We may have to
obtain financing on less favorable terms, which could dilute current
stockholders ownership interests in the company.
In
order to fund our operations and pursue our growth strategy we may seek
additional financing through public or private equity funding or from other
sources.
Our
consolidated financial statements have been prepared on the basis of a going
concern, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. If we became unable to continue
as a going concern, we would have to liquidate our assets and we might receive
significantly less than the values at which they are carried on our
consolidated financial statements. Any shortfall in the proceeds from the
liquidation of our assets would directly reduce the amounts, if any, that
holders of our common stock could receive in liquidation.
To
remain a going concern, we require significant funding. Our current financial
position may materially and adversely affect our stock price. Our independent
registered public accountants have included an explanatory paragraph in their
report for our fiscal year ended December 31, 2006 with respect to our
ability to continue as a going concern.
On
October 18, 2007 we closed a private placement transaction pursuant to a
securities purchase agreement dated as of October 18, 2007 with certain
accredited investors, pursuant to which we issued to the selling stockholders
15,714,285 shares of our common stock and warrants to purchase 4,714,285 shares
of our common stock in return for an aggregate consideration of $11.0 million.
We have no commitment for additional financing and we may experience difficulty
in obtaining additional financing on favorable terms, if at all. Any financing
we obtain may contain covenants that restrict our freedom to operate our
business or may have rights, preferences, or privileges senior to our common
stock and may dilute our current stockholders ownership interest in Viewpoint.
Our stock may be delisted from NASDAQ, which
may adversely affect our ability to raise capital and stockholders ability to
sell their shares.
The
Nasdaq Stock Market (Nasdaq) notified the Company on November 27, 2006 that
the Companys common stock could be delisted from Nasdaq for failure to
maintain a minimum bid price of $1.00 and that the Company had until May 29,
2007 to regain compliance with the listing standards of The Nasdaq Global
Market. On May 24, 2007, the Company received written notification from Nasdaq
that the Staff had approved the Companys application to transfer the listing
of the Companys common stock from The Nasdaq Global Market to The Nasdaq
Capital Market. The Companys securities commenced trading on The Nasdaq
Capital Market effective May 29, 2007. On June 6, 2007, the Company received
notification from Nasdaq that the Company has regained compliance with Nasdaqs
continued listing requirements under Marketplace Rule 4310(c)(4). The
notification provided that the closing bid price of the Companys common stock
has been at $1.00 per share or greater for at least 10 consecutive business
days and, accordingly, Nasdaq advised the Company that this matter is now
closed.
On
September 17, 2007 the Company received a second written notification from the
NASDAQ Listing Qualifications Department notifying management that, for the
last 30 consecutive business days, the bid price of the Companys common stock
has closed below the minimum $1.00 per share requirement for continued
inclusion under NASDAQ Marketplace Rule 4310(c)(4). The Company, in accordance
with NASDAQ Marketplace Rule 4310(c)(8)(D), has been provided 180 calendar days,
or until March 17, 2008, to regain compliance. To regain compliance, the bid
price of the Companys common stock must close at $1.00 per share or more for a
minimum of ten consecutive business days at any time before March 17, 2008.
If
the Company does not regain compliance with the NASDAQ Marketplace Rule
4310(c)(4) by March 17, 2008, the Staff will determine whether the Company
meets The Nasdaq Capital Market initial listing criteria as set forth in
Marketplace Rule 4310(c), except for the bid price requirement. If the Company
meets the initial listing criteria, the Staff will notify the Company that it
has been granted an additional 180 calendar day compliance period. If the
Company is not eligible for an additional compliance period, the Staff will
provide written notification that the Companys securities will be delisted. At
that time, the Company may appeal NASDAQs determination to delist its
securities to a Listing Qualifications Panel.
3
If
the Companys common stock is delisted from NASDAQ, the market liquidity of
the Companys common stock will be significantly limited, which would reduce
stockholders ability to sell Company securities in the secondary market.
Additionally, any such delisting would harm the Companys ability to raise
capital through alternative financing sources on acceptable terms, if at all,
and may result in the loss of confidence in the Companys financial stability
by suppliers, customers and employees. The Company cannot give investors in its
common stock any assurance that the Company will be able to regain and maintain
compliance with the $1.00 per-share minimum price requirement for continued
listing on NASDAQ or that its stock will not be delisted by NASDAQ.
If our common stock were to be delisted from
NASDAQ we would be in default of certain loan covenants which could require the
accelerated payment of our $3.1 million subordinated loan.
If
the Companys common stock is delisted from NASDAQ it will violate a covenant
within the 4.95% subordinated note agreement between the Company and Federal
Partners P, L.P., an affiliate of the Clark Estates which would accelerate the
maturity date of the $3.1 million of subordinated notes.
In
March 2007, the Company and Federal Partners, L.P. amended the 4.95%
subordinated note in the principal amount of $3.1 million (referred to herein
as the Holder) to extend the maturity date from March 31, 2008 to September
30, 2009 in exchange for the payment by Viewpoint of $0.2 million to the Holder
of the subordinated note, and adding $0.3 million to the principle of the note.
In addition, the amended note waived the aforementioned delisting covenant
through December 31, 2008.
Our efforts to distribute our graphically
enhanced search toolbar may experience setbacks limiting or reducing our search
revenue.
We
distribute our Graphically Enhanced Search toolbar through a complicated
process that relies on internet users visiting websites or seeing advertising
for a sufficient period of time to receive the software that eventually offers
them our search toolbar. We need to continue to expand our reach of internet
users who visit affiliated websites or view our advertising in order to receive
the software. During 2005, our rate of installation slowed to approximately 1.0
million per month, which has continued to decline to less than 0.5 million per
month in 2006. There can be no assurance that this rate of installation will
not continue to slow. Additionally, our reach is impacted by the rate of
uninstallation of our Viewpoint Toolbars. We believe 3.3 million, 6.6 million,
3.6 million and 2.1 million Viewpoint Toolbars were uninstalled during 2004,
2005, 2006, and the first nine months of 2007, respectively, after being
accepted by a consumer. The Viewpoint Toolbars could have been uninstalled for
a variety of reasons including lack of use, concern over performance,
acceptance of a competitors product or user error. If we are not able to
increase the rate of installation of the Viewpoint Toolbar, the pace of
uninstallations could lead to a decrease in our total net installed universe
and a decline in revenues. The Company is continuing to evaluate methods of
enhancing the toolbar users experience on the web through new features
(including 3-D widget applications). If the Company is unable to identify new
enhancements to toolbar users, the Company expects to see a decrease in revenue
in this segment.
The success of our graphically enhanced
search operations depends on users satisfaction with search results supplied
by Yahoo!.
We
have an agreement with Yahoo! which establishes Yahoo! as our exclusive
supplier of search results for the Viewpoint Toolbar. This agreement expires in
March 2008. The market for products that enable and supply search results is
relatively new, intensely competitive, and rapidly changing. Yahoo!s principal
competitors for supplying search results include Google Inc. and Microsoft. If
these or other competitors develop more popular search results, end users may choose
to use search toolbars or other search methods through which results from these
competitors are supplied.
We may be unable to successfully replace our
search results vendor when our distribution contract with Yahoo! expires in
March 2008.
We
receive paid search results from Yahoo!. Yahoo! is successful at attracting
advertisers who seek to purchase internet search advertisements, and our
agreement with Yahoo! provides us a satisfactory percentage of
4
those revenues. Our contract
with Yahoo! expires in March 2008. There can be no assurance that our agreement
with Yahoo! will be renewed on the same or more favorable terms, if at all.
Furthermore, there can be no assurance that we would be able to successfully
replace Yahoo! with another provider of search results on similar financial
terms if necessary.
Our software products may be wrongly labeled
as spyware or adware which might lead to its uninstallation causing a decrease
in our revenues.
Our
software products do not collect personally-identifiable information about
users or track their activity on the internet. Nonetheless, our software
products, including the Viewpoint Toolbar and the Viewpoint Media Player, have
been wrongly characterized as spyware or adware by certain security software
vendors. We monitor activity in this area and undertake efforts to educate
vendors about the characteristics of our software, and thus far have been
successful largely at getting these vendors to change their characterization of
our Viewpoint Toolbar. Should we fail to persuade such vendors about the
functionality of our Viewpoint Toolbar, or not learn about a false
characterization on a timely basis, a substantial number of our Viewpoint
Toolbars could be uninstalled leading to a decrease in our revenues and our
business will be materially and adversely affected.
Our business may not grow if the internet
advertising market does not continue to develop or if we are unable to
successfully implement our business model.
A
significant part of our business model is to generate revenue by providing
interactive marketing solutions to advertisers, ad agencies and web publishers.
The profit potential for this business model is unproven. For our business to
be successful, internet advertising will need to achieve increasing market
acceptance by advertisers, ad agencies and web publishers. The intense
competition among Internet advertising sellers has led to the creation of a
number of pricing alternatives for Internet advertising. These alternatives make
it difficult for us to project future levels of advertising revenue and
applicable gross margin that can be sustained by us or the Internet advertising
industry in general.
Intensive
marketing and sales efforts may be necessary to educate prospective advertisers
regarding the uses and benefits of, and to generate demand for, our products
and services. Advertisers may be reluctant or slow to adopt a new approach that
may replace, limit or compete with their existing systems. Acceptance of our new
solutions will depend on the continued emergence of Internet commerce,
communication, and advertising, and demand for its solutions. We cannot assure
you that use of the Internet will continue to grow or that current uses of the
Internet are sustainable.
Our failure to successfully compete may
hinder our growth.
The
markets for Internet advertising and related products and services are
intensely competitive and such competition is expected to increase. Our failure
to successfully compete may hinder our growth. Many of our competitors have
longer operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than ours.
In addition, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
increase the ability of their products or services to address the needs of our
prospective clients. We cannot be certain that we will be able to successfully compete
against current or future competitors. In addition, the Internet must compete
for a share of advertisers total budgets with traditional advertising media,
such as television, radio, cable and print, as well as content aggregation
companies and other companies that facilitate Internet advertising. To the
extent that the Internet is perceived to be a limited or ineffective
advertising or direct marketing medium, advertisers and direct marketers may be
reluctant to devote a significant portion of their advertising budgets to
Internet marketing.
Our revenues will be subject to seasonal
fluctuations.
We
believe that our revenues will be subject to seasonal fluctuations because
advertisers generally place fewer advertisements during the first and third
calendar quarters of each year and direct marketers mail substantially more
marketing materials in the third quarter of each year. Furthermore, Internet
user traffic typically drops during the summer months, which reduces the number
of advertisements to sell and deliver and searches performed.
5
Expenditures
by advertisers and direct marketers tend to vary in cycles that reflect overall
economic conditions as well as budgeting and buying patterns. Our revenue could
be materially reduced by a decline in the economic prospects of advertisers,
direct marketers or the economy in general, which could alter current or
prospective advertisers spending priorities or budget cycles or extend our
sales cycle. In addition, any decreases in or delays in advertising spending
due to general economic conditions could reduce our revenues or negatively
impact our ability to grow our revenues. Due to such risks, you should not rely
on quarter-to-quarter comparisons of our results of operations as an indicator
of our future results. Our staffing and other operating expenses are based in
large part on anticipated revenues. It may be difficult for us to adjust our
spending to compensate for any unexpected shortfall. If we are unable to reduce
our spending following any such shortfall, our results of operations would be
adversely affected.
We may enter into business combinations and
strategic alliances which could be difficult to integrate and may disrupt our
business.
We
acquired Unicast Communications Corp. on January 3, 2005, Makos Advertising,
L.P. on April 30, 2007 and Springbox Ltd. on October 31, 2007 and may continue
to pursue expansion of our operations or market presence by entering into
additional business combinations, investments, joint ventures or other
strategic alliances with other companies. These transactions create risks such
as:
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difficulty
assimilating the operations, technology and personnel of the combined
companies;
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disruption
of our ongoing business;
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problems
retaining key technical and managerial personnel;
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expenses
associated with amortization of purchased intangible assets;
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additional
operating losses and expenses of acquired businesses;
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responsibility
for liabilities of acquired businesses; and
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impairment
of relationships with existing employees, customers and business partners.
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We may need to develop new products or other
untested methods of increasing sales with our existing products or distribution
network to generate sales and if we are unsuccessful the growth of our business
may cease or decline.
Our
search and licensing revenues have declined significantly year-over-year. If
this decrease in sales of our products continues or our new products are
unsuccessful, we will be unable to generate sufficient revenues to offset
current costs. Accordingly, we may be required to develop new products or other
untested methods. If these new products or untested methods fail to increase
sales, our business may cease or decline.
We will need to keep pace with rapid
technological change in the internet search and advertising industries.
In
order to remain competitive, we will be continually required to enhance and to
improve the functionality and features of our Search and Advertising systems
products, which could require us to invest significant capital. If our
competitors introduce new products and services embodying new technologies, or
if new industry standards and practices emerge, our existing services,
technology, and systems may become obsolete and we may not have the funds or
technical know-how to upgrade our services, technology, and systems. We may
face material delays in introducing new services, products, and enhancements.
If such delays occur, our users may forego use of our services and select those
of our competitors,
in which event, our business, prospects, financial condition and results of
operations could be materially adversely affected.
Our ad campaign management and deployment
solution may not be successful and may cause business disruption.
6
The
Unicast Ad Platform (UAP) is our proprietary online advertising campaign
management and ad deployment technology. We must, among other things, ensure
that this technology will function efficiently at high volumes, interact
properly with our database, offer the functionality demanded by our customers
and assimilate our sales and reporting functions. Customers may become
dissatisfied by any system failure that interrupts our ability to provide our
services to them, including failures affecting our ability to deploy
advertisements without significant delay to the viewer. Sustained or repeated
system failures would reduce the attractiveness of our solutions to
advertisers, ad agencies, and web publishers and could result in contract
terminations, fee rebates and make-goods, thereby reducing revenue. Slower
response time or system failures may also result from straining the capacity of
our deployed software or hardware due to an increase in the volume of advertising
deployed through our servers. To the extent that we do not effectively address
any capacity constraints or system failures, our business, results of
operations and financial condition could be materially and adversely affected.
We might experience significant defects in
our products.
Software
products frequently contain errors or failures, especially when first
introduced or when new versions are released. We might experience significant
errors or failures in our products, or they might not work with other hardware
or software as expected, which could delay the growth of our Viewpoint Toolbar
or UAP products, or which could adversely affect market acceptance of our
products. Any significant product errors or design flaws would slow the adoption
of our products and cause damage to our reputation, which would seriously harm
our business. If customers were dissatisfied with product functionality or
performance, we could lose revenue or be subject to liability for service or
warranty costs and claims, and our business, operating results and financial
condition could be adversely affected.
Our technical systems are vulnerable to
interruption and damage.
A
disaster could interrupt our services for an indeterminate length of time and
severely damage our business, prospects, financial condition and results of
operations. Our systems and operations are vulnerable to damage or interruption
from fire, floods, power loss, telecommunications failures, break-ins,
sabotage, computer viruses, penetration of our network by unauthorized computer
users and hackers, and similar events. The occurrence of a natural disaster
or unanticipated problems at our technical operations facilities could cause
material interruptions or delays in our business, loss of data, or render us
unable to provide services to customers. Failure to provide the data
communications capacity we require, as a result of human error, natural
disaster, or other operational disruptions could cause interruptions in our
services and web sites. The occurrence of any or all of these events could
adversely affect our business, prospects, financial condition and results of
operations.
In
addition, interruptions in our services could result from the failure of our
telecommunications providers to provide the necessary data communications
capacity in the time frame we require. Our UAP technology resides on computer
systems located in our data centers hosted by IBM and Savvis and uses the
networking capabilities of these companies, Akamai and other providers. These
systems continuing and uninterrupted performance is critical to our success.
Despite precautions that we have taken, unanticipated problems affecting our
systems in the future could cause interruptions in the delivery of our solutions.
Our business, results of operations and financial condition could be materially
and adversely affected by any damage or failure that interrupts or delays our
operations. To improve the performance and to prevent disruption of our
services, we may have to make substantial investments to deploy additional
servers or one or more copies of our web sites to mirror our online resources.
Although we believe we carry property insurance with adequate coverage limits,
our coverage may not be adequate to compensate us for all losses, particularly
with respect to loss of business and reputation that may occur.
Our management team has only recently started
working together.
During
2005 and 2006, the Company hired several new sales and marketing managers,
general managers to run the product groups and appointed a new Chief Financial
Officer. While all these individuals were familiar with the Internet business
and Viewpoint in particular, and several had worked together before, there can
be no assurance that these employees will successfully be able to transfer
their experience to Viewpoint. Furthermore, there can be no assurance that
these new employees or existing Viewpoint employees will successfully support
one another to execute the required strategy and tactics to be a successful and
profitable company.
7
Our stock price is volatile, which could
subject us to class action litigation.
The
market price of our common stock has fluctuated significantly in the past. The
price at which our common stock will trade in the future will depend on a
number of factors including:
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actual or
anticipated fluctuations in our operating results;
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general
market and economic conditions affecting Internet companies;
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our
announcement of new products, technologies or services;
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developments
regarding our products, technologies or services, or those of our
competitors; and
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sales of
large blocks of common stock by individual or institutional shareholders.
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In
addition, securities class action litigation has often been brought against
companies following periods of volatility in the market price of their
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert managements
attention and resources, which could have a material adverse effect on our
business, financial condition, operating results and cash flows.
Our charter documents could make it more
difficult for an unsolicited third party to acquire us.
Our
certificate of incorporation and by-laws contain provisions that could make it
difficult for an unsolicited third party to acquire control of us, even if a
change in control would be beneficial to stockholders. For example, our certificate
of incorporation authorizes our board of directors to issue up to 5,000,000
shares of blank check preferred stock. Without stockholder approval, the
board of directors has the authority to attach special rights, including voting
and dividend rights, to this preferred stock. With these rights, preferred
stockholders could make it more difficult for an unsolicited third party to
acquire our company. In July 1998, the Board of Directors adopted a stockholder
rights plan, which was amended in June, 1999, November, 2000 and May, 2007. The
stockholder rights plan, as amended, provides for the issuance of preferred
stock purchase rights (Rights) to the holders of our common stock. The Rights
have certain anti-takeover effects and are designed to protect and maximize the
value of the outstanding equity interests in the Company in the event of an
unsolicited attempt by an acquiror to take over the Company in a manner or on
terms not approved by the Board of Directors. If triggered, the Rights would cause
substantial dilution to a person or group of persons who acquires more than 15%
(17.5% for Computer Associates International, Inc. and 19.99% for DG
FastChannel, Inc.) of the Companys common stock on terms not approved by the
Board of Directors. In addition, we must receive a stockholders proposal for
an annual meeting within a specified period for that proposal to be included on
the agenda. Because stockholders do not have the power to call meetings and
stockholder proposals for consideration at an annual or special meeting are
subject to timing requirements, any third-party takeover not supported by the
board of directors would be subject to significant delays and difficulties.
The market for digital visualization
solutions is characterized by rapidly changing technology, and if we do not
respond in a timely manner, our products and technologies may not succeed in
the marketplace.
The
market for e-commerce visualization solutions is characterized by rapidly
changing technology. As a result, our success depends substantially upon our
ability to continue to enhance our products and technologies and to develop new
products and technologies that meet customers increasing expectations.
Additionally, we may not be successful in developing and marketing enhancements
to our existing products and technologies or introducing new products and
technologies on a timely basis. Our new or enhanced products and technologies
may not succeed in the marketplace.
In
addition, the computer graphics industry is subject to rapidly changing methods
and models of information delivery. If a general market migration to a method
of information delivery that is not conforming with our technologies were to
occur, our business and financial results would be adversely impacted.
8
We may be unable to protect our intellectual
property rights.
Our
success and ability to compete substantially depend on the uniqueness or value
of our products and technologies. We rely on a combination of copyright,
trademark, patent, trade secret laws, and employee and third-party
nondisclosure agreements to protect our intellectual and proprietary rights,
products, and technologies. Policing unauthorized use of our products and
technologies is difficult and the steps we take may not prevent the
misappropriation or infringement of technology or proprietary rights. In
addition, litigation may be necessary to enforce our intellectual property
rights. Such misappropriation or litigation could result in substantial costs
and diversion of resources and the potential loss of intellectual property
rights, any of which would adversely impair our business.
We may be liable for infringing the
intellectual property rights of others.
Our
products and technologies may be the subject of infringement claims in the
future. This could result in costly litigation and could require us to obtain a
license to the intellectual property of third parties. We may be unable to
obtain licenses from these third parties on favorable terms, if at all. Even if
a license is available, we may have to pay substantial royalties to obtain it.
If we cannot obtain necessary licenses on reasonable terms, our business would
be adversely affected.
Regulatory and legal uncertainties could harm
our business.
We
are not currently subject to direct regulation by any government agency other
than laws or regulations applicable generally to e-commerce. Due to the
increasing popularity and use of the Internet and other online services,
federal, state, and local governments may adopt laws and regulations, or amend
existing laws and regulations, with respect to the Internet or other online
services covering issues such as user privacy, pricing, content, copyrights,
distribution, and characteristics and quality of products and services. In
1998, the United States Congress established the Advisory Committee on
Electronic Commerce which is charged with investigating, and making
recommendations to Congress regarding, the taxation of sales by means of the
Internet. Furthermore, the growth and development of the market for e-commerce
may prompt calls for more stringent consumer protection laws and impose
additional burdens on companies conducting business online. The adoption of any
additional laws or regulations may decrease the growth of the Internet or other
online services, which could, in turn, decrease the demand for our services and
increase our cost of doing business, or otherwise have a material adverse
effect on our business, prospects, financial condition and results of
operations. Moreover, the relevant governmental authorities have not resolved
the applicability to the Internet and other online services of existing laws in
various jurisdictions governing issues such as property ownership and personal
privacy and it may take time to resolve these issues definitively. Any new
legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to our business, or the
application of existing laws and regulations to the Internet and other online
services could have a material adverse effect on our business, prospects,
financial condition and results of operations.
Changes in regulations or user concerns
regarding privacy and protection of user data could adversely affect our
business.
Federal,
state and international laws and regulations may govern the collection, use,
sharing and security of data that we receive from our users and partners. In
addition, we have and post on our website our own privacy policies and
practices concerning the collection, use and disclosure of user data. Any
failure, or perceived failure, by us to comply with our posted privacy policies
or with any data-related consent orders, Federal Trade Commission requirements
or other federal, state or international privacy-related laws and regulations
could result in proceedings or actions against us by governmental entities or
others, which could potentially have an adverse effect on our business.
Further,
failure or perceived failure to comply with our policies or applicable
requirements related to the collection, use, sharing or security of personal
information or other privacy-related matters could result in a loss of user
confidence in us and ultimately in a loss of users, partners or advertisers,
which could adversely affect our business.
9
There
are a large number of legislative proposals pending before the United States
Congress, various state legislative bodies and foreign governments concerning
privacy issues related to our business. It is not possible to predict whether
or when such legislation may be adopted. Certain proposals, if adopted, could
impose requirements that may result in a decrease in our revenues. In addition,
the interpretation and application of user data protection laws are in a state
of flux. These laws may be interpreted and applied inconsistently from country
to country and inconsistently with our current data protection policies and
practices. Complying with these varying international requirements could cause
us to incur substantial costs or require us to change our business practices in
a manner adverse to our business.
Internet security poses risks to our entire
business.
The
process of e-commerce aggregation by means of our hardware and software
infrastructure involves the transmission and analysis of confidential and
proprietary information of the advertiser, as well as our own confidential and
proprietary information. The compromise of our security or misappropriation of
proprietary information could have a material adverse effect on our business,
prospects, financial condition and results of operations. We rely on encryption
and authentication technology licensed from other companies to provide the
security and authentication necessary to effect secure Internet transmission of
confidential information, such as credit and other proprietary information.
Advances in computer capabilities, new discoveries in the field of
cryptography, or other events or developments may result in a compromise or
breach of the technology used by us to protect client transaction data. Anyone
who is able to circumvent our security measures could misappropriate
proprietary information or cause material interruptions in our operations. We
may be required to expend significant capital and other resources to protect
against security breaches or to minimize problems caused by security breaches.
To the extent that our activities or the activities of others involve the
storage and transmission of proprietary information, security breaches could
damage our reputation and expose us to a risk of loss or litigation and
possible liability. Our security measures may not prevent security breaches.
Our failure to prevent these security breaches may have a material adverse
effect on our business, prospects, financial condition and results of
operations.