Incredimail 2010 Annual Report Download - page 36

Income Tax Expense (Benefit)
In 2001 and 2003, we were granted the status of "Approved Enterprise" and in 2008 we received approval for continued "Beneficiary
Enterprise" status, all with respect to three separate investment programs, entitling us to a tax exemption for a period of two years and to a
reduced tax rate of 10%-
25% for an additional period of five to eight years (depending on the level of foreign investment in our Company). The
"Approved Enterprise" status and the "Beneficiary Enterprise" status under these tax benefits programs allow for 0% corporate tax for a limited
period of time on undistributed profits generated from operations, and preferential taxation of the distributed portion, requiring regular Israeli
corporate tax on income generated from other sources. To the extent the Company distributes dividends from profits generated under this
program, as it has in 2009 and 2010, the distributed sum would benefit only partially from this program. Nevertheless, it should be mentioned
that commencing 2011, the Investment Law provides that new benefitted programs will enjoy reduced tax rates (for “Preferred Enterprises”
)
with no possibility for 0% corporate tax. See " Item 10.E Taxation — Israeli Taxation—
Law for the Encouragement of Capital Investments,
1959" and Item 8. Financial Information A. Consolidated Statements and Other Financial Information -
Policy on Dividend Distribution, for
more information about these programs and the Company’s dividend policy.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operation are based on our financial statements, which have been
prepared in conformity with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate these
estimates on an on-
going basis. We base our estimates on our historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amount values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions. Under U.S. GAAP, when more than one accounting method or policy or its application is generally accepted, our management
selects the accounting method or policy that it believes to be most appropriate in the specific circumstances. Our management considers some of
these accounting policies to be critical.
A critical accounting policy is an accounting policy that management believes is both most important to the portrayal of our financial
condition and results and requires management’
s most difficult subjective or complex judgment, often as a result of the need to make accounting
estimates about the effect of matters that are inherently uncertain. While our significant accounting policies are discussed in Note 2 to our
financial statements, we believe the following accounting policies to be critical:
Revenue recognition
Revenues from advertising, whether from keyword search, advertising on our website or in our email client, are recognized when we
are entitled to receive the fee. Advertisers are charged and pay monthly, based on the number of clicks generated by users clicking on these ads.
In accordance with ASC 605-
50, "Customer Payments and Incentives" the Company accounts for cash consideration given to
customers, for which it does not receive a separately identifiable benefit or cannot reasonably estimate fair value, as a reduction of revenue rather
than as an expense.
Revenues from email software license sales are recognized when all criteria outlined in ASC 985-605, "Software – Revenue
Recognition",, 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.
For substantially all of our software arrangements, we evaluate each of these criteria as follows:
Evidence of an arrangement : We consider a clicking on "acceptance" of the agreement terms to be evidence of an arrangement.
Delivery
: Delivery is considered to occur when the license key is sent via email to the customer or alternatively the customer is given
access to download the licensed key.
Fixed or determinable fee
: Fees are determinable at the time of sale. Customers are charged immediately through credit cards. In
addition, the fees are subject to a refund policy period, currently up to 30 days.
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