Conversant 10-Q 2009 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from    to    

Commission file number 000-30135

VALUECLICK, INC.

(Exact name of registrant as specified in its charter)

Delaware	77-0495335
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

30699 RUSSELL RANCH ROAD, SUITE 250

WESTLAKE VILLAGE, CALIFORNIA 91362

(Address of principal executive offices, including zip code)

(818) 575-4500

(Registrant’s telephone number, including area code)

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

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

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

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o	Smaller Reporting Company o

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

The number of shares of the registrant’s common stock outstanding as of July 31, 2009 was 87,152,959.

VALUECLICK, INC.

INDEX TO FORM 10-Q FOR THE

QUARTERLY PERIOD ENDED JUNE 30, 2009

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2009 and December 31, 2008
	Condensed Consolidated Statements of Operations and Comprehensive Income (unaudited) for the Three-month Periods Ended June 30, 2009 and 2008
	Condensed Consolidated Statements of Operations and Comprehensive Income (unaudited) for the Six-month Periods Ended June 30, 2009 and 2008
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Six-month Periods Ended June 30, 2009 and 2008
	Notes to Condensed Consolidated Financial Statements (unaudited)
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
PART II.	OTHER INFORMATION AND SIGNATURES
Item 1.	Legal Proceedings
Item 1A.	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits
	Signatures
	Certification of CEO - Sarbanes-Oxley Act Section 302
	Certification of CFO - Sarbanes-Oxley Act Section 302
	Certification of CEO and CFO - Sarbanes-Oxley Act Section 906

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VALUECLICK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)

	June 30, 2009			December 31, 2008
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	135,205		$	122,487
Marketable securities	—			2,175
Accounts receivable, net	74,657			108,611
Prepaid expenses and other current assets	6,141			5,155
Income taxes receivable	6,976			4,313
Deferred tax assets	9,519			11,047
Total current assets	232,498			253,788
Marketable securities	23,498			25,750
Property and equipment, net	13,120			15,514
Goodwill	172,593			172,583
Intangible assets acquired in business combinations, net	67,828			80,042
Deferred tax assets, less current portion	54,640			53,661
Other assets	1,706			1,941
TOTAL ASSETS	$	565,883		$	603,279
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	94,005		$	173,407
Income taxes payable	627			1,722
Deferred tax liabilities	37			15
Deferred revenue	1,453			1,461
Total current liabilities	96,122			176,605
Income taxes payable, less current portion	73,545			71,021
Deferred tax liabilities, less current portion	1,896			2,174
TOTAL LIABILITIES	171,563			249,800
Commitments and contingencies (note 9)
STOCKHOLDERS’ EQUITY:
Convertible preferred stock, $0.001 par value; 20,000,000 shares authorized; no shares issued or outstanding at June 30, 2009 and December 31, 2008	—			—
Common stock, $0.001 par value; 500,000,000 shares authorized; 87,151,709 and 86,743,612 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively	87			87
Additional paid-in capital	613,678			607,143
Accumulated other comprehensive income	(11,498		)	(17,715		)
Accumulated deficit	(207,947		)	(236,036		)
Total stockholders’ equity	394,320			353,479
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	565,883		$	603,279

See accompanying Notes to Condensed Consolidated Financial Statements

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VALUECLICK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except per share data)

	Three-month Period Ended June 30,
	2009		2008
Revenue	$	130,364	$	158,524
Cost of revenue	39,849		49,042
Gross profit	90,515		109,482
Operating expenses:
Sales and marketing (includes stock-based compensation of $601 and $1,648 for 2009 and 2008, respectively)	36,764		44,673
General and administrative (includes stock-based compensation of $1,557 and $2,947 for 2009 and 2008, respectively)	16,735		19,524
Technology (includes stock-based compensation of $362 and $651 for 2009 and 2008, respectively)	7,318		9,638
Amortization of intangible assets acquired in business combinations	6,287		7,680
Total operating expenses	67,104		81,515
					��
Income from operations	23,411		27,967
Interest income and other, net	1,195		1,410
Income before income taxes	24,606		29,377
Income tax expense	9,734		12,829
Income from continuing operations	14,872		16,548
Loss from discontinued operations (Note 4)	—		(59		)
Net income	$	14,872	$	16,489
Other comprehensive income:
Foreign currency translation	6,874		(99		)
Change in market value of marketable securities, net of tax	1,948		(347		)
Comprehensive income	$	23,694	$	16,043
Basic net income per common share
Continuing operations	$	0.17	$	0.17
Discontinued operations	—		—
	$	0.17	$	0.17
Diluted net income per common share
Continuing operations	$	0.17	$	0.17
Discontinued operations	—		—
	$	0.17	$	0.17
Weighted-average shares used to calculate net income per common share:
Basic	87,071		95,363
Diluted	87,645		96,133

See accompanying Notes to Condensed Consolidated Financial Statements

4

VALUECLICK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except per share data)

	Six-month Period Ended June 30,
	2009		2008
Revenue	$	265,405	$	327,650
Cost of revenue	83,796		100,294
Gross profit	181,609		227,356
Operating expenses:
Sales and marketing (includes stock-based compensation of $1,211 and $3,262 for 2009 and 2008, respectively)	73,754		94,643
General and administrative (includes stock-based compensation of $3,155 and $6,402 for 2009 and 2008, respectively)	33,229		40,404
Technology (includes stock-based compensation of $754 and $1,288 for 2009 and 2008, respectively)	14,984		19,080
Amortization of intangible assets acquired in business combinations	12,539		15,337
Total operating expenses	134,506		169,464
Income from operations	47,103		57,892
Interest income and other, net	1,029		4,457
Income before income taxes	48,132		62,349
Income tax expense	20,043		26,588
Income from continuing operations	28,089		35,761
Loss from discontinued operations (Note 4)	—		(105		)
Net income	$	28,089	$	35,656
Other comprehensive income:
Foreign currency translation	4,267		2,860
Change in market value of marketable securities, net of tax	1,950		(3,512		)
Comprehensive income	$	34,306	$	35,004
Basic net income per common share
Continuing operations	$	0.32	$	0.37
Discontinued operations	—		—
	$	0.32	$	0.37
Diluted net income per common share
Continuing operations	$	0.32	$	0.37
Discontinued operations	—		—
	$	0.32	$	0.37
Weighted-average shares used to calculate net income per common share:
Basic	86,949		96,543
Diluted	87,335		97,345

See accompanying Notes to Condensed Consolidated Financial Statements

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VALUECLICK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Six-month Period Ended June 30,
	2009			2008
Cash flows from operating activities:
Net income	$	28,089		$	35,656
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	16,861			20,665
Provision for doubtful accounts and sales credits	3,405			2,802
Non-cash, stock-based compensation	5,120			11,117
Deferred income taxes	194			(5,286		)
Tax benefit from stock-based awards	132			225
Excess tax benefit from stock-based awards	(146		)	(382		)
Changes in operating assets and liabilities	11,846			1,463
Net cash provided by operating activities	65,501			66,260
Cash flows from investing activities:
Purchases of marketable securities	—			(39,487		)
Proceeds from the maturities and sales of marketable securities	6,377			150,727
Purchases of property and equipment	(1,876		)	(4,657		)
Acquisition of businesses and related payments	(62,696		)	(105,419		)
Net cash (used in) provided by investing activities	(58,195		)	1,164
Cash flows from financing activities:
Repurchases and retirement of common stock	—			(54,733		)
Proceeds from employee stock programs	1,302			4,921
Excess tax benefit from stock-based awards	146			382
Net cash provided by (used in) financing activities	1,448			(49,430		)
Effect of exchange rate changes on cash and cash equivalents	3,964			513
Net increase in cash and cash equivalents	12,718			18,507
Cash and cash equivalents, beginning of period	122,487			82,767
Cash and cash equivalents, end of period	$	135,205		$	101,274

See accompanying Notes to Condensed Consolidated Financial Statements

6

VALUECLICK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.THE COMPANY AND BASIS OF PRESENTATION

Company Overview

ValueClick, Inc. and its subsidiaries (“ValueClick” or the “Company”) offer a suite of products and services that enable marketers to advertise and sell their products through all major online marketing channels—display advertising, lead generation marketing, email marketing, search marketing, comparison shopping, and affiliate marketing. The Company also offers technology infrastructure tools and services that enable marketers to implement, manage and analyze their online advertising programs. The broad range of products and services that the Company provides enables its customers to address all aspects of their online marketing process, from strategic planning through execution, including results measurement and campaign refinements. The Company derives its revenue from four business segments. These business segments are presented on a worldwide basis and include: Media, Affiliate Marketing, Comparison Shopping & Search, and Technology.

MEDIA—ValueClick’s Media segment provides a comprehensive suite of online marketing services and tailored programs that help marketers create and increase awareness for their products and brands, attract visitors and generate leads and sales through the Internet. The Company’s Media segment offers marketers a range of online media solutions in the categories of display advertising, lead generation marketing and email marketing. The Company has aggregated thousands of online publishers to provide marketers with access to one of the largest display advertising networks. Prior to October 2008, the Company also sold a limited number of consumer products directly to end-user customers through Company-owned e-commerce websites. The Company divested its interest in the e-commerce websites in October 2008 as further discussed in note 4. The Company’s Media services are sold on a variety of pricing models, including cost-per-lead (“CPL”), cost-per-action (“CPA”), cost-per-thousand-impression (“CPM”), and cost-per-click (“CPC”).

AFFILIATE MARKETING—ValueClick’s Affiliate Marketing segment, through the combination of: a large-scale pay-for-performance model built on the Company’s proprietary technology platforms; marketing expertise; and a large, quality advertising network, enables the Company’s customers to develop their own fully-commissioned online sales force comprised of third-party affiliate publishers. The Company’s Affiliate Marketing segment services, including search engine marketing (“SEM”), are offered through its wholly-owned subsidiary Commission Junction.  Affiliate Marketing segment revenues are driven primarily by variable compensation that is generally based on either a percentage of commissions paid to affiliates or on a percentage of transaction revenue generated from the programs managed with the Company’s affiliate marketing platforms.  SEM revenues are driven primarily by a percentage of the revenue the Company generates for its advertiser customers.

COMPARISON SHOPPING & SEARCH— ValueClick’s online comparison shopping destination websites enable consumers to research and compare products from among thousands of online and/or offline merchants using the Company’s proprietary technology. The Company gathers product and merchant data and organizes it into comprehensive catalogs on its destination websites, along with relevant consumer and professional reviews. The Company’s service is free for consumers, and customers primarily pay the Company on a CPC basis for traffic delivered to the customers’ websites from listings on the Company’s websites. Search 123 is ValueClick’s self-service paid search offering in Europe that generates its traffic primarily through syndication relationships with other search engines, Web portals and content websites.  Search syndication revenues are driven primarily on a CPC basis. Comparison Shopping & Search segment services are offered through the Company’s wholly-owned subsidiaries Pricerunner, MeziMedia and Search 123. Pricerunner operates comparison shopping destination websites in the United Kingdom, Sweden, Germany, France, Denmark, and Austria. MeziMedia operates comparison shopping destination websites in the United States, Japan and Europe, primarily under the Smarter.com, Shopica.com and Couponmountain.com brand names.

TECHNOLOGY— ValueClick’s Technology segment operates through its wholly-owned subsidiary Mediaplex.  Mediaplex Systems was also included in the Company’s Technology segment until its divestiture in October 2008 as further discussed in note 4. Mediaplex is an application services provider (“ASP”) offering technology products and services that enable marketers to implement and manage their own online advertising programs across multiple channels including display, email, paid search, natural search, on-site, offline and affiliate.  The Company’s Mediaplex products are based on its proprietary MOJO® technology platform, which has the ability, among other attributes, to automatically configure advertisements in response to real-time information from an advertiser’s enterprise data system and to provide ongoing campaign optimization and cross-channel analytics. Mediaplex’s products are priced primarily on a CPM or email-delivered basis.

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Basis of Presentation and Use of Estimates

The condensed consolidated financial statements are unaudited and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the results for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for the full fiscal year or for any future period. As permitted by the Securities and Exchange Commission (“SEC”) under Rule 10-01 of Regulation S-X, the accompanying condensed consolidated financial statements and related notes have been condensed and do not contain certain information that may be included in ValueClick’s annual consolidated financial statements and notes thereto. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in ValueClick’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed with the SEC on March 2, 2009. The Company has evaluated subsequent events through August 7, 2009, the filing date of this Form 10-Q, and has determined that there were no subsequent events to recognize or disclose in these financial statements.  The December 31, 2008 condensed consolidated balance sheet data contained herein was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions 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 revenue and expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including, but not limited to, those related to: i) sales returns reserves; ii) the allowance for doubtful accounts and sales credits; iii) the assessment of other-than-temporary impairments related to the Company’s marketable securities; iv) the valuation of equity instruments granted by the Company; v) the value assigned to, recoverability and estimated useful lives of, goodwill and intangible assets acquired in business combinations; vi) the Company’s income tax expense, its deferred tax assets and liabilities and any valuation allowances recorded against deferred tax assets; and vii) the recognition and disclosure of contingent liabilities. These estimates and assumptions are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances. Actual results may differ from these estimates and assumptions.

2.RECENTLY ISSUED ACCOUNTING STANDARDS

In April 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) Statement of Financial Accounting Standard (“SFAS”) No. 107-1 and Accounting Principles Board (“APB”) No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP SFAS 107 and APB 28-1”). This FSP amends FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments”, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, “Interim Financial Reporting”, to require those disclosures in summarized financial information at interim reporting periods. This FSP is effective for interim and annual periods ending after June 15, 2009. The adoption of FSP SFAS 107 and APB 28-1 did not impact the Company’s consolidated financial statements.  See note 8 “Fair Value Measurements” for further information.

In April 2009, the FASB issued FSP SFAS No. 115-2 and SFAS No. 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP SFAS 115-2”). The objective of an other-than-temporary impairment analysis under existing U.S. GAAP is to determine whether the holder of an investment in a debt or equity security for which changes in fair value are not regularly recognized in earnings (such as securities classified as held-to-maturity or available-for-sale) should recognize a loss in earnings when the investment is impaired. An investment is impaired if the fair value of the investment is less than its amortized cost basis. This FSP amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. This FSP is effective for interim and annual periods ending after June 15, 2009. In response to this FSP, in April 2009, the SEC published staff accounting bulletin (“SAB”) No. 111, which amends Topic 5.M. in the Staff Accounting Bulletin Series entitled “Other-Than-Temporary Impairment of Certain Investments in Debt and Equity Securities” (“Topic 5.M.”). This SAB maintains the staff’s previous views related to equity securities. It also amends Topic 5.M. to exclude debt securities from its scope. The adoption of SAB No. 111 and FSP SFAS 115-2 did not impact the Company’s consolidated financial statements.

In April 2009, the FASB issued FSP SFAS No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP SFAS 157-4”). This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157

8

when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. This FSP is effective for interim and annual periods ending after June 15, 2009. The adoption of FSP SFAS 157-4 did not impact the Company’s consolidated financial statements.

In April 2009, the FASB issued FSP No. 141R-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (“FSP 141R-1”). FSP 141R-1 amends the provisions in SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”) for the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. FSP 141R-1 eliminates the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria in SFAS 141R and instead carries forward most of the provisions in SFAS 141 for acquired contingencies. FSP 141R-1 is effective for contingent assets and contingent liabilities acquired in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The nature and magnitude of the specific effects that FSP 141R-1 will have on the Company’s consolidated financial statements will depend upon the nature, term and size of acquired contingencies resulting from future acquisitions.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS No. 165”). SFAS No. 165 provides guidance on management’s assessment of subsequent events and incorporates this guidance into accounting literature. SFAS No. 165 is effective prospectively for interim and annual periods ending after June 15, 2009. SFAS No. 165 requires entities to disclose the date through which subsequent events have been evaluated and whether the date corresponds with the release of the entities’ financial statements. The implementation of this standard did not have a material impact on the Company’s consolidated financial position and results of operations. See note 1, “The Company and Basis of Presentation” for further information.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 168”), which replaces SFAS No. 162, “The Hierarchy of GAAP”. SFAS No. 168 identifies the FASB Accounting Standards Codification (the “Codification”) as the authoritative source of GAAP in the United States. Rules and interpretive releases of the SEC under federal securities laws are also sources of authoritative GAAP for SEC registrants. SFAS No. 168 is effective for interim and annual periods ending after September 15, 2009. Since it is not intended to change or alter existing US GAAP, SFAS No. 168 is not expected to have an impact on the Company’s consolidated financial statements. The Company will adjust historical GAAP references in its third quarter 2009 Form 10-Q to reflect accounting guidance references included in the Codification.

3.STOCK-BASED COMPENSATION

In the three-month periods ended June 30, 2009 and 2008, the Company recognized stock-based compensation of $2.5 million and $5.2 million, respectively. In the six-month periods ended June 30, 2009 and 2008, the Company recognized stock-based compensation of $5.1 million and $11.0 million, respectively. The following table summarizes, by statement of operations line item, the impact of stock-based compensation and the related income tax benefits recognized in the three- and six-month periods ended June 30, 2009 and 2008 (in thousands):

	Three-month Period Ended June 30,						Six-month Period Ended June 30,
	2009			2008			2009			2008
Sales and marketing	$	601		$	1,648		$	1,211		$	3,262
General and administrative	1,557			2,947			3,155			6,402
Technology	362			651			754			1,288
Stock-based compensation	2,520			5,246			5,120			10,952
Related income tax benefits	(790		)	(1,851		)	(1,596		)	(3,825		)
Stock-based compensation, net of tax benefits	$	1,730		$	3,395		$	3,524		$	7,127

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4.DISCONTINUED OPERATIONS

In October 2008, the Company sold two non-core businesses, Mediaplex Systems and the ink-jet e-commerce business. Mediaplex Systems was included in the Company’s Technology operating segment, while the e-commerce business was included in the Media operating segment. The divestitures generated total gross consideration of $15.9 million and a pretax gain of $10.1 million ($5.0 million, net of income taxes). The Company may also receive up to an additional $6.2 million in consideration upon the resolution of certain contingencies.  Any additional amounts received in the future will be recorded in discontinued operations.

The following amounts related to Mediaplex Systems and the ink-jet e-commerce business were derived from historical financial information and have been segregated from continuing operations and reported as discontinued operations (in thousands):

	Three-month Period Ended June 30,					Six-month Period Ended June 30,
	2009		2008			2009		2008
Revenue	$	—	$	5,327		$	—	$	12,258
Loss before income taxes from discontinued operations	—		(97		)	—		(175		)
Income tax benefit	—		(38		)	—		(70		)
Loss from discontinued operations, net of tax	$	—	$	(59	)	$	—	$	(105	)

5.GOODWILL AND INTANGIBLE ASSETS ACQUIRED IN BUSINESS COMBINATIONS

The changes in the carrying amount of goodwill, by reporting unit, for the six-month period ended June 30, 2009 were as follows (in thousands):

	Balance at December 31, 2008		Additions and Adjustments			Balance at June 30, 2009
Reporting Units:
Media	$	119,455	$	(16	)	$	119,439
Affiliate Marketing	29,840		8			29,848
Comparison Shopping & Search	23,288		18			23,306
Technology	—		—			—
Total goodwill	$	172,583	$	10		$	172,593

For the six-month period ended June 30, 2009, the changes in goodwill noted above were primarily due to the impact of currency exchange rate fluctuations and, with respect to the Media reporting unit, includes tax benefits from exercises of nonqualified employee stock options that were assumed and fully vested at the time of acquisition of Fastclick.

The gross balance, accumulated amortization and net carrying amount of the Company’s intangible assets acquired in business combinations as of June 30, 2009 and December 31, 2008 were as follows (in thousands):

	Gross Balance		Accumulated Amortization			Net Carrying Amount
June 30, 2009:
Customer, affiliate and advertiser relationships	$	76,984	$	(45,879	)	$	31,105
Trademarks, trade names and domain names	33,593		(14,640		)	18,953
Developed technologies and websites	26,700		(12,830		)	13,870
Covenants not to compete	7,525		(3,625		)	3,900
Total intangible assets	$	144,802	$	(76,974	)	$	67,828
December 31, 2008:
Customer, affiliate and advertiser relationships	$	81,596	$	(44,793	)	$	36,803
Trademarks, trade names and domain names	32,929		(11,739		)	21,190
Developed technologies and websites	30,992		(13,784		)	17,208
Covenants not to compete	15,819		(10,978		)	4,841
Total intangible assets	$	161,336	$	(81,294	)	$	80,042

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For the six-month period ended June 30, 2009, the decreases in the gross balances and respective accumulated amortization balances were due primarily to the write-off of fully amortized intangible assets totaling $17.5 million. The Company recognized amortization expense of $6.3 million and $7.7 million on intangible assets for the three-month periods ended June 30, 2009 and 2008, respectively. Amortization expense was $12.5 million and $15.3 million for the six-month periods ended June 30, 2009 and 2008, respectively. Estimated intangible asset amortization expense for the remainder of 2009, the succeeding five years and thereafter is as follows (in thousands):

Six months ending December 31, 2009	$	12,665
2010	$	24,772
2011	$	17,569
2012	$	7,888
2013	$	1,401
2014	$	1,401
Thereafter	$	2,132

6.ACCOUNTS RECEIVABLE

Accounts receivable are stated net of an allowance for doubtful accounts and sales credits of $4.8 million and $5.9 million at June 30, 2009 and December 31, 2008, respectively. No customer comprised more than 10% of accounts receivable at June 30, 2009 or December 31, 2008.

7.PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at June 30, 2009 and December 31, 2008 (in thousands):

	June 30, 2009			December 31, 2008
Land	$	1,470		$	1,470
Building	1,330			1,330
Computer equipment and purchased software	44,053			46,276
Furniture and equipment	4,421			4,412
Leasehold improvements	3,378			3,299
Vehicles	56			56
Property and equipment, gross	54,708			56,843
Less: accumulated depreciation and amortization	(41,588		)	(41,329		)
Total property and equipment, net	$	13,120		$	15,514

8.FAIR VALUE MEASUREMENTS

Effective January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), except as it applied to the nonfinancial assets and nonfinancial liabilities subject to FSP FAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP No. 157-2”), which the Company adopted effective January 1, 2009. SFAS No. 157 clarifies the definition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value, and expands disclosures about fair value measurements. The three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is:

Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

As of June 30, 2009, the Company held certain assets that are required to be measured at fair value on a recurring basis. These included the Company’s investment in marketable securities, which are classified as available-for-sale. Available-for-sale securities are carried at fair value, with unrealized gains and losses, net of tax, recorded in a separate component of stockholders’ equity within the accumulated other comprehensive income balance.

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Marketable securities consisted of auction rate securities (“ARS”) at June 30, 2009, which had an aggregate cost of $29.7 million and an estimated fair value of $23.5 million. Marketable securities at December 31, 2008 consisted primarily of ARS, and had an aggregate cost of $36.0 million and an estimated fair value of $27.9 million.

Due to the continuing auction failures of the Company’s ARS through the second quarter of 2009, there are no readily determinable market values for these ARS. As quoted prices in an active market were not available, the fair values of these ARS were estimated utilizing discounted cash flow analyses as of June 30, 2009. These analyses consider, among other factors, the collateralization underlying the security investments, the creditworthiness of the counterparty, the timing of expected future cash flows, and the expectation of the next time the ARS are expected to have a successful auction (liquidity).

As a result of the remaining uncertainty in the market for ARS, the Company has classified these investments as “non-current” assets in the accompanying condensed consolidated balance sheet as of June 30, 2009. Additionally, the fair value of these investments has been reduced from their par value of $29.7 million to an estimated fair value of $23.5 million.  Because the Company does not intend to sell any of its ARS, nor does it believe it will be required to sell any of these securities before recovering their cost basis, the decline in fair value is considered temporary, and has been recorded as an unrealized loss in accumulated other comprehensive income.  If the Company were to determine that a decline in fair value is other-than-temporary, a charge would be recorded to earnings in the period such determination was made.

The Company’s assets measured at fair value on a recurring basis subject to the disclosure requirements of SFAS 157 at June 30, 2009, were as follows (in thousands):

			Fair Value Measurements at Reporting Date Using
	June 30,  2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Description:
Auction rate securities	$	23,498	$	—	$	—	$	23,498
Total assets measured at fair value	$	23,498	$	—	$	—	$	23,498

The following table presents the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as defined in SFAS 157 at June 30, 2009 (in thousands):

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Auction Rate Securities
Balance at December 31, 2008	$	25,750
Transfers in and out of Level 3	—
Redemptions by issuer (1)	(4,200		)
Unrealized gains included in other comprehensive income (2)	1,948
Balance at June 30, 2009	$	23,498

(1)In June 2009, certain of the Company’s ARS with an aggregate par value of $4.2 million were redeemed by the issuer at par.

(2)Unrealized gains of $1.9 million represent the reversal of a previously recorded temporary impairment associated with the redeemed ARS in June 2009.

9.COMMITMENTS AND CONTINGENCIES

On November 20, 2007, the United States District Court for the Central District of California consolidated two purported securities fraud class action lawsuits brought against the Company, its executive chairman and its former chief

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administrative officer. The court appointed the combined funds of Laborers’ International Union of North America National (Industrial) Pension and the LIUNA Staff & Affiliates Pension Fund (collectively, the “LIUNA Funds”) as lead plaintiffs. In January 2008, the LIUNA Funds filed a consolidated complaint alleging violations of certain federal securities laws based upon the Company’s and the Company’s officers’ alleged materially false and misleading statements concerning the Company’s compliance with laws and standards applicable to its lead generation business, among other things. The LIUNA Funds purport to represent all persons who purchased or otherwise acquired the common stock of the Company between June 13, 2005 and July 27, 2007, and seek class certification, damages, costs incurred in bringing suit, and equitable/injunctive relief. The Company filed a motion to dismiss this matter in March 2008 and on September 25, 2008, the Court granted defendants’ motion to dismiss. After having their first complaint dismissed by the Court, the LIUNA Funds filed their First Amended Consolidated Complaint on November 24, 2008. The Company has reached a settlement in this matter that is not material to the Company’s consolidated results of operations, financial position or cash flows. This settlement is still subject to final court approval.

On October 31, 2007, plaintiff Susan Lacerenza, a ValueClick shareholder who previously had filed a derivative action in Los Angeles County Superior Court, dismissed that action and re-filed her complaint in the United States District Court for the Central District of California. The operative complaint, brought against nominal defendant ValueClick, Inc. and against individual ValueClick directors and executives (collectively with ValueClick, the “Defendants”), alleges violations of certain federal securities laws, breaches of fiduciary duty, insider trading, and unjust enrichment. The allegations arose from the plaintiff’s claim that ValueClick engaged in illegal and deceptive practices with respect to its lead generation business and that the individual Defendants knowingly disseminated false and misleading financial results. Plaintiff seeks to recoup allegedly improper profits from the individual Defendants and also seeks damages against the individual Defendants for harm allegedly caused to ValueClick. In January 2008, the Company filed a motion to dismiss this matter. Rather than oppose that motion, the plaintiff filed a First Amended Complaint. In February 2008, upon stipulation of the parties, the Court stayed this action in light of the pending federal class action. The Company has reached a settlement in this matter that is not material to the Company’s consolidated results of operations, financial position, or cash flows. This settlement is still subject to final court approval.

On April 8, 2008, Hypertouch, Inc. filed an action in the Superior Court of California, County of Los Angeles, against the Company. The complaint asserts causes of action for violation of California Business & Professions Code §§ 17529.5 and 17200, et seq., arising from the plaintiff’s alleged receipt of a large number of email messages allegedly transmitted by the Company “and/or its agents” and seeks statutory damages for each such email. The Company filed its answer to the complaint on May 28, 2008.  On May 4, 2009, the court granted the Company’s motion for summary judgment which ended the case in this court.  The Company anticipates that Hypertouch will appeal the decision to the court of appeal.

On July 15, 2008, the Company filed a complaint against Tacoda, Inc., a subsidiary of AOL, Inc. in the United States District Court for the Central District of California for patent infringement of U.S. patent numbers 5,848,396 and 5,991,735. The Company is seeking an unspecified amount of damages in addition to injunctive relief.

In March of 2009, Netscape, Inc., a subsidiary of AOL, Inc., filed a complaint in the United States District Court for the Eastern District of Virginia against ValueClick, Inc., Mediaplex, Inc., Commission Junction, Inc., Mezimedia, Inc., Webclients, Inc., and Fastclick, Inc. for alleged patent infringement of U.S. patent number 5,774,670.  The complaint seeks an unspecified amount of damages in addition to injunctive relief.  The Company believes it has valid defenses and intends to defend itself vigorously against these allegations.  On July 23, 2009, the Company defendants filed a cross-complaint against Netscape for, among other things, fraud.

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third-parties. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. The Company has also agreed to indemnify certain former officers, directors and employees of acquired companies in connection with the acquisition of such companies. The Company maintains director and officer insurance, which may cover certain liabilities arising from its obligation to indemnify its directors and certain of its officers and employees, and former officers, directors and employees of acquired companies, in certain circumstances.

It is not possible to determine the maximum potential amount of exposure under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements may not be subject to maximum loss clauses.

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From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights. The Company is not currently a party to any material legal proceedings, except as discussed above, nor is the Company aware of any pending or threatened litigation that would have a material adverse effect on the Company’s business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.

10.INCOME TAXES

As of December 31, 2008, the Company had recorded a liability of $62.5 million for unrecognized tax benefits. For the three- and six-month periods ended June 30, 2009, the Company’s liability for unrecognized tax benefits increased by $0.4 million and $0.9 million, respectively, as a result of income tax positions taken during the period, resulting in a total liability for unrecognized tax benefits at June 30, 2009 of $63.4 million. If recognized in future periods, $63.4 million of these unrecognized tax benefits would be recorded as a reduction to income tax expense. Facts and circumstances could arise in the twelve-month period following June 30, 2009 that could cause the Company to reduce the liability for unrecognized tax benefits, including, but not limited to, settlement of income tax positions or expiration of the statutes of limitations. Because the ultimate resolution of uncertain tax positions depends on many factors and assumptions, the Company is not able to estimate the range of potential changes in the liability for unrecognized tax benefits or the timing of such changes.

The Company’s policy is to recognize interest and penalties expense, if any, related to unrecognized tax benefits as a component of income tax expense. The Company recognized $0.8 million and $1.0 million in gross interest and penalties expense related to unrecognized tax benefits in each of the three-month periods ended June 30, 2009 and 2008, respectively.  During the six-month periods ended June 30, 2009 and 2008, the Company recognized $1.6 million and $2.2 million, respectively, in gross interest and penalties expense related to unrecognized tax benefits. The Company had an accrual for interest and penalties in the amount of $10.2 million and $8.5 million at June 30, 2009 and December 31, 2008, respectively, related to unrecognized tax benefits. These amounts are included in non-current income taxes payable.

The Company’s uncertain tax positions are related to tax years that remain subject to examination by the relevant tax authorities. These include the 2005 through 2008 tax years for federal purposes, 1999 and 2004 through 2008 tax years for various state jurisdictions, and 2003 through 2008 tax years for various foreign jurisdictions. The Company is currently under Internal Revenue Service audit examination for the 2007 tax year, as well as various state jurisdictions for various tax years.

11.STOCKHOLDERS’ EQUITY

In September 2001, the Company’s board of directors authorized a stock repurchase program (the “Program”) to allow for the repurchase of shares of the Company’s common stock at prevailing market prices in the open market or through unsolicited negotiated transactions.  Since the inception of the Program and through June 30, 2009, the Company’s board of directors has authorized a total of $479.1 million for repurchases under the Program and the Company has repurchased a total of 47.1 million shares of its common stock for approximately $374.2 million. There were no repurchases under the Program during the three- and six-month periods ended June 30, 2009. As of June 30, 2009, up to an additional $105.0 million of the Company’s capital may be used to repurchase shares of the Company’s outstanding common stock under the Program.

Repurchases have been funded from available working capital, and all shares have been retired subsequent to their repurchase. There is no guarantee as to the exact number of shares that will be repurchased by the Company, and the Company may discontinue repurchases at any time that management or the Company’s board of directors determines additional repurchases are not warranted. The amounts authorized by the Company’s board of directors exclude broker commissions.

12.NET INCOME PER COMMON SHARE

The following table sets forth the computation of basic and diluted net income per common share for the periods indicated (in thousands, except per share data):

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	Three-month Period Ended June 30,				Six-month Period Ended June 30,
	2009		2008		2009		2008
Net income	$	14,872	$	16,489	$	28,089	$	35,656
Weighted-average common shares outstanding - basic	87,071		95,363		86,949		96,543
Dilutive effect of stock options and employee benefit plans	574		770		386		802
Number of shares used to compute net income per common share — diluted	87,645		96,133		87,335		97,345
Net income per common share:
Basic	$	0.17	$	0.17	$	0.32	$	0.37
Diluted	$	0.17	$	0.17	$	0.32	$	0.37

The Company adopted FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities” (“FSP EITF 03-6-1”) effective January 1, 2009, which requires retrospective application. FSP Emerging Issues Task Force (“EITF”) 03-6-1 clarifies that instruments granted in share-based payment transactions that are considered to be participating securities prior to vesting should be included in the earnings allocation under the two-class method of calculating earnings per share. The impact of FSP EITF 03-6-1 did not have a material impact on the Company’s calculation of earnings per share.

Employee stock-based awards totaling 2,952,000 and 6,019,000 shares during the three-month periods ended June 30, 2009 and 2008, respectively, were excluded from the computation of diluted net income per common share because their effect would have been antidilutive under the treasury stock method.  For the six-month periods ended June 30, 2009 and 2008, the number of these antidilutive shares excluded from the diluted net income per common share computation was 3,183,000 and 6,099,000, respectively.

13.RELATED PARTY TRANSACTIONS

For the three-month periods ended June 30, 2009 and 2008, the Company paid advertising costs totaling $330,000 and $227,000, respectively, to Acquisis LLC, of which a member of the Company’s board of directors is the managing partner and greater than 5% owner. For the six-month periods ended June 30, 2009 and 2008, the Company paid advertising costs totaling $523,000 and $806,000, respectively, to Acquisis LLC. The Company had an outstanding amount due to this unaffiliated entity of $90,000 and $131,000 as of June 30, 2009 and December 31, 2008, respectively, which is included in accounts payable and accrued expenses.

14.LINE OF CREDIT

In November 2008, the Company obtained a line of credit with a bank group which allows for borrowings of up to $100 million through November 14, 2011. Advances under this agreement bear interest at either (i) the base rate, which is equal to the highest of (a) the lender’s prime rate, (b) the federal funds rate plus 1.50%, and (c) the one month reserve adjusted daily London Interbank Offered Rate (“LIBOR”) plus 1.50%, or (ii) LIBOR plus an applicable margin as in effect at each interest calculation date. The applicable margin in effect from time to time is based on the Company’s total leverage ratio. The applicable margins range from 0.50% to 1.25% for base rate loans and from 1.50% to 2.25% for LIBOR loans.

Certain of the Company’s domestic subsidiaries have guaranteed the obligations of the Company and all future domestic subsidiaries of the Company also are required to guarantee the obligations of the Company under the credit agreement. The Company’s obligations are secured by a lien on substantially all of its present and future assets pursuant to a separate security agreement. In addition, the obligations of each subsidiary guarantor are secured by a lien on substantially all of such subsidiary’s present and future assets. The subsidiary guarantees and the collateral under the Security Agreement are subject to release upon fulfillment of certain conditions specified in the credit agreement, security agreement and subsidiary guaranty agreement.

The revolving credit facility is available to be used by the Company, among other things, to fund its working capital needs and for other general corporate purposes, including acquisitions and stock repurchases. The Company pays a commitment fee on unused amounts that ranges, based on the Company’s total leverage ratio, from 0.25% to 0.40% of the

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unused portion of the revolving credit facility, and was fixed at 0.30% through June 30, 2009. The agreement also contains customary events of default such as failure to pay interest or principal when due, material inaccuracy of representations or warranties, bankruptcy events, change of control, a material adverse change in financial condition or operations, or a default of covenant. Upon the occurrence of an event of default, the principal and accrued interest under the revolving credit facility then outstanding may be declared due and payable.  At June 30, 2009 and December 31, 2008, no amounts were outstanding on this line of credit.

The Company has provided various representations and agreed to certain financial covenants including a total leverage ratio, minimum trailing-twelve month EBITDA (currently set at $130 million) and minimum unrestricted, unencumbered liquid asset requirements. At June 30, 2009 and December 31, 2008, the Company was in compliance with all of the financial covenants of the line of credit agreement.

15.SEGMENTS, GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS

The Company derives its revenue from four business segments. These business segments are presented on a worldwide basis and include: Media, Affiliate Marketing, Comparison Shopping & Search, and Technology. The following table provides revenue and segment income from operations for each of the Company’s four business segments. Segment income from operations, as shown below, is the performance measure used by management to assess segment performance and excludes the effects of stock-based compensation, amortization of intangible assets and corporate expenses. Corporate expenses consist of those costs not directly attributable to a business segment, and include: salaries and benefits for the Company’s executive, finance, legal, corporate governance, human resources, and facilities organizations; fees for professional service providers including audit, tax, Sarbanes-Oxley compliance and certain corporate-related legal fees; insurance; and, other corporate expenses.

	Revenue						Segment Incomefrom Operations
	Three-month Periods Ended June 30,
(in thousands)	2009			2008			2009		2008
Media	$	58,707		$	76,429		$	13,311	$	18,882
Affiliate Marketing	26,059			29,827			12,282		14,463
Comparison Shopping & Search	38,775			45,439			9,949		10,494
Technology	7,125			7,633			3,478		3,889
Inter-segment revenue	(302		)	(804		)	—		—
Total	$	130,364		$	158,524		$	39,020	$	47,728

	Revenue						Segment Incomefrom Operations
	Six-month Periods Ended June 30,
(in thousands)	2009			2008			2009		2008
Media	$	122,233		$	151,123		$	28,218	$	35,167
Affiliate Marketing	54,017			61,027			26,681		30,181
Comparison Shopping & Search	76,292			102,511			16,727		25,695
Technology	13,541			14,639			6,262		7,278
Inter-segment revenue	(678		)	(1,650		)	—		—
Total	$	265,405		$	327,650		$	77,888	$	98,321

A reconciliation of total segment income from operations to consolidated income from operations is as follows for each period (in thousands):

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	Income from Operations
	Three-month Period Ended June 30,						Six-month Period Ended June 30,
	2009			2008			2009			2008
Segment income from operations	$	39,020		$	47,728		$	77,888		$	98,321
Corporate expenses	(6,802		)	(6,835		)	(13,126		)	(14,140		)
Stock-based compensation	(2,520		)	(5,246		)	(5,120		)	(10,952		)
Amortization of intangible assets	(6,287		)	(7,680		)	(12,539		)	(15,337		)
Consolidated income from operations	$	23,411		$	27,967		$	47,103		$	57,892

Depreciation and amortization expense included in the determination of segment income from operations as presented above for the Media, Affiliate Marketing, Comparison Shopping & Search, and Technology segments was $769,000, $266,000, $436,000, and $262,000, respectively, for the three-month period ended June 30, 2009; and $882,000, $471,000, $480,000, and $232,000, respectively, for the three-month period ended June 30, 2008. Depreciation and amortization expense included in corporate expenses in the determination of consolidated income from operations was $403,000 and $343,000 for the three-month periods ended June 30, 2009 and 2008, respectively. Depreciation and amortization expense included in the determination of segment income from operations as presented above for the Media, Affiliate Marketing, Comparison Shopping & Search, and Technology segments was $1.6 million, $565,000, $954,000, and $510,000, respectively, for the six-month period ended June 30, 2009; and $1.8 million, $1.0 million, $944,000, and $446,000, respectively, for the six-month period ended June 30, 2008. Depreciation and amortization expense included in corporate expenses in the determination of consolidated income from operations was $739,000 and $685,000 for the six-month periods ended June 30, 2009 and 2008, respectively.

The Company’s operations are domiciled in the United States with operations internationally in Europe, China and Japan through wholly-owned subsidiaries. Revenue is attributed to a geographic region based upon the country from which the customer relationship is maintained. The Company’s operations in China primarily support the revenue generated in the United States and, therefore, the costs associated with these operations are attributed to the United States in the determination of geographic income from operations shown below.

The Company’s geographic information was as follows (in thousands):

	Revenue
	Three-month Period Ended June 30,						Six-month Period Ended June 30,
	2009			2008			2009			2008
United States	$	110,085		$	133,853		$	225,390		$	278,050
International	21,051			27,616			42,468			55,623
Inter-regional eliminations	(772		)	(2,945		)	(2,453		)	(6,023		)
Total	$	130,364		$	158,524		$	265,405		$	327,650

	Income from Operations
	Three-month Period Ended June 30,				Six-month Period Ended June 30,
	2009		2008		2009		2008
United States	$	21,357	$	27,721	$	44,905	$	57,732
International	2,054		246		2,198		160
Total	$	23,411	$	27,967	$	47,103	$	57,892

For the three- and six-month periods ended June 30, 2009, one customer accounted for approximately 15.6% and 14.5%, respectively, of total revenue. For the three- and six-month periods ended June 30, 2008, one customer accounted for approximately 13.2% and 13.8%, respectively, of total revenue.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT

This report contains forward-looking statements based on our current expectations, estimates and projections about our industry, management’s beliefs, and certain assumptions made by us. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will” and variations of these words or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. The section entitled “Risk Factors” in this Form 10-Q and similar discussions in our Annual Report on Form 10-K for the year ended December 31, 2008, and in our other SEC filings, discuss some of the important risk factors that may affect our business, results of operations and financial condition. You should carefully consider those risks, in addition to the other information in this report, and in our other filings with the SEC, before deciding to invest in our company or to maintain or increase your investment. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. The information contained in this Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that discuss our business in greater detail and advise interested parties of certain risks, uncertainties and other factors that may affect our business, results of operations or financial condition.

OVERVIEW

ValueClick, Inc. and its subsidiaries (collectively “ValueClick” or the “Company” or in the first person, “we”, “us” and “our”) is one of the world’s largest and most comprehensive online marketing services companies. We sell targeted and measurable online advertising campaigns and programs for advertisers and advertising agency customers, generating qualified customer leads, online sales and increased brand recognition on their behalf with large numbers of online consumers.

Our customers are primarily direct marketers, brand advertisers and the advertising agencies that service these groups. The proposition we offer our customers includes: one of the industry’s broadest online marketing services portfolios—including performance-based campaigns and programs where marketers only pay for advertising when it generates a customer lead or product sale; our ability to target campaigns to reach the online consumers our customers are most interested in; and the scale at which we can deliver results for online advertising campaigns. Additionally, our networks of online publishers provide advertisers with a cost-effective and complementary source of online consumers relative to online portals and other large website publishers. Through this approach we have become an industry leader in generating qualified customer leads, online sales and increased brand recognition for advertisers.

We generate the audiences for our advertisers’ campaigns primarily through networks of third-party websites, other online publisher partners and search engines. We aggregate our publisher partners’ online advertising inventory into networks, optimize these networks for specific marketing goals, and deliver the campaigns across the appropriate networks’ advertising inventory. We are one of the industry’s largest online network providers, with: industry expertise and proprietary technology platforms for online advertising inventory aggregation; campaign targeting and optimization, delivery, measurement, and reporting; and, payment settlement and delivery services.

Our publisher partners enjoy efficient and effective monetization of their online advertising inventory through representation by our direct sales teams in major U.S. and European media markets, participation in large-scale advertiser and advertising agency campaigns they may not have access to on their own, enhanced monetization through our proprietary campaign optimization and targeting technology, and settlement services to facilitate payments to publishers for the online inventory utilized by the advertisers. As we do not primarily own and operate websites that compete directly with our publisher partners for online consumers, we act as a trusted partner in helping online publishers monetize their online audience and advertising inventory.

We believe that the effectiveness of our online marketing services is dependent on the quality of our networks and our publisher partner relationships. As such, we have established stringent quality standards that include publisher rejection from our networks due to inappropriate content, illegal activity and fraudulent clicking activity, among other criteria. We

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enforce these quality standards using a combination of manual and automated auditing processes that continually monitor and review both website content and adherence to advertiser campaign specifications.

We derive our revenue from four business segments. These business segments are presented on a worldwide basis and include Media, Affiliate Marketing, Comparison Shopping & Search, and Technology, which are described in more detail below.

MEDIA

ValueClick’s Media segment provides a comprehensive suite of online marketing services and tailored programs that help marketers create and increase awareness for their products and brands, attract visitors and generate leads and sales through the Internet. Our Media segment offers marketers a range of online media solutions in the categories of display advertising, lead generation marketing and email marketing. We have aggregated thousands of online publishers to provide marketers with access to one of the largest display advertising networks. Prior to October 2008, we also sold a limited number of consumer products directly to end-user customers through Company-owned e-commerce websites. We divested our interest in the e-commerce websites in October 2008 as further discussed in note 4 “Discontinued Operations” to our condensed consolidated financial statements contained in this quarterly report on form 10-Q. Our Media services are sold on a variety of pricing models, including cost-per-lead (“CPL”), cost-per-action (“CPA”), cost-per-thousand-impression (“CPM”), and cost-per-click (“CPC”).

AFFILIATE MARKETING

Through the combination of: a large-scale pay-for-performance model built on our proprietary technology platforms; marketing expertise; and a large, quality advertising network, our Affiliate Marketing business enables advertisers to develop their own fully-commissioned online sales force comprised of third-party affiliate publishers. We believe we are the largest provider of affiliate marketing services. Our Affiliate Marketing segment services, including search engine marketing (“SEM”), are offered through our wholly-owned subsidiary Commission Junction.

Affiliate Marketing segment revenues are driven primarily by variable compensation that is generally based on either a percentage of commissions paid to affiliates or on a percentage of transaction revenue generated from the programs managed with our Affiliate Marketing platforms.  SEM revenues are driven primarily by a percentage of the revenue we generate for our advertiser customers.

COMPARISON SHOPPING & SEARCH

Our online Comparison Shopping destination websites enable consumers to research and compare products from among thousands of online and/or offline merchants using our proprietary technology. We gather product and merchant data and organize it into comprehensive catalogs on our destination websites, along with relevant consumer and professional reviews. Our service is free for consumers, and our customers primarily pay us on a CPC basis for traffic delivered to the customers’ websites from listings on our websites.

Our Comparison Shopping & Search segment services are offered through our wholly-owned subsidiaries Pricerunner and MeziMedia.  Pricerunner operates comparison shopping destination websites in the United Kingdom, Sweden, Germany, France, Denmark, and Austria.  MeziMedia, acquired in July 2007, operates its comparison shopping destination websites in the United States, Japan and Europe under the Smarter.com, Shopica.com and Couponmountain.com brand names.

In addition to our Pricerunner and MeziMedia comparison shopping destination websites, Search123, which operates in Europe, is ValueClick’s self-service paid search offering that generates its traffic primarily through syndication relationships with other search engines, Web portals and content websites. Search syndication revenues are driven primarily on a CPC basis.

TECHNOLOGY

Our Technology segment operates through our wholly-owned subsidiary Mediaplex.  Mediaplex Systems was also included in our Technology segment until its divestiture in October 2008 as further discussed in note 4 “Discontinued Operations” to our condensed consolidated financial statements contained in this quarterly report on form 10-Q.  Mediaplex is an application services provider (“ASP”) offering technology products and services that enable marketers to implement and manage their own online advertising programs across multiple channels including display, email, paid search, natural search, on-site, offline and affiliate.  Our Mediaplex products are based on our proprietary MOJO® technology platform, which has the ability, among other attributes, to automatically configure advertisements in response to real-time information from an advertiser’s enterprise data system and to provide ongoing campaign optimization and cross-channel analytics. Mediaplex’s products are priced primarily on a CPM or email-delivered basis.

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SEGMENT OPERATING RESULTS

The following table provides revenue, cost of revenue, gross profit, operating expenses, and income from operations information for each of our four business segments. Segment income from operations, as shown below, is the performance measure used by management to assess segment performance and excludes the effects of: stock-based compensation, amortization of intangible assets and corporate expenses. Corporate expenses consist of those costs not directly attributable to a business segment, and include: salaries and benefits for our executive, finance, legal, corporate governance, human resources, and facilities organizations; fees for professional service providers including audit, tax, Sarbanes-Oxley compliance and certain corporate-related legal fees; insurance; and, other corporate expenses. A reconciliation of segment income from operations to consolidated income from operations and a reconciliation of segment revenue to consolidated revenue are also provided in the following table.

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	Three-month Period Ended June 30,						Six-month Period Ended June 30,
	2009			2008			2009			2008
	(in thousands)						(in thousands)
Media
Revenue	$	58,707		$	76,429		$	122,233		$	151,123
Cost of revenue	28,767			32,372			58,519			65,512
Gross profit	29,940			44,057			63,714			85,611
Operating expenses	16,629			25,175			35,496			50,444
Segment income from operations	$	13,311		$	18,882		$	28,218		$	35,167
Affiliate Marketing
Revenue	$	26,059		$	29,827		$	54,017		$	61,027
Cost of revenue	4,034			4,527			7,920			8,726
Gross profit	22,025			25,300			46,097			52,301
Operating expenses	9,743			10,837			19,416			22,120
Segment income from operations	$	12,282		$	14,463		$	26,681		$	30,181
Comparison Shopping & Search
Revenue	$	38,775		$	45,439		$	76,292		$	102,511
Cost of revenue	6,330			11,800			15,921			25,587
Gross profit	32,445			33,639			60,371			76,924
Operating expenses	22,496			23,145			43,644			51,229
Segment income from operations	$	9,949		$	10,494		$	16,727		$	25,695
Technology
Revenue	$	7,125		$	7,633		$	13,541		$	14,639
Cost of revenue	933			990			1,882			1,856
Gross profit	6,192			6,643			11,659			12,783
Operating expenses	2,714			2,754			5,397			5,505
Segment income from operations	$	3,478		$	3,889		$	6,262		$	7,278
Reconciliation of segment income from operations to consolidated income from operations:
Total segment income from operations	$	39,020		$	47,728		$	77,888		$	98,321
Corporate expenses	(6,802		)	(6,835		)	(13,126		)	(14,140		)
Stock-based compensation	(2,520		)	(5,246		)	(5,120		)	(10,952		)
Amortization of intangible assets	(6,287		)	(7,680		)	(12,539		)	(15,337		)
Consolidated income from operations	$	23,411		$	27,967		$	47,103		$	57,892
Reconciliation of segment revenue to consolidated revenue:
Media	$	58,707		$	76,429		$	122,233		$	151,123
Affiliate Marketing	26,059			29,827			54,017			61,027
Comparison Shopping & Search	38,775			45,439			76,292			102,511
Technology	7,125			7,633			13,541			14,639
Inter-segment revenue	(302		)	(804		)	(678		)	(1,650		)
Consolidated revenue	$	130,364		$	158,524		$	265,405		$	327,650

RESULTS OF OPERATIONS—THREE-MONTH PERIOD ENDED JUNE 30, 2009 COMPARED TO JUNE 30, 2008

Revenue.   Consolidated revenue for the three-month period ended June 30, 2009 was $130.4 million, representing a 17.8% decrease from the same period in 2008 of $158.5 million.

Media segment revenue decreased to $58.7 million for the three-month period ended June 30, 2009 compared to $76.4 million for the same period in 2008. The decrease of $17.7 million, or 23.2%, in Media segment revenue was attributable to a decrease in our lead generation marketing revenue. We believe the decrease in our lead generation marketing

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revenue was primarily due to the much weaker macroeconomic environment during the second quarter of 2009 as compared to the same period of the prior year, combined with our experience over the past several quarters that advertisers are cutting budgets in the lead generation channel more aggressively than other online channels. We currently expect our lead generation marketing revenue to decrease further in the third quarter of 2009.

Affiliate Marketing segment revenue decreased to $26.1 million for the three-month period ended June 30, 2009 compared to $29.8 million in the same period in 2008. This decrease of $3.8 million, or 12.6%, was primarily due to the weak macroeconomic environment and softer e-commerce trends as compared to the prior year period, and the impact of foreign currency exchange movements.

Comparison Shopping & Search segment revenue decreased to $38.8 million for the three-month period ended June 30, 2009 compared to $45.4 million in the same period in 2008. The decrease of $6.7 million, or 14.7%, was primarily attributable to the significant reduction in consumer purchasing activity that we first began experiencing in our comparison shopping destination websites in the second and third quarters of 2008.  The Comparison Shopping & Search segment revenue is concentrated with a limited number of customers. A loss of, or reduction of revenue from, one or more of these customers could have a significant negative impact on the revenue of this segment.

Technology segment revenue was $7.1 million for the three-month period ended June 30, 2009 compared to $7.6 million for the same period in 2008, a decrease of $508,000, or 6.7%. The decrease in revenue was primarily due to the impact of foreign currency exchange movements.  Technology segment revenue is concentrated with a limited number of customers. A loss of, or reduction of revenue from, one or more of these customers could have a significant negative impact on the revenue of this segment.

Cost of Revenue and Gross Profit.   Cost of revenue for the Media and Comparison Shopping & Search segments consists primarily of amounts paid to website publishers and distribution partners that are directly related to a revenue-generating event. We pay these entities on a CPC, CPA, CPL or CPM basis. Cost of revenue for all segments also includes labor costs, depreciation on revenue-producing technologies and Internet access costs.  Our consolidated cost of revenue was $39.8 million for the three-month period ended June 30, 2009 compared to $49.0 million for the same period in 2008, a decrease of $9.2 million, or 18.7%. Our consolidated gross margin was 69.4% and 69.1% for the three-month periods ended June 30, 2009 and 2008, respectively.

Cost of revenue for the Media segment decreased $3.6 million, or 11.1%, to $28.8 million for the three-month period ended June 30, 2009 compared to $32.4 million for the same period in 2008. Our Media segment gross margin decreased to 51.0% for the three-month period ended June 30, 2009 compared to 57.6% for the same period in 2008. The decrease in Media segment gross margin resulted primarily from a lower mix of promotion-based lead generation revenue, which generates a higher gross margin than the other component of Media segment revenue, display advertising, due largely to the classification of certain online advertising costs as sales and marketing expense and not as cost of revenue. These online advertising costs are classified as sales and marketing expense as they are not directly related to a revenue-generating event.

Cost of revenue for the Affiliate Marketing segment decreased $500,000, or 10.9%, to $4.0 million for the three-month period ended June 30, 2009 compared to $4.5 million for the same period in 2008. Our Affiliate Marketing segment gross margin remained relatively flat at 84.5% for the second quarter of 2009 compared to 84.8% for the same period in 2008.

Cost of revenue for the Comparison Shopping & Search segment decreased $5.5 million to $6.3 million for the three-month period ended June 30, 2009 compared to $11.8 million for the same period in 2008 due to the decrease in segment revenue and a mix shift in traffic acquisition activities which resulted in lower cost of revenue and relatively higher online advertising costs, which are classified as sales and marketing expense. Our Comparison Shopping & Search segment gross margin increased to 83.7% for the second quarter of 2009 from 74.0% for the same period in 2008 due to the mix shift in traffic acquisition activities.

Technology segment cost of revenue was $900,000 and $1.0 million for the three-month periods ended June 30, 2009 and 2008, respectively. Our Technology segment gross margin remained relatively flat at 86.9% for the three-month period ended June 30, 2009 and 87.0% for the same period in 2008. As the gross margin for the Technology segment is highly dependent upon revenue due to the existing operating leverage, any increases or decreases in segment revenue may have a significant impact on segment gross margin.

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Operating Expenses:

Sales and Marketing.   Sales and marketing expenses consist primarily of personnel-related costs of sales and marketing, network development and related support teams, certain online and offline advertising costs, travel, trade shows, and marketing materials. Online advertising costs included in sales and marketing expenses are comprised primarily of amounts that we pay to website publishers and distribution partners, including search, that are not directly associated with a revenue-generating event. Total sales and marketing expenses for the three-month period ended June 30, 2009 were $36.8 million compared to $44.7 million for the same period in 2008, a decrease of $7.9 million, or 17.7%. Sales and marketing expenses decreased primarily due to lower online advertising costs in our lead generation marketing business, lower stock-based compensation as further discussed in the Stock-Based Compensation section below, and lower personnel-related costs.  Our sales and marketing expenses as a percentage of revenue remained consistent at 28.2% for the three-month periods ended June 30, 2009 and 2008.

General and Administrative.   General and administrative expenses consist primarily of facilities costs, executive and administrative personnel-related costs, depreciation, professional services fees, insurance costs, and other general overhead costs. General and administrative expenses decreased to $16.7 million, or 12.8% of revenue, for the three-month period ended June 30, 2009 compared to $19.5 million, or 12.3% of revenue, for the same period in 2008, a decrease of $2.8 million, or 14.3%. General and administrative expenses decreased primarily due to a decrease of $1.4 million in stock-based compensation, lower personnel-related costs and a continued focus on operating expense management in the three-month period ended June 30, 2009.

Technology.   Technology expenses include costs associated with the maintenance of our technology platforms, including personnel-related costs for our engineering and network operations departments, as well as costs for contracted services and supplies. Technology expenses for the three-month period ended June 30, 2009 were $7.3 million, or 5.6% of revenue, compared to $9.6 million, or 6.1% of revenue, for the same period in 2008, a decrease of $2.3 million, or 24.1%. The decrease in technology expenses was primarily due to lower personnel-related costs and our focus on operating expense management in the three-month period ended June 30, 2009.

Segment Income from Operations.   Media segment income from operations for the three-month period ended June 30, 2009 decreased 29.5%, or $5.6 million, to $13.3 million, from $18.9 million in the same period of the prior year, and represented 22.7% and 24.7% of Media segment revenue in these respective periods.  The Media segment operating margin decrease was attributable to the lower segment revenue and the associated negative operating leverage.

Affiliate Marketing segment income from operations for the three-month period ended June 30, 2009 decreased 15.1% to $12.3 million, from $14.5 million in the same period of the prior year, and represented 47.1% and 48.5% of Affiliate Marketing segment revenue in these respective periods. The Affiliate Marketing segment operating margin decrease was attributable to the lower segment revenue and the associated negative operating leverage.

Comparison Shopping & Search segment income from operations for the three-month period ended June 30, 2009 decreased to $9.9 million, from $10.5 million in the same period of the prior year, and represented 25.7% and 23.1% of Comparison Shopping & Search segment revenue in these respective periods. The Comparison Shopping & Search segment operating margin increase was primarily attributable to an improvement in our traffic acquisition mix.

Technology segment income from operations for the three-month period ended June 30, 2009 decreased 10.6% to $3.5 million, from $3.9 million in the same period of the prior year, and represented 48.8% and 50.9% of Technology segment revenue in these respective periods. The Technology segment operating margin decrease was attributable to the lower segment revenue and the associated negative operating leverage.

Stock-Based Compensation.   Stock-based compensation for the three-month period ended June 30, 2009 was $2.5 million compared to $5.2 million for the same period in 2008. The decrease of $2.7 million was primarily due to stock options repurchased by the Company through a tender offer process completed in the third quarter of 2008.  We currently anticipate stock-based compensation in the range of $10 million to $11 million for the year ending December 31, 2009.  Such amounts may change as a result of higher or lower than anticipated stock option grants to new and existing employees, differences between actual and estimated forfeitures of stock options, fluctuations in the market value of our common stock, modifications to our existing stock option programs, additions of new stock-based compensation programs, or other factors.

Amortization of Intangible Assets Acquired in Business Combinations.   Amortization of intangible assets acquired in business combinations for the three-month period ended June 30, 2009 was $6.3 million compared to $7.7 million for the same period in 2008. Certain intangible assets acquired in the acquisitions of Webclients and Fastclick, both acquired in 2005, were fully amortized in the first half of 2008 resulting in decreased amortization expense for the three-month period ended June 30, 2009 compared to the same period in 2008.  We currently anticipate amortization expense of approximately

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$25 million for the year ending December 31, 2009.

Income Tax Expense.   For the three-month period ended June 30, 2009, we recorded income tax expense of $9.7 million compared to $12.8 million for the same period in 2008. The decrease in the effective income tax rate for the three-month period ended June 30, 2009 to 39.6% from 43.7% in the same period of the prior year was primarily due to the impact of certain recent state tax law changes on net deferred taxes that occurred during the three-month period ended June 30, 2009 as compared to the three-month period ended June 30, 2008.  We currently anticipate an effective income tax rate for the year ending December 31, 2009 of approximately 42%.

RESULTS OF OPERATIONS—SIX-MONTH PERIOD ENDED JUNE 30, 2009 COMPARED TO JUNE 30, 2008

Revenue.   Consolidated revenue for the six-month period ended June 30, 2009 was $265.4 million, representing a 19.0% decrease over the same period in 2008 of $327.7 million.

Media segment revenue decreased to $122.2 million for the six-month period ended June 30, 2009 compared to $151.1 million for the same period in 2008. The decrease of $28.9 million, or 19.1%, in Media segment revenue was attributable to a decrease in our lead generation marketing revenue. We believe the decrease in our lead generation marketing revenue was primarily due to the much weaker macroeconomic environment during the first half of 2009 as compared to the same period of the prior year, combined with our experience over the past several quarters that advertisers are cutting budgets in the lead generation channel more aggressively than other online channels.

Affiliate Marketing segment revenue decreased to $54.0 million for the six-month period ended June 30, 2009 compared to $61.0 million in the same period in 2008. This decrease of $7.0 million, or 11.5%, was primarily due to the weak macroeconomic environment and softer e-commerce trends as compared to the prior year period, and the impact of foreign currency exchange movements.

Comparison Shopping & Search segment revenue decreased to $76.3 million for the six-month period ended June 30, 2009 compared to $102.5 million in the same period in 2008. The decrease of $26.2 million, or 25.6%, was primarily attributable to the significant reduction in consumer purchasing activity that we first began experiencing in our comparison shopping destination websites in the second and third quarters of 2008.

Technology segment revenue was $13.5 million for the six-month period ended June 30, 2009 compared to $14.6 million for the same period in 2008, a decrease of $1.1 million, or 7.5%. The decrease in revenue was primarily due to:  lower average CPM pricing in the six-month period ended June 30, 2009 compared to the same period in 2008, lower volumes of ads served and the impact of foreign currency exchange movements.

Cost of Revenue and Gross Profit.   Our consolidated cost of revenue was $83.8 million for the six-month period ended June 30, 2009 compared to $100.3 million for the same period in 2008, a decrease of $16.5 million, or 16.4%. Our consolidated gross margin was 68.4% for the six-month period ended June 30, 2009 compared to 69.4% for the same period in 2008.

Cost of revenue for the Media segment decreased $7.0 million, or 10.7%, to $58.5 million for the six-month period ended June 30, 2009 compared to $65.5 million for the same period in 2008. Our Media segment gross margin decreased to 52.1% for the six-month period ended June 30, 2009 compared to 56.6% for the same period in 2008. The decrease in Media segment gross margin resulted primarily from a lower mix of promotion-based lead generation revenue, which generates a higher gross margin than the other component of Media segment revenue, display advertising, due largely to the classification of certain online advertising costs as sales and marketing expense and not as cost of revenue. These online advertising costs are classified as sales and marketing expense as they are not directly related to a revenue-generating event.

Cost of revenue for the Affiliate Marketing segment decreased $800,000, or 9.2%, to $7.9 million for the six-month period ended June 30, 2009 compared to $8.7 million for the same period in 2008. Our Affiliate Marketing segment gross margin remained flat at 85.3% for the six-month period ending June 30, 2009 compared to 85.7% for the same period in 2008.

Cost of revenue for the Comparison Shopping & Search segment decreased $9.7 million to $15.9 million for the six-month period ended June 30, 2009 compared to $25.6 million for the same period in 2008 due to the decrease in segment revenue and a mix shift in traffic acquisition activities which resulted in lower cost of revenue and relatively higher online advertising costs. Our Comparison Shopping & Search segment gross margin increased to 79.1% for the six-month period ending June 30, 2009 from 75.0% for the same period in 2008 due primarily to the mix shift in traffic acquisition activities.

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Technology segment cost of revenue was $1.9 million for the six-month periods ended June 30, 2009 and 2008. Our Technology segment gross margin decreased to 86.1% for the six-month period ended June 30, 2009 from 87.3% for the same period in 2008 due to the negative operating leverage associated with the lower revenue. As the gross margin for the Technology segment is highly dependent upon revenue due to the existing operating leverage, any increases or decreases in segment revenue may have a significant impact on segment gross margin.

Operating Expenses:

Sales and Marketing.   Total sales and marketing expenses for the six-month period ended June 30, 2009 were $73.8 million compared to $94.6 million for the same period in 2008, a decrease of $20.9 million, or 22.1%. Sales and marketing expenses decreased primarily due to lower online advertising costs in our lead generation marketing business and our Comparison Shopping & Search segment, as well as lower stock-based compensation as further discussed in the Stock-Based Compensation section below and lower personnel-related costs.  Our sales and marketing expenses as a percentage of revenue decreased to 27.8% for the six-month period ended June 30, 2009 compared to 28.9% for the same period in 2008, primarily driven by the lower online advertising costs related to our lead generation activities described above.

General and Administrative.   General and administrative expenses decreased to $33.2 million, or 12.5% of revenue, for the six-month period ended June 30, 2009 compared to $40.4 million, or 12.3% of revenue, for the same period in 2008, a decrease of $7.2 million, or 17.8%. General and administrative expenses decreased primarily due to a decrease of $3.2 million in stock-based compensation, lower personnel-related costs, and a continued focus on operating expense management in the six-month period ended June 30, 2009.

Technology.   Technology expenses for the six-month period ended June 30, 2009 were $15.0 million, or 5.6% of revenue, compared to $19.1 million, or 5.8% of revenue, for the same period in 2008, a decrease of $4.1 million, or 21.5%. The decrease in technology expenses was primarily due to lower personnel-related costs and our focus on operating expense management in the six-month period ended June 30, 2009.

Segment Income from Operations.   Media segment income from operations for the six-month period ended June 30, 2009 decreased 19.8%, or $6.9 million, to $28.2 million, from $35.2 million in the same period of the prior year.  Media segment operating margin remained relatively flat at 23.1% and 23.3% in these respective periods.

Affiliate Marketing segment income from operations for the six-month period ended June 30, 2009 decreased 11.6% to $26.7 million, from $30.2 million in the same period of the prior year. Affiliate Marketing segment operating margin remained relatively flat at 49.4% and 49.5% in these respective periods.

Comparison Shopping & Search segment income from operations for the six-month period ended June 30, 2009 decreased to $16.7 million, from $25.7 million in the same period of the prior year, and represented 21.9% and 25.1% of Comparison Shopping & Search segment revenue in these respective periods. The Comparison Shopping & Search segment operating margin decrease was attributable to the lower segment revenue and the associated negative operating leverage.

Technology segment income from operations for the six-month period ended June 30, 2009 decreased 14.0% to $6.3 million, from $7.3 million in the same period of the prior year, and represented 46.2% and 49.7% of Technology segment revenue in these respective periods. The Technology segment operating margin decrease was attributable to the lower segment revenue.

Stock-Based Compensation.   Stock-based compensation for the six-month period ended June 30, 2009 was $5.1 million compared to $11.0 million for the same period in 2008. The decrease of $5.8 million was primarily due to stock options repurchased by the Company through a tender offer process completed in the third quarter of 2008.

Amortization of Intangible Assets Acquired in Business Combinations.   Amortization of intangible assets acquired in business combinations for the six-month period ended June 30, 2009 was $12.5 million compared to $15.3 million for the same period in 2008. Certain intangible assets acquired in the acquisitions of Webclients and Fastclick, both acquired in 2005, were fully amortized in the first half of 2008 resulting in decreased amortization expense for the six-month period ended June 30, 2009 compared to the same period in 2008.

Income Tax Expense.   For the six-month period ended June 30, 2009, we recorded income tax expense of $20.0 million compared to $26.6 million for the same period in 2008. The decrease in the effective income tax rate for the six-month period ended June 30, 2009 to 41.6 % from 42.6% in the same period of the prior year was primarily due to the impact of certain recent state tax law changes on net deferred taxes that occurred during the six-month period ended June 30, 2009 as

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compared to the six-month period ended June 30, 2008.

Liquidity and Capital Resources

In recent years we have financed our operations and our cash acquisitions primarily through working capital generated from our operations. At June 30, 2009, our combined cash, cash equivalents and marketable securities balances totaled $158.7 million.

Net cash provided by operating activities totaled $65.5 million for the six months ended June 30, 2009 compared to $66.3 million in the same period of 2008. The decrease from 2008 was due primarily to a decrease in net income before non-cash depreciation, amortization and stock-based compensation of $17.4 million offset by an increase in deferred income taxes of $5.5 million and an increase in net positive working capital changes of $10.4 million.

Net cash used in investing activities for the six-month period ended June 30, 2009 of $58.2 million was the result of the use of $62.7 million for the payment of contingent consideration related to the acquisition of MeziMedia and $1.9 million used for equipment purchases, offset by proceeds from the net sales and maturities of marketable securities of $6.4 million. The net cash provided by investing activities for the six months ended June 30, 2008 of $1.2 million was the result of the use of $105.4 million for the payment of contingent consideration related to the acquisition of MeziMedia and $4.7 million used for equipment purchases, offset by proceeds from the net sales and maturities of marketable securities of $111.2 million.

Net cash provided by financing activities of $1.4 million for the six months ended June 30, 2009 was primarily due to proceeds received from our employee stock programs.  Net cash used in financing activities of $49.4 million for the six months ended June 30, 2008 was primarily due to $54.7 million used to repurchase our common stock under our stock repurchase program, offset by proceeds of $4.9 million received from our employee stock programs.

Marketable Securities

Marketable securities as of June 30, 2009 consisted of auction rate securities (“ARS”) collateralized by student loan portfolios that are insured or government supported. As of June 30, 2009, our marketable securities portfolio consisted of ARS with a par value of $29.7 million and an estimated fair value of $23.5 million. ARS are designed to provide liquidity via a dutch auction process that resets the applicable interest rate at predetermined calendar intervals (usually every seven to thirty-five days) and historically have allowed existing investors to either rollover their holdings, whereby they would continue to own their respective interest in the ARS, or gain immediate liquidity by selling such ARS at par. Beginning in February 2008, the auctions for our ARS began failing due to insufficient demand for these securities. As a result of these failed auctions, we have been unable to liquidate these securities and the interest rates on these ARS reset to contractually stipulated “fail rates” that are variable based on short-term municipal bond or other market indices. In the event we need to sell these ARS, we will not be able to do so until a future auction on these investments is successful, the issuer redeems the outstanding securities, the securities mature, or we sell the securities in the secondary market.

As a result of the remaining uncertainty in the market for ARS, we have classified these investments as “non-current” in the accompanying consolidated balance sheet as of June 30, 2009. Additionally, we have reduced the fair value of these investments from their par value of $29.7 million to an estimated fair value of $23.5 million. Because we do not intend to sell any of our ARS, nor do we believe we will be required to sell any of these securities before recovering their cost basis, we consider this reduction in value to be temporary, and have recorded it as an unrealized loss in accumulated other comprehensive income. In June 2009, certain of our ARS with an aggregate par value of $4.2 million were redeemed by the issuer at par. As a result of this redemption, we reversed $1.9 million of previously recorded unrealized loss associated with these redeemed securities during the three-month period ended June 30, 2009.

Line of Credit

In November 2008, we entered into a $100 million line of credit with a bank group.  The line of credit has a term of three years and the availability under the line of credit is subject to our meeting certain financial and non-financial covenants, as more fully described in note 14 “Line of Credit” to our condensed consolidated financial statements.  The line of credit provides us with additional financial flexibility for pursuing acquisitions, repurchasing our common stock, and for general corporate purposes. We did not borrow against the line of credit in the three- and six-month periods ended June 30, 2009 or during 2008, and thus no amount was outstanding against the line of credit at June 30, 2009 and December 31, 2008, respectively.

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Stock Repurchase Program

In September 2001, our board of directors authorized a stock repurchase program (the “Program”) to allow for the repurchase of shares of our common stock at prevailing market prices in the open market or through unsolicited negotiated transactions. Since the inception of the Program and through June 30, 2009, our board of directors had authorized a total of $479.1 million for repurchases under the Program and we have repurchased a total of 47.1 million shares of our common stock for approximately $374.2 million. There were no repurchases under the Program during the six-month period ended June 30, 2009. As of June 30, 2009, we have $105.0 million available under the Program to repurchase shares of our outstanding common stock.

Repurchases have been funded from available working capital, and all shares have been retired subsequent to their repurchase. There is no guarantee as to the exact number of shares that will be repurchased by us, and we may discontinue repurchases at any time that management or our board of directors determines additional repurchases are not warranted. The amounts authorized by our board of directors exclude broker commissions.

Commitments and Contingencies

There were no significant changes to our commitments and contingencies during the three- and six-month periods ended June 30, 2009.

In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third-parties. In addition, we have entered into indemnification agreements with our directors and certain of our officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. We have also agreed to indemnify certain former officers, directors and employees of acquired companies in connection with the acquisition of such companies. We maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and certain of our officers, employees and former officers, directors and employees of acquired companies, in certain circumstances.

It is not possible to determine the maximum potential amount of exposure under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements may not be subject to maximum loss clauses.

In connection with our purchase of MeziMedia in July 2007, the founders of MeziMedia may be entitled to contingent consideration of up to $81.2 million if certain revenue and earnings targets are met by MeziMedia for the year ending December 31, 2009. Based upon recent performance of this business, and the weak macroeconomic environment, we do not currently expect to be obligated to make this additional payment.

Capital Resources

We believe that the combination of: our existing cash and cash equivalents; our $100 million line of credit; and our expected future cash flows from operations, will provide us with sufficient liquidity to fund our operations and capital requirements for at least the next twelve months. However, it is possible that we may need or elect to raise additional funds to fund our activities beyond the next year or to consummate acquisitions of other businesses, products or technologies. We could raise such funds by selling more stock to the public or to selected investors, or by borrowing, whether under the existing line of credit or a new facility. In addition, even though we may not need additional funds, we may still elect to sell additional equity securities for other reasons. We cannot assure you that we will be able to obtain additional funds on commercially favorable terms, or at all. If we raise additional funds by issuing additional equity or convertible debt securities, the ownership percentages of existing stockholders may be reduced. In addition, the equity or debt securities that we issue may have rights, preferences or privileges senior to those of the holders of our common stock.

Although we believe we have sufficient capital to fund our activities for at least the next twelve months, our future capital requirements may vary materially from those now planned. The amount of capital that we will need in the future will depend on many factors, including:

·the macroeconomic environment;

·the market acceptance of our products and services;

·the levels of promotion and advertising that will be required to launch our new products and services and achieve and maintain a competitive position in the marketplace;

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·our business, product, capital expenditures and technology plans, and product and technology roadmaps;

·capital improvements to new and existing facilities;

·technological advances;

·our competitors’ responses to our products and services;

·our pursuit of strategic transactions, including mergers and acquisitions;

·the extent of dislocations in the credit markets in the United States and the related impact on the liquidity of our marketable securities;

·the timing and outcome of examinations by tax authorities;

·our stock repurchase program; and

·our relationships with our advertiser customers and publisher partners.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions, including, but not limited to, those related to revenue recognition, allowance for doubtful accounts and sales credits, investments, stock-based compensation, income taxes, goodwill and other intangible assets acquired in business combinations, and contingencies and litigation. We base our estimates and assumptions on historical experience and on various other estimates and assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions.

There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

Recently Issued Accounting Standards

In April 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) Statement of Financial Accounting Standard (“SFAS”) No. 107-1 and Accounting Principles Board (“APB”) No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP SFAS 107 and APB 28-1”). This FSP amends FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments”, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, “Interim Financial Reporting”, to require those disclosures in summarized financial information at interim reporting periods. This FSP is effective for interim and annual periods ending after June 15, 2009. The adoption of FSP SFAS 107 and APB 28-1 did not impact our consolidated financial statements.  See note 8 “Fair Value Measurements” to our condensed consolidated financial statements for further information.

In April 2009, the FASB issued FSP SFAS No. 115-2 and SFAS No. 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP SFAS 115-2”). The objective of an other-than-temporary impairment analysis under existing U.S. GAAP is to determine whether the holder of an investment in a debt or equity security for which changes in fair value are not regularly recognized in earnings (such as securities classified as held-to-maturity or available-for-sale) should recognize a loss in earnings when the investment is impaired. An investment is impaired if the fair value of the investment is less than its amortized cost basis. This FSP amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. This FSP is effective for interim and annual periods ending after June 15, 2009. In response to this FSP, in April 2009, the SEC published staff accounting bulletin (“SAB”) No. 111, which amends Topic 5.M. in the Staff Accounting Bulletin Series entitled “Other-

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Than-Temporary Impairment of Certain Investments in Debt and Equity Securities” (“Topic 5.M.”). This SAB maintains the staff’s previous views related to equity securities. It also amends Topic 5.M. to exclude debt securities from its scope. The adoption of SAB No. 111 and FSP SFAS 115-2 did not impact our consolidated financial statements.

In April 2009, the FASB issued FSP SFAS No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP SFAS 157-4”). This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157 when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. This FSP is effective for interim and annual periods ending after June 15, 2009. The adoption of FSP SFAS 157-4 did not impact our consolidated financial statements.

In April 2009, the FASB issued FSP No. 141R-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (“FSP 141R-1”). FSP 141R-1 amends the provisions in SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”) for the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. FSP 141R-1 eliminates the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria in SFAS 141R and instead carries forward most of the provisions in SFAS 141 for acquired contingencies. FSP 141R-1 is effective for contingent assets and contingent liabilities acquired in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The nature and magnitude of the specific effects that FSP 141R-1 will have on our consolidated financial statements will depend upon the nature, term and size of acquired contingencies resulting from future acquisitions.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS No. 165”). SFAS No. 165 provides guidance on management’s assessment of subsequent events and incorporates this guidance into accounting literature. SFAS No. 165 is effective prospectively for interim and annual periods ending after June 15, 2009. SFAS No. 165 requires entities to disclose the date through which subsequent events have been evaluated and whether the date corresponds with the release of the entities’ financial statements. The implementation of this standard did not have a material impact on our consolidated financial position and results of operations. See note 1, “The Company and Basis of Presentation” to our condensed consolidated financial statements for further information.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 168”), which replaces SFAS No. 162 “The Hierarchy of GAAP”. SFAS No. 168 identifies the FASB Accounting Standards Codification (the “Codification”) as the authoritative source of GAAP in the United States. Rules and interpretive releases of the SEC under federal securities laws are also sources of authoritative GAAP for SEC registrants. SFAS No. 168 is effective for interim and annual periods ending after September 15, 2009. Since it is not intended to change or alter existing US GAAP, SFAS No. 168 is not expected to have an impact on our consolidated financial statements. We will adjust historical GAAP references in our third quarter 2009 Form 10-Q to reflect accounting guidance references included in the Codification.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

The primary objective of our investment activities is to preserve capital while at the same time maximizing yields without significantly increasing risk. We are exposed to the impact of interest rate changes and changes in the market values of our investments in marketable securities. Our interest income is sensitive to changes in the general level of U.S. interest rates. Our exposure to market rate risk for changes in interest rates relates primarily to our marketable securities portfolio. We have not used derivative financial instruments in our marketable securities portfolio. We invest a portion of our excess cash in debt instruments of high-quality issuers and, as a matter of policy, limit the amount of credit exposure to any one issuer. We protect and preserve our invested funds by limiting default, market and reinvestment risk. Investments in both fixed-rate and floating-rate interest-earning instruments carry a degree of interest rate risk. Fixed-rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating-rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates.

Marketable securities as of June 30, 2009 consist of highly rated auction rate securities (“ARS”) collateralized by student loan portfolios that are insured or government supported. ARS are designed to provide liquidity via a dutch auction process that resets the applicable interest rate at predetermined calendar intervals (usually every seven to thirty-five days) and historically has allowed existing investors to either rollover their holdings, whereby they would continue to own their respective interest in the ARS, or gain immediate liquidity by selling the ARS at par. See further discussion of our marketable securities portfolio and ARS holdings in the “Liquidity and Capital Resources” section of Item 2 of this Form 10-Q under the header “Marketable Securities”.

Management’s internal investment policy requires a weighted-average time to maturity of the overall investment portfolio to be no greater than 365 days and allows for ARS to be weighted based on the auction reset date. Due to the current illiquidity in the ARS market, we have temporarily excluded our ARS from the determination of compliance with the maturity limitations of our internal investment policy. We classify all of our investments as available-for-sale. Available-for-sale securities are carried at fair value, with unrealized gains and losses, net of tax, reported in a separate component of stockholders’ equity. As of June 30, 2009, the net unrealized loss in our investments in ARS totaled $6.2 million, reflecting the current lack of liquidity for these instruments.

During the quarter ended June 30, 2009, our investments in marketable securities, consisting of ARS, yielded an annual effective interest rate of 1.02% and an annual taxable equivalent yield of 1.56%. If the issuers of our ARS were unable to continue to make the contractual interest payments, the result would be an annual decrease in our interest income of approximately $303,000.

FOREIGN CURRENCY RISK

We transact business in various foreign countries and are thus subject to exposure from adverse movements in foreign currency exchange rates. This exposure is primarily related to revenue and operating expenses of our foreign subsidiaries, which denominate their transactions primarily in British Pounds, Euros, Swedish Kronor, Japanese Yen, and Chinese Yuan Renminbi. Other than a gain of $1.1 million in the three-month period ended June 30, 2009 related primarily to the translation of certain intercompany balances, the effect of foreign currency exchange rate fluctuations for the three- and six-month periods ended June 30, 2009 was not material to the consolidated results of operations. If there were an adverse change of 10% in overall foreign currency exchange rates over an entire year, the result of translations would be an estimated reduction of revenue of approximately $8.8 million, an estimated reduction of income before income taxes of approximately $1.5 million and an estimated reduction of net assets, excluding intercompany balances, of approximately $7.2 million. Historically, we have not hedged our exposure to foreign currency exchange rate fluctuations. Accordingly, we may experience economic loss and a negative impact on earnings, cash flows or equity as a result of foreign currency exchange rate fluctuations. As of June 30, 2009, we had $42.0 million in cash and cash equivalents and $15.0 million in total current liabilities denominated in foreign currencies, including British Pounds, Euros, Swedish Kronor, Japanese Yen, and Chinese Yuan Renminbi.

Our international business is subject to risks typical of an international business, including, but not limited to, differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign currency exchange rate volatility. Accordingly, our future results could be materially and adversely affected by changes in these or other factors.

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ITEM 4. CONTROLS AND PROCEDURES

(a)           Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934, as amended (“Exchange Act”), Rules 13a-15(e) and 15d-15(e)) under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective.

(b)           Changes in Internal Control over Financial Reporting

Additionally, our Chief Executive Officer and Chief Financial Officer have determined that there have been no changes to our internal control over financial reporting during the three-month period ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION AND SIGNATURES

ITEM 1. LEGAL PROCEEDINGS

On November 20, 2007, the United States District Court for the Central District of California consolidated two purported securities fraud class action lawsuits brought against the Company, its executive chairman and its former chief administrative officer. The court appointed the combined funds of Laborers’ International Union of North America National (Industrial) Pension and the LIUNA Staff & Affiliates Pension Fund (collectively, the “LIUNA Funds”) as lead plaintiffs. In January 2008, the LIUNA Funds filed a consolidated complaint alleging violations of certain federal securities laws based upon the Company’s and the Company’s officers’ alleged materially false and misleading statements concerning the Company’s compliance with laws and standards applicable to its lead generation business, among other things. The LIUNA Funds purport to represent all persons who purchased or otherwise acquired the common stock of the Company between June 13, 2005 and July 27, 2007, and seek class certification, damages, costs incurred in bringing suit, and equitable/injunctive relief. The Company filed a motion to dismiss this matter in March 2008 and on September 25, 2008, the Court granted defendants’ motion to dismiss. After having their first complaint dismissed by the Court, the LIUNA Funds filed their First Amended Consolidated Complaint on November 24, 2008. The Company has reached a settlement in this matter that is not material to the Company’s consolidated results of operations, financial position or cash flows. This settlement is still subject to final court approval.

On October 31, 2007, plaintiff Susan Lacerenza, a ValueClick shareholder who previously had filed a derivative action in Los Angeles County Superior Court, dismissed that action and re-filed her complaint in the United States District Court for the Central District of California. The operative complaint, brought against nominal defendant ValueClick, Inc. and against individual ValueClick directors and executives (collectively with ValueClick, the “Defendants”), alleges violations of certain federal securities laws, breaches of fiduciary duty, insider trading, and unjust enrichment. The allegations arose from the plaintiff’s claim that ValueClick engaged in illegal and deceptive practices with respect to its lead generation business and that the individual Defendants knowingly disseminated false and misleading financial results. Plaintiff seeks to recoup allegedly improper profits from the individual Defendants and also seeks damages against the individual Defendants for harm allegedly caused to ValueClick. In January 2008, the Company filed a motion to dismiss this matter. Rather than oppose that motion, the plaintiff filed a First Amended Complaint. In February 2008, upon stipulation of the parties, the Court stayed this action in light of the pending federal class action. The Company has reached a settlement in this matter that is not material to the Company’s consolidated results of operations, financial position, or cash flows. This settlement is still subject to final court approval.

On April 8, 2008, Hypertouch, Inc. filed an action in the Superior Court of California, County of Los Angeles, against the Company. The complaint asserts causes of action for violation of California Business & Professions Code §§ 17529.5 and 17200, et seq., arising from the plaintiff’s alleged receipt of a large number of email messages allegedly transmitted by the Company “and/or its agents” and seeks statutory damages for each such email. The Company filed its answer to the complaint on May 28, 2008.  On May 4, 2009, the court granted the Company’s motion for summary judgment which ended the case in this court.  The Company anticipates that Hypertouch will appeal the decision to the court of appeal.

On July 15, 2008, the Company filed a complaint against Tacoda, Inc., a subsidiary of AOL, Inc. in the United States District Court for the Central District of California for patent infringement of U.S. patent numbers 5,848,396 and 5,991,735. The Company is seeking an unspecified amount of damages in addition to injunctive relief.

In March of 2009, Netscape, Inc., a subsidiary of AOL, Inc., filed a complaint in the United States District Court for the Eastern District of Virginia against ValueClick, Inc., Mediaplex, Inc., Commission Junction, Inc., Mezimedia, Inc., Webclients, Inc., and Fastclick, Inc. for alleged patent infringement of U.S. patent number 5,774,670.  The complaint seeks an unspecified amount of damages in addition to injunctive relief.  The Company believes it has valid defenses and intends to defend itself vigorously against these allegations.  On July 23, 2009, the Company defendants filed a cross-complaint against Netscape for, among other things, fraud.

From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights. The Company is not currently a party to any material legal proceedings, except as discussed above, nor is the Company aware of any pending or threatened litigation that would have a material adverse effect on the Company’s business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.

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ITEM 1A. RISK FACTORS

You should carefully consider the following risks before you decide to buy shares of our common stock. This description includes any material changes to and supersedes the description of the risk factors associated with our business previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties, including those risks set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, may also adversely impact and impair our business. If any of the following risks actually occur, our business, results of operations or financial condition would likely suffer. In such case, the trading price of our common stock could decline, and you may lose all or part of the money you paid to buy our stock.

This report contains forward-looking statements based on the current expectations, assumptions, estimates, and projections about us and our industry. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those discussed in these forward-looking statements as a result of certain factors, as more fully described in this section and elsewhere in this report. We do not undertake to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

DETERIORATING MACROECONOMIC CONDITIONS IN THE UNITED STATES HAVE NEGATIVELY IMPACTED OUR BUSINESS AND FURTHER WEAKENING OF MACROECONOMIC CONDITIONS MAY HAVE ADDITIONAL NEGATIVE IMPACTS ON OUR BUSINESS.

In 2008, we began experiencing weakness across most of our business segments in connection with deteriorating macroeconomic conditions in the United States and Europe. Our consolidated revenue and profitability decreased in the first and second quarters of 2009 as compared to the prior year periods.  We currently anticipate that our full year 2009 revenue and cash generated from operations will be less than the 2008 amounts.  We are not able to predict whether general macroeconomic conditions, or conditions in the online advertising industry specifically, will worsen or improve, or the timing of such developments.  If macroeconomic conditions worsen, we are not able to predict the impact such worsening conditions will have on the online marketing industry in general, and our results of operations specifically.  Further, when macroeconomic conditions do improve, there can be no assurances that we will be able to regain the levels of revenue, profitability and positive cash flow that we achieved prior to the macroeconomic downturn.

OUR PROFITABILITY MAY NOT REMAIN AT CURRENT LEVELS

We face risks that could prevent us from achieving our current profitability levels in future periods. These risks include, but are not limited to, our ability to:

· adapt our products, services and cost structure to deteriorating macroeconomic conditions;

· maintain and increase our inventory of advertising space on publisher websites and with email list owners and newsletter publishers;

· maintain and increase the number of advertisers that use our products and services;

· continue to expand the number of products and services we offer and the capacity of our systems;

· adapt to changes in Web advertisers’ promotional needs and policies, and the technologies used to generate Web advertisements;

· respond to challenges presented by the large and increasing number of competitors in the industry;

· respond to challenges presented by the continuing consolidation within our industry;

· adapt to changes in legislation, taxation or regulation regarding Internet usage, advertising and e-commerce;

· adapt to changes in technology related to online advertising filtering software; and

· adapt to changes in the competitive landscape.

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If we are unsuccessful in addressing these or other risks and uncertainties, our business, results of operations and financial condition could be materially and adversely affected.

IF ADVERTISING ON THE INTERNET LOSES ITS APPEAL, OUR REVENUE COULD DECLINE.

Our Media segment accounted for 45% of our revenue for the three-month period ended June 30, 2009 in part by delivering advertisements that generate leads, impressions, click-throughs, and other actions to our advertiser customers’ websites. This business model may not continue to be effective in the future for a number of reasons, including the following: click and conversion rates have always been low and may decline as the number of advertisements and ad formats on the Web increases; Web users can install “filter” software programs which allow them to prevent advertisements from appearing on their computer screens or in their email boxes; Internet advertisements are, by their nature, limited in content relative to other media; companies may be reluctant or slow to adopt online advertising that replaces, limits or competes with their existing direct marketing efforts; companies may prefer other forms of Internet advertising we do not offer, including certain forms of search engine placements; companies may reject or discontinue the use of certain forms of online promotions that may conflict with their brand objectives; companies may not utilize online advertising due to concerns of “click-fraud”, particularly related to search engine placements; regulatory actions may negatively impact certain business practices that we currently rely on to generate a portion of our revenue and profitability; and, perceived lead quality. If the number of companies who purchase online advertising from us does not continue to grow, we may experience difficulty in attracting publishers, and our revenue could decline.

OUR REVENUE COULD DECLINE IF WE FAIL TO EFFECTIVELY MANAGE OUR EXISTING ADVERTISING SPACE AND OUR GROWTH COULD BE IMPEDED IF WE FAIL TO ACQUIRE NEW ADVERTISING SPACE.

Our success depends in part on our ability to effectively manage our existing advertising space. The Web publishers and email list owners that list their unsold advertising space with us are not bound by long-term contracts that ensure us a consistent supply of advertising space, which we refer to as inventory. In addition, Web publishers or email list owners can change the amount of inventory they make available to us at any time. If a Web publisher or email list owner decides not to make advertising space from its websites, newsletters or email lists available to us, we may not be able to replace this advertising space with advertising space from other Web publishers or email list owners that have comparable traffic patterns and user demographics quickly enough to fulfill our advertisers’ requests. This would result in lost revenue.

We expect that our advertiser customers’ requirements will become more sophisticated as the Web continues to mature as an advertising medium. If we fail to manage our existing advertising space effectively to meet our advertiser customers’ changing requirements, our revenue could decline. Our growth depends, in part, on our ability to expand our advertising inventory. To attract new customers, we must maintain a consistent supply of attractive advertising space. Our success relies in part on expanding our advertising inventory by selectively adding new Web publishers and email list owners to our networks that offer attractive demographics, innovative and quality content and growing Web user traffic and email volume. Our ability to attract new Web publishers and email list owners to our networks and to retain Web publishers and email list owners currently in our networks will depend on various factors, some of which are beyond our control. These factors include, but are not limited to: our ability to introduce new and innovative products and services, our ability to efficiently manage our existing advertising inventory, our pricing policies, and the cost-efficiency to Web publishers and email list owners of outsourcing their advertising sales. In addition, the number of competing intermediaries that purchase advertising inventory from Web publishers and email list owners continues to increase. We cannot assure you that the size of our advertising inventory will increase or remain constant in the future.

OUR COMPARISON SHOPPING & SEARCH SEGMENT REVENUE IS SUBJECT TO CUSTOMER CONCENTRATION RISKS. THE LOSS OF ONE OR MORE OF THE MAJOR CUSTOMERS IN OUR COMPARISON SHOPPING & SEARCH SEGMENT COULD SIGNIFICANTLY AND NEGATIVELY IMPACT THE REVENUE AND PROFITABILITY LEVELS OF THIS SEGMENT.

Our comparison shopping & search business generates revenue through a combination of: sponsored search listings placed on our destination websites, merchant relationships, affiliate marketing networks and display advertising on our destination websites. A large portion of the revenue in our comparison shopping & search business is generated via sponsored search listings from major search engines. Factors that could cause these relationships to cease or become significantly reduced in scale include, but are not limited to: the non-renewal of our distribution agreement with one or more of the major search engines; the determination by one or more of the major search engines that consumer traffic received from us does not meet their quality standards (in other words, the traffic is not converting at appropriate rates); and changes in the competitive environment, such as industry consolidation. If our relationships with one or more of the major search

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engines were to cease or become significantly reduced in scale, our revenue and profitability levels could be significantly and negatively impacted.

CHANGES IN HOW WE GENERATE ONLINE CONSUMER TRAFFIC FOR OUR COMPARISON SHOPPING DESTINATION WEBSITES COULD NEGATIVELY IMPACT OUR ABILITY TO MAINTAIN OR GROW THE REVENUE AND PROFITABILITY LEVELS OF OUR COMPARISON SHOPPING & SEARCH SEGMENT.

We generate online consumer traffic for our comparison shopping destination websites using various methods, including: organic traffic, offline marketing campaigns, distribution agreements, search engine marketing (SEM) and search engine optimization (SEO). The current revenue and profitability levels of our Comparison Shopping & Search segment are dependent upon our continued ability to use a combination of these methods to generate online consumer traffic to our websites in a cost-efficient manner. Our SEM and SEO techniques have been developed to work with the existing search algorithms utilized by the major search engines. The major search engines frequently modify their search algorithms. Future changes in these search algorithms could change the mix of the methods we use to generate online consumer traffic for our comparison shopping destination websites and could negatively impact our ability to generate such traffic in a cost-efficient manner, which could result in a significant reduction to the revenue and profitability of our Comparison Shopping & Search segment. There can be no assurances that we will be able to maintain the current mix of online consumer traffic sources for our comparison shopping destination websites or that we will be able to modify our SEM and SEO techniques to address any future search algorithm changes made by the major search engines.  In addition, in 2008, our Comparison Shopping & Search business received feedback from our advertiser partners, including the major search engines, that their conversion rate requirements were increasing in the face of a weakening consumer environment.  To accommodate the higher conversion rate requirements, we have been required to adjust how our comparison shopping destination websites generate online consumer traffic.  These adjustments have resulted in lower volumes of online consumer traffic to our comparison shopping destination websites and a corresponding decrease to the revenue and profitability we are able to generate in our Comparison Shopping and Search segment. There can be no assurances that the conversion rate requirements of our advertiser partners will lessen in the future or that we will be able to regain the levels of revenue and profitability we achieved in our Comparison shopping & search business prior to this increase in conversion rate requirements.

WE MAY FACE INTELLECTUAL PROPERTY ACTIONS THAT ARE COSTLY OR COULD HINDER OR PREVENT OUR ABILITY TO DELIVER OUR PRODUCTS AND SERVICES.

We may be subject to legal actions alleging intellectual property infringement (including patent infringement), unfair competition or similar claims against us. Companies may apply for or be awarded patents or have other intellectual property rights covering aspects of our technologies or businesses. One of the primary competitors of our Search123.com subsidiary, Overture Services, Inc., purports to be the owner of U.S. Patent No. 6,269,361, which was issued on July 31, 2001 and is entitled “System and method for influencing a position on a search result list generated by a computer network search engine.” Overture has aggressively pursued its alleged patent rights by filing lawsuits against other pay-per-click search engine companies such as MIVA and Google. MIVA and Google have asserted counter-claims against Overture including, but not limited to, invalidity, unenforceability and non-infringement. The Company is currently involved in two patent disputes with subsidiaries of AOL, Inc.  On July, 15, 2008, the Company filed a complaint against Tacoda, Inc., a subsidiary of AOL, Inc., in the United States District Court for the for the Central District of California for patent infringement of U.S. patent numbers 5,848,396 and 5,991,735.  In March of 2009, Netscape, Inc. a subsidiary of AOL, Inc., filed a complaint in the United States District Court for the Eastern District of Virginia against ValueClick, Inc., Mediaplex, Inc., Commission Junction, Inc., Mezimedia, Inc. Webclients, Inc. and Fastclick, Inc. for alleged patent infringement of U.S. patent number 5,774,670.  Patent litigation is costly and could require us to change our business practices, could potentially hinder or prevent our ability to deliver our products and services and could divert management’s attention.

IF THE TECHNOLOGY THAT WE CURRENTLY USE TO TARGET THE DELIVERY OF ONLINE ADVERTISEMENTS AND TO PREVENT FRAUD ON OUR NETWORKS IS RESTRICTED OR BECOMES SUBJECT TO REGULATION, OUR EXPENSES COULD INCREASE AND WE COULD LOSE CUSTOMERS OR ADVERTISING INVENTORY.

Websites typically place small files of non-personalized (or “anonymous”) information, commonly known as cookies, on an Internet user’s hard drive. Cookies generally collect information about users on a non-personalized basis to enable websites to provide users with a more customized experience. Cookie information is passed to the website through an Internet user’s browser software. We currently use cookies to track an Internet user’s movement through our advertiser customer’s websites and to monitor and prevent fraudulent activity on our networks. Most currently available Internet browsers allow Internet users to modify their browser settings to prevent cookies from being stored on their hard drive, and some users currently do so. Internet users can also delete cookies from their hard drives at any time. Some Internet

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commentators and privacy advocates have suggested limiting or eliminating the use of cookies, and legislation has been introduced in some jurisdictions to regulate the use of cookie technology. The effectiveness of our technology could be limited by any reduction or limitation in the use of cookies. If the use or effectiveness of cookies were limited, we expect that we would need to switch to other technologies to gather demographic and behavioral information. While such technologies currently exist, they are substantially less effective than cookies. We also expect that we would need to develop or acquire other technology to monitor and prevent fraudulent activity on our networks. Replacement of cookies could require significant reengineering time and resources, might not be completed in time to avoid losing customers or advertising inventory, and might not be commercially feasible. Our use of cookie technology or any other technologies designed to collect Internet usage information may subject us to litigation or investigations in the future. Any litigation or government action against us could be costly and time consuming, could require us to change our business practices and could divert management’s attention.

IF WE FAIL TO COMPETE EFFECTIVELY AGAINST OTHER INTERNET ADVERTISING COMPANIES, WE COULD LOSE CUSTOMERS OR ADVERTISING INVENTORY AND OUR REVENUE AND RESULTS OF OPERATIONS COULD DECLINE.

The Internet advertising markets are characterized by rapidly changing technologies, evolving industry standards, frequent new product and service introductions, and changing customer demands. The introduction of new products and services embodying new technologies and the emergence of new industry standards and practices could render our existing products and services obsolete and unmarketable or require unanticipated technology or other investments. Our failure to adapt successfully to these changes could harm our business, results of operations and financial condition.

The market for Internet advertising and related products and services is highly competitive. We expect this competition to continue to increase, in part because there are no significant barriers to entry to our industry. Increased competition may result in price reductions for advertising space, reduced margins and loss of market share. Our principal competitors include other companies that provide advertisers with Internet advertising solutions and companies that offer pay-per-click search services. We compete in the performance-based marketing segment with CPL and CPA performance-based companies, such as Platform-A (owned by AOL), Google Affiliate Network, Trade Doubler, and Linkshare (owned by Rakuten), and we compete with other large Internet display advertising networks.  In addition, we compete in the online comparison shopping market with focused comparison shopping websites such as Shopping.com (owned by eBay), Kelkoo, NexTag, Shopzilla (owned by EW Scripps), and Pricegrabber (owned by Experian), and with search engines and portals such as Yahoo!, Google and MSN, and with online retailers such as Amazon.com and eBay. Large websites with brand recognition, such as Yahoo!, Google, AOL and MSN, have direct sales personnel and substantial proprietary online advertising inventory that provide significant competitive advantages compared to our networks, and they have a significant impact on pricing for online advertising overall. These companies have longer operating histories, greater name recognition and have greater financial, technical, sales, and marketing resources than we have. Further, Google, Yahoo! and Microsoft have made acquisitions to put them in direct competition with a number of our offerings.

Competition for advertising placements among current and future suppliers of Internet navigational and informational services, high-traffic websites and Internet service providers (“ISPs”), as well as competition with other media for advertising placements, could result in significant price competition, declining margins and reductions in advertising revenue. In addition, as we continue our efforts to expand the scope of our Web services, we may compete with a greater number of Web publishers and other media companies across an increasing range of different Web services, including in vertical markets where competitors may have advantages in expertise, brand recognition and other areas. If existing or future competitors develop or offer products or services that provide significant performance, price, creative or other advantages over those offered by us, our business, results of operations and financial condition could be negatively affected. We also compete with traditional advertising media, such as direct mail, television, radio, cable, and print, for a share of advertisers’ total advertising budgets. Many current and potential competitors enjoy competitive advantages over us, such as longer operating histories, greater name recognition, larger customer bases, greater access to advertising space on high-traffic websites, and significantly greater financial, technical, sales, and marketing resources. As a result, we may not be able to compete successfully. If we fail to compete successfully, we could lose customers or advertising inventory and our revenue and results of operations could decline.

OUR REVENUE AND RESULTS OF OPERATIONS COULD BE NEGATIVELY IMPACTED IF INTERNET USAGE AND THE DEVELOPMENT OF INTERNET INFRASTRUCTURE DO NOT CONTINUE TO GROW.

Our business and financial results will depend on continued growth in the use of the Internet. Internet usage may be inhibited for a number of reasons, such as: inadequate network infrastructure; security concerns; inconsistent quality of service; governmental regulation; and, unavailability of cost-effective, high-speed service.

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If Internet usage continues to grow, our infrastructure may not be able to support the demands placed on it, and our performance and reliability may decline. In addition, websites have experienced interruptions in their service as a result of outages and other delays occurring throughout the Internet network infrastructure, and as a result of sabotage, such as electronic attacks designed to interrupt service on many websites. The Internet could lose its viability as a commercial medium due to reasons including increased governmental regulation or delays in the development or adoption of new technologies required to accommodate increased levels of Internet activity. If use of the Internet does not continue to grow, or if the Internet infrastructure does not effectively support our growth, our revenue and results of operations could be materially and adversely affected.

WE DEPEND ON KEY PERSONNEL, THE LOSS OF WHOM COULD HARM OUR BUSINESS.

The success of the Company depends in part on the retention of personnel critical to our combined business operations due to, for example, unique technical skills, management expertise or key business relationships. We may be unable to retain existing management, finance, engineering, sales, customer support, and operations personnel that are critical to the success of the Company, which may result in disruption of operations, loss of key business relationships, information, expertise or know-how, unanticipated additional recruitment and training costs, and diminished anticipated benefits of acquisitions, including loss of revenue and profitability.

Our future success is substantially dependent on the continued service of our key senior management. Our employment agreements with our key personnel are short-term and on an at-will basis. We do not have key-person insurance on any of our employees. The loss of the services of any member of our senior management team, or of any other key employees, could divert management’s time and attention, increase our expenses and adversely affect our ability to conduct our business efficiently. Our future success also depends on our continuing ability to attract, retain and motivate highly skilled employees. We may be unable to retain our key employees or attract, retain and motivate other highly qualified employees in the future. We have experienced difficulty from time to time in attracting or retaining the personnel necessary to support the growth of our business, and may experience similar difficulties in the future.

DELAWARE LAW AND OUR STOCKHOLDER RIGHTS PLAN CONTAIN ANTI-TAKEOVER PROVISIONS THAT COULD DETER TAKEOVER ATTEMPTS THAT COULD BE BENEFICIAL TO OUR STOCKHOLDERS.

Provisions of Delaware law could make it more difficult for a third-party to acquire us, even if doing so would be beneficial to our stockholders. Section 203 of the Delaware General Corporation Law may make the acquisition of the Company and the removal of incumbent officers and directors more difficult by prohibiting stockholders holding 15% or more of our outstanding voting stock from acquiring the Company, without our board of directors’ consent, for at least three years from the date they first hold 15% or more of the voting stock. In addition, our Stockholder Rights Plan has significant anti-takeover effects by causing substantial dilution to a person or group that attempts to acquire us on terms not approved by our board of directors.

SYSTEM FAILURES COULD SIGNIFICANTLY DISRUPT OUR OPERATIONS, WHICH COULD CAUSE US TO LOSE CUSTOMERS OR ADVERTISING INVENTORY.

Our success depends on the continuing and uninterrupted performance of our systems. Sustained or repeated system failures that interrupt our ability to provide services to customers, including failures affecting our ability to deliver advertisements quickly and accurately and to process visitors’ responses to advertisements, would reduce significantly the attractiveness of our solutions to advertisers and Web publishers. Our business, results of operations and financial condition could also be materially and adversely affected by any systems damage or failure that impacts data integrity or interrupts or delays our operations. Our computer systems are vulnerable to damage from a variety of sources, including telecommunications failures, power outages, malicious or accidental human acts, and natural disasters. We lease data center space in various locations in northern and southern California; Mechanicsburg, Pennsylvania; Stockholm, Sweden; and Shanghai, China. Therefore, any of the above factors affecting any of these areas could substantially harm our business. Moreover, despite network security measures, our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems in part because we cannot control the maintenance and operation of our third-party data centers. Despite the precautions taken, unanticipated problems affecting our systems could cause interruptions in the delivery of our solutions in the future and our ability to provide a record of past transactions. Our data centers and systems incorporate varying degrees of redundancy. All data centers and systems may not automatically switch over to their redundant counterpart. Our insurance policies may not adequately compensate us for any losses that may occur due to any failures in our systems.

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IT MAY BE DIFFICULT TO PREDICT OUR FINANCIAL PERFORMANCE BECAUSE OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE.

Our revenue and operating results may vary significantly from quarter to quarter due to a variety of factors, many of which are beyond our control. You should not rely on period-to-period comparisons of our results of operations as an indication of our future performance. Our results of operations have fallen below the expectations of market analysts and our own forecasts in the past and may also do so in some future periods. If this happens, the market price of our common stock may fall significantly. The factors that may affect our quarterly operating results include, but are not limited to, the following:

· macroeconomic conditions in the United States and Europe;

· fluctuations in demand for our advertising solutions or changes in customer contracts;

· fluctuations in click, lead, action, impression, and conversion rates;

· fluctuations in the amount of available advertising space, or views, on our networks;

· the timing and amount of sales and marketing expenses incurred to attract new advertisers;

· fluctuations in sales of different types of advertising; for example, the amount of advertising sold at higher rates rather than lower rates;

· fluctuations in the cost of online advertising;

· seasonal patterns in Internet advertisers’ spending;

· fluctuations in our stock price which may impact the amount of stock-based compensation we are required to record;

· changes in our pricing and publisher compensation policies, the pricing and publisher compensation policies of our competitors, the pricing and publisher compensation policies of our advertiser customers, or the pricing policies for advertising on the Internet generally;

· changes in the regulatory environment, including regulation of advertising on the Internet, that may negatively impact our marketing practices;

· possible impairments of the recorded amounts of goodwill, intangible assets, or other long-lived assets;

· the timing and amount of expenses associated with litigation, regulatory investigations or restructuring activities, including settlement costs and regulatory penalties assessed related to government enforcement actions;

· the adoption of new accounting pronouncements, or new interpretations of existing accounting pronouncements, that impact the manner in which we account for, measure or disclose our results of operations, financial position or other financial measures;

· the loss of, or a significant reduction in business from, large customers resulting from, among other factors, the exercise of a cancellation clause within a contract, the non-renewal of a contract or an advertising insertion order, or shifting business to a competitor when the lack of an exclusivity clause exists;

· fluctuations in levels of professional services fees or the incurrence of non-recurring costs;

· deterioration in the credit quality of our accounts receivable and an increase in the related provision;

· impairments on our marketable securities due to, among other factors, issuer-specific difficulties or dislocations in the credit markets in the United States;

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· changes in tax laws or our interpretation of tax laws, changes in our effective income tax rate or the settlement of certain tax positions with tax authorities as a result of a tax audit; and

· costs related to acquisitions of technologies or businesses.

Expenditures by advertisers also tend to be cyclical, reflecting overall economic conditions as well as budgeting and buying patterns. Any decline in the economic prospects of advertisers or the economy generally may alter advertisers’ current or prospective spending priorities, or may increase the time it takes us to close sales with advertisers, and could materially and adversely affect our business, results of operations and financial condition.

IF WE DO NOT SUCCESSFULLY EXECUTE OUR INTERNATIONAL STRATEGY, OUR REVENUE, RESULTS OF OPERATIONS AND THE GROWTH OF OUR BUSINESS COULD BE HARMED.

We initiated operations, through wholly-owned subsidiaries or divisions, in the United Kingdom in 1999, France and Germany in 2000, Sweden in 2004, Japan and China in 2007, and Spain and Ireland in 2008. Our international expansion and the integration of international operations present unique challenges and risks to our company, and require management attention. Our foreign operations subject us to foreign currency exchange rate risks and we currently do not utilize hedging instruments to mitigate foreign currency exchange rate risks.

Our continued international expansion will subject us to additional foreign currency exchange rate risks and will require additional management attention and resources. We cannot assure you that we will be successful in our international expansion and operations efforts. Our international operations and expansion subject us to other inherent risks, including, but not limited to:

· the impact of recessions in economies outside of the United States;

· changes in and differences between regulatory requirements between countries;

· U.S. and foreign export restrictions, including export controls relating to encryption technologies;

· reduced protection for and enforcement of intellectual property rights in some countries;

· potentially adverse tax consequences;

· difficulties and costs of staffing and managing foreign operations;

· political and economic instability;

· tariffs and other trade barriers; and

· seasonal reductions in business activity.

Our failure to address these risks adequately could materially and adversely affect our business, revenue, results of operations and financial condition.

WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY FROM UNAUTHORIZED USE, WHICH COULD DIMINISH THE VALUE OF OUR PRODUCTS AND SERVICES, WEAKEN OUR COMPETITIVE POSITION AND REDUCE OUR REVENUE.

Our success depends in large part on our proprietary technologies, including tracking management software, our affiliate marketing technologies, our display advertising technologies, our lead generation technologies, our comparison shopping and search technologies, and our MOJO platform. In addition, we believe that our trademarks are key to identifying and differentiating our products and services from those of our competitors. We may be required to spend significant resources to monitor and police our intellectual property rights. If we fail to successfully enforce our intellectual property rights, the value of our products and services could be diminished and our competitive position may suffer.

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We rely on a combination of copyright, trademark and trade secret laws, confidentiality procedures and licensing arrangements to establish and protect our proprietary rights. Third-party software providers could copy or otherwise obtain and use our technologies without authorization or develop similar technologies independently, which may infringe upon our proprietary rights. We may not be able to detect infringement and may lose competitive position in the market before we do so. In addition, competitors may design around our technologies or develop competing technologies. Intellectual property protection may also be unavailable or limited in some foreign countries.

We generally enter into confidentiality or license agreements with our employees, consultants, vendors, customers, and corporate partners, and generally control access to and distribution of our technologies, documentation and other proprietary information. Despite these efforts, unauthorized parties may attempt to disclose, obtain or use our products and services or technologies. Our precautions may not prevent misappropriation of our products, services or technologies, particularly in foreign countries where laws or law enforcement practices may not protect our proprietary rights as fully as in the United States.

GOVERNMENT ENFORCEMENT ACTIONS, CHANGES IN GOVERNMENT REGULATION AND INDUSTRY STANDARDS, INCLUDING, BUT NOT LIMITED TO, PROMOTION-BASED LEAD GENERATION MARKETING, SPYWARE, PRIVACY AND EMAIL MATTERS, COULD DECREASE DEMAND FOR OUR PRODUCTS AND SERVICES AND INCREASE OUR COSTS OF DOING BUSINESS.

Laws and regulations that apply to Internet communications, commerce and advertising are becoming more prevalent. These regulations could affect the costs of communicating on the Web and could adversely affect the demand for our advertising solutions or otherwise harm our business, results of operations and financial condition. The United States Congress has enacted Internet legislation regarding children’s privacy, copyrights, sending of commercial email (e.g., the Federal CAN-SPAM Act of 2003), and taxation. The United States Congress has passed legislation regarding spyware (i.e., H.R. 964, the “Spy Act of 2007”) and the New York Attorney General’s office has sued a major Internet marketer for alleged violations of legal restrictions against false advertising and deceptive business practices related to spyware. The Federal Trade Commission (“FTC”) conducted an investigation into certain ValueClick websites which promise consumers a free gift of substantial value, and the manner in which the Company drives traffic to such websites, in particular through email. In the first quarter of 2008, the Company agreed to a stipulated injunction with the FTC resolving this matter. The injunction makes clear that it constitutes no finding of any impermissible conduct by the company in the past under preexisting FTC regulations then in effect. But the injunction also imposes new FTC guidelines for promotional lead generation activities, consistent with the approach that the agency has recently begun to apply to the company’s competitors. Compliance with these new FTC guidelines may adversely affect our ability to operate in the lead generation sector. In addition, the FTC has recently issued its report on Self-Regulatory Principles for Online Behavioral Advertising which promotes principles designed to encourage meaningful self-regulation with regard to online behavioral advertising within the industry, however its message strongly encourages that industry participants come up with more meaningful and rigorous self-regulation or invites legislation by states, Congress or a more regulatory approach by the FTC. Such legislation or increased regulatory approach, including legislation by Congress or guidelines by the FTC that may require consumers to “opt-in” before any data is collected about their web viewing behavior, may adversely affect our ability to grow the Company’s media division and effectively grow its behavioral targeting platform.  Other laws and regulations have been adopted and may be adopted in the future, and may address issues such as user privacy, spyware, “do not email” lists, pricing, intellectual property ownership and infringement, copyright, trademark, trade secret, export of encryption technology, click-fraud, acceptable content, search terms, lead generation, behavioral targeting, taxation, and quality of products and services. This legislation could hinder growth in the use of the Web generally and adversely affect our business. Moreover, it could decrease the acceptance of the Web as a communications, commercial and advertising medium. The Company does not use any form of spam or spyware and has policies to prohibit abusive Internet behavior, including prohibiting the use of spam and spyware by our Web publisher partners.

Due to the global nature of the Web, it is possible that, although our transmissions originate in California, Pennsylvania, England, Sweden, and China, the governments of other states or foreign countries might attempt to regulate our transmissions or levy sales or other taxes relating to our activities. In addition, the growth and development of the market for Internet commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad, that may impose additional burdens on companies conducting business over the Internet. The laws governing the Internet remain largely unsettled, even in areas where there has been some legislative action. It may take years to determine how existing laws, including those governing intellectual property, privacy, libel and taxation, apply to the Internet and Internet advertising. Our business, results of operations and financial condition could be materially and adversely affected by the adoption or modification of industry standards, laws or regulations relating to the Internet, or the application of existing laws to the Internet or Internet-based advertising.

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WE COULD BE SUBJECT TO LEGAL CLAIMS, GOVERNMENT ENFORCEMENT ACTIONS AND DAMAGE TO OUR REPUTATION AND HELD LIABLE FOR OUR OR OUR CUSTOMERS’ FAILURE TO COMPLY WITH FEDERAL, STATE AND FOREIGN LAWS, REGULATIONS OR POLICIES GOVERNING CONSUMER PRIVACY, WHICH COULD MATERIALLY HARM OUR BUSINESS.

Recent growing public concern regarding privacy and the collection, distribution and use of information about Internet users has led to increased federal, state and foreign scrutiny and legislative and regulatory activity concerning data collection and use practices. The United States Congress currently has pending legislation regarding privacy and data security measures (e.g., S. 495, the “Personal Data Privacy and Security Act of 2007”). Any failure by us to comply with applicable federal, state and foreign laws and the requirements of regulatory authorities may result in, among other things, indemnification liability to our customers and the advertising agencies we work with, administrative enforcement actions and fines, class action lawsuits, cease and desist orders, and civil and criminal liability. Recently, class action lawsuits have been filed alleging violations of privacy laws by ISPs. The European Union’s directive addressing data privacy limits our ability to collect and use information regarding Internet users. These restrictions may limit our ability to target advertising in most European countries. Our failure to comply with these or other federal, state or foreign laws could result in liability and materially harm our business.

In addition to government activity, privacy advocacy groups and the technology and direct marketing industries are considering various new, additional or different self-regulatory standards. This focus, and any legislation, regulations or standards promulgated, may impact us adversely. Governments, trade associations and industry self-regulatory groups may enact more burdensome laws, regulations and guidelines, including consumer privacy laws, affecting our customers and us. Since many of the proposed laws or regulations are just being developed, and a consensus on privacy and data usage has not been reached, we cannot yet determine the impact these proposed laws or regulations may have on our business. However, if the gathering of profiling information were to be curtailed, Internet advertising would be less effective, which would reduce demand for Internet advertising and harm our business.

Third parties may bring class action lawsuits against us relating to online privacy and data collection. We disclose our information collection and dissemination policies, and we may be subject to claims if we act or are perceived to act inconsistently with these published policies. Any claims or inquiries could be costly and divert management’s attention, and the outcome of such claims could harm our reputation and our business.

Our customers are also subject to various federal and state laws concerning the collection and use of information regarding individuals. These laws include the Children’s Online Privacy Protection Act, the Federal Drivers Privacy Protection Act of 1994, the privacy provisions of the Gramm-Leach-Bliley Act, the Federal CAN-SPAM Act of 2003, as well as other laws that govern the collection and use of consumer credit information. We cannot assure you that our customers are currently in compliance, or will remain in compliance, with these laws and their own privacy policies. We may be held liable if our customers use our technologies in a manner that is not in compliance with these laws or their own stated privacy policies.

OUR STOCK PRICE IS LIKELY TO BE VOLATILE AND COULD DROP UNEXPECTEDLY.

Our common stock has been publicly traded since March 30, 2000. The market price of our common stock has been subject to significant fluctuations since the date of our initial public offering.

The stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices of securities, particularly securities of technology companies. As a result, the market price of our common stock may materially decline, regardless of our operating performance. In the past, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against that company. We are currently involved in this type of litigation, which arose shortly after our stock price dropped significantly during the third quarter of 2007. Litigation of this type is often expensive and diverts management’s attention and resources.

SEVERAL STATES HAVE IMPLEMENTED OR PROPOSED REGULATIONS THAT IMPOSE SALES TAX ON CERTAIN ECOMMERCE TRANSACTIONS INVOLVING THE USE OF AFFILIATE MARKETING PROGRAMS.

Certain states, including New York, have enacted regulations that require advertisers to collect and remit sales taxes on sales made to residents of those states if the affiliate/publisher who facilitated that sale is a resident thereof. In addition, several other states have proposed similar regulations. While these enacted sales tax requirements have

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not had a material impact on the Company’s Affiliate Marketing segment results of operations, the Company is unable to determine the impact on its Affiliate Marketing business if other states adopt similar requirements.

WE MAY BE REQUIRED TO RECORD A SIGNIFICANT CHARGE TO EARNINGS IF OUR GOODWILL OR AMORTIZABLE INTANGIBLE ASSETS BECOME IMPAIRED.

As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, we recorded an impairment charge as of December 31, 2008 related to our goodwill and amortizable intangible assets totaling $322 million.  As of June 30, 2009, we have $172.6 million and $67.8 million of goodwill and amortizable intangible assets, respectively, remaining.

We perform our annual impairment analysis of goodwill as of December 31 of each year, or sooner if we determine there are indicators of impairment, in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). Under SFAS 142, the impairment analysis of goodwill must be based on estimated fair values. The determination of fair values requires assumptions and estimates of many critical factors, including, but not limited to: expected operating results; macroeconomic conditions; the Company’s stock price; earnings multiples implied in acquisitions in the online marketing industry; industry analyst expectations; and the discount rates used in the discounted cash flow analysis. We are required to perform our next goodwill impairment analysis at December 31, 2009.  If macroeconomic conditions deteriorate further in 2009 or our stock price experiences further declines, we may be required to record additional impairment charges in the future.

We are also required under accounting principles generally accepted in the United States of America to review our amortizable intangible assets for impairment whenever events and circumstances indicate that the carrying value of such assets may not be recoverable. We may be required to record a significant charge to earnings in a period in which any impairment of our goodwill or amortizable intangible assets is determined.

WE MAY INCUR LIABILITIES TO TAX AUTHORITIES IN EXCESS OF AMOUNTS THAT HAVE BEEN ACCRUED WHICH MAY ADVERSELY IMPACT OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

As more fully described in note 10 “Income Taxes” to our consolidated financial statements, we have recorded significant income tax liabilities. The preparation of our consolidated financial statements requires estimates of the amount of income tax that will become payable in each of the jurisdictions in which we operate. We may be challenged by the taxing authorities in these jurisdictions and, in the event that we are not able to successfully defend our position, we may incur significant additional income tax liabilities and related interest and penalties which may have an adverse impact on our results of operations and financial condition.

IF WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROLS, WE MAY NOT BE ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS OR PREVENT FRAUD AND OUR BUSINESS MAY BE HARMED AND OUR STOCK PRICE MAY BE ADVERSELY IMPACTED.

Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. Any inability to provide reliable financial reports or to prevent fraud could harm our business. The Sarbanes-Oxley Act of 2002 requires management to evaluate and assess the effectiveness of our internal control over financial reporting. We determined that our internal control over financial reporting was effective as of December 31, 2008. In order to continue to comply with the requirements of the Sarbanes-Oxley Act, we are required to continuously evaluate and, where appropriate, enhance our policies, procedures and internal controls. If we fail to maintain the adequacy of our internal controls, we could be subject to litigation or regulatory scrutiny and investors could lose confidence in the accuracy and completeness of our financial reports. We cannot assure you that in the future we will be able to fully comply with the requirements of the Sarbanes-Oxley Act or that management will conclude that our internal control over financial reporting is effective. If we fail to fully comply with the requirements of the Sarbanes-Oxley Act, our business may be harmed and our stock price may decline.

DECREASED EFFECTIVENESS OF EQUITY COMPENSATION COULD ADVERSELY AFFECT OUR ABILITY TO ATTRACT AND RETAIN EMPLOYEES AND HARM OUR BUSINESS.

We have historically used stock options as a key component of our employee compensation program in order to align employees’ interests with the interests of our stockholders, encourage employee retention, and provide competitive compensation packages. Volatility or lack of positive performance in our stock price may adversely affect our ability to retain key employees, many of whom have been granted stock options, or to attract additional highly-qualified personnel. As of

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June 30, 2009, a majority of our outstanding employee stock options have exercise prices in excess of the stock price on that date. To the extent this continues to occur, our ability to retain employees may be adversely affected. Moreover, applicable NASDAQ listing standards relating to obtaining stockholder approval of equity compensation plans could make it more difficult or expensive for us to grant stock options or other stock-based awards to employees in the future. As a result, we may incur increased compensation costs, change our equity compensation strategy or find it difficult to attract, retain and motivate employees, any of which could materially, adversely affect our business.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a)The Annual Meeting of Stockholders was held on April 16, 2009 in Westlake Village, California.

(b)Proxies for the Annual Meeting of Stockholders were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934. There was no solicitation in opposition to the director nominees as listed in the proxy statement, and all such nominees were elected. At the Annual Meeting of Stockholders, our stockholders elected each of the following director nominees as directors, to serve on our board of directors until the next Annual Meeting of Stockholders and until their successors have been duly elected and qualified. The vote for each director was as follows:

Name	For	Withheld
James R. Zarley	48,358,996	28,811,441
David S. Buzby	42,041,496	35,128,941
Martin T. Hart	41,677,002	35,493,435
Tom A. Vadnais	49,151,546	28,018,891
Jeffrey F. Rayport	43,177,727	33,992,710
James R. Peters	43,313,794	33,856,643
James A. Crouthamel	32,744,516	44,425,921

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

(a)           Exhibits:

Exhibit Number	Exhibit Description
31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 7, 2009
31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 7, 2009
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 U.S.C. § 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated August 7, 2009

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	VALUECLICK, INC. (Registrant)
	By:	/s/ JOHN PITSTICK
		John Pitstick
		Chief Financial Officer
		(Principal Financial and Accounting Officer and Duly Authorized Officer)
Dated: August 7, 2009

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