Classmates.com 2007 Annual Report Download - page 30

Currently, ISPs are considered "information service" providers and regulations that apply to telephone companies and other
telecommunications common carriers 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. The Internet Tax Freedom Act, which placed a moratorium on new
state and local taxes on Internet commerce, is in effect through November 2014. However, future laws imposing taxes or other regulations on the
provision of goods and services over the Internet could make it substantially more expensive to operate our business.
Our business could be shut down or severely impacted by a catastrophic event.
Our computer equipment and the telecommunications infrastructure of our third-party network providers are vulnerable to damage from
fires, earthquakes, floods, power loss, telecommunications failures, terrorism, and similar events. We have experienced situations where power
loss and telecommunications failures have adversely impacted our services, although to date such failures have not been material to our
operations. Despite our implementation of network security measures, our servers are also vulnerable to computer viruses, worms, physical and
electronic break-
ins, sabotage, and similar disruptions from unauthorized tampering of our computer systems. In addition, a significant portion of
our critical computer equipment, including our data centers, is located in areas of the states of California and Washington that are particularly
susceptible to earthquakes, and a significant portion of our Classmates subsidiary's computer equipment and data centers are also located in a
flood plain. We do not presently maintain redundant capabilities for our Classmates and MyPoints services and a catastrophic event could result
in a significant and extended disruption of these services. Currently, we do not have a disaster recovery plan to address these and other
vulnerabilities. As a result, it would be difficult to operate the Classmates and MyPoints businesses in the event of a disaster. While we maintain
redundant capabilities for our Internet access services, a disaster could result in a significant and extended disruption of these services as well.
Any prolonged disruption of our services due to these or other events would severely impact or shut down our business. We do not carry
earthquake or flood insurance, and the property, business interruption and other insurance we do carry may not be sufficient to cover, if at all,
losses that may occur as a result of any events which cause interruptions in our services.
Our business could be severely impacted due to political instability or other factors in India or the Philippines.
We have a significant number of employees located in our India office. In addition, a significant portion of our customer support is handled
by a third-party vendor with customer support agents located in call centers in India and the Philippines. Our internal product development,
customer support and quality assurance operations as well as our third-
party vendor's customer support operations would be severely disrupted if
telecommunications issues, political instability, labor strife or other factors adversely impacted these operations or the ability to communicate
with these operations. Any disruption that continued for an extended period of time would likely have a material adverse effect on our ability to
service our customers and develop our products and services. If we or our customer support vendor were to cease operations in India or the
Philippines and transfer these operations to another geographic area, such change could result in increased overhead and customer service costs
which could materially and adversely impact our results of operations.
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