Incredimail 2008 Annual Report Download - page 13

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More individuals are using non-PC devices to access the Internet, and our online services may not be accepted by such users.
The number of individuals who access the Internet through devices other then personal computer, such as mobile phones, has increased
dramatically. Our products were designed for rich, graphic environments such as those available on desktop and laptop computers. The lower
resolution, slower communication, functionality and memory associated with alternative devices currently available may make the use of our
products through these devices difficult. If consumers find our products difficult to access, we may fail to capture a sufficient share of an
increasingly important portion of the market for online services and may fail to attract advertisers and web traffic.
Exchange rate fluctuations may decrease our earnings if we are not able to hedge our currency exchange risks effectively.
A majority of our revenues are denominated in U.S. dollars. However, most of our costs, mainly personnel expenses, are incurred in New
Israeli Shekels (NIS). Inflation in Israel may have the effect of increasing the U.S. dollar cost of our operations in Israel. If the U.S. dollar declines
in value in relation to the New Israeli Shekel, it will become more expensive for us to fund our operations in Israel. A revaluation of one percent
of the NIS as compared to the U.S. dollar could reduce our income before taxes by approximately $0.1 million. During 2006 the exchange rate of
the U.S. dollar to the New Israeli Shekel decreased, and continued to further decrease in 2007 and in the first half of 2008, and this trend reversed
in the second half of 2008.
In addition, a significant portion of our sales is in currencies other than the U.S. dollar. In 2008, approximately 21% of our revenues were in
these currencies. To the extent such sales are not immediately exchanged for US dollars, we bear a foreign currency fluctuation risk. As of
December 31, 2008, we had a net foreign currency liability of approximately $2.9 million and our total foreign exchange income was
approximately $3 thousand for the year ended December 31, 2008. In addition, in territories where our prices are based on local currencies,
fluctuations in the dollar exchange rate could affect our gross profit margin. To assist us in hedging the risks associated with fluctuations in
currency exchange rates, we have contracted a consultant proficient in this area, and are implementing his proposals. However, due to the market
conditions, volatility and other factors, his proposals occasionally prove to be ineffective or worse, and the implementation of his proposals
ineffective. We may incur losses from unfavorable fluctuations in foreign currency exchange rates. See “Item 11 Quantitative and Qualitative
Disclosure of Market Risks” for further discussion of the effects of exchange rate fluctuations on earnings.
A loss of the services of our senior management and other key personnel could adversely affect execution of our business strategy.
We depend on the continued services of our senior management, particularly Ofer Adler our Chief Executive Officer, Chief Product Officer
and co-founder. Our business and operations to date have been mainly implemented under the direction of our current senior management. The
loss of the services of these personnel could create a gap in management and could result in the loss of management and technical expertise
necessary for us to execute our business strategy and thereby, adversely affect execution of our business strategy. Although we have obtained “
key
person” life insurance on the life of Ofer Adler in the amount of $1.5 million, we do not expect to obtain “key person” life insurance with respect
to our other officers.
Further, our ability to execute our business strategy also depends on our ability to continue to attract, retain and motivate qualified and skilled
technical and creative personnel and skilled management, marketing and sales personnel. If we cannot attract and retain additional key employees
or lose one or more of our current key employees, our ability to develop or market our products could be adversely affected. See “Item 6
Directors, Senior Management and Employees.”
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Under current U.S. and Israeli law, we may not be able to enforce covenants not to compete and, therefore, may be unable to prevent our
competitors from benefiting from the expertise of some of our former employees.
We have entered into non-competition agreements with all of our professional employees. These agreements prohibit our employees, if they
cease working for us, from competing directly with us or working for our competitors for a limited period. Under current U.S. and Israeli law, we
may be unable to enforce these agreements, in whole or in part, and it may be difficult for us to restrict our competitors from gaining the expertise
that our former employees gained while working for us. For example, Israeli courts have recently required employers seeking to enforce non-
compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited
number of material interests of the employer which have been recognized by the courts, such as the secrecy of a company’s confidential
commercial information or its intellectual property. If we cannot demonstrate that harm would be caused to us, we may be unable to prevent our
competitors from benefiting from the expertise of our former employees.
Our international operations involve special risks that could increase our expenses, adversely affect our operating results and require
increased time and attention of our management.