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As Of Filer Filing As/For/On Docs:Pgs Issuer Agent 8/03/07 Accoona Corp S-1 20:623 Vintage Filings LLC/FA
Document/Exhibit Description Pages Size 1: S-1 Registration Statement (General Form) HTML 959K 2: EX-10.1 Material Contract HTML 10K 3: EX-10.2 Material Contract HTML 7K 4: EX-10.3 Material Contract HTML 7K 5: EX-10.4 Material Contract HTML 7K 6: EX-10.5 Material Contract HTML 13K 7: EX-10.6 Material Contract HTML 56K 8: EX-10.7 Material Contract HTML 45K 9: EX-10.9 Material Contract HTML 413K 10: EX-10.11 Material Contract HTML 379K 11: EX-10.12 Material Contract HTML 7K 12: EX-10.13 Material Contract HTML 8K 13: EX-10.14 Material Contract HTML 8K 14: EX-10.15 Material Contract HTML 62K 15: EX-10.16 Material Contract HTML 71K 16: EX-10.17 Material Contract HTML 42K 17: EX-10.18 Material Contract HTML 39K 18: EX-10.19 Material Contract HTML 32K 19: EX-21 Subsidiaries of the Registrant HTML 10K 20: EX-23.1 Consent of Experts or Counsel HTML 8K
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As filed with the Securities and Exchange Commission on August 3, 2007
(Exact Name of Registrant as Specified in Its Charter)
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| Delaware | 7370 | 20-791924 | ||
| (State or Other Jurisdiction of Incorporation or Organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
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| Andrew M. Ross, Esq. Loeb & Loeb LLP 345 Park Avenue New York, New York 10154 (212) 407-4838 (212) 504-3264 – Facsimile |
Kenneth R. Koch, Esq. Joel I. Papernik, Esq. Kenneth H. Yi, Esq. Mintz Levin Cohn Ferris Glovsky and Popeo P.C. Chrysler Center 666 Third Avenue New York, New York 10017 (212) 692-6800 (212) 983-3115 – Facsimile |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
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| Title of Each Class of Securities to Be Registered | Proposed Maximum Aggregate Offering Price(1) |
Amount of Registration Fee |
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| Common Stock, $0.0001 par value per share | $ | 80,500,000 | $ | 2,471.35 | ||||
| (1) | Estimated pursuant to Rule 457(o) solely for the purpose of computing the amount of the registration fee. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall hereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.
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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
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| PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION DATED, August 3, 2007 |
![Picture -- [GRAPHIC MISSING]](/DB/SEC/2007-000/1144/204-0400/63-003.jpg)
Shares We are selling shares of our common stock.
This is the initial public offering of our common stock. We anticipate that the initial public offering price will be between $ and $ per share. We intend to apply for the listing of our common stock on the NASDAQ Global Market under the symbol “ACNA.” No assurance can be given that such listing will be approved.
Investing in our common stock involves a high degree of risk. You should read carefully the “Risk Factors” beginning on page 6 of this prospectus before investing in our common stock.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
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| Per Share | Total | |||||||
| Public Offering Price | $ | $ | ||||||
| Underwriting discount and commissions | $ | $ | ||||||
| Non-accountable expense allowance(1) | $ | $ | ||||||
| Proceeds, before expenses, to us(2) | $ | $ | ||||||
| (1) | Payable to Maxim Group LLC, the representative of the underwriters. |
| (2) | We estimate that we will incur approximately $ in offering expenses, excluding the underwriters’ discount and the non-accountable expense allowance, in connection with this offering. |
We have granted the underwriters a 45-day option to purchase up to an additional shares of common stock at the public offering price less the underwriter discount.
This is a firm commitment underwriting. The underwriters expect to deliver the shares to purchasers on or about , 2007.
The date of this prospectus is , 2007
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You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with information different from or in addition to that contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. We are offering to sell, and are seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock. Our business, financial conditions, results of operations and prospects may have changed since that date.
For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.
We obtained statistical data, market data and other industry data and forecasts used throughout this prospectus from publicly available information. While we believe that the statistical data, market data and other industry data, and forecasts are reliable, we have not independently verified the data, and we do not make any representation as to the accuracy of the information.
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The following summary does not contain all of the information you should consider before investing in our common stock. You should read the following summary together with the entire prospectus carefully, including the “Risk Factors” section beginning on page 6 and the unaudited condensed consolidated financial statements and the accompanying notes to those financial statements beginning on page F-2 and the audited consolidated financial statements beginning on page F-19 before making an investment decision. Unless otherwise indicated, all information in this prospectus assumes no exercise of the underwriter’s over-allotment option.
We are an Internet company engaged in three primary business lines — online-based lead generation, online search in the United States, Europe and China, and e-commerce consumer electronics retailing. Our services assist our users in finding the products, services and information they want, obtaining competitive pricing and making informed buying decisions. We use our expertise in technology, marketing and management to support our business lines and to create synergies and efficiencies across business lines.
| • | Online-based lead generation — We developed and operate ExchangePlaceTM, which we believe is one of the first U.S. online-based marketplaces that enables consumers to obtain offers from as many as four providers of products and services in which they are interested and allows providers to bid for the opportunity to contact qualified consumers, or leads, (i.e., those meeting the providers’ criteria), across a range of vertical markets. |
| • | Search — We have developed and operate an artificial intelligence driven search engine in the United States, China and Europe. Our business plan contemplates the development of techniques to use our existing technologies to enable our users to better access certain specialized search markets. In addition, we operate a shopping comparison search engine, BuyersEdge.com that allows shoppers to search for and compare products and prices available at numerous online merchants. |
| • | E-commerce — We operate six Internet retail websites offering primarily a wide selection of consumer electronics and also home appliances, backed by customer service and support. According to the list of Top 100 CE Retailers in TWICE, in 2006, the combined revenues of our e-commerce sites made us one of the top 10 consumer-direct electronics retailers in North America by online revenue and one of the top 55 consumer electronics retailers overall. |
As part of our long-term strategy, we plan to develop and market multiple online-based services for Chinese business professionals. In order to capitalize on the opportunities that exist in China, we entered into an agreement that provides for a strategic relationship between us and China Daily Information Company, or CDIC, a subsidiary of China Daily, the largest English language newspaper in China. CDIC owns 6.9% of our outstanding stock (before giving effect to this offering) and a senior executive of CDIC is a member of our board of directors.
We generate sales revenues from e-commerce, and advertising revenues from ExchangePlace and from search and shopping comparison engines. We operate primarily in North America and, with respect to search, also in China and Europe. To date, substantially all of our revenues have been derived from our e-commerce business in North America. In the year ended December 31, 2005, we generated revenues of $78.2 million, of which $77.9 million was attributable to e-commerce in the U.S. In the year ended December 31, 2006, we generated revenues of $149.2 million of which $147.4 million was attributable to e-commerce in the U.S. For the three months ended March 31, 2007 we generated revenues of $37.5 million, of which $36.6 million was attributable to e-commerce in the U.S.
We were founded in February 2004 and commenced commercial operations in December 2004 by launching our North American search site, Accoona.com, and Chinese search site, Accoona.cn. Since that time, we have significantly expanded and developed our activities, including by acquiring our existing e-commerce business, launching our European search site, Accoona.eu, in June 2006, updating the functionality of our North American search site, Accoona.com, in June and December 2006, and introducing our online-based lead generation business, branded as ExchangePlace, in North America in July 2006.
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| • | Our management team has extensive experience in developing and operating successful businesses in Internet and media markets and in implementation of mergers and acquisition transactions. |
| • | Our ExchangePlace business employs a patent pending pay-per-lead bidding system and advertising platform that provides a central marketplace for all types of sales and marketing leads and seeks to effectively match consumers with the sellers of products in which the consumers have expressed interest. |
| • | We believe that we have acquired a significant amount of expertise in the domain of Internet search by developing and operating our own search engine and hiring employees with a background in search technology and marketing. We plan to leverage this expertise, as applicable, to any new search product in the future. |
| • | Our relationship with CDIC gives us strength in building critical business relationships, allows us to leverage local market knowledge and is advantageous for introducing new products in China. |
Our strategy is based upon our mission to improve our consumers’ experience with e-commerce and online search services, as well as increase our operating efficiencies. Through our use of technology and innovation in our chosen business lines — online-based lead generation, online search, e-commerce and the online business in China — we intend to exploit the synergies between our businesses, enhance our existing technologies and business models and develop new, innovative, proprietary technologies and business models to deliver superior services to our users.
Our strategy includes the following initiatives:
| • | Expand ExchangePlace to include such “high value” sectors as credit cards, telecommunications and auto insurance and introduce ExchangePlace across additional geographic markets in the U.S. and, later, internationally. |
| • | Develop our new search business plan through research and design of our specialized search functionality, in combination with our existing search features and technology, to enhance our search capabilities for emerging search markets. |
| • | Implement a common technology and logistics infrastructure across all components of our e-commerce business to increase operating efficiencies. |
| • | Expand, in conjunction with our relationship with CDIC, our presence in the online market in China so as to become a provider of multiple products and services to serve Chinese business professionals and users of online business communities. |
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We have a short operating history and a relatively new business model in emerging and rapidly evolving Internet markets. This makes it difficult to evaluate our future prospects, may increase the risk that we will not be successful and increases the risk of a prospective investor's investment. As an early stage company in new and rapidly evolving markets, we are subject to numerous potential risks, unexpected costs and difficulties, including the following:
| • | We face competition from other Internet companies, including search providers, lead generation companies, Internet advertising companies, e-commerce companies and destination websites that may also bundle their services with other Internet services. |
| • | We may have difficulty attracting a comprehensive group of lead generation advertisers to Exchange- Place. Additionally, if our lead generation advertisers do not provide competitive levels of goods and services to consumers, our ExchangePlace brand will be harmed and our ability to attract consumers to use our service will be limited. |
| • | Competition in our industries for qualified employees is intense. If we do not succeed in attracting excellent personnel or retaining or motivating existing personnel, we may be unable to grow effectively. |
| • | Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our services and brand. |
For more information regarding these and other risks we face, see “Risk Factors” beginning on page 6.
We were incorporated in Delaware in February 2004. Our principal executive offices are located at 101 Hudson Street, Suite 3501, Jersey City, NJ 07302 and our phone number is (201) 557-9388. Our website is www.accoona.com. The information on our website does not constitute part of this prospectus.
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| Common stock outstanding prior to this offering |
| 202,516,572 shares. |
| Common stock offered by us |
| shares. |
| Common stock to be outstanding after this offering |
| shares. |
| Price per share |
| We currently estimate that the initial public offering price will be between $ and $ per share. |
| Over-allotment |
| We have granted a 45-day option (commencing from the date of this prospectus) to the underwriters to purchase up to an additional shares of common stock to cover over-allotments of common stock, if any. |
| Use of proceeds |
| We estimate that our net proceeds from this offering without exercise of the over-allotment option will be approximately $. We intend to use these proceeds to fund our research and development, for further business expansion and for general corporate purposes. See “Use of Proceeds” on page 33 for a more complete description of our intended use of proceeds from this offering. |
| Risk factors |
| See “Risk Factors” in this prospectus beginning on page 6 for a discussion of factors and uncertainties that you should consider in evaluating an investment in our common stock. |
| Proposed NASDAQ Global Market symbol |
| “ACNA.” |
Except as otherwise set forth in this prospectus, the share information above and elsewhere in this prospectus is based on 202,516,572 shares of common stock outstanding as of July 15, 2007 and:
| • | assumes no exercise of the underwriters' over-allotment option; |
| • | assumes no exercise of 27,440,856 options outstanding on the date of this prospectus at a weighted average exercise price of $2.53; |
| • | reflects the conversion, immediately prior to the completion of this offering, of all outstanding shares of Class B common stock to an aggregate of 7,350,000 shares of our common stock; |
| • | reflects the conversion, immediately prior to the completion of this offering, of all outstanding shares of Class C common stock to an aggregate of 2,857,139 shares of our common stock; and |
| • | reflects the filing, immediately prior to the completion of this offering, of our amended and restated certificate of incorporation, referred to in this prospectus as our certificate of incorporation, and the adoption of our amended and restated bylaws, referred to in this prospectus as our bylaws, implementing the provisions described under “Description of Capital Stock.” |
The auction process being used for our initial public offering differs from methods that have been traditionally used in most other underwritten initial public offerings in the U.S. In particular, the initial public offering price and the allocation of shares will be determined by an auction process conducted by us and our underwriters. We encourage you to discuss any questions you have regarding underwriter requirements with the underwriter through which you bid because these requirements could affect your ability to submit a bid. For more information about the auction process, see “Auction Process.”
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You should read the following summary consolidated financial information in conjunction with our audited and unaudited consolidated financial statements and related notes, “Selected Consolidated Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.
The following summary statements of operations data from February 24, 2004 (date of inception) to December 31, 2004 and for the years ended December 31, 2005 and 2006 and summary balance sheet data as of December 31, 2005 and 2006 is derived from our audited consolidated financial statements included in this prospectus beginning on page F-19. The summary balance sheet data as of March 31, 2007 and summary statements of operations data for the quarters ended March 31, 2006 and 2007 is derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus beginning on page F- 2. Such financial statements include all adjustments (consisting only of normally recurring accruals) necessary for a fair presentation of such information. Interim results are not necessarily indicative of results to be expected for a full year.
We have prepared our audited consolidated financial statements in accordance with United States generally accepted accounting principles, or U.S. GAAP. You should read the following summary financial data in conjunction with our audited consolidated financial statements and related notes beginning on page F-19 in this prospectus. Our historical results for any period are not necessarily indicative of results to be expected in any future period.
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| Period from February 24, 2004 (Inception) to December 31, 2004 |
Year Ended December 31, | Three Months Ended March 31, | ||||||||||||||||||
| (In Thousands, Except Shares) | 2005 | 2006 | 2006 (Unaudited) |
2007 (Unaudited) |
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| Consolidated Statements of Operations Data: |
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| Revenues | $ | 23 | $ | 78,250 | $ | 149,212 | $ | 22,962 | $ | 37,531 | ||||||||||
| Cost and expenses: |
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| Cost of revenues | — | 74,821 | 141,339 | 21,413 | 35,763 | |||||||||||||||
| Research and development | 1,002 | 1,932 | 7,635 | 1,396 | 810 | |||||||||||||||
| Advertising and Marketing | 1,310 | 1,149 | 8,712 | 977 | 1,806 | |||||||||||||||
| Selling, general and administrative | 2,628 | 15,131 | 43,882 | 5,265 | 14,100 | |||||||||||||||
| Total costs and expenses | 4,940 | 93,033 | 201,568 | 29,051 | 52,479 | |||||||||||||||
| Operating loss | (4,917 | ) | (14,783 | ) | (52,356 | ) | (6,089 | ) | (14,948 | ) | ||||||||||
| Other income, net | 83 | 1,370 | 1,819 | 591 | 168 | |||||||||||||||
| Net loss | $ | (4,834 | ) | $ | (13,413 | ) | $ | (50,537 | ) | $ | (5,498 | ) | $ | (14,780 | ) | |||||
| Net loss per share – basic and diluted | $ | (0.04 | ) | $ | (0.08 | ) | $ | (0.27 | ) | $ | (0.03 | ) | $ | (0.08 | ) | |||||
| Weighted average number of shares outstanding, basic and diluted | 113,382,325 | 170,939,275 | 186,144,584 | 186,518,026 | 190,318,329 | |||||||||||||||
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| December 31, | March 31, | |||||||||||||||
| 2005 | 2006 | 2006 (Unaudited) |
2007 (Unaudited) |
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| Consolidated Balance Sheet Data: |
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| Cash and cash equivalents | $ | 66,189 | $ | 17,510 | $ | 51,315 | $ | 19,611 | ||||||||
| Total assets | 115,261 | 91,271 | 113,549 | 88,753 | ||||||||||||
| Total liabilities | 10,478 | 19,138 | 8,870 | 10,567 | ||||||||||||
| Accumulated deficit | (18,246 | ) | (68,783 | ) | (23,744 | ) | (83,563 | ) | ||||||||
| Total stockholders’ equity | 104,783 | 72,133 | 104,679 | 78,186 | ||||||||||||
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Investment in our common stock involves a high degree of risk. You should consider carefully the following information about these risks, together with other information contained in this prospectus, before you decide whether to buy our common stock. If any of the following risks actually occurs, our business, financial condition and results of operations would suffer. If this happens, the trading price of our common stock would likely decline and you might lose all or part of your investment in our common stock.
We were incorporated in 2004 and have a short operating history for investors to evaluate our business and future prospects. We have several lines of business, which may also make it difficult for investors to evaluate our business as a whole. To date, we have derived nearly all of our revenues from e-commerce and to a much lesser degree from online advertising, which are both relatively immature industries that have undergone rapid and dramatic changes in their short histories. In June 2006, we started an online-based lead generation business, which is new and unproven. Although we introduced our first generation search business in December 2004, in the first quarter of 2007 we revised our strategy for our search business to re-focus our search strategy on specific segments of the Internet, in connection with which we plan to release the next generation of our search business. Prospective investors should consider our business and prospects in light of the potential risks, unexpected costs and difficulties we will encounter as an early stage company in new and rapidly evolving markets. We may not be able to successfully address these risks and difficulties, which could materially harm our business and operating results.
We are still a relatively early growth company and our revenue and profit potential is unproven. We have yet to generate a profit and, for the years ended December 31, 2006 and 2005, and from February 24, 2004 (inception) to December 31, 2004, we incurred a loss of $50.5 million and $13.4 million and $4.8 million, respectively, and we incurred negative cash flows from operating activities of $33.2 million, $8.7 million and $3.7 million, respectively.
We may continue to incur substantial operating losses even if our revenues increase. As a result, the extent of future losses, negative cash flows and the timing of any future profitability are uncertain.
Our operating results may fluctuate as a result of a number of factors, many of which are outside our control. For this reason, comparing our operating results on a period-to-period basis may not be meaningful, and at no time should prospective investors rely on our past results as an indication of our future performance. Our operating results in future reporting periods may fall below expectations. Each of the risk factors listed in this “Risk Factors” section, and the following factors, may affect our operating results:
| • | our ability to re-focus our search strategy on a specific segment of the Internet and enhance our search engine in connection with our new search strategy, for which our existing search capability may be better suited; |
| • | our ability to attract users to our websites and to use our services; |
| • | our ability to attract advertisers; |
| • | our ability to acquire leads at a reasonable cost; |
| • | amount and timing of operating costs and capital expenditures related to the maintenance and expansion of our businesses, operations and infrastructure; |
| • | our strategic focus on long-term goals over short-term results; |
| • | our ability to keep our websites and support systems operational at a reasonable cost and without service interruptions; |
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| • | our ability to successfully integrate existing acquired businesses and any future acquired businesses; |
| • | the cyclical pattern in advertising spending reflecting overall economic conditions as well as budgeting and buying patterns; and |
| • | the seasonal pattern in online user traffic for e-commerce revenues. |
We currently anticipate that our cash and cash equivalents, together with proceeds from this offering, and revenues generated from our business will be sufficient to fund our current operations for at least the next 18 months. However, we expect capital outlays and operating expenditures to increase over the next several years as we develop our lead generation business, re-focus our search business, and expand our commercial operations as described in the “Use of Proceeds” section of this prospectus on page 33. Therefore, we may require additional funding sooner than anticipated.
Our future funding requirements will depend on many factors, including, but not limited to the following:
| • | the rate of progress and cost of research and development activities associated with the development of our lead generation business and any newly-focused search business; |
| • | unforeseen difficulties in establishing and maintaining an effective sales and distribution network; |
| • | lack of demand for, and market acceptance of, our services and technologies; |
| • | the need to respond to technological changes and increased competition; |
| • | the effectiveness of our marketing campaigns for our services; |
| • | the cost and delays in product development that may result from changes in regulatory requirements applicable to our business; |
| • | the financial terms and timing of any collaborations, licensing or other arrangements into which we may enter; and |
| • | the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights. |
In order to achieve our strategic objectives, we may be required to seek additional financing. For example, future acquisitions may require additional equity and/or debt financing. In addition, we may require further capital to continue to develop our technology and infrastructure and for working capital purposes. These financings may not be available on acceptable terms, or at all. Our failure to secure additional financing could prevent us from completing acquisitions, developing new technologies and competing effectively, all of which could have a negative impact on our continued development and growth.
We have evaluated and expect to continue to evaluate potential strategic transactions. From time to time we may engage in discussions regarding potential acquisitions and go on to make acquisitions. Any of these transactions could be material to our financial condition and operating results.
Acquisitions involve numerous risks and require the commitment of significant capital, managerial and other resources. Acquisitions may also expose us to particular risks, including diversion of management's attention, failure to retain key acquired personnel, assumption of legal liabilities and amortization of goodwill and other acquired intangible assets, some or all of which could have a material adverse effect on our business, operating results and financial condition. Moreover, customer dissatisfaction with, or problems caused by, the performance of any such acquired businesses could have a material adverse impact on our reputation. In addition, there can be no assurance that the acquired businesses, if any, will achieve anticipated revenues and earnings. Acquisitions may have a dilutive effect on our earnings per share or an adverse effect on our financial condition and operating results. Further, any acquired business management information systems,
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accounting systems and operational systems may be different from our systems, and the efficient integration of such systems may impose severe strains on our own accounting, operational and control systems. In line with the diversified nature of our business, future acquisitions may involve companies in fields different from our current activities. This may involve additional risks, including our management's ability to assess and manage such businesses and greater dependence upon the management of any such acquired businesses.
Further, the acquisition of a new company or business often requires that operations be consolidated, excess office space subleased or existing leases renegotiated, all of which diverts managerial and other resources from existing operations.
Finally, we may make acquisitions outside of the U.S., including potentially in China. Foreign acquisitions involve unique risks in addition to those mentioned above, including those related to the integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries.
Our prospects depend on providing services that people use for a high quality Internet experience, including our ability to improve the performance and reliability of our services, and to adapt to rapidly changing technologies and evolving industry standards. Our competitors are constantly developing innovations in online advertising, e-commerce, lead generation, Internet search and shopping comparison. As a result, we must continue to invest significant resources in research and development in order to enhance our web search technology and applications and our existing services and introduce new high quality services that people will use. If we are unable to predict user preferences or industry changes, or if we are unable to modify our services or develop a successful search strategy on a timely basis, we may not gain or may lose users, advertisers and customers. Our operating results would also suffer if our innovations are not responsive to the needs of our users, advertisers or customers, are not appropriately timed with market opportunity or are not effectively brought to market.
We compete with other lead generation sites, search providers, e-commerce companies, Internet advertising companies, other companies that sell services online and shopping comparison sites. These companies, most of which are more established and have greater name recognition and greater market share than we do, are, like us, trying to attract users to their websites to search for information about, and in certain cases to purchase, services. These companies can use their experience and resources in a variety of competitive ways, including by making acquisitions, investing more aggressively in research and development and competing more aggressively for advertisers. We also compete with destination websites that seek to increase their search related traffic and provide other services, many of which are larger and generate more revenues than us. In addition, Internet access providers or manufacturers may make it hard to access our services by not listing them in the access provider's or manufacturer's own menu of offerings. Also, because access providers gather information from users in connection with the establishment of a billing relationship, access providers may be more effective than us in tailoring services and advertisements to the specific tastes of users. As a result, we must continue to invest significant resources in research and development in order to enhance our existing services and introduce new high-quality services that people will use. If we are unable to predict user preferences or industry changes, or if we are unable to modify our services on a timely basis and in a way that is responsive to the needs of users, we may not be able to retain existing users or attract new users and advertisers, which could adversely affect our operating results.
We launched our online-based lead generation business in June 2006. Our lead generation business model and profit potential are unproven and we can make no assurances that our lead generation business will become profitable. Our lead generation business model depends almost entirely on revenue generated from prospective providers of goods and services (advertisers) participating in our lead generation business system
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paying us fees based upon their receipt of leads. To generate significant revenue our lead generation business must achieve broad market acceptance and use of our service by both advertisers and consumers, who have traditionally used other means to obtain the services intended to be available through our lead generation service. In addition, we must attract a sufficient number of consumers with profiles targeted by our advertisers, including in many cases, geographic and income criteria and interest in services of a specific nature. It is possible that our online-based lead generation model will not gain the widespread acceptance necessary among both advertisers and consumers to support this business, in which case we may find it necessary to alter or discontinue our lead generation business. We cannot accurately predict what, if any, changes we would make to our lead generation business model in response to the uncertainties in the online-based lead generation market.
The secure transmission of confidential personal and financial information, such as personal addresses and other contact information, and health and income information, over public networks with consumer authorization is important to consumer acceptance of our lead generation business. Unauthorized access to or use of this information could result in potential liability under federal and state privacy laws and damages for which we could be liable. Usage of our service could decline or fail to develop if any material or publicized compromise of security of information through our service or the Internet in general were to occur. We may not be able to respond adequately to privacy concerns of potential users as advances in computer capabilities and other technological developments occur. Due to the fact that we share consumer information with advertisers who are winning bidders for leads, our lead generation business could be adversely affected if these advertisers used consumers' information in an unauthorized manner.
To the extent that a significant portion of the consumer leads for our lead generation business are derived from a limited number of third party sources, our lead generation business could be dependent upon these third party sources and adversely affected in the event of any disruption in the flow of leads from these sources.
If we are unable to obtain a sufficient number of quality advertisers of a broad range of services, we may be unable to attract sufficient consumers or to establish our business as the marketplace where consumers go to find advertisers that are selling goods and services they want. The success of our online-based lead generation marketplace depends on our ability to attract and retain a comprehensive group of advertisers to service customer needs across a wide array of product lines, consumer profiles and geographic locations. Due to the differing nature of services, the offerings of some advertisers may be suitable for consumers at a national level and others only at specific state or local levels. Our ability to provide to consumers a high-quality buying experience depends in part on consumers receiving competitive levels of convenience, service, pricing, and responsiveness from our participating lead generation advertisers. If our participating advertisers do not provide consumers with competitive levels of convenience, service, price, terms and responsiveness, the value of our lead generation business may be harmed and the number of consumers using our lead generation service may be adversely affected.
Further, advertiser support depends on the quality of the leads we are able to generate. If we are unable to generate a sufficient number of high quality leads, we may not be able to attract as many advertisers or as broad a range of advertisers as we would like. In such a case, we could incur increased marketing costs in order to acquire leads. If we are unable to acquire sufficient leads to attract a broad range of advertisers, the failure to have a full range of services available for consumers in all markets may adversely affect our lead generation business.
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If advertisers do not adopt our online system to sell their services, the variety of goods and services available to our consumers will be limited. Integration of advertisers into our online system involves a significant commitment of time and resources on our part, including in many cases investigation of the prospective advertiser and its business record, and we may not have sufficient personnel to devote the time necessary to successfully integrate advertisers into our online lead generation system.
Potential advertisers may not be willing to invest the time and resources necessary to achieve this integration or to make disclosure to us of their confidential business information.
Due to the fact that our potential consumers are able to obtain services from our participating advertisers without utilizing our service, our ability to generate revenue from our lead generation business may be adversely affected. Because we do not have exclusive relationships with the advertisers whose goods and services are offered through our lead generation system, consumers may bypass our service and obtain goods and services from these advertisers directly. These advertisers can also offer their goods and services over the Internet, either directly to prospective customers, through one or more of our online competitors, or both.
Many of the services for which we seek to generate leads through our lead generation business, and certain aspects of the lead generation business itself with respect to various services, are subject to regulation by various federal and state governmental authorities. As a result, with respect to certain services, we may not be able to offer our lead generation business in certain states, or at all. We may also be required to obtain licenses in order to offer certain services in some states. There is no assurance that we will be able to obtain or maintain the required licenses. Because of uncertainties as to the applicability of certain of these laws, regulations and licensing requirements to the Internet and, more specifically, to our business in regard to various goods and services, we may not always be in compliance with the applicable federal and state laws and regulations. Failure to comply with the laws and regulatory requirements of federal and state regulatory authorities may result in, among other things, revocation of required licenses or registrations, loss of approved status, loss of exempt status, indemnification liability to advertisers and others doing business with us, administrative enforcement actions and fines, class action lawsuits, cease and desist orders, and civil and criminal liability. The occurrence of one or more of these events could materially affect our business, operating results and financial condition.
We face an additional level of regulatory risk given that many of the laws in many states governing lead generation for the goods and services we seek to offer through our system have not been substantially