| KNOT INC Item 1A Risk Factors RISK FACTORS THAT MAY AFFECT FUTURE RESULTS In addition to other information in this Annual Report on Form 10-K, the following risk factors should be carefully considered in evaluating our business because such factors currently or may have a significant impact on our business, operating results or financial condition |
| This Annual Report on Form 10-K may contain forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995 |
| Actual results could differ materially from those projected in the forward-looking statements as a result of the risk factors set forth below and elsewhere in this Annual Report |
| We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future |
| Risks Related to Our Business We have an unproven business model, and it is uncertain whether online wedding-related sites can generate sufficient revenues to survive |
| Our model for conducting business and generating revenues is unproven |
| Our business model depends in large part on our ability to generate revenue streams from multiple sources through our online sites, including online sponsorship and advertising fees from third parties and online sales of wedding gifts and supplies |
| It is uncertain whether wedding-related online sites that rely on attracting sponsors and advertisers, as well as people to purchase wedding gifts and supplies, can generate sufficient revenues to survive |
| For our business to be successful, we must provide users with an acceptable blend of products, information, services and community offerings that will attract wedding consumers to our online sites frequently |
| In addition, we must provide sponsors, advertisers and vendors the opportunity to reach these wedding consumers |
| We provide our services to users without charge, and we may not be able to generate sufficient revenues to pay for these services |
| Moreover, we face many of the risks and difficulties frequently encountered in new and rapidly evolving markets, including the online advertising and e-commerce markets |
| These risks include our ability to: • increase the audience on our sites; • broaden awareness of our brand; • strengthen user loyalty; • offer compelling content; • maintain our leadership in generating traffic; • maintain our current, and develop new, strategic relationships; • attract a large number of advertisers from a variety of industries; • respond effectively to competitive pressures; • continue to develop and upgrade our technology; and • attract, integrate, retain and motivate qualified personnel |
| These risks could negatively impact our financial condition if left unaddressed |
| Accordingly, we are not certain that our business model will continue to be successful or that we can sustain revenue growth or profitability |
| We have a history of significant losses since our inception and may incur significant losses in the future |
| While we have achieved profitability in the last three fiscal years, we have incurred significant accumulated losses |
| As of December 31, 2005, our accumulated deficit was dlra42dtta2 million |
| We expect to continue to incur significant operating expenses and, as a result, we will need to generate significant revenues to maintain profitability |
| We cannot assure you that we can sustain or increase profitability on a quarterly or annual basis in the future |
| Failure to maintain profitability may materially and adversely 12 _________________________________________________________________ affect our business, results of operations and financial condition and the market price of our common stock |
| We lack significant revenues and may be unable to adjust spending quickly enough to offset any unexpected revenue shortfall |
| Our revenues for the foreseeable future will remain dependent on online user traffic levels, advertising activity, both online and offline, the extension of our brand into other life stages and services, and the expansion of our e-commerce activity |
| In addition, we plan to expand and develop content and to continue to upgrade and enhance our technology and infrastructure |
| We incur a significant percentage of our expenses, such as employee compensation, prior to generating revenues associated with those expenses |
| Moreover, our expense levels are based, in part, on our expectation of future revenues |
| We may be unable to adjust spending quickly enough to offset any unexpected revenue shortfall |
| If we have a shortfall in revenues or if operating expenses exceed our expectations or cannot be adjusted accordingly, then our results of operations would be materially and adversely affected |
| If sales to sponsors or advertisers forecasted in a particular period are delayed or do not otherwise occur, our results of operations for a particular period would be materially and adversely affected |
| The time between the date of initial contact and the execution of a contract with a national sponsor or advertiser is often lengthy, typically ranging from six weeks for smaller programs and several months for larger programs, and may be subject to delays over which we have little or no control, including: • the occurrence of extraordinary events, such as the attacks on September 11, 2001; • customers &apos budgetary constraints; • customers &apos internal acceptance reviews; • the success and continued internal support of advertisers &apos and sponsors &apos own development efforts; and • the possibility of cancellation or delay of projects by advertisers or sponsors |
| During the sales cycle, we may expend substantial funds and management resources in advance of generating sponsorship or advertising revenues |
| Accordingly, if sales to advertisers or sponsors forecasted in a particular period are delayed or do not otherwise occur, we would generate less sponsorship and advertising revenues during that period, and our results of operations may be adversely affected |
| Our quarterly revenues and operating results are subject to significant fluctuation, and these fluctuations may adversely affect the trading price of our common stock |
| Our quarterly revenues and operating results have fluctuated significantly in the past and are expected to continue to fluctuate significantly in the future as a result of a variety of factors, many of which are outside our control |
| These factors include: • the level of online usage and traffic on our websites; • seasonal demand for e-commerce; • the addition or loss of advertisers; • the advertising budgeting cycles of specific advertisers; • the regional and national magazines &apos publishing cycles; • the amount and timing of capital expenditures and other costs relating to the expansion of our operations, including those related to acquisitions; • the introduction of new sites and services by us or our competitors; • changes in our pricing policies or the pricing policies of our competitors; and • general economic conditions, as well as economic conditions specific to the Internet, online and offline media and electronic commerce |
| 13 _________________________________________________________________ We do not believe that period-to-period comparisons of our operating results are necessarily meaningful and you should not rely upon these comparisons as indicators of our future performance |
| Due to the foregoing factors, it is also possible that our results of operations in one or more future quarters may fall below the expectations of investors and/or securities analysts |
| In such event, the trading price of our common stock is likely to decline |
| Because the frequency of weddings vary from quarter to quarter, our operating results may fluctuate due to seasonality |
| In 2004, according to the National Center of Health Statistics, 20prca of weddings in the United States occurred in the first quarter, 25prca occurred in the second quarter, 31prca occurred in the third quarter and 24prca occurred in the fourth quarter |
| We have limited experience generating merchandise revenues |
| Based upon our limited experience, we believe wedding related merchandise revenues generally are lower in the first and fourth quarters of each year |
| As a result of these factors, we may experience fluctuations in our revenues from quarter to quarter |
| We depend on our strategic relationships with other websites |
| We depend on establishing and maintaining distribution relationships with high-traffic websites such as MSN and Comcast for a portion of our traffic |
| There is intense competition for placements on these sites, and we may not be able to continue to enter into such relationships on commercially reasonable terms, if at all |
| Even if we enter into or maintain distribution relationships with these websites, they themselves may not attract a significant number of users |
| Therefore, our sites may not receive additional users from these relationships |
| Moreover, we may be required to pay significant fees to establish and maintain these relationships |
| Our business, results of operations and financial condition could be materially and adversely affected if we do not establish and maintain strategic relationships on commercially reasonable terms or if any of our strategic relationships do not result in increased use of our websites |
| The market for Internet advertising is still developing, and if the Internet fails to gain further acceptance as a media for advertising, we would experience slower revenue growth than expected or a decrease in revenue and would incur greater than expected losses |
| Our future success depends, in part, on a significant increase in the use of the Internet as an advertising and marketing medium |
| Total online sponsorship and advertising revenues constituted 34prca, 43prca and 50prca of our net revenues for the years ended December 31, 2003, 2004 and 2005, respectively |
| The Internet advertising market is still developing, and it cannot yet be compared with traditional advertising media to gauge its effectiveness |
| As a result, demand for and market acceptance of Internet advertising solutions are uncertain |
| Many of our current and potential customers have little or no experience with Internet advertising and have allocated only a limited portion of their advertising and marketing budgets to Internet activities |
| The adoption of Internet advertising, particularly by entities that have historically relied upon traditional methods of advertising and marketing, requires the acceptance of a new way of advertising and marketing |
| These customers may find Internet advertising to be less effective for meeting their business needs than traditional methods of advertising and marketing |
| Furthermore, there are software programs that limit or prevent advertising from being delivered to a userapstas computer |
| Widespread adoption of this software by users would significantly undermine the commercial viability of Internet advertising |
| We may be unable to continue to build awareness of The Knot and The Nest brand names which would negatively impact our business and cause our revenues to decline |
| Building recognition of our brand is critical to attracting and expanding our online user base and our offline readership |
| Because we plan to continue building brand recognition, we may find it necessary to accelerate expenditures on our sales and marketing efforts or otherwise increase our financial commitment to creating and maintaining brand awareness |
| Our failure to successfully promote and maintain our brand would adversely affect our business and cause us to incur significant expenses in promoting our brand without an associated increase in our net revenues |
| 14 _________________________________________________________________ Our business could be adversely affected if we are not able to successfully integrate any future acquisitions or successfully operate under our strategic partnerships |
| In the future, we may acquire, or invest in, complementary companies, products or technologies or enter into new strategic partnerships |
| Acquisitions, investments and partnerships involve numerous risks, including: • difficulties in integrating operations, technologies, products and personnel; • diversion of financial and management resources from existing operations; • risks of entering new markets; • potential loss of key employees; and • inability to generate sufficient revenues to offset acquisition or investment costs |
| The costs associated with potential acquisitions or strategic alliances could dilute your investment or adversely affect our results of operations |
| To pay for an acquisition or to enter into a strategic alliance, we might use equity securities, debt, cash, or a combination of the foregoing |
| If we use equity securities, our stockholders may experience dilution |
| In addition, an acquisition may involve non-recurring charges, including writedowns of significant amounts of goodwill |
| The related increases in expenses could adversely affect our results of operations |
| Any such acquisitions or strategic alliances may require us to obtain additional equity or debt financing, which may not be available on commercially acceptable terms, if at all |
| If we cannot protect our domain names, it will impair our ability to successfully brand The Knot |
| We currently hold various Web domain names, including www |
| The acquisition and maintenance of domain names generally is regulated by Internet regulatory bodies |
| The regulation of domain names in the United States and in foreign countries is subject to change |
| Governing bodies may establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names |
| Furthermore, it is unclear whether laws protecting trademarks and similar proprietary rights will be extended to protect domain names |
| Therefore, we may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights |
| We may not successfully carry out our business strategy of establishing a strong brand for The Knot if we cannot prevent others from using similar domain names or trademarks |
| This could impair our ability to increase market share and revenues |
| Our business and prospects would suffer if we are unable to protect and enforce our intellectual property rights |
| We rely upon copyright, trade secret and trademark law, assignment of invention and confidentiality agreements and license agreements to protect our proprietary technology, processes, content and other intellectual property to the extent that protection is sought or secured at all |
| The steps we might take may not be adequate to protect against infringement and misappropriation of our intellectual property by third parties |
| Similarly, third parties may be able to independently develop similar or superior technology, processes, content or other intellectual property |
| The unauthorized reproduction or other misappropriation of our intellectual property rights could enable third parties to benefit from our technology without paying us for it |
| If this occurs, our business and prospects would be materially and adversely affected |
| In addition, disputes concerning the ownership or rights to use intellectual property could be costly and time-consuming to litigate, may distract management from other tasks of operating the business, and may result in our loss of significant rights and the loss of our ability to operate our business |
| 15 _________________________________________________________________ Our products and services may infringe on intellectual property rights of third parties and any infringement could require us to incur substantial costs and distract our management |
| Although we avoid knowingly infringing intellectual rights of third parties, including licensed content, we may be subject to claims alleging infringement of third-party proprietary rights |
| If we are subject to claims of infringement or are infringing the rights of third parties, we may not be able to obtain licenses to use those rights on commercially reasonable terms, if at all |
| In that event, we would need to undertake substantial reengineering to continue our online offerings |
| Any effort to undertake such reengineering might not be successful |
| Furthermore, a party making such a claim could secure a judgment that requires us to pay substantial damages |
| A judgment could also include an injunction or other court order that could prevent us from selling our products |
| Any claim of infringement could cause us to incur substantial costs defending against the claim, even if the claim is invalid, and could distract our management from our business |
| WeddingChannel |
| has filed a complaint against us alleging, among other claims, that we have violated their US Patent 6cmam618cmam753 (“Systems and Methods for Registering Gift Registries and for Purchasing Gifts”), and further alleges that certain actions of The Knot give rise to various federal statute, state statute and common law causes of actions |
| WeddingChannel is seeking, among other things, damages and injunctive relief |
| If we are found to have willfully infringed the patent-in-suit, enhanced damages may be awarded |
| This complaint was served on The Knot on September 22, 2003 |
| Based on information currently available, we believe that the claims are without merit and we are vigorously defending The Knot against all claims |
| We have filed an answer and counterclaims against WeddingChannel |
| Our answer raises various defenses to the counts alleged by WeddingChannel |
| Additionally, we have brought counterclaims including a request that the court declare that the patent-in-suit is invalid, unenforceable and not infringed |
| On April 15, 2005, WeddingChannel specified that they were seeking damages in an amount ranging from approximately dlra1cmam100cmam000 to in excess of approximately dlra13cmam000cmam000 plus interest |
| We raised defenses to WeddingChannelapstas patent and other claims, which, if successful, would obviate or substantially limit any potential damages payments |
| WeddingChannel has also requested unspecified damages in connection with other claims set forth in its complaint |
| We have filed a series of summary judgment motions seeking to dismiss entirely and/or limit WeddingChannelapstas claims for patent infringement, and WeddingChannel filed certain “cross-motions” for summary judgment concerning certain of our defenses |
| These motions were argued before the Court on September 28 and October 19, 2005, and have not yet been decided |
| On January 17, 2006, a stay was entered in the litigation between The Knot and WeddingChannel for a period of not less than 60 days, upon the joint request of the parties |
| If the stay is lifted, and if our motions are unsuccessful and some portion of WeddingChannelapstas patent infringement claims remain, the case may go to trial in the second quarter of 2006 |
| There can be no assurance that our answer or counterclaims against WeddingChannel will be successful |
| If our answer and our defenses do not succeed or if our counterclaims are found to be without merit, or if we determine to settle this litigation at a later date, we could suffer harm to our business and a material adverse effect to our financial condition and results of operations |
| Our general and administrative expenses increased to dlra14dtta5 million for the year ended December 31, 2005, from dlra11dtta1 million for the year ended December 31, 2004 and dlra7dtta5 million for the year ended December 31, 2003 |
| These expenses include legal fees related to the litigation with WeddingChannel of dlra4dtta8 million, dlra3dtta1 million and dlra136cmam000, respectively |
| We cannot predict at this time the amount of additional legal fees that we may incur |
| There can be no assurance that we will not incur substantial legal fees in 2006 or beyond in connection with this litigation, at levels equal to or greater than the amount of fees incurred in 2005 |
| Increased competition in our markets could reduce our market share, the number of our advertisers, our advertising revenues and our margins |
| The Internet advertising and online wedding markets are still developing |
| Additionally, both the Internet advertising and online wedding markets and the wedding magazine publishing markets are 16 _________________________________________________________________ intensely competitive, and we expect competition to intensify in the future |
| We face competition for members, users, readers and advertisers from the following areas: • online services or websites targeted at brides and grooms as well as the online sites of retail stores, manufacturers and regional wedding directories; • bridal magazines, such as Brideapstas and Modern Bride (both part of the Conde Nast family); and • online and retail stores offering gift registries, especially from retailers offering specific bridal gift registries |
| We expect competition to increase because of the business opportunities presented by the growth of the Internet and e-commerce |
| Our competition may also intensify as a result of industry consolidation and a lack of substantial barriers to entry |
| Many of our current and potential competitors have longer operating histories, significantly greater financial, technical and marketing resources, greater name recognition and substantially larger user, membership or readership bases than we have and, therefore, have significant ability to attract advertisers, users and readers |
| In addition, many of our competitors may be able to respond more quickly than we can to new or emerging technologies and changes in Internet user requirements, as well as devote greater resources than we can to the development, promotion and sale of services |
| There can be no assurance that our current or potential competitors will not develop products and services comparable or superior to those that we develop or adapt more quickly than we do to new technologies, evolving industry trends or changing Internet user preferences |
| Increased competition could result in price reductions, lower margins or loss of market share |
| There can be no assurance that we will be able to compete successfully against current and future competitors |
| Our potential inability to compete effectively in our industry for qualified personnel could hinder the success of our business |
| Competition for personnel in the Internet and wedding industries is intense |
| We may also face difficulties attracting, integrating or retaining other highly qualified employees in the future |
| Terrorism and the uncertainty of war may have a material adverse effect on our operating results |
| Terrorist attacks, such as the attacks that occurred in New York and Washington, DC on September 11, 2001, and other acts of violence or war may affect the market on which our common stock will trade, the markets in which we operate or our operating results |
| Further terrorist attacks against the United States or US businesses may occur |
| The potential near-term and long-term effect these attacks may have for our customers, the market for our common stock, the markets for our services and the US economy are uncertain |
| The consequences of any terrorist attacks, or any armed conflicts which may result, are unpredictable; and we may not be able to foresee events that could have an adverse effect on our business |
| We may not be able to obtain additional financing necessary to execute our business strategy |
| We currently believe that our current cash and cash equivalents will be sufficient to fund our working capital and capital expenditure requirements for at least the next twelve months |
| Our ability to meet our obligations in the ordinary course of business is dependent upon our ability to maintain profitable operations and/or raise additional financing through public or private equity financings, or other arrangements with corporate sources, or other sources of financing to fund operations |
| However, there is no assurance that we will maintain profitable operations or that additional funding, if required, will be available to us in amounts or on terms acceptable to us |
| 17 _________________________________________________________________ Systems disruptions and failures could cause advertiser or user dissatisfaction and could reduce the attractiveness of our sites |
| The continuing and uninterrupted performance of our computer systems is critical to our success |
| Our advertisers and sponsors, users and members may become dissatisfied by any systems disruption or failure that interrupts our ability to provide our services and content to them |
| Substantial or repeated system disruption or failures would reduce the attractiveness of our online sites significantly |
| Substantially all of our systems hardware required to run our sites is located at Globix Corporationapstas facilities in New York, New York |
| Globix emerged from bankruptcy protection in April 2002 |
| Fire, floods, earthquakes, power loss, telecommunications failures, break-ins, acts of terrorism and similar events could damage these systems |
| Our operations depend on the ability of Globix to protect its own systems and our systems in its data center against damage from fire, power loss, water damage, telecommunications failure, vandalism and similar unexpected adverse events |
| Although Globix provides comprehensive facilities management services, Globix does not guarantee that our Internet access will be uninterrupted, error-free or secure |
| In addition, computer viruses, electronic break-ins or other similar disruptive problems could also adversely affect our online sites |
| Our business could be materially and adversely affected if our systems were affected by any of these occurrences |
| We do not presently have any secondary “off-site” systems or a formal disaster recovery plan |
| Our sites must accommodate a high volume of traffic and deliver frequently updated information |
| Our sites have in the past experienced slower response times |
| These types of occurrences in the future could cause users to perceive our sites as not functioning properly and therefore cause them to use another online site or other methods to obtain information or services |
| In addition, our users depend on Internet service providers, online service providers and other site operators for access to our online sites |
| Many of them have experienced significant outages in the past, and could experience outages, delays and other difficulties due to system disruptions or failures unrelated to our systems |
| Although we carry general liability insurance, our insurance may not cover any claims by dissatisfied advertisers or customers or may not be adequate to indemnify us for any liability that may be imposed in the event that a claim were brought against us |
| Any system disruption or failure, security breach or other damage that interrupts or delays our operations could cause us to lose users, sponsors and advertisers and adversely affect our business and results of operations |
| We may not be able to deliver various services if third parties fail to provide reliable software, systems and related services to us |
| We are dependent on various third parties for software, systems and related services in connection with our hosting, placement of advertising, accounting software, data transmission and security systems |
| Several of the third parties that provide software and services to us have a limited operating history and have relatively new technology |
| These third parties are dependent on reliable delivery of services from others |
| If our current providers were to experience prolonged systems failures or delays, we would need to pursue alternative sources of services |
| Although alternative sources of these services are available, we may be unable to secure such services on a timely basis or on terms favorable to us |
| As a result, we may experience business disruptions if these third parties fail to provide reliable software, systems and related services to us |
| We may be liable if third parties misappropriate our users &apos personal information |
| If third parties were able to penetrate our network security or otherwise misappropriate our users &apos personal or credit card information, we could be subject to liability |
| Our liability could include claims for unauthorized purchases with credit card information, impersonation or other similar fraud claims as well as for other misuses of personal information, such as for unauthorized marketing purposes |
| These claims could result in costly and time-consuming litigation which could adversely affect our financial condition |
| In addition, the Federal Trade Commission and state agencies have been investigating various Internet companies regarding their use of personal information |
| We could have additional expenses if new regulations regarding the use of personal information are introduced or if our privacy practices are investigated |
| 18 _________________________________________________________________ Our executive officers, directors and stockholders who each owned greater than 5prca of our common stock exercise significant control over all matters requiring a stockholder vote |
| As of December 31, 2005, our executive officers and directors and stockholders who each owned greater than 5prca of our common stock, and their affiliates, in the aggregate, beneficially owned approximately 70prca of our outstanding common stock |
| As a result, these stockholders are able to exercise control over all matters requiring approval by our stockholders, including the election of directors and approval of significant corporate transactions |
| This concentration of ownership could also have the effect of delaying or preventing a change in control |
| Anti-takeover provisions in our charter documents and Delaware law may make it difficult for a third party to acquire us |
| Provisions of our certificate of incorporation, our bylaws and Delaware law could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders |
| Risks Related to the Securities Markets Our stock price has been highly volatile and is likely to experience extreme price and volume fluctuations in the future that could reduce the value of your investment and subject us to litigation |
| The market price of our common stock has fluctuated in the past and is likely to continue to be highly volatile, with extreme price and volume fluctuations |
| These broad market and industry factors may harm the market price of our common stock, regardless of our actual operating performance, and for this or other reasons, we could continue to suffer significant declines in the market price of our common stock |
| In the past, companies that have experienced volatility in the market price of their stock have been the object of securities class action litigation |
| If we were to become the object of securities class action litigation, it could result in substantial costs and a diversion of our managementapstas attention and resources |
| Sales or the perception of future sales of our common stock may adversely affect our stock price |
| Sales of substantial numbers of shares of our common stock in the public market, or the perception that significant sales are likely, could adversely affect the market price of our common stock |
| The number of shares of common stock subject to the registration statement we filed in December 2003, registering the resale of up to 2cmam800cmam000 shares of common stock by the selling stockholders named in the related prospectus, is much greater than the average weekly trading volume for our shares |
| No prediction can be made as to the effect, if any, that market sales of these or other shares of our common stock will have on the market price of our common stock |
| Sales of substantial amounts of our common stock in the public market could adversely affect the market price of our common stock |
| Risks Related to the Internet Industry If the use of the Internet and commercial online services as media for commerce does not continue to grow, our business and prospects would be materially and adversely affected |
| We cannot assure you that a sufficiently broad base of consumers will adopt, and continue to use, the Internet and commercial online services as media for commerce, particularly for purchases of wedding gifts and supplies |
| Even if consumers adopt the Internet or commercial online services as a media for commerce, we cannot be sure that the necessary infrastructure will be in place to process such transactions |
| Our long-term viability depends substantially upon the widespread acceptance and the development of the Internet or commercial online services as effective media for consumer commerce and for advertising |
| Use of the Internet or commercial online services to effect retail transactions and to advertise is at an early stage of development |
| Convincing consumers to purchase wedding gifts and supplies online may be difficult |
| Demand for recently introduced services and products over the Internet and commercial online services is subject to a high level of uncertainty |
| The continued development of the Internet and 19 _________________________________________________________________ commercial online services as a viable commercial marketplace is subject to a number of factors, including: • continued growth in the number of users of such services; • concerns about transaction security; • continued development of the necessary technological infrastructure; • consistent quality of service; • availability of cost-effective, high speed service; • uncertain and increasing government regulation; and • the development of complementary services and products |
| If users experience difficulties because of capacity constraints of the infrastructure of the Internet and other commercial online services, potential users may not be able to access our sites, and our business and prospects would be harmed |
| To the extent that the Internet and other online services continue to experience growth in the number of users and frequency of use by consumers resulting in increased bandwidth demands, there can be no assurance that the infrastructure for the Internet and other online services will be able to support the demands placed upon them |
| The Internet and other online services have experienced outages and delays as a result of damage to portions of their infrastructure, power failures, telecommunication outages, network service outages and disruptions, natural disasters and vandalism and other misconduct |
| Outages or delays could adversely affect online sites, e-mail and the level of traffic on all sites |
| We depend on online access providers that provide our users with access to our services |
| In the past, users have experienced difficulties due to systems failures unrelated to our systems |
| In addition, the Internet or other online services could lose their viability due to delays in the development or adoption of new standards and protocols required to handle increased levels of Internet or other online service activity or to increased governmental regulation |
| Insufficient availability of telecommunications services to support the Internet or other online services also could result in slower response times and negatively impact use of the Internet and other online services generally, and our sites in particular |
| If the use of the Internet and other online services fails to grow or grows more slowly than expected, if the infrastructure for the Internet and other online services does not effectively support growth that may occur or if the Internet and other online services do not become a viable commercial marketplace, it is possible that we will not be able to maintain profitability |
| We may be unable to respond to the rapid technological change in the Internet industry and this may harm our business |
| If we are unable, for technological, legal, financial or other reasons, to adapt in a timely manner to changing market conditions or customer requirements, we could lose users and market share to our competitors |
| The Internet and e-commerce are characterized by rapid technological change |
| Sudden changes in user and customer requirements and preferences, frequent new product and service introductions embodying new technologies and the emergence of new industry standards and practices could render our existing online sites and proprietary technology and systems obsolete |
| The emerging nature of products and services in the online wedding market and their rapid evolution will require that we continually improve the performance, features and reliability of our online services |
| Our success will depend, in part, on our ability: • to enhance our existing services; • to develop and license new services and technology that address the increasingly sophisticated and varied needs of our prospective customers and users; and • to respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis |
| The development of online sites and other proprietary technology entails significant technological and business risks and requires substantial expenditures and lead time |
| We may be unable to use new technologies effectively or adapt our online sites, proprietary technology and transaction-processing 20 _________________________________________________________________ systems to customer requirements or emerging industry standards |
| Updating our technology internally and licensing new technology from third parties may require significant additional capital expenditures |
| If we become subject to burdensome government regulation and legal uncertainties related to doing business online, our sponsorship and advertising and merchandise revenues could decline and our business and prospects could suffer |
| Laws and regulations directly applicable to Internet communications, privacy, commerce and advertising are becoming more prevalent |
| Laws and regulations may be adopted covering issues such as user privacy, freedom of expression, pricing, unsolicited commercial e-mail (spam), content, taxation, quality of products and services, advertising, intellectual property rights and information security |
| Any new legislation could hinder the growth in use of the Internet and other online services generally and decrease the acceptance of the Internet and other online services as media of communications, commerce and advertising |
| The governments of states and foreign countries might attempt to regulate our transmissions or levy sales or other taxes relating to our activities |
| The laws governing the Internet remain largely unsettled, even in areas where legislation has been enacted |
| It may take years to determine whether and how existing laws such as those governing intellectual property, privacy, libel and taxation apply to the Internet and Internet advertising services |
| In addition, the growth and development of the market for e-commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad, which may impose additional burdens on companies conducting business online |
| The adoption or modification of laws or regulations relating to the Internet and other online services could cause our sponsorship and advertising revenues and merchandise revenues to decline and our business and prospects to suffer |
| We may be sued for information retrieved from our sites |
| We may be subject to claims for defamation, negligence, copyright or trademark infringement, personal injury or other legal theories relating to the information we publish on our online sites |
| These types of claims have been brought, sometimes successfully, against online services as well as other print publications in the past |
| We could also be subject to claims based upon the content that is accessible from our online sites through links to other online sites or through content and materials that may be posted by members in chat rooms or bulletin boards |
| Our insurance, which covers commercial general liability, may not adequately protect us against these types of claims |
| We may incur potential product liability for products sold online |
| Consumers may sue us if any of the products that we sell online are defective, fail to perform properly or injure the user |
| To date, we have had limited experience selling products online and developing relationships with manufacturers or suppliers of such products |
| We sell a range of products targeted specifically at brides and grooms |
| Such a strategy involves numerous risks and uncertainties |
| Although our agreements with manufacturers typically contain provisions intended to limit our exposure to liability claims, these limitations may not prevent all potential claims |
| Liability claims could require us to spend significant time and money in litigation or to pay significant damages |
| We may incur significant expenses related to the security of personal information online |
| The need to transmit securely confidential information online has been a significant barrier to e-commerce and online communications |
| Any well-publicized compromise of security could deter people from using the Internet or other online services or from using them to conduct transactions that involve transmitting confidential information |
| Because our success depends on the acceptance of online services and e-commerce, we may incur significant costs to protect against the threat of security breaches or to alleviate problems caused by such breaches |