Chegg 2013 Annual Report Download - page 83

resulting in occasional rolling blackouts. Our textbook warehouse is located in Shepardsville, Kentucky, which is
adjacent to a flood zone. We store our textbook library in a single location in Kentucky and if floods, fire,
inclement weather including extreme rain, wind, heat or cold or accidents due to human error were to occur and
cause damage to our warehouse and our textbook library, our ability to fulfill orders for textbook rental and sales
transactions would be materially and adversely affected and our results of operations would suffer, especially if
such events were to occur during peak periods. We may not be able to effectively shift our operations due to
disruptions arising from the occurrence of such events, and our business could be affected adversely as a result.
Moreover, damage to or total destruction of our executive offices resulting from earthquakes may not be covered
in whole or in part by any insurance we may have.
If we are unable to implement and maintain effective internal control over financial reporting, investors may
lose confidence in the accuracy and completeness of our financial reports, which may cause the trading price
of our common stock to decline.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act, to
furnish a report by management on, among other things, the effectiveness of our internal control over financial
reporting beginning with our Annual Report on Form 10-K for the year ending December 31, 2014. This assessment
will need to include disclosure of any material weaknesses identified by our management in our internal control
over financial reporting. Our independent registered public accounting firm will not be required to attest to the
effectiveness of our internal control over financial reporting until our first annual report required to be filed with the
Securities and Exchange Commission, or SEC, following the later of the date we are deemed to be an “accelerated
filer” or a “large accelerated filer,” each as defined in the Securities Exchange Act of 1934, as amended, or
Exchange Act, or the date we are no longer an “emerging growth company,” as defined in the Jumpstart Our
Business Startups Act of 2012, or JOBS Act. We will be required to disclose changes made in our internal controls
and procedures on a quarterly basis. We may need to undertake various actions to comply with these requirements,
such as implementing new internal controls and procedures and hiring accounting or internal audit staff.
We are in the process of designing, implementing and testing the internal control over financial reporting
necessary to comply with Section 404 of the Sarbanes-Oxley Act, which is time consuming, costly and
complicated. We have not completed these procedures and until these controls are fully implemented and tested
there is a possibility that a material misstatement would not be prevented or detected on a timely basis. During
the evaluation and testing process, if we identify one or more material weaknesses in our internal control over
financial reporting, we will be unable to assert that our internal control over financial reporting is effective.
If we are unable to assert that our internal control over financial reporting is effective, or if our independent
registered public accounting firm is unable to express an opinion on the effectiveness of our internal control at
the time that such an opinion would be required, investors could lose confidence in the accuracy and
completeness of our financial reports, which would cause the price of our common stock to decline, and we may
be subject to investigation or sanctions by the SEC.
We may be subject to greater than anticipated liabilities for income, property, sales and other taxes, and any
successful action by federal, state, foreign or other authorities to collect additional taxes could adversely harm
our business.
We are subject to regular review and audit by both U.S. federal and state and foreign tax authorities and
such jurisdictions may assess additional taxes against us. Although we believe our tax estimates are reasonable,
the final determination of tax audits and any related litigation could be materially different from our historical tax
provisions and accruals and could have a negative effect on our financial position and results of operations. For
example, we appealed to the Kentucky Tax Authority’s property tax assessment on our textbook library located
in our Kentucky warehouse and the Commonwealth of Kentucky issued a ruling in favor of the Kentucky
Department of Revenue in January 2014 (see discussion below under Item 3 “Legal Proceedings”). In addition,
the taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing and
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