Incredimail 2010 Annual Report Download - page 37

Collection is probable
: We are subject to a minimal amount of collection risk related to software sold to our customers as these are
obtained through credit card sales.
Revenues from licensing The Gold Gallery
content database are recognized over the term of the licensing period. We offer one year,
two year and lifetime licenses for The Gold Gallery content database for a one-
time, upfront payment. The different term licenses constituted
less than 5% of our revenues in 2010. Our estimation of the lifetime usage of The Gold Gallery
is six years and is based on historical data
collected. We continually track usage patterns, and as we gather more user information, we may update this estimated useful life. If the lifetime
usage of The Gold Gallery
is demonstrated to be shorter or longer than the current estimate, we would recognize revenues earlier or later. Based
on our current revenue streams, such an adjustment would not have a significant effect on our revenues.
Revenues from our JunkFilter Plus solution are recognized over the one year term of the license.
Our deferred revenue consists of the unamortized balance of The Gold Gallery and the JunkFilter Plus
license fees, which totaled $3.8
million as of December 31, 2010, of which $2.2 million was classified as short-term deferred revenues and the balance as long-
term deferred
revenue on our balance sheet .
With regard to arrangements involving multiple elements, our revenues are 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. Under the relative fair
value method, we recognize and defer revenue proportionally based on the fair value of its delivered and undelivered elements, when the basic
criteria in ASC 985-605 have been met. Any discount in the arrangement is allocated pro rata to the different elements in the arrangements.
Collaboration arrangements are established with other websites who use our brand name Incredi
and to whom we refer users. Under the
agreement the collaborators provide their products and services and manage, host and maintain the websites that provide games or matchmaking
services to Internet users, using our Incredi brand for the domain names IncrediGames.com and IncrediMailPersonals.com and our website’
s
graphical external envelop. We promote these websites, among other things, through promotions on our website and email client. In
consideration for our brand and promotional activity, we are entitled to share the net or gross revenues, (as provided in each agreement),
generated from these websites, including subscription and advertising fees. Revenues from these collaboration arrangements are recognized
when earned and based on reports received from the collaborating party.
Stock
-Based Compensation
On January 1, 2006, we adopted ASC 718, "Compensation –
Stock Compensation", which requires the measurement and recognition of
compensation expense based on estimated fair values for all share-
based payment awards made to employees and directors. As of December 31,
2010, the total compensation cost, related to options granted to employees, not yet recognized, amounted to $1.2 million. This cost is expected to
be recognized over a weighted average period of 2.2 years. Our stock-based compensation to employees was allocated as follows (in thousands):
Determining the appropriate fair value model and calculating the fair value of stock-
based awards, which includes estimating stock
price volatility, forfeiture rates, expected lives and dividend yield, requires judgment and could materially impact our operating results.
Taxes on Income
We record income taxes using the asset and liability approach. Management judgment is required in determining our provision for
income taxes. The provision for income tax is calculated based on our assumptions as to our entitlement to various benefits under the applicable
tax laws. The entitlement to such benefits depends upon our compliance with the terms and conditions set out in these laws. Although we believe
that our estimates are reasonable and that we have considered future taxable income and ongoing prudent and feasible tax strategies in estimating
our tax outcome, there is no assurance that the final tax outcome will not be different than those which are reflected in our historical income tax
provisions and accruals. Such differences could have a material effect on our income tax provision, net income and cash balances in the period in
which such determination is made.
Year Ended December 31,
2008
2009
2010
Cost of revenues
$
16
$
20
$
7
Research and development
293
169
145
Selling and marketing
137
161
151
General and administrative
584
322
458
Other charges
135
-
-
30