment was recorded during the year ended December 31, 2010.~~

~~Intangible~~The ~~Assets.~~objective ~~Intangible assets consist~~ of ~~purchased~~BESP ~~intellectual~~is ~~property~~to ~~acquired~~determine inthe ~~transactions~~price ~~that~~at ~~were~~which ~~accounted~~we ~~for~~would astransact ~~business~~a ~~combinations~~sale ~~under~~if ~~GAAP and are measured at fair value at~~ the ~~date~~product ofor ~~acquisition.~~service Wewere ~~amortize~~sold ~~all intangible assets~~ on a ~~straight-line~~stand‑alone basis ~~over their expected lives~~. We ~~evaluate~~determine ~~our~~BESP ~~intangible assets~~ for ~~impairment~~a byproduct ~~assessing the recoverability of these assets whenever adverse events~~ or ~~changes~~service inby ~~circumstances~~considering ormultiple ~~business~~factors ~~climate~~including ~~indicate~~an ~~that~~analysis ~~expected undiscounted future cash flows related to such intangible assets may not be sufficient to support the net book value~~ of ~~such~~recent ~~assets.~~stand‑alone Ansales ~~impairment charge is recognized in the period~~ of ~~identification to the extent~~ that ~~the~~product, ~~carrying~~market ~~amount~~conditions, ofcompetitive anlandscape, ~~asset~~internal ~~exceeds the fair value of such asset. Based on our analysis~~costs, wegross ~~recorded~~margin anobjectives ~~impairment~~and ~~charge~~pricing ~~of $0~~practices.5 ~~million~~As inthese ~~the~~factors ~~fourth~~are ~~quarter~~mostly ofsubjective, ~~2011 to write down~~ the ~~carrying~~determination ~~value~~ of ~~the~~BESP ~~intangible~~requires ~~assets~~significant ~~associated with the EHR reporting unit to their estimated fair value of zero~~judgment. AsIf ~~of December 31, 2011,~~ we had ~~$6.8 million~~chosen ofdifferent ~~intangible~~values ~~assets~~for BESP, ~~net.~~our Norevenue ~~impairment~~and ~~was~~deferred ~~recorded~~revenue incould ~~fiscal~~have ~~year~~been ~~2010~~materially different.

~~Valuation~~We have established a hierarchy to determine BESP. First, we consider recent stand-alone sales of ~~deferred~~each ~~tax~~product. ~~assets~~If the quantity of stand-alone sales is not substantive, we calculate BESP as a percentage discount off of the approved selling price as established by our pricing committee. This discount is calculated as the average discount in recent deals where the product was bundled with other products. If there are not a substantive number of deals where the product was bundled with other products, we use the approved selling price as established by our pricing committee until we have sufficient history of transactions to compute BESP using either the stand-alone or bundled methodology discussed above.

AStock‑based valuation allowance of approximately $0.7 million has been recorded at December 31, 2011 to offset specific state deferred tax assets, as we believe that it is not more likely than not that such deferred tax assets will be realized.compensation

AtThe ~~December 31,~~following ~~2011,~~table wesummarizes ~~had~~stock‑based ~~federal~~compensation ~~and~~charges ~~state~~for ~~tax net operating loss carryforwards before~~ the ~~valuation~~years ~~allowance~~ended ~~and before the excess tax benefit of $2.4 million and $16.0 million, respectively. The federal and state net operating losses will begin to expire in 2019 and 2014, respectively. At~~ December 31, ~~2011~~2012, we2011 ~~had federal~~ and ~~state~~2010 ~~research tax credit carryforwards of $0.9 million and $1.3 million, respectively. The federal research credit carryforward begins to expire~~ (in 2028. The state research credit carryforwards do not expire. At December 31, 2011, we had federal alternative minimum tax, or “AMT,” credit carryforwards of $0.7 million. The federal AMT credits carryforwards do not expire. The future utilization of our net operating loss and research and development credit carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes.thousands):

Based on our forecasts, we believe that we will more likely than not be able to utilize our U.S. federal net operating losses and research and development credits; as such, no valuation allowance is necessary. With regard to our state net operating losses, we have established a valuation allowance on specific state net operating losses for which we believe that we will not more likely than not be able to utilize. During the year, we evaluated our California research and development credits carried forward. Based on our projected California income, we believe that we will not more likely that not be able to utilize our existing research and development credits and, as such, a valuation allowance has been recorded against the California research and development credits.



	Twelve Months Ended December 31,
	2012		2011			2010
Stock-based compensation expense	$	4,317	$	7,805		$	5,962
Stock-based compensation associated with outstanding repriced options	17		(463		)	394
Total stock-based compensation expense	$	4,334	$	7,342		$	6,356

32For stock options and restricted stock units, or RSUs, granted on or after January 1, 2006, stock‑based compensation is measured at grant date based on the fair value of the award and are typically expensed on a straight-line basis over the requisite service period. For options granted prior to January 1, 2006, we continue to recognize compensation expense on the remaining unvested awards under the intrinsic value method unless such grants are materially modified.

~~Table~~We considered the fair value of ~~Contents~~our common stock and the exercise price of the grant as variables in the Black‑Scholes option pricing model to determine stock‑based compensation. This model requires the input of assumptions on each grant date, some of which are highly subjective, including the expected term of the option, expected stock price volatility and expected forfeitures.

~~Results of Operations~~29

~~The~~Table ~~following table sets forth our statements~~ of ~~operations data based on the amounts and percentage relationship of the items listed to net revenue for each period presented (dollars in thousands):~~Contents

	Years Ended December 31,
	2011					2010					2009
	Amount			% Revenue		Amount			% Revenue		Amount			% Revenue
Total revenues, net	$	113,346		100.0	%	$	103,988		100.0	%	$	93,654		100.0	%
Total cost of revenues	41,711			36.8	%	31,730			30.5	%	29,452			31.4	%
Gross profit	71,635			63.2	%	72,258			69.5	%	64,202			68.6	%
Operating expenses:
Sales and marketing	31,193			27.5	%	30,424			29.3	%	22,704			24.2	%
Research and development	22,797			20.1	%	19,717			19.0	%	14,663			15.7	%
General and administrative	22,700			20.0	%	15,729			15.1	%	11,587			12.4	%
Facilities exit costs	618			0.5	%	—			0.0	%	—			0.0	%
Gain on settlement and change in fair value of contingent consideration	(8,145		)	(7.2	)%	(1,034		)	(1.0	)%	—			0.0	%
Impairment of long-lived assets and goodwill	8,501			7.5	%	—			0.0	%	—			0.0	%
Total operating expenses	77,664			68.5	%	64,836			62.3	%	48,954			52.3	%
(Loss) income from operations	(6,029		)	(5.3	)%	7,422			7.1	%	15,248			16.3	%
Interest income	75			0.1	%	93			0.1	%	127			0.1	%
Interest expense	—			0.0	%	(214		)	(0.2	)%	(855		)	(0.9	)%
Other income (expense), net	183			0.2	%	—			0.0	%	(73		)	(0.1	)%
Gain on sale-leaseback of building	—			0.0	%	1,689			1.6	%	—			0.0	%
(Loss) income before income taxes	(5,771		)	(5.1	)%	8,990			8.6	%	14,447			15.4	%
Benefit from (provision for) income taxes	2,198			1.9	%	(5,187		)	(5.0	)%	(6,788		)	(7.2	)%
Net (loss) income	$	(3,573	)	(3.2	)%	$	3,803		3.7	%	$	7,659		8.2	%

We determined the expected term of our options based upon historical exercises, post-vesting cancellations and the contractual term of the option. We concluded that it was not practicable to use our share price as the sole basis for calculating volatility due to the fact that our securities have been publicly-traded for less than two years. Therefore, we based expected volatility on a combination of Epocrates volatility and the historical volatility of a peer group of publicly traded entities for the same expected term of our options with a heavier weighting being given to the peer group. We intend to continue to consistently apply this process using the same or similar entities and more fully weight the Epocrates volatility in the calculation as a sufficient amount of historical information regarding the volatility of our own share price becomes available, or unless circumstances change such that the identified entities are no longer similar to us. In this latter case, more suitable entities whose share prices are publicly available would be utilized in the calculation. We based the risk-free rate for the expected term of the option on the U.S. Treasury Constant Maturity Rate as of the grant date. We determined the forfeiture rate based upon our historical experience with pre-vesting option cancellations. If we had made different assumptions and estimates than those described above, the amount of our recognized and to be recognized stock‑based compensation expense, net loss and net loss per share amounts could have been materially different.

~~Revenues~~Certain employees have received grants for which the ultimate number of shares that will be subject to vesting is dependent upon the achievement of certain financial targets for the year. Such determination is not made until the grant’s vesting determination date, which is the date our fiscal year financial statements are available. The grant is initially recorded at the maximum attainable number of shares that is most likely to be subject to vesting based on available financial forecasts as of the date of grant. This amount is adjusted on a quarterly basis as new financial forecasts become available. Stock‑based compensation expense for these grants is recorded over the requisite service period, generally four years. Such options generally vest ratably over four years from the vesting determination date.

WeImpairment ~~generate revenue by providing healthcare companies with interactive services to communicate with our network~~ of ~~users,~~Goodwill ~~through the sale of subscriptions to our premium drug~~ and ~~clinical~~Intangible ~~reference tools to healthcare professionals and, in July 2011, we also began recognizing revenue for our EHR solution. Revenues from our Subscriptions and Interactive Services were as follows:~~Assets

	Years ended December 31,
	2011		2010		2009
Subscriptions	$	22,520	$	24,683	$	19,001
Interactive Services	90,826		79,305		74,653
	$	113,346	$	103,988	$	93,654

Significant judgments are required in assessing impairment of goodwill and intangible assets, including identifying reporting units, assigning assets and liabilities to reporting units and determining the fair value of each reporting unit, which includes estimating future cash flows, determining appropriate discount and growth rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value, whether an impairment exists and, if so, the amount of that impairment. Circumstances that could affect the valuation of goodwill and intangible assets include, among other things, a significant change in our business climate and buying habits of our customers along with increased costs to provide systems and technologies required to support the technology.

~~Subscriptions~~Goodwill. ~~Subscriptions~~In ~~revenue~~September 2011, ~~decreased~~the ~~$2.2~~FASB ~~million~~issued ~~for~~new ~~the~~accounting ~~year~~guidance ~~ended~~intended ~~December 31,~~to ~~2011,~~simplify ~~primarily~~goodwill ~~due~~impairment testing. Entities are allowed to perform a ~~substantial~~qualitative ~~decline~~assessment inon ~~the~~goodwill ~~number~~impairment ofto ~~license~~determine ~~code~~whether ~~expirations.~~a ~~Subscriptions~~quantitative ~~revenue~~assessment ~~increased~~is $5necessary.~~7 million~~ ~~for~~For the year ended December 31, ~~2010~~2012, ofthe ~~which~~Company ~~$4.8 million~~prepared ~~was due to~~ a ~~large~~qualitative ~~number~~assessment ofand ~~license~~determined ~~code~~a ~~expirations~~quantitative ~~during~~assessment ~~the year, and the remainder~~ was ~~due to an increase in paid subscriptions from iPhone users. List prices for our subscription products did~~ not ~~change during 2011 or 2010~~necessary.

~~The~~Goodwill ~~majority~~is ofcurrently ~~healthcare~~our ~~professionals~~only inindefinite‑lived ~~our~~intangible ~~network~~asset. ~~use~~Goodwill ~~our~~is ~~free~~evaluated ~~products;~~for ~~users~~impairment ~~who~~at ~~paid~~the ~~for~~reporting aunit ~~subscription~~level, ~~averaged~~which ~~approximately~~is ~~10%~~one ofunit ~~total~~below ~~active~~or ~~users~~the ~~for~~same ~~the~~as ~~years~~an ~~ended~~operating segment, at least annually on December 31 of each calendar year or more often if events or changes in circumstances indicate the carrying value may not be recoverable. Application of the goodwill impairment test requires judgment, ~~2011~~including the identification of reporting units, ~~2010~~assigning assets and ~~2009.~~liabilities Weto ~~expect~~reporting ~~revenues~~units, ~~from~~assigning ~~subscriptions~~goodwill to ~~our~~reporting ~~premium~~units ~~products~~and todetermining ~~decrease~~the asfair value of each reporting unit when a ~~percentage~~qualitative assessment is performed. Significant judgments required to estimate the fair value of ~~total~~reporting ~~revenue~~units include estimating future cash flows and determining appropriate discount and growth rates and other assumptions. Changes in these estimates and assumptions could materially affect the ~~future~~determination asof wefair ~~expand~~value ~~our~~for ~~interactive~~each ~~services~~reporting ~~offerings~~unit towhich ~~our~~could ~~pharmaceutical~~trigger ~~clients~~impairment.

~~Interactive~~For ~~Services.~~the ~~Revenues~~Subscriptions ~~from~~and ~~our~~ Interactive Services ~~business~~reporting ~~increased~~unit, ~~$11.5 million~~the inCompany ~~2011~~performed ~~compared~~its toannual ~~2010~~impairment ~~due~~test ~~to a $7.1 million increase~~ in ~~DocAlert~~December ~~clinical~~2011 ~~messaging services~~ and adetermined ~~$6.2~~that ~~million~~the ~~increase~~undiscounted incash ~~revenue~~flow from ~~virtual~~the ~~representative~~long-range ~~services,~~forecast ~~which~~exceeded ~~were~~the ~~partially~~carrying ~~offset~~amount byof agoodwill, ~~$2.9~~and ~~million~~therefore, ~~decrease~~no inimpairment ~~revenue~~was ~~from formulary hosting services~~indicated. In ~~2010~~December 2012, ~~Interactive~~ ~~Services~~the ~~revenue~~Company ~~increased~~performed ~~$4.7~~a ~~million~~qualitative ~~from~~assessment ~~2009~~as ~~due~~of December 31, ~~to $2~~2012.2 ~~million~~To ofperform ~~new~~the ~~virtual~~qualitative ~~representative~~analysis, ~~services~~the ~~which~~Company ~~were~~considered ~~launched in~~ the ~~first~~impact ~~quarter~~ of ~~2010,~~several ~~with~~key ~~the~~factors ~~remainder~~including ~~due~~general toeconomic ~~growth~~conditions, ~~revenue~~change ~~from~~in ~~mobile~~industry ~~resource~~and ~~centers~~competitive ~~and~~environment, ~~clinical~~market ~~messaging.~~capitalization, ~~Historically~~earnings multiples, ~~our~~regulatory ~~interactive~~and ~~services~~political ~~revenues~~developments, overall performance and ~~particularly~~litigation. ~~our~~Based ~~clinical~~on ~~messaging~~the ~~revenues,~~Company's ~~have~~review ~~grown~~of atthese akey ~~much~~factors, ~~faster~~the ~~rate~~Company ~~than~~determined ~~subscriptions~~that ~~and~~a wequantitative ~~expect~~assessment ~~this~~for ~~trend~~2012 towas ~~continue~~not necessary.

33In 2011, the Company identified two operating units. In addition to the Subscriptions and Interactive Services reporting unit mentioned above, the Company also identified an EHR reporting unit. The EHR reporting unit included goodwill of $1.1 million that was recorded in conjunction with the acquisition of Caretools, Inc. In conducting the annual impairment test for 2011, the Company took into account that it had only recently entered a controlled release of its EHR product and that its revenue and subscriber estimates had not materialized. Based on the factors outlined above, the Company compared the fair value of the goodwill assigned to the EHR reporting unit against its carrying value. As a result of this analysis, the Company determined that

~~Table of Contents~~30

~~Maintaining~~Table ~~our large user network~~ of U.S. physicians is important because it is a key driver of long-term interactive services revenue growth. The number of U.S. physician users as of December 31, 2011 increased to approximately 340,000, or 8%, from approximately 314,000 as of December 31, 2010. The number of U.S. physician users as of December 31, 2010 increased approximately 14% from approximately 275,000 as of December 31, 2009. This high growth rate was due to rapid iPhone adoption by our user network, and, to a lesser extent, Android adoption. We expect our user network to continue to increase, but at a lower rate.Contents

~~Cost~~the carrying value of ~~revenues~~the EHR goodwill exceeded its fair value at December 31, 2011 and recorded an impairment charge of $1.1 million to write down the carrying value of the goodwill associated with the EHR business to an estimated fair value of zero in 2011. The impairment charge is recorded in Impairment of Long-lived Assets and Goodwill in the Company’s consolidated statements of operations.

~~Cost~~Intangible ofAssets. ~~revenues~~Intangible ~~consists~~assets consist of ~~the~~purchased ~~costs~~intellectual ~~related~~property toacquired ~~providing~~in ~~services~~transactions tothat ~~customers,~~were ~~which~~accounted ~~include~~for ~~salaries~~as business combinations under GAAP and ~~related~~are ~~personnel~~measured ~~expenses,~~at ~~stock-based~~fair ~~compensation,~~value ~~service~~at ~~support~~the ~~costs,~~date ~~payments~~of toacquisition. ~~participants~~We ~~for~~amortize ~~market~~all ~~research~~intangible ~~surveys~~assets weon ~~conduct,~~a ~~third-party~~straight‑line ~~royalties~~basis ~~and~~over ~~allocated~~their ~~overhead~~expected lives. ~~Third-party~~We ~~royalties~~evaluate ~~consist~~our intangible assets for impairment by assessing the recoverability of ~~fees~~these ~~paid~~assets whenever adverse events or changes in circumstances or business climate indicate that expected undiscounted future cash flows related to ~~branded~~such ~~content~~intangible ~~owners~~assets ~~for~~may not be sufficient to support the ~~use~~net book value of ~~their~~such ~~intellectual~~assets. ~~property~~An impairment charge is recognized in ~~our~~the ~~premium~~period ~~drug~~of ~~and~~identification ~~reference~~to ~~products.~~the ~~Allocated~~extent ~~overhead~~that ~~represents~~the ~~expenses~~carrying amount of an asset exceeds the fair value of such asasset. ~~rent~~Based on our analysis of the business climate, ~~occupancy~~industry ~~charges~~factors and ~~information~~the ~~technology~~trend ~~costs~~of ~~that~~sales weand ~~allocate~~cash toflows, ~~all~~no ~~departments~~impairment ~~based~~charge was recorded during the current year, as management concluded there were no factors warranting an impairment analysis on ~~headcount~~December 31, 2012. ~~Depreciation~~We ~~and~~recorded ~~amortization~~an ~~expense~~impairment ischarge ~~also~~of ~~allocated~~$0.5 million in the fourth quarter of 2011 to ~~cost~~write down the carrying value of ~~revenues~~the intangible assets associated with the EHR reporting unit to their estimated fair value of zero. As of December 31, 2012, we had approximately $2.8 million of intangible assets, net.

~~The~~Valuation ~~following is a breakdown~~ of ~~cost~~deferred oftax ~~revenue related to subscriptions and interactive services for the years ended December 31, 2011, 2010 and 2009 (in thousands):~~assets

	Years ended December 31,
	2011		2010		2009
Subscriptions	$	8,360	$	6,516	$	6,558
Interactive Services	33,351		25,214		22,894
	$	41,711	$	31,730	$	29,452

A valuation allowance of approximately $0.9 million has been recorded at December 31, 2012 to offset specific state deferred tax assets, as we believe that it is not more likely than not that such deferred tax assets will be realized.

~~Cost~~At ofDecember 31, ~~subscriptions~~2012, ~~revenue.~~we ~~Cost~~had offederal ~~subscriptions~~and ~~revenue~~state ~~increased~~tax ~~$1.8~~net ~~million~~operating inloss carryforwards before the ~~year~~valuation ~~ended~~allowance ~~December 31,~~and ~~2011~~before ~~primarily~~the ~~due~~excess totax ~~increases~~benefit of $2.6 million and $17.1 million, respectively. Of these amounts, $0.7 million inand ~~third~~$3.0 million, respectively, are associated with windfall tax benefits and will be recorded as additional paid-~~party~~in-capital ~~royalties~~when ~~related~~realized. The federal and state net operating losses will begin to ~~our~~expire ~~subscriptions~~in ~~revenue~~2019 and 2014, respectively. Of these amounts, $0.62 million and zero, respectively, are associated with windfall tax benefits and will be recorded as additional paid-in ~~the~~capital ~~amortization~~when ofrealized. ~~capitalized~~At ~~software~~December 31, 2012, we had federal and state research tax credit carryforwards of $2.0 million and $1.37 million, respectively. The federal research credit carryforward begins to expire in ~~consulting~~2028. ~~For~~The ~~the~~state ~~year~~research ~~ended~~credit carryforwards do not expire. At December 31, ~~2010~~2012, ~~the~~we ~~change~~had infederal ~~cost~~alternative minimum tax, or AMT, credit carryforwards of ~~subscriptions~~$0.7 ~~revenue~~million ~~from~~which ~~December 31,~~are ~~2009~~associated ~~was~~with windfall tax benefits and will be recorded as additional paid-in capital when realized. The federal AMT credit carryforwards do not ~~significant~~expire.

~~Cost~~Based ofon ~~subscriptions~~our ~~revenue~~forecasts, we believe that we will more likely than not be able to utilize our U.S. federal net operating losses and research and development credits; as asuch, ~~percentage~~no ofvaluation ~~subscriptions~~allowance ~~revenue~~is ~~was~~necessary. ~~37%~~With regard to our state net operating losses, ~~26%~~we ~~and~~have ~~35%~~established ina valuation allowance on specific state net operating losses for which we believe that we will not more likely than not be able to utilize. In 2011, ~~2010~~we evaluated our California research and ~~2009,~~development ~~respectively~~credits carried forward. WeBased ~~expect~~on our projected California income, we believed that we would not more likely than not be able to utilize our existing research and development credits and, as such, a valuation allowance was recorded against the ~~cost~~California ofresearch ~~subscriptions~~and ~~revenue~~development ~~will~~credits. We continue to ~~increase~~believe inthat ~~absolute~~a ~~dollars~~valuation allowance on these credits is appropriate as of December 31, 2012.

~~Cost~~Results of interactive services revenue. Cost of interactive services revenue increased $8.1 million in the year ended December 31, 2011 due to increases of $4.2 million in amortization of intangible assets and capitalized software primarily due to a full year of amortization of intangible assets acquired as a result of the MedCafe Inc. and Modality, Inc. acquisitions in 2010 and amortization of certain intangible assets which began upon entering a controlled release of the Company’s EHR solution and $3.0 million in consulting and employee compensation due to increases in outsourced services and in regular and temporary employee headcount. Cost of interactive services revenue increased $2.3 million in 2010 compared to 2009, primarily due to $1.3 million in amortization of intangible assets and $0.5 million in outside consulting services.Operations

~~Cost~~The offollowing ~~interactive~~table ~~services~~summarizes ~~revenue~~our asresults ~~a percentage~~ of ~~interactive~~operations ~~services~~for ~~revenue~~the ~~was~~year ~~37%,~~ended ~~32% and~~ December 31~~% in 2011~~, ~~2010 and 2009~~2012, ~~respectively.~~compared Weto ~~expect that~~ the ~~cost~~years ofended ~~interactive~~December 31, ~~services~~2011 ~~revenue~~and ~~will~~2010 ~~continue~~(dollars ~~to increase~~ in ~~absolute dollars.~~thousands):

~~Sales and marketing expense~~31

~~Sales~~Table ~~and marketing expense consists primarily~~ of ~~salaries and related personnel expenses, sales commissions, stock-based compensation, trade show expenses, promotional expenses, public relations expenses and allocated overhead.~~Contents

Sales and marketing expense increased $0.8 million, or 3%, in 2011 compared to 2010, primarily due to an increase of $1.3 million in salary and other personnel costs to support the entrance of a controlled release of our EHR offering offset by a decrease of $0.5 million in consulting costs. Sales and marketing expense increased $7.7 million, or 34%, in 2010 compared to 2009 primarily due to increased salary and other personnel costs related to additional headcount to support corporate marketing efforts of $4.1 million; increased salary, consulting and other costs to support the entrance of a controlled release of our EHR product of $3.1 million and increased stock-based compensation of $0.5 million.



	Twelve Months Ended December 31,
	2012			% Revenue		2011			% Revenue		2010			% Revenue
Total revenues, net	$	111,129		100.0	%	$	113,321		100.0	%	$	103,988		100.0	%
Total cost of revenues	43,689			39.3	%	40,192			35.5	%	31,730			30.5	%
Gross profit	67,440			60.7	%	73,129			64.5	%	72,258			69.5	%
Operating expenses:									—	%				—	%
Sales and marketing	27,895			25.1	%	26,602			23.5	%	27,328			26.3	%
Research and development	20,698			18.6	%	21,087			18.6	%	15,704			15.1	%
General and administrative	18,949			17.1	%	22,700			20.0	%	15,729			15.1	%
Facilities exit costs	—			—	%	618			0.5	%	—			—	%
Gain on settlement and change in fair value of contingent consideration	—			—	%	(5,933		)	(5.2	)%	(1,946		)	(1.9	)%
Total operating expenses	67,542			60.8	%	65,074			57.4	%	56,815			54.6	%
(Loss) income from operations	(102		)	(0.1	)%	8,055			7.1	%	15,443			14.9	%
Interest income	35			—	%	75			0.1	%	93			0.1	%
Other income, net	13			—	%	183			0.2	%	1,475			1.4	%
Income before income taxes	(54		)	—	%	8,313			7.3	%	17,011			16.4	%
Provision for income taxes	(1,699		)	(1.5	)%	(3,060		)	(2.7	)%	(8,815		)	(8.5	)%
(Loss) income from continuing operations	(1,753		)	(1.6	)%	5,253			4.6	%	8,196			7.9	%
Gain (loss) from discontinued operations, net of tax	(1,666		)	(1.5	)%	(8,826		)	(7.8	)%	(4,393		)	(4.2	)%
Net (loss) income	$	(3,419	)	(3.1	)%	$	(3,573	)	(3.2	)%	$	3,803		3.7	%

34In 2011, we had two reportable segments: (1) Subscriptions and Interactive Services and (2) EHR. On February 24, 2012, the Audit Committee of our Board of Directors, as authorized by the Board of Directors, approved the discontinuation of Epocrates’ EHR product. In the first quarter of 2012, we qualified for discontinued operations presentation under GAAP, and at such time, the EHR operating segment results were reported in loss from discontinued operations on our consolidated statements of comprehensive (loss) income. Prior period results have been revised in order to conform to the current period presentation.

~~Table of Contents~~Revenues

~~Sales~~We ~~and~~generate ~~marketing~~approximately ~~expense~~80% asof aour ~~percentage~~revenue offrom ~~total~~providing ~~revenues,~~healthcare ~~net~~companies ~~for~~with ~~the~~interactive ~~years~~services ~~ended~~to ~~December 31,~~communicate ~~2011,~~with ~~2010~~our ~~and~~network ~~2009~~of ~~was~~members 28(60%,) 29and by leveraging our network of healthcare professionals for market research services (20%). The ~~and~~remainder 24of our revenue (20%,) ~~respectively.~~is Wegenerated ~~expect~~through ~~sales~~the ~~and~~sale ~~marketing~~of ~~expense~~subscriptions to ~~continue~~our topremium ~~increase~~drug inand ~~absolute~~clinical ~~dollars~~reference tools to healthcare professionals.

~~Research~~Revenues from Subscriptions and ~~development~~Interactive ~~expense~~Services were as follows (in thousands):

Research and development expense consists primarily of salaries and related personnel expenses, stock-based compensation, allocated overhead, consultant fees and expenses related to the design, development, testing and enhancements of our services.



	Twelve Months Ended December 31,
	2012		2011		2010
Subscriptions	$	19,033	$	22,495	$	24,683
Interactive Services	92,096		90,826		79,305
	$	111,129	$	113,321	$	103,988

~~Research~~Subscriptions. ~~and~~Subscriptions ~~development~~revenue ~~expense~~decreased ~~increased~~ $3.15 million, orfor ~~16%~~the year ended December 31, 2012. The decrease in ~~2011~~subscriptions ~~compared~~revenue tofor ~~2010~~the year ended December 31, 2012 is primarily ~~due~~attributable to aan ~~$4.3~~unusually ~~million~~high ~~increase~~number inof ~~salaries~~unused ~~and~~license ~~related~~code ~~personnel~~expirations ~~expenses~~for ~~due~~which towe arecognized ~~23%~~incremental ~~increase~~revenue inof ~~research~~$1.4 ~~and~~million ~~development~~in 2011. ~~This~~The ~~increase~~decline in subscriptions revenue was ~~partially~~additionally ~~offset~~impacted by a decrease of approximately $0.8 million ~~decrease~~in the year ended December 31, 2012 in ~~stock~~iTunes ~~option~~App ~~expense~~Store ~~due~~sales, toas awe ~~lower~~decreased ~~stock~~our ~~price~~offering inof ~~2011.~~applications Infrom ~~2010,~~the ~~research~~prior year. Webstore revenue and ~~development~~institutional ~~expense~~license ~~increased~~sales also decreased $50.16 million and $0.4 million, orrespectively, ~~35%~~for the year ended December 31, 2012 compared to ~~2009.~~the ~~This~~same ~~increase~~period ~~was~~in 2011 primarily due to ~~increased~~renewal ~~salary~~cycles. Subscriptions revenue decreased $2.2 million for the year ended December 31, ~~consulting~~2011 ~~and~~as ~~other~~compared ~~costs~~to the same period in 2010, primarily due to ~~support~~a substantial decline in the ~~development~~number of ~~our~~license ~~EHR~~code ~~product~~expirations. We expect the percentage of $4members who pay for a subscription to remain unchanged or even decrease over time.~~0 million~~ ~~and~~As ana ~~increase~~result, we expect subscription revenue from our premium products to decrease in ~~stock-based~~total ~~compensation~~and as a percentage of $0revenue in the future.~~6 million.~~

Research and development expense related to EHR was $1.7 million, $4.0 million and zero for the years ended December 31, 2011, 2010 and 2009. Additionally, we capitalized $6.5 million and $0.7 million of costs related to EHR in 2011 and 2010.32

~~Research~~Table ~~and development expense as a percentage~~ of ~~total revenues, net for 2011, 2010 and 2009 was 20%, 19% and 16%, respectively. We expect research and development expense to increase in absolute dollars as we continue to develop new services.~~Contents

~~General~~Interactive Services. Interactive services revenue increased $1.3 million for the year ended December 31, 2012. The $1.3 million increase in interactive services revenue for the year ended December 31, 2012 was the result of a $2.9 million increase in market research services partially offset by a $1.2 million decline in pharmaceutical revenues and ~~administrative~~a ~~expense~~$0.4 million decrease in formulary hosting services. Interactive services revenue increased $11.5 million for the year ended December 31, 2011 as compared to the same period in 2010 due to a $7.1 million increase in DocAlert clinical messaging services and a $6.2 million increase in revenue from virtual representative services, which were partially offset by a $2.9 million decrease in revenue from formulary hosting services.

~~General~~Cost ~~and administrative expense consists primarily~~ of ~~salaries and related personnel expenses, stock-based compensation, consulting, audit fees, legal fees, allocated overhead and other general corporate expenses.~~revenues

~~General~~Cost ~~and~~of ~~administrative~~revenues ~~expense~~consists ~~increased~~of ~~$7.0 million,~~the orcosts ~~44%,~~related into ~~2011~~providing ~~compared~~services to ~~2010,~~clients ~~primarily~~which ~~due~~include tosalaries ~~increases~~and ofrelated ~~$2.2~~personnel ~~million~~expenses, in stock-based compensation, ~~expense~~service ~~due~~support tocosts, ~~the~~payments ~~modification~~to ofparticipants ~~certain~~for ~~options,~~market ~~$1.9~~research ~~million~~surveys inwe ~~employee~~conduct ~~salary~~for ~~and~~our ~~other personnel costs~~clients, ~~$1.8~~third-party ~~million~~royalties inand ~~professional~~allocated ~~services~~overhead. ~~due~~Third-party toroyalties ~~increased~~consist ~~legal~~of fees ~~related~~paid to ~~the~~branded ~~SEC~~content ~~investigation~~owners ~~discussed~~for ~~under~~the ~~Item~~use 3 of ~~this~~their ~~Annual~~intellectual ~~Report~~property ~~on Form 10-K and $0.4 million~~ in ~~recruiting~~our ~~costs.~~premium ~~General~~drug and ~~administrative~~reference ~~expense increased $4~~products.~~1 million,~~ orAllocated ~~36%,~~overhead inrepresents ~~2010~~expenses ~~compared~~such toas ~~2009.~~rent, ~~This~~occupancy ~~increase~~charges ~~was primarily due to increased salary~~ and ~~other~~information ~~personnel~~technology ~~expenses~~costs ofthat ~~$1.9 million,~~we anallocate ~~increase~~to inall ~~stock-~~departments based ~~compensation~~on ~~of $0~~headcount.~~6 million~~ ~~and~~We ~~increased~~also ~~recruiting~~allocate ~~costs~~depreciation ~~of $0.6 million. General~~ and ~~administrative~~amortization expense asto acost ~~percentage~~ of ~~total net revenue in 2011, 2010 and 2009 was 20%, 15% and 12%, respectively~~revenues.

~~Facilities~~The ~~exit~~following ~~costs~~is a breakdown of cost of revenues related to subscriptions and interactive services for the years ended December 31, 2012, 2011 and 2010 (in thousands):

In the first quarter of 2011, we vacated our East Windsor, New Jersey office and relocated to Ewing, New Jersey. The non-cancellable lease we had entered into for our East Windsor office holds us liable for monthly lease payments until the expiration of the lease at the end of 2012. The liability, recorded at fair value, is based on the present value of the remaining lease rentals and is reduced for the estimated sublease rentals that could be reasonably obtained for the property. In 2011, we recorded a charge of approximately $0.6 million in 2011 relating to facilities exit costs.



	Twelve Months Ended December 31,
	2012		2011		2010
Subscriptions	$	7,393	$	7,670	$	6,516
Interactive Services	36,296		32,522		25,214
	$	43,689	$	40,192	$	31,730

~~Gain~~Subscriptions. onCost ~~settlement~~of ~~and~~revenues ~~change~~for subscriptions increased less than $0.3 million for the year ended December 31, 2012 versus 2011, primarily due to additional investments made in ~~fair~~infrastructure ~~value~~for our co-location. These investments are mostly fixed in nature and are allocated as a percentage of ~~contingent~~revenue. ~~consideration~~The investments primarily consist of headcount, consulting expenses and hardware and software purchases for the co-location group, which handles our servers that support all revenue streams. Cost of revenues for subscriptions increased $1.2 million for the year ended December 31, 2011 as compared to 2010, primarily due to increases in third party royalties.

WeAs ~~acquired~~a ~~certain~~percentage ~~intangible~~of ~~assets~~subscriptions revenue, cost of ~~Caretools,~~subscriptions revenues was 39% for the year ended December ~~Inc.~~31, in2012, ~~June 2009~~versus ~~and~~34% offor ~~MedCafe~~the year ended December ~~Inc.~~31, in2011 ~~February~~and 26% for the year ended December 31, 2010. ~~These~~The ~~acquisitions~~increase ~~were~~in ~~accounted~~cost ~~for~~of subscriptions revenues as ~~business~~a ~~combinations~~percentage ~~under~~of ~~GAAP~~subscriptions revenues for the year ended December 31, 2012 and 2011 is due to the decline in subscriptions revenues coupled with increased costs from the same periods in the prior year.

~~Caretools, Inc~~Interactive Services. InCost ~~connection~~of ~~with~~interactive ~~the~~services ~~acquisition~~revenues ofincreased ~~Caretools, Inc~~approximately $3.8 onmillion ~~June~~for the year ended December 2331, ~~2009~~2012, wecompared ~~recorded~~to ~~contingent~~2011, ~~consideration~~primarily due to increases of $2.4 million in honoraria expenses as a result of higher market research activity and $1.3 million onin ~~the~~increased ~~acquisition~~co-location ~~date~~employee-related expenses as a result of investments in infrastructure. ~~This~~These ~~contingent~~investments ~~consideration~~are ~~was~~mostly ~~based~~fixed onin annature ~~estimate~~and ofare ~~revenues~~allocated toas bea ~~generated~~percentage ~~from~~of ~~sales~~revenue. The investments primarily consist of ~~products~~headcount, ~~developed~~consulting ~~incorporating~~expenses ~~Caretools’~~and ~~technology.~~hardware Inand ~~2010~~software purchases for the co-location group, wewhich ~~recorded~~handles ~~contingent~~our ~~consideration~~servers ~~expense~~that support all revenue streams. Cost of interactive services revenues increased $07.9 3 million ~~related~~for tothe ~~revaluing~~year ~~the~~ended ~~contingent~~December 31, ~~consideration~~2011 ~~liability~~as ~~for~~compared ~~Caretools~~to 2010 due to ~~its~~increases ~~fair~~of ~~value~~$3.1 asmillion in amortization of ~~December 31~~intangible assets and capitalized software, ~~2010~~$2.5 ~~The~~million ~~change~~ in ~~the~~honoraria ~~fair~~and ~~value~~content offees ~~the~~and ~~contingent~~$2.4 ~~consideration~~million ~~was~~in consulting and employee compensation expense due to ~~changes~~an increase in ~~discount~~outsourced ~~periods~~services asand ~~well~~headcount. asThe ~~new~~increase ~~estimates~~in amortization of ~~revenue~~intangible ~~expected~~assets and capitalized software was primarily due to bea ~~generated~~full ~~using~~year ~~Caretools~~of ~~technology.~~amortization Atof ~~December 31,~~intangible ~~2010,~~assets ~~the~~acquired ~~fair~~as ~~value~~a result of ~~this~~the ~~contingent~~MedCafe ~~consideration~~Inc. ~~was~~and $2Modality, Inc.2 ~~million~~acquisitions in 2010.

35Cost of interactive services revenues as a percentage of interactive services revenues was 39% for the year ended December 31, 2012, 36% for the year ended December 31, 2011 and 32% for the year ended December 31, 2010.

~~Table~~Sales ofand ~~Contents~~marketing expense

AsSales aand ~~result~~marketing ofexpense our decision to pursue strategic alternatives for the EHR business, we recorded an impairment charge to write down the carrying value of the contingent consideration liability associated with the EHR business to an estimated fair value of zero during the fourth quarter of 2011. The change in the fair value of the contingent consideration was due primarily toconsists ~~revised estimates~~ of ~~revenues~~salaries toand berelated ~~derived~~personnel ~~from~~expenses, ~~the~~sales ~~acquired~~commissions, ~~technologies~~stock-based ~~of Caretools~~compensation, ~~Inc.~~ Astrade ofshow ~~December 31~~expenses, ~~2011~~promotional expenses, ~~the~~public ~~fair~~relations ~~value~~expenses ofand ~~the~~allocated ~~contingent consideration liability was zero due to the discontinuation of the EHR business~~overhead.

MedCafe Inc. In connection with the acquisition of MedCafe on February 1, 2010, we recorded contingent consideration of $14.8 million on the acquisition date. This contingent consideration was based on an estimate of revenues to be generated from sales of products developed incorporating MedCafe technology. In 2010, we recorded a reduction to contingent consideration expense of $1.9 million to revalue the contingent consideration liability for MedCafe to its fair value as of December 31, 2010. The change in the fair value of the contingent consideration was due to changes in discount periods as well as new estimates of revenue expected to be generated using MedCafe technology. We did not make any contingent payments to the sellers in 2010. As of December 31, 2010, the fair value of this contingent consideration was $12.8 million.33

InTable ~~2011, we recorded a decrease in the contingent consideration liability resulting in a gain~~ of approximately $5.9 million for the year ended December 31, 2011. The change in the fair value of the contingent consideration was due primarily to an agreement with the sellers in the second quarter of 2011 to settle the liability for $6.4 million. As of December 31, 2011, the fair value of this contingent consideration liability was zero.Contents

~~Impairment~~Sales ofand ~~Long-lived~~marketing ~~Assets~~expense increased $1.3 million for the year ended December 31, 2012 as compared to 2011 due to increases in headcount and ~~Goodwill~~additional marketing campaign spending. Sales and marketing expense decreased $0.7 million for the year ended December 31, 2011 as compared to 2010 due to lower sales commission expense in 2011.

~~During~~Sales ~~July 2011,~~and wemarketing ~~began~~expense toas ~~compete in the EHR market by entering~~ a ~~controlled~~percentage ~~release~~ of ~~the~~total ~~Epocrates EHR mobile and web-based EHR offering~~revenues, ~~with~~net ~~the~~for ~~intent to offer a full product in 2012. For~~ the ~~year~~years ended December 31, ~~2011, we had not generated significant revenues and had not met our forecasts for subscribers or revenues from our EHR product. On February 24,~~ 2012, the Board of Directors of Epocrates approved the discontinuation of further development of Epocrates’ EHR product. In connection with this decision, Epocrates recorded an impairment charge of approximately $8.5 million in its fourth quarter of 2011, ~~which~~and ~~represents~~2010 ~~the~~was ~~write-down of the carrying value of the goodwill~~25%, ~~intangible~~23% and ~~other~~26%, ~~long-lived assets related to the EHR product to their estimated fair value of zero~~respectively.

~~Segment~~Research ~~Earnings~~and ~~from~~development ~~Operations~~expense

	Subscriptions and		Electronic
Year ended December 31, 2011	Interactive Services		Health Records			Total
Net revenue	$	113,321	$	25		$	113,346
Segment income (loss) from operations	$	38,229	$	(14,084	)	$	24,145
Unallocated items:
Stock-based compensation						(7,342		)
Other unallocated corporate costs						(22,832		)
Loss from operations						(6,029		)
Interest income						75
Other income						183
Loss before income taxes						$	(5,771	)

Research and development expense primarily consists of salaries and related personnel expenses, stock-based compensation, allocated overhead, consultant fees and expenses related to the design, development, testing and enhancements of our services.

	Subscriptions and		Electronic
Year ended December 31, 2010	Interactive Services		Health Records			Total
Net revenue	$	103,988	$	—		$	103,988
Segment income (loss) from operations	$	42,413	$	(8,021	)	$	34,392
Unallocated items:
Stock-based compensation						(6,356		)
Other unallocated corporate costs						(20,614		)
Income from operations						7,422
Interest income						93
Interest expense						(214		)
Gain on sale-leaseback of building						1,689
Income before income taxes						$	8,990

Research and development expense decreased approximately $0.4 million, for the year ended December 31, 2012, compared to the year ended December 31, 2011 due to a small reduction in headcount. Research and development expense increased $5.4 million for the year ended December 31, 2011 as compared to the same period in 2010 primarily due to a $5.2 million increase in salaries and related personnel expenses.

~~The~~As ~~segment~~a ~~income~~percentage ~~(loss)~~of ~~from~~total ~~operations~~revenues, ~~figures~~research ~~reported~~and ~~above~~development ~~represent~~expense ~~income~~for ~~(loss)~~December 31, ~~from operations before stock-based compensation~~2012, 2011 ~~general~~ and ~~administrative~~2010 ~~expenses~~was ~~and~~19%, ~~certain~~19% ~~marketing~~ and ~~research~~15%, ~~and development expenses~~respectively.

36General and administrative expense

~~Table~~General and administrative expense primarily consists of ~~Contents~~salaries and related personnel expenses, stock-based compensation, consulting, audit fees, legal fees, allocated overhead and other general corporate expenses.

WeGeneral ~~were~~and ~~organized~~administrative asexpense ~~one~~decreased ~~operating~~$3.8 ~~segment~~million, inor ~~2009~~17%, ~~and~~for ~~therefore~~the year ended December 31, no2012, ~~separate~~compared ~~segment~~to ~~information~~the year ended December 31, 2011. This decrease was primarily due to decreases of $2.4 million in stock-based compensation expense and $1.0 million of legal fees. The $2.4 million decrease in stock-based compensation expense was primarily due to the departure of certain members of senior management during 2012 and the modification of certain options in 2011. The decrease in legal fees is ~~presented~~primarily due to the conclusion of the SEC subpoena. General and administrative expense increased $7.0 million for the year ended December 31, ~~2009~~2011 compared to 2010 primarily due to increases of $2.2 million in stock-based compensation expense due to the modification of certain options, $1.9 million in employee salary and other personnel costs, $1.8 million in professional services due to increased legal fees related to the SEC subpoena and $0.4 million in recruiting costs.

~~Interest~~General ~~income~~and administrative expense as a percentage of total revenues, net for the years ended December 31, 2012, 2011 and 2010 was 17%, 20% and 15%, respectively.

~~Interest~~Facilities ~~income~~exit in 2011 was relatively consistent with interest income in 2010 and 2009. The continued decline in prevailing interest rates during 2011 and 2010 resulted in a slight decrease in interest income during 2011 and 2010.costs

~~Interest~~We ~~expense~~recorded a charge of approximately $0.6 million in the year ended December 31, 2011, relating to facilities exit costs. We vacated our East Windsor, New Jersey office in the first quarter of 2011 and relocated our New Jersey operations to Ewing, New Jersey. We had signed a non-cancellable lease for the East Windsor location, which did not expire until the end of fiscal 2012, and therefore, we were liable to make monthly lease rentals under the contract. The liability recorded at fair value is based on the present value of the remaining lease rentals and is reduced for the estimated sub-lease rentals that could be reasonably obtained for the property.

WeGain ~~incurred~~on nosettlement ~~interest expense in 2011 compared to $0.2 million~~ and ~~$0.9~~change ~~million~~ in ~~2010~~fair ~~and~~value 2009, respectively. Interest expense in 2010 and 2009 relates to rent payments on our San Mateo facility which was capitalized. Interest expense decreased during the year ended December 31, 2010 due to a sale-leaseback of ~~our~~contingent ~~San Mateo facility.~~consideration

~~Other~~In ~~income~~connection ~~(expense)~~with the acquisition of MedCafe on February 1, ~~net~~2010, we recorded contingent consideration of $14.8 million on the acquisition date. This contingent consideration was based on an estimate of revenues to be generated from sales of products developed incorporating MedCafe technology.

WeFor ~~had~~the ~~approximately~~year ~~$0.2~~ended ~~million~~December 31, of2011, ~~other~~gain ~~income~~on settlement and change in ~~2011~~fair ~~due~~value toof contingent consideration reflects a ~~refund~~$6.4 million gain on settlement as a result of ~~property~~an ~~taxes~~agreement ~~from~~entered into with the ~~landlord~~sellers of ~~our~~MedCafe, ~~San~~Inc. ~~Mateo~~during ~~facility.~~June We2011, ~~did~~offset ~~not~~by ~~have~~an ~~other~~increase ~~income~~in (contingent consideration expense) of $0.5 million related to revaluing the contingent consideration liability to its fair value as of March 31, ~~net~~2011. inFor the year ended December 31, 2010, gain on settlement and ~~other~~change ~~income~~in (fair value of contingent consideration reflects a reduction to contingent consideration expense) of $1.9 million, ~~net~~which ~~was~~we ~~not~~recorded ~~significant~~to inrevalue ~~2009~~the contingent consideration liability for MedCafe to its fair value as of December 31, 2010.

~~Gain on sale-leaseback of building~~34

InTable ~~2010, we completed the sale-leaseback~~ of our corporate headquarters, which resulted in a gain of $1.7 million. Previously, we capitalized the fair value of the unfinished portion of the building of $17.6 million with a corresponding credit to financing liability. In 2010, under the terms of the modified lease, we began accounting for the building lease as an operating lease. In connection with the sale-leaseback of the building, we wrote off the remaining asset value of the building, related accumulated depreciation and the financing liability.Contents

~~Benefit~~Provision ~~from (provision~~ for) income taxes

Our projected long-term combined federal and state tax rate is approximately 3637%. WeFor ~~received~~the year ended December 31, 2012, we recorded an income tax provision of approximately $0.8 million, which was comprised of a $1.7 million income tax provision related to continuing operations and an income tax benefit of approximately $0.9 million related to discontinued operations. For the year ended December 31, 2011, we recorded an income tax benefit of approximately $2.2 million, inwhich ~~2011~~was ~~compared~~comprised toof aan income tax provision ~~for~~of approximately $3.1 million allocated to continuing operations and an income ~~taxes~~tax benefit of approximately $5.2 3 million inallocated ~~2010~~to discontinued operations. ~~Our~~For ~~effective~~the year ended December 31, 2010, we recorded an income tax ~~rate~~provision ~~for~~of ~~2011~~approximately $5.2 million, which was ~~38%~~comprised ~~compared~~of an $8.8 million income tax provision related to ~~58%~~continuing ~~for~~operations ~~2010~~and an income tax benefit of $3.6 million related to discontinued operations.

~~During~~The provision for income taxes recorded during the year ended December 31, ~~2010,~~2012 weresulted ~~had~~in an effective income tax rate of approximately 28%. The effective income tax rate for 2012 reflected the federal and state statutory rates adjusted for a tax deficiency in excess of the additional paid-in capital pool. The provision for income taxes offor ~~approximately~~the ~~$5.2~~year ~~million~~ended December 31, ~~which~~2011 resulted in an effective income tax rate of 57approximately 38%. The effective income tax rate for ~~2010~~2011 was higher than our combined federal and state statutory tax rate due to an increase in the ~~need~~generation of federal and California research and development credits of $0.5 million and $0.3 million, respectively. These credits were partially offset by income tax expense of approximately $0.5 million related to ~~provide~~the establishment of a valuation allowance against our California research and development credits. The provision for income taxes for the year ended December 31, 2010 resulted in an effective income tax rate of approximately 58%. The effective income tax rate for 2010 reflected income tax expense on $3.1 million of stock-based compensation expense related to incentive stock options, or ISOs. GAAP does not allow us to record a benefit on ISOs unless and until there is a disqualifying disposition of the stock. ~~This increased our effective tax rate by approximately 12%.~~ In addition, California amended its tax law effective in 2011 to allow companies to elect to use sales as the sole factor in determining California apportionment. We elected this method, and therefore, the amount of income subject to tax in California was reduced. As a result, our deferred tax assets in California were written down, which increased our effective income tax rate ~~by approximately 8%~~.

~~During~~Non-GAAP ~~the~~Financial year ended December 31, 2011, we received an income tax benefit of $2.2 million, which resulted in an effective tax rate of 38%. The effective tax rate for 2011 was higher than our statutory tax rate due to an increase in the generation of federal and California research and development credits of $0.5 million and $0.3 million, respectively. This increased our effective tax rate by approximately 14%. The income tax benefit was partially offset by tax expense of approximately $0.5 million related to the establishment of a valuation allowance against our California research and development credits. This decreased our effective income tax rate by approximately 9%.Measures

WeTo ~~incurred~~supplement aour ~~provision~~consolidated ~~for~~financial ~~income~~statements ~~taxes~~presented ofon $5a U.~~2 million~~S. inGAAP ~~2010~~basis, ~~compared~~we touse anon-GAAP ~~provision~~measures, ~~for~~such ~~income~~as ~~taxes~~adjusted ofEBITDA, ~~$6.8 million~~with inthe ~~2009.~~intent ~~Our~~of ~~effective~~providing ~~tax~~both ~~rate~~management ~~for~~and ~~2010~~investors ~~was~~a ~~58%~~more ~~compared~~complete tounderstanding ~~47%~~of ~~for~~our ~~2009.~~underlying ~~This~~operational ~~rate~~results isand ~~driven~~trends ~~primarily~~and byour ~~pre-tax~~marketplace ~~book~~performance. ~~income~~In ~~which~~addition, ~~was~~these ~~lower~~adjusted innon-GAAP ~~2010~~results ~~compared~~are toamong ~~2009 coupled with~~ the ~~fact~~information ~~that~~management weuses ~~must~~as ~~still~~a ~~provide~~basis for ~~income~~planning ~~tax~~and onforecasting ~~approximately~~for $3future periods.~~1 million~~ ofThe ~~stock-based~~presentation ~~compensation~~of ~~related~~this toadditional ~~incentive~~information ~~stock~~is ~~options,~~not ormeant ~~ISOs.~~to ~~GAAP~~be ~~does~~considered ~~not~~in ~~allow~~isolation usfrom toor ~~record~~as a ~~benefit~~substitute onfor ~~incentive~~results ~~stock~~prepared ~~options~~in ~~unless~~accordance ~~and~~with ~~until~~GAAP. ~~there~~Adjusted EBITDA is aan ~~disqualifying~~unaudited ~~disposition~~number ofand ~~the~~represents ~~stock.~~net ~~This~~income ~~increased~~before ~~our~~income ~~effective~~and ~~tax~~expenses ~~rate~~unrelated byto ~~approximately~~core ~~12%.~~business ~~In addition~~activities, ~~California~~such ~~amended~~as: ~~its~~interest ~~tax~~income, ~~law~~other ~~effective~~income, ~~2011~~net ~~lowering~~and ~~the~~provision ~~amount~~for ofincome taxes; non-recurring income ~~that~~and isexpenses, ~~subject~~such toas ~~tax~~facilities inexit ~~California~~costs ~~for~~and ~~certain~~gain ~~California~~on ~~corporations.~~sale Asand achange ~~result,~~in ~~our~~fair ~~deferred~~value ~~tax~~of ~~assets~~contingent inconsideration; ~~California~~and ~~had~~non-cash tocharges, besuch ~~written~~as ~~down~~depreciation ~~which~~and ~~drove~~amortization upexpense ~~the~~(including ~~overall~~intangible ~~effective~~assets) ~~rate.~~related ~~This~~to ~~increased~~the ~~our~~core ~~effective~~business, ~~tax~~stock-based ~~rate~~compensation byand ~~approximately~~other 8%expenses.

37Adjusted EBITDA is not a measure of operating performance or liquidity calculated in accordance with GAAP and should be viewed as a supplement to, and not a substitute for, our results of operations presented on a GAAP basis. Adjusted EBITDA does not purport to represent cash flow provided by, or used in, operating activities as defined by GAAP. Our consolidated statements of cash flows present our cash flow activity in accordance with GAAP. Furthermore, adjusted EBITDA is not necessarily comparable to similarly-titled measures reported by other companies.

~~Table~~We believe adjusted EBITDA is used by, and is useful to, investors and other users of ~~Contents~~our financial statements in evaluating our operating performance because it provides them with an additional tool to compare business performance across companies and across periods. We believe that:

~~Quarterly~~• ~~Results~~EBITDA is widely used by investors to measure a company’s operating performance without regard to such items as non-recurring items, interest (income) expense, taxes, depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of ~~Operations~~assets, capital structure and the method by which assets were acquired; and

~~The~~• ~~following~~investors ~~table~~commonly ~~sets~~adjust ~~forth~~EBITDA ~~selected~~information ~~unaudited~~to ~~quarterly~~eliminate ~~statements of operations data for~~ the ~~eight~~effect ~~quarters ending March 31, 2010 through December 31, 2011. The information for each~~ of ~~these~~stock-based ~~quarters~~compensation ~~has~~expenses ~~been prepared on the same basis as our audited financial statements~~ and, inother ~~the opinion of management~~charges, ~~includes~~which ~~all~~can ~~adjustments~~vary ~~necessary~~widely ~~for~~from acompany ~~fair~~to ~~statement~~company ~~of the results of operations for such periods. This data should be read in conjunction with the financial statements~~ and ~~related~~impair ~~notes~~comparability.

	Three Months Ended
	March 31,			June 30,			September 30,			December 31,
	2011			2011			2011			2011
	(in thousands, except per share information)
Total revenues, net	$	29,177		$	27,860		$	26,602		$	29,707
Gross profit	19,787			18,092			15,741			18,015
Gain on settlement and change in fair value of contingent consideration (1)	301			(6,375		)	(1,622		)	(449		)
Impairment of long-lived assets and goodwill	—			—			—			8,501
Gain on sale-leaseback of building	—			—			—			—
Net (loss) income	(1,125		)	3,393			686			(6,527		)
Net (loss) income per common share - basic (2)	(0.08		)	0.14			0.03			(0.27		)
Net (loss) income per common share - diluted (2)	(0.08		)	0.13			0.03			(0.27		)

Our management uses adjusted EBITDA:

	Three Months Ended
	March 31,			June 30,			September 30,			December 31,
	2010			2010			2010			2010
	(in thousands, except per share information)
Total revenues, net	$	24,336		$	25,277		$	24,090		$	30,285
Gross profit	17,084			17,541			15,748			21,885
Gain on settlement and change in fair value of contingent consideration	1,214			(569		)	240			(1,919		)
Impairment of long-lived assets and goodwill	—			—			—			—
Gain on sale-leaseback of building	—			1,689			—			—
Net (loss) income	26			762			336			2,679
Net (loss) income per common share - basic (2)	(0.12		)	(0.02		)	(0.07		)	0.10
Net (loss) income per common share - diluted (2)	(0.12		)	(0.02		)	(0.07		)	0.09


•	as a measure of operating performance to assist in comparing performance from period to period on a consistent basis;

(1)

For the three months ended June 30, 2011, includes a $6.4 million gain relating to the settlement of the contingent consideration liability with the sellers of MedCafe, Inc., a company that Epocrates acquired in 2010. For the three months ended December 31, 2011, includes a gain of $0.4 million from the write-down of the contingent consideration liability related to an earn-out agreement recognized in the fourth quarter of 2011 for Caretools.

(2)

Net (loss) income per share for the four quarters of each fiscal year may not sum to the total for the fiscal year because of the different number of shares outstanding during each period.

~~Our~~Table ~~revenue is generally highest in the fourth quarter~~ of each calendar year, primarily as a result of the annual budget approval processes of many of our customers in the pharmaceutical industry, and we expect this trend to continue. We may also experience fluctuations in our quarterly results, due to factors including, but not limited to, the timing of revenue recognition, our ability to retain and attract new customers and the general economic and regulatory environment in the U.S. Due to these factors, we believe that quarter-to-quarter comparisons of operating results are not meaningful and should not be relied upon as an indication of future performance.Contents

~~Liquidity~~• as a measure for planning and ~~Capital~~forecasting ~~Resources~~overall expectations and for evaluating actual results against such expectations;

We• ~~expect~~in ~~cash~~communications ~~generated~~with bythe ~~operations~~Board ~~to be our primary source~~ of ~~liquidity~~Directors, ~~and that we will continue to generate positive cash flows from operations in 2012. We believe that existing cash~~stockholders, ~~cash~~analysts ~~equivalents~~ and ~~short-term~~investors ~~investments,~~concerning ~~together with any cash generated from operations will be sufficient to meet~~ our ~~normal~~financial ~~operating~~performance; ~~requirements including any capital expenditures~~ and ~~possible strategic acquisitions for at least the next 12 months.~~

38• as a significant performance measurement included in our bonus plan.

~~Table~~The table below sets forth a reconciliation of ~~Contents~~net (loss) income to adjusted EBITDA (in thousands):

Operating activities



	Twelve Months Ended December 31,
	2012			2011			2010
Net (loss) income, as reported	$	(3,419	)	$	(3,573	)	$	3,803
Loss from discontinued operations, net of tax	(1,666		)	(8,826		)	(4,393		)
(Loss) income from continuing operations	$	(1,753	)	$	5,253		$	8,196
Add: (Income) expenses unrelated to core business activities
Interest income	(35		)	(75		)	(93		)
Other income, net	(13		)	(183		)	(1,475		)
Provision for income taxes	1,699			3,060			8,815
Add: Non-recurring and non-cash charges (income)
Depreciation and amortization expense (including intangible assets) related to core business	7,968			7,913			4,385
Stock-based compensation	4,260			7,342			6,356
Gain on settlement and change in fair value of contingent consideration ⁽¹⁾	—			(5,933		)	(1,946		)
Other ⁽²⁾	922			2,811			694
Adjusted EBITDA	$	13,048		$	20,188		$	24,932

In(1) ~~2011,~~Includes ~~we generated~~ a ~~net loss of~~ $3.6 ~~million primarily due to the $8~~.54 million ~~impairment~~gain ~~charge~~recognized ~~related to our EHR business, which was recorded~~ in the ~~fourth~~second quarter of 2011. ~~Cash~~related ~~provided~~to bythe ~~operating~~settlement ~~activities~~ of ~~approximately~~the ~~$8.8~~contingent ~~million~~consideration inliability ~~2011~~with ~~was~~the ~~almost~~sellers ~~entirely due to depreciation and amortization expense~~ of $8MedCafe, Inc.7, ~~million~~a ~~which~~company ~~was~~we ~~offset~~acquired ~~by changes~~ in ~~operating accounts~~2010.

~~Cash~~(2) ~~provided~~For bythe ~~operating~~year ~~activities~~ended ~~was~~December 31, 2012, represents approximately $90.1 7 million infor ~~2010,~~severance ~~which~~payments ~~was~~and ~~primarily~~approximately ~~attributable~~$0.3 tomillion ~~net~~for ~~income~~fees incurred as a result of $3the potential merger agreement with athenahealth.~~8 million~~ ~~plus~~For ~~stock-based~~the ~~compensation~~year ofended December 31, 2011, represents $61.3 0 million ~~and~~in ~~depreciation~~legal ~~and~~expenses ~~amortization~~associated ofwith the SEC subpoena, $41.4 0 million, ~~and~~in aseverance ~~decrease~~payments,$0.6 million in ~~deferred~~facilities ~~tax~~exit ~~assets~~costs ofand a $40.52 million, ~~partially~~rent ~~offset~~refund. byFor athe ~~decrease~~year inended ~~deferred~~December ~~revenue~~31, of2010, ~~$7.5~~the ~~million~~entire amount represents severance payments.

~~Cash~~Note: ~~provided~~prior byperiod ~~operating~~amounts ~~activities~~have ~~was~~been ~~$17.0 million~~revised into ~~2009,~~conform ~~which was primarily attributable~~ to ~~net~~the ~~income~~current ofperiod $7presentation.~~7 million plus employee stock-based compensation expense of $4.5 million and depreciation and amortization of $2.9 million.~~

~~Investing~~The ~~activities~~decrease in adjusted EBITDA for the year ended December 31, 2012 was primarily attributable to increased operating expenses as well as decreased revenues coupled with an increase in cost of revenues compared to the same period in 2011.

~~The~~Liquidity ~~primary objectives of our investment activities are to preserve principal~~ and ~~maintain~~Capital liquidity while at the same time maximizing yields without significantly increasing risk. Our policy is to invest only in fixed income instruments denominated and payable in U.S. dollars. Our investment policy allows investment in obligations of the U.S. government and its agencies, money market instruments, commercial paper, certificates of deposit, bankers’ acceptances, corporate bonds of U.S. companies, municipal securities and asset-backed securities. We do not invest in auction rate securities, futures contracts, or hedging instruments. Securities of a single issuer valued at cost at the time of purchase should not exceed 5% of the market value of the portfolio or $1.0 million, whichever is greater, but securities issued by the U.S. Treasury and U.S. government agencies are specifically exempted from these restrictions. Issue size should normally be greater than $50 million for corporate bonds. No single position in any issue should equal more than 10% of that issue. The final maturity of each security within the portfolio should not exceed 24 months.Resources

~~The~~Our ~~following~~principal ~~table~~sources ~~summarizes~~of ~~our~~liquidity ~~investments~~as inof December 31, 2012 consisted of cash, cash equivalents and short-term investments as of $78.2 million compared to $85.2 million at December 31, 2011. We believe that our available cash resources and anticipated future cash flow from operations will provide sufficient cash resources to meet our contractual obligations and our currently anticipated working capital and capital expenditure requirements for at least the next 12 months. Our future liquidity and capital requirements will depend upon numerous factors, ~~2010~~including retention of clients at current volume and ~~2009~~revenue ~~(in~~levels, ~~thousands):~~our existing and new application and service offerings, competing technological and market developments and potential future acquisitions. In addition, our ability to generate cash flow is subject to numerous factors beyond our control, including general economic, regulatory and other matters affecting our clients and us.

	As of December 31,
	2011			2010		2009
Cash	$	65,016		$	10,676	$	12,140
Cash equivalents	10,310			25,311		48,755
Short-term investments	9,897			18,697		4,424
Total cash, cash equivalents and short-term investments	$	85,223		$	54,684	$	65,319
Unrealized loss on available-for-sale securities	$	(2	)	$	—	$	(2	)

Operating activities

~~Our~~Cash ~~primary~~used ~~use~~in ofoperating ~~cash from investing~~ activities isin ~~for~~2012 ~~capital expenditures, which~~ was $104.16 million, which related to net losses of $43.74 million ~~and~~adjusted by $20.68 million inof ~~2011,~~other ~~2010~~accrued liabilities and ~~2009,~~payables. ~~and~~Cash ~~for~~used ~~business~~in ~~acquisitions,~~operating ~~which~~activities ~~was~~declined by $1413.74 million in ~~2010.~~2012 ~~Other~~primarily ~~cash~~due ~~provided~~to by$10.2 ~~(used~~million ~~in)~~of ~~investing~~deferred ~~activities~~revenue ~~was due to purchases, sales~~ and ~~maturities~~$2.3 million of ~~short-term~~accounts ~~investments~~receivable.

~~Financing activities~~36

~~Cash~~Table ~~provided by financing activities~~ of $31.5 million in 2011 was due to proceeds of $64.2 million from the issuance of common stock in the initial public offering and proceeds of $3.5 million from the exercise of employee stock options, partially offset by the payment of accrued dividends on Series B mandatorily redeemable convertible preferred stock of $29.6 million and the settlement and payment of contingent consideration of $6.9 million. In February 2011, we issued 4.4 million shares at a price of $16.00 per share in an initial public offering, net of underwriting discounts, commissions and other costs totaling $7.9 million, of which $2.0 million had been capitalized in 2010.Contents

Cash ~~used~~provided inby ~~financing~~operating activities ~~of $0.5 million~~ in ~~2010~~2011 was ~~due~~$8.8 ~~to repurchases of our stock from certain employees~~million, ~~former~~which ~~employees~~related ~~and~~to ~~former~~net ~~directors~~losses ~~totaling~~of $3.5 6 million, ~~partially~~adjusted ~~offset~~ by ~~proceeds~~depreciation ~~from~~and ~~the~~amortization ~~exercise~~expenses of ~~employee stock options of~~ $28.7 million. ~~During 2010, certain individuals, including former employees~~ and ~~former directors, entered into binding agreements to sell common~~ stock-based ~~held~~compensation byof ~~them to three accredited investors~~$7.3 ~~During 2010~~million, wepartially ~~exercised~~offset ~~our~~by ~~right~~increases of ~~first~~accounts ~~refusal~~receivable ~~for~~and ~~0.4 million~~deferred ~~shares~~tax assets of ~~common stock at contracted prices ranging from~~ $61.426 tomillion and $112.439 ~~for~~million, ~~an aggregate purchase price of $3~~respectively.~~5 million.~~

39Cash provided by operating activities was approximately $9.1 million in 2010, which was primarily attributable to net income of $3.8 million plus stock-based compensation of $6.3 million and depreciation and amortization of $4.4 million, and a decrease in deferred tax assets of $4.5 million, partially offset by a decrease in deferred revenue of $7.5 million.

~~Table~~Investing ~~of Contents~~activities

Cash used in ~~financing~~investing activities ~~in 2009~~ was $613.9 million ~~and~~for ~~was~~the ~~due~~year toended ~~repurchases~~December 31, of2012, ~~our~~compared ~~stock~~with ~~from~~net ~~employees~~cash ~~and~~used ~~former~~in ~~employees~~investing ~~totaling~~activities of $71.9 0 million, ~~partially~~for ~~offset by proceeds from~~ the ~~exercise~~comparable ofperiod ~~employee~~in ~~stock~~2011. ~~options~~The of $012.9 ~~million.~~ ~~On June 1, 2009, we repurchased 0.5~~ million ~~shares~~increase ofin ~~common~~cash ~~stock~~used ~~from~~in ~~existing~~investing ~~employees~~activities ~~for~~was primarily andue ~~aggregate $5.8 million pursuant~~ to a ~~tender offer~~$17.9 ~~Also,~~million ~~during~~increase ~~the~~in ~~fourth~~net ~~quarter~~purchases of ~~2009,~~short-term ~~certain~~investments ~~former~~over ~~employees~~sales ~~entered~~and ~~into binding agreements to sell common stock held by them to one of various accredited investors. In certain instances~~maturities, wepartially ~~elected~~offset ~~to exercise our right of first refusal~~ by ~~purchasing~~a ~~the shares from these individuals at contracted prices ranging from~~ $85.276 tomillion ~~$9.54~~decrease ~~per~~in ~~share.~~purchases ~~We exercised our right~~ of ~~first~~property ~~refusal~~and toequipment ~~repurchase~~as ~~0.2 million~~a ~~shares~~result of ~~common~~the ~~stock~~discontinuation ~~for~~of anour ~~aggregate~~EHR ~~purchase~~operations ~~price~~in ofearly $22012.~~1 million.~~

WeOur ~~believe~~capital ~~that~~expenditures ~~our~~were ~~available~~$4.5 ~~cash~~million, ~~resources~~$10.1 million and ~~anticipated~~$4.7 ~~future~~million ~~cash~~in ~~flow~~2012, ~~from~~2011 ~~operations will provide sufficient cash resources to meet our contractual obligations~~ and ~~our~~2010, ~~anticipated~~respectively, ~~working capital~~ and ~~capital~~cash ~~expenditure~~used ~~requirements~~ for atbusiness ~~least~~acquisitions ~~the~~was ~~next 12 months~~$14.7 ~~However,~~million ~~prior~~in ~~to such time, we may seek to sell additional equity or debt securities or obtain a credit facility~~2010. ~~The~~Other ~~sale~~cash ofprovided ~~additional~~by ~~equity~~(used orin) ~~convertible~~investing ~~securities~~activities ~~may~~was ~~result~~due ~~in additional dilution~~ to ~~our stockholders. If we raise additional funds through the issuance of debt securities~~purchases, ~~these~~sales ~~securities~~and ~~could~~maturities ~~have rights senior to those~~ of ~~our~~short-term ~~common stock and could contain covenants that could restrict our operations~~investments. ~~Any required additional capital may not be available on reasonable terms, if at all.~~

~~Our~~Financing future liquidity and capital requirements will depend upon numerous factors, including retention of customers at current volume and revenue levels, our existing and new application and service offerings, competing technological and market developments and potential future acquisitions. In addition, our ability to generate cash flow is subject to numerous factors beyond our control, including general economic, regulatory and other matters affecting our customers and us.activities

~~Contractual~~Cash ~~Obligations~~provided by financing activities was $2.1 million in the year ended December 31, 2012, compared with $31.5 million of cash provided by financing activities in the year ended December 31, 2011. Cash provided by financing activities of $2.1 million during the year ended December 31, 2012 is due to proceeds received from the exercise of common stock options. The $29.4 million decrease in cash provided by financing activities in the year ended December 31, 2012 was primarily a result of a net cash inflow of $34.6 million in the year ended December 31, 2011 due to $64.2 million of proceeds from the issuance of common stock under our IPO, partially offset by the payment of $29.6 million of aggregate cumulative dividends to the holders of our Series B preferred stock. The decline in cash provided by financing activities in the year ended December 31, 2012 was additionally offset by a $6.4 million decline due to the gain on the settlement of a contingent consideration agreement with the sellers of MedCafe, Inc. during the year ended December 31, 2011.

~~The~~Cash ~~following~~used ~~table~~in ~~summarizes~~financing ~~our~~activities ~~contractual~~of ~~obligations~~$0.5 asmillion in 2010 was due to repurchases of ~~December 31~~our stock from certain employees, ~~2011~~former employees and former directors, totaling $3.5 million, partially offset by proceeds from the ~~years~~exercise inof ~~which~~employee ~~these~~stock ~~obligations~~options ~~are~~of ~~due~~$2.7 ~~(in~~million. During ~~thousands):~~2010, certain individuals, including former employees and former directors, entered into binding agreements to sell common stock held by them to three accredited investors. During 2010, we exercised our right of first refusal for 0.4 million shares of common stock at contracted prices ranging from $6.42 to $11.43 for an aggregate purchase price of $3.5 million.

	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 Years
Operating leases (1)	$	7,364	$	2,861	$	4,503	$	—	$	—
Minimum royalty and contract license fees (2)	8,530		4,571		3,959		—		—
Engineering and content development (3)	1,200		600		600		—		—
Uncertain tax positions (4)	1,126		—		—		—		1,126
Total	$	18,220	$	8,032	$	9,062	$	—	$	1,126

Contractual Obligations

~~(1) Relates~~Please toreference ~~our~~"Item ~~facilities~~8. inFinancial ~~California,~~Statements ~~New~~and ~~Jersey~~Supplementary Data - Note 10. Commitments and ~~North~~Contingencies" ~~Carolina~~for the Company's future contractual obligations.

~~(2) Relates~~Off-Balance toSheet ~~medical information licensed from third parties for use in our subscription services.~~Arrangements

~~(3) Relates~~We todo anot ~~contract~~have any relationships with aunconsolidated ~~consulting~~entities ~~firm~~or financial partnerships, such as entities often referred to ~~provide~~as ~~product~~structured ~~development~~finance ~~and~~or ~~content~~special ~~development~~purpose ~~work~~entities. We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts.

~~(4) Represents~~Item ~~uncertain~~7A. Quantitative ~~tax~~and ~~positions~~Qualitative ~~for~~Disclosures ~~which~~About weMarket ~~could not make a reasonable estimate of the amount or the exact period of related future payments.~~Risk

~~Off-Balance~~Interest ~~Sheet~~Rate ~~Arrangements~~Risk

WeThe doprimary ~~not~~objectives ~~have~~of ~~any~~our ~~relationships~~investment ~~with~~activities ~~unconsolidated~~are ~~entities~~to orpreserve ~~financial~~principal ~~partnerships~~and maintain liquidity while at the same time maximizing yields without significantly increasing risk. To achieve these objectives, ~~such~~we asinvest ~~entities~~in ~~often~~money ~~referred~~market tofunds asand ~~structured~~high ~~finance~~quality ordebt ~~special~~securities. ~~purpose~~Our ~~entities~~investments in debt securities are subject to interest rate risk. WeTo dominimize ~~not~~the ~~have~~exposure ~~any~~due ~~outstanding~~to ~~derivative~~an ~~financial~~adverse ~~instruments~~shift in interest rates, ~~off~~we invest in short-~~balance~~term ~~sheet~~securities ~~guarantees,~~and ~~interest~~maintain ~~rate~~an ~~swap~~average ~~transactions~~portfolio orduration ~~foreign~~of ~~currency~~less ~~forward~~than ~~contracts~~one year.

~~Indemnification~~37

WeTable ~~enter into standard indemnification agreements in the ordinary course~~ of business. Pursuant to the agreements, each party may indemnify, defend and hold the other party harmless with respect to such claim, suit or proceeding brought against it by a third party alleging that the indemnifying party’s intellectual property infringes upon the intellectual property of the third party, or results from a breach of the indemnifying party’s representations and warranties or covenants, or that results from any acts of negligence or willful misconduct. The term of these indemnification agreements is generally perpetual any time after execution Contents

40Unrestricted cash, cash equivalents and short-term investments are held for working capital purposes and acquisition financing. We do not enter into investments for trading or speculative purposes. While our portfolio of available-for-sale marketable securities create an exposure to interest rate risk, we believe that we do not have material exposure to changes in the fair value as a result of changes in interest rates due to the short-term nature of our investments. Declines in interest rates may reduce future investment income. However, a hypothetical decline of one percentage point in the interest rate on our investments would not have a material effect on our consolidated financial condition or results of operations.

~~Table~~Item of8. Financial ~~Contents~~Statements and Supplementary Data

ofReport ~~the agreement. The maximum potential amount~~ of ~~future~~Independent ~~payments~~Registered wePublic ~~could~~Accounting beFirm required to make under these indemnification agreements is unlimited. Historically, we have not been obligated to make significant payments for these obligations and no liabilities have been recorded for these obligations on the balance sheet as of December 31, 2011 or 2010.

WeTo ~~also indemnify our officers and directors for certain events or occurrences, subject to certain limits, while~~ the ~~officer~~Board ~~is or was serving at our request in such capacity. The maximum amount~~ of ~~potential~~Directors ~~future indemnification is unlimited; however, we have a Director~~ and Officer Insurance Policy that limits its exposure and enables us to recover a portion of any future amounts paid. Historically, we have not been obligated to make any payments for these obligations and no liabilities have been recorded for these obligations on the balance sheet as of December 31, 2010 or 2011.Stockholders

~~Sarbanes-Oxley~~of ~~Compliance and Corporate Governance~~Epocrates, Inc.:

AsIn our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) ~~public~~present ~~company~~fairly, wein ~~are~~all ~~subject~~material torespects, the ~~reporting~~financial ~~requirements~~position of Epocrates, Inc. and its subsidiaries at December 31, 2012 and 2011, and the ~~Sarbanes-Oxley~~results ~~Act~~of their operations and their cash flows for each of ~~2002~~the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. In ~~particular~~addition, wein ~~must~~our ~~perform~~opinion, ~~system~~the ~~and~~financial ~~process~~statement ~~evaluation~~schedule ~~and~~listed ~~testing~~in ofthe index appearing under item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting toas ~~allow~~of ~~management~~December to31, ~~report~~2012, based on criteria established in Internal Control - Integrated Framework issued by the ~~effectiveness~~Committee of ~~our~~Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting, asand ~~required~~for byits ~~Section 404~~assessment of the ~~Sarbanes-Oxley~~effectiveness ~~Act,~~of ~~beginning~~internal ~~with~~control ~~this~~over ~~annual~~financial ~~report~~reporting, included in Management's Report on ~~Form 10-K~~Internal ~~for~~Control ~~the~~Over ~~fiscal~~Financial ~~year~~Reporting ~~ending~~appearing ~~December 31~~under item 9A. Our responsibility is to express opinions on these financial statements, ~~2011~~on the financial statement schedule, and ~~potentially~~on the Company's internal control over financial reporting based on our ~~independent~~audits ~~registered~~(which ~~public~~was ~~accounting~~an ~~firm~~integrated ~~beginning~~audit ~~with~~in 2012). We conducted our ~~annual~~audits ~~report~~in onaccordance ~~Form 10-K~~with ~~for~~the standards of the ~~fiscal~~Public ~~year~~Company ~~ending~~Accounting ~~December 31,~~Oversight ~~2012~~Board (United States). Those Instandards ~~order~~require tothat ~~maintain~~we plan and ~~improve~~perform the ~~effectiveness~~audits to obtain reasonable assurance about whether the financial statements are free of ~~disclosure~~material ~~controls~~misstatement and ~~procedures~~whether ~~and~~effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, ~~significant~~on ~~resources~~a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, ~~oversight~~and ~~will~~evaluating bethe ~~required~~overall financial statement presentation. Our Weaudit ~~also~~of ~~must~~internal ~~comply~~control ~~with~~over ~~all~~financial ~~corporate~~reporting ~~governance~~included ~~requirements~~obtaining an understanding of ~~The~~internal ~~NASDAQ~~control ~~Global~~over ~~Market~~financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

~~Recently~~A ~~Adopted~~company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and ~~Recently~~the ~~Issued~~preparation ~~Accounting~~of ~~Guidance~~financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

~~See~~Because ~~“Note 2~~of ~~– Summary~~its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of ~~Significant~~any ~~Accounting~~evaluation ~~Policies”~~of effectiveness to future periods are subject to the ~~consolidated~~risk ~~financial~~that ~~statements~~controls ~~included~~may inbecome ~~this~~inadequate ~~report~~because of changes in conditions, ~~regarding~~or that the ~~impact~~degree of ~~certain~~compliance ~~recent~~with ~~accounting~~the ~~pronouncements~~policies onor ~~our~~procedures ~~consolidated~~may ~~financial statements~~deteriorate.

~~Item~~/s/ ~~7A.~~PricewaterhouseCoopers ~~Quantitative and Qualitative Disclosures About Market Risk~~LLP

~~Interest~~San ~~Rate~~Jose, ~~Risk~~California

~~The~~March primary objectives of our investment activities are to preserve principal and maintain liquidity while at the same time maximizing yields without significantly increasing risk. To achieve these objectives11, we invest in money market funds and high quality debt securities. Our investments in debt securities are subject to interest rate risk. To minimize the exposure due to an adverse shift in interest rates, we invest in short-term securities and maintain an average portfolio duration of less than one year.2013

Unrestricted cash, cash equivalents and short-term investments are held for working capital purposes and acquisition financing. We do not enter into investments for trading or speculative purposes. While our portfolio of available-for-sale marketable securities create an exposure to interest rate risk, we believe that we do not have material exposure to changes in the fair value as a result of changes in interest rates due to the short-term nature of our investments. Declines in interest rates may reduce future investment income. However, a hypothetical decline of one percentage point in the interest rate on our investments would not have a material effect on our consolidated financial condition or results of operations.38

~~Item~~Table 8.of ~~Financial Statements and Supplementary Data~~Contents

~~Supplementary Data~~EPOCRATES, INC.

~~The~~CONSOLIDATED ~~information~~BALANCE regarding our quarterly financial results required by this item is incorporated by reference here from “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Quarterly Results of Operations.”SHEETS

(in thousands, except for par value)



	December 31, 2012			December 31, 2011
Assets
Current assets
Cash and cash equivalents	$	58,944		$	75,326
Short-term investments	19,301			9,897
Accounts receivable, net of allowance for doubtful accounts of $142 and $85, respectively	26,568			22,748
Deferred tax asset	3,687			7,390
Prepaid expenses and other current assets	3,252			3,218
Total current assets	111,752			118,579
Property and equipment, net	7,853			7,283
Deferred tax asset	2,486			1,280
Goodwill	17,959			17,959
Other intangible assets, net	2,768			6,771
Other assets	358			352
Total assets	$	143,176		$	152,224
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	3,436		$	3,282
Deferred revenue	38,045			46,429
Other accrued liabilities	9,521			9,600
Total current liabilities	51,002			59,311
Deferred revenue, less current portion	5,885			8,088
Other liabilities	1,330			1,893
Total liabilities	58,217			69,292
Commitments and contingencies (Note 10)	—			—
Stockholders’ equity
Preferred stock: $0.001 par value; 10,000 shares authorized; no shares issued and outstanding at December 31, 2012 and 2011, respectively	—			—
Common stock: $0.001 par value; 100,000 shares authorized; 24,902 and 24,370 shares issued and outstanding at December 31, 2012 and 2011, respectively	25			24
Additional paid-in capital	134,682			129,238
Accumulated other comprehensive loss	(1		)	(2		)
Accumulated deficit	(49,747		)	(46,328		)
Total stockholders’ equity	84,959			82,932
Total liabilities and stockholders’ equity	$	143,176		$	152,224

~~Table~~The accompanying notes are an integral part of ~~Contents~~these consolidated financial statements.

~~Report of Independent Registered Public Accounting Firm~~39

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