Enom 2012 Annual Report Download - page 27

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22
• international regulatory or governing bodies, such as the International Telecommunications Union or the European
Union, may gain increased influence over the management and regulation of the domain name registration system,
leading to increased regulation in areas such as taxation and privacy;
• ICANN or any registries may implement policy changes that would impact our ability to run our current business
practices throughout the various stages of the lifecycle of a domain name; and
• foreign constituents may succeed in their efforts to have domain name registration removed from a U.S. based entity
and placed in the hands of an international cooperative.
If any of these events occur, they could create instability in the domain name registration system. These events could also
disrupt or suspend portions of our domain name registration solution, which would result in reduced revenue.
The relevant domain name registry and the ICANN regulatory body impose a charge upon each registrar for the
administration of each domain name registration. If these fees increase, it would have a significant impact upon our
operating results.
Each registry typically imposes a fee in association with the registration of each domain name. For example, VeriSign, the
registry for .com, presently charges a $7.85 fee for each .com registration and ICANN currently charges a $0.18 fee for
each .com domain name registered in the generic top level domains, or gTLDs, that fall within its purview. We have no control
over these agencies and cannot predict when they may increase their respective fees. In terms of the extended registry
agreement between ICANN and VeriSign that was approved by the U.S. Department of Commerce on November 30, 2012,
VeriSign will continue as the exclusive registry for the .com gTLD through November 30, 2018. The terms of the extension set
a maximum price, with certain exceptions, for registry services for each calendar year beginning January 1, 2013 up to the
smaller of the preceding year's maximum price or the highest price charged during the preceding year, multiplied by 1.07;
provided, however, that such increases shall only be permitted in four years of any six year term of the agreement. The
increase in these fees either must be included in the prices we charge to our service providers, imposed as a surcharge or
absorbed by us. If we absorb such cost increases or if surcharges act as a deterrent to registration, we may find that our profits
are adversely impacted by these third-party fees.
As the number of available domain names with commercial value diminishes over time, our domain name registration
revenue and our overall business could be adversely impacted.
As the number of domain registrations increases and the number of available domain names with commercial value
diminishes over time, and if it is perceived that the more desirable domain names are generally unavailable, fewer Internet
users might register domain names with us. If this occurs, it could have an adverse effect on our domain name registration
revenue and our overall business.
Risks Relating to our Company
We have a history of operating losses and may not be able to operate profitably or sustain positive cash flow in future
periods.
We were founded in 2006 and have a limited operating history. We had a net loss in every year from inception until the
year ended December 31, 2012 when we generated net income. As of December 31, 2012, we had an accumulated deficit of
approximately $64.6 million and we may incur net operating losses in the future. Moreover, our cash flows from operating
activities in the future may not be sufficient to fund our desired level of investments in the production of content and the
purchase of property and equipment, domain names and other intangible assets. Our business strategy contemplates making
continued investments and expenditures in our content creation and distribution platform as well as the development and launch
of new products and services. In addition, as a public company, we have incurred and will continue to incur significant legal,
accounting and other expenses that we did not incur as a private company. Our ability to generate net income in the future will
depend in large part on our ability to generate and sustain substantially increased revenue levels, while continuing to control
our expenses. We may incur significant losses in the future for a number of reasons, including those discussed in other risk
factors and factors that we cannot foresee. Our inability to generate net income and sufficient positive cash flows would
materially and adversely affect our business, revenue, financial condition and results of operations.