Cautionary Statement Regarding Forward-Looking Information

The following Management's Discussion and Analysis of our Financial Condition and Results of Operations should be read in conjunction with the condensed consolidated financial statements and notes thereto included as part of this Form 10-Q. This Form 10-Q contains forward-looking statements based on current expectations. We sometimes identify forward-looking statements with such words as "may", "will", "expect", "anticipate", "estimate", "seek", "intend", "believe" or similar words concerning future events. The forward-looking statements contained herein include, without limitation, statements concerning future revenue sources and concentration, gross profit margins, selling, general and administrative expenses, capital resources, the sufficiency of our cash resources, the expected effects of the sale of substantially all the assets of our Daily Strength business, and the effects of general industry and economic conditions and are subject to risks and uncertainties including, but not limited to, those discussed below, in Part II, Item 1A. and elsewhere in this Form 10-Q that could cause actual results to differ materially from the results contemplated by these forward-looking statements. Relevant risks and uncertainties include those referenced in our filings with the SEC, and include but are not limited to: risks related to the Sharecare transactions; reliance on third parties for content; economic and industry conditions specific to Brazil and China, such as the state of their telecommunications and internet infrastructure and uncertainty regarding protection of intellectual property; challenges inherent in developing an online business in Brazil and China, including obtaining regulatory approvals and adjusting to changing political and economic policies; governmental laws and regulations, including unclear and changing laws and regulations related to the internet sector in China; general industry conditions and competition; general economic conditions, such as online advertising rates, interest rate and currency exchange rate fluctuations; and restrictions on intellectual property under agreements with third parties. We also urge you to carefully review the risk factors set forth in Part II, Item 1A. and other documents we file from time to time with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2008.

Business Overview and Recent Events

HSW International is an online publishing company that develops and operates Internet businesses focused on providing consumers around the world with locally relevant, high quality information and ways to connect with each other. We generate revenue primarily through the sale of online advertising on our websites. Our international websites published under the HowStuffWorks brand provide readers in China and Brazil with thousands of articles about how the world around them works, serving as destinations for credible, easy-to-understand reference information. HSW International is the exclusive licensee in China and Brazil for the digital publication of translated content from HowStuffWorks.com, a subsidiary of Discovery Communications, Inc., and in China for the digital publication of translated content from World Book Encyclopedia. The DailyStrength business helps hundreds of thousands of readers share information and support on www.dailystrength.org, a comprehensive health-related social media website. As further described below, we sold the assets of Daily Strength to Sharecare Inc. and now provide development and operational services to Sharecare.

On October 30, 2009, the Company entered into and effectuated a series of transactions with Sharecare, Inc. As a result of these transactions, the Company received an equity stake in Sharecare, sold substantially all of the assets of its Daily Strength subsidiary to Sharecare, agreed to provide management and website development services to Sharecare, and received a limited license to use the Sharecare web platform for its own businesses. Additionally, the Company issued a promissory note to Sharecare, the majority of which has been offset by services the Company provided to Sharecare prior to the consummation of the transaction. Finally, Sharecare assumed the potential earn-out payment of up to $3.525 million under the merger agreement by which the Company acquired Daily Strength. We entered into each of these simultaneously. Further detail on these transactions follows.

On October 30, 2009, the Company entered into a Subscription Agreement for the purchase of 125,000 shares of common stock of Sharecare, representing 20% of the company at the time of purchase. Sharecare is a healthcare platform for consumers to ask, learn and act on the questions of health. The aggregate purchase price for the shares was $1,250,000. In exchange for the shares, the Company contributed $250,000 worth of development work to Sharecare and issued a Secured Promissory Note to Sharecare in the principal amount of $1,000,000. The note does not bear interest unless an Event of Default (as defined in the note) occurs. The note is due and payable in full on October 30, 2010, and may be prepaid at any time without penalty or premium. For so long as principal amounts remain outstanding under the note, all amounts payable by Sharecare to the Company pursuant to the services agreement, described below, will be applied as prepayments on the note.

On October 30, 2009, the Company entered into a Letter Agreement for Services with Sharecare pursuant to which the Company agreed to perform services related to the design, development, hosting and related services necessary to launch and operate the Sharecare website through our direct activities and management of third party vendors. Sharecare will pay us for the fully burdened cost of our personnel dedicated to the services and other costs incurred in providing the services plus a fixed monthly management fee for services performed since July 1, 2009. The initial term of the agreement expires on December 31, 2009; thereafter the parties may enter into a new agreement for services, or Sharecare may opt to extend the services for six months to transition to another service provider. As the criteria to support the recognition of revenue related to the Letter Agreement for Services has not been met as of the accompanying balance sheet date, costs incurred by HSWI that will be included as billable services under the service agreement discussed above, are recorded as deferred charges in the condensed consolidated balance sheet as of September 30, 2009.

On October 30, 2009, the Company entered into an Asset Purchase Agreement under which the Company sold substantially all of the assets of its subsidiary Daily Strength, Inc. to a wholly owned subsidiary of Sharecare, Inc., DS Acquisition, Inc., in exchange for which DS Acquisition assumed the potential earn-out payments of Daily Strength under the Merger Agreement dated November 26, 2008, pursuant to which the Company acquired Daily Strength. The Daily Strength assets identified for sale are classified in the accompanying condensed consolidated balance sheets as assets held for sale. The Company is in process of completing its evaluation of the accounting treatment for the transactions.

Jeff Arnold, Chairman of HSWI's Board of Directors, is the Chairman and Chief Architect and a significant stockholder of Sharecare. Additionally, Discovery Communications, Inc., HSWI's largest stockholder, is a significant stockholder of Sharecare. HSWI's Board of Directors established a Special Committee consisting of three independent directors without any interests in Sharecare to evaluate and recommend the terms of these transactions to the Board.

Business Trends

Much of our business consists of websites we recently established or acquired. We expect that our business should grow as these websites achieve greater awareness within their markets, resulting in increased usage against which we can sell advertising. While significant online advertising markets exist in the United States and Brazil, we believe it will take additional time for meaningful online advertisement rates to develop in China.

Our Brazilian website ComoTudoFunciona, which launched in March 2007, is our most mature business. The number of page views for ComoTudoFunciona has decreased by 7% during the third quarter of 2009 compared to the same period in 2008 due to a change in Brazil's school schedule; students are typical contributors to a portion of our traffic. Additionally, the number of unique visitors to the website has increased by 14% for the same periods.

Our Chinese website BoWenWang launched in June 2008, and early results show usage development consistent with a recently-launched website. Unlike in Brazil, where we established our website with significant promotional commitments from one of the country's largest Internet portals, BoWenWang launched with a focus on organic traffic development. This has contributed to initial usage trending below that in Brazil. We believe that by focusing on developing business relationships to further the exposure of the website, we should be able to continue to grow usage. However, the current economic environment in China and the rate of development of its Internet advertising market could negatively affect the growth rate of our revenues for our Chinese business.

The number of page views for BoWenWang increased 677% during the third quarter of 2009 compared to the same period in 2008 through organic traffic growth. Additionally the number of unique visitors to the website increased 229% for the same period. We expect to see growth in the number of users and page views, which we believe should result in increased revenues for our Chinese website.

Both seasonal fluctuations in Internet usage and traditional retail seasonality have affected, and are likely to continue to affect, our business. Internet usage generally slows during the summer months, and expenditures by advertisers typically increase in the fourth quarter of each year. These seasonal trends have caused and will likely continue to cause, fluctuations in our quarterly results.

The advertising market declined overall in 2008 and the first three quarters of 2009 due to the global economic downturn. This decline affected online advertising expenditures as well, and has resulted in lower revenue for our business than expected. The economic environment might cause advertisers to continue to reduce the amount they spend on online advertising, which could negatively affect the growth rate of our revenues. The international economic challenges contributed to the impairment charge we took as of December 31, 2008 for the intangible asset of the licenses to operate in China. If operating results deteriorate or do not improve, and/or if unfavorable changes occur in other economic factors used to estimate fair values, we might incur additional non-cash impairment charges to goodwill or other intangible assets in the future.

Recognizing the difficulty of the economic environment, we have reduced operating expenses in 2009 in an attempt to better align spending with expectations for growth. We continue to invest in building the necessary employee and systems infrastructures required to manage our growth and develop and promote our products and services. Additionally, we will maintain an awareness of the alignment of our costs and revenues, and make operating adjustments as we believe necessary to best position HSW International for success.

Business Development

On October 30, 2009, the Company joined with Dr. Mehmet Oz, Harpo Productions, Discovery Communications (NASDAQ: DISCA), Sony Pictures Television and Jeff Arnold (Chairman of our Board of Directors) to form Sharecare, Inc., which is developing an innovative healthcare platform for consumers to ask, learn and act on the questions of health.

HSW International and the other co-founders of Sharecare each hold minority equity positions in the company. Additionally, HSW International has entered into a service agreement with Sharecare to develop the company's next generation platform and site, leveraging HSWI's expertise in online content platforms. As part of the transaction, HSW International transferred its Daily Strength business to Sharecare.

The Sharecare website will be a highly searchable social Q&A platform, backed by a comprehensive information architecture that creates and organizes the questions of health. HSW International and the other founding partners have the license to use this platform to develop businesses in other content categories.

HSW International developed and launched Sharecare's initial Q&A content located at http://ask.doctoroz.com, which features a subset of the initial questions and answers from Sharecare and its content partners.

Our Operations

ComoTudoFunciona - HowStuffWorks Brazil
We entered the Brazilian online publishing market in March 2007. At September 30, 2009, we had approximately 5,800 articles that were either (i) from the HowStuffWorks content database translated from English to Portuguese, or (ii) originally created content. The web site address is http://hsw.com.br/. We are developing our business strategy in Brazil as we continue to expand by (i) adding original proprietary digital content designed to meet the information needs of the Brazilian online community, (ii) expanding the amount of translated content from HowStuffWorks, and (iii) refining local marketing strategies. We recognized approximately $33,000 and $116,000 of revenue from our Brazilian operations during the three months ended September 30, 2009 and 2008, respectively, and $114,000 and $289,000 of revenue during the nine months ended September 30, 2009 and 2008, respectively. The decrease in Brazil revenue is due to sales to affiliates recorded during 2008 that did not recur in 2009.

BoWenWang - HowStuffWorks China
In June 2008, we entered China's online publishing market utilizing the contributed assets from HowStuffWorks and our predecessor INTAC's relationships and knowledge of the Chinese markets to obtain our internet licenses. In September 2008, we entered into an exclusive content partnership with World Book, Inc. to create thousands of original Chinese-language articles providing information on all branches of knowledge, including arts, sciences, technology, mathematics, sports and recreation, exclusively for HSW International's Beijing-based website, BoWenWang (http://www.bowenwang.com.cn/). At September 30, 2009, we published approximately 9,800 articles on our Chinese website. Revenue generated from the operations based in China was approximately $9,000 and $18,000 during the three and nine months ended September 30, 2009, respectively. No revenue was generated from the operations based in China during the three and nine months ended September 30, 2008.

DailyStrength
DailyStrength.org offers content authored by medical professionals, support groups, a treatment directory with definitions, private messaging, one-on-one chat forums and personal goal trackers. DailyStrength primarily serves English-speaking territories, such as the United States, Canada, Australia and the United Kingdom. The medical panel of professionals contributes articles and journals providing insight to a number of topics relevant to the DailyStrength user group and communities. DailyStrength and its user groups create online communities and support services to help people cope with health, stress and other challenges of modern life. As mentioned above, on October 30, 2009, the Company entered into a series of transactions with Sharecare, among other things, we sold substantially all of the assets of DailyStrength to Sharecare, Inc. and obtained an equity interest in Sharecare.

Results of Operations

The following table sets forth our operations for the three and nine months
ended September 30, 2009 and 2008.

                                             Three Months Ended September 30,          Nine Months Ended September 30,
                                                 2009                  2008                2009                 2008

Operating revenue
Social media                               $          48,896       $           -     $        173,996       $           -
Digital online publishing                             42,171              11,056              131,555              86,734
Sales to affiliates                                        -             105,180                    -             202,328
Total revenue                                         91,067             116,236              305,551             289,062

Cost of services                                     393,267             224,861            1,156,685             790,816

Gross margin                                        (302,200 )          (108,625 )           (851,134 )          (501,754 )

Operating expenses
Selling, general and administrative
(including stock-based
compensation expense of $334,675 and
$1,189,689 for
the three months ended September 30,
2009 and 2008,
respectively, and $1,690,924 and
$4,041,714 for the nine
months ended September 30, 2009 and
2008, respectively)                                2,713,644           3,987,151            8,731,057          12,772,433
Depreciation and amortization                        123,265              62,186              360,824             147,048
Total operating expenses                           2,836,909           4,049,337            9,091,881          12,919,481

Operating loss
Social media                                        (347,831 )                 -             (991,222 )                 -
Digital online publishing                           (486,046 )          (836,967 )         (1,387,644 )        (2,502,872 )
Business segments                                   (833,877 )          (836,967 )         (2,378,866 )        (2,502,872 )
Corporate                                         (2,305,232 )        (3,320,995 )         (7,564,149 )       (10,918,363 )
Total operating loss                              (3,139,109 )        (4,157,962 )         (9,943,015 )       (13,421,235 )

Other income
Interest income                                       11,160             150,454               42,910             407,713
Other income                                               -                   -              160,000                   -
Total other income                                    11,160             150,454              202,910             407,713

Loss from continuing operations before
income taxes                                      (3,127,949 )        (4,007,508 )         (9,740,105 )       (13,013,522 )

Income tax benefit                                   393,520                   -              393,520                   -

Loss from continuing operations                   (2,734,429 )        (4,007,508 )         (9,346,585 )       (13,013,522 )

Loss from discontinued operations, net
of income taxes                                            -                   -                    -            (133,526 )

Net loss                                   $      (2,734,429 )     $  (4,007,508 )   $     (9,346,585 )     $ (13,147,048 )

Segment Data
We monitor and analyze our financial results on a segment basis for reporting and management purposes, as is presented in Note 3 to our Condensed Consolidated Financial Statements hereto. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.

Our Social Media segment is comprised of our DailyStrength operations, which generate the majority of its revenues from the advertisers based in the United States. Our Digital Online Publishing segment consists of our Brazil and China based websites and generates revenues from advertisers in the respective countries.

Revenue
Total revenue for the three months ended September 30, 2009 was approximately $91,000, a decrease of approximately $25,000 from the comparable period in 2008. The decrease was primarily due to affiliated sales of approximately $105,000 during the third quarter of 2008 which did not recur during 2009. This decrease was partially offset by the addition of DailyStrength, our Social Media segment, to our portfolio of websites. Revenue generated from our Social Media segment and Digital Online Publishing segment was approximately $49,000 or 54% and $42,000 or 46%, respectively, of total revenue for the third quarter of 2009. For the three months ended September 30, 2009, our Brazil-based website generated approximately 39% of revenue from the Digital Online Publishing segment from paid-for-impression advertising and 61% from pay-per-performance ads. We recognized revenue of approximately $9,000 in the Digital Online Publishing segment from China during the three months ended September 30, 2009.

Total revenue for the nine months ended September 30, 2009 was approximately $306,000, an increase of approximately $16,000 from the comparable period in 2008. The increase is primarily attributable to revenues from DailyStrength, our Social Media segment. Revenue generated from our Social Media segment and Digital Online Publishing segment was approximately $174,000 or 57% and $132,000 or 43%, respectively, of total revenue for the first three quarters of 2009. In conjunction with the services agreement entered into with Sharecare on October 30, 2009, we expect to recognize approximately $700,000 for services performed between July 1, 2009 through September 30, 2009 during the fourth quarter of 2009. This revenue will be offset by the deferred charges recorded on our September 30, 2009 condensed consolidated balance sheet. For the nine months ended September 30, 2009, our Brazil-based website generated approximately 57% of its revenue from the Digital Online Publishing segment from paid-for-impression advertising and 43% from pay-per-performance ads. We recognized revenue of approximately $18,000 in the Digital Online Publishing segment from China during the nine months ended September 30, 2009.

Cost of Services
Cost of services includes the ongoing third-party costs to translate, localize and enhance articles from English to Portuguese and Mandarin Chinese, costs incurred to acquire original articles written by medical experts and other third parties, as well as site development charges. Article acquisition and translation costs were approximately $393,000 and $1,157,000 for the three and nine months ended September 30, 2009 and represent articles acquired for future publication on our websites. These costs were approximately $225,000 and $791,000, respectively, for the prior year periods. Article acquisition and article translation costs vary due to the volume of new content deployed on our site during any quarter. These costs also fluctuate due to varying needs and timing, which determine the number of articles to be published. Approximately $0.6 million of cost of services are deferred and will be recognized in the fourth quarter of 2009 when the related revenue is earned under the Sharecare services agreement.

Operations - Selling, General and Administrative Expenses Our total selling, general and administrative expenses decreased by $1.3 million from $4.0 million to $2.7 million for the three months ended September 30, 2009 from the comparable period in 2008. Our stock-based compensation expense was $0.9 million less than the same period in 2008 reflecting our higher stock price in earlier periods. The remaining $0.4 million decrease resulted from cost reduction efforts.

Our total selling, general and administrative expenses decreased by $4.1 million from $12.8 million to $8.7 million for the nine months ended September 30, 2009 from the comparable period in 2008. Consulting, legal and accounting expenses decreased $0.7 million, which is primarily attributable to costs associated with the INTAC legacy businesses disposition during the first quarter of 2008. Additionally, our stock-based compensation expense was $2.4 million less than the same period in 2008 reflecting our higher stock price in earlier periods. The remaining $1.0 million decrease resulted from cost reduction efforts.

Operating Loss
Our operating loss was $0.3 million and $1.0 million for the Social Media segment, and $0.5 million and $1.4 million for the Digital Online Publishing segment, and our corporate level operating loss was $2.3 million and $7.6 million for the three and nine months ended September 30, 2009, respectively.

Other Income
Total other income decreased approximately $139,000 and $205,000 for the three and nine months ended September 30, 2009, respectively, compared to the same periods in 2008 due to lower interest income resulting from lower cash balances and lower interest rates. The decrease for the nine months ended September 30, 2009 was partially offset by a contract termination payment from a former customer that is classified as Other Income.

Income Tax Benefit
Tax benefits increased approximately $0.4 million for the three months and nine months ended September 30, 2009 due to a decrease in the valuation allowance.
The valuation allowance decrease resulted from the classification of a Daily Strength indefinite lived asset as held for sale as of September 30, 2009 (See note 7). The classification of the Daily Strength indefinite lived asset as held for sale triggered a change in the nature of the indefinite lived intangible asset; therefore, the related deferred tax liability became available to offset the other deferred tax assets.

Discontinued Operations - INTAC Legacy Businesses The $0.5 million loss from discontinued operations was reduced by a $0.4 million gain upon final disposition on February 29, 2008.

Liquidity and Capital Resources

                                                                  Nine Months Ended September 30,
                                                                      2009                 2008

Cash flows
Used in operating activities                                    $     (6,598,719 )     $  (8,785,700 )
Used in investing activities                                            (118,606 )        (5,138,194 )
Provided by financing activities                                               -          35,229,607
Net change in cash and cash equivalents                               (6,717,325 )        21,305,713
Impact of currency translation on cash                                    40,537             (77,521 )
Cash and cash equivalents at beginning of period                      18,020,159           3,639,831
Cash and cash equivalents at end of period                      $     11,343,371       $  24,868,023

Cash and cash equivalents was $11.3 million at September 30, 2009, compared to $18.0 million at December 31, 2008. The decrease in cash is primarily due to the use of working capital to fund operations.

Cash flows from operations
Our net cash used in operating activities during the nine months ended September 30, 2009 decreased by $2.2 million compared to the same period in the prior year due to cost-cutting measures and a reduction in professional fees. Net cash used in discontinued operating activities was $0.5 million for the nine months ended September 30, 2008.

Cash flows from investing activities
During the nine months ended September 30, 2009, net cash used in investing activities was approximately $0.1 million compared to $5.1 million in the same period of 2008. Cash used in investing activities during the nine months ended September 30, 2008 includes $4.5 million of cash used in conjunction with the . . .