Incredimail 2013 Annual Report Download - page 37

ITEM 4.A UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our financial condition and results of operations should be read in conjunction with our financial
statements and the related notes to the financial statements included elsewhere in this annual report. In addition to historical financial
information, the following discussion and analysis contains forward looking statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Exchange Act, including, without limitation, statements regarding the Company’
s expectations, beliefs,
intentions, or future strategies that are signified by the words "expects," "anticipates," "intends," "believes," or similar language. These forward
looking statements involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from
those anticipated in these forward looking statements as a result of many factors, including those discussed under "Item 3.D Risk Factors" and
elsewhere in this annual report.
A. OPERATING RESULTS
Overview
In our legacy business (our business before the ClientConnect Acquisition) we design and market a suite of downloadable consumer
products that are simple, safe and useful. These include primarily customized and entertaining email software products, software for sharing
digital photo creations, instant messaging enhancement software and a variety of free, fun, easy-to-
use and safe application and downloadable
expression content. We believe that the user experience we have created has been successful in attracting a unique underserved demographic
segments seeking software applications that make their lives a little simpler and more enjoyable. In addition, together with our products we offer
users consumer software products owned by other companies, which are distributed in conjunction with our products, and search services
powered by our search engine partners.
In the last quarter of 2013, we recorded an average of approximately 6.5 million installs each month. As of December 31, 2013, we had
an installed base of approximately 3.8 million users, including 537,000 subscribers to our premium products. In addition, based on information
received from Conduit, ClientConnect had an install base totaling 14.8 million users as of December 31, 2013. Included in our "installed base"
are users who have our software installed on their computer on the measurement date. The length of use varies dramatically based on the
product, whether the version of such product is the free version or the one for which users are required to pay, when the product was
downloaded, and other factors. We believe our historical track record of our users accepting and utilizing the search properties we offer, as well
as our history of converting registered users to purchasing customers, represents a convincing validation of our business strategy.
Prices and license fees for our products vary based on market, length of license period and whether the products are offered together.
Our prices and fees range from less than $5 to approximately $40, with subscription periods varying between one month and one year. These
prices are subject to market conditions and can vary in the currencies in which they are paid. Because a significant portion of our revenues come
through other aggregators it is difficult for us to know whether and to what extent inflation or a fluctuation in foreign currency exchange rates
have had a material effect on our revenues, and therefore we are limited in what we can do to address these potential risks.
Recent Acquisitions
The following acquisitions were accounted for by the acquisition method of accounting, and, accordingly, the purchase price was
allocated to the assets acquired and liabilities assumed based on their respective fair values. The results of operations related to each acquisition
are included in our consolidated statement of income from the date of acquisition.
On August 31, 2011, we completed the acquisition of Smilebox Inc., a Washington corporation, through our Delaware subsidiary, by
way of a reverse triangular merger. Smilebox is an Internet photo sharing service available for the desktop and smart-phone, with an easy-to-
use,
downloadable desktop application that allows consumers to use personal photos and videos to construct unique creations, including: greeting
cards, invitations, slideshows, scrapbooks and photo albums. The acquisition added another major product to our portfolio of products,
significantly diversifying our revenue mix. We paid $25 million, substantially in cash, at the closing, and an additional payment of $7 million,
substantially in cash, seven months after the closing.
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