Classmates.com 2006 Annual Report Download - page 21

We cannot assure you that our services and business practices, or changes to our services and business practices, will not subject us to claims and
liability by private parties or governmental agencies.
Defending against lawsuits and investigations involves significant expense and diversion of management’s attention and resources from
other matters. We may not prevail in existing claims or claims that may be made in the future. The failure to successfully defend against certain
types of claims, including claims based on infringement of proprietary rights, could require us to change our business practices or obtain licenses
from third parties, which licenses may not be available on acceptable terms, if at all. Lawsuits and investigations also involve the risk of
significant settlements or judgments against us. Both the cost of defending claims, as well as the effect of settlements and judgments, could cause
our results of operations to fluctuate significantly from period to period and could materially and adversely affect our business, financial
position, results of operations and cash flows.
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 indicate the fair value of a reporting unit below its carrying value amount. Goodwill is
required to be tested for impairment at least annually. Certain of our services are relatively new and have not generated significant revenues. We
have capitalized certain proprietary rights related to some of these services as well as certain costs incurred by us in connection with the
development of these services. We have also capitalized goodwill and intangible assets in connection with some of our acquisitions. If these
services are not commercially successful, we would likely be required to record an impairment charge for these assets which would negatively
impact our financial condition and results of operations. For example, in the fourth quarter of 2006, we had to write-down (impair) certain long-
lived assets associated with our VoIP services and certain goodwill and intangible assets associated with the acquisition of our photo-sharing
service. 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 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 R. Goldston, our chairman and
chief executive officer, 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 laws and regulation changes and new laws and regulations.
We are subject to a variety of international, federal, state and local laws and regulations, including those relating to issues such as user
privacy and data protection, defamation, pricing, advertising, taxation, sweepstakes, promotions, billing, content regulation, bulk email or
“spam,” anti-spyware initiatives, security breaches and consumer protection. Compliance with the various laws and regulations, which in many
instances are unclear or unsettled, is complex. Any changes in such laws and regulations, the enactment of any additional laws or regulations, or
increased enforcement activity of such laws and regulations, could significantly impact our costs or the manner in which we conduct business, all
of which could adversely impact our results of operations and cause our business to suffer.
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