Incredimail 2010 Annual Report Download - page 10

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 70% of our revenues for the year ended December 31, 2010
from this venue, a percentage which is growing.
On July 1, 2009 we amended and extended our agreement with Google for two years. The agreement enabled termination by either side
after one year with 90 days notice. In addition, Google was able to amend the agreement and had other limited termination rights. In the latter
part of 2009 we had been informed by Google that it 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 the then existing
agreement, and renew it under different terms, effective as of July 1, 2010. This agreement was subsequently amended and extended under
similar terms effective July 1, 2010 for half a year. In December 2010 we signed a new two year agreement with Google effective January 1,
2011. This agreement too enables termination by either side after one year with 90 days notice and in addition, Google is able to amend the
agreement 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 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,
2006
2007
2008
2009
2010
(in thousands)
Balance Sheet Data:
Cash and cash
equivalents
$
8,366
$
4,611
$
7,835
$
24,368
$
16,055
Working capital
21,561
19,756
25,143
26,846
28,067
Total assets
31,424
31,766
37,651
39,894
41,348
Total liabilities
8,847
10,995
12,107
12,892
13,196
Shareholders
’
equity
22,577
20,771
25,544
27,002
28,152
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