Incredimail 2010 Annual Report Download - page 95

INCREDIMAIL LTD AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with ASC 605-
50, "Customer Payments and Incentives", the Company accounts for cash consideration
given to customers, for whom it does not receive a separately identifiable benefit or cannot, reasonably estimate fair value,
as a reduction of revenue rather than as an expense.
In the past, collaboration arrangements had been established with companies that used the Company's brand name
"Incredi" for their website and to which the Company referred users. In consideration of the brand and promotional
activity that the Company provided, it was 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 were recognized when earned. Such arrangements were not active in 2010.
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. 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.
Revenues from email anti-spam license fees are recognized ratably over the term of the license.
Deferred revenues include upfront payments received from customers, for whom revenues have not yet been recognized.
With regard to arrangements involving multiple elements, the Company's 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, the Company recognizes and defers 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.
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 ASC 985-20, "Software
–
Costs of Software to Be Sold,
Leased, or Marketed". Based on the Company's product development process, technological
feasibility is established upon completion of a working model.
NOT
E 2:
-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
j.
Research and development costs:
F
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12