Incredimail 2011 Annual Report Download - page 35

Selling and Marketing Expenses
Our selling and marketing expenses consist of customer acquisition cost, salaries and other personnel-
related expenses for employees primarily engaged in
marketing activities, credit card commissions and fees to our payment gateway providers that provide secure Internet payment processes. As part of our strategy to
accelerate growth, in 2011 we increased customer acquisition costs dramatically, particularly in the second half of the year, and expect to increase the pace of
investment even further in 2012. This investment is in order to increase the number of product downloads, users and subsequently revenue generated. Customer
acquisition costs were; $1.9 million, $1.8 million and $8.1 million in 2009, 2010 and 2011, respectively. Credit card commissions include nominal transaction costs
and percentage commission costs, both of which vary based on the service provider, currency, geographic location and other variables.
General and Administrative Expenses (“G&A”)
Our general and administrative expenses consist primarily of salaries and other personnel-
related expenses for executive, accounting and administrative
personnel, professional fees and other general corporate expenses. In order to facilitate our strategy for accelerated organic and non-
organic growth in 2011 and
beyond, the Company has enhanced its management team with experienced professionals, capable of taking the Company to the next level. In the latter half of 2010,
the Company engaged a new experienced CEO, created a Corporate Development department and hired a VP of Corporate Development and enhanced the other
administrative functions with experienced personnel. These investments had their full impact and started showing their results in 2011. As a result, G&A expenses
increased in 2010 and continued to increase in 2011. Having completed most of the ramping up needed in this area, we currently expect that absent of acquisitions,
G&A expenses to increase nominally to accommodate the Company’s growth, while decreasing as a percentage of sales in 2012.
Income Tax Expense
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 did in 2009 and 2010, the distributed sum would benefit only partially from this program.
The Company has elected to implement
the recent tax reform to its 2011 preferred income. According to which, reduced tax rate of 15% is applied to the Company's preferred income. A distribution from a
Preferred Enterprise out of the “Preferred Income” would be subject to 15% withholding tax for Israeli-resident individuals and non-
Israeli residents (subject to
applicable treaty rates).
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.
32