Incredimail 2013 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
We are highly dependent on Internet search based revenues.
Both our legacy business (our business before the ClientConnect Acquistion) and the ClientConnect business are very dependent on
search based revenues which are based on the acceptance and subsequent retention of search properties by the users of the software products of
these businesses. In 2013, these search based revenues accounted for 68% of the revenues related to our legacy business and 85% of
ClientConnect's revenues. In addition, the market for offering and retaining search properties is very competitive. While our strategy is to
diversify our revenue streams and limit the dependence on search based revenues, we expect this venue to continue to generate a major portion
of our revenues in the foreseeable future. Adverse changes in the search industry or 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.
Our business depends heavily upon revenues generated from arrangements with search providers, including Microsoft and Google, and
any adverse change in those relationships could adversely affect our business or its financial condition and results of operations.
The vast majority of our revenues from our legacy business in 2013 were derived from search services agreements with Google Ireland
Limited ("Google"), APN LLC ("APN") and Microsoft Online Inc. ("Microsoft"), which expire on April 30, 2015, March 31, 2016 and
December 27, 2014, respectively. In 2013, our agreement with Google accounted for 46% of our legacy business revenues, the agreement with
APN accounted for 11% of our legacy business and the agreement with Microsoft accounted for 9% of our legacy business revenues. The Perion
agreement with Microsoft may be terminated by 30 days' advance notice. As a result of the ClientConnect Acquisition, we also are highly
dependent on ClientConnect's agreements with Microsoft and Google, which expire on December 31, 2014 and on August 31, 2015,
respectively. In 2013, ClientConnect's agreement with Microsoft accounted for 63% of ClientConnect's revenues, and its agreement with Google
accounted for 22% of ClientConnect's revenues.
If any of these agreements 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, Microsoft and Yahoo.
These three are the dominant players in this market, particularly on a global scale, and competitors do not offer as much coverage through
sponsored links or searches. 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 these agreements, or if the alternative arrangements will not attract the same traffic as the
traffic attracted by Microsoft or Google, or if the termination by Microsoft or Google affects our ability to contract with 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.
As of December 31,
2009
2010
2011
2012
2013
(in thousands)
Balance Sheet Data:
Cash and cash equivalents
$
24,368
$
16,055
$
11,260
$
21,762
$
23,364
Working capital
26,846
28,067
(27
)
(4,296
)
(2,860
)
Total assets
39,894
41,348
54,904
123,159
114,875
Total liabilities
12,892
13,196
23,083
68,449
58,305
Shareholders
’
equity
27,002
28,152
31,815
54,710
56,570
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