Incredimail 2008 Annual Report Download - page 79

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F - 11
Intangible assets are amortized over their useful lives using a method of amortization that reflects the pattern in which the economic
benefits of the intangible assets are consumed or otherwise used, in accordance with SFAS No. 142, “Goodwill and Other
Intangible Assets
”
.
Amortization is calculated using the straight-line method over the estimated useful lives at the following annual rates:
Weighted average
%
Capitalized software development costs (see 2l)
33
Capitalized content costs (see 2o)
33
Core technology
25
Domain
33
INCREDIMAIL LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:
–
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
i.
Impairment of long
-
lived assets:
The Company’s long-lived assets, tangible and intangible, other than goodwill, are reviewed for impairment in accordance with
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value
less costs to sell. In 2006, no impairment loss has been identified. In 2007 and 2008, the Company recorded an impairment loss to
cost of revenues in the amounts of $153,000 and $44,000, respectively, in respect of core technology acquired in the acquisition of
Bizchord.
j.
Goodwill:
Goodwill represents the excess of the cost over the fair value of the net assets of businesses acquired. Under SFAS No. 142,
goodwill is not amortized, but instead is tested for impairment at least annually (or more frequently if impairment indicators arise).
Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets”(“SFAS No. 142”), prescribes a two-
phase process for impairment testing of goodwill. The first phase screens for impairment, while the second phase (if necessary)
measures impairment. In the first phase of impairment testing, goodwill attributable to each of the reporting units is tested for
impairment by comparing the fair value of each reporting unit with its carrying value. The Company operates in two operating
segments, Incredimail and BizChord, and these segments comprise its reporting units. Goodwill is allocated to the reporting unit of
BizChord. If the carrying value of the reporting unit exceeds its fair value, the second phase is then performed. The second phase of
the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that
goodwill. If the carrying amount of the reporting unit’
s goodwill exceeds the implied fair value of that goodwill, an impairment loss
is recognized in an amount equal to that excess. Fair value is determined using discounted cash flows. Significant estimates used in
the fair value methodologies include estimates of future cash flows, future growth rates and the weighted average cost of capital of
the reporting unit. In 2007 and 2008, the Company recorded an impairment loss in the amounts of $163,000 and $125,000 in
respect of Bizchord reporting unit, respectively.
k.
Revenue recognition:
The company derives revenues from: (i) advertising and other services and (ii) from product sales. Revenues from advertising and
other services include search related advertising, other advertising and collaboration arrangements. Revenues from products include
licensing the right to use its email software, content database and email anti spam.
The Company generates revenues from search related advertising, receiving a share of the advertising revenues from companies
providing search capabilities. In addition, the Company offers advertisers the ability to place text-based ads on its website and
banners in its email clients. Advertisers are charged monthly based on the number of times a user clicks on the ads. The Company
recognizes revenues from direct and third party advertisement at that time.
In accordance with EITF No. 01-9, “Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor’s
Product,” the Company accounts for cash consideration given to customers, for which it does not receive a separately identifiable