As filed with the Securities and Exchange Commission on May 22, 2012

Registration No. 333-180176

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 2

FORM S-1

REGISTRATION STATEMENT

under

The Securities Act of 1933

Exponential Interactive, Inc.

(Exact name of registrant as specified in its charter)

Delaware

7370

94-3370688

(State or other jurisdiction of

incorporation or organization)

(Primary standard industrial

code number)

(I.R.S. employer

identification no.)

2200 Powell Street, Suite 600

Emeryville, California 94608

(510) 250-5500

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

John R. Rettig

Chief Financial Officer

Exponential Interactive, Inc.

2200 Powell Street, Suite 600

Emeryville, California 94608

(510) 250-5500

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Daniel J. Winnike, Esq.

Fenwick & West LLP

801 California Street

Mountain View, California 94041

(650) 988-8500

Martin A. Wellington, Esq.

Davis Polk & Wardwell LLP

1600 El Camino Real

Menlo Park, California 94025

(650) 752-2000

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

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

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

The information in this preliminary prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion

Preliminary Prospectus dated May 22, 2012

PRELIMINARY PROSPECTUS

Shares

LOGO

Common Stock

This is the initial public offering of Exponential Interactive, Inc. We are selling shares of our common stock and the selling stockholders named in this prospectus are selling shares. We will not receive any proceeds from the sale of the shares by the selling stockholders. We have granted the underwriters an option to purchase up to additional shares of common stock to cover over-allotments, if any.

We intend to apply to have our shares listed on the New York Stock Exchange (the “NYSE”) under the symbol “EXPN.” We expect the initial public offering price to be between $ and $ per share of common stock.

We are an “emerging growth company” under the federal securities laws. Investing in our common stock involves risks. Please read “Risk Factors” beginning on page 10 of this preliminary prospectus before you make an investment in our common stock.


	Per Share	Total
Public offering price	$	$
Underwriting discount	$	$
Proceeds to us (before expenses) from this offering to the public	$	$
Proceeds to the selling stockholders (before expenses) from this offering to the public	$	$

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares to purchasers on or about , 2012.


Citigroup		BofA Merrill Lynch


RBC Capital Markets		ThinkEquity LLC

The date of this prospectus is , 2012

LOGO

We are responsible for the information contained in this prospectus and in any free-writing prospectus we prepare or authorize. We have not authorized anyone to provide you with different information, and we take no responsibility for any other information others may give you. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date.

TABLE OF CONTENTS


	Page
Prospectus Summary		1
Risk Factors		10
Forward-Looking Statements		28
Use of Proceeds		29
Dividend Policy		29
Capitalization		30
Dilution		32
Selected Consolidated Financial Data		34
Unaudited Pro Forma Combined Consolidated Financial Information		37
Management’s Discussion and Analysis of Financial Condition and Results of Operations		41
Business		69
Management		78
Executive Compensation		83
Certain Relationships and Related Party Transactions		91
Principal and Selling Stockholders		93
Description of Capital Stock		95
Shares Eligible for Future Sale		99
Material U.S. Federal Income Tax Consequences to Non-U.S. Holders		101
Underwriting		105
Legal Matters		111
Experts		111
Where You Can Find More Information		111
Index to Consolidated Financial Statements		F-1

PROSPECTUS SUMMARY

This summary highlights information contained in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider in making your investment decision. You should read the entire prospectus carefully before making an investment in our common stock. You should carefully consider, among other things, our consolidated financial statements and the related notes and the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

Our Mission

Our mission is to partner with brand advertisers across the globe to help them unlock the power of digital media to build awareness, affinity and loyalty among consumers.

Overview

We are a leading global provider of advertising intelligence and digital media solutions to brand advertisers. We have developed a solution that enables brand advertisers to learn about their optimal consumer audience, reach and engage that audience with emotionally engaging advertising and analyze and refine their marketing campaigns. The foundation of our solution is our proprietary e^X Advertising Intelligence Platform, which processes massive amounts of anonymous consumer data to provide the intelligence and actionable insights brand advertisers need to efficiently reach their existing and prospective customers.

In 2010, global advertising spend was $449 billion, of which digital media advertising spend was $64 billion, or only 14%, according to ZenithOptimedia. Advances in technology, increases in network bandwidth and the growing proliferation of connected devices have changed the ways in which people connect, interact, work and live. As consumers shift to digital media and as virtually all types of media transition to digital formats, we expect brand advertisers to increasingly focus on digital media advertising.

We offer a highly integrated solution that includes multiple formats of high impact advertisements across display, video and mobile platforms. In 2011, we provided our solution to nearly 1,900 advertisers. Our solution allows brand advertisers to connect with their target audiences at scale through highly customizable experiences across a wide variety of formats and devices. We combine this with an efficient operational infrastructure that supports our sales footprint across 26 countries worldwide.

Our e^X Advertising Intelligence Platform enables brand advertisers to understand the detailed attributes of consumers who engage with their brands and to then apply those insights to reach audiences with similar attributes. We process approximately two billion daily user events, which are Internet user actions such as visiting a web page, performing a search or buying something. These events are associated with consumer activities across our digital media content providers’ web pages as well as activities at other third party data sources. Our contextualization technology identifies and attempts to categorize the textual content of web pages into one or more attributes from our 50,000 attribute taxonomy. When a consumer visits a web page that has been recorded by our platform, we register that the consumer is interested in the attributes associated with that page. Since each one of our 50,000 attributes represents an audience segment with specific interests, we are able to offer highly relevant audiences to brand advertisers.

well as the ability to continuously update and deepen the insights of our e^X Advertising Intelligence Platform. We leverage these capabilities to service our brand advertisers, matching relevant and engaging advertising to precise and relevant audiences.

Our ultimate customers are brand advertisers for whom we provide our solutions, as they are the source of the decision to sponsor ad campaigns, and when they use an agency they are responsible for hiring and directing the agency. In most cases brand advertisers engage advertising agencies to assist them in the creation of their ads and media buying for the placement of these ads and, consequently, most of our sales are made through advertising agencies. Regardless of whether advertisers contract directly with us or through agencies, advertisers are responsible for payment for our services. The media on which online advertising is placed, or served, consists of digital properties maintained by digital media content providers.

We generate revenues by delivering marketing campaigns for advertisers through our three primary global brands: Tribal Fusion, Firefly Video and AdoTube. In addition, we recently launched AppSnack, our mobile advertising brand that provides in-application, or “in-app,” rich media solutions for brand advertisers. In 2011, our revenues were $169.1 million, an increase of 35% over $125.3 million of revenues in 2010. For the three months ended March 31, 2012, our revenues were $40.6 million, an increase of 20% over $33.7 million of revenues for the three months ended March 31, 2011. We have been profitable on an annual basis for 10 years, through 2011. To capitalize on our long-term opportunity, we are making substantial investments in geographic expansion, video and mobile initiatives. Accordingly, we recorded a net loss of $3.0 million in the first quarter, and we expect to incur a net loss for the full year 2012. We have grown our business primarily with cash flows from operations and debt financing and without third-party equity capital, reflecting our focus on results and our founder-led corporate culture of independence.

Our Solution

Our solution enables brand advertisers to learn about their optimal audience, reach and engage that audience through emotionally engaging advertising and analyze and refine their marketing campaigns. Our solution empowers brand advertisers with insights about their audiences and incorporates those insights into effective and efficient marketing campaigns to achieve the brand advertisers’ desired outcomes.

Our solution is comprised of three key focus areas:

•

Brand intelligence. We provide brand advertisers with insights into (i) which audiences interact with their brands digitally, (ii) what are the most significant attributes that describe those audiences and (iii) which specific audiences they reach through their digital media campaigns. Our granular segmentation provides deep and actionable insights into a brand’s optimal audience, often identifying segments that may not have been previously targeted.

•

Consumer targeting. We enable brand advertisers to reach their prospective customers by using our rich targeting capabilities and massive audience to precisely and efficiently connect with the audiences that are most relevant to their brands.

•

User engagement. Our extensive portfolio of engaging formats enables the deployment of digital marketing messages, including TV advertisements, across multiple devices, platforms and media. We are able to dynamically customize the creative messages of marketing campaigns to maximize their relevancy and increase engagement with prospective customers across the devices where consumers spend their time.

The e^X Advertising Intelligence Platform

The foundation of our technology is our e^X Advertising Intelligence Platform. Starting with the analysis of consumer interactions with a brand’s websites, we are able to understand the detailed attributes that best describe the consumers who interact and transact with that brand. We leverage these insights across a wide range of digital media devices and platforms to reach other consumers with similar attributes.

Our technology includes the following key elements:

•

Advertiser-centric taxonomy. Our advertiser-centric hierarchical taxonomy is comprised of over 50,000 unique attributes that help us categorize consumers into audiences. Designed specifically for brand advertisers, it includes attributes that are focused on purchase intent and relevant interests for brands across a wide range of business verticals.

•

Contextualization technology. Our contextualization technology enables us to extract significant intelligence from over two billion daily user events associated with consumer activities across our digital media content providers’ web pages and other sources. We map each of our 50,000 attributes to an associated semantic concept in English, Spanish, German and French. Having so defined the attributes, our contextualization engine analyzes the most frequently visited web pages, performing both syntactic and semantic processing of the textual content to determine the meaning of, and assign specific attributes to, over 300 million unique web pages. When a consumer visits a web page analyzed by our platform, we register that the consumer is interested in the attributes associated with that web page. As a result, each of the 50,000 attributes represents an audience segment with similar interests, enabling us to offer highly relevant audiences to brand advertisers.

•

High-performance ad-serving platform. Our high-performance ad server technology features advanced targeting, real-time campaign management tools and advanced optimization algorithms. Our ad-serving platform has been designed to be highly integrated and scalable.

•

Actionable insights. The immense scale and depth of our data enables us to analyze user behavior patterns, calculate the value of individual user attributes to a brand advertiser and identify those that are statistically the most relevant to that brand. Using these insights, we are able to target audience models that most closely represent a brand advertiser’s current consumers.

Our Strengths

We believe that the following attributes and capabilities provide us with competitive advantages:

•

Integrated solution. Our data is tightly integrated into all of the components of our solution, powering all elements of the marketing process including brand intelligence, prospective customer targeting, optimization and the dynamic customization of advertisements. Our solution enables brand advertisers to meet their objectives across various formats and devices, such as display, video and mobile.

•

Technology driven actionable insights. Our technology processes billions of user events each month, providing the intelligence behind our solution for brand advertisers. The immense scale of our data and our advanced analytics technology enable us to transform raw data into actionable insights that our brand advertisers are able to leverage throughout their marketing campaigns.

•

Global footprint and scale. Our global reach, consumer data, operational infrastructure and management experience enable us to fulfill the needs of brand advertisers across the globe. We offer

our solution to brand advertisers in 26 countries worldwide and are positioned to take advantage of the global growth in digital media advertising. To support our global footprint, our contextualization technology is capable of mapping web pages in English, Spanish, German and French.

•

Blue chip brand advertisers. We have cultivated relationships with a blue chip customer base. In 2011, we delivered marketing campaigns on behalf of 88 of Advertising Age’s 100 Largest Global Marketers. Additionally, 85.4% of our 2011 revenues were generated from customers that we had served in the prior year. We believe this is driven by our superior results and continued product innovation.

•

Proven track record. Our founder-led management team has a track record of growing our business over a 10 year period without any third-party equity capital.

Growth Strategy

Our growth strategy is driven by our focus on helping brand advertisers connect with their prospective customers. We believe that we are in the early stages of a very large, secular shift in our industry as virtually all types of media transition to digital formats, which is creating a significant opportunity for our business. To capitalize on that opportunity, we plan to pursue the following priorities:

•

Expand across mobile devices and other platforms. We intend to leverage the capabilities of our e^X Advertising Intelligence Platform to expand across the full landscape of digital devices and platforms, including smartphones, tablets, eBooks and connected TVs as well as social media. For example, we recently launched AppSnack, our mobile advertising brand.

•

Continue our global expansion. We believe there is significant international demand for our solution, as digital devices are transforming consumer behavior across the world. We intend to expand our footprint by increasing penetration in the countries in which we currently operate, and by establishing a presence in additional countries.

•

Increase awareness and adoption of our solution. As digital advertising shifts towards brand-centric campaigns, brand advertisers will increasingly seek an integrated digital solution that meets their objectives. We believe our solution addresses that need and we intend to grow the market’s awareness and adoption of our platform’s capabilities.

•

Continue to evolve our solution. We will continue to enhance our e^X Advertising Intelligence Platform while developing new advertising capabilities and formats that grow and maximize the value we deliver to our brand advertisers.

•

Expand our audience and data. We intend to continue to expand our global audience reach and data by growing our relationships and footprint with digital media content providers across devices and platforms.

•

Pursue strategic acquisitions. We plan to evaluate and execute on opportunities to acquire complementary businesses and technologies that represent a strategic fit and are consistent with our overall growth strategy.

Risks Associated with Our Business

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this prospectus summary. Some of these risks are:

•

the market for digital brand advertising is at an early stage of development, and if it does not develop or develops more slowly than we expect, our business will be harmed;

•

if we are unable to retain existing advertisers, expand our business with existing advertisers or attract new advertisers, our revenues could decline;

•

we are making investments to develop and expand our business that are adversely affecting our operating results, and we may not realize a return on these investments;

•

we are highly dependent on advertising agencies as intermediaries, and this may adversely affect our ability to attract and retain business;

•

the market in which we participate is intensely competitive, and we may not be able to compete successfully;

•

we must deliver successful marketing campaigns or we will not grow or retain our current advertiser base;

•

regulatory, legislative or self-regulatory developments regarding Internet privacy matters could adversely affect our ability to conduct our business; and

•

our business model depends upon advertising inventory that we do not own or otherwise control.

We are an “emerging growth company” under the federal securities laws. We have irrevocably elected not to take advantage of the extended transition period provided in Section 7(a)(2)(B) under the Securities Act of 1933, as amended (the “Securities Act”), which delays the time at which we are required to comply with new or revised financial accounting standards until such standards are applicable to private companies.

Immediately following this offering, Mr. DaSilva, our Chairman, Chief Executive Officer and President, will own or control % of our outstanding common stock. As a result, Mr. DaSilva will have substantial influence over our management and affairs and will be able to control the outcome of matters submitted to our stockholders for approval, including the election of our directors and any merger, consolidation or sale of all or substantially all of our assets.

Corporate History and Information

We were incorporated in Delaware in June 2000. Our principal executive offices are located at 2200 Powell Street, Suite 600, Emeryville, CA 94608 and our telephone number is (510) 250-5500. Our website address is www.exponential.com. The information on, or that can be accessed through, our website is not incorporated by reference into this prospectus and should not be considered to be a part of this prospectus. In September 2011, we acquired our AdoTube business through the acquisition of New Wave Media Inc. (d/b/a AdoTube), which we refer to in this prospectus as “AdoTube.”

Unless otherwise indicated, the terms “Exponential,” “we,” “us,” “the company” and “our” refer to Exponential Interactive, Inc., a Delaware corporation, together with its consolidated subsidiaries.

Exponential Interactive^®, Tribal Fusion^®, Techbargains.com^®, AdoTube^® and Full Tango^® are our primary registered trademarks in the United States, and Firefly Video™ is among our unregistered trademarks. Other trademarks appearing in this prospectus are the property of their respective holders.

The Offering

Common stock offered by us

Common stock offered by the selling stockholders

Common stock to be outstanding after this offering

Over-allotment option of common stock offered by us

Use of proceeds

We expect to use the net proceeds of this offering for working capital and other general corporate purposes. We may also use a portion of the net proceeds to acquire or invest in complementary businesses, products, services, technologies or assets. See “Use of Proceeds.”

Proposed symbol

EXPN

The number of shares of common stock to be outstanding after this offering is based on 53,669,071 shares of common stock outstanding as of March 31, 2012, and excludes:

•

16,420,571 shares issuable upon the exercise of stock options outstanding as of March 31, 2012 with a weighted average exercise price of $1.69 per share;

•

120,000 shares underlying restricted stock units as of March 31, 2012;

•

2,548,868 shares reserved for issuance under our 2010 Equity Incentive Plan;

•

shares to be reserved for issuance under our 2012 Equity Incentive Plan and our 2012 Employee Stock Purchase Plan, each of which will become effective on the first day that our common stock is publicly traded and which will contain provisions to automatically increase the number of shares reserved for issuance each year, as more fully described in “Executive Compensation – Employee Benefit Plans”; and

•

up to 534,287 shares that may be issued as contingent deferred consideration from our acquisition of AdoTube.

Except as otherwise indicated, all information in this prospectus assumes:

•

outstanding shares include 750,000 shares of unvested restricted stock, which will become fully vested upon the completion of this offering;

•

a -for- reverse split of our capital stock, to be effective prior to the completion of this offering;

•

the filing of our amended and restated certificate of incorporation, which will occur immediately upon the completion of the offering; and

•

no exercise by the underwriters of their option to purchase up to an additional shares of our common stock in this offering.

Summary Consolidated Financial Data

The following tables summarize our consolidated financial data. You should read the following summary consolidated financial data in conjunction with the sections titled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, related notes and other financial information included elsewhere in this prospectus. We derived the summary consolidated statements of income data for 2009, 2010 and 2011 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the summary consolidated statements of operations data for the three months ended March 31, 2011 and 2012 and the consolidated balance sheet data as of March 31, 2012 from our unaudited interim consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future.


	Years Ended December 31,									Three Months Ended March 31,
	2009			2010			2011			2011		2012
	(In thousands, except share and per share data)
Consolidated Statements of Operations Data:
Revenues	$	92,560		$	125,268		$	169,082		$	33,748	$	40,601
Cost of revenues (1) (2)		55,436			71,988			95,848			19,928		23,126

Gross profit		37,124			53,280			73,234			13,820		17,475
Operating expenses (1) (2):
Sales and marketing		20,060			28,688			42,179			9,100		13,880
Product development		3,434			4,680			5,304			1,022		1,976
General and administrative		5,482			7,615			10,360			1,955		4,261
Amortization of intangible assets		1,073			1,045			1,189			261		385
Contingent deferred consideration		—			—			—			—		702

Total operating expenses		30,049			42,028			59,032			12,338		21,204

Operating income (loss)		7,075			11,252			14,202			1,482		(3,729	)
Other income (expense), net		(1,441	)		(1,396	)		(2,055	)		306		(114	)

Income (loss) before provision (benefit) for income taxes		5,634			9,856			12,147			1,788		(3,843	)
Provision (benefit) for income taxes		2,623			4,485			5,263			726		(818	)

Net income (loss)	$	3,011		$	5,371		$	6,884		$	1,062	$	(3,025	)

Net income (loss) attributable to common stockholders (3):
Basic	$	2,953		$	5,279		$	6,787		$	1,047	$	(3,025	)

Diluted	$	2,953		$	5,280		$	6,789		$	1,047	$	(3,025	)

Net income (loss) per share attributable to common stockholders (3):
Basic	$	0.06		$	0.10		$	0.13		$	0.02	$	(0.06	)

Diluted	$	0.06		$	0.10		$	0.13		$	0.02	$	(0.06	)

Weighted-average shares used in computing net income (loss) per share attributable to common stockholders (3):
Basic		51,190,410			51,682,476			52,510,727			52,504,094		52,740,244

Diluted		51,885,242			52,159,078			53,802,990			53,003,944		52,740,244


Other Financial Information:
Adjusted EBITDA	$	12,779		$	18,037		$	22,039		$	3,025	$	(86	)


	As of March 31, 2012
	Actual		As Adjusted (4)
	(In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	18,529	$
Working capital		30,294
Total assets		116,722
Total indebtedness		16,348
Total stockholders’ equity		56,547

(1)	Results include stock-based compensation as follows:


	Years Ended December 31,						Three Months Ended March 31,
	2009		2010		2011		2011		2012
	(In thousands)
Cost of revenues	$	34	$	36	$	34	$	8	$	9
Sales and marketing		860		1,442		1,287		246		478
Product development		368		726		418		94		116
General and administrative		377		624		635		121		300
Contingent deferred consideration		—		—		—		—		100

Total stock-based compensation	$	1,639	$	2,828	$	2,374	$	469	$	1,003

(2)	Results include amortization of intangible assets as follows:


	Years Ended December 31,						Three Months Ended March 31,
	2009		2010		2011		2011		2012
	(In thousands)
Cost of revenues	$	1,549	$	1,549	$	2,124	$	387	$	883
Operating expenses		1,073		1,045		1,189		261		385

Total amortization of intangible assets	$	2,622	$	2,594	$	3,313	$	648	$	1,268

(3)	See Notes 1 and 11 to our audited consolidated financial statements appearing elsewhere in this prospectus for an explanation of the calculations of our basic and diluted net income (loss) per share attributable to common stockholders.

(4)

Reflects the receipt of $ in net proceeds from the sale of shares of common stock by us in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) our pro forma, as adjusted cash and cash equivalents, working capital, total assets and total stockholders’ equity by $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions payable by us.

Adjusted EBITDA

To provide investors with additional information regarding our financial results, we have disclosed in the table above and within this prospectus Adjusted EBITDA, a non-GAAP financial measure. We have provided below a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure.

Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are as follows:

•

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

•

Adjusted EBITDA does not include other income and expense, which includes interest expense, or the cash requirements necessary to service interest or principal payments on our indebtedness, and foreign exchange gains and losses;

•

Adjusted EBITDA does not include our provision (benefit) for income taxes or reflect income tax payments that may represent a reduction in cash available to us;

•

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements or contractual commitments for such replacements or for new capital expenditure requirements;

•

Adjusted EBITDA does not include the potentially dilutive impact of stock-based compensation;

•

Adjusted EBITDA does not include contingent deferred consideration due in connection with our acquisition of AdoTube; and

•

Other companies, including companies in our industry, may calculate Adjusted EBITDA differently or not at all, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income (loss) and our financial results presented in accordance with GAAP. The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods indicated:


	Years Ended December 31,						Three Months Ended March 31,
	2009		2010		2011		2011			2012
	(In thousands)
Reconciliation of Adjusted EBITDA:
Net income (loss)	$	3,011	$	5,371	$	6,884	$	1,062		$	(3,025	)
Other (income) expense, net		1,441		1,396		2,055		(306	)		114
Provision (benefit) for income taxes		2,623		4,485		5,263		726			(818	)
Depreciation and amortization of property and equipment		1,443		1,363		2,150		426			770
Amortization of intangible assets		2,622		2,594		3,313		648			1,268
Stock-based compensation		1,639		2,828		2,374		469			903
Contingent deferred consideration		—		—		—		—			702

Adjusted EBITDA	$	12,779	$	18,037	$	22,039	$	3,025		$	(86	)

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including the consolidated financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in shares of our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, also may become important factors that impair us. If any of the following risks actually occurs, our business, financial condition, results of operations and future prospects could be materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose part or even all of your investment.

Risks Related to Our Business and Industry

The market for digital brand advertising is at an early stage of development, and if it does not develop or develops more slowly than we expect, our business will be harmed.

Our products and services are designed to enable brand advertisers to effectively and efficiently connect with their target audience across a wide variety of digital devices and formats. While digital advertising has grown substantially over the past decade, most of this advertising has been focused on driving online purchasing or other direct response consumer behavior. By contrast, brand advertising is designed to build awareness, affinity, loyalty and goodwill towards a brand. Advertisers continue to spend more of their brand advertising budgets on “offline” advertising – such as TV, radio and print, than on digital advertising. Our future growth will substantially depend on brand advertisers increasing their spend on digital marketing channels, and we cannot be certain that they will do so. If brand advertisers do not perceive meaningful benefits from digital advertising, then the market may fail to develop or develop more slowly than we expect, either of which would adversely affect our business, financial condition and operating results.

If we are unable to retain existing advertisers, expand our business with existing advertisers or attract new advertisers our revenues could decline.

Our ability to continue to grow our revenues will depend in large part on expanding our business with existing advertisers and attracting new advertisers. The number of our current advertisers may not expand materially beyond our existing base. Further, even for our largest advertisers, the amount they spend with us is typically only a small fraction of their overall advertising budget. These advertisers may view their spend with us as experimental and may either reduce or terminate their spend with us if they perceive a superior alternative for digital brand advertising.

Advertisers do not enter into long-term obligations with us requiring them to use our solution and their contracts with us are cancelable upon short or no notice and without penalty. We cannot be sure that our advertisers will continue to use our services or that we will be able to replace advertisers that do not renew their campaigns with new ones generating comparable revenues.

If our existing advertisers do not continue to use our solution for their marketing campaigns, or if we are unable to attract and expand the amount of business we do with new advertisers, our sales will decrease and our business, financial condition and operating results will be adversely affected.

We are highly dependent on advertising agencies as intermediaries, and this may adversely affect our ability to attract and retain business.

Most of our sales come from delivering marketing campaigns to advertising agencies that purchase our solution on behalf of their clients. For 2011 and the three months ended March 31, 2012, 82.0% and 85.0% of our

revenues, respectively, came from sales to advertising agencies. Advertising agencies are instrumental in assisting brands in planning and purchasing advertising, and each advertising agency will allocate advertising spend from brands across numerous channels. We do not have exclusive relationships with advertising agencies and we depend on agencies to work with us as they embark on marketing campaigns for brands. If we have an unsuccessful engagement with an advertising agency on a particular marketing campaign, we risk losing the ability to do work not only for the advertiser for whom the campaign was run, but also for other brands represented by that agency. With advertising agencies acting as intermediaries for multiple brands, our customer base is more concentrated than might be reflected by the number of advertisers for whom we conduct marketing campaigns.

Our sales could be adversely impacted by industry changes relating to the use of advertising agencies. For example, if advertisers seek to bring their marketing campaigns in-house rather than using an advertising agency, we would need to develop relationships with the advertisers directly, which we might not be able to do and which could increase our sales and marketing expense. Moreover, as a result of dealing primarily with advertising agencies, we have less of a direct relationship with advertisers than would be the case if advertisers dealt with us directly. This may drive advertisers to attribute the value we provide to the advertising agency rather than to us, further limiting our ability to develop long term relationships directly with advertisers. Advertisers may move from one advertising agency to another, and, accordingly, even if we have a positive relationship with an advertising agency, we may lose the underlying business when an advertiser switches to a new agency. The presence of advertising agencies as intermediaries between us and the advertisers thus creates a challenge to building our own brand awareness and affinity with the advertisers that are the ultimate source of our revenues.

In addition, advertising agencies that are our customers also offer or may offer some of the components of our solution, including selling digital advertising inventory through their own trading desks. As such, these advertising agencies are, or may become, our competitors. If they further develop their capabilities they may be more likely to offer their own solutions to advertisers and our ability to compete effectively could be significantly compromised and our business, financial condition and operating results could be adversely affected.

The market in which we participate is intensely competitive, and we may not be able to compete successfully.

The market for digital marketing and advertising solutions is highly competitive and rapidly changing. With the introduction of new technologies and the influx of new entrants to the market, we expect competition to persist and intensify in the future, which could harm our ability to increase sales and maintain our profitability.

In the traditional media space our primary competitors for advertising spend are large media firms, mainly TV and radio broadcasters and aggregators, as well as print media publishers and outdoor advertising companies. Many of these competitors have significant consumer reach, well developed client relationships, much larger financial resources and longer operating histories than we have.

Across the digital media landscape, we compete for advertising spend with multiple market participants, including entities with significant market presence such as Google, Facebook and Yahoo!, as well as various online advertising networks. Some advertising agencies, including some agencies that buy our solution on behalf of advertisers, also offer media inventory or services that compete directly with our solution. In addition to competing with these various firms for advertising spend, we also compete with some of them to place advertisements on digital media content providers’ properties. Further, many digital media content providers, in particular those with a significant consumer following, sell advertising on their websites and applications directly to advertisers, and these include some of the digital media content providers with whom we place advertisements.

Some of our larger competitors, such as Google, Apple, Microsoft and Facebook, may have the power to significantly change the very nature of the digital advertising marketplace to their advantage, and these changes could materially disadvantage us. For example, Google, Microsoft and Apple have substantial resources and have a significant share of widely adopted industry platforms such as web browsers and mobile operating systems.

These companies could leverage their position to make changes to their platforms that could be disadvantageous to our competitive position.

New technologies and methods of buying advertising present a dynamic competitive challenge, as market participants offer multiple new products and services, such as analytics, automated media buying and exchanges, aimed at capturing advertising spend. In addition to existing competitors and intermediaries, we may also face competition from new companies entering our market, which may include large established companies, such as IBM, which recently acquired Coremetrics, and Adobe Systems, which recently acquired Omniture and Efficient Frontier, each of which currently offers, or may in the future offer, online marketing applications, web analytics and marketing automation solutions.

We may face competition from companies we do not yet know about. If existing or new companies develop, market or resell competitive high-value marketing products or services, acquire one of our existing competitors or form a strategic alliance with one of our competitors, our ability to compete effectively could be significantly compromised and our operating results could be harmed.

Our current and potential competitors may have significantly more financial, technical, marketing and other resources than we have, be able to devote greater resources to the development, promotion, sale and support of their products and services, have more extensive advertiser bases and broader relationships than we have, and may have longer operating histories and greater name recognition than we have. As a result, these competitors may be better able to respond quickly to new technologies, develop deeper customer relationships or offer services at lower prices. Any of these developments would make it more difficult for us to sell our services and could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses or the loss of market share.

We must deliver successful marketing campaigns or we will not grow or retain our current advertiser base.

It is critical that we deliver successful marketing campaigns on behalf of our advertisers. Factors that may adversely affect our ability to deliver successful marketing campaigns include the following:

•

inability to accurately process data and extract meaningful insights;

•

faulty algorithms that fail to properly process data or result in inaccurate or ineffective consumer targeting;

•

failure to create or deliver marketing campaigns that engage consumers;

•

the delivery of advertising impressions next to inappropriate content for the advertiser;

•

technical or infrastructure problems resulting in marketing campaigns not functioning or displaying properly; and

•

misuse of tracking tools, click-fraud or other malevolent behavior.

If we are not successful in delivering marketing campaigns for advertisers our ability to retain and expand business with existing advertisers could be harmed and our business, financial condition and operating results could be adversely affected.

Regulatory, legislative or self-regulatory developments regarding Internet privacy matters could adversely affect our ability to conduct our business.

Consumer and industry groups have expressed concerns about online data collection and use by advertisers, which has resulted in the release of various industry self-regulatory codes of conduct and best practice guidelines that are binding for member companies and that govern, among other things, the ways in which companies can collect, use and disclose user information, how companies must give notice of these practices and what choices companies must provide to consumers regarding these practices.

U.S. regulatory agencies have also placed an increased focus on online privacy matters and, in particular, on online advertising activities that utilize cookies and other online tools for tracking purposes. Such regulatory agencies have released, or are expected to release, detailed reports pertaining to the collection and use of consumers’ information for online advertising and other purposes. For example, on March 26, 2012, the Federal Trade Commission issued its report on privacy, which is intended to articulate best practices for companies collecting and using consumer data. The report recommends companies adopt several practices that could have an impact on our business, including: (i) giving consumers notice and offering them choices about being tracked across other parties’ websites; (ii) giving consumers notice if they “enhance” the consumer’s data with data from third parties (and identifying the third-party sources of the data); and (iii) implementing a persistent “Do Not Track” mechanism — likely as a setting on consumers’ Internet browsers – to enable consumers to choose whether to allow the tracking of their online search and browsing activities.

U.S. and foreign governments have enacted, considered or are considering legislation or regulations that could significantly restrict industry participants’ ability to collect, augment, analyze, use and share anonymous data, such as by regulating the level of consumer notice and consent required before a company can employ cookies or other electronic tools to track consumers online. A number of existing bills are pending in the U.S. Congress that contain provisions that would regulate how companies can use cookies and other tracking technologies to collect and use information about consumers. Several pending bills also contain provisions that would specifically regulate the collection and use of information, particularly geolocation information, from mobile devices.

The European Union and some EU member states have already implemented legislation and regulations requiring advertisers to obtain specific types of notice and consent from consumers before using cookies or other technologies to track consumer online behavior and deliver targeted advertisements. In particular, to comply with these requirements, the use of cookies or other similar technologies may require the user’s affirmative, opt-in consent.

Changes in global privacy regulations and self-regulatory regimes may adversely affect the demand for our solutions or otherwise harm our business, results of operations and financial condition. For instance, privacy regulations could require digital media content providers to take additional measures to facilitate consumer privacy preferences, in which case we will be reliant upon them to do so. In addition, digital media content providers could become subject to regulatory restrictions that would require them to limit or cease altogether the collection and/or use of data by third parties such as ourselves. For example, one potential form of restriction on the use of cookies would allow the website that the consumer has elected to visit, a first-party website, to continue to place cookies on the user’s browser without explicit consent, but would require the user’s explicit consent for a third party to place its cookies on the user’s browser. Additionally, the recent FTC staff report recommends that websites offer consumers a choice about whether the owner of the website can use third parties like us to track the consumer’s activity for marketing purposes (e.g., delivery of targeted advertising). We are a third party in this context, and therefore currently depend on the ability to place our cookies on browsers of users that visit the websites of our digital media content providers, and if we were restricted from doing so, our ability to gather the data on which we rely would be impaired. Further, we could be placed at a competitive disadvantage to large competitors such as Google, Facebook, Microsoft and Yahoo! who have heavily trafficked first-party properties that would continue to have greater ability to collect visitor data and use such data for marketing purposes.

Finally, we may be subject to foreign laws regulating online advertising even in jurisdictions where we do not have any physical presence to the extent a digital media content provider has advertising inventory that we manage or to the extent that we collect and use data from consumers in those jurisdictions. Such laws may vary widely around the world, making it more costly for us to comply with them. Failure to comply may harm our business and our operating results could be adversely affected.

Changes in consumer sentiment regarding privacy matters could adversely affect our ability to conduct our business.

Consumers may become increasingly resistant to the collection, use and sharing of information used to deliver targeted advertising, and take steps to prevent such collection and use of information. For example, consumer complaints and/or lawsuits regarding online advertising in general and our practices specifically could adversely impact our business.

Consumers can currently opt out of the placement or use of most cookies for online advertising purposes by either deleting or disabling cookies on their browsers, visiting websites that allow consumers to place an opt-out cookie on their browsers, which prevents the collection of certain data about the consumers’ online activity, or by downloading browser plug-ins and other tools that can be set to: (i) identify cookies and other tracking technologies used on websites; (ii) prevent websites from placing third-party cookies and other tracking technologies on the user’s browser; or (iii) block the delivery of online advertisements on websites and applications.

Changes in device and software features could make it easier for Internet users to prevent the placement of cookies. In particular, the default settings of consumer devices and software may be set to prevent the placement of cookies unless the user actively elects to allow them. For example, Apple’s Safari browser currently does not accept cookies as a default, and users must activate a browser setting to enable cookies to be set. On February 22, 2012, the Digital Advertising Alliance announced that its members will work to add browser-based header signals to the set of tools by which consumers can express their preferences not to be tracked online. On March 26, 2012, the FTC issued its report on privacy, which calls for the development and implementation of a persistent Do Not Track mechanism to enable consumers to choose whether to allow the tracking of their online search and browsing activities.

If consumer sentiment regarding privacy issues or the development and deployment of new browser solutions or other Do Not Track mechanisms results in a material increase in the number of users who choose to opt out or are otherwise using browsers where they need to, and fail to, configure the browser to accept cookies, our ability to conduct our business would be adversely affected, as would our operating results and financial condition.

In addition to this change in consumer preferences, if brand advertisers perceive significant negative consumer reaction to targeted online advertising, they may determine that such advertising has the potential to negatively impact their brand. In that case, advertisers may limit or stop the use of our services, and our operating results and financial condition would be adversely affected.

Our business model depends upon advertising inventory that we do not own or otherwise control.

The majority of our revenues come from arrangements where we are paid by advertisers to place advertisements on digital media content provider websites and applications that we do not own. As such, we do not own or control the inventory of advertising upon which our business depends. Digital media content providers have a variety of channels in which to sell their advertising inventory. If these content providers sell their inventory through advertising exchanges, or if our competitors offer higher prices for their inventory, this may affect our ability to obtain inventory on a cost-effective basis and our business, financial condition and operating results will be adversely affected.

Many digital media content providers sell a portion of their advertising inventory directly to advertisers, and digital media content providers may seek to do so increasingly in the future. If that were to occur, we may have fewer opportunities to sell our solution to advertisers, which would harm our ability to grow our business and our financial condition and operating results would be adversely affected.

We are highly dependent on our Chief Executive Officer.

Our future success depends in significant part on the continued service of our Dilip DaSilva, Chief Executive Officer, President and Chairman. Mr. DaSilva is critical to the overall management of our company as

well as the development of our technology and strategic direction. Mr. DaSilva is an at-will employee and there are no vesting restrictions on any of the common stock that he owns. The loss of Mr. DaSilva could adversely affect our business, financial condition and operating results.

Defects or errors in our solution could harm our reputation, result in significant costs to us and impair our ability to deliver our marketing campaigns.

The applications underlying our solution are inherently complex and may contain material defects or errors which can adversely affect the execution of a marketing campaign and cause harm to our reputation. Errors in our systems could cause the delivery of marketing campaigns in an incomplete or inaccurate manner. This risk is compounded by the complexity of our solution and the large amounts of data we collect and manage. If we were to experience any such errors or defects, our reputation could be harmed and we could lose customers.

Our relationships with digital media content providers that utilize our ad-serving technology could be adversely affected by our failure to deliver advertisements.

In some cases, digital media content providers rely on our ad server to deliver advertisements to their websites or mobile applications. Because of this additional level of integration, the failure of our ad server could cause the digital media content provider website to fail to display properly. Therefore, if we experience interruptions in the availability of, or impaired functionality of, our advertising server, our reputation among digital media content providers could be harmed and they may cease to partner with us for the delivery of advertisements. Any of these consequences could adversely affect our operating results and financial condition.

Interruptions or delays in service from third-party data center hosting facilities and other third parties could impair the delivery of our service and harm our business.

We currently serve our customers from third-party data center hosting facilities located in Northern California and Virginia. All of our data gathering and analytics are conducted on, and the advertisements we deliver are processed through, servers in these facilities. We also rely on bandwidth providers, ISPs and mobile networks to deliver advertisements. Any damage to, or failure of, the systems of our third-party providers could result in interruptions to our service. If for any reason our arrangement with one or more of our data centers is terminated, we could experience additional expense in arranging for new facilities and support. In addition, the failure of our data centers to meet our capacity requirements could result in interruptions in the availability or functionality of our services or impede our ability to scale our operation.

Despite precautions taken at our third-party data centers, the occurrence of a natural disaster, an act of terrorism, vandalism or sabotage, a decision to close the facilities without adequate notice, or other unanticipated problems at these facilities could result in lengthy interruptions in the availability of our services. While we have disaster recovery arrangements in place, they have not been tested under actual disasters or similar events. If any such event were to occur our business, operating results and financial condition could be adversely affected.

In periods of economic uncertainty, advertisers may delay or reduce their spending, which could materially harm our business.

General worldwide economic conditions have experienced significant instability in recent years. These conditions make it extremely difficult for our advertisers and us to accurately forecast and plan future business activities, and could cause our advertisers to reduce or delay their advertising spend.

We cannot predict the timing, strength or duration of any economic slowdown or recovery. In downturns our revenues can be adversely affected as advertisers may curtail spending on advertising in general and for new platforms such as ours specifically. Any macroeconomic deterioration in the future could materially and adversely affect our revenues and operating results. In addition, even if the overall economy improves, we cannot assure you that the market for online advertising and marketing services will experience growth or that we will experience growth.

Furthermore, during challenging economic times our customers may face issues in gaining timely access to liquidity, which could result in an impairment of their ability to make timely payments to us. For example, we carry credit risk on the revenue share that we provide to digital media content providers, as we generally pay digital media content providers within a shorter period of time than advertisers pay us. If payments are not made to us on a timely basis, or at all, we may be required to increase our allowance for doubtful accounts and our financial results would be harmed.

The growth of the mobile advertising market is uncertain and we may not be successful in producing brand advertising solutions for mobile platforms.

Web usage and the consumption of digital content are increasingly shifting to mobile platforms such as smartphones, tablets and eBooks, as well as other connected devices. Industry-wide solutions to effectively monetize advertising inventory on these platforms are at an early stage of development and the future demand and growth prospects for advertising on these mobile platforms is uncertain. Compelling formats on mobile remain elusive and subject to rapid evolution.

The growth of our business depends in part on our ability to deliver compelling solutions to brand advertisers on these new mobile marketing channels. We recently launched, and are continuing to make investments in, AppSnack, our mobile advertising brand that provides in-app rich media solutions for brand advertisers. Our success on mobile platforms will be dependent on interoperability with popular mobile operating systems that we do not control, such as Android, iOS and Windows Mobile, and any changes in such systems that degrade our services’ functionality or give preferential treatment to competitive services could adversely affect usage of our services through mobile devices. Additionally, to deliver high quality mobile offerings, it is important that our services interoperate with a range of other mobile technologies, systems, networks and standards that we do not control. For example, access to the device identifier is an important factor in delivering targeted advertisements to consumers. Regulatory or legislative restrictions regarding the collection and use of information through mobile technologies, actions by platform developers to block access to device identifiers or actions by application developers to block access to device identifiers might all affect our ability to obtain the device identifier information. In 2011, Apple stated that it would block mobile application developers’ access to its unique device identifiers (“UDIDs”) in version 5 of its iOS mobile software. In late March 2012, Apple’s mobile application review teams began enforcing that policy by rejecting iOS applications that attempt to access UDIDs. While some developers have begun to use other device-specific identifiers instead of UDIDs, Apple, Google and other mobile platform operators may also decide to restrict developers’ ability to collect and use those identifiers in the future. We may not be successful in developing relationships with key participants in the mobile industry or in developing products that operate effectively with these technologies, systems, networks or standards.

If we fail to achieve success with our AppSnack brand or if we otherwise fail to deliver effective solutions to advertisers for mobile platforms and other emerging platforms, our ability to monetize these growth opportunities will be constrained, and our business, financial condition and operating results would be adversely affected.

We are subject to international business uncertainties.

Revenues from advertisers outside the United States comprised 33.1% of our revenues in 2011 and 40.0% of our revenues for the three months ended March 31, 2012, and we expect this portion to increase in the future. Currently, we have a sales presence in 26 countries worldwide. In addition, we have substantial operations in India, Ukraine and the United Kingdom. We intend to expand our existing operations in these countries as well as establish a presence in additional countries to grow our international sales. Operating in foreign countries requires significant resources and management attention, and we have limited experience entering new geographic markets. Moreover, advertisers typically spend less in the aggregate and on average per campaign in developing countries than they do in more developed countries. We cannot assure you that our international efforts will be successful. International sales and operations may be subject to risks such as:

•

competition with local advertising firms or foreign firms entering the same markets;

•

difficulties in staffing and managing foreign operations;

•

burdens of complying with a wide variety of laws and regulations;

•

adverse tax effects and foreign exchange controls making it difficult to repatriate earnings and cash;

•

political and economic instability;

•

terrorist activities and natural disasters;

•

generally longer receivable collection periods than in the United States;

•

trade restrictions;

•

differing employment practices and laws and labor disruptions;

•

preference for local vendors;

•

technology compatibility;

•

the imposition of government controls;

•

lesser degrees of intellectual property protection;

•

a legal system subject to undue influence or corruption; and

•

a business culture in which illegal sales practices may be prevalent.

In addition, the United States has in the past proposed, and is currently evaluating, changes to the corporate tax structure that would include taxation of offshore earnings of U.S. businesses. If this were to occur our effective tax rates would likely increase. We are subject to U.S. and foreign legislation, such as the Foreign Corrupt Practices Act and the UK Bribery Act, and we have operations in certain countries that are considered to be high risk areas for corruption. While we maintain high standards of ethical conduct, our policies, training and monitoring of compliance with applicable anti-corruption laws are at a very early stage of development. If any of our employees or agents were to violate these laws in the conduct of our business, we could be subject to substantial penalties and our reputation could be impaired.

We cannot assure you that these factors will not have an adverse effect on revenues from advertisers located outside the United States and, consequently, on our business and operating results.

We experience quarterly fluctuations in our operating results due to a number of factors which make our future results difficult to predict and could cause our operating results to fall below expectations or our guidance.

Our quarterly operating results fluctuate due to a variety of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful. You should not rely on our past results as indicative of our future performance. If our revenues or operating results fall below the expectations of investors or securities analysts, or below any guidance we may provide to the market, the price of our common stock could decline substantially.

Our business is also subject to seasonal fluctuations. Specifically, our revenues are traditionally strongest in the fourth quarter of each year due to increases in holiday advertising. Conversely, our first quarter revenues are typically lower than the preceding fourth quarter as advertising spend decreases.

Since the majority of our non-advertising expenses are personnel-related and include salaries, stock-based compensation, benefits and incentive-based compensation plan expenses, we have not experienced significant seasonal fluctuations in the timing of our expenses from period to period. In addition, following this offering we plan to continue to substantially increase our investment in sales and marketing and product development as we seek to leverage our solution to capitalize on what we see as a growing global opportunity. We also expect that our general and administrative expenses will increase both to support our growing operations and due to increased costs of operating as a public company. For the foregoing reasons or other reasons we may not anticipate, historical patterns should not be considered indicative of our future sales activity or performance.

Some of our services have different financial characteristics than others, so that a fluctuation in the mix of services we provide could cause a fluctuation in our operating results. For example, our Techbargains.com revenues have higher gross margin and lower operating expense than some of our other services.

Factors that may affect our quarterly operating results include the following:

•

demand for our technology and related services and the size, scope and timing of marketing campaigns;

•

advertiser renewal rates, and the pricing and volume levels at which agreements are renewed;

•

market acceptance of our current and future products and services;

•

budgeting cycles of our advertisers;

•

changes in the competitive dynamics of our industry, including consolidation among competitors or customers;

•

the response of consumers to our advertisements and to online marketing in general;

•

our ability to control costs, including our operating expenses;

•

network outages, errors in our solution or security breaches and any associated expenses and collateral effects;

•

foreign currency exchange rate fluctuations, as some of our foreign sales and costs are denominated in their local currencies;

•

changes in the mix of services we sell each period, from lower to higher margin solutions, or vice versa;

•

failure to successfully manage any acquisitions; and

•

general economic and political conditions in our domestic and international markets.

As a result, we have a limited ability to forecast the amount and mix of future revenues and expenses, and our operating results may from time to time fall below our estimates or the expectations of public market analysts and investors.

We are subject to currency exchange risk in connection with our international business operations.

Cash inflows and outflows in our international operations are typically denominated in currencies other than the U.S. dollar, which is our functional currency for financial reporting purposes. For 2009, 2010 and 2011 and for the three months ended March 31, 2012, 11.2%, 20.2%, 26.7% and 33.3% of our sales were denominated in such foreign currencies. Our reliance on foreign currencies subjects our financial results to fluctuations in currency exchange rates and changes in the proportion of our revenues and expenses attributable to each of our foreign locations. We recognized a foreign exchange loss of $1.3 million in 2011 and a foreign exchange gain of $0.3 million for the three months ended March 31, 2012. In addition, we expect our exposure to fluctuations in foreign exchange rates to increase as we expand our business in existing and new international markets. We do not currently engage in any hedging activities relating to foreign currency. Foreign currency exchange rate fluctuations could adversely impact our profitability.

Failure to effectively expand our sales and marketing operations and activities could harm our ability to increase our advertiser base and achieve broader market acceptance of our solutions.

Increasing our advertiser base and achieving broader market acceptance of our services will depend to a significant extent on our ability to expand our sales and marketing operations and activities. We expect to be substantially dependent on our direct sales force to obtain new advertisers. We plan to continue to expand our direct sales force both domestically and internationally. We believe that there is significant competition for direct sales personnel with the sales skills and technical knowledge that we require. Our ability to achieve significant growth in revenues in the future will depend, in large part, on our success in recruiting, training and retaining

sufficient numbers of direct sales personnel. New hires require significant training and time before they achieve full productivity. Newly hired sales personnel may not become productive as quickly as we would like, or at all, thus representing increased operating costs and lost opportunities which in turn would adversely affect our business, financial condition and operating results.

Our inability to acquire or to successfully integrate other businesses, products or technologies could adversely affect our business.

We may seek to acquire additional businesses, products or technologies. However, we have limited experience in acquiring and integrating businesses, products and technologies. Moreover, our integration of AdoTube, which we acquired in September 2011, has not yet been completed and we do not know if we will be able to successfully integrate AdoTube into our existing business. For example, we experienced unanticipated turnover and resulting reduced sales activity in the AdoTube business in the first quarter of 2012. If we identify an appropriate acquisition candidate, we may not be successful in negotiating the terms of the acquisition, financing the acquisition, or effectively integrating the acquired business, product or technology into our existing business and operations. Our due diligence may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired business, product or technology, including issues related to intellectual property, product quality or product architecture, regulatory compliance practices, revenue recognition or other accounting practices or employee or customer issues.

Additionally, in connection with any acquisitions we are able to complete, we may not achieve the synergies or other benefits we expected to achieve and we may incur write-downs, impairment charges or unforeseen liabilities which could negatively affect our operating results or financial position or could otherwise harm our business. We have capitalized significant amounts of intangible assets and goodwill from acquisitions completed to date and could be required to write down these assets or other similar assets obtained in future acquisitions. If we finance acquisitions by issuing convertible debt or equity securities, our existing stockholders may be diluted, which could affect the market price of our stock. Furthermore, contemplating or completing an acquisition and integrating an acquired business, product or technology could significantly divert management and employee time and resources and could adversely affect our business, financial condition and operating results.

We have experienced rapid growth in recent periods. If we fail to manage our growth effectively, our financial performance may suffer.

We have expanded our overall business, advertiser base, employee headcount and operations in recent periods. We increased our total number of full-time employees and contractors from 214 as of December 31, 2009 to 671 as of March 31, 2012. We have also established operations in other countries. In September 2011, we completed the acquisition of AdoTube which has an operations center in Ukraine, where we previously had no presence. Our expansion has placed, and our expected future growth will continue to place, a significant strain on our managerial, operational, product development, sales and marketing, administrative, financial and other resources. More systems, processes and local management are needed to allow us to grow successfully. If we are unable to manage our growth successfully, our business, financial conditions and operating results could be adversely affected.

We depend on key personnel to operate our business, and if we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.

In addition to the continued services of Mr. DaSilva, we believe that our future success is highly dependent on the contributions of our executive officers, as well as our ability to attract and retain highly skilled and experienced sales, technical and other personnel in the United States and abroad. All of our employees, including our executive officers, are free to terminate their employment relationship with us at any time, and their knowledge of our business, platform and industry may be difficult to replace. In addition, we believe that our executives have developed highly successful and effective working relationships. If one or more of these

individuals leave, we may not be able to fully integrate new executives or replicate the current dynamic and working relationships that have developed among our executive officers and other key personnel, and our operations could suffer. Qualified individuals are in high demand, particularly in the digital media industry, and we may incur significant costs to attract them. Many of the companies with which we compete for experienced personnel also have greater resources than us. Competition for qualified personnel is particularly intense in the San Francisco Bay Area, where our headquarters are located.

If we are unable to attract and retain our executive officers and key employees, we may not be able to achieve our strategic objectives, and our business, financial condition and operating results could be adversely affected.

All of the independent directors on our board of directors were elected in March 2012 and, as such, have a limited familiarity with our business.

We elected each of the four non-employee directors serving on our board of directors in March 2012. As such, these individuals have not had significant experience overseeing the management of our business or in working with our Chairman, President and Chief Executive Officer and other members of our senior management. If our newly appointed directors are not effective in these matters, the further growth and development of our company could be impaired.

If our security measures are breached, our platform may be perceived as not being secure and advertisers may curtail or stop using our services.

We manage the delivery of marketing campaigns through a web-based platform. If our security measures are breached as a result of actions of our employees or a third party, this could result in: (i) unauthorized access to consumer information, including web users’ personally identifiable information we possess in limited amounts via our Techbargains.com website; (ii) viruses, worms, spyware, or other malware being served from our platform (e.g., “malvertising”); (iii) a denial of service or other limitation on our ability to serve advertisements; or (iv) unauthorized access to our system and manipulation of existing marketing campaigns. If this occurs, our reputation could be damaged, our business may suffer and we could incur significant liability. Because techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be known until launched against us, we may be unable to anticipate these attacks or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed, we could lose potential sales and customers and our business, financial condition and operating results could be adversely affected.

We may not maintain profitability in the future.

Although we have historically been profitable on an annual basis, we incurred a net loss for the three months ended March 31, 2012 and we expect to incur a net loss for the full year 2012, resulting from the increased costs associated with the investments we have made to develop and expand our business, including our recently acquired AdoTube business. If we fail to achieve sufficient revenue growth to offset these increased costs, we may be unable to be profitable in the future. In addition, a lack of operating efficiency or poor decisions relating to the ongoing management of our business may adversely affect our profitability. You should not consider our revenue growth in recent periods as indicative of our future performance. In future periods, our revenues could decline or grow more slowly than we expect. We also may incur significant losses in the future for a number of reasons, including other risks described in this prospectus, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors.

We will seek to develop greater awareness of our brands among advertisers, but may not be successful in doing so, in which event our growth could be impaired.

Our primary global brands are Tribal Fusion, Firefly Video and AdoTube. In addition, we recently introduced our AppSnack brand for mobile in-app advertising. We believe that developing and maintaining awareness and integrity of our brands in a cost-effective manner is important to achieving widespread acceptance of our existing and future offerings and an important element in attracting new advertisers. Successful promotion of our brands will depend on the effectiveness of our marketing efforts. We bring different aspects of our overall solution to market under a variety of brands and some of our current or future offerings may overlap, contributing to brand confusion. As a result, we may have to make additional investments in marketing to educate the market on what our various products and services provide. Such brand promotion activities may not yield increased revenues, and even if they do, the increased revenues may not offset the expenses we incur in promoting our brands. If we fail to promote and maintain our brands successfully or to maintain loyalty among our advertisers, or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brands, we may fail to attract new advertisers or to retain our existing advertisers and our business, financial condition and operating results may be adversely affected.

Federal, state and foreign governments may propose and implement new taxes and new laws, including sales taxes, which may negatively affect our business.

As Internet commerce and globalization continue to evolve, increasing regulation by federal, state or foreign governments becomes more likely. Our business could be negatively impacted by the application of existing laws and regulations or the enactment of new laws applicable to digital marketing. The cost to comply with such laws or regulations could be significant, and we may be unable to pass along those costs to our customers in the form of increased fees.

In addition, federal, state and foreign governmental or regulatory agencies may decide to impose taxes on services provided over the Internet. Such taxes could discourage the use of the Internet as a means of commercial marketing, which would adversely affect the viability of our offerings. For example, if California imposes a sales tax on revenues generated by websites owned by companies based in California, then companies may reduce the amount of products and services offered through Techbargains.com and our referral revenues could decline.

The requirements of being a public company may strain our resources and divert management’s attention.

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (“Exchange Act”), the Sarbanes-Oxley Act, the Dodd-Frank Act, the stock market listing requirements of the NYSE and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting to produce accurate financial statements on a timely basis. Section 404(a) of the Sarbanes-Oxley Act will require annual management assessments of the effectiveness of our internal control over financial reporting.

If we are not able to maintain effective internal controls over financial reporting, the accuracy and timeliness of our financial reporting may be adversely affected.

In connection with the preparation of our financial statements for inclusion in this prospectus, we and our independent registered public accounting firm determined that we have a significant deficiency in our financial

statement close process related to our ability to support the timely reporting of our financial results as required under the Exchange Act. To remediate this significant deficiency, we will need to examine and improve our processes and related internal control over financial reporting, which will require us to add experienced personnel with requisite skills to our finance department. We are only at the beginning stage of this remediation and cannot estimate how quickly we will be able to complete it. If we are unable to remediate the significant deficiency, we may not be able to comply with our reporting obligations.

As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements.

As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. In particular, we have not included all of the executive compensation related information that would be required in this prospectus if we were not an emerging growth company. In addition, for so long as we are an emerging growth company, which can last, at most, until the first fiscal year following the fifth anniversary of this offering, we will not be required to:

•

have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

•

comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis); and

•

submit certain executive compensation matters to shareholder advisory votes, such as “say on pay” and “say on frequency.”

Although we intend to rely on the exemptions provided in the JOBS Act, the exact implications of the JOBS Act for us are still subject to interpretations and guidance by the SEC and other regulatory agencies. Also, as our business grows, we may no longer satisfy the conditions of an emerging growth company. We will remain an emerging growth company until the first fiscal year following the fifth anniversary of this offering, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30 of any year before the end of that five-year period, we would cease to be an emerging growth company as of the following December 31. If we have more than $1 billion in annual revenue in a fiscal year, we would cease to be an emerging growth company as of the end of that fiscal year, and if we issue more than $1 billion in non-convertible debt over a three-year period, we would also cease to be an emerging growth company immediately. We are currently evaluating and monitoring developments with respect to these new rules and we cannot assure you that we will be able to enjoy part or all of the benefits from the JOBS Act.

We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs.

In the future, we may require additional capital to respond to business opportunities, challenges, acquisitions or unforeseen circumstances and may determine to engage in equity or debt financings or enter into credit facilities for other reasons. We may not be able to timely secure additional debt or equity financing on favorable terms, or at all. If we raise additional funds through the issuance of equity or convertible debt or other equity-linked securities, our existing stockholders could suffer significant dilution. Any debt financing obtained by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We currently have a $20.0 million credit facility, under which we had $13.4 million in borrowings outstanding as of March 31, 2012. Under this facility, we are required to comply with certain financial and non-financial covenants. Amounts outstanding under the credit facility may become immediately due and payable if certain events of default, including non-compliance with the required covenants, occur. There can be no assurances that we will be able to maintain the credit facility, which has been an important source of capital to support our growth in the past.

If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.

If we are unable to protect our proprietary information or other intellectual property, the value of our platform and offerings in general could be adversely affected.

We rely largely on trade secret law to protect our proprietary information and technology. To date, we have filed two patent applications in the United States. We generally seek to protect our proprietary information by confidentiality, non-disclosure and assignment of invention agreements with our employees, contractors and parties with which we do business. However, we may not be successful in executing these agreements with every party who has access to our confidential information or contributes to the development of our intellectual property. Those agreements that we do execute may be breached, and we may not have adequate remedies for any such breach. Breaches of the security of our website, databases or other resources could expose us to a risk of loss or unauthorized disclosure of web user information, cookies or other proprietary information. We cannot be certain that the steps we have taken will prevent unauthorized use or reverse engineering of our technology or information. Moreover, our trade secrets may be disclosed to or otherwise become known or be independently developed by competitors and in these situations we would have no right to stop their use of our information. To the extent that our employees, contractors, or other third parties with whom we do business use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. If, for any of the above reasons, our intellectual property is disclosed or misappropriated, it would harm our ability to protect our rights and may have an adverse effect on our business.

We have registered certain of our trademarks in certain jurisdictions worldwide. However, even in those jurisdictions competitors may adopt similar trademarks to ours, register domain names that mimic ours or purchase keywords that are confusingly similar to our brand names as terms in Internet search engine advertising programs, which could impede our ability to build our brand identity and lead to confusion among potential customers of our services. We believe that other companies have copied some of our trademarks for use in the marketplace. We have sent demand letters in these instances, but there can be no assurance that we will prevail should such letters be ineffective. We are also aware that a third party has registered, and another third party has applied to register, the trademark “Firefly” in the United States for similar classes of services as our application for our own “Firefly Video” logotype. If we are not successful in arguing that there is no likelihood of confusion between our mark and the marks of these third parties, or in proving that we have prior rights in our mark, our application may be denied. Whether or not our application is denied, third parties may claim that our trademarks infringe their rights. As a result, we could be forced to pay significant settlement costs or cease the use of these trademarks and associated elements of our brand in the United States or other jurisdictions.

Further, the laws of certain countries do not protect proprietary rights to the same extent as the laws of the United States and, therefore, in certain jurisdictions, we may be unable to protect our proprietary technology adequately against unauthorized third party copying, infringement or use, which could adversely affect our competitive position. To protect or enforce our intellectual property rights, we may initiate litigation against third parties. Litigation may be necessary to protect our trade secrets or know-how, or determine the enforceability, scope and validity of the proprietary rights of others. Any lawsuits that we initiate could be expensive, take significant time and divert management’s attention from other business concerns. Additionally, we may provoke third parties to assert claims against us. These claims could invalidate or narrow the scope of our own intellectual property. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially valuable. The occurrence of any of these events may adversely affect our business, financial condition and operating results.

Our business may suffer if it is alleged or determined that our technology or another aspect of our business infringes the intellectual property rights of others.

Our industry is characterized by the existence of a large number of patents and by litigation based on allegations of infringement or other violations of intellectual property rights. Moreover, in recent years, individuals and groups have purchased patents and other intellectual property assets for the purpose of making claims of infringement to extract settlements from companies like ours. From time to time, third parties have claimed and may continue to claim that we are infringing upon their intellectual property rights. Our lack of

patents may make it difficult for us to deter any such third parties through counterclaims. In addition, we may be contractually obligated to indemnify our customers in the event of infringement of a third party’s intellectual property rights. Responding to such claims, regardless of their merit, can be time consuming, costly to defend in litigation, divert management’s attention and resources, damage our reputation and brand and cause us to incur significant expenses. Even if we are indemnified against such costs, the indemnifying party may be unable to uphold its contractual obligations and determining the scope of these obligations could require additional litigation. Further, claims of intellectual property infringement might require us to redesign our technology, rebrand our services, enter into costly settlement or license agreements or pay costly damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling our services. If we cannot or do not license the infringed intellectual property on reasonable terms or at all, or substitute similar intellectual property from another source, our revenues and operating results could be adversely impacted. Additionally, our advertisers may not purchase our offerings if they are concerned that they may infringe third-party intellectual property rights. The occurrence of any of these events may have an adverse effect on our business, financial condition and operating results.

We use open source software in our platform that may subject our technology to general release or require us to re-engineer our solutions, which may cause harm to our business.

We use open source software in connection with our services. From time to time, companies that incorporate open source software into their products have faced claims challenging the ownership of open source software and/or compliance with open source license terms. Therefore, we could be subject to suits by parties claiming ownership of what we believe to be open source software or noncompliance with open source licensing terms. Some open source software licenses require users who distribute or make available open source software as part of their software to publicly disclose all or part of the source code to such software and/or make available any derivative works of the open source code on unfavorable terms or at no cost. While we monitor our use of open source software and try to ensure that none is used in a manner that would require us to disclose the source code or that would otherwise breach the terms of an open source agreement, such use could nevertheless occur and we may be required to release our proprietary source code, pay damages for breach of contract, re-engineer our applications, discontinue sales in the event re-engineering cannot be accomplished on a timely basis or take other remedial action that may divert resources away from our development efforts, any of which could adversely affect our business, financial condition or operating results.

Catastrophic events or political instability could disrupt and cause harm to our business.

Our headquarters and one of our data centers are located in California, an area susceptible to earthquakes. A major earthquake or other natural disaster, fire, act of terrorism or other catastrophic event in California or elsewhere that results in the destruction or disruption of any of our critical business operations or information technology systems could severely affect our ability to conduct normal business operations and, as a result, our future operating results could be harmed.

We have significant operations in India, Ukraine, the United Kingdom and the United States. Political instability or catastrophic events in any of those countries could adversely affect our business in the future, our financial condition and operating results.

Risks Related to this Ownership of Our Common Stock and this Offering

There has been no prior market for our common stock, our stock price may be volatile or may decline regardless of our operating performance, an active public trading market may not develop or be sustained following this offering, and you may not be able to resell your shares at or above the initial public offering price.

There has been no public market for our common stock prior to this offering. The initial public offering price for our common stock will be determined through negotiations between the underwriters and us and may vary from the market price of our common stock following this offering. If you purchase shares of our common

stock in this offering, you may not be able to resell those shares at or above the initial public offering price. An active or liquid market in our common stock may not develop upon the closing of this offering or, if it does develop, it may not be sustainable. The trading prices of the securities of technology companies have been highly volatile. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

•

actual or anticipated fluctuations in our revenue and other operating results;

•

the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

•

failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

•

announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments;

•

changes in operating performance and stock market valuations of online marketing or other technology companies, or those in our industry in particular;

•

lawsuits threatened or filed against us; and

•

other events or factors, including those resulting from war, incidents of terrorism or responses to these events.

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business.

Sales of substantial amounts of our common stock in the public markets, or the perception that they might occur, could reduce the price that our common stock might otherwise attain and may dilute your voting power and your ownership interest in us.

After the completion of the offering, we will have outstanding shares of common stock ( shares of common stock if the underwriters exercise in full their option to purchase additional shares). This number is comprised of all the shares of our common stock that we are selling in this offering, which may be resold immediately in the public market. Subject to certain exceptions, we, all of our directors and officers and of our stockholders and option holders have agreed not to offer, sell or agree to sell, directly or indirectly, any shares of common stock without the permission of the underwriters for a period of 180 days from the date of this prospectus, subject to extension in some circumstances. When this period expires, we and our locked-up security holders will be able to sell our shares in the public market. Sales of a substantial number of such shares upon expiration, or early release, of the lock-up (or the perception that such sales may occur) could cause our share price to fall.

The market price of the shares of our common stock could decline as a result of sales of a substantial number of our shares in the public market or the perception in the market that the holders of a large number of shares intend to sell their shares.

Our Chief Executive Officer will continue to have substantial control over us after this offering and could delay or prevent a change in corporate control.

After this offering, Dilip DaSilva, our Chairman, Chief Executive Officer and President, will beneficially own, in the aggregate, % of our outstanding common stock. As a result, he will have the ability to control the

outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, our Chief Executive Officer will have substantial influence over the management and affairs of our company. Accordingly, this concentration of ownership might harm the market price of our common stock by:

•

delaying, deferring or preventing a change in control of the company;

•

impeding a merger, consolidation, takeover or other business combination involving us; or

•

discouraging a potential acquiror from making a tender offer or otherwise attempting to obtain control of the company.

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds that we receive from this offering, including applications for working capital, possible acquisitions and other general corporate purposes, and we may spend or invest these proceeds in a way with which our stockholders disagree. The failure by our management to apply these funds effectively could harm our business and financial condition. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value. These investments may not yield a favorable return to our investors.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We currently do not have and may never obtain research coverage by securities analysts, and industry analysts that currently cover us may cease to do so. If no securities analysts commence coverage of our company, or if industry analysts cease coverage of our company, the trading price for our stock would be negatively impacted. In the event we obtain securities analyst coverage, if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

We do not intend to pay dividends for the foreseeable future.

We have never declared or paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases. Our credit agreement for our revolving line of credit contains a prohibition on the payment of cash dividends on our capital stock.

If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution.

If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution in the net tangible book value per share after giving effect to this offering of $ as of March 31, 2012, based on an assumed initial public offering price of $ per share, which is the midpoint of the range set forth on the cover page of this prospectus, because the price that you pay will be substantially greater than the net tangible book value per share of the common stock that you acquire. This dilution is due in large part to the fact that our earlier stockholders paid substantially less than the initial public offering price when they purchased their shares of our capital stock. You will experience additional dilution upon exercise of options to purchase common stock under our equity incentive plans or under equity awards granted outside our equity incentive plan, if we

issue restricted stock to our employees under our equity incentive plans or if we otherwise issue additional shares of our common stock. For more information, see “Dilution.”

Delaware law and provisions in our restated certificate of incorporation and bylaws that will be in effect at the closing of this offering could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock.

Following the closing of this offering, our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our restated certificate of incorporation and bylaws that will be in effect at the closing of this offering will contain provisions that may make the acquisition of our company more difficult without the approval of our board of directors, or otherwise adversely affect the rights of the holders of our common stock, including the following:

•

our board of directors will be classified into three classes of directors with staggered three-year terms;

•

only our Chairman of the board, our Chief Executive Officer, our President or a majority of our board of directors will be authorized to call a special meeting of stockholders;

•

our stockholders will only be able to take action at a meeting of stockholders and not by written consent;

•

vacancies on our board of directors will be able to be filled only by our board of directors and not by stockholders;

•

directors may be removed from office only for cause;

•

our restated certificate of incorporation will authorize undesignated preferred stock, the terms of which may be established, and shares of which may be issued, by our board of directors without stockholder approval and which may contain voting, liquidation, dividend and other rights superior to those of our common stock; and

•

advance notice procedures will apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.

For information regarding these and other provisions, see “Description of Capital Stock.”

FORWARD-LOOKING STATEMENTS

In addition to historical information, this prospectus contains forward-looking statements. We may, in some cases, use words, such as “project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “continue,” “should,” “would,” “could,” “potentially,” “will” or “may,” or other similar words and expressions that convey uncertainty about future events or outcomes to identify these forward-looking statements. Forward-looking statements in this prospectus include statements about:

•

our ability to grow our business in the future;

•

our ability to execute our growth strategy;

•

the effects of increased competition in our industry;

•

our ability to deliver successful advertising campaigns in the future;

•

the effect of regulatory developments regarding Internet privacy matters;

•

the effect of changes in consumer sentiment regarding privacy matters;

•

our ability to produce successful brand advertising solutions for mobile platforms;

•

the impact of seasonality on our business;

•

changes in our relationships with advertisers and agencies;

•

our ability to successfully enter new markets and manage our international expansion;

•

the effect of our Chief Executive Officer’s control over our management and business strategy;

•

the attraction and retention of qualified employees and key personnel.

The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements. These risks, uncertainties and factors include those we discuss in this prospectus under the caption “Risk Factors.” You should read these risk factors and the other cautionary statements made in this prospectus as being applicable to all related forward-looking statements wherever they appear in this prospectus.

The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

This prospectus also contains estimates and other statistical data that we obtained from industry publications, surveys, forecasts and reports. These industry publications generally indicate that they have obtained their information from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. Although we have not independently verified the accuracy or completeness of the data contained in these industry publications and reports, based on our industry experience we believe that the publications are reliable and the conclusions contained in the publications and reports are reasonable.

USE OF PROCEEDS

We estimate that the net proceeds from the sale of shares of our common stock that we are selling in this offering will be approximately $ million, based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ over-allotment option to purchase additional shares from us is exercised in full, we estimate that we will receive additional net proceeds of $ million. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders.

A $1.00 increase or decrease in the assumed initial public offering price of $ would increase or decrease the net proceeds we received from the offering by approximately $ million, assuming the number of shares offered by us remains the same and after deducting the estimated underwriting discounts and commissions and payable by us.

The principal purposes of this offering are to obtain additional capital, to create a public market for our common stock and to facilitate our future access to the public equity markets. We expect to use the net proceeds that we receive from this offering for working capital and other general corporate purposes. We may also use a portion of the net proceeds that we receive from this offering for investments in or acquisitions of complementary businesses, products, services, technologies or other assets. We have not entered into any agreements or commitments with respect to any investments or acquisitions at this time.

We cannot specify with certainty the particular uses for the net proceeds to be received by us from this offering. Accordingly, our management team will have broad discretion in using these net proceeds. Pending the use of proceeds from this offering, we plan to invest the net proceeds in short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and will be dependent on a number of factors, including our earnings, capital requirements and overall financial conditions. Our credit agreement for our revolving line of credit contains a prohibition on the payment of cash dividends on our capital stock.

CAPITALIZATION

The following table sets forth our consolidated cash and cash equivalents and capitalization as of March 31, 2012, on:

•

an actual basis; and

•

on a pro forma, as adjusted basis to give effect to (a) the vesting of 750,000 shares of restricted stock and recording of $1.5 million in related stock-based compensation expense upon completion of this offering and (b) the receipt of the net proceeds from the sale of shares of common stock offered by us in this offering, at an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions payable by us and estimated offering expenses payable by us.

The information below is illustrative only, and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of the offering determined at the pricing of this offering. You should read this table in conjunction with “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.


	As of March 31, 2012
	Actual			Pro Forma, As Adjusted
	(In thousands, except share and per share data)
Cash and cash equivalents	$	18,529		$

Total indebtedness		16,348
Stockholders’ equity:
Common stock, $0.00001, per share: 100,000,000 shares authorized, 53,076,233 shares issued and 52,919,071 shares outstanding actual; shares authorized, shares issued and shares outstanding pro forma, as adjusted		1
Additional paid-in capital		19,068
Treasury stock		(367	)
Retained earnings		38,109
Accumulated other comprehensive loss		(264	)

Total stockholders’ equity		56,547

Total capitalization	$	72,895		$

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma, as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions payable by us.

The number of shares of common stock issued and outstanding actual and pro forma, as adjusted in the table above excludes the following shares:

•

16,420,571 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2012 with a weighted average exercise price of $1.69 per share;

•

120,000 shares underlying restricted stock units as of March 31, 2012;

•

2,548,868 shares reserved for issuance under our 2010 Equity Incentive Plan;

•

shares to be reserved for issuance under our 2012 Equity Incentive Plan and our 2012 Employee Stock Purchase Plan, each of which will become effective on the first day that our common stock is publicly traded and contains provisions that will automatically increase its share reserve each year, as more fully described in “Executive Compensation — Employee Benefit Plans”;

•

up to 534,287 shares that may be issued as contingent deferred consideration from our acquisition of AdoTube; and

•

on an actual basis, 750,000 shares of unvested restricted stock, which will become fully vested upon the completion of this offering.

DILUTION

If you invest in our common stock in this offering, your interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the as adjusted net tangible book value per share of our common stock immediately after this offering. Our net tangible book value as of March 31, 2012 was $20.0 million, or $0.38 per share of common stock. Net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the number of shares of common stock outstanding as of March 31, 2012.

After giving effect to the sale by us of shares of common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible book value as of March 31, 2012 would have been approximately $ million, or approximately $ per share. This amount represents an immediate increase in net tangible book value of $ per share to our existing stockholders and an immediate dilution in net tangible book value of approximately $ per share to new investors purchasing shares of common stock in this offering.

The following table illustrates this dilution:


Assumed initial public offering price per share			$
Net tangible book value per share as of March 31, 2012	$	0.38
Increase in net tangible book value per share attributable to new investors

As adjusted net tangible book value per share after giving effect to this offering

Dilution per share to investors in this offering			$

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) our as adjusted net tangible book value per share to new investors by approximately $ and would increase (decrease) dilution per share to new investors by approximately $ , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. In addition, to the extent any outstanding options or warrants are exercised, you will experience further dilution.

The following table presents on an as adjusted basis as of March 31, 2012, the differences between the existing stockholders and the new investors purchasing shares of our common stock in this offering with respect to the number of shares purchased from us, the total consideration paid or to be paid to us, which includes net proceeds received from the issuance of common stock, cash received from the exercise of stock options and the average price per share paid or to be paid to us at an assumed offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.


	Shares Purchased				Total Consideration				Average Price per Share
	Number	Percent			Amount	Percent			Average Price per Share
Existing stockholders			.	%	$		.	%	$
New investors

Total			100.0	%	$		100.0	%

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the total consideration paid by new investors by $ million and increase (decrease) the percent of total consideration paid by new investors by %, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Assuming the underwriters’ option to purchase additional shares is exercised in full, sales by us in this offering will reduce the percentage of shares held by existing stockholders to % and will increase the number of shares held by our new investors to , or %.

The number of shares of our common stock to be outstanding after this offering is based upon the number of shares of our common stock outstanding as of March 31, 2012, and excludes:

•

16,420,571 shares of common stock issuable upon exercise of stock options outstanding as of March 31, 2012 with a weighted average exercise price of $1.69 per share;

•

120,000 shares underlying restricted stock units as of March 31, 2012;

•

2,548,868 shares reserved for issuance under our 2010 Equity Incentive Plan;

•

shares to be reserved for issuance under our 2012 Equity Incentive Plan and our 2012 Employee Stock Purchase Plan, each of which will become effective on the first day that our common stock is publicly traded and contains provisions that will automatically increase its share reserve each year, as more fully described in “Executive Compensation — Employee Benefit Plans;” and

•

up to 534,287 shares that may be issued as contingent deferred consideration from our acquisition of AdoTube.

To the extent that any outstanding options are exercised, new investors will experience further dilution.

SELECTED CONSOLIDATED FINANCIAL DATA

The following tables summarize our selected consolidated financial data. You should read the following selected consolidated financial data in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, related notes and other financial information included elsewhere in this prospectus. We derived the selected consolidated statements of operations data for 2009, 2010 and 2011 and the consolidated balance sheet data as of December 31, 2010 and 2011 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the selected consolidated statements of operations data for 2007 and 2008 and the consolidated balance sheet data as of December 31, 2007, 2008 and 2009 from our audited consolidated financial statements not included in this prospectus. We derived the selected consolidated statements of operations data for the three months ended March 31, 2011 and 2012 and the consolidated balance sheet data as of March 31, 2012 from our unaudited interim consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future.


	Years Ended December 31,															Three Months Ended March 31,
	2007			2008			2009			2010			2011			2011		2012
	(In thousands, except share and per share data)
Consolidated Statements of Operations Data:
Revenues	$	107,410		$	116,422		$	92,560		$	125,268		$	169,082		$	33,748	$	40,601
Cost of revenues (1) (2)		66,216			71,930			55,436			71,988			95,848			19,928		23,126

Gross profit		41,194			44,492			37,124			53,280			73,234			13,820		17,475
Operating expenses (1) (2):
Sales and marketing		20,815			17,323			20,060			28,688			42,179			9,100		13,880
Product development		3,401			4,324			3,434			4,680			5,304			1,022		1,976
General and administrative		6,328			7,497			5,482			7,615			10,360			1,955		4,261
Amortization of intangible assets		805			1,137			1,073			1,045			1,189			261		385
Contingent deferred consideration		—			—			—			—			—			—		702

Total operating expenses		31,349			30,281			30,049			42,028			59,032			12,338		21,204

Operating income (loss)		9,845			14,211			7,075			11,252			14,202			1,482		(3,729	)
Other income (expense), net		(1,699	)		(2,225	)		(1,441	)		(1,396	)		(2,055	)		306		(114	)

Income (loss) before provision (benefit) for income taxes		8,146			11,986			5,634			9,856			12,147			1,788		(3,843	)
Provision (benefit) for income taxes		4,486			4,922			2,623			4,485			5,263			726		(818	)

Net income (loss)	$	3,660		$	7,064		$	3,011		$	5,371		$	6,884		$	1,062	$	(3,025	)

Net income (loss) attributable to common stockholders (3):
Basic	$	3,587		$	6,904		$	2,953		$	5,279		$	6,787		$	1,047	$	(3,025	)

Diluted	$	3,591		$	6,909		$	2,953		$	5,280		$	6,789		$	1,047	$	(3,025	)

Net income (loss) per share attributable to common stockholders (3):
Basic	$	0.07		$	0.14		$	0.06		$	0.10		$	0.13		$	0.02	$	(0.06	)

Diluted	$	0.07		$	0.13		$	0.06		$	0.10		$	0.13		$	0.02	$	(0.06	)

Weighted-average shares used in computing net income (loss) per share attributable to common stockholders (3):
Basic		50,106,383			50,876,295			51,190,410			51,682,476			52,510,727			52,504,094		52,740,244

Diluted		53,258,795			52,699,440			51,885,242			52,159,078			53,802,990			53,003,944		52,740,244

Other Financial Information:
Adjusted EBITDA	$	15,267		$	20,546		$	12,779		$	18,037		$	22,039		$	3,025	$	(86	)


	As of December 31,										As of March 31, 2012
	2007		2008		2009		2010		2011		As of March 31, 2012
	(In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	14,395	$	25,656	$	10,713	$	8,505	$	14,263	$	18,529
Working capital		18,213		21,068		19,993		24,723		36,054		30,294
Total assets		76,991		78,752		60,791		75,984		121,670		116,722
Total indebtedness		33,926		27,595		5,462		1,516		16,531		16,348
Total stockholders’ equity		26,777		35,606		40,136		48,880		57,813		56,547

⁽¹⁾	Results above include stock-based compensation as follows:


	Years Ended December 31,										Three Months Ended March 31,
	2007		2008		2009		2010		2011		2011		2012
	(In thousands)
Cost of revenues	$	32	$	39	$	34	$	36	$	34		8		9
Sales and marketing		1,184		1,045		860		1,442		1,287		246		478
Product development		501		485		368		726		418		94		116
General and administrative		626		559		377		624		635		121		300
Contingent deferred consideration		—		—		—		—		—		—		100

Total stock-based compensation	$	2,343	$	2,128	$	1,639	$	2,828	$	2,374	$	469	$	1,003

⁽²⁾	Results above include amortization of intangible assets as follows:


	Years Ended December 31,										Three Months Ended March 31,
	2007		2008		2009		2010		2011		2011		2012
	(In thousands)
Amortization of intangible assets:
Cost of revenues	$	1,097	$	1,547	$	1,549	$	1,549	$	2,124	$	387	$	883
Operating expenses		805		1,137		1,073		1,045		1,189		261		385

Total amortization of intangible assets	$	1,902	$	2,684	$	2,622	$	2,594	$	3,313	$	648	$	1,268

⁽³⁾	See Notes 1 and 11 to our audited consolidated financial statements appearing elsewhere in this prospectus for an explanation of the calculations of our basic and diluted net income (loss) per share attributable to common stockholders.

Adjusted EBITDA

We have included Adjusted EBITDA in this prospectus because it is a key measure used by our management and board of directors to evaluate operating performance, generate future operating plans and make strategic decisions for the allocation of capital. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

•

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

•

Adjusted EBITDA does not include our provision (benefit) for income taxes or reflect income tax payments that may represent a reduction in cash available to us;

•

Adjusted EBITDA does not include the potentially dilutive impact of stock-based compensation; and

•

Adjusted EBITDA does not include contingent deferred consideration due in connection with our acquisition of AdoTube; and

•

other companies, including companies in our industry, may calculate Adjusted EBITDA differently or not at all, which reduces its usefulness as a comparative measure.


	Years Ended December 31,										Three Months Ended March 31,
	2007		2008		2009		2010		2011		2011			2012
	(In thousands)
Reconciliation of Adjusted EBITDA:
Net income (loss)	$	3,660	$	7,064	$	3,011	$	5,371	$	6,884	$	1,062		$	(3,025	)
Other (income) expense, net		1,699		2,225		1,441		1,396		2,055		(306	)		114
Provision (benefit) for income taxes		4,486		4,922		2,623		4,485		5,263		726			(818	)
Depreciation and amortization of property and equipment		1,177		1,523		1,443		1,363		2,150		426			770
Amortization of intangible assets		1,902		2,684		2,622		2,594		3,313		648			1,268
Stock-based compensation		2,343		2,128		1,639		2,828		2,374		469			903
Contingent deferred consideration		—		—		—		—		—		—			702

Adjusted EBITDA	$	15,267	$	20,546	$	12,779	$	18,037	$	22,039	$	3,025		$	(86	)

UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION

In September 2011, we acquired all of the issued and outstanding shares of AdoTube, for total purchase consideration of $19.6 million. The purchase consideration consists of $13.7 million in cash and $6.5 million in guaranteed deferred payments (with an acquisition date fair value of $6.0 million.)

The following unaudited pro forma combined consolidated statement of income for 2011 illustrates the effect of our acquisition of AdoTube as if the acquisition had occurred on January 1, 2011. The unaudited pro forma combined consolidated statement of income for 2011 combines the unaudited consolidated statement of income of AdoTube for the period from January 1, 2011 to September 13, 2011, the date of acquisition, and our consolidated statement of income for 2011. An unaudited pro forma combined consolidated balance sheet as of December 31, 2011 is not presented as AdoTube’s balance sheet, including acquisition-related adjustments, has already been included in our consolidated balance sheet as of December 31, 2011 included elsewhere in this prospectus.

The unaudited pro forma combined consolidated financial information included herein has been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited pro forma combined consolidated statement of income has been adjusted to give effect to pro forma events that are (1) directly attributable to the acquisition, (2) expected to have a continuing impact on our combined results and (3) factually supportable. The unaudited pro forma combined consolidated statement of income does not include the effects of any potential cost savings or other synergies that could result from the acquisition. The detailed assumptions used to prepare the unaudited pro forma combined consolidated financial information are contained in the notes hereto and such assumptions should be reviewed in their entirety.

The unaudited pro forma combined consolidated statement of income has been prepared for illustrative purposes only and does not purport to reflect the results the consolidated company may achieve in future periods or the historical results that would have been obtained had we acquired AdoTube on January 1, 2011.

The unaudited pro forma combined consolidated statement of income, including the notes hereto, should be read in conjunction with AdoTube’s consolidated financial statements for 2010 and for the six months ended June 30, 2010 and 2011 and our consolidated financial statements for 2011 included elsewhere in this prospectus.

EXPONENTIAL INTERACTIVE, INC.

Unaudited Pro Forma Combined Consolidated Statement of Income

For the Year Ended December 31, 2011


	Historical						Pro Forma Adjustments			Combined Consolidated Pro Forma For 2011
	Exponential Interactive, Inc. Consolidated For 2011			AdoTube For the Period From January 1, 2011 To September 13, 2011			Pro Forma Adjustments			Combined Consolidated Pro Forma For 2011
	(In thousands, except share and per share data)
Revenues	$	169,082		$	9,066		$	—		$	178,148
Cost of revenues		95,848			5,234			1,398	(a)		102,480

Gross profit		73,234			3,832			(1,398	)		75,668
Operating expenses:
Sales and marketing		42,179			3,138			—			45,317
Product development		5,304			1,140			—			6,444
General and administrative		10,360			1,385			(503	)(b)		11,242
Amortization of intangible assets		1,189			—			352	(a)		1,541

Total operating expenses		59,032			5,663			(151	)		64,544

Operating income (loss)		14,202			(1,831	)		(1,247	)		11,124
Other income (expense), net:
Interest expense		(512	)		(88	)		(323	)(c,d,e)		(923	)
Interest and other income (expense), net		(1,543	)		(25	)		(11	)(c)		(1,579	)

Total other income (expense), net		(2,055	)		(113	)		(334	)		(2,502	)

Income (loss) before provision for income taxes		12,147			(1,944	)		(1,581	)		8,622
Provision for income taxes		5,263			76			(1,390	)(f)		3,949

Net income (loss)	$	6,884		$	(2,020	)	$	(191	)	$	4,673

Net income attributable to common stockholders:
Basic	$	6,787								$	4,608

Diluted	$	6,789								$	4,609

Net income per share attributable to common stockholders:
Basic	$	0.13								$	0.09

Diluted	$	0.13								$	0.09

Weighted-average shares used in computing net income per share attributable to common stockholders:
Basic		52,510,727									52,510,727

Diluted		53,802,990									53,802,990

The accompanying notes are an integral part of this statement.

The pro forma adjustments are explained in Note 3.

EXPONENTIAL INTERACTIVE, INC.

Notes to Pro Forma Combined Consolidated Statement of Income

For the Year Ended December 31, 2011

1. Basis of Presentation

The acquisition of AdoTube is accounted for using the acquisition method of accounting for business combinations. The excess purchase consideration over the fair values of assets acquired and liabilities assumed was recorded as goodwill.

Under the acquisition method, acquisition-related transaction costs (e.g. advisory, legal, valuation and other professional fees) are not included as consideration transferred but are accounted for as expenses in the periods in which the costs are incurred. These costs are not presented in the unaudited pro forma combined consolidated statement of income because they will not have a continuing impact on the combined results.

2. AdoTube Acquisition

A summary of the purchase consideration is as follows (in thousands):


Cash	$	13,676
Fair value of guaranteed deferred payments		5,968

Total purchase consideration	$	19,644

We are required to make guaranteed deferred payments of $4.1 million and $2.4 million in January 2013 and 2014 to the former owners of AdoTube. At the acquisition date, we determined that the discounted fair value of these guaranteed deferred payments was $6.0 million. We will recognize accretion on these liabilities in our consolidated statements of income until these deferred guaranteed payments are paid in January 2013 and 2014.

The following table summarizes the fair values of assets acquired and liabilities assumed, which is preliminary pending finalization of our purchase accounting (in thousands):


Cash and cash equivalents	$	911
Accounts receivable, net		3,288
Other current assets		100
Property and equipment, net		81
Noncurrent assets		161

Intangible assets:
Developed technology		5,640
Customer relationships		3,380
Trademarks		420
Non-compete agreements		980
Goodwill		11,429
Accounts payable and accrued liabilities		(3,904	)
Deferred tax liability		(2,842	)

Total	$	19,644

The valuation of the intangible assets acquired was determined using currently available information and reasonable and supportable assumptions. We are amortizing these acquired intangible assets over their estimated useful lives of up to five years on a straight-line basis. Goodwill arising from the acquisition is attributable to synergies achieved through combining the technology acquired from AdoTube with our existing video online advertising technology, as well as us acquiring an assembled workforce. Goodwill is presumed to have an indefinite life and is not subject to amortization.

EXPONENTIAL INTERACTIVE, INC.

Notes to Pro Forma Combined Consolidated Statement of Income

For the Year Ended December 31, 2011

We may also be required to pay contingent deferred consideration to the former owners of AdoTube if certain gross revenue and EBITDA targets for the stand-alone AdoTube business are achieved for 2012 and 2013. Payments are also contingent on the ongoing employment of the two principal former owners of AdoTube, unless these former owners are terminated without cause or resign for good reason. The contingent payment amount with respect to 2012 is $2.8 million and 267,143 shares of our common stock, which would be payable in January 2013. The contingent payment amount with respect to 2013 is $2.8 million and 267,144 shares of our common stock, which would be payable in January 2014. We have not recorded a liability for the contingent deferred consideration in connection with the acquisition as it is considered compensatory in nature. Accordingly, we will recognize compensation expense over the requisite service period in 2012 and 2013 when we can estimate the level of payout probable of being achieved. The contingent deferred consideration is not presented in the unaudited pro forma combined consolidated statement of income because the amounts are not yet known.

3. Pro Forma Adjustments

The unaudited pro forma combined consolidated statement of income reflects the following pro forma adjustments:

(a)

Intangible Asset Amortization — This adjustment reflects the additional amortization that would have been recognized on the acquired intangible assets that are subject to amortization had the acquisition been consummated on January 1, 2011.

(b)

Transaction Costs — This adjustment eliminates acquisition-related transaction costs of $503,000 that were incurred by us for the year ended December 31, 2011. These costs were eliminated as they will not have a continuing impact on our combined consolidated results of operations.

(c)

Revolving Line of Credit Interest Expense — This adjustment reflects the $176,000 in additional interest expense and $11,000 in additional commitment fees we would have recognized related to the $13.4 million we borrowed to finance the acquisition had the acquisition been consummated on January 1, 2011. The pro forma adjustment for interest expense is based on the acquisition date variable interest rate of 1.97% on our revolving line of credit. A 1/8^th percent change in the variable rate would have changed our interest expense by $17,000 for the year ended December 31, 2011.

(d)

Accretion on Guaranteed Deferred Payments — This adjustment reflects the $209,000 in additional accretion we would have recognized on the guaranteed deferred payments had the acquisition been consummated on January 1, 2011. The discounted fair value of the guaranteed deferred payments on the acquisition date was $6.0 million. The pro forma adjustment for accretion expense is based on the acquisition date discount rate of 4.75% on our guaranteed deferred payments.

(e)

Convertible Promissory Note Interest Expense — This adjustment eliminates $62,000 in interest expense recognized by AdoTube on their convertible promissory note from January 1, 2011 to September 13, 2011. The interest expense was eliminated as immediately prior to the transaction the convertible promissory note converted into shares of AdoTube that we acquired in the acquisition.

(f)

Income Taxes — This adjustment records a benefit from income taxes relating to the pro forma adjustments. The pro forma adjustment for income taxes was determined based upon our marginal effective tax rate.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our “Selected Consolidated Financial Data” and our consolidated financial statements, related notes and other financial information included elsewhere in this prospectus. This 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 below. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed elsewhere in this prospectus, particularly in the section titled “Risk Factors”.

Overview

We are a leading global provider of advertising intelligence and digital media solutions to brand advertisers. We have developed a solution that enables brand advertisers to learn about their optimal consumer audience, reach and engage that audience with emotionally engaging advertising and analyze and refine their marketing campaigns. The foundation of our solution is our e^X Advertising Intelligence Platform, which processes massive amounts of anonymous consumer data to provide the intelligence and actionable insights brand advertisers need to efficiently reach their existing and prospective customers.

We offer a highly integrated solution that includes multiple formats of high impact advertisements across display, video and mobile platforms. Our solution allows brand advertisers to connect with their target audiences at-scale through highly customizable experiences across a wide variety of formats and devices. We combine this with an efficient operational infrastructure that supports our sales footprint across 26 countries.

Key highlights of our history are as follows:

•

We were founded in 1998, launched as Tribal Fusion in 2001 and have been profitable on an annual basis since 2002.

•

From 2001 to 2005, we continued to develop and invest in our technology while primarily focusing on expanding our business domestically.

•

In 2005, we began to expand our business operations internationally, with commercial activity in the United Kingdom and Canada and operations established in India.

•

In 2006, we changed our name to Exponential Interactive, Inc. and launched our proprietary contextualization technology.

•

In 2007, we acquired Techbargains.com, a website focused on special consumer offers, primarily for technology products.

•

In 2007, we introduced advanced rich media products including dynamic advertisements.

•

In 2009, we expanded our sales operations into the Asia Pacific market including Singapore and Australia.

•

In 2010, we launched our engagement video products with the introduction of our Firefly Video brand.

•

In 2011, we added in-stream video products and established operations in Ukraine through the acquisition of AdoTube.

•

In 2011, we started rolling out our e^X Advertising Intelligence Platform to advertisers.

•

In 2012, we launched AppSnack, our mobile advertising brand for mobile in-app advertising.

We derive our revenues primarily from the delivery of digital display and video advertising, and we generally share a percentage of the revenues we collect with our digital media content providers when we place advertisements on their properties. For 2011 and the three months ended March 31, 2012, 66.9% and 60.0% of

our revenues were generated from advertisers located in the United States and 33.1% and 40.0% from international advertisers. We derive revenues from a broad base of advertisers, with 85.4% of revenues for 2011 derived from recurring advertisers. We regard recurring advertisers in a given year as those from whom we also earned revenues in the prior year. We have historically offered a product that was focused on the for-profit education vertical. In early 2012, we decided to stop offering that product and are instead seeking to migrate related advertisers to our current offerings. In 2011, the revenues attributable to this product represented 5.0% of our total revenues. If we are unable to successfully migrate the for-profit education advertisers to our current offerings, our operating results and financial results could be adversely affected.

Our financial objective is to create sustainable revenue and earnings growth over the long-term. To achieve this objective, we will continue to develop our e^X Advertising Intelligence Platform and engagement products to serve brand advertisers. As the world becomes increasingly digital and interconnected, we will continue to invest in global expansion and video, and leverage the capabilities of our e^X Advertising Intelligence Platform to expand across the full landscape of digital devices and platforms, including smartphones, media tablets, eBooks, connected TVs and social media. We plan to continue to expand our audience reach and data capabilities by growing our relationships with digital media content providers across existing and new platforms and devices. As a result of these investments to support long-term growth, we expect our operating expenses to increase substantially and, accordingly, our operating margins to be lower than 2011 levels through at least the end of 2013.

The digital advertising industry, in which we participate, is subject to complex and evolving legislation, regulation, litigation, industry standards and consumer attitudes regarding privacy, data collection and related trade practices. We are unable to predict at this time how developments in this area will affect our business. Adverse developments in the area of digital privacy, data collection and related trade practices could have a material adverse effect on our business, financial condition and results of operations. For further information regarding these matters, please refer to “Risk Factors – Regulatory, legislative or self-regulatory developments regarding Internet privacy matters could adversely affect our ability to conduct our business” and “– Changes in consumer sentiment regarding privacy matters could adversely affect our ability to conduct our business” and “Business – Privacy.”

In 2009, our revenues were adversely impacted by global macroeconomic conditions. However, we maintained profitability primarily as a result of our business model, which typically involves paying our digital media content providers a percentage of revenues, as well as our cost control initiatives. Since 2009, our revenues have grown at a compound annual growth rate, or CAGR, of 35.2% to $169.1 million in 2011, our Adjusted EBITDA has grown at a CAGR of 31.3% to $22.0 million in 2011 and our net income has grown at a CAGR of 51.2% to $6.9 million in 2011. To capitalize on our long-term opportunity, we are making substantial investments in geographic expansion, video and mobile initiatives and accordingly, we recorded a net loss of $3.0 million for the three months ended March 31, 2012.

Basis of Presentation

Revenues

We generate revenues primarily from the sale of display and video advertising delivered across a variety of third-party owned digital media content provider properties. Our revenues are determined based on the number of advertising impressions delivered or the number of user engagements or actions that occur under short-term contracts for marketing campaigns that generally range between 30 and 90 days. Revenues from agreements based on impressions are recognized as the impressions are delivered. Revenues from agreements based on user engagements or actions, such as clicking on an advertisement, completing a registration form or viewing a video, are recognized when a user engagement or action occurs. We also enter into arrangements in which we receive referral revenue from advertisers on our wholly-owned website, Techbargains.com. Referral revenue is earned when a consumer clicks through an advertisement displayed on the Techbargains.com website and executes a purchase on the advertiser’s platform. Techbargains.com revenue represented less than 8% of our revenues in each of the last three years and for the three months ended March 31, 2012.

We classify revenues by the physical location of the advertiser. Most of our revenues are generated in the United States; however, a significant and growing portion of our revenues is generated internationally as noted in the following table:


	Years Ended December 31,									Three Months Ended March 31,
	2009			2010			2011			2011			2012
United States		84.7	%		74.9	%		66.9	%		70.0	%		60.0	%
International		15.3	%		25.1	%		33.1	%		30.0	%		40.0	%

Total revenues		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

Cost of Revenues

Cost of revenues consists primarily of amounts due to third-party digital media content providers for the placement of advertisements on their properties. Cost of revenues also includes personnel costs, depreciation and amortization on our ad-serving hardware and software, third-party data acquisition costs and ad verification and ad-serving fees related to our revenue-generating e^X Advertising Intelligence Platform. Additionally, cost of revenues includes amortization of intangible assets acquired by us and used in our revenue-generating efforts. We are obligated to make payments to digital media content providers for the period in which advertising impressions are delivered or during which user engagements or actions have occurred, which correspond to the period in which the revenues are recognized. We generally pay digital media content providers a percentage of revenues, although we sometimes purchase inventory on a fixed price basis. Amortization expense included within cost of revenues related to our September 2011 acquisition of AdoTube will increase in 2012 as we include a full year of expense in our financial results.

Because we own Techbargains.com, we do not pay for advertising inventory on this website. As such, we benefit from substantially higher gross margins on our Techbargains.com revenues than from our other advertising revenues. Consequently, fluctuations in Techbargains.com revenues may result in significant fluctuations in gross margin, even if they are not significant to the change in total revenues. Further, if other advertising revenues continue to grow faster than revenues from Techbargains.com, our overall gross margin will be adversely affected.

Operating Expenses

Our operating expenses consist of sales and marketing expenses, product development expenses, general and administrative expenses and amortization of intangible assets. The largest component of our operating expenses is personnel costs. Personnel costs consist of wages, benefits, bonuses and, with respect to sales and marketing expenses, sales commissions. Personnel costs also include stock-based compensation. We expect personnel costs to continue to increase in absolute dollars as we continue to hire new employees and grow our business. The operating expenses associated with our Techbargains.com business are significantly lower than those associated with our other advertising revenues. Therefore, fluctuations in Techbargains.com revenues could result in significant fluctuations in operating margins.

Sales and Marketing

Sales and marketing is the largest category of our total operating expenses. These expenses primarily consist of personnel costs, sales commissions, travel and entertainment costs, marketing and advertising costs and facilities costs. We plan to continue to invest in sales and marketing efforts, including plans to increase the number of our sales personnel in countries where we currently have a sales presence and enter new countries, to add new advertisers and increase penetration within our existing advertiser base. In addition, as we continue to expand our solution across new devices and platforms, we intend to grow our marketing and promotional expenditures.

Product Development

Product development expenses primarily relate to the development and enhancement of our e^X Advertising Intelligence Platform. These expenses consist of personnel, information technology, consulting and facility-related costs. Product development expenses also include amortization of capitalized internal software development costs. We expect our product development expenses to increase as we develop new advertising solutions.

General and Administrative

General and administrative expenses consist primarily of personnel costs, professional fees, facility-related costs, depreciation and amortization and acquisition costs. General and administrative personnel costs include our executive, finance, order entry, human resources, information technology and legal functions. Our professional fees consist primarily of accounting, tax, legal, recruiting and information technology and other consulting costs. We expect our general and administrative expenses to increase to support our growth and as we assume the reporting requirements and compliance obligations of a public company.

Amortization of Intangible Assets

We incur amortization on our intangible assets related to the acquisitions of Techbargains.com and AdoTube. We expect amortization expense to increase in 2012 as we include a full year of expense related to the AdoTube acquisition in our financial results.

Provision (Benefit) for Income Taxes

Provision (benefit) for income taxes consists of federal and state income taxes in the United States, income taxes in certain foreign jurisdictions and deferred income taxes reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and includes our uncertain tax positions.

We generally calculate our effective tax rate at the end of an interim period using an estimate of the annual effective tax rate expected to be applicable for the full fiscal year. However, when a reliable estimate of the annual effective tax rate cannot be made, we compute our provision for income taxes using the actual effective tax rate for the year-to-date period. Our effective tax rate is highly influenced by the amount of the nondeductible stock-based compensation associated with grants of our common stock options and, subsequent to September 2011, the contingent deferred consideration associated with our purchase of AdoTube. A small change in estimated annual pretax income (loss) can produce a significant variance in the annual effective tax rate given the expected amount of these items. Because of this variability, a reliable estimate of the annual effective tax rate for 2012 cannot be made. As a result, we have computed our provision (benefit) for income taxes for the three months ended March 31, 2012 by applying the actual effective tax rate to income (loss) for the period.

Acquisitions

We have undertaken strategic acquisitions to broaden our product offerings and grow our business. In September 2011, we acquired AdoTube for an upfront cash payment of $13.7 million and guaranteed deferred cash payments of $4.1 million and $2.4 million due in January 2013 and 2014, respectively. We may use the guaranteed deferred cash payments to offset indemnification claims that we may make against the former owners of AdoTube. At the acquisition date, we determined that the discounted fair value of this guaranteed deferred consideration was $6.0 million. For both the year ended December 31, 2011 and the three months ended March 31, 2012, we have recognized $0.1 million in interest expense for accretion related to the guaranteed deferred cash payments. As of March 31, 2012, we have recorded $6.1 million in other liabilities relating to these guaranteed deferred cash payments.

2013. Payments are also contingent on the ongoing employment of the two principal former owners of AdoTube, unless these former owners are terminated without cause or resign for good reason. The contingent payment amount with respect to 2012 is $2.8 million and 267,143 shares of our common stock, which would be payable in 2013. The contingent payment amount with respect to 2013 is $2.8 million and 267,144 shares of our common stock, which would be payable in 2014. We did not record a liability for the contingent deferred consideration in connection with the acquisition in 2011 as it is considered compensatory in nature and relates to services being provided beginning January 1, 2012. For the three months ended March 31, 2012, we recognized $0.7 million as contingent deferred consideration expense, consisting of a compensatory liability of $0.6 million related to the cash component and stock-based compensation of $0.1 million related to the equity component based upon an estimate of the level of payout probable of being achieved for 2012. The stock-based compensation portion of the amount has been recognized as additional paid-in capital and is based upon the grant date fair value of the potential shares to be issued.

In April 2007, we acquired certain assets of Techbargains.com for $30.0 million in cash.

The intangible assets acquired in these transactions are being amortized to cost of revenues and operating expenses over their estimated useful lives, resulting in total amortization of intangible assets of $2.6 million in 2009 and 2010, $3.3 million in 2011 and $0.6 million and $1.3 million for the three months ended March 31, 2011 and 2012. We will continue to recognize amortization of intangible assets related to these acquisitions in future periods. Also, as a result of these acquisitions, we have recorded goodwill of $25.6 million as of March 31, 2012; if some or all of the value of this goodwill becomes impaired in the future, we would be required to record the diminution in value as an expense in our consolidated statements of income.

Results of Operations

The following table presents our results of operations for the periods indicated:


	Years Ended December 31,									Three Months Ended March 31,
	2009			2010			2011			2011		2012
	(In thousands)
Revenues	$	92,560		$	125,268		$	169,082		$	33,748	$	40,601
Cost of revenues		55,436			71,988			95,848			19,928		23,126

Gross profit		37,124			53,280			73,234			13,820		17,475
Operating expenses:
Sales and marketing		20,060			28,688			42,179			9,100		13,880
Product development		3,434			4,680			5,304			1,022		1,976
General and administrative		5,482			7,615			10,360			1,955		4,261
Amortization of intangible assets		1,073			1,045			1,189			261		385
Contingent deferred consideration		—			—			—			—		702

Total operating expenses		30,049			42,028			59,032			12,338		21,204

Operating income (loss)		7,075			11,252			14,202			1,482		(3,729	)
Other income (expense), net		(1,441	)		(1,396	)		(2,055	)		306		(114	)

Income (loss) before provision (benefit) for income taxes		5,634			9,856			12,147			1,788		(3,843	)
Provision (benefit) for income taxes		2,623			4,485			5,263			726		(818	)

Net income (loss)	$	3,011		$	5,371		$	6,884		$	1,062	$	(3,025	)

The following table sets forth the results of operations for the specified periods as a percentage of our revenues for those periods:


	Years Ended December 31,									Three Months Ended March 31,
	2009			2010			2011			2011			2012
Revenues		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenues		59.9			57.5			56.7			59.0			57.0

Gross profit		40.1			42.5			43.3			41.0			43.0
Operating expenses:
Sales and marketing		21.7			22.9			25.0			27.0			34.2
Product development		3.7			3.7			3.1			3.0			4.9
General and administrative		5.9			6.1			6.1			5.8			10.5
Amortization of intangible assets		1.2			0.8			0.7			0.8			0.9
Contingent deferred consideration		0.0			0.0			0.0			0.0			1.7

Total operating expenses		32.5			33.5			34.9			36.6			52.2

Operating income (loss)		7.6			9.0			8.4			4.4			(9.2	)
Other income (expense), net		(1.5	)		(1.1	)		(1.2	)		0.9			(0.3	)

Income (loss) before provision (benefit) for income taxes		6.1			7.9			7.2			5.3			(9.5	)
Provision (benefit) for income taxes		2.8			3.6			3.1			2.2			(2.0	)

Net income (loss)		3.3	%		4.3	%		4.1	%		3.1	%		(7.5	)%

Three Months Ended March 31, 2011 and 2012

Revenues


	Three Months Ended March 31,
	2011		2012	% Change
	(In thousands)
Revenues	$	33,748	$40,601		20.3	%

Our revenues increased by $6.9 million, or 20.3%, to $40.6 million for the three months ended March 31, 2012 from $33.7 million for the three months ended March 31, 2011, which was driven by an increase in the volume of advertising products sold. The increase was primarily attributable to an increase in our video products of $3.7 million, or 134.1%, due to growth in revenue attributable to our Firefly Video product and the acquisition of AdoTube and in our display products of $3.2 million, or 10.4%. Our domestic revenues grew $0.7 million, or 3.1%, for the three months ended March 31, 2012 from the three months ended March 31, 2011, due in part to the inclusion of $2.3 million of AdoTube’s video revenues, partially offset by a $2.0 million decrease in our for-profit education vertical product, which we stopped offering in early 2012. Our international revenues grew $6.1 million, or 60.4%, for the three months ended March 31, 2012 from the three months ended March 31, 2011, driven by our increased international sales force and marketing presence.

Gross Profit


	Three Months Ended March 31,
	2011			2012	% Change
	(In thousands)
Gross profit	$	13,820		$17,475		26.4	%
Gross margin		41.0	%	43.0%

The improvement in gross margin was primarily attributable to product mix changes for the three months ended March 31, 2012 from the three months ended March 31, 2011. Firefly Video, which generated a higher gross margin than most of our other brands, represented 15.6% of our total revenues for the three months ended March 31, 2012, an increase from 8.0% for the three months ended March 31, 2011. Over time, as our Firefly Video product matures and, as is likely to be the case, becomes subject to greater competition, we expect that its gross margins will be generally consistent with our other products. Also, for the three months ended March 31, 2012, we recognized $0.8 million of revenues and gross profit which was deferred in 2011. In addition, in early 2012, we stopped offering our for-profit education vertical product, which historically had lower gross margins than our other products. Offsetting these improvements in gross margin were increases of $0.9 million in personnel costs and depreciation and amortization as well as $0.5 million of amortization of intangible assets as a result of our acquisition of AdoTube.

Sales and Marketing


	Three Months Ended March 31,
	2011		2012		% Change
	(In thousands)
Sales and marketing	$	9,100		$13,880		52.5	%

Sales and marketing expenses increased by $4.8 million, or 52.5%, to $13.9 million for the three months ended March 31, 2012 from $9.1 million for the three months ended March 31, 2011. The change was primarily attributable to a $3.8 million increase in personnel costs, which includes a $3.2 million increase in payroll costs, a $0.3 million increase in travel and entertainment-related costs and a $0.2 million increase in stock-based compensation. The increase in payroll costs was attributable to increased sales and marketing headcount to support our sales efforts, as we expanded our operations to 10 additional countries and increased our penetration in our existing international markets in comparison to the comparable period in 2011. Sales and marketing headcount increased from 255 at March 31, 2011 to 372 at March 31, 2012, excluding AdoTube personnel. Payroll expense for AdoTube for the three months ended March 31, 2012 was $0.8 million. The change in sales and marketing expenses was also attributable, to a lesser extent, to a $0.6 million increase in facility and IT costs to support the expanded sales and marketing operations. We will incur a stock-based compensation charge to sales and marketing expense of $1.5 million upon the completion of this offering related to the vesting of 750,000 shares of restricted stock.

Product Development


	Three Months Ended March 31,
	2011		2012		% Change
	(In thousands)
Product development	$	1,022		$1,976		93.3	%

Product development expenses increased by $1.0 million, or 93.3%, to $2.0 million for the three months ended March 31, 2012 from $1.0 million for the three months ended March 31, 2011. The change was primarily attributable to a $0.6 million increase in personnel costs, primarily payroll costs, as well as a $0.4 million increase in facility and IT costs. The increase in payroll costs was primarily attributable to increased product development headcount as a result of our acquisition of AdoTube. Our total product development costs other than those related to AdoTube increased by $0.3 million for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011 primarily due to higher IT and payroll costs.

General and Administrative


	Three Months Ended March 31,
	2011		2012		% Change
	(In thousands)
General and administrative	$	1,955	$	4,261		118.0	%

General and administrative expenses increased by $2.3 million, or 118.0%, to $4.3 million for the three months ended March 31, 2012 from $2.0 million for the three months ended March 31, 2011. The change was primarily attributable to a $1.3 million increase in personnel costs, a $0.7 million increase in professional service fees and a $0.3 million increase in facility and IT costs. The increase in personnel costs was attributable to increased general and administrative headcount to support domestic and international growth and to prepare for public company requirements and, to a lesser extent, our acquisition of AdoTube, which resulted in incremental payroll costs of $0.4 million for the three months ended March 31, 2012. General and administrative headcount increased from 44 at March 31, 2011 to 80 at March 31, 2012, excluding AdoTube personnel.

Amortization of Intangible Assets


	Three Months Ended March 31,
	2011		2012		% Change
	(In thousands)
Amortization of intangible assets	$	261	$	385		47.5	%

Amortization of intangible assets increased by $0.1 million for the three months ended March 31, 2012 from the three months ended March 31, 2011 due to our acquisition of AdoTube in September 2011.

Other Income (Expense), net


	Three Months Ended March 31,
	2011		2012			% Change
	(In thousands)
Other income (expense), net	$	306	$	(114	)		(137.3	)%

Other income (expense), net decreased by $0.4 million, or (137.3)%, for the three months ended March 31, 2012 from the three months ended March 31, 2011. The change was attributable to $0.2 million in foreign exchange losses driven by the U.S. dollar (our functional currency) weakening significantly against several of the foreign currencies in which we do business, combined with an increase in interest expense of $0.2 million on outstanding borrowings on our revolving line of credit related to our acquisition of AdoTube.

Provision (Benefit) for Income Taxes


	Three Months Ended March 31,
	2011			2012			% Change
	(In thousands)
Provision (benefit) for income taxes	$	726		$	(818	)		(212.7	)%
Effective tax rate		40.6	%		21.3	%

For the three months ended March 31, 2012, our provision decreased by $1.5 million, or (212.7)%, from the three months ended March 31, 2011, which was principally attributable to the decrease in pre-tax income (loss) for the three months ended March 31, 2012 from the three months ended March 31, 2011. The change in our effective tax rate primarily reflects an increase in the nondeductible stock-based compensation associated with grants of our common stock options and the AdoTube contingent deferred consideration.

Years Ended December 31, 2009, 2010 and 2011

Revenues


	Years Ended December 31,						2009 to 2010 % Change			2010 to 2011 % Change
	2009		2010		2011		2009 to 2010 % Change			2010 to 2011 % Change
	(In thousands)
Revenues	$	92,560	$	125,268	$	169,082		35.3	%		35.0	%

2010 Compared to 2011. Our revenues increased by $43.8 million, or 35.0%, to $169.1 million in 2011 from $125.3 million in 2010, which was driven by an increase in the volume of advertising products sold. This increase was primarily attributable to an increase in our display products of $26.5 million, or 22.1%, and in our video products of $17.3 million, or 338.5%, due to growth in revenue attributed to our Firefly Video product and the acquisition of AdoTube. Our domestic revenues grew $19.2 million, or 20.5% from 2010, due in part to the inclusion of AdoTube’s video revenues. Our international revenues grew $24.6 million, or 78.2% from 2010, driven by our increased international sales force and marketing presence. Our 2011 revenues from recurring advertisers were $144.3 million or 85.4% of total 2011 revenues.

2009 Compared to 2010. Our revenues increased by $32.7 million, or 35.3% to $125.3 million in 2010 from $92.6 million in 2009, which was driven by an increase in the volume of advertising products sold. The increase was primarily attributable to an increase in our display products by $27.6 million, or 29.8%, and to a lesser extent, revenues related to our Firefly Video product, which was launched in 2010. Our domestic revenues grew $15.4 million, or 19.7% from 2009 and our international revenues grew $17.3 million, or 122.0% from 2009, driven by our increased international sales force and marketing presence. Our 2010 revenues from recurring advertisers were $102.8 million or 82.1% of total 2010 revenues.

Gross Profit


	Years Ended December 31,									2009 to 2010 % Change			2010 to 2011 % Change
	2009			2010			2011			2009 to 2010 % Change			2010 to 2011 % Change
	(In thousands)
Gross profit	$	37,124		$	53,280		$	73,234			43.5	%		37.5	%
Gross margin		40.1	%		42.5	%		43.3	%

2010 Compared to 2011. The improvement in gross margin was primarily attributable to product mix changes in 2011 from 2010. Firefly Video, which generated a higher gross margin than most of our other brands, was included for a full year in 2011. Additionally, third-party data acquisition costs and ad verification and ad-serving fees related to our revenue-generating e^X Advertising Intelligence Platform declined as a percentage of revenues in 2011.

2009 Compared to 2010. The improvement in gross margin was primarily due to product mix changes, specifically the impact of the introduction of the Firefly Video product which had total revenues of $5.1 million in 2010, and to a lesser extent a lower percentage of revenues from lower margin products.

Sales and Marketing


	Years Ended December 31,						2009 to 2010 % Change			2010 to 2011 % Change
	2009		2010		2011		2009 to 2010 % Change			2010 to 2011 % Change
	(In thousands)
Sales and marketing	$	20,060	$	28,688	$	42,179		43.0	%		47.0	%

2010 Compared to 2011. Sales and marketing expenses increased by $13.5 million, or 47.0%, to $42.2 million in 2011 from $28.7 million in 2010. The change was primarily attributable to an $11.8 million increase in personnel costs, which includes a $9.3 million increase in payroll costs, a $1.6 million increase in travel and entertainment-related costs and a $0.9 million increase in contractor personnel costs, partially offset by a $0.2 million reduction in stock-based compensation. The increase in payroll costs was attributable to increased sales and marketing headcount to support our sales efforts, as we entered 11 new countries and increased our penetration in our existing international markets. Sales and marketing headcount increased from 213 at December 31, 2010 to 351 at December 31, 2011, excluding AdoTube personnel. Payroll expense for AdoTube in 2011 was $0.9 million. The change in sales and marketing expenses was also attributable, to a lesser extent, to a $1.7 million increase in facility and IT costs and a $0.7 million increase in marketing costs, offset by a $0.5 million decrease in bad debt expense.

2009 Compared to 2010. Sales and marketing expenses increased by $8.6 million, or 43.0%, to $28.7 million in 2010 from $20.1 million in 2009. The change was primarily attributable to a $7.2 million increase in personnel costs, which included a $5.7 million increase in payroll costs, a $1.0 million increase in travel and entertainment-related costs and a $0.6 million increase in stock-based compensation. This increase in payroll cost was attributable to increased sales and marketing head count, as we entered 6 new countries and increased our penetration in our existing international markets. Sales and marketing headcount increased from 137 at December 31, 2009 to 213 at December 31, 2010. The change was also attributable to a $0.5 million increase in bad debt expenses related primarily to a bankruptcy filing of a large UK- based advertising agency and a $0.9 million increase in facility and IT costs.

Product Development


	Years Ended December 31,						2009 to 2010 % Change			2010 to 2011 % Change
	2009		2010		2011		2009 to 2010 % Change			2010 to 2011 % Change
	(In thousands)
Product development	$	3,434	$	4,680	$	5,304		36.3	%		13.3	%

2010 Compared to 2011. Product development expenses increased by $0.6 million, or 13.3%, to $5.3 million in 2011 from $4.7 million in 2010. The change was primarily attributable to a $0.3 million increase in personnel costs, including a $0.7 million increase in payroll costs partially offset by a $0.3 million decrease in stock-based compensation, and a $0.4 million increase in facility and IT costs. The change in payroll costs was attributable to increased product development headcount as a result of our acquisition of AdoTube. Aside from the acquisition of AdoTube in 2011, we maintained our investment in product development consistent with prior year levels.

2009 Compared to 2010. Product development expenses increased by $1.2 million, or 36.3%, to $4.7 million in 2010 from $3.4 million in 2009. The change was primarily attributable to a $1.0 million increase in personnel costs including a $0.5 million increase in payroll costs combined with a $0.4 million increase in stock-based compensation and a $0.2 million increase in facility and IT costs. The increase in personnel costs was related to a substantial increase in our product development activities that began in 2009 and for which we recorded a full year of expense in 2010.

General and Administrative


	Years Ended December 31,						2009 to 2010 % Change			2010 to 2011 % Change
	2009		2010		2011		2009 to 2010 % Change			2010 to 2011 % Change
	(In thousands)
General and administrative	$	5,482	$	7,615	$	10,360		38.9	%		36.0	%

2010 Compared to 2011. General and administrative expenses increased by $2.7 million, or 36.0%, to $10.4 million in 2011 from $7.6 million in 2010. The change was primarily attributable to a $1.2 million increase in personnel costs, a $0.6 million increase in professional services fees, $0.5 million in transaction costs we incurred in connection with our acquisition of AdoTube and a $0.4 million increase in facility and IT costs. The increase in personnel costs was attributable to a $1.0 million increase in payroll costs due to increased general and administrative headcount to support domestic and international growth and to prepare for public company requirements, and to a lesser extent, our acquisition of AdoTube which resulted in incremental payroll costs of $0.3 million in 2011. General and administrative headcount increased from 41 at December 31, 2010 to 72 at December 31, 2011, excluding AdoTube personnel.

2009 Compared to 2010. General and administrative expenses increased by $2.1 million, or 38.9%, to $7.6 million in 2010 from $5.5 million in 2009. The change was primarily attributable to a $1.4 million increase in personnel costs, with a $0.7 million increase in payroll costs due to increased general and administrative headcount to support domestic and international growth, a $0.2 million increase in stock-based compensation and a $0.2 million increase in contractor personnel costs. General and administrative headcount increased from 29 at December 31, 2009 to 41 at December 31, 2010. The change was also attributable to a $0.4 million increase in professional service fees related to our international expansion and a $0.4 million increase in facility and IT costs.

Amortization of Intangible Assets


	Years Ended December 31,						2009 to 2010 % Change			2010 to 2011 % Change
	2009		2010		2011		2009 to 2010 % Change			2010 to 2011 % Change
	(In thousands)
Amortization of intangible assets	$	1,073	$	1,045	$	1,189		(2.6	)%		13.8	%

2010 Compared to 2011. Amortization of intangible assets increased by $0.1 million in 2011 from 2010 due to our acquisition of AdoTube in September 2011.

2009 Compared to 2010. Amortization of intangible assets decreased by $28,000 in 2010 from 2009. The change resulted from our non-compete covenants associated with our acquisition of Techbargains.com in April 2007 becoming fully amortized during 2010.

Other Income (Expense), net


	Years Ended December 31,									2009 to 2010 % Change			2010 to 2011 % Change
	2009			2010			2011			2009 to 2010 % Change			2010 to 2011 % Change
	(In thousands)
Other income (expense), net	$	(1,441	)	$	(1,396	)	$	(2,055	)		(3.1	)%		47.2	%

2010 Compared to 2011. Other income (expense), net changed by $0.7 million or 47.2% from 2010. The U.S. dollar (our functional currency) strengthened significantly against several of the foreign currencies in which we do business during 2011, resulting in an increase of $0.8 million in foreign currency exchange losses in 2011 compared to 2010.

2009 Compared to 2010. Other income (expense), net was flat from 2009 to 2010.

Provision (Benefit) for Income Taxes


	Years Ended December 31,									2009 to 2010 % Change			2010 to 2011 % Change
	2009			2010			2011			2009 to 2010 % Change			2010 to 2011 % Change
	(In thousands)
Provision for income taxes	$	2,623		$	4,485		$	5,263			71.0	%		17.3	%
Effective tax rate		46.6	%		45.5	%		43.3	%

2010 Compared to 2011. In 2011, our provision for income taxes increased by $0.8 million or 17% from 2010. The increase in our provision for income taxes was principally attributable to the $2.3 million or 23.2% increase in pre-tax income in 2011 from 2010 partially offset by lower state tax expense resulting from the 2011 adoption of a change in tax law for California.

2009 Compared to 2010. In 2010, our provision for income taxes increased by $1.9 million or 71% from 2009. This increase was principally attributable to the $4.2 million, or 75%, increase in pre-tax income in 2010 from 2009, partially offset by the lower statutory rates as a result of our international expansion, which resulted in a decrease of 1.1% in our effective tax rate.

Quarterly Results of Operations

The following tables set forth our unaudited quarterly consolidated results of operations data for each of the last nine quarters in the period ended March 31, 2012 in absolute dollars and as percentage of revenues. In our opinion, the unaudited quarterly consolidated results of operations data below has been prepared on the same basis as the audited consolidated financial statements included elsewhere in this prospectus, and reflects all adjustments, which consist only of normal recurring adjustments, necessary for a fair presentation of this data. The results of historical periods are not necessarily indicative of the results of operations of any future period. You should read this data together with our consolidated financial statements and related notes included elsewhere in this prospectus.

		December 31,			December 31,			December 31,			December 31,			December 31,		December 31,			December 31,			December 31,			December 31,
	Three Months Ended,
	March 31, 2010			June 30, 2010			September 30, 2010			December 31, 2010			March 31, 2011		June 30, 2011			September 30, 2011			December 31, 2011			March 31, 2012
	(In thousands)
Revenues	$	24,653		$	27,359		$	31,998		$	41,258		$	33,748	$	40,832		$	41,277		$	53,225		$	40,601
Cost of revenues		14,484			16,235			18,581			22,688			19,928		22,846			23,367			29,707			23,126

Gross profit		10,169			11,124			13,417			18,570			13,820		17,986			17,910			23,518			17,475
Operating expenses:
Sales and marketing		5,323			6,682			7,556			9,127			9,100		10,060			10,439			12,580			13,880
Product development		978			1,045			1,362			1,295			1,022		1,146			1,247			1,889			1,976
General and administrative		1,712			1,766			1,971			2,166			1,955		2,126			2,785			3,494			4,261
Amortization of intangible assets		262			261			261			261			261		261			282			385			385
Contingent deferred consideration		—			—			—			—			—		—			—			—			702

Total operating expenses		8,275			9,754			11,150			12,849			12,338		13,593			14,753			18,348			21,204

Operating income (loss)		1,894			1,370			2,267			5,721			1,482		4,393			3,157			5,170			(3,729	)
Other income (expense), net		(357	)		(502	)		(333	)		(204	)		306		(264	)		(1,250	)		(847	)		(114	)

Income (loss) before provision (benefit) for income taxes		1,537			868			1,934			5,517			1,788		4,129			1,907			4,323			(3,843	)
Provision (benefit) for income taxes		655			370			1,017			2,443			726		1,676			793			2,068			(818	)

Net income (loss)	$	882		$	498		$	917		$	3,074		$	1,062	$	2,453		$	1,114		$	2,255		$	(3,025	)

Other Financial Information:
Adjusted EBITDA	$	3,174		$	2,634		$	4,758		$	7,471		$	3,025	$	6,230		$	5,020		$	7,764		$	(86	)

		December 31,			December 31,			December 31,			December 31,			December 31,			December 31,			December 31,			December 31,			December 31,
	Three Months Ended,
	March 31, 2010			June 30, 2010			September 30, 2010			December 31, 2010			March 31, 2011			June 30, 2011			September 30, 2011			December 31, 2011			March 31, 2012
Revenues		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0			100.0	%		100.0	%
Cost of revenues		58.8			59.3			58.1			55.0			59.0			56.0			56.6			55.8			57.0

Gross profit		41.2			40.7			41.9			45.0			41.0			44.0			43.4			44.2			43.0
Operating expenses:
Sales and marketing		21.5			24.4			23.5			22.2			27.0			24.6			25.4			23.7			34.2
Product development		4.0			3.8			4.3			3.1			3.0			2.8			3.0			3.5			4.9
General and administrative		6.9			6.5			6.2			5.2			5.8			5.2			6.7			6.6			10.5
Amortization of intangible assets		1.1			1.0			0.8			0.6			0.8			0.6			0.7			0.7			0.9
Contingent deferred consideration		—			—			—			—			—			—			—			—			1.7

Total operating expenses		33.5			35.7			34.8			31.1			36.6			33.2			35.8			34.5			52.2

Operating income (loss)		7.7			5.0			7.1			13.9			4.4			10.8			7.6			9.7			(9.2	)
Other income (expense), net		(1.5	)		(1.8	)		(1.1	)		(0.5	)		0.9			(0.7	)		(3.0	)		(1.6	)		(0.3	)

Income (loss) before provision (benefit) for income taxes		6.2			3.2			6.0			13.4			5.3			10.1			4.6			8.1			(9.5	)
Provision (benefit) for income taxes		2.6			1.4			3.1			5.9			2.2			4.1			1.9			3.9			(2.0	)

Net income (loss)		3.6	%		1.8	%		2.9	%		7.5	%		3.1	%		6.0	%		2.7	%		4.2	%		(7.5	)%

Other Financial Information:
Adjusted EBITDA		12.9	%		9.6	%		14.9	%		18.1	%		9.0	%		15.3	%		12.2	%		14.6	%		(0.2	)%

The following table sets forth a reconciliation of net income to Adjusted EBITDA for each of the eight quarters ended December 31, 2011. Please see “Selected Consolidated Financial Data — Adjusted EBITDA” for more information.

		December 31,		December 31,		December 31,		December 31,		December 31,			December 31,		December 31,		December 31,		December 31,
	Three Months Ended,
	March 31, 2010		June 30, 2010		September 30, 2010		December 31, 2010		March 31, 2011			June 30, 2011		September 30, 2011		December 31, 2011		March 31, 2012
	(In thousands)
Reconciliation of Adjusted EBITDA:
Net income (loss)	$	882	$	498	$	917	$	3,074	$	1,062		$	2,453	$	1,114	$	2,255	$	(3,025	)
Other (income) expense, net		357		502		333		204		(306	)		264		1,250		847		114
Provision (benefit) for income taxes		655		370		1,017		2,443		726			1,676		793		2,068		(818	)
Depreciation and amortization of property and equipment		316		269		397		381		426			543		537		644		770
Amortization of intangible assets		650		648		648		648		648			648		751		1,266		1,268
Stock-based compensation		314		347		1,446		721		469			646		575		684		903
Contingent deferred consideration		—		—		—		—		—			—		—		—		702

Adjusted EBITDA	$	3,174	$	2,634	$	4,758	$	7,471	$	3,025		$	6,230	$	5,020	$	7,764	$	(86	)

Our operating results fluctuate from quarter to quarter as a result of a variety of factors, including seasonality. Spending by advertisers is traditionally seasonally strong in the fourth quarter. In addition, expenditures by advertisers

tend to be cyclical and discretionary in nature, reflecting overall economic conditions, the economic prospects of specific advertisers or industries, changes in brand advertising strategy, budgeting constraints and buying patterns and a variety of other factors, many of which are outside of our control. As a result of these and other factors, the results of any prior quarterly or annual periods should not be relied upon as indications of our future operating performance.

Our financial performance and results reflect the aforementioned seasonality. Revenues, cost of revenues and sales and marketing expenses usually increase significantly in the fourth quarter relative to the third quarter and then are lower during the first quarter of the following year due to the seasonally reduced spending by brand advertisers. Our cost of revenues is largely driven by our revenues and therefore has grown consistently with our revenue growth. Our operating expenses reflect our growth initiatives as we increase headcount and expand into new markets and geographies to generate additional revenues.

In addition, our results of operations during these periods reflect the following:

•

Increased sales and marketing expenses, as we have made significant investments related to the development and expansion of our business and increased our presence from eight countries as of January 1, 2010 to 26 countries as of March 31, 2012. These investments have been made to support long-term growth and have resulted in reduced operating margins.

•

The introduction of Firefly Video in May 2010 favorably affected revenues and gross margin in subsequent periods, in particular in the fourth quarter of 2010 and the second quarter of 2011. Over time, we expect gross margin associated with our Firefly Video product to be generally consistent with our other advertising brands.

•

Our revenues in the fourth quarter of 2011 and in the first quarter of 2012 reflected contributions of $5.7 million and $2.3 million, respectively, from our AdoTube acquisition. Operating expenses increased as we incurred increased salary and related costs from the acquisition in the same periods.

•

Our general and administrative expenses increased during the third quarter of 2011 due to our acquisition of AdoTube, for which we incurred $0.5 million of acquisition-related costs. In addition, general and administrative expenses were higher in the fourth quarter of 2011 and the first quarter of 2012 due to increased headcount in preparation for our initial public offering and increased salary and related costs for additional general and administrative personnel from our AdoTube acquisition.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily through cash flows generated from operations, and, to a lesser extent, borrowings on our credit facilities. Our principal sources of liquidity as of March 31, 2012, are our cash and cash equivalents and our revolving line of credit. As of March 31, 2012, we had $18.5 million of cash and cash equivalents, $9.6 million of which is currently held outside of the United States and would be subject to U.S. income tax upon repatriation. As of March 31, 2012, we had $13.4 million outstanding on our revolving line of credit and $6.6 million available for future borrowings and were in compliance with the covenants under this facility.

We believe that our cash flows generated from operations and current cash and cash equivalents, and amounts available under our credit facility, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for the next twelve months. From time to time, we may explore additional financing sources to develop or enhance our technology platform, to fund expansion, to respond to competitive pressures, to acquire or to invest in complementary products, businesses or technologies, or to lower our cost of capital, which could include equity, equity-linked securities and debt financing. We cannot assure you that any additional financing will be available to us on acceptable terms, if at all. If we raise additional funds through the issuance of equity or convertible debt or other equity-linked securities, our existing stockholders could suffer significant dilution, and if we raise additional funds through the issuance of debt securities or other borrowings,

these securities or borrowings would have rights senior to those of our common stock and could contain covenants that could restrict our operations.

Cash Flows

The following table summarizes our cash flows for the periods indicated from our consolidated financial statements included elsewhere in this prospectus:


	Years Ended December 31,									Three Months Ended March 31,
	2009			2010			2011			2011			2012
	(In thousands)
Net cash provided by operating activities	$	7,169		$	4,302		$	9,178		$	6,216		$	4,310
Net cash used in investing activities		(273	)		(1,352	)		(15,353	)		(720	)		(538	)
Net cash (used in) provided by financing activities		(21,849	)		(5,179	)		12,372			(201	)		222

Operating Activities

We have generated positive cash flows from operations for each of 2009, 2010 and 2011 and for the three months ended March 31, 2011 and 2012. Our net cash provided by operating activities primarily results from our net income adjusted for non-cash expenses offset by changes in working capital components driven by the growth of our business, and is influenced by the timing of cash receipts from our advertisers and cash payments to third-party digital media content providers for the acquisition of advertising impressions. Our primary source of cash flow from operating activities is cash receipts from advertisers. Our primary uses of cash from operating activities are amounts due to third-party digital media content providers and to a lesser extent, for employee-related expenditures. Due to our contractual terms and the nature of the advertising business, we usually pay our digital media content providers in advance of receiving payments from our advertisers. This is especially true internationally as payment terms are typically longer than in the United States. Therefore, as our business has expanded, our working capital requirements have grown significantly as our receivables have grown faster than our payables on an annual basis. However, for the first quarter, our revenues and related costs historically decline from the fourth quarter of the previous year as a result of the seasonal spending by advertisers. In addition, during the first quarter, we collect cash from the seasonally strong fourth quarter sales. As a result, our working capital needs typically decrease during this quarter. We expect these trends to continue to the extent we grow the business and continue to expand internationally.

For the three months ended March 31, 2012, cash provided by operating activities was $4.3 million. The cash flow from operating activities reflected a net loss of $3.0 million offset by net non-cash charges of $2.7 million and a net change of $4.6 million in our net operating assets and liabilities. Non-cash charges primarily included $1.3 million of amortization of intangible assets, $1.0 million in stock-based compensation and $0.8 million of depreciation and amortization for property and equipment, partially offset by changes of $0.4 million in deferred taxes. The net change in our operating assets and liabilities was primarily a result of a $10.6 million decrease in accounts receivable, partially offset by a $4.5 million decrease in accrued expenses and accrued liabilities and a $1.5 million decrease in prepaid expenses, other assets and liabilities due to the seasonality in our business.

For the three months ended March 31, 2011, cash provided by operating activities was $6.2 million. The cash flow from operating activities reflected net income of $1.1 million, net non-cash charges of $1.6 million and a net change of $3.6 million in our net operating assets and liabilities. Non-cash charges primarily included $0.7 million of amortization of intangible assets, $0.5 million in stock-based compensation and $0.4 million of depreciation and amortization for property and equipment. The net change in our operating assets and liabilities was primarily a result of a $6.7 million decrease in accounts receivable and a $1.1 million increase in other liabilities offset by a $1.7 million increase in prepaid expenses and a $2.6 million decrease in accrued expenses and accrued liabilities.

In 2011, cash provided by operating activities was $9.2 million. The cash flow from operating activities reflected net income of $6.9 million and aggregate non-cash charges of $9.2 million partially offset by a net

change of $6.9 million in our net operating assets and liabilities. Non-cash charges primarily included $3.3 million of amortization of intangible assets, $2.4 million in stock-based compensation and $2.2 million of depreciation and amortization for property and equipment. The net change in our operating assets and liabilities was primarily a result of a $9.8 million increase in accounts receivable due to growth in revenues, a $4.1 million increase in prepaid expenses and other current assets due to the timing of tax refunds, partially offset by a $3.7 million corresponding increase in accrued expenses and accrued liabilities due to the growth in our business.

In 2010, cash provided by operating activities was $4.3 million. The cash flow from operating activities reflected net income of $5.4 million and aggregate non-cash charges of $6.5 million, partially offset by a net change of $7.5 million in our net operating assets and liabilities. Non-cash charges primarily included $2.8 million in stock-based compensation, $2.6 million for amortization of intangible assets and $1.4 million for depreciation and amortization of property and equipment, partially offset by a decrease in deferred income taxes of $0.7 million. The net change in our operating assets and liabilities was primarily a result of an $18.0 million increase in accounts receivable partially offset by a $9.2 million increase in accrued expenses. The increase in accounts receivable is attributable to revenue growth, especially in the fourth quarter of fiscal 2010, combined with timing of payments from our international advertisers. The increase in accrued expenses is due to increased cost of sales associated with increased revenues and timing of payments due to our growth.

In 2009, cash provided by operating activities was $7.2 million. The cash flow from operating activities reflected net income of $3.0 million and aggregate non-cash charges of $5.2 million, partially offset by a net change of $1.0 million in our net operating assets and liabilities. Non-cash charges primarily included $2.6 million for amortization of intangible assets, $1.6 million in stock-based compensation and $1.4 million for depreciation and amortization of property and equipment, partially offset by a gain of $0.5 million on the remeasurement of our interest rate swap agreement to fair value. The net change in our operating assets and liabilities was primarily a result of a $2.2 million increase in accounts receivable partially offset by a $1.7 million decrease in prepaid expenses and other current assets. The increase in accounts receivable was the result of timing of payments from advertisers, which we believe was due to the global macroeconomic conditions. The decrease in prepaid expenses and other current assets was primarily attributable to a decrease in income tax receivables from overpayments made in 2008, which were refunded in 2009.

Investing Activities

For the three months ended March 31, 2011 and 2012, cash used in investing activities was $0.7 million and $0.5 million, consisting primarily of capital expenditures related to purchases of computer hardware and software.

In 2011, cash used in investing activities was $15.4 million, consisting of $12.8 million for the acquisition of AdoTube, net of cash acquired, $2.1 million in capital expenditures related to purchases of computer hardware and software, and $0.5 million in capitalization of software development costs.

In 2010 and 2009, cash used in investing activities was $1.4 million and $0.3 million, respectively, primarily for capital expenditures. Our capital expenditures consisted primarily of purchases of computer hardware to support our growth and to upgrade our infrastructure.

Financing Activities

For the three months ended March 31, 2012, cash provided by financing activities was $0.2 million, reflecting $0.6 million in proceeds from the issuance of our common stock partially offset by $0.4 million in repayments on our capital lease obligations.

For the three months ended March 31, 2011, cash used in financing activities was $0.2 million, reflecting repayments on our capital lease obligations.

In 2011, cash provided by financing activities was $12.4 million, consisting of $13.4 million in proceeds from our revolving line of credit to finance the acquisition of AdoTube and $0.1 million in proceeds from the

issuance of common stock from our equity incentive plan, partially offset by $1.1 million in repayments on our capital lease obligations.

In 2010, cash used in financing activities was $5.2 million, reflecting $5.0 million in repayments on our revolving line of credit, and $0.7 million in repayments on our capital lease obligations, partially offset by $0.5 million in proceeds we received from the issuance of common stock from our equity incentive plans.

In 2009, cash used in financing activities was $21.8 million, reflecting the $21.3 million in repayments on the term portion of our credit facility and $0.6 million in repayments on our capital lease obligations.

2011 Amended Credit Facility

In May 2011, we amended our 2007 Credit Agreement to provide for a $20.0 million revolving line of credit. In connection with our acquisition of AdoTube in September 2011, we borrowed $13.4 million of the $20.0 million available under the revolving line of credit, which amount remained outstanding as of March 31, 2012.

The interest rate on outstanding borrowings on the revolving line of credit varies and resets periodically depending upon our consolidated leverage ratio and the current LIBOR and prime rates. Our interest rate as of March 31, 2012 was 1.99% per annum. Interest payments are due monthly. We are also required to pay commitment fees of up to 0.30% on the unused portion of the revolving credit line. Based on our consolidated leverage ratio at March 31, 2012, the commitment fee was 0.25%. Commitment fees are due quarterly. Our revolving credit line matures on May 6, 2014 and is secured by all of our assets.

We are required to comply with certain financial and non-financial covenants pursuant to the terms of our revolving line of credit and as of March 31, 2012, we were in compliance with these covenants.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles or GAAP, and include our accounts and the accounts of our wholly-owned subsidiaries. The preparation of these consolidated financial statements requires our management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the applicable periods. We base our estimates, assumptions and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our consolidated financial statements, which, in turn, could change the results from those reported. We evaluate our estimates, assumptions and judgments on an ongoing basis.

The critical accounting estimates, assumptions and judgments that we believe have the most significant impact on our consolidated financial statements are described below.

Revenue Recognition

We recognize revenues when four basic criteria are met: (1) persuasive evidence exists of an arrangement with the advertiser reflecting the terms and conditions under which the services or products will be provided; (2) services have been provided or delivery has occurred; (3) the fee is fixed or determinable; and (4) collection is reasonably assured. We consider a signed agreement, a binding insertion order, a third-party commission statement or other similar documentation to be persuasive evidence of an arrangement. Collectability is assessed based on a number of factors, including the creditworthiness of an advertiser and transaction history. When we execute an arrangement with an agency, we assess collectability with respect to both the agency and the advertiser.

We generate revenues primarily from the sale of display and video advertising delivered across a variety of third-party owned digital media content provider properties for marketing campaigns that generally range between 30 and 90 days. Revenues from agreements based on impressions are recognized as the impressions are

delivered. Revenues from agreements based on user engagements or actions are recognized when a user engagement or action occurs. We also enter into arrangements in which we receive referral revenue from advertisers on our wholly-owned website, Techbargains.com. Referral revenue is earned when a consumer executes a purchase on an advertiser’s platform resulting from clicking on an advertisement displayed on Techbargains.com.

In certain instances, we pay an annual volume discount fee to an agency based upon the achievement of certain pre-determined spend levels. In these instances, we record the volume discount fee as a reduction of revenue at the time that the related revenue is recognized based upon our estimate of the total discount to be paid, taking into account the anticipated annual spend level. When we are unable to reasonably estimate the total amount to be paid, we record the maximum potential amount of the volume discount fee as a liability and adjust our estimate as additional facts and circumstances arise or when the actual amount is known.

We recognize revenues as a principal based upon a variety of factors, including acting as the primary obligor in the arrangement, performing a significant portion of the services, setting the pricing and retaining the credit risk. Accordingly, in the period advertising services are delivered, revenues are recognized on a gross basis and the corresponding third-party digital media content provider expenses are recognized and recorded as a component of cost of revenues.

Goodwill and Intangible Assets

We record goodwill when the purchase consideration paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. The valuation of the net tangible and intangible assets acquired requires management to make significant estimates in determining the fair values of assets and liabilities acquired. These estimates are based on information obtained from management of the acquired companies and historical experience. These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable, and if different estimates were used the purchase price for the acquisition could be allocated to the acquired assets and liabilities differently from the allocation that we have made. In addition, unanticipated events and circumstances may occur which affect the accuracy or validity of such estimates, and if such events occur we may be required to record a charge against the value ascribed to an acquired asset or an increase in the amounts recorded for assumed liabilities.

We perform our annual review of goodwill during the fourth quarter of each year, or more frequently if indicators of potential impairment exist, to determine if the carrying value of the recorded goodwill is impaired. Goodwill is not amortized. Triggering events that may indicate impairment include, but are not limited to, a significant adverse change in advertiser demand or business climate that could affect the value of goodwill or cause a significant decrease in expected cash flows.

In conducting our impairment test, we must first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. If, after assessing the qualitative factors, we determine that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, we must then perform a two-step impairment test, whereby in the first step, we compare the estimated fair value of the reporting unit with the reporting unit’s carrying amount, including goodwill. If the carrying amount exceeds its fair value, we perform the second step of the goodwill impairment test to determine the amount of impairment, if any. The second step, measuring the impairment loss, compares the implied fair value of the goodwill with the carrying value of that goodwill. Any excess of the goodwill carrying value over the respective implied fair value is recognized as an impairment loss.

Based on our assessment during the fourth quarter of 2011, we concluded that we have one reporting unit and there were no qualitative factors that would indicate that it was more-likely-than-not that the fair value of our reporting unit is less than its carrying amount. We also observed that as of December 31, 2010 and 2011 and

March 31, 2012, the fair value of our reporting unit significantly exceeded the reporting unit’s carrying value, including goodwill, as determined by the contemporaneous valuations approved by our board of directors. No impairment of goodwill was identified for 2009, 2010 and 2011 and for the three months ended March 31, 2012.

Impairment of Long-Lived Assets

We assess the impairment of long-lived assets, such as property and equipment and intangible assets subject to depreciation and amortization, whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Among the factors and circumstances we consider in determining recoverability are: (i) a significant decrease in the market price of a long-lived asset; (ii) a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition; (iii) a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, including an adverse action or assessment by a regulator; (iv) an accumulation of costs significantly in excess of the amount originally expected for the acquisition and (v) current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. We have observed no indicators of impairment and we did not record any impairment losses during 2009, 2010 or 2011 or for the three months ended March 31, 2012.

Stock-Based Compensation

We recognize compensation expense related to stock option and restricted stock grants made to employees based on the estimated fair value of the stock-based awards on the date of grant, net of estimated forfeitures. We determine the grant date fair value of the awards using the Black-Scholes option-pricing model and the related stock-based compensation is recognized on a straight-line basis, over the period in which an employee is required to provide service in exchange for the stock-based award.

The estimated grant date fair value of all our stock-based awards was calculated based on the assumptions given in the table below:


	Years Ended December 31,			Three Months Ended March 31,
	2009	2010	2011	2012
Expected term (in years)	5.5	5.7	5.7 - 5.8	5.8
Risk-free interest rate	2.5%	1.4% - 2.4%	1.0% - 2.4%	1.1%
Expected volatility	59.9%	59.5% - 65.4%	64.1% - 65.0%	64.6% - 64.7%
Dividend rate	0%	0%	0%	0%
Forfeiture rate	23.6%	22.7% - 24.4%	22.9% - 24.9%	22.4% - 22.5%

In determining the fair value of the stock-based awards, we use the Black-Scholes option-pricing model, which requires the use of highly subjective and complex assumptions that determine the fair value of stock-based awards. These assumptions are as follows:

•

Expected term — The expected term is based upon employee historical exercise and post-vesting employment termination behavior which also takes into account the contractual life of the award.

•

Risk-free interest rate — The risk-free interest rate is based on the interest yield in effect at the date of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the option’s expected term.

•

Expected volatility — Since we do not have a trading history of our common stock, the expected volatility was derived from the historic volatilities of multiple peer companies within our industry that we considered to be comparable to our business over a period equivalent to the expected term of the stock option grants.

•

Dividend rate — The expected dividend rate was assumed to be zero as we have never paid dividends and have no current plans to do so.

In addition to the assumptions used in the Black-Scholes option-pricing model, we must also estimate a forfeiture rate to calculate the stock-based compensation for our awards. Our forfeiture rate is based on an analysis of our actual and expected forfeitures. We will continue to evaluate the appropriateness of the forfeiture rate based on actual and expected forfeiture experience, analysis of employee turnover and other factors. Quarterly changes in the estimated forfeiture rate can have a significant impact on our stock-based compensation as the cumulative effect of adjusting the rate is recognized in the period in which we change the forfeiture estimate.

We will continue to use judgment in evaluating the expected term, expected volatility and forfeiture rate related to our stock-based compensation calculations on a prospective basis. As we continue to accumulate additional data related to our common stock, we may make refinements to the estimates of our expected term, expected volatility and forfeiture rate that could materially impact our future stock-based compensation.

Significant Factors, Assumptions and Methodologies Used in Determining Fair Value of Our Common Stock

We are also required to estimate the fair value of the common stock underlying our stock-based awards when performing the fair value calculations with the Black-Scholes option-pricing model. Our board of directors, with input from management, estimates the fair value of the common stock underlying our stock-based awards on each grant date. Prior to March 2012, our board of directors consisted of our Chief Executive Officer who has significant experience in the technology and Internet advertising industries. Subsequent to March 2012, our board of directors is comprised of a majority of non-employee directors with significant experience in the Internet and Internet advertising industries. Thus, we believe that our board of directors has the relevant experience and expertise to determine a fair value for our common stock on each respective grant date. Given the absence of a public trading market for our common stock, and in accordance with the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, our board of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock including:

•

valuations performed by an unrelated third-party specialist;

•

our actual operating and financial performance;

•

current business and macroeconomic conditions and projections;

•

our stage of development;

•

the history of the company and the introduction of new products and services;

•

the likelihood of achieving a liquidity event, such as an initial public offering or a sale of the company, given prevailing market conditions and the nature and history of our business;

•

the market value of a comparable group of privately held companies that are in a state of development similar to ours, based upon recent transactions;

•

adjustments necessary to recognize a lack of marketability for our common stock as a private company; and

•

industry information, such as market size and growth.

In valuing our common stock, we engaged a valuation specialist to perform a valuation on a minority, non-marketable interest basis. The valuation determined the aggregate enterprise value of our company by taking an equally weighted combination of the value indications under two valuation approaches, an income approach and a market approach. We determined that an equal weighting under the two valuation approaches was appropriate for all of our valuations performed from December 31, 2010 through May 7, 2012 considering the inherent strengths and weaknesses of each valuation approach.

The market approach was applied because we believed that the market multiples of our comparable public company industry peers would be an appropriate indicator to determine the aggregate enterprise value of our company while factoring in our inherent strengths and weaknesses. In addition, the market approach is generally more applicable for companies as they progress towards an initial public offering as the public markets generally value companies by comparison to their public company industry peers. However, our comparable public company industry peers are not completely analogous to us as many of them are much larger than us and often have different capital structures. In addition, in many instances, our comparable public company industry peers have different margin and operating result profiles and growth rates than us as they operate in multiple digital advertising segments or focus on a specific advertising segment that may be different than ours or are at different stages of development.

The income approach was applied because we believed that the income approach provided an appropriate indicator to determine the aggregate enterprise value of our company based on our discounted projected cash flows, particularly given our lengthy operating history and years of operating income. However, public companies are often valued based on various factors, including valuation multiples, forecast guidance and discounted cash flow analysis. In addition, the income approach is speculative as to whether our forecast can be achieved and to the appropriate terminal value and discount rate, especially given the early stage of development of the digital advertising industry in which we operate.

As a result, we believe that neither valuation technique was more reflective of our aggregate enterprise value than the other, after taking into account the relative strengths and weaknesses of each approach and our continued progress towards an initial public offering and decreasing time to marketability. Thus, we equally weighted the two valuation approaches for our valuations.

The income approach estimates the aggregate enterprise value of our company based on the present value of future estimated cash flows. Cash flows are estimated for future periods based on projected revenue and costs. These future cash flows are discounted to their present values using an appropriate discount rate. The discounted projected cash flows and a terminal value are summed together to arrive at an indicated aggregate enterprise value under the income approach. In applying the income approach, we derived the discount rate from an analysis of the weighted-average cost of capital of our comparable public company industry peers as of each valuation date and adjusted it to reflect the risks inherent in our business cash flows. We derived the terminal multiple from an exit multiple analysis of our comparable public company industry peers’ calculated enterprise values divided by their calculated EBITDA amounts as of each valuation date.

The market approach estimates the aggregate enterprise value of our company by applying market multiples of our comparable public company industry peers based on key metrics inferred from their enterprise values. In applying the market approach, we utilized the revenue and EBITDA multiples of our comparable public company industry peers to derive the aggregate enterprise value of our company. We derived those revenue and EBITDA multiples by obtaining the stock price and market capitalization, and the current and future revenue and EBITDA estimates of each of our comparable public company industry peers. We then adjusted those multiples based on our assessment of the strengths and weaknesses of our company relative to those comparable public company industry peers. We believed that using revenue and EBITDA multiples to estimate our aggregate enterprise value was appropriate given our focus on growing our business and because our comparable public company industry peers were in various stages of growth and investment.

When considering which companies to include in our comparable public company industry peers, we focused on domestic and foreign publicly traded companies in the Internet or Internet advertising industries in

which we operate. The selection of our comparable public company industry peers requires us to make judgments regarding the comparability of these companies to us. We considered a number of factors, including business description, business size, business model, revenue model and historical operating results. We then analyzed the business and financial profiles of the selected companies for relative similarity to us, and, based on this assessment, we selected our comparable industry peer companies.

The selection of our comparable public company industry peers has changed over time based upon our continuing evaluation of whether we believe the selected companies remained comparable to us. Specifically, the composition of our comparable industry public company peers in our December 31, 2010 contemporaneous valuation differed from our March 31, 2011 and June 30, 2011 valuations as we replaced one of the comparable public company industry peers with two companies that were more representative. For our December 2, 2011 contemporaneous valuation, we removed one of the comparable public company industry peers as it was no longer publically traded. For our February 24, 2012 contemporaneous valuation, we added two newly public traded companies after their volatility had normalized. There were no changes in our comparable public company industry peers from our February 24, 2012 contemporaneous valuation to our May 7, 2012 contemporaneous valuation. We believed that the comparable public company industry peers selected are a representative group for purposes of performing our contemporaneous and retrospective valuations. The same comparable public company industry peers were also used in determining our various other estimates and assumptions, including our expected volatility and discount rates. The same comparable public company industry peers were used in determining our various other estimates and assumptions, including our expected volatility and discount rates.

For each valuation, we prepared financial projections to be used in both the income and market approaches. The financial projections took into account our historical financial operating results, our business experiences and our future expectations. We factored the risk associated with achieving our forecast into selecting appropriate multiples and discount rates. There is inherent uncertainty in these estimates, as the assumptions we used were highly subjective and subject to change as a result of new operating data and economic and other conditions that impact our business.

We calculated a weighted aggregate enterprise value of the company determined under the income and market approaches and applied adjustments to it such as for our then-current cash and debt balances to arrive at our aggregate equity value. We then allocated the fair value of our aggregate equity value to our outstanding common shares at the valuation date, on a fully diluted-basis, assuming all of our stock options were exercised. Finally, we applied a discount for lack of marketability, or DLOM, to determine the fair value of our common stock.

Information regarding stock-based awards, including options and restricted stock units (RSUs) granted subsequent to January 1, 2011, is summarized as follows:


Grant Date	Shares Underlying RSUs		Shares Underlying Options		Grant Date Fair Value (RSUs)/ Exercise Price (Options)		Fair Value Per Share of Common Stock		Aggregate Grant Date Fair Value (1)
April 1, 2011		—		1,423,700	$	1.34	$	1.69	$	1,536,500
April 5, 2011		—		726,000		1.34		1.69		784,100
May 31, 2011		—		576,000		1.34		1.69		613,500
December 19, 2011		—		2,344,000		2.10		2.10		2,843,600
December 20, 2011		—		370,000		2.10		2.10		449,700
December 30, 2011		—		425,000		2.10		2.10		515,500
March 2, 2012		—		2,655,000		2.75		2.75		4,208,500
March 7, 2012		120,000		450,000		2.75		2.75		1,044,200
May 8, 2012		32,800		2,241,500		3.52		3.52		4,698,700

		152,800		11,211,200					$	16,694,300

(1)	We determined the aggregate grant date fair value for the options using the Black-Scholes option-pricing model.

The intrinsic value of all options outstanding as of March 31, 2012 was $ million, based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth of the cover page of this prospectus.

No single event caused the valuation of our common stock to increase from December 31, 2010 through May 8, 2012. Rather, a combination of the factors described below in each period led to the changes in the fair value of the underlying common stock.

December 31, 2010 Contemporaneous Valuation

As of December 31, 2010, the fair value of our common stock was determined to be $1.34 per share. In estimating the value as of December 31, 2010, the key assumptions included a 21.0% discount rate, a 6.0x terminal multiple and market multiples using last twelve month (LTM) and current year revenue and EBITDA amounts based on current market conditions. In addition, this analysis used a 35.0% DLOM, based on an assumed time to marketability of 4.0 years.

Based on the December 31, 2010 contemporaneous valuation and other factors, we used $1.34 per share for the exercise price of the options that we granted on April 1, April 5 and May 31, 2011. On the date of the option grants, we determined that there had been no significant changes to the business and other relevant factors between December 31, 2010 and the grant dates which we concluded would indicate a change in the fair value of the underlying common stock.

In connection with the preparation of our December 31, 2011 consolidated financial statements and the initial filing of our registration statement on Form S-1, we reassessed the fair value of the underlying common stock used to calculate the related stock-based compensation for financial reporting purposes. Based on this reassessment, we noted that the fair value of our common stock increased $0.42 per share between our December 31, 2010 and June 30, 2011 contemporaneous valuation dates, which we concluded indicated that there was an increase in the fair value of the underlying common stock for the April and May 2011 option grants. As such, we felt it was appropriate to obtain a retrospective valuation as of March 31, 2011 to determine the fair value of our common stock as of March 31, 2011. The March 31, 2011 retrospective valuation estimated the fair value of our common stock at $1.69 per share. Based on this valuation and other factors, we determined the fair value of the underlying common stock should be $1.69 per share for the April 1, April 5 and May 31, 2011 grants, rather than the $1.34 per share as previously determined. We also assessed the fair value of all of our other 2011 and 2012 stock option and restricted stock grants. However, based on the size and timing of the grants and their proximity to the most recent contemporaneous valuation, we did not believe it was necessary to change the underlying fair value of the common stock.

March 31, 2011 Retrospective Valuation

As of March 31, 2011, the fair value of our common stock was determined to be $1.69 per share based upon the retrospective valuation. In estimating the value as of March 31, 2011 the key assumptions included a 19.0% discount rate, a 6.0x terminal multiple and market multiples using LTM and current year revenue and EBITDA amounts based on current market conditions. In addition, this analysis used a 30.0% DLOM, based on an assumed time to marketability of 3.25 years.

The increase in the fair value of our common stock from the December 31, 2010 contemporaneous valuation was primarily attributable to the 5% decrease in our DLOM due to a decrease in our assumed time to marketability combined with an increase in our discounted cash flows resulting from using our projected 2012 revenue and EBITDA amounts which projected significant growth in our business.

As noted above, for our April 1, April 5 and May 31, 2011 grants, we reassessed the fair value of the underlying common stock to be $1.69 per share based on this valuation and other factors.

June 30, 2011 Contemporaneous Valuation

As of June 30, 2011, the fair value of our common stock was determined to be $1.76 per share. In estimating the value as of June 30, 2011 the key assumptions included an 18.0% discount rate, a 6.0x terminal multiple and market multiples using LTM and current year revenue and EBITDA amounts based on current market conditions. In addition, this analysis used a 30.0% DLOM, based on an assumed time to marketability of 3.0 years.

The increase in the fair value of our common stock from the March 31, 2011 retrospective valuation was primarily attributable to our strong second quarter operating results due to a 21.0% increase in our quarterly revenues from March 31, 2011 to June 30, 2011 combined with an increase in the valuations of our comparable public company industry peers. We did not grant any options during the period between the June 30, 2011 valuation and the date of our subsequent contemporaneous valuation as of December 2, 2011.

December 2, 2011 Contemporaneous Valuation

As of December 2, 2011, the fair value of our common stock was determined to be $2.10 per share. In estimating the value as of December 2, 2011 the key assumptions included an 18.0% discount rate, a 6.0x terminal multiple and market multiples using LTM and current year revenue and EBITDA amounts based on current market conditions. In addition, this analysis used a 20.0% DLOM, based on an assumed time to marketability of 1.9 years.

Our discounted cash flow projections used under the income approach and our revenue and EBITDA amounts used were revised from our June 30, 2011 contemporaneous valuation to include AdoTube’s historical and projected results, which we acquired in September 2011, and, to a lesser extent, to reflect our strong third quarter operating results.

As a result of including AdoTube in our discounted cash flows, our aggregate enterprise value determined under the income approach increased 43.5% from our June 30, 2011 contemporaneous valuation. As a result of including AdoTube in our representative levels and lowering our market multiples as a result of turbulent market conditions in the third quarter of 2011, our aggregate enterprise value determined under the market approach increased 1.3% from our June 30, 2011 contemporaneous valuation.

The increase in the fair value of our common stock from the June 30, 2011 contemporaneous valuation was attributable to the aforementioned acquisition of AdoTube, combined with the decrease in our DLOM due to our movement towards an IPO.

Based on this valuation and other factors, we used $2.10 per share for the exercise price of the options that we granted on December 19, 20 and 30, 2011. We determined that there had been no significant changes to the business between December 2, 2011 and the grant dates that would indicate an increase in the fair value of the underlying common stock.

February 24, 2012 Contemporaneous Valuation

As of February 24, 2012, the fair value of our common stock was determined to be $2.75 per share. In estimating the value as of February 24, 2012, the key assumptions included a 17.5% discount rate, a 6.5x terminal multiple and market multiples using LTM and current year revenue and EBITDA amounts based on current market conditions. In addition, this analysis used a 10.0% DLOM, based on an assumed time to marketability of 1.0 years.

Our aggregate enterprise value determined under the income approach increased 25.4% from our December 2, 2011 contemporaneous valuation. This was attributable to a new final year of projection being used to calculate our terminal value as a result of the commencement of a new fiscal year combined with a 0.5 increase in our terminal exit multiple.

Our aggregate enterprise value determined under the market approach increased 10.5% from our December 2, 2011 contemporaneous valuation due to an increase in our market multiples resulting from stronger market conditions during December 2011 and early 2012.

The increase in the fair value of our common stock from the December 2, 2011 contemporaneous valuation was the result of the combined effects of our significant quarterly sales growth, a significant increase in the valuations of our comparable industry peer companies used in our valuations and our continued progress towards an initial public offering. From the quarter ended September 30, 2011 to the quarter ended December 31, 2011, our quarterly revenues increased by 28.9%. From December 2, 2011 to February 24, 2012, the median enterprise value of our comparable industry peer companies increased by 25.3% due to strong market conditions. In the December 2, 2011 contemporaneous valuation, we assumed a time to marketability of 1.9 years. For our February 24, 2012 contemporaneous valuation, we assumed a time to marketability of 1.0 years due to our progress towards an initial public offering, including expanded discussions with investment bankers in January 2012 and our organizational meeting for this offering held in February 2012. Based on volatility in the capital markets generally and in the market for initial public offerings, in particular, as well as uncertainty regarding our ability to execute this offering, we concluded that a time to marketability of 1.0 year was appropriate.

Based on this valuation and other factors, we used $2.75 per share for the exercise price of the options and fair value of the restricted stock units that we granted on March 2 and March 7, 2012. We determined that there had been no significant changes to the business between February 24, 2012 and the grant dates that would indicate an increase in the fair value of the underlying common stock.

May 7, 2012 Contemporaneous Valuation

As of May 7, 2012, the fair value of our common stock was determined to be $3.52 per share. In estimating the value as of May 7, 2012, the key assumptions included a 15.0% discount rate, a 7.0x terminal multiple and market multiples using LTM and current year revenue and EBITDA amounts based on current market conditions. In addition, this analysis used a 7.5% DLOM, based on an assumed time to marketability of 0.4 years.

Our aggregate enterprise value determined under the income approach increased 17.8% from our February 24, 2012 contemporaneous valuation. The increase was primarily attributable to a decrease from 17.5% to 15.0% in the discount rate used to determine the present value of our projected future cash flows which reflects the risk-adjusted rate of return an investor would expect given the risks associated with the current size and stage of the company. We determined that these risks were not as significant as was the case in the past, which resulted in the decline in the discount rate in the May 7, 2012 contemporaneous valuation from the February 24, 2012 contemporaneous valuation. In addition, the terminal exit multiple was increased by 0.5 to 7.0 in the May 7, 2012 contemporaneous valuation from 6.5 in the February 24, 2012 contemporaneous valuation, reflecting increased assurance of our growth potential.

Our aggregate enterprise value determined under the market approach increased 34.8% from the February 24, 2012 contemporaneous valuation, reflecting modest increases in our LTM revenue and Adjusted EBITDA for the May 7, 2012 contemporaneous valuation and an 8.7% increase in the selected revenue multiple. We increased the selected revenue multiple due to the improvement in the market values of certain comparable industry peer companies in March and April 2012 and the strong performance of technology companies that became public companies during that period, which suggested a higher implied valuation for the company.

The increase in the fair value of our common stock from the February 24, 2012 contemporaneous valuation was the result of the combined effects of the decreased discount rate, our significant sales growth, the increase in the valuations of our comparable industry peer companies and our continued progress towards an initial public offering. In the February 24, 2012 contemporaneous valuation, we assumed a time to marketability of 1.0 years. For our May 7, 2012 contemporaneous valuation, we assumed a time to marketability of 0.4 years due to our continued progress towards an initial public offering, including the initial filing and first Amendment to our Registration Statement on

Form S-1. Based on this continued progress, after taking into account the volatility in the capital markets generally and in the market for initial public offerings, in particular, as well as uncertainty regarding our ability to execute this offering, we concluded that a time to marketability of 0.4 year was appropriate.

Based on this valuation and other factors, we used $3.52 per share for the exercise price of the options and fair value of the restricted stock units that we granted on May 8, 2012. We have not granted any options or restricted stock units subsequent to May 8, 2012.

Our compensation expense related to stock-based awards is as follows:


	Years Ended December 31,						Three Months Ended March 31,
	2009		2010		2011		2011		2012
	(In thousands)
Cost of revenues	$	34	$	36	$	34	$	8	$	9
Sales and marketing		860		1,442		1,287		246		478
Product development		368		726		418		94		116
General and administrative		377		624		635		121		300
Contingent deferred consideration		—		—		—		—		100

Total stock-based compensation	$	1,639	$	2,828	$	2,374	$	469	$	1,003

As of March 31, 2012, we had stock-based compensation of $8.3 million related to unvested stock options and restricted stock granted to employees but not yet recognized, net of estimated forfeitures. As of March 31, 2012, this cost will be amortized to expense over a weighted-average remaining period of 2.68 years and will be adjusted for subsequent changes in estimated forfeitures. In future periods, we expect our stock-based compensation to increase as a result of our existing unrecognized stock-based compensation to be recognized as these awards vest and as we issue additional stock-based awards to attract and retain employees.

Income Taxes

We account for income taxes using an asset and liability approach to record deferred taxes. Our deferred income tax assets represent temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities that will result in deductible amounts in future years. The measurement of current and deferred tax assets and liabilities is based on provisions of enacted tax laws; the effects of future changes in tax laws or rates are not anticipated. Based on estimates, the carrying value of our net deferred tax assets assumes that it is more likely than not that we will be able to generate sufficient future taxable income in the respective tax jurisdictions. Our judgments regarding future profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors. We account for uncertain tax positions by recognizing a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in the income tax provision in our consolidated statements of income.

Contractual Obligations

Our contractual commitments will have an impact on our future liquidity. The following table summarizes our contractual obligations, which represent material expected or contractually committed future obligations, with terms in excess of one year. We believe that we will be able to fund these obligations through cash generated from operations and from our existing cash balances.


	Payments Due by Period
	Total		Less than 1 Year		1 to 3 Years		3 to 5 Years		More Than 5 Years
	(In thousands)
As of December 31, 2011:
Operating lease obligations (1)	$	12,964	$	2,660	$	4,562	$	3,211	$	2,531
Capital lease obligations (2)		3,403		1,756		1,647		—		—
Revolving line of credit (3)		13,400		—		13,400		—		—
Deferred purchase consideration (4)(5)		6,483		—		6,483		—		—

Total (6)	$	36,250	$	4,416	$	26,092	$	3,211	$	2,531

(1)	Operating lease agreements represent our obligations to make payments under non-cancelable operating lease agreements with terms in excess of one year.

(2)	Capital lease obligations represent our future minimum lease payments, including interest, under non-cancelable capital lease agreements.

(3)

In conjunction with our acquisition of AdoTube in September 2011, we drew down $13.4 million on our revolving credit line. The entire balance outstanding on our revolving credit line is due in May 2014. The interest rate on outstanding borrowings on the line varies and resets periodically depending upon our consolidated leverage ratio and the current LIBOR and prime rates, and as of and December 31, 2011 was 2.02% per annum. We are also required to pay commitment fees of up to 0.30% on the unused portion of the revolving credit line. Based on our consolidated leverage ratio at December 31, 2011, the commitment fee was 0.25%.

(4)

In conjunction with our acquisition of AdoTube in September 2011, we are required to make guaranteed deferred cash payments of $4.1 million and $2.4 million in January 2013 and January 2014 to the former owners of AdoTube. As of December 31, 2011, we have recorded $6.1 million in other liabilities in the consolidated balance sheet relating to these guaranteed deferred cash payments.

(5)

We may also be required to pay contingent deferred consideration to the former owners of AdoTube if certain gross revenue and EBITDA targets for the stand-alone AdoTube business are achieved for 2012 and 2013. Payments are also contingent on the ongoing employment of the two principal former owners of AdoTube, unless these former owners are terminated without cause or resign for good reason. The contingent payment amount with respect to 2012 is $2.8 million and 267,143 shares of our common stock, which would be payable in 2013. The contingent payment amount with respect to 2013 is $2.8 million and 267,144 shares of our common stock, which would be payable in 2014. These payments have been excluded from the above table as they are contingent on further services being provided and therefore do not represent commitments as of December 31, 2011.

(6)

We are unable to reliably estimate the timing of future payments related to uncertain tax positions; therefore, we have excluded $0.5 million from the preceding table related to uncertain tax positions, including accrued interest and penalties. However, income taxes payable on our consolidated balance sheet includes these uncertain tax positions.

Off-Balance Sheet Arrangements

As of March 31, 2012, we have not entered into any off-balance sheet arrangements, and do not have any holdings in any variable interest entities.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates and interest rates. As of March 31, 2012, we do not hold or issue financial instruments for trading purposes.

Foreign Currency Risk

Most of our sales are denominated in U.S. dollars, and therefore our revenues are not currently subject to significant foreign currency risk. Our operating expenses are denominated in the currencies of the countries in

which our operations are located, which are primarily in North America, Europe and the Asia Pacific region, and may be subject to fluctuations due to changes in foreign currency exchange rates. Our consolidated results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates. To date, we have not used derivative financial instruments to mitigate our exposure to foreign currency risks. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our consolidated financial statements.

Interest Rate Sensitivity

Our exposure to market risk for changes in interest rates relates primarily to our cash and cash equivalents and our outstanding debt obligations. Our cash and cash equivalents are held in cash deposits, money market funds and overnight investments with maturities of less than 90 days from the date of purchase. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of the interest rates in the United States. However, because of the short-term nature of the instruments in our portfolio, a sudden change in market interest rates would not be expected to have a material impact on our consolidated financial statements.

We have long-term debt of $13.4 million as of March 31, 2012 consisting of our outstanding obligations on a revolving line of credit. Our exposure to interest rates relates to the change in the amounts of interest we must pay on our borrowings, which bears a variable rate of interest. As of March 31, 2012 our interest rate is 1.99% per annum. The effect of a hypothetical 100 basis points change in our interest rate would not have had a material impact on our consolidated financial statements.

Recently Issued and Adopted Accounting Standards

In January 2010, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update or ASU No. 2010-06, Improving Disclosures about Fair Value Measurements (Topic 820) — Fair Value Measurements and Disclosures, to add additional disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, and the activity in Level III fair value measurements. We adopted ASU 2010-06 on January 1, 2011 and the adoption did not have a material impact on our consolidated financial statements.

In December 2010, the FASB issued ASU No. 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations (Topic 805) — Business Combinations, to improve consistency in how the pro forma disclosures are calculated. Additionally, ASU 2010-29 enhances the disclosure requirements and requires description of the nature and amount of any material, nonrecurring pro forma adjustments directly attributable to a business combination. We adopted ASU 2010-29 on January 1, 2011 and the adoption did not have a material impact on our consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220) — Presentation of Comprehensive Income, that changed the requirement for presenting “Comprehensive Income” in the consolidated financial statements. The update requires an entity to present the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. We early adopted ASU 2011-05 on December 31, 2011 and the adoption did not have a material impact on our consolidated financial statements.

In September 2011, the FASB issued ASU No. 2011-08, Goodwill and Other (Topic 350) — Testing Goodwill for Impairment, to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a qualitative assessment to determine whether further impairment testing is necessary. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. We early adopted ASU 2011-08 on October 1, 2011, and the adoption did not have a material impact on our consolidated financial statements.

BUSINESS

Our Mission

Our mission is to partner with brand advertisers across the globe to help them unlock the power of digital media to build awareness, affinity and loyalty among consumers.

Overview

We apply our advanced analytics capabilities to a massive global audience through our relationships with digital media content providers. Through these relationships, we gained access to a monthly average of 450 million unique visitors worldwide in 2011, as reported by comScore, providing us broad consumer reach as well as the ability to continuously update and deepen the insights of our e^X Advertising Intelligence Platform. We leverage these capabilities to service our brand advertisers, matching relevant and engaging advertising to precise and relevant audiences.

Our ultimate customers are brand advertisers for whom we provide our solutions, as they are the source of the decision to sponsor ad campaigns, and when they use an agency they are responsible for hiring and directing the agency. In most cases brand advertisers engage advertising agencies to assist them in the creation of their ads and media buying for the placement of these ads and, consequently, most of our sales are made through advertising agencies. In some cases we are engaged directly by brand advertisers. Regardless of whether advertisers contract directly with us or through agencies, advertisers are responsible for payment for our services.

In either case, the media on which online advertising is placed, or served, consists of digital properties maintained by digital media content providers, and we sometimes refer to the web pages on which ads can be placed as advertising inventory. We have established relationships with over 2,000 digital media content providers for the right to serve our customers’ ads alongside their content. In most of our relationships with digital media content providers, we seek to align our respective interests by sharing with them a portion of the revenues we generate from serving advertisements on their properties, as opposed to paying them a fixed fee for ads we serve on their properties.

We generate revenues by delivering marketing campaigns for advertisers through our three primary global brands: Tribal Fusion, Firefly Video and AdoTube. In addition, we recently launched AppSnack, our mobile advertising brand that provides in-app, rich media solutions for brand advertisers. In 2011, our revenues were $169.1 million, an increase of 35% over $125.3 million of revenues in 2010. For the three months ended March 31, 2012, our revenues were $40.6 million, an increase of 20% over $33.7 million of revenues for the three months ended March 31, 2011. We have been profitable on an annual basis for 10 years, through 2011. To capitalize on our long-term opportunity, we are making substantial investments in geographic expansion, video and mobile initiatives. Accordingly, we recorded a net loss of $3.0 million in the first quarter, and we expect to incur a net loss for the full year 2012. We have grown our business primarily with cash flows from operations and debt financing and without third-party equity capital, reflecting our focus on results and our founder-led corporate culture of independence.

In this prospectus we refer to “unique visitors” as reported by comScore. ComScore estimates this data based on the Internet activity of its worldwide panel of consumers and its proprietary data collection method. We also refer to daily “user events.” These events are user actions such as visiting a web page, performing a search or buying something. A user can engage in numerous user events in any given day by, for example, reading online reviews of a particular product and then visiting different vendors’ sites to determine price and availability of the product. We estimate the number of user events by aggregating three types of events: every instance a user is presented with an ad impression as reported by our ad server, every instance a user is seen browsing a previously contextualized webpage of one of our digital media content providers or of other third parties, and aggregated user events data acquired from third-party data providers.

Industry Background

A Digitally Interconnected Society

Advances in technology, increases in network bandwidth and the growing proliferation of connected devices are rapidly changing society. Each new generation of digital media devices and solutions drives further change to everyday activities, impacting the way people connect, interact, work and live. This digital transformation is profoundly impacting the way people want to be informed and entertained. As more media is produced, delivered and consumed digitally, the monolithic broadcast model is being transformed into a personalized and interactive experience. Today, information and entertainment is accessible across multiple digital media devices such as computers, smartphones, tablets, eBooks and connected TVs. Over time, virtually all types of media are expected to complete the transition to digital formats. This transformation is empowering consumers to interact and engage with content like never before, generating a comprehensive and rich data footprint of their preferences and activities. Analysis of this data enables companies to offer consumers highly relevant and personalized experiences — showing users the news stories they are most likely to care about, the movies they are most likely to enjoy and special offers on products or services they may wish to buy.

The Digital Evolution of Brand Advertising

As consumers shift their preferences towards digital media channels, we believe that brand advertisers will increasingly seek to connect with their prospective customers across the multiple digital media devices and platforms where those consumers spend their time. However, the objectives for brand advertisers remain

unchanged from the past: (i) gain insights into which types of audiences are likely to become their customers, (ii) find and reach those prospective customers, and (iii) connect with those prospective customers through emotionally engaging marketing campaigns.

In a digital environment, the data footprint of consumer preferences and activities can provide brand advertisers with a richer understanding of who they need to reach, through what devices and platforms they can most effectively reach them and what marketing campaigns are most likely to resonate with them. Furthermore, the two-way nature of the digital experience now allows for advertising that is interactive and customized to the interests of individual consumers, and thus able to substantially strengthen the impression a brand can leave on consumers. As a result, the digital revolution provides brand advertisers with the ability to more precisely understand and reach the prospective customers that matter most to them.

Our Market Opportunity

To date, the majority of digital media advertising spend in the United States has been direct response or search-based, according to eMarketer, with brand advertising spend on digital media lagging significantly. Direct response or search-based advertising is designed principally to elicit a specific response or action in response to the advertisement, such as clicking on an advertisement, completing a registration form or viewing a video. Brand advertising is designed principally to create and maintain a favorable image of the advertiser’s brand that will influence future consumer purchase decisions. During 2010 the median Internet advertising spend among the top U.S. 100 advertisers was only 5.6% of their overall advertising budget, according to data compiled by Advertising Age. We believe that this disparity has been driven by the perception among brand advertisers that digital media was limited in its ability to reach a large high-value audience and to deliver an emotionally impactful message on par with TV-based advertising. However, a confluence of advances in technology and network bandwidth is now enabling brand advertisers to deliver engaging marketing campaigns, at scale, across multiple devices and platforms. Furthermore, the shift in consumer behavior patterns towards digital media is increasing the need for brand advertisers to find solutions that will enable them to effectively and efficiently connect and engage with consumers across all forms of digital media. This need, which we expect to grow as virtually all types of media transition to digital formats, creates the opportunity for technology companies that can leverage the rich data footprint generated by a digitally interconnected society to help brands effectively connect and engage with their prospective customers.

Our Solution

Our solution is comprised of three key focus areas:

•

The e^X Advertising Intelligence Platform

Technology and data have been the key drivers of our business. Over the past 10 years we have developed our core technology and infrastructure, focusing on integrating our solution and leveraging our extensive data. The foundation of our technology is our e^X Advertising Intelligence Platform. Starting with the analysis of consumer interactions with a brand’s websites, we are able to understand the detailed attributes that best describe those consumers who interact and transact with that brand. We leverage these insights across a wide range of digital media devices and platforms to reach other consumers with similar attributes.

Our technology includes the following key elements:

•

Advertiser-centric taxonomy. Our advertiser-centric hierarchical taxonomy is comprised of over 50,000 unique attributes. Designed specifically for brand advertisers, it includes attributes that are focused on purchase intent and relevant interests for brands across a wide range of business verticals.

The following screenshots from our e^X Advertising Intelligence Platform show extracts of our taxonomy from the travel, technology and automotive verticals. For example, a brand advertiser looking to learn about their optimal audience can discover both broad audience segments, such as consumers looking to travel to Europe, and more specific segments such as consumers who are looking to travel to Cork, Ireland. To effectively analyze consumer activities, detailed attributes have been specifically designed for each vertical. For example, within the travel vertical, attributes cover consumers looking for flights, hotels and rental cars, among other activities.

LOGO

•

Our Strengths

Over the last decade we have built solutions to help brand advertisers connect more effectively with their current and prospective customers. We believe that the following attributes and capabilities provide us with competitive advantages:

•

Integrated solution. Our data is tightly integrated into all of the components of our solution, powering all elements of the marketing process including brand intelligence, prospective customer targeting, optimization and the dynamic customization of advertisements. Our solution enables brand advertisers to meet their objectives across various formats and devices, such as display, video and mobile.

•

Global footprint and scale. Our global reach, consumer data, operational infrastructure and management experience enable us to fulfill the needs of brand advertisers across the globe. We offer our solution to brand advertisers in 26 countries worldwide and are positioned to take advantage of the global growth in digital media advertising. To support our global footprint, our contextualization technology is capable of mapping web pages in English, Spanish, German and French.

•

Proven track record. Our founder-led management team has a track record of growing our business through 10 years of consecutive profitability without any third-party equity capital.

Growth Strategy

types of media transition to digital formats, which is creating a significant opportunity for our business. To capitalize on that change, we plan to pursue the following priorities:

•

Sales and Marketing

Our direct sales force cultivates relationships both with advertising agencies and brands. We tailor our sales force to the specific markets and geographies in which we operate. We rely on our sales and marketing organization to promote and sell the unique insights and customized solutions that we develop based on our brand advertisers’ specific needs.

Globally, we go to market with distinct advertiser facing brands. We believe this optimizes our ability to compete within specific product areas while leveraging the overall capabilities and insights of our e^X Advertising Intelligence Platform. Our three primary global brands consist of:

•

Tribal Fusion — A digital advertising provider focused on the delivery of display and rich-media advertising solutions to brand advertisers, which, as reported by comScore, had a monthly average of 450 million unique visitors worldwide in 2011;

•

Firefly Video — A digital advertising provider of engagement video solutions, delivered to relevant brand audiences as full screen experiences that initiate from display advertising units; and

•

AdoTube — An in-stream online video advertising provider that offers customized and interactive video advertising that enables brand advertisers to efficiently leverage their existing TV advertisements.

We recently launched AppSnack, our mobile advertising brand that provides in-app, rich media solutions for brand advertisers. In addition, we sell direct response display advertising through our Full Tango brand. Further, we own Techbargains.com, a website focused on special consumer offers, primarily for technology products. Techbargains.com provides us with an additional property on which to deploy and test our advertising platform and related technology.

Digital Media Content Providers

We have relationships with over 2,000 digital media content providers, including website publishers and mobile application developers, to serve advertising alongside their content. We seek to align our interest with our digital media content providers by, generally, sharing a portion of the revenues we generate from placing advertisements on their properties. In addition, we have direct relationships with most of our digital media content providers, enabling us to offer highly engaging, customized advertising. We believe that the combination of the revenue sharing model, our direct relationships and our platform’s ability to deliver optimal audiences allows us to offer our brand advertisers more effective marketing campaigns.

Our e^X Advertising Intelligence Platform processes the data generated by approximately two billion daily user events. We access these events through a number of means: (i) our agreements with digital media content providers to serve advertising alongside their content also include the right for us to utilize associated user event data consisting of web pages visited and search terms used; (ii) third party data agreements enabling us to obtain user events data such as web pages visited, search terms used and actions taken; and (iii) our agreements with advertisers give us permission to view user actions on the advertisers’ sites. Our platform gathers such data through the combined use of cookies and web beacons, or small pieces of software code provided by us and placed by us on web pages. When user events occur on a web page that contains an Exponential web beacon, the beacon either creates an Exponential cookie on the user’s browser, or accesses an existing Exponential cookie, and records data related to the user event within that cookie. In addition, user data is passed directly in batches from third-party provider servers to our server, which is then updated to the browser cookie when seen by an Exponential web beacon. The data in the cookies will then be used both in connection with serving ads to that browser and, on an aggregated basis, for deriving actionable insights regarding target audiences.

Competition

We operate in a dynamic and competitive market, influenced by trends in both the overall advertising market as well as the digital advertising industry.

In the traditional media space, our primary competitors for brand advertising spend are large media firms — mainly TV broadcasters and aggregators as well as radio broadcasters and print media publishers. Many of these competitors have significant consumer reach, developed client relationships, much larger financial resources and longer operating histories than we have.

Across the digital media landscape, we compete for brand advertising spend with multiple market participants, including entities with significant market presence such as Google, Facebook and Yahoo!, as well as various online advertising networks. Some advertising agencies, including some agencies that buy our solution on behalf of advertisers, also offer media inventory or services that compete directly with our solution. In addition to competing with these various firms for advertising spend, we also compete with some of them for the right to place advertisements on digital media content providers’ properties. Further, many digital media content providers, in particular those with a significant consumer following, sell advertising on their websites and applications directly to advertisers, and these include some of the digital media content providers with whom we place advertisements.

We believe the principal competitive factors in our industry include the following:

•

Relationships with leading brand advertisers;

•

Audience reach;

•

Proven and scalable technology platform;

•

Range of customized solutions and formats;

•

Value to brand advertisers; and

•

Customer service.

We believe that we compete favorably with respect to all of these factors and that we are well positioned as a digital brand advertising platform.

Privacy

Much of the acceptance and widespread use of the Internet across the globe is attributable to the ability of users to access valuable content free of charge. The digital media content providers that bear the cost of creating and maintaining this content do so largely by selling advertisements on their properties, similar to the business model of TV and radio broadcasters. Increasingly, advertisers are recognizing the potential to reach a large and highly relevant audience through digital advertising. The value to them of this advertising is directly proportional to the ability to reach and deliver advertisements to relevant and targeted audiences.

Internet users’ online activity can generate comprehensive information regarding their interests and activities that is valuable to advertisers seeking to direct brand messages to an optimal audience. Advertisers are willing to make a greater investment in digital advertising and pay a higher rate for the efficiency this targeting provides. Therefore businesses such as ours enable digital media content providers to realize higher rates for their advertising inventory.

The use of targeted advertising on the Internet has come under scrutiny by certain consumer and industry groups and regulatory agencies focusing on online privacy, and specifically on the use of cookies and other online tools for tracking purposes. In addition, U.S. and foreign governments are considering new laws that could significantly restrict online advertisers’ ability to collect, augment, analyze, use and share anonymous data, such as regulating the level of consumer notice and consent required before a company can employ cookies or other electronic tools to track consumers online. The European Union and some EU member states have already implemented legislation and regulations requiring advertisers to provide specific types of notice and obtain consent from consumers before using cookies or other technologies to track consumer online behavior and deliver targeted advertisements. In order to comply with these requirements, the use of cookies or other similar technologies may require the user’s affirmative, opt-in consent. In addition, if consumer sentiment regarding online privacy matters changes significantly, large numbers of consumers may take actions to limit the ability of digital advertisers to collect, use and share information to deliver targeted advertising. Further, changes in devices and software could be introduced that make it easier for consumers to prevent the use of cookies.

We believe that the continued availability of a free and content-rich Internet is dependent on balancing the needs of users, content providers and advertisers. If laws are passed requiring opt-in consent to track users, or if significantly more consumers opt-out of tracking than have done so to date, advertisers will realize lower returns from their online campaigns as there would be large user segments for which they have no information. As a result, content providers would likely face lower ability to monetize the content they provide and would need to consider alternatives to support their websites, including charging users for the right to view content that is currently provided free of charge. These changes could also result in substantial disruption to the manner in which we conduct our business.

Intellectual Property

Our success and ability to compete is dependent in part on our ability to develop and maintain the proprietary aspects of our technology and to operate without infringing upon the proprietary rights of others. To accomplish this, we protect the inventions that are the subject of our patent applications and our other intellectual property under trade secret, trademark and copyright law and customary contractual protections.

We have begun to seek patent protection for certain of our technologies and, as of May 17, 2012, had two U.S. patent applications on file. In addition, we are pursuing the registration of our domain names and trademarks. As of May 17, 2012, we had 17 registered trademarks in the United States and six registered trademarks in foreign jurisdictions.

Among other practices, we enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with parties with whom we conduct business, to limit access to, and disclosure and use of, our proprietary information.

Research and Development

Our research and development efforts are primarily focused on building upon the benefits our e^X Advertising Intelligence Platform provides to brand advertisers. We are continuing to expand our advertising intelligence capabilities to more devices and platforms. We will continue to increase our capability to process and analyze increased volumes of data. As we work closely with brand advertisers to best understand the effectiveness of their marketing campaigns, we plan to develop more sophisticated methods of attribution.

As of March 31, 2012, we had a total of 116 employees and contractors involved in product development functions. For the years ended December 31, 2009, 2010 and 2011 and the three months ended March 31, 2011 and 2012, our total product development expenses were $3.4 million, $4.7 million, $5.3 million, $1.0 million and $2.0 million, respectively.

Employees

As of March 31, 2012 we had 671 employees and contractors, of which 209 were in the United States and 251 were in India. None of our employees are represented by labor unions. We believe that relations with our employees are good.

Legal Proceedings

We may, from time to time, be party to litigation and subject to claims incident to the ordinary course of business. As our growth continues, we may become party to an increasing number of litigation matters and claims. The outcome of litigation and claims cannot be predicted with certainty, and the resolution of these matters could materially affect our future results of operations, cash flows or financial position.

Facilities & Technology Infrastructure

We lease a 19,779 square-foot facility for our corporate headquarters in Emeryville, California. We also lease sales offices, support and research and development facilities and data centers in other locations in North America and overseas, including, among others, a facility in Noida, India and a facility in Kiev, Ukraine.

Our technology infrastructure is located in three distinct colocations in San Francisco, California, Ashburn, Virginia and Santa Clara, California. These facilities support production, development and disaster recovery.

MANAGEMENT

Executive Officers and Directors

The following table provides information regarding our executive officers and directors:


Name	Age		Position(s)
Executive Officers:
Dilip DaSilva		47	Chairman of the Board, President and Chief Executive Officer
Marvin Tseu		64	Chief Operating Officer
John R. Rettig		47	Chief Financial Officer
Alexander Saldanha		47	Chief Technology Officer
Kesa Tsuda		53	Chief People Officer

Directors:
Steven Cakebread (1)(2)		60	Director
John Farrell (1)(3)		54	Director
Robert Goldberg (2)(3)		51	Director
Dennis Wolf (1)		59	Director

(1)	Member of the audit committee.

(2)	Member of the compensation committee.

(3)	Member of the governance and nominating committee.

Executive Officers

Dilip DaSilva is our founder and has served as our President and Chief Executive Officer and sole director since our incorporation in June 2000. Mr. DaSilva was appointed to our board of directors in June 2000 and was appointed as Chairman of our board of directors in March 2012. Mr. DaSilva holds a B.S. in Bio-Engineering and an M.S. in Computer Science from Brown University. As our Chief Executive Officer, founder and controlling stockholder, Mr. DaSilva has developed an intimate knowledge of our business and operations, and we believe Mr. DaSilva provides a valuable perspective as Chairman of our board of directors. Further, we believe that Mr. DaSilva should serve as a member of our board of directors due to his leadership of our company since its inception.

Marvin Tseu has served as our Chief Operating Officer since July 2009. Prior to that, Mr. Tseu was an advisor and consultant to us from October 2008 to July 2009. From May 2006 to November 2007, Mr. Tseu served as Chief Executive Officer and Director of Axesstel, Inc., a leader in the design and development of fixed wireless voice and broadband data products. From October 2002 to March 2006, Mr. Tseu served as the Chief Executive Officer and a founder of Active Reasoning, Inc., an early stage private company that produces resource management software to help enterprises manage their IT operations. Since 1999, Mr. Tseu has served as Chairman of the Board of Plantronics, Inc., a publicly traded company focused on digital headsets for the enterprise and consumer. Mr. Tseu served as a member of the senior management team at Plantronics from 1984 to 1996. In addition, Mr. Tseu previously held various positions at Plantronics, including Vice President of Sales and Marketing and President of Clarity, one of Plantronics’ subsidiaries. In 1999, Mr. Tseu founded SiteSmith, Inc., a co-location managed services company, which was acquired by Metromedia Fiber Network, Inc. in 2001. Mr. Tseu previously served as Executive Vice President of Marketing and Sales and as a member of the Board of Directors of CIDCO, Inc., a publicly traded telecommunications product company. Mr. Tseu holds a B.A. in Economics from Stanford University.

John R. Rettig has served as our Chief Financial Officer since May 2005. From May 2003 to May 2005, Mr. Rettig served as Vice President of Finance at Reflect.com, an online prestige beauty brand owned by Procter & Gamble. From July 2001 to April 2003, Mr. Rettig served as Vice President of Finance and Controller

at Achieva.com/Kaplan, Inc., an e-learning company owned by the Washington Post. In addition, Mr. Rettig served as Chief Financial Officer of E-Global Network, Inc., a software infrastructure company, and as a Senior Director of Finance at Excite@Home, Inc., an Internet search company, where he was C

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer þ

(Do not check if a smaller reporting company)

Smaller reporting company ¨

Exponential Interactive, Inc. S-1/A