Incredimail 2010 Annual Report Download - page 42

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.
B. LIQUIDITY AND CAPITAL RESOURCES
From inception until consummation of our initial public offering we funded our operations principally from private placements of
ordinary and preferred shares that resulted in aggregate net proceeds of approximately $3.3 million and cash flow from operations. We received
net proceeds of $16.8 million from our initial public offering, consummated in February 2006.
As of December 31, 2010, we had working capital of $28.1 million and our primary source of liquidity was $31.0 million in cash, cash
equivalents and marketable securities. As of December 31, 2009, we had working capital of $26.8 million and our primary source of liquidity
was $29.6 million in cash, cash equivalents and marketable securities. The increase in working capital and cash, cash equivalents and marketable
securities was primarily due to the $9.8 million from operating activities, less $8.5 million distributed as dividends in 2010.
We believe that our cash balances and cash generated from operations will be more than sufficient to meet our anticipated cash
requirements for at least the next 12 months.
Net Cash Provided By Operating Activities
. Net cash provided by operating activities was $0.9 million, $10.7 million and $9.8 million
for 2008, 2009 and 2010, respectively. The change in net cash provided by operating activities reflects primarily net income of $8.4 million, $1.1
million non-cash expenses, net and $0.3 million non-cash increase in working capital.
Net Cash Provided By (Used In) Investing Activities
. Net cash provided by (used in) investing activities was $3.0 million, $13.5 million
and ($10.2) million in 2008, 2009 and 2010, respectively. In 2009, net cash provided by investing activities consisted primarily of the net
proceeds from the sale of marketable securities and short term deposits of $13.8 million, net of $0.5 million investment in property and
equipment. While in 2010, we used cash primarily for net investments in marketable securities of $9.8 million, in addition to investing $0.4
million in property, equipment and content purchased.
Net Cash (Used In) Financing Activities.
Net cash (used in) financing activities was ($0.7) million used in 2008, primarily for the
repurchase of the Company’
s shares, ($7.6) million used in 2009, primarily $8.5 million distributed as a dividend, net of $1.0 million received
from the exercise of options, and ($7.9) million in 2010, primarily, $8.5 million distributed as a dividend, net of $0.4 million received from the
exercise of options.
C. RESEARCH, DEVELOPMENT, PATENTS AND LICENSES, ETC.
Our research and development activities are conducted internally by our Chief Technology Officer and a 54 person research and
development staff. Our research and development efforts are currently focused on upgrading the software and new features for IncrediMail and
HiYo products. In 2009 we released the full version of IncrediMail, which improves the graphics and numerous user-
friendly functions,
bringing a much more graphically advanced user interface. In addition, we released new versions of our HiYo product supporting the Yahoo!
Messenger and AIM platforms.
Our research and development expenditures were $7.8 million, $6.3 million and $6.6 million in the years ended December 31, 2008,
2009 and 2010, respectively. We intend to continue our investment in product development at a level similar to that of 2010, increasing
nominally, in order to enrich our product pipe line.
D. TREND INFORMATION
Sales.
The increase in sales in 2010 compared to 2009 was due to the continued increase in search generated revenues, partially offset
by a decrease in product sales. The rate of growth in 2010 tapered off to 8.5% and was derived entirely from our email product, more than
offsetting the decline in revenues from our HiYo and Magentic products. We have therefore reduced our investment in promoting HiYo and
Magentic and expect to increase our marketing efforts for IncrediMail as well as to begin generating revenues from PhotoJoy. We signed a new
two-
year agreement with Google for powering the search offered to IncrediMail and HiYo users. Although there are several changes in the terms
and conditions in the new agreement, we expect that the new agreement will provide results similar to those of the previous agreement. In 2010
our dependence on search generated revenues and revenues generated by our email product increased. In 2011 we intend to invest in
diversifying our revenue base, reducing our reliance on search generated revenues and the dependence on revenues from our flagship email
product. We expect to achieve this by introducing and generating revenues from new products, such as PhotoJoy which we expect to initiate
marketing efforts in the second quarter of 2011, as well as other products to be developed or acquired in 2011. We have recently completed
extensive consumer research the findings of which we expect to implement during the coming months and as a result we hope to increase
product sales. Although we will be making these investments in 2011, we expect these efforts will not provide for a significant increase in sales
until 2012.
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