Carbonite 2011 Annual Report Download - page 23

Table of Contents
including for past sales by us or our resellers and other partners. A successful assertion by a state, country, or other jurisdiction that we should have or
should be collecting sales, use, or other taxes on our services could, among other things, result in substantial tax liabilities for past sales, create
significant administrative burdens for us, discourage customers from purchasing our services, or otherwise harm our business and operating results.
Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.
As of December 31, 2011, we had federal, state, and foreign net operating loss carryforwards, or NOLs, of $89.0 million, $83.9 million and $1.0
million, respectively, available to offset future taxable income, which expire in various years through 2032 if not utilized. A lack of future taxable
income would adversely affect our ability to utilize these NOLs before they expire. Under the provisions of the Internal Revenue Code of 1986, as
amended, or the Internal Revenue Code, substantial changes in our ownership may limit the amount of pre-change NOLs that can be utilized annually in
the future to offset taxable income. Section 382 of the Internal Revenue Code, or Section 382, imposes limitations on a company’
s ability to use NOLs if
a company experiences a more-than-50-percent ownership change over a three-year testing period. We performed an analysis of our changes in
ownership through December 31, 2011 and have adjusted our NOLs as of that date to reflect the usage limitations, calculated in accordance with
Section 382, resulting from such changes in ownership. If additional changes in our ownership occur in the future, our ability to use NOLs may be
further limited. For these reasons, we may not be able to utilize a material portion of the NOLs, even if we achieve profitability. If we are limited in our
ability to use our NOLs in future years in which we have taxable income, we will pay more taxes than if we were able to fully utilize our NOLs. This
could adversely affect our operating results and the market price of our common stock.
Any expenses or liability resulting from litigation could adversely affect our operating results and financial condition.
From time to time, we may be subject to claims or litigation, including intellectual property litigation as described elsewhere in this Annual Report
on Form 10-K. Any such claims or litigation may be time-
consuming and costly, divert management resources, require us to change our services, require
us to refund subscription fees, or have other adverse effects on our business. Any of the foregoing could have a material adverse effect on our operating
results and could require us to pay significant monetary damages. In addition, we receive and must respond on a periodic basis to subpoenas from law
enforcement agencies seeking copies of a customer’s data stored on our servers in connection with criminal investigations. While we have in place a
procedure to respond to such subpoenas, any failure on our part to properly respond to such subpoena requests could expose us to litigation or other
proceedings and adversely affect our business, financial condition, and operating results.
Our success depends on our customers’ continued high-speed access to the internet and the continued reliability of the internet infrastructure.
Our business depends on our customers’ high-speed access to the internet, as well as the continued maintenance and development of the internet
infrastructure. The future delivery of our solutions will depend on third party internet service providers to expand high-
speed internet access, to maintain
a reliable network with the necessary speed, data capacity and security, and to develop complementary products and services, including high-speed
modems, for providing reliable and timely internet access and services. All of these factors are out of our control. To the extent that the internet
continues to experience an increased number of users, frequency of use, or bandwidth requirements, the internet may become congested and be unable to
support the demands placed on it, and its performance or reliability may decline. Any internet outages or delays could adversely affect our ability to
provide services to our customers.
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