Incredimail 2009 Annual Report Download - page 40

Net Income.
The Net Income in 2009 was $8 million compared to Net Income of $4.4 million, in 2008. As described above, while the
net income was attributable to profit from operations, offset by a higher effective tax rate, net income in 2008 was primarily attributable to
financial income recognized from the sale of the Auction Rate Security.
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
Revenues from advertising, primarily search, and other services
. These revenues increased by 33%, from $9.6 million in 2007 to $12.7
million in 2008. The increase in revenues was due to a $3.9 million increase in search generated revenues, partially offset by a $0.8 million
decrease in other advertising and other revenues. In 2008 we diversified our collaboration with search providers, with approximately 90% of
search generated revenues being provided by our partnership with Google and the remaining 10% coming from other search providers, primarily
InfoSpace. The continued increase in search generated revenues reflects the success of our strategy to leverage our large user base, primarily
those using our free products.
Revenues from product
s. These revenues remained relatively stable, increasing less than $0.1 million. We believe the decrease in
growth is attributable to decreasing popularity in purchasing downloadable software, general market conditions and the need to offer a more
current application.
Cost of revenues
. Cost of revenues from products in 2008 was $1.8 million, increasing by less than $0.1 million, compared to 2007 and
as a result, the gross profit margin in 2008 increased to 92%, as compared to 91% in 2007. The increased gross profit margin was a result of the
increased portion of search generated revenues, which have no direct costs associated with it, as part of total sales. As search generated revenues
continue to account for a growing portion of our revenues, we expect the gross profit margin to remain at its current level and as long as this
remains the trend, possibly to further improve.
Research and development expenses (“R&D”) .
R&D increased by $1.5 million, from $6.1 million in 2007 to $7.6 million in 2008. The
increase was primarily attributable to an increased investment in products introduced in 2008 as well as in products that further development was
recently suspended. In 2006 we released Magentic
, a desktop enhancing solution, currently providing wallpapers and screensavers. In 2007 we
began developing a new version of Magentic , dramatically enhancing its personal photograph tools, and released PhotoJoy in
2008. Although
Magentic has accumulated over 8 million registered downloads since introduction, it is not as viral as we had expected, with the average number
of downloads increasing less than 300,000 a month. We therefore decided to suspend our R&D and marketing efforts for these products. As a
percentage of revenues, R&D increased from 33% in 2007 to 35% in 2008.
Selling and marketing expenses
. Selling and marketing expenses, increased by $2.6 million, or 57%, from $4.7 million in 2007, to $7.3
million in 2008. This increase was primarily attributable to the increase in our investment in media buying which accounted for $3.5 million in
2008, compared to $1.4 million in 2007.
General and administrative expenses (“G&A”).
G&A increased marginally from $3.7 million in 2007 to $3.8 million in 2008. As a
percentage of sales, G&A decreased from 20% in 2007 to 17% in 2008.
Goodwill impairment and other charges
. In 2008 the Company realigned its strategy and decided to focus on its core competencies. As
a result it reorganized and suspended certain activities. These expenses included $0.5 million compensation expenses, $0.1 million goodwill
impairment and $0.5 million of other expenses related to activities suspended.
Financial income (expense), net
. We recorded $4.8 million, net, in financial income from receiving in October 2008 the proceeds from
the sale of an Auction Rate Security, which had been written-
off in the fourth quarter of 2007. This income was partially offset by $0.3 million
of finance expenses, resulting primarily from negative net returns on our investments in 2008. In light of the economic situation in general and
the financial markets in particular at the time, we changed our investment policy so that a majority of our investments were in US treasury or US
government backed securities, with the balance in debentures of a limited sum and relatively short-
term maturity, rated at AA and higher and
dollar denominated or linked. More recently, we updated our investment policy to allow for investment in debentures which are rated A as well
as AA and higher.
Income (Loss) before Tax.
The income before tax in 2008 was $4.7 million, compared to a loss before tax of $1.4 million in 2007. The
income in 2008 was primarily attributable to the aforementioned $4.8 million financial income, while the loss in 2007 was primarily attributable
to the write-down of that investment, as described above, partially offset by other financial income.
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