Classmates.com 2005 Annual Report Download - page 28

We may not realize the benefits associated with our intangible assets and may be required to record a significant charge to earnings if
we are required to impair our goodwill or identifiable intangible assets.
We are required, under accounting principles generally accepted in the United States, to review our intangible assets for impairment when
events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value amount.
Goodwill is required to be tested for impairment at least annually. We have experienced impairment losses in the past and we cannot assure you
that we will not experience impairment losses in the future. Any such loss could adversely and materially impact our financial condition and
results of operations.
Our VoIP services and our digital photo-sharing services are relatively new and have not generated significant revenues. We have
capitalized certain proprietary rights related to our VoIP services as well as certain costs incurred by us in connection with the development of
our VoIP services. We have also capitalized goodwill and intangible assets in connection with the acquisition of certain assets related to
PhotoSite in March 2005. If these services are not commercially successful, we would likely be required to impair these assets which would
negatively impact our financial condition and results of operations.
Our ability to operate our business could be seriously harmed if we lose members of our senior management team or other key
employees.
Our business is largely dependent on the efforts and abilities of our senior management, particularly Mark Goldston, our chairman, chief
executive officer and president, and other key personnel. Any of our officers or employees can terminate his or her employment relationship at
any time. The loss of these key employees or our inability to attract or retain other qualified employees could seriously harm our business and
prospects. We do not carry key person life insurance on any of our employees.
Government regulation or taxation of the provision of Internet access, VoIP services and other services could decrease our revenues and
increase our costs.
Changes in the regulatory environment regarding the Internet could decrease our revenues and increase our costs. Currently, ISPs are
considered “information service” providers rather than “telecommunications” providers, and regulations that apply to telephone companies and
other telecommunications common carriers currently do not apply to our Internet access services. However, our Internet access services could
become subject to Federal Communications Commission and state regulation as Internet access services and telecommunications services
converge. If the regulatory status of ISPs changes, our business may be adversely affected.
In general, VoIP services are deemed interstate services subject to regulation by the FCC. The FCC made this determination concerning a
VoIP service offering by a particular provider of VoIP services. This FCC finding was specific to a particular company that provides a different
service than we offer, and our offering of VoIP services may or may not be found to be an interstate offering. Further, the FCC’s order finding
that a particular type of VoIP service is interstate has been appealed. We cannot predict what the outcome of the appeal will be nor can we
predict what impact, if any, it may have on our business.
On February 12, 2004, the FCC opened a rulemaking proceeding that is considering, among other things, whether to classify VoIP services
as information or telecommunications services under federal law. Other issues under consideration include access to telephone numbers,
contributions to the Universal Service Fund, the applicability of certain consumer protection rules, intercarrier compensation arrangements and
issues relating to the impact of VoIP services on providers of traditional telecommunications services in rural areas. Based on the conclusions
reached in that rulemaking, additional regulatory requirements, fees and surcharges may apply to our VoIP services, which may increase the
costs associated with our VoIP offerings. As a result, we may have to raise prices or terminate certain or all of our VoIP offerings.
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