Incredimail 2012 Annual Report Download - page 47

B. LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2012, our working capital was a negative $4.3 million, consisting of approximately $47.7 million in current assets,
less $52.0 million in current liabilities. As of December 31, 2011, our working capital was zero, as current assets and current liabilities both
equaled $21.0 million. The decrease in working capital was primarily due to the acquisition of SweetIM in the last quarter of 2012. Under the
terms of the acquisition agreement, virtually all the cash acquired, approximately $13 million, is payable to the sellers of SweetIM. At closing,
which occurred on November 30, 2012, we paid $ 10 million in cash,
a second payment of up to $7.5 million in cash is due towards the end of
2013, 12 months after closing, and we’
ve accrued a $3.0 million contingent tax liability related to this acqusition. These items related to the
acqusition of SweetIM caused a decrease in working capital of approximately $20.5 million. This reduction was subtantially offset by cash
generated by ongoing activities.
As of December 31, 2012, we had bank loans outstanding totaling $8.9 million, to be paid over the next three to four years, including
$6.6 million classified as long term debt and $2.3 million with current maturities.
We believe that our cash balances and cash generated from operations will be more than sufficient to meet our anticipated cash
requirements for operations, as well as our deferred acquisition payments, for at least the next 12 months.
Net Cash Provided By Operating Activities
. Net cash provided by operating activities was $9.8 million, $8.1 million and $16.3 million
for 2010, 2011 and 2012, respectively. The increase in cash provided by operating activities in 2012 was primarily a result of an increase in
operating payables coupled with a decrease in operating assets, resulting in a net increase of $7.8 million. The $2.1 million decrease in net
income in 2012 compared to 2011, was more than offset by the $3.3 million increase in non-
cash expenses included in net income for 2012, as
compared to 2011.
Net Cash Used In Investing Activities
. Net cash used in investing activities was $10.2 million, $8.0 million and $14.7 million in 2010,
2011 and 2012, respectively. While in 2010, the net cash used in investment activities was a result of the net investment in marketable securities;
in 2011 and 2012 the cash used in investing activities was primarily a result of the acquisition of Smilebox and SweetIM, respectively. In 2011,
we invested $21.7 million in cash for the acquisition of Smilebox and $1.1 million in equipment and capitalized content and software cost. These
investments were partially offset by the $14.8 million in proceeds from the net sale of marketable securities. In 2012, we invested $13.6 million
cash in connection with the acquisition of Smilebox and SweetIM and $1.5 million in equipment and capitalized content and software cost.
Net Cash Provided by (Used In) Financing Activities.
Net cash provided by (used in) financing activities was ($7.9) million, ($3.9)
million and $2.3 million in 2010, 2011 and 2012, respectively. In 2010 and 2011, the cash was used primarily for the payment of dividends to
shareholders, a policy that has been discontinued. In 2012, the cash was provided by the bank loan taken, less payments already made on
account, providing net cash of $8.9 million, less $6.6 million deferred payment for acquisitions.
Credit Facilities
In September 2011, we entered into an agreement with each of Bank Leumi Le-
Israel ("Leumi") and First International Bank of Israel
("FIBI"), to secure a credit facility for up to a total of $20 million of financing. During the second quarter of 2012, we amended both agreements,
and reduced the amount of each credit facility, to $6 million provided by Leumi, and $4 million by FIBI. The repayment of the debt is structured
over four and five years from the draw date, respectively, and we have an option for early repayment.
In order to secure our obligations to the banks we pledged and granted to the banks a first priority floating charge on all of our assets
and a first priority fixed charge on certain other immaterial assets (namely, rights for unpaid shares, securities and other deposits deposited with
the banks from time to time, and rights for property insurance). The pledge agreements contain a number of customary restrictive terms and
covenants that limit our operating flexibility, such as (1) limitations on the creation of additional liens, on the incurrence of indebtedness, on the
provision of loans and guarantees and on distribution of dividends, and (2) the ability of the banks to accelerate repayment in certain events, such
as breach of covenants, liquidation, and a change of control of our Company. Such provisions may hinder our future operations or the manner in
which we operate our business, which could have a material adverse effect on our business, financial condition or results of operations.
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