Incredimail 2011 Annual Report Download - page 33

In the UK at least, the government is taking a phased approach to the implementation of the ePrivacy Directive and, until May 2012, the regulator (ICO) are
therefore taking the approach that if they receive a complaint about a website then they will expect to receive a response from an organization setting out how they
have considered the new requirements and to demonstrate that the organization has a realistic plan to achieve compliance.
Similar to CAN-
SPAM Act of 2003, the EU has equally tough legal regime as a result of the Privacy and Electronic Communications Directive
(2002/58/EC), which specifically applies to the sending of unsolicited commercial email. All EU Member States now have implementations within their own national
legislation which implement these rules (though not always on the same basis which complicates our compliance). As a consequence direct marketing email messages
may be sent only to subscribers who have given their prior consent ("opt-
in") although certain exemptions apply where there has been a prior course of dealing with
the consumer in question and these can provide our business with more flexibility. We are challenged by these (and associated rules) when mounting EU email
campaigns and non-
compliance would expose us to potential fines and regulatory investigation and sanction on a country to country basis as well as potentially
reputational damage.
C. ORGANIZATIONAL STRUCTURE
During 2006, we formed a wholly-owned subsidiary in Delaware, for marketing and other activities (the “Delaware Subsidiary”),
and formed another wholly
owned subsidiary in Israel to acquire the business of our transaction processing provider, operating primarily out of Israel (the “Israeli Subsidiary”).
In 2009 we
refocused the transaction processing activity to deal exclusively with internally generated activity and currently the Israeli Subsidiary is inactive. In August 2011 we
acquired, through our Delaware Subsidiary, all the outstanding shares of Smilebox Inc., a Washington corporation operating out of Redmond Washington. See
“Recent Developments”. Except for such subsidiaries, we do not currently have other subsidiaries.
D. PROPERTY, PLANTS AND EQUIPMENT
We lease two facilities, one located in Tel Aviv, Israel and the second in Redmond Washington. The lease in Tel Aviv for a total area of 18,300 square feet
was extended in 2011 to expire in 2015, with annual rent of approximately $18 per square foot. The lease in Redmond for a total area of 8,300 square feet was
extended in 2010 to expire in 2015, with an option to extend for another 2-5 years, with annual rent of approximately $19 per square foot.
Perion owns servers that are located in Israel and Smilebox owns additional servers located in Seattle Washington for a total of 60 servers. We also rent the
services of approximately 100 additional servers located around the world. Our servers include mainly web servers, application servers, ad servers, mail servers and
database servers. Bezeq International Ltd. which we refer herein as "Bezeq", provides our Internet and related telecommunications services in Israel, including hosting
and location facilities, needed to operate our websites. Bezeq is Israel’s largest provider of such services and is a member of Bezeq Group, Israel’
s national
telecommunications provider. Bezeq provides these services through standard purchase orders and invoices. We add servers and expand our systems located at their
facilities as our operations require. We believe there are many alternative providers of these services both within and outside of Israel.
ITEM 4.A UNRESOLVED ST AFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related
notes to the financial statements included elsewhere in this annual report. In addition to historical financial information, the following discussion and analysis
contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including, without limitation, statements regarding the Company’
s expectations, beliefs, intentions, or future strategies that are signified by the words "expects,"
"anticipates," "intends," "believes," or similar language. These forward looking statements involve risks, uncertainties and assumptions. Our actual results and timing
of selected events may differ materially from those anticipated in these forward looking statements as a result of many factors, including those discussed under "Item
3.D Risk Factors" and elsewhere in this annual report.
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