Classmates.com 2004 Annual Report Download - page 60

We cannot predict our future capital needs and we may not be able to secure additional financing.
We may need to raise additional funds in the future to fund our operations, for acquisitions of businesses or technologies or for other
purposes. Additional financing may not be available on terms favorable to us, or at all. If adequate funds are not available or not available when
required in sufficient amounts or on acceptable terms, we may not be able to devote sufficient cash resources to continue to provide our services
in their current form, acquire additional users, enhance or expand our services, respond to competitive pressures or take advantage of perceived
opportunities, and our business and its future prospects may suffer.
We have anti-takeover provisions that may make it difficult for a third party to acquire us.
Provisions of our certificate of incorporation, our bylaws and Delaware law could make it difficult for a third party to acquire us, even if
doing so might be beneficial to our stockholders because of a premium price offered by a potential acquirer. In addition, our board of directors
adopted a stockholder rights plan, which is an anti-takeover measure that will cause substantial dilution to a person who attempts to acquire our
company on terms not approved by our board of directors.
Our stock price has been highly volatile and may continue to be volatile.
The market price of our common stock has fluctuated significantly since our stock began trading on the Nasdaq National Market in
September 2001 and it is likely to continue to be volatile with extreme volume fluctuations. In addition, the Nasdaq National Market, where most
publicly held Internet companies are traded, has experienced substantial price and volume fluctuations. These broad market and industry factors
may harm the market price of our common stock, regardless of our actual operating performance, and for this or other reasons we could suffer
significant declines in the market price of our common stock.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks arising from transactions in the normal course of business, principally risk associated with interest
rate and foreign currency fluctuations.
Interest Rate Risk
We have interest rate risk primarily related to our investment portfolio. We maintain a short-term investment portfolio consisting of U.S.
commercial paper, U.S. Government or U.S. Government Agency obligations, municipal obligations and money market funds. Our primary
objective is the preservation of principal and liquidity while maximizing yield. The minimum long-term rating is A, and if a long-term rating is
not available, we require a short-term credit rating of A1 and P1. The value of these investments may fluctuate with changes in interest rates.
However, we believe this risk is immaterial due to the short-term nature of the investments.
Foreign Currency Risk
We transact business in different foreign currencies and may be exposed to financial market risk resulting from fluctuations in foreign
currency exchange rates, particularly the Indian Rupee (INR) and the Euro, which may result in a gain or loss of earnings to us. The volatility of
the INR and the Euro (and all other applicable currencies) is monitored throughout the year. We face two risks related to foreign currency
exchange: translation risk and transaction risk. Amounts invested in our foreign operations are translated into U.S. dollars using period-end
exchange rates. The resulting translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in
stockholders' equity. Our foreign subsidiaries generally collect revenues and pay expenses in currencies other than the U.S. dollar. Since the
functional currencies of our foreign operations are denominated
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