Incredimail 2012 Annual Report Download - page 8

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 may experience a material reduction in
our search generated revenues or the profits they create, we could be forced to immediately seek an alternative search provider, and
even then 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 63% of our revenues for the year ended December 31, 2012
from this partnership. While our strategy is to diversify our revenue streams and limit this dependence, we expect this venue to continue to
generate a major portion of our revenues in the foreseeable future.
On April 23, 2013, we entered into a new agreement with Google, effective from May 1, 2013 to April 30, 2015. The new agreement
combines the activities of Perion and SweetIM, a consumer internet company we acquired in November 2012 (see "Recent Developments" under
Item 4A below) into one agreement and replaces both of the existing agreements with Google. The new agreement, as in past agreements,
enables termination by either side after one year with 90 days notice. In addition, Google is entitled to amend the agreement, change its policies
and guidelines, and has other limited termination rights. If this agreement is terminated, substantially amended, or not renewed on favorable
terms, we could experience a material decrease in our search generated revenues or the profits they create and we could be forced to seek
alternative search providers. There are very few companies in the market that provide Internet search and advertising services similar to those
provided by Google. Google is the most dominant player in this market, particularly on a global scale, and competitors do not offer as much
coverage through 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 affects our ability to contract other providers, we
would experience a material reduction in our revenues and, in turn, our business, financial condition and results of operations would be adversely
affected. Our failure to retain existing users, or attract new users, as well as generate traffic to our search properties, could adversely affect our
business, financial condition and results of operations.
As of December 31,
2008
2009
2010
2011
2012
(in thousands)
Balance Sheet Data:
Cash and cash equivalents
$
7,835
$
24,368
$
16,055
$
11,260
$
21,762
Working capital
25,143
26,846
28,067
(27
)
(4,296
)
Total assets
37,651
39,894
41,348
54,904
123,159
Total liabilities
12,107
12,892
13,196
23,083
68,449
Shareholders
’
equity
25,544
27,002
28,152
31,815
54,710
4