Incredimail 2012 Annual Report Download - page 41

Delivery
: Delivery is considered to occur when the license key is sent via email to the customer or alternatively the customer is given
access to download the licensed key.
Fixed or determinable fee
: Fees are determinable at the time of sale. Customers are charged immediately through credit cards. In
addition, the fees are subject to a refund policy period, currently up to 30 days.
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 of premium products are recognized over the term of the licensing period, which currently are either one
month or one year. Until the end of 2011, we offered lifetime licenses for one of our premium products as well. While offered, our estimation of
the lifetime usage of that product was six years, based on historical data collected. We no longer offer that service, offering all users who had
purchased the service in the past to download to their local computer all the premium content previously included in the service. Any user not
having downloaded the content may still contact us and receive a copy of the premium content. As the service has been terminated, that premium
content collection is no longer updated, nor can it be accessed through our software. The balance of revenues previously deferred over the
remaining lifetime of the service was truncated and recognized as revenues in the beginning of 2012. These accounted for less than 3% of our
revenues for the year.
Our deferred revenue consists of the unamortized balance of the license fees, which totaled $5.1 million as of December 31, 2012, all of
which was classified as short-term deferred revenues on our balance sheet .
The amount of revenues derived from multiple element arrangements is not material to our results of operations.
Stock
-Based Compensation
We account for share-
based payment awards made to employees, non employees and directors in accordance with ASC 718,
"Compensation –
Stock Compensation", which requires the measurement and recognition of compensation expense based on estimated fair
values. Determining the fair value of stock-
based awards at the grant date requires the exercise of judgment, as well as the determination of the
amount of stock-based awards that are expected to be forfeited. If actual forfeitures differ from our estimates, equity-
based compensation
expense and our results of operations would be impacted. Expense is generally recognized on a straight-
line basis over the service period during
which awards are expected to vest, except for awards with market or performance conditions, which are recognized using the accelerated
method.
Total equity-
based compensation expense recorded during 2012 was $1.1 million, of which $0.2 million was included in research and
development costs, $0.2 million in selling and marketing expenses and $0.7 million in general and administrative expenses.
As of December 31, 2012, the maximum total compensation cost related to options granted to employees, non-
employees and directors
not yet recognized, amounted to $2.3 million. This cost is expected to be recognized over a weighted average period of 2.37 years.
We estimate the fair value of standard stock options granted using the Binomial method option-
pricing model and options with exercise
that is subject to a stock price target, using the Monte Carlo simulations. The option-
pricing models require a number of assumptions, of which
the most significant are expected stock price volatility and the expected option term. In 2010, expected volatility was calculated based upon an
average between historical volatilities of our shares, entities similar to the Company's characteristics, and an industry sector index, since we did
not have sufficient company specific data. In 2011 and 2012, expected volatility was calculated based upon actual historical stock price
movements over the most recent period ending on the grant date, equal to the expected option term. The expected option term was calculated
based on our assumptions of early exercise multiples, which were calculated based on comparable companies, and a termination exit rate, which
was calculated based on actual historical data. The expected option term represents the period that our stock options are expected to be
outstanding. The risk-free interest rate is based on the yield from U.S. Treasury zero-coupon bonds with an equivalent term.
In November 2010, our board of directors changed our dividend policy so that we do not distribute any cash dividends.
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