Incredimail 2008 Annual Report Download - page 80

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F - 12
F - 13
benefit or cannot reasonably estimate fair value, as a reduction of revenue rather than as an expense.
INCREDIMAIL LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:
–
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Collaboration arrangements have been established with companies that use the Company’s brand name “Incredi” for their website
and to which the Company refers users. In consideration of the brand and promotional activity that the Company provides, it is
entitled to a share of the gross revenues generated from the website or to a share of the net license fees received by the Company’s
collaborator through its website. Revenues from these collaboration arrangements are recognized when earned.
Revenues from email software license sales are recognized when all criteria outlined in Statement of Position (“SOP”) 97-2,
“Software Revenue Recognition” (as amended), are met. Revenues from software license are recognized when persuasive evidence
of an agreement exists, delivery of the product has occurred, the fee is fixed or determinable, and collectability is probable. The
Company’s e-mail users may also purchase a license to its content database. This content database provides additional Incredimail
content files in the form of email background, animation sounds, graphics and e-mail notifiers. Licensing fees are recognized over
the license period. Lifetime licensing revenues are recognized over the estimated usage period of the content database. In
accordance with its policy, the Company reviews the estimated usage period of the lifetime licensing on an ongoing basis.
Deferred revenues include upfront payments received from customers, for which revenues have not yet been recognized.
Revenues from email anti-spam license fees are recognized ratably over the term of the license.
With regard to arrangements involving multiple elements, the Company revenues should be allocated to the different elements in
the arrangement under the “relative fair value method” when Vendor Specific Objective Evidence (“VSOE”)
of fair value exists for
all elements in accordance with SOP No. 97-2. Under the relative fair value method, the Company allocates revenue proportionally
based on the fair value of its delivered and undelivered elements. Any discount in the arrangement is allocated pro rata to the
different elements in the arrangements.
l.
Research and development costs:
Research and development costs incurred in the process of software production before establishment of technological feasibility,
are charged to expenses as incurred. Costs of the production of a product master incurred subsequent to the establishment of
technological feasibility are capitalized according to the principles set forth in SFAS No. 86, “Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed”. Based on the Company’s product development process,
technological feasibility is established upon completion of a working model.
Costs incurred by the Company between completion of the working model and the point at which the product is ready for general
release, have been capitalized.
Capitalized software development costs are amortized commencing with general product release, by the greater of the amount
computed using the: (i) ratio that current gross revenues from sales of the software to the total of current and anticipated future
gross revenues from sales of that software, or (ii) the straight-line method over the estimated useful life of the product. The
Company assesses the recoverability of this intangible assets on an annually basis by determining whether the amortization of the
asset over its remaining life can be recovered through undiscounted future operating cash flows from the specific software product
sold. Based on its analyses, management believes that no impairment of capitalized software development cost exist as of
December 31, 2008.
INCREDIMAIL LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:
–
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
m.
Income taxes: