Incredimail 2013 Annual Report Download - page 12

The market for desktop software products and services is declining, as web-based solutions for the desktop are gaining in popularity.
Our revenues are generated by virtue of the end user downloading software to the desktop. Web (or “cloud”)
based software and
solutions do not require the user to download software, and thus provides a very mobile and accessible alternative to downloadable software.
While there are advantages and disadvantages to each method and system and the markets for each of them remain large, the market for web
based systems is growing at the expense of downloadable software.
Should this trend accelerate faster than our partners’
ability to provide differentiating advantages in their downloadable solutions, this
could result in fewer downloads of their products and lower search revenues generated through the download of these products. See "Item 4.B
Business Overview — Competition" for additional discussion of our competitive market.
We rely significantly on our and those of our partners ability to advertise through the Google AdWords network for marketing and
acquiring new users of our products. Should Google make additional substantial changes to this network or if it becomes substantially
more expensive, it would be more difficult and expensive to acquire new customers and would negatively affect our revenues .
Over the last few years our reliance and that of our partners on advertising for acquiring new customers has grown dramatically and is an
integral part of our plans to continue to achieve accelerated growth. One of the main venues for advertising downloadable software products is
Google’
s AdWords network. Google sets the standards and the pricing for using this network. Although there are alternative networks and
platforms for advertising, none are currently as popular as Google's. Should Google continue to further change the rules for using this network
and the way distributers of downloadable software products interact with it, or if the cost of advertising our products increases more than it
already has, our ability to market our products would be limited, which would negatively affect our results of operations.
We have acquired and intend to continue to acquire other businesses. These acquisitions divert a substantial part of our resources and
management attention, could cause dilution to our shareholders and adversely affect our financial results.
We acquired Smilebox in August 2011, SweetIM in November 2012, and ClientConnect in January 2014, and we intend to continue to
acquire complementary products, technologies or businesses. Prior to these acquisitions our management had limited experience together as a
team in making acquisitions or integrating acquired businesses. Seeking and negotiating potential acquisitions to a certain extent diverts our
management’s attention from other business concerns, is expensive and time-
consuming. New acquisitions could expose our business to
unforeseen liabilities or risks associated with the business or assets acquired or with entering new markets. In addition, we might lose key
employees while integrating new organizations and we might not effectively integrate the acquired products, technologies or businesses or
achieve anticipated revenues or cost benefits. Future acquisitions could result in customer dissatisfaction, performance problems with an
acquired product, technology or company. Paying the purchase price for acquisitions in the form of cash, debt or equity securities could weaken
our cash position, increase our leverage or dilute our existing shareholders, as the case may be. Furthermore, a substantial portion of the cost of
these acquisitions is typically for intangible assets. We may incur contingent liabilities, amortization expenses related to intangible assets, or
possible impairment charges related to goodwill or other intangible assets or other unanticipated events or circumstances relating to the
acquisition, and we may not have, or may not be able to enforce, adequate remedies in order to protect our Company. If any of these or similar
risks relating to acquiring products, technologies or businesses should occur in the future on a scale that is larger than the effect of the acquisition
described above, our business could be materially harmed.
We are effectively limited in our ability to issue ordinary shares or effect significant corporate transaction with respect to ClientConnect
until the end of 2015.
As a result of the Israeli tax ruling obtained by Conduit in connection with the Conduit Split and the ClientConnect Acquisition, from
January 2, 2014 until December 31, 2015, Conduit and its shareholders would be subject to adverse tax consequences, for which we have
undertaken to indemnify them, if we were to:
•
issue ordinary shares in a private placement to any single person (or a group of affiliated persons) in excess of 25% of our
outstanding ordinary shares, computed prior to the issuance; or
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