Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the financial statements and accompanying notes. The Company is subject to uncertainties such as the impact of future events, economic and political factors and changes in the Company's business environment; therefore, actual results could differ from those estimates, and such differences could be material. Accordingly, the accounting estimates used in the preparation of the Company’s financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in reported results of operations and if material, the effects of changes in estimates are disclosed in the notes to the financial statements. Significant estimates and assumptions by management affect revenue recognition, the allowance for doubtful accounts, the subscription cancellations reserve, the carrying value of long-lived assets and goodwill, the depreciation and amortization period of long-lived assets, the provision for income taxes and related deferred tax accounts, the sales tax accrual, the build-out of the Company’s San Mateo facility, accounting for business combinations, stock‑based compensation expense and the fair value of the Company’s common stock and fair value of contingent consideration.

Out-of-Period Adjustments

In the fourth quarter of 2012, revenue has been reduced by $87 thousand for the correction of immaterial errors in deferred revenue balances, stock-based compensation has been reduced by $65 thousand for the correction of immaterial errors in additional paid-in capital and royalty expenses have been increased by $20 thousand for the correction of immaterial errors in accrued royalties. These errors reflect the cumulative correction of errors not material to historical or current year results.

The $87 thousand decrease in revenue reflects excess revenue recorded in the year ended December 31, 2011. The $65 thousand decrease in stock-based compensation reflects $35 thousand and $30 thousand of expense that should not have been recorded in the years ended December 31, 2011 and 2010, respectively. The $20 thousand increase in expense reflects $20 thousand of royalty expenses that should have been recorded in the year ended December 31, 2011. Based upon our evaluation of relevant factors related to this matter, we concluded that the uncorrected adjustments in our previously issued consolidated financial statements for any of the periods affected are immaterial and that the impact of recording the cumulative correction in the fourth quarter of 2012 is not material to our earnings for the full year ending December 31, 2012.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original or remaining maturity from the Company’s date of purchase of 90 days or less to be cash equivalents. Cash and cash equivalents were $58.9 million and $75.3 million as of December 31, 2012 and 2011, respectively.

Short-Term Investments

The Company has classified its short-term investments as available-for-sale securities. Epocrates may sell these securities at any time for use in current operations or other purposes, including as consideration for acquisitions and strategic investments. These securities are reported at fair value with any changes in market value reported as a part of comprehensive (loss) income.

Fair Value of Financial Instruments

The Company’s financial instruments, including cash equivalents, accounts receivable and accounts payable, are carried at cost, which approximates fair value because of the short-term nature of those instruments. The carrying value of the common stock warrant liability, which converted from a preferred stock warrant liability in 2011, (see "Note 11. Mandatorily Redeemable Convertible Preferred Stock") and contingent consideration (see "Note 6. Acquisitions and Dispositions") represents fair value. Based on borrowing rates available to the Company for loans with similar terms, the carrying value of borrowings, including the financing liability (see "Note 8. Financing Liability"), approximate fair value using Level 2 inputs, which are described below.

The Company measures and reports certain financial assets at fair value on a recurring basis, including its investments in money market funds and available-for-sale securities. The fair value hierarchy prioritizes the inputs into three broad levels:

Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

Level 3 – Inputs are unobservable inputs based on the Company’s assumptions.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist principally of cash, cash equivalents, short-term investments and accounts receivable.

The Company limits its concentration of risk in cash equivalents and short-term investments by diversifying its investments among a variety of industries and issuers. The primary goals of the Company’s investment policy are, in order of priority, preservation of principal, liquidity and current income. The Company’s professional portfolio managers adhere to this investment policy as approved by the Company’s Board of Directors. Cash and cash equivalents and short-term investments are deposited at financial institutions or invested in securities that management believes are of high credit quality.

The Company’s investment policy permits investments only in fixed income instruments denominated and payable in U.S. dollars. Investments in obligations of the U.S. government and its agencies, money market instruments, commercial paper, certificates of deposit, bankers’ acceptances, corporate bonds of U.S. companies, municipal securities and asset-backed securities are allowed. The Company does not invest in auction rate securities, future contracts or hedging instruments. The Company’s policy also dictates that securities of a single issuer valued at cost at the time of purchase should not exceed 5% of the market value of the portfolio, or $1 million, whichever is greater, although securities issued by the U.S. Treasury and U.S. government agencies are specifically exempted from these restrictions. Issue size is typically greater than $50 million for corporate bonds. No single position in any issue can exceed 10% of that issue. The final maturity of each security within the portfolio shall not exceed 24 months.

The Company’s revenue and accounts receivable are derived primarily from clients in the healthcare industry (e.g., pharmaceutical companies, managed care companies and market research firms) within the U.S. For the years ended December 31, 2012, 2011 and 2010, no single client accounted for more than 10% of total revenues. There was one client that accounted for more than 10% of accounts receivable, net as of December 31, 2012 and one client accounted for 15% of accounts receivable, net as of December 31, 2011.

Allowance for Doubtful Accounts

The allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the Company’s receivables portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available evidence. Historically, the Company has not experienced significant credit losses from its accounts receivable. The Company performs a regular review of its customers’ payment histories and associated credit risks and it does not require collateral from its customers.

Property and Equipment

Property and equipment, including equipment under capital leases, are stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization expense is computed using the straight-line method over the estimated useful lives of the related assets. The useful lives of the property and equipment are as follows:



Computer equipment	36 months
Office equipment, furniture and fixtures	36 – 44 months
Software	36 months
Leasehold improvements	Shorter of useful life or lease term

Upon retirement or sale, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operations. Major additions and improvements are capitalized while repairs and maintenance that do not extend the life of the asset are charged to operations as incurred. Depreciation and amortization expense is allocated to both cost of revenues and operating expenses.

Software Development Costs

Software development costs incurred in conjunction with product development are charged to research and development expense until technological feasibility is established. Thereafter, until the product is released for sale, software development costs are capitalized and reported at the lower of unamortized cost or net realizable value of the related product. The Company does not consider a product in development to have passed the technological feasibility milestone until the Company has completed a model of the product that contains essentially all the functionality and features of the final product and has tested the model to ensure that it works as expected. The Company previously capitalized software development costs upon technical feasibility for the electronic health record (“EHR”) solution until it announced its decision to discontinue the EHR business. Capitalized costs incurred in the first quarter of 2012 up until the date of the announcement were reclassified to loss from discontinued operations in the Company’s consolidated statements of comprehensive (loss) income.

Internal Use Software and Website Development Costs

With regard to software developed for internal use and website development costs, the Company expenses all costs incurred that relate to planning and post-implementation phases of development. Costs incurred in the development phase are capitalized and amortized over the product’s estimated useful life which is generally three years. For the years ended December 31, 2012 and 2011, the Company capitalized $2.5 million and $2.4 million, respectively, of software development costs related to software for internal use and website development costs. Internal software development costs are generally amortized on a straight-line basis over three years beginning with the date the software is placed into service. Amortization of software developed for internal use was $2.2 million, $2.0 million and $1.7 million for the years ended December 31, 2012, 2011 and 2010, respectively. Amortization of internal use software is reflected in cost of revenues. Costs associated with minor enhancement and maintenance of the Company’s website are expensed as incurred.

Goodwill

In September 2011, the FASB issued new accounting guidance intended to simplify goodwill impairment testing. Entities will be allowed to perform a qualitative assessment on goodwill impairment to determine whether a quantitative assessment is necessary. For the year ended December 31, 2012, the Company prepared a qualitative assessment and determined a quantitative assessment is not necessary.

Goodwill is tested for impairment at the reporting unit level on an annual basis and whenever events or changes in circumstances indicate the carrying value may not be recoverable. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units and determining the fair value of each reporting unit when a qualitative assessment is performed. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows and determining appropriate discount and growth rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit which could trigger impairment.

For the Subscriptions and Interactive Services reporting unit, the Company performed its annual impairment test in December 2011 and determined that the undiscounted cash flow from the long-range forecast exceeded the carrying amount of goodwill, and therefore, no impairment was indicated. In December 2012, the Company performed a qualitative assessment as of December 31, 2012. To perform the qualitative analysis, the Company considered the impact of several key factors including general economic conditions, change in industry and competitive environment, market capitalization, earnings multiples, regulatory and political developments, overall performance and litigation. Based on the Company's review of these key factors, the Company determined that a quantitative assessment for 2012 was not necessary.

The EHR reporting unit included goodwill of $1.1 million that was recorded in conjunction with the acquisition of Caretools, Inc. In conducting the annual impairment test for 2011, the Company took into account that it had only recently entered a controlled release of its EHR product and that its revenue and subscriber estimates had not materialized. Based on the factors outlined above, the Company compared the fair value of the goodwill assigned to the EHR reporting unit against its carrying value. As a result of this analysis, the Company determined that the carrying value of the EHR goodwill exceeded its fair value at December 31, 2011 and recorded an impairment charge of $1.1 million to write down the carrying value of the goodwill associated with the EHR business to an estimated fair value of zero in 2011. The impairment charge is recorded in Impairment of Long-lived Assets and Goodwill in the Company’s consolidated statements of operations.

Impairment of Long-lived Assets

The Company evaluates long-lived assets for potential impairment whenever adverse events or changes in circumstances or business climate indicate that expected undiscounted future cash flows related to such long-lived assets may not be sufficient to support the net book value of such assets. An impairment charge exists when the carrying value of a long-lived asset exceeds its fair value. An impairment loss is recognized only if the carrying value of a long-lived asset is not recoverable and exceeds its fair value. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. There were no such impairment losses during the years ended December 31, 2012 or 2010. There was an impairment recorded during the year ended December 31, 2011.

As discussed earlier, the Company determined that revenue and subscriber estimates for its EHR offering had not materialized and discontinued further development of the EHR product and business in February 2012. As there was no assurance that the Company would be able to sell its EHR assets, the carrying value of these assets was written down to an estimated fair value of zero as of December 31, 2011.

Freestanding Preferred Stock Warrants

Freestanding warrants that are related to the Company’s Convertible Preferred Stock were classified as liabilities on the Company’s balance sheet through the year ended December 31, 2010. The warrants were subject to reassessment at each balance sheet date, and any change in fair value was recognized as a component of other income, net. The Company adjusted the liability for changes in fair value until the completion of its IPO which closed on February 7, 2011, at which time all preferred stock warrants were converted into warrants to purchase common stock, and accordingly, the liability was reclassified to stockholders’ equity (deficit).

Revenue Recognition

Stand-Alone Sales of Premium Subscriptions Services. The majority of healthcare professionals in the Company’s network use its free products and do not purchase any of the Company’s premium subscriptions. The Company generates revenue from the sale of premium subscription products. Subscription options include:


•	a subscription to one of three premium mobile products the Company offers that a member downloads to their mobile device;


•	a subscription to the Company’s premium online product or site licenses for access via the Internet on a desktop or laptop; and


•	license codes that can be redeemed for such mobile or online premium products.

Mobile subscription services and license codes contain elements of software code that reside on a mobile device and are essential to the functionality of the service being provided. For these services, revenue is recognized only when:


•	there is persuasive evidence that an arrangement exists, in the form of a written contract, amendments to that contract, or purchase orders from a third party;


•	delivery has occurred or services have been rendered;


•	the price is fixed or determinable after evaluating the risk of concession; and


•	collectability is probable based on customer creditworthiness and past history of collection.

Online products and site licenses do not contain any software elements that are essential to the services being provided. For these services, revenue is recognized using the same criteria as above; however, collectability only need be reasonably assured. When collectability is not reasonably assured, revenue is deferred until collection.

Subscriptions are recognized as revenue ratably over the term of the subscription as services are delivered. Billings for subscriptions typically occur in advance of services being performed; therefore these amounts are recorded as deferred revenue when billed. A license code allows a holder to redeem the code for a subscription. Typically, license codes must be redeemed within six to twelve months of issuance. When a license code is redeemed for a premium mobile product, revenue is recognized ratably over the term of the subscription. If a license code expires before it is redeemed, revenue is recognized upon expiration.

Extended payment terms beyond standard terms may cause a deferral of revenue until such amounts become due. Allowances are established for uncollectible amounts and potential returns based on historical experience.

If a paid member is unsatisfied for any reason during the first 30 days of the subscription and wishes to cancel the subscription, the Company provides a refund. The Company records a reserve based on estimated future cancellations using historical data. To date, such returns reserve has not been material and has been within management’s expectations.

Stand‑Alone Sales of Interactive Services. The Company also generates revenue by providing healthcare companies with targeted access to its member network through interactive services. These services include DocAlert clinical messaging services, virtual representative services, Epocrates market research services and formulary hosting services.

Interactive services do not contain any software elements that are essential to the services being provided; therefore, revenue is recognized when:


•	there is persuasive evidence that an arrangement exists, in the form of a written contract, amendments to that contract, or purchase orders from a third party;


•	delivery has occurred or services have been rendered;


•	the price is fixed or determinable after evaluating the risk of concession; and


•	collectability is reasonably assured based on customer creditworthiness and past history of collection.

DocAlert Clinical Messaging Services. DocAlert messages are short clinical alerts delivered to the Company’s members when they connect with the Company’s databases to receive updated content. Most of these DocAlert messages are not sponsored and include useful information for recipients such as new clinical studies, practice management information and industry guidelines. The balance of DocAlert messages are sponsored by the Company’s clients. Messages are targeted to all or a subset of physicians to increase the value and relevance to recipients. Clients contract with the Company to publish an agreed upon number of DocAlert messages over the contract period, typically one year. Each sponsored message is available to members for four weeks. Typically, clients are billed a portion of the contracted fee upon signing of the contract with the balance billed upon one or more future milestones. Because billings for clinical messaging services typically occur in advance of services being performed, these amounts are recorded as deferred revenue when billed. The messages to be delivered can be either asymmetrical, that is each message is delivered to a different target group of members, or symmetrical, that is each message is delivered to the same target group of members. As discussed in detail under multiple element arrangements below, the Company allocates consideration to each message based on the Company’s best estimate of sales price (“BESP”), and recognizes revenue ratably over the delivery period of each message.

Virtual Representative Services. The Company’s mobile promotional programs are designed to supplement and replicate the traditional sales model with services typically provided during representative interactions – product detailing, drug sample delivery, patient literature delivery and drug coverage updates. The Company’s pharmaceutical clients contract with the Company to make one or more of these services available to its members for a period of time, usually one year. Typically, clients are billed a portion of the contracted fee upon signing of the contract with the balance billed upon one or more future milestones. Because billings for virtual representative services typically occur in advance of services being performed, these amounts are recorded as deferred revenue when billed. Revenue is recognized ratably over the contracted term.

Epocrates Honors Market Research Services. The Company recruits healthcare professionals to participate in market research activities. Concurrently, this service offers market research specialists, marketers and investors the opportunity to survey their target audience. Typically, a customer will pay the Company a fee for access to a targeted group of its members whom they wish to survey. The Company pays a portion of this fee to the survey participants as an honoraria. Upon completion of the survey, which typically runs for about a month, the Company will bill the customer the entire amount due. The Company has concluded that it acts as the primary obligor. Accordingly, the Company recognizes the entire fee paid by its customers as revenue upon confirmation of completion of the survey, and the compensation paid by the Company to survey participants is recorded as a cost of revenue when earned by the participant.

Formulary Hosting Services. Healthcare professionals have the option to download health plan formulary lists for their geographic area or patient demographic at no cost. Clients, usually health insurance providers, contract with the Company to make their formulary available to the Company’s member base, typically for a one to three year period. Clients are typically billed up front on a quarterly or an annual basis. Because billings for formulary services typically occur in advance of services being performed, these amounts are recorded as deferred revenue when billed. Revenue is recognized ratably over the term of the contract.

Commission and royalty costs associated with products sold are expensed as incurred.

Multiple Element Arrangements. The Company often enters into arrangements that contain various combinations of services from the above described subscriptions and interactive services. The customer is charged a fee for the entire group of services to be provided. Clients are billed a percentage of the contracted fee upon signing the contract with the balance being billed upon achievement of certain milestones or upon a specific date. Most elements have a delivery period of one year, and in some cases up to 24 months, but the various elements may or may not be delivered concurrently.

The Company allocates revenue in an arrangement using BESP if a vendor does not have vendor specific objective evidence ("VSOE") of fair value or third-party evidence ("TPE") of fair value.

If the Company cannot establish VSOE of fair value, the Company then determines if it can establish TPE of fair value. TPE is determined based on competitor prices for similar deliverables when sold separately. The Company’s services differ significantly from that of its peers and its offerings contain a significant level of customization and differentiation such that the comparable pricing of products with similar functionality cannot be obtained. Furthermore, the Company is unable to reliably determine what similar competitor products’ selling prices are on a stand‑alone basis. Therefore, the Company is typically not able to determine TPE.

If both VSOE and TPE do not exist, the Company then uses BESP to establish fair value and to allocate total consideration to each element in the arrangement and consideration related to each element is then recognized ratably over the delivery period of each element. Any discount or premium inherent in the arrangement is allocated to each element in the arrangement based on the relative fair value of each element.

The objective of BESP is to determine the price at which the Company would transact a sale if the product or service were sold on a stand‑alone basis. The Company determines BESP for a product or service by considering multiple factors including an analysis of recent stand‑alone sales of that product, market conditions, competitive landscape, internal costs, gross margin objectives and pricing practices. As these factors are mostly subjective, the determination of BESP requires significant judgment. If the Company had chosen different values for BESP, the Company’s revenue and deferred revenue could have been materially different.

The Company has established a hierarchy to determine BESP. First, the Company considers recent stand-alone sales of each product. If the quantity of stand-alone sales is not substantive, the Company calculates BESP as a percentage discount off of the approved selling price as established by the Company’s pricing committee. This discount is calculated as the average discount in recent deals where the product was bundled with other products. If there are not a substantive number of deals where the product was bundled with other products, the Company uses the approved selling price as established by the Company’s pricing committee until the Company has sufficient history of transactions to compute BESP using either the stand-alone or bundled methodology discussed above.

Stock‑Based Compensation

For options granted on or after January 1, 2006, stock‑based compensation is measured at grant date based on the fair value of the award and is expensed on a straight-line basis over the requisite service period. For options granted prior to January 1, 2006, the Company will continue to recognize compensation expense on the remaining unvested awards under the intrinsic value method unless such grants are materially modified.

The Company will only recognize a tax benefit from stock-based awards in additional paid-in capital if an incremental tax benefit is realized after all other tax attributes currently available to the Company have been utilized. In addition, the Company has elected to account for the indirect effects of stock-based awards on other tax attributes, such as the research tax credit, through its statement of operations.

Equity instruments issued to non-employees are recorded at their fair value on the measurement date. The measurement of stock‑based compensation is subject to periodic adjustment as the underlying equity instruments vest. The fair value of options granted to consultants is expensed over the vesting period.

Research and Development

Research and development costs are expensed as incurred, except for certain internal use software development costs, which may be capitalized as noted above. Research and development costs include salaries, stock‑based compensation expense, benefits and other operating costs such as outside services, supplies and allocated overhead costs.

Advertising

Advertising costs are expensed as incurred and included in sales and marketing expense in the accompanying statements of operations. Advertising expense totaled $0.8 million, $0.9 million and $0.7 million for the years ended December 31, 2012, 2011 and 2010, respectively.

Income Taxes

The Company accounts for income taxes under the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between the financial statement and tax basis of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

Sales Taxes

When sales and other taxes are billed, such amounts are recorded as accounts receivable with a corresponding increase to sales tax payable, respectively. The balances are then removed from the consolidated balance sheet as cash is collected from the customer and as remitted to the tax authority.

Net (Loss) Income Per Share

Basic (loss) income per share is computed by dividing net (loss) income available to common stockholders by the sum of the weighted average number of common shares outstanding during the period, net of shares subject to repurchase. Net (loss) income available to common stockholders is calculated using the two class method as net (loss) income less the preferred stock dividend for the period less the amount of net (loss) income (if any) allocated to preferred based on weighted preferred stock outstanding during the period relative to total stock outstanding during the period.

Diluted (loss) income per share gives effect to all dilutive potential common shares outstanding during the period. The computation of diluted income per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings. The dilutive effect of outstanding stock options, warrants and restricted stock units (“RSUs”) is computed using the treasury stock method.

The following table sets forth the computation of basic and diluted net (loss) income per common share for the years ended

December 31, 2012, 2011 and 2010 (in thousands, except per share data):



	Years Ended December 31,
	2012			2011			2010
Numerator:
(Loss) income from continuing operations	$	(1,753	)	$	5,253		$	8,196
Loss from discontinued operations, net of tax	(1,666		)	(8,826		)	(4,393		)
Net (loss) income	(3,419		)	(3,573		)	3,803
Less: Accrued dividend on Series B mandatorily redeemable convertible preferred stock plus an 8% non-cumulative dividend on Series A and Series C mandatorily redeemable convertible preferred stock	—			294			3,523
Less: Allocation of net income to participating preferred shares	—			—			167
Numerator for basic calculation	(3,419		)	(3,867		)	113
Undistributed earnings re-allocated to common stockholders	—			—			13
Numerator for diluted calculation	$	(3,419	)	$	(3,867	)	$	126
Denominator:
Denominator for basic calculation, weighted average number of common shares outstanding	24,722			22,297			7,558
Dilutive effect of stock options, restricted stock units and warrants using the treasury stock method	—			1,578			1,587
Denominator for diluted calculation	24,722			23,875			9,145
Net (loss) income per share – basic
Continuing operations	$	(0.07	)	$	0.23		$	0.59
Discontinued operations, net of tax	(0.07		)	(0.40		)	(0.58		)
Net (loss) income per share attributable to common stockholders	$	(0.14	)	$	(0.17	)	$	0.01
Net (loss) income per share – diluted
Continuing operations	$	(0.07	)	$	0.23		$	0.59
Discontinued operations, net of tax	(0.07		)	(0.40		)	(0.58		)
Net (loss) income per share attributable to common stockholders	$	(0.14	)	$	(0.17	)	$	0.01

Diluted (loss) income per share would give effect to the dilutive impact of common stock equivalents which consists of convertible preferred stock and stock options and warrants (using the treasury stock method). Dilutive securities have been excluded from the diluted loss per share computations as such securities have an anti-dilutive effect on net (loss) income per share.

For the years ended December 31, 2012, 2011 and 2010, the following securities were not included in the calculation of fully diluted shares outstanding as the effect would have been anti-dilutive (in thousands):



	Years Ended December 31,
	2012	2011	2010
Common stock warrants ⁽¹⁾	5	11	18
Outstanding unexercised options and restricted stock units	4,092	3,034	3,138
Mandatorily redeemable convertible preferred stock	—	972	13,142
Total outstanding	4,097	4,017	16,298

⁽¹⁾ Series B preferred stock warrants were converted to common stock warrants upon the Company's IPO in 2011.

Comprehensive (Loss) Income

Comprehensive (loss) income consists of two components: net (loss) income and other comprehensive (loss) income. Other comprehensive (loss) income refers to losses or gains that, under GAAP, are recorded as elements of stockholders’ equity (deficit) but are excluded from net (loss) income. The Company’s other comprehensive (loss) income consists of unrealized gains (losses) on available-for-sale securities. Comprehensive (loss) income as of December 31, 2012, 2011 and 2010 consists of the following components, net of related tax effects (in thousands):



	Years Ended December 31,
	2012			2011			2010
Net (loss) income	$	(3,419	)	$	(3,573	)	$	3,803
Change in unrealized gain (loss) on available-for-sale securities, net of tax effect	1			(1		)	—
Comprehensive (loss) income	$	(3,418	)	$	(3,574	)	$	3,803

Recently Issued Accounting Guidance

In September 2011, the FASB issued new accounting guidance intended to simplify goodwill impairment testing. Entities are now allowed to perform a qualitative assessment on goodwill impairment to determine whether a quantitative assessment is necessary. This guidance was effective for the Company’s interim and annual periods beginning January 1, 2012. Early adoption of the standard was permitted. The Company adopted this standard for the annual period beginning January 1, 2012. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

In July 2012, the FASB issued new accounting guidance intended to simplify the testing of indefinite-lived intangible assets other than goodwill for impairment. Entities will be allowed to perform a qualitative assessment on indefinite-lived intangible assets (other than goodwill) to determine whether a quantitative assessment is necessary. This guidance will be effective for the Company’s interim and annual periods beginning January 1, 2013. The adoption of this guidance is not expected to have any impact on the Company’s financial position or the results of operations.

Segment Information

Previously, the Company had two reportable segments: (1) Subscriptions and Interactive Services and (2) EHR. On February 24, 2012, the Audit Committee of the Board of Directors of the Company, as authorized by the Board of Directors, approved the discontinuation of Epocrates’ EHR business. Upon such approval, the Company qualified for discontinued operations presentation under GAAP, and at such time, the EHR results were reported in loss from discontinued operations on the Company’s consolidated statements of comprehensive (loss) income. Prior period amounts have been revised in order to conform to the current period presentation. As a result of discontinuation of the EHR business, the Company operates only in the Subscriptions and Interactive Services segment subsequent to February 24, 2012. Substantially all of the Company’s revenues and all of the Company’s long-lived assets are located in the U.S.