Incredimail 2009 Annual Report Download - page 9

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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 keyword 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 very dependent on keyword advertisement, 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 through the Company’
s applications. This
dependence continues to grow and we obtained approximately 68% of our revenues for the year ended December 31, 2009 from this venue, a
percentage which is growing.
On July 1, 2008, we entered into an agreement with Google relating to the AdSense program for a one year term. This amendment was
primarily to add our HiYo product to our collaboration with Google. On July 1, 2009 we amended and extended the agreement for two
years. The agreement may be terminated by either side after one year with 90 days notice. In addition, Google may amend the agreement and
has other limited termination rights. We have been told that Google may alter its guidelines with respect to homepage resets and default search
resets to Google services when providing downloadable applications on which we are heavily dependent; and consequently may terminate our
current agreement, and renew it under different terms, effective as of July 1, 2010. If this agreement is terminated, substantially amended, or not
renewed on favorable terms, we would be forced to seek an alternative keyword search provider. There are very few companies in the market
that provide Internet ad services similar to those provided by Google. Google is the most dominant player in this market and other companies in
the market do not have as much coverage with 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 effects our ability to
contract other providers, we may experience a material reduction in our revenues and, in turn, our business, financial condition and results of
operations would be adversely affected. The failure of IncrediMail to retain existing, or attract new users, as well as generate traffic to its search
properties, could adversely affect our business, financial condition and results of operations.
As of December 31,
2005
2006
2007
2008
2009
(in thousands)
Balance Sheet Data:
Cash and cash equivalents
$
2,428
$
8,366
$
4,611
$
7,835
$
24,368
Working capital
2,966
21,561
19,756
25,143
26,846
Total assets
8,460
31,424
31,766
37,651
39,894
Total short
-
term debt
4
-
-
-
-
Total liabilities
5,465
8,847
10,995
12,107
12,892
Redeemable convertible preferred shares
3,030
-
-
-
-
Shareholders
’
equity (deficiency)
(35
)
22,577
20,771
25,544
27,002
5