Incredimail 2011 Annual Report Download - page 8

B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C. REASONS FOR OFFER AND USE OF PROCEEDS
Not applicable.
D. RISK FACTORS
Investing in our ordinary shares involves a high degree of risk. You should consider carefully the following risk factors, as well as the other information in this annual
report before deciding to invest in our ordinary shares. Our business, financial condition or results of operations could be affected adversely by any of these risks. The
trading price of our ordinary shares could decline due to any of these risks and you might lose all or part of your investment in our ordinary shares.
Risks Related to Our Business
If the Google AdSense for Search program is terminated or significantly changed by Google, we would be forced to immediately seek an alternative search
provider, in which case we would be susceptible to a certain transition period during which we may experience a material reduction in our search generated
revenues and, possibly a long-term decrease in search generated revenues and, in turn, an adverse effect on our financial condition.
Our business is currently very dependent on search based revenues, currently utilizing primarily the Google AdSense program, pursuant to which we receive
a portion of the amount paid by advertisers to Google for the activity performed by those downloading the Company’
s applications. This dependence continues to
grow and we obtained approximately 67% of our revenues for the year ended December 31, 2011 from this partnership. While this percentage has been decreasing
recently, we expect this venue to continue to generate a major portion of our revenues in the foreseeable future.
In December 2010 we signed an agreement with Google effective January 1, 2011 and expiring January 1, 2013. As in past agreements, this too enables
termination by either side after one year with 90 days notice (to date, neither party has exercised such right), and in addition, Google is able to amend the agreement,
change its policies and guidelines, and has other limited termination rights. If this agreement is terminated, substantially amended, or not renewed on favorable terms,
we would be forced to seek an alternative search provider. There are very few companies in the market that provide Internet search services similar to those provided
by Google. Google is the most dominant player in this market, particularly on a global scale and competitors do not offer as much coverage through sponsored links. If
we fail to quickly locate, negotiate and finalize alternative arrangements, or if the alternatives do not provide for terms that are as favorable as those provided for by
the AdSense program, or if the alternative arrangement will not attract the same traffic as the traffic attracted by the Google AdSense program, or if the termination by
Google affects our ability to contract other providers, we would experience a material reduction in our revenues and, in turn, our business, financial condition and
results of operations would be adversely affected. Our failure to retain existing users, or attract new users, as well as generate traffic to our search properties, could
adversely affect our business, financial condition and results of operations.
As of December 31,
2007
2008
2009
2010
2011
(in thousands)
Balance Sheet Data:
Cash and cash equivalents
$
4,611
$
7,835
$
24,368
$
16,055
$
11,260
Working capital
19,756
25,143
26,846
28,067
(39
)
Total assets
31,766
37,651
39,894
41,348
54,892
Total liabilities
10,995
12,107
12,892
13,196
23,077
Shareholders
’
equity
20,771
25,544
27,002
28,152
31,815
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