Incredimail 2012 Annual Report Download - page 46

Net Income.
Net income in 2012 was $3.5 million, compared to $5.7 million, in 2011. As described above, this decrease was primarily a
result of the $14.0 million increase in customer acquisition costs, the nominal increases in other operating expenses and the $2.3 million increase
in tax expenses, partially offset by increased profits from the increase in revenues.
Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
Search revenues
. These revenues increased by 12%, from $22.8 million in 2010, to $25.5 million in 2011. This increase was due to an
increase in the number of downloads and subsequently the number of users using our search service. As the number of downloads of our
IncrediMail products increased, while the number of downloads of our Magentic and HiYo products decreased, search generated revenues
through our partnership with Google accounted for more than 94% of these revenues, with the remaining revenues coming from other search
providers.
Product
s revenues. These revenues grew by over 33% in 2011, from $5.4 million in 2010 to $7.2 million in 2011. This increase was
primarily attributable to our acquisition of Smilebox, whose products sales were $2.2 million in the last four months of the year, partially offset
by a $0.4 million decrease of organic products sales.
Other revenues
. These revenues more than doubled in 2011, from $1.3 million in 2010 to $2.8 million in 2011. This increase is
attributable to collaboration with other vendors for the sale of their product to our users and an increase in other advertising revenues through a
toolbar, on our homepage and other advertising revenues.
Cost of revenues
. Cost of revenues in 2011 was $2.8 million, as compared to $1.6 million in 2010. This increase was primarily due to
the acquisition of Smilebox, whose associated direct costs of approximately $0.6 million included amortization of intangible assets and direct
content costs. Smilebox content costs are based on usage and, as a result, are included in the cost of revenues.
Research and development expenses, net ("R&D")
. R&D increased by $0.9 million, from $6.6 million in 2010 to $7.5 million in 2011,
decreasing as a percentage from sales from 23% in 2010 to 21% in 2011. The increase was as a result of our investing in enriching our product
pipeline in 2011, with the Fixie product coming to market in the fourth quarter of 2011, the mobile version of our Smilebox product announced
shortly after the acquisition, and the announced PhotoJoy product for iPad and iPhone platforms.
Selling and marketing expenses
. Selling and marketing expenses more than doubled from $5.2 million in 2010 to $13.0 million in
2011. This increase was primarily attributable to the increased investment in customer acquisition costs, which increased from $1.8 million in
2010 to $8.1 million in 2011. In addition, marketing expenses increased due to personnel costs incurred by our increasing the size of our
marketing department to enable us to make these investments and subsequently track the return generated. Finally, the increase was also due to
the marketing expenses incurred by the acquisition of Smilebox and the marketing expenses needed to support that product.
General and administrative expenses ("G&A").
G&A increased from $4.7 million in 2010 to $7.6 in 2011. This increase was primarily
due to our building a management team, primarily in the latter part of 2010, capable of scaling our business model and taking us to the next
level, both organically and through acquisitions. As a result, in 2011, G&A on average was at a level similar to that of the last quarter of 2010. In
addition, we recorded over $1.0 million in expenses related to the acquisition of Smilebox, which in according to U.S. GAAP is accounted for as
an expense immediately.
Taxes on Income.
Income tax in 2011 was $0.2 million, compared to $3.2 million in 2010. The decrease in income tax was a result of a
number of tax credits received with respect to past years, a tax refund due to the settlement of a tax audit with the Israeli tax authorities and the
discontinuation of our dividend distribution policy.
Net Income.
Net income in 2011 was $5.7 million, compared to $8.4 million, in 2010. As described above, this decrease was primarily a
result of the $6.2 million increase in customer acquisition costs, amortization of intangibles resulting from the Smilebox acquisition, partially
offset by increased profits from the increase in revenues and capitalization of research and development costs.
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