Enom 2011 Annual Report Download - page 86

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Demand Media, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands, except per share amounts)
1. Company Background and Overview
Demand Media, Inc., together with its consolidated subsidiaries (the “Company”) is a Delaware corporation headquartered in Santa Monica,
California. The Company’s business is focused on an Internet-based model for the professional creation of content at scale, and is comprised of two distinct
and complementary service offerings, Content & Media and Registrar.
Content & Media
The Company’s Content & Media service offering is engaged in creating long-lived media content, primarily consisting of text articles and videos,
and delivering it along with social media and monetization tools to the Company’s owned and operated websites and network of customer websites.
Content & Media services are delivered through the Company’s Content & Media platform, which includes its content creation studio, social media
applications and a system of monetization tools designed to match content with advertisements in a manner that is optimized for revenue yield and end-user
experience.
Registrar
The Company’s Registrar service offering provides domain name registration and related value added service subscriptions to third parties through
its wholly owned subsidiary, eNom.
Initial Public Offering
In January 2011, the Company completed its initial public offering whereby it received proceeds, net of underwriters discounts but before
deducting offering expenses, of $81,817 from the issuance of 5,175 shares of common stock. As a result of the initial public offering, all shares of the
Company’s convertible preferred stock converted into 61,672 shares of common stock and warrants to purchase common stock or convertible preferred stock
net exercised into 477 shares of common stock.
Reverse Stock-Split
In October 2010, the Company’s stockholders approved a 1-for-2 reverse stock split of its outstanding common stock, and a proportional
adjustment to the existing conversion ratios for each series of preferred stock which was effected in January 2011. Accordingly, all common stock share and
per share amounts for all periods presented in these consolidated financial statements and notes thereto, have been adjusted retrospectively, where applicable,
to reflect this reverse split and adjustment of the preferred stock conversion ratio.
2. Summary of Significant Accounting Policies
A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements
follows.
Principles of Consolidation
The consolidated financial statements include the accounts of Demand Media, Inc. and its wholly owned subsidiaries. Acquisitions are included in
the Company’s consolidated financial statements from the date of the acquisition. The Company’s purchase accounting resulted in all assets and liabilities of
acquired businesses being recorded at their estimated fair values on the acquisition dates. All significant intercompany transactions and balances have been
eliminated in consolidation.
Investments in affiliates over which the Company has the ability to exert significant influence, but does not control and is not the primary
beneficiary of, including NameJet, LLC (“NameJet”), are accounted for using the equity method of accounting. Investments in affiliates which the Company
has no ability to exert significant influence are accounted for using the cost method of accounting. The Company’s proportional shares of affiliate earnings or
losses accounted for under the equity method of accounting, which are not material for all periods presented, are included in other income (expense) in the
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