Incredimail 2014 Annual Report Download - page 9

B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C. REASONS FOR OFFER AND USE OF PROCEEDS
Not applicable.
D. RISK FACTORS
We are subject to various risks and uncertainties relating to or arising out of the nature of our business and general business, economic,
financial, legal and other factors or conditions that may affect us. We believe that the occurrence of any one or some combination of the
following factors could have a material adverse effect on our business, financial condition, cash flows and results of operations.
Risks Related to Our Business
Our business depends heavily upon revenues generated from arrangements with search providers, particularly Microsoft, and any
adverse change in those relationships could adversely affect our business or its financial condition and results of operations.
We are highly dependent on our search services agreement with Microsoft Online Inc. ("Microsoft"), which covers all of our search
business with Microsoft and has a term from January 1, 2015 until December 31, 2017. In 2014, our search services agreement with Microsoft
accounted for 74% of our revenues.
If our agreement with Microsoft, is terminated, substantially amended, or not renewed on favorable terms, we could experience a
material decrease in our search-
generated revenues or the profits it generates and we could be forced to seek alternative search providers. There
are very few companies in the market that provide Internet search and advertising services similar to those provided by Microsoft, Google and
Yahoo. These three companies are the dominant players in this market, particularly on a global scale, and competitors do not offer as much
coverage through sponsored links or searches. Although, we do have agreements with both Google and Yahoo, we do not have a significant
amount of revenue generated from either of such parties. 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 currently provided and utilized, or if the alternative arrangements will not
attract the same traffic as the traffic attracted by Microsoft, or if the termination by Microsoft affects our ability to contract with 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.
We rely heavily on the ability to offer our search properties to users of consumer downloadable software products and, as a result of
such action, to obtain and retain the search properties of the users. Should this method of distribution be blocked, constrained, limited,
materially changed, based on a change of guidelines, technology, or otherwise (which has happened in the past), or made redundant by
any of our search engine providers, particularly Microsoft, our ability to generate revenues from our users' search activity could be
significantly reduced.
The search distribution agreements with Microsoft and other search partners requires that we comply with certain guidelines
promulgated by them for the use of their brands and services, including the manner in which their paid listings are displayed within search
results, and that we establish guidelines to govern certain activities of third parties to whom we syndicate the search services, including the
manner in which those parties drive search traffic to their websites and display paid listings. Subject to certain limitations, any one of our search
partners may unilaterally update its policies and guidelines, which could, in turn, require modifications to, or prohibit and/or render obsolete
certain of our products, services and/or practices, which could be costly to address or otherwise have an adverse effect on our business, our
financial condition and results of operations. Noncompliance with our search partners' guidelines, particularly Microsoft’
s, by us or by third
parties to which we syndicate paid listings or by the publishers through whom we secure distribution arrangements for our products could, if not
cured, result in such companies' suspension of some or all of their services to us, or to the websites of our third party publishers, the imposition
of additional restrictions on our ability to syndicate paid listings or distribute our products or the termination of the search distribution agreement
by our search partners.
These guidelines, with respect to method of distribution, homepage resets, installing toolbars and default search resets to search engine
services, when providing downloadable applications, were changed by both Microsoft and Google numerous times in the past, having negative
revenue implications. Since then, both companies have continued instituting other changes to the policies governing their relationship with
search partners.
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