Incredimail 2010 Annual Report Download - page 16

More individuals are using non-
PC devices to access the Internet, and our services are currently not usable on these competing
platforms.
The number of individuals who access the Internet through
devices other then personal computers, such as mobile phones, iPad,
etc., has increased dramatically. Our products are not compatable with these altermnative platformns and devices. If this trend accelerates and an
increasing number of consumers find our products difficult to access through such devices, we may fail to capture a sufficient share of an
increasingly important portion of the market for online services, our product will become less relevant 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 less than $0.1 million. The exchange rate of the U.S.
dollar to the New Israeli Shekel has been very volatile in the past years, decreasing by approximately 13% in 2008, increasing by approximately
10% in 2009, and decreasing by 6% in 2010.
In addition, a significant portion of our sales is in currencies other than the U.S. dollar, of which a large portion is in, or originated in,
Euros. In 2010, approximately 13% of our revenue was received directly in these currencies and an additional 58% indirectly originated in these
currencies. To the extent such sales are not immediately exchanged for U.S. dollars, we bear a foreign currency fluctuation risk. As of December
31, 2010, we had a net foreign currency net asset of approximately $2.0 million and our total foreign exchange expense was approximately $45
thousand for the year ended December 31, 2010. 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 generally implementing his proposals. Based on the advice received from
such consultant, we are advised that we are unable to hedge exchange risks associated with revenues indirectly originating in non-
U.S. dollar
currencies, but received in US dollars. We do not hedge the exchange risk from revenues received directly in non-
US currencies, as this is not as
material. However, due to the market conditions, volatility and other factors, we do not always implement our consultants proposals in full, our
consultant’
s proposals do not always prove to be effective and may even prove harmful. 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 Josef Mandelbaum, our Chief Executive Officer. Our
current strategy is to a great extent a function of his capabilities and experience, in addition to the experience and knowledge of our other 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. We do not
currently have "key person" life insurance with respect to any of our senior management.
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 and attract or acquire new users could
be adversely affected. See "Item 6 Directors, Senior Management and Employees."
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