Investors are cautioned that certain statements contained in this Report, as well as some statements by us in periodic press releases and other public disclosures and some oral statements by us to securities analysts and stockholders during presentations, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). Forward-looking statements give management's expectations about the future and are not guarantees of performance. Words like "believe," "expect," "anticipate," "promise," "plan" and other expressions or words of similar meaning, as well as future or conditional verbs such as "will," "would," "should," "could," or "may," are generally intended to identify forward-looking statements. Generally, forward-looking statements include projections of our revenues, income, earnings per share, capital structure, or other financial items; descriptions of our plans or objectives for future operations, products or services; forecasts of our future economic performance, interest rates, profit margins and our share of future markets; and descriptions of assumptions underlying or relating to any of the foregoing. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about our operations and economic and market factors, among other things. Such factors, many of which are beyond our control, could cause actual results and timing of selected events to differ materially from management's expectations.

Given such risks and uncertainties, investors are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date they are made. We undertake no obligation to revise or update such statements. Please see our periodic reports and other filings with the Securities and Exchange Commission, or SEC, for further discussion of risks and uncertainties applicable to our business.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Report. References in this Report to "we," "our," "the Company" and "Internet Bands" refer to Internet Brands, Inc. and its consolidated subsidiaries, unless otherwise indicated.

Overview

We are an Internet media company that owns, operates and grows branded websites in categories marked by high consumer involvement, strong advertising spending, and significant fragmentation in offline sources of consumer information. In addition to the vertical categories which we have historically operated, we have recently expanded to include a category in money & business. With this expansion, our rapidly growing network of websites are now grouped into six vertical categories: automotive, careers, home, money & business, shopping, and travel & leisure. The websites in our new money & business vertical are targeted to consumers to help them make decisions regarding their finances, as well as provide them with tools to research and compare various financial products such as mortgages and credit cards.

We believe that as individuals increasingly use the Internet to pursue and share areas of passion, research topics of interest, and make purchases, both individuals and the advertisers who seek to market to them will demand access to online media in the form of vertical websites like ours. Vertical websites provide highly targeted content focused on specific categories of products and services. In March 2009, our websites attracted 49.1 million unique visitors, an increase of approximately 44% from 34.0 million unique visitors in March 2008, and 796 million page views, an increase of approximately 74% from 458 million page views in March 2008. Our growing network includes a major automotive ecommerce website in CarsDirect.com, over 95 online automotive enthusiast communities, recognized sites in the careers category (such as ModelMayhem.com and GrooveJob.com), popular home-related websites (including ApartmentRatings.com and DoItYourself.com), content rich websites in the money & business category (including FinWeb.com and Loan.com), established sites in the shopping category (including UltimateCoupons.com and BensBargains.net) and significant community websites in the travel & leisure category (such as Wikitravel.org and FlyerTalk.com).

We operate more than 80 websites that received in excess of 100,000 unique visitors during the month of March 2009, which are hereafter referred to as "principal websites." Our international audiences account for approximately 25% of total monthly visitors to our websites in March 2009. Throughout this report, we use Google analytics measurement services to report Internet audience metrics. The measurement term "monthly unique visitors" refers to the total number of unique users (a user is defined as a unique IP address) who visit one of our websites in a given month. We measure the total number of unique visitors to our websites by adding the number of unique visitors to each of our websites in a given month. The term "monthly visitors" is defined as the total number of user-initiated sessions with our websites within a month. "Page views" refers to the number of website pages that are requested by and displayed to our users. Traffic calculations in March 2009 include websites acquired in March 2009 on a pro forma basis.

We also license our content and Internet technology products and services to major companies and individual website owners around the world. Our subsidiaries, Autodata Solutions, Inc. and Autodata Solutions Company, are suppliers of licensed content and technology services to the automotive industry, serving most of the major U.S., Japanese and European automotive manufacturers. Throughout this report, we refer to the business of Autodata Solutions, Inc. and Autodata Solutions Company as the "Autodata Solutions division." We also own Jelsoft Enterprises Limited, the developer of vBulletin, the largest licensor of proprietary community bulletin board software.

During the period from January 1, 2009 through March 31, 2009, we completed four website-related acquisitions in our Consumer Internet segment for an aggregate purchase price of $1.3 million. We expect to continue to grow our business by acquiring additional websites and improving our existing websites through the application of our operating platform. We have historically been able to deploy capital for acquisitions efficiently, and then integrate acquired websites onto our platform quickly and effectively. Although we believe we will continue to identify, negotiate and purchase websites that meet our operating platform criteria, we cannot predict whether we can continue to purchase websites at the same rate and on similarly favorable terms.

Automotive Industry Developments

Sales of some of our automotive-related products and services depend on agreements and relationships with automotive manufacturers and dealerships. Due to the pronounced impact of the global recession on the automotive industry, many automotive manufacturers are financially distressed, and the U.S. headquartered manufacturers in particular. The U.S. government has provided financial assistance to some of these manufacturers including Chrysler LLC and General Motors Corp. On April 30, 2009, Chrysler LLC filed for protection under Chapter 11 of the U.S. Bankruptcy Act. As of March 31, 2009, we have Licensing Division accounts receivable of $2.2 million related to General Motors, Chrysler and Ford. These manufacturers are current with their accounts receivable balances as of March 31, 2009, and we continue to closely monitor developments, particularly in the Chrysler LLC bankruptcy.

Our Revenues

We derive our revenues from two segments: Consumer Internet and Licensing. In our Consumer Internet segment, our revenues are primarily derived from advertisers. In our Licensing segment, our revenues are derived from the licensing of data and technology tools and services to automotive manufacturers and proprietary software for website communities.

Consumer Internet Revenues

Our Consumer Internet segment generates revenues through sales of online advertising in various monetization formats such as cost per lead (CPL), cost per thousand impressions (CPM), cost per click (CPC), cost per action (CPA) and flat fees. Under the CPL model, our advertiser customers pay for leads generated through our websites and accepted by the customer. Under the CPM format, advertisers pay a fee for displays of their graphical advertisements, typically at an incremental rate per thousand displays or "impressions." Under the CPC model, we earn revenue based on "click-throughs" on text-based links displayed on our websites, which occur when a user clicks on an advertiser's listing. We derive revenues on a CPC model through direct sales to advertisers, as well as through various third-party advertising networks, such as Google, Yahoo! and Tribal Fusion, for which we receive a negotiated percentage of their advertising revenues. Under the CPA format, we earn revenue for consumer transactions undertaken through our websites. As consumer and advertiser preferences continue to evolve and our website audiences grow, we expect to continue to diversify our revenue sources and mix on our websites to address those changing needs and optimize our revenue yields.

Licensing Revenues

We license customized products, services and automotive vehicle marketing data to most major U.S., Japanese and European automotive manufacturers and other online automotive service providers. Customers typically enter into multi-year licensing and technology development agreements for these products and services, which include market analytics, product planning, vehicle configuration, management and order placement, in-dealership retail systems and consumer-facing websites. We also sell and license vBulletin Internet software to U.S. and international website owners. vBulletin revenues are primarily derived from software license purchases and leasing for a flat fee, as well as annual maintenance fees for customer support and software updates.

Expenses

The largest component of our expenses is personnel. Personnel costs include salaries and benefits for our employees, commissions for our sales staff and stock-based compensation, which are categorized in our statements of operations based on each employee's principal function (i.e. Sales and Marketing, Technology or General and Administrative). Cost of revenues primarily

consist of development costs, including personnel costs, related to the licensing business, marketing costs directly related to the fulfillment of specific customer advertising orders and costs of hosting our websites. Sales and marketing expenses include both personnel and online marketing costs. General and administrative expenses include personnel, audit, tax and legal fees, insurance and facilities costs.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the amounts reported in our financial statements and the accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. We believe the following accounting policies to be the most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

We recognize revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 104, "Revenue Recognition." Revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectibility of the resulting receivable is reasonably assured. Our revenues are derived from our Consumer Internet and Licensing segments.

Consumer Internet

· Consumer Internet segment revenue is earned from online advertising sales on a cost per impression (CPM), cost per click (CPC), cost per lead (CPL), cost per action (CPA) or flat-fee basis.

· We earn CPM revenue from the display of graphical advertisements. An impression is delivered when an advertisement appears in pages viewed by users. Revenue from graphical advertisement impressions is recognized based on the actual impressions delivered in the period.

· Revenue from the display of text-based links to the websites of our advertisers is recognized on a CPC basis, and search advertising is recognized as "click-throughs" occur. A "click-through" occurs when a user clicks on an advertiser's link.

· Revenue from advertisers on a CPL basis is recognized in the period the leads are accepted by the dealer or mortgage lender, following the execution of a service agreement and commencement of the services. Service agreements generally have a term of twelve months or less.

· New car brokerage revenue and the related auto-financing brokerage revenue and after-market sales revenue are recognized on a CPA basis. Similar to a sales commission, this brokerage revenue is recognized on a net basis in accordance with Emerging Issue Task Force (EITF) Issue No. 99-19, "Reporting Revenue Gross as a Principal Versus Net as an Agent." As contrasted to the gross revenue a car dealership would typically report, we report brokerage revenue on a net basis as we do not bear inventory or credit risk, are not involved in the specification of the product and do not change the product or perform part of the services.

· Revenue from flat-fee, listings-based services are based on a customer's subscription to the service for up to twelve months and are recognized on a straight-line basis over the term of the subscription.

Licensing

We enter into contractual arrangements with customers to license software and content products to develop customized software; revenue is earned from software licenses, content syndication, maintenance fees and consulting services. Agreements with these customers are typically for multi-year periods. For each arrangement, revenue is recognized when both parties have signed an agreement, the fees to be paid by the customer are fixed or determinable, collection of the fees is probable, delivery of the product has occurred, and no other significant obligations on our part remain. We do not offer a right of return on these products.

Software-related revenue is accounted for in accordance with the American Institute of Certified Public Accountants' (AICPA) Statement of Position (SOP) No. 97-2, "Software Revenue Recognition," and interpretations thereof. Post-implementation development and enhancement services are not sold separately; the revenue and all related costs of these arrangements are deferred until the commencement of the applicable license period. Revenue is recognized ratably over the term of the license; deferred costs are amortized over the same period as the revenue is recognized.

Fees for stand-alone and post-implementation development and enhancement services are fixed-bid and determined based on estimated effort and client billing rates since we can reasonably estimate the required effort to complete each project or each milestone within the project. There are no non-software deliverables and the functionality delivered is specific to a customer's previously licensed application. Recognition of the revenue and all related costs of these arrangements are deferred until the commencement of the applicable license period; revenue is recognized ratably over the term of the license.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivables are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivables. We determine the allowance based on historical write-off experience and customer economic data. We review our allowance for doubtful accounts monthly. Past due balances over 90 days are reviewed individually for collectibility. Account balances are charged off against the allowance when we believe that it is probable the receivable will not be recovered.

As of March 31, 2009, we have Licensing Division accounts receivable of $2.2 million related to General Motors, Chrysler and Ford. These manufacturers are current with their accounts receivable balances as of March 31, 2009, and we continue to closely monitor developments, particularly in the Chrysler LLC bankruptcy.

Business Combinations

We use the purchase method of accounting for business combinations and the results of the acquired businesses are included in the income statement from the date of acquisition. The purchase price has historically included the direct costs of the acquisition. However, beginning in the first quarter of 2009, acquisition-related costs are expensed as incurred, in accordance with Financial Accounting Standards Board (FASB) issued revision to Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations"(SFAS 141(R). Amounts allocated to intangible assets are amortized over their estimated useful lives; no amounts are allocated to in-progress research and development. Goodwill represents the excess of consideration paid over the net identifiable business assets acquired.

We have entered into earnout agreements which are contingent on the acquired business achieving agreed upon performance milestones. Earnout payments are not based on the seller's on-going service to the Company; when the seller does provide services following the acquisitions, the cost of the seller's services is recorded as compensation expense in the period the services were performed. We have historically accounted for earnout consideration as an addition to goodwill in the period earned. Beginning in the first quarter of 2009, in accordance with SFAS 141 (R), for any new acquisitions with an earnout component, we will estimate the net present value of expected earnout payments and record such amount as an addition to goodwill and liability or equity, at the time of closing. Subsequent changes of earnout projections are recorded on the statement of operations as other income or expense in the period of remeasurement. If earnout projections are recorded as equity, then no subsequent remeasurement is required. We did not enter into any purchase agreements with earnouts during the first quarter of 2009.

Goodwill, Intangible Assets and the Impairment of Long-Lived Assets

We assess the recoverability of the carrying value of long-lived assets. If circumstances suggest that long-lived assets may be impaired, and a review indicates that the carrying value will not be recoverable, as determined based on the projected undiscounted future cash flows, the carrying value is reduced to its estimated fair value. The determination of cash flows is based upon assumptions and forecasts that may not occur. In addition, we assess goodwill and indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred.

We have acquired many companies in each of the last few years and our current business strategy includes continuing to make additional acquisitions in the future. These acquisitions will continue to give rise to goodwill and other intangible assets which will need to be assessed for impairment from time to time.

Provision for Income Taxes and Deferred Income Taxes

Deferred income tax assets and liabilities are periodically computed for temporary differences between the financial statement and income tax bases of assets and liabilities. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to years in which the differences are expected to reverse. A valuation allowance is established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. Significant judgment is necessary in determining valuation allowances necessary for our deferred tax assets. Accounting standards require us to establish a valuation allowance for that portion of our deferred tax assets for which it is more likely than not that we will not receive a future benefit. In making this judgment, all available evidence is considered, some of which, particularly estimates of future profitability and income tax rates, are subjective in nature. Estimates of deferred income taxes are based on management's assessment of actual future taxes to be paid on items reflected in the consolidated financial statements, giving consideration to both timing and the probability of realization. Actual income taxes could vary from these estimates due to future changes in income tax law, state income tax apportionment or the outcome of any review of our tax returns by the Internal Revenue Service, as well as actual operating results that vary significantly from anticipated results. Our effective income tax rate for the three months ended March 31, 2009 was 40.5%.

Seasonality

The automotive industry in which we provide consumer Internet products and services has historically experienced seasonality with relatively stronger sales in the second and third quarters and weaker sales in the fourth quarter. In 2008, we entered the online shopping category which has historically experienced relatively stronger sales in the fourth quarter.

Results of Operations

The following table sets forth our consolidated statements of operation data as
a percentage of total revenues for each of the periods indicated:


                                                         Three months ended
                                                             March 31,
                                                         2009            2008
                                                      (unaudited)

      Revenues                                               100.0 %      100.0 %

      Costs and operating expenses

      Cost of revenues                                        20.3         21.6
      Sales and marketing                                     20.3         24.9
      Technology                                               8.9          5.7
      General and administrative                              18.2         18.6
      Depreciation and amortization of intangibles            16.3         11.0
      Total operating expenses                                84.1         81.8
      Operating income                                        15.9         18.2
      Investment and other income                              0.2          2.3
      Income from operations before income taxes              16.1         20.5
      Provision for income taxes                               6.5          8.4
      Net income                                               9.6 %       12.1 %

Revenues

                                        Three Months Ended          Increase (decrease)
                                             March 31,                   2009 vs. 2008
                                         2009          2008          $                  %
   Revenues:
   Consumer Internet ………………………………..   $   16,189     $ 16,303     $      (114 )       (0.7 )%
   Licensing ………………………………………….             7,339        8,638          (1,299 )      -15.0 %
   Total revenues ……………………………………      $   23,528     $ 24,941     $    (1,413 )       -5.7 %

Our revenues for the three-month period ended March 31, 2009, decreased $1.4 million, or 6%, over our revenues in the three-month period ended March 31, 2008. Consumer Internet revenues were flat quarter-over-quarter. For the three-month period ended March 31, 2009, we experienced a significant increase in advertising revenues of $2.6 million or 35%, which was primarily a result of growth from CPM, CPC and CPA based advertising in our careers, home, shopping, and travel & leisure categories. Offsetting this growth and reflecting the continued weakness in the automotive industry, our automotive ecommerce revenue declined by $2.7 million in the three-month period ended March 31, 2009 compared to the prior year period due to lower consumer demand for new cars and lower demand by dealers for CPL advertising service. Such reduced advertising spending is consistent with the industry-wide downturn in the automotive sector. This industry has generally been in a downward cycle that began in the second half of 2006, significantly deepened in the second half of 2008 and has continued into 2009. We cannot predict how long this negative trend will continue, or when it will end or reverse; our prospects in this area are therefore unpredictable.

Licensing revenues decreased by $1.3 million, or 15%, during the three-month period ended March 31, 2009 compared to the prior year period. Had foreign exchange rates remained constant for the first quarter of 2008 through the first quarter of 2009, licensing revenues for the first quarter of 2009 would have been $0.5 million higher. The higher revenue during the three-month period ended March 31, 2008 was primarily driven by a $1.1 million benefit from the accelerated completion of a long-tem project in our Autodata Solutions division.

Cost of revenues

                                    Three Months Ended        Increase (decrease)
                                        March 31,                2009 vs. 2008
                                   2009          2008          $                   %
        Cost of revenues         $   4,783      $ 5,387     $    (604 )        (11.2 )%
        Percentage of revenues        20.3 %       21.6 %

Our cost of revenues decreased $0.6 million, or 11%, in the three-month period ended March 31, 2009 over the prior year period. The lower cost of revenues was primarily driven by the decrease in fulfillment costs associated with specific advertiser orders, consistent with the decline in revenues from our automotive ecommerce business.

Operating expenses

Sales and Marketing

                                   Three Months Ended   Increase (decrease)
                                        March 31,          2009 vs. 2008
                                     2009      2008         $          %
         Sales and marketing          $4,776    $6,207    $(1,431)   (23.1)%
         Percentage of revenues        20.3%     24.9%

Sales and marketing expenses declined $1.4 million, or 23%, in the three-month period ended March 31, 2009 over the prior year period; the decline primarily relates to a $1.0 million reduction in headcount and headcount-related costs, . . .