1140184--2/24/2006--IPAYMENT

related topics

{system, service, information}

{acquisition, growth, future}

{customer, product, revenue}

{cost, operation, labor}

{competitive, industry, competition}

{operation, natural, condition}

{regulation, government, change}

{cost, contract, operation}

{tax, income, asset}

{financial, litigation, operation}

{regulation, change, law}

{stock, price, share}

{property, intellectual, protect}

{debt, indebtedness, cash}

{loss, insurance, financial}

We have faced, and may in the future face, significant chargeback liability if our merchants refuse or cannot reimburse chargebacks resolved in favor of their customers, and we face potential liability for merchant or customer fraud; we may not accurately anticipate these liabilities. We have incurred substantial debt, which can impair our financial and operating flexibility. We rely on bank sponsors, which have substantial discretion with respect to certain elements of our business practices, in order to process bankcard transactions; if these sponsorships are terminated and we are not able to secure or successfully migrate merchant portfolios to new bank sponsors, we will not be able to conduct our business. If we or our bank sponsors fail to adhere to the standards of the Visa and MasterCard credit card associations, our registrations with these associations could be terminated and we could be required to stop providing payment processing services for Visa and MasterCard. We rely on card payment processors and service providers; if they fail or no longer agree to provide their services, our merchant relationships could be adversely affected and we could lose business. To acquire and retain merchant accounts, we depend on independent sales groups that do not serve us exclusively. On occasion, we experience increases in interchange costs; if we cannot pass these increases along to our merchants, our profit margins will be reduced. The loss of key personnel or damage to their reputations could adversely affect our relationships with independent sales groups, card associations, bank sponsors and our other service providers, which would adversely affect our business. The payment processing industry is highly competitive and such competition is likely to increase, which may further adversely influence our prices to merchants, and as a result, our profit margins. Increased attrition in merchant charge volume due to an increase in closed merchant accounts that we cannot anticipate or offset with new accounts may reduce our revenues. Our operating results are subject to seasonality, and if our revenues are below our seasonal norms during our historically stronger third and fourth quarters, our net income could be lower than expected. Our systems may fail due to factors beyond our control, which could interrupt our business or cause us to lose business and would likely increase our costs. We face uncertainty about additional financing for our future capital needs, which may prevent us from growing our business. We currently rely solely on common law to protect certain of our intellectual property; should we seek additional protection in the future, we may fail to successfully register certain trademarks, causing us to potentially lose our rights to use such trademarks. If our merchants experience adverse business conditions, they may generate fewer transactions for us to process or become insolvent, increasing our exposure to chargeback liabilities. New and potential governmental regulations designed to protect or limit access to consumer information could adversely affect our ability to provide the services we provide our merchants. We do not intend to pay cash dividends on our common stock in the foreseeable future. Revenues generated by acquired businesses or account portfolios may be less than anticipated, resulting in losses or a decline in profits, as well as potential impairment charges. We may fail to uncover all liabilities of acquisition targets through the due diligence process prior to an acquisition, exposing us to potentially large, unanticipated costs. We may encounter delays and operational difficulties in completing the necessary transfer of data processing functions and connecting systems links required by an acquisition, resulting in increased costs for, and a delay in the realization of revenues from, that acquisition. Special non-recurring and integration costs associated with acquisitions could adversely affect our operating results in the periods following these acquisitions. Our facilities, personnel and financial and management systems may not be adequate to effectively manage the future expansion we believe necessary to increase our revenues and remain competitive.

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1140184--2/24/2006--IPAYMENT_INC