Incredimail 2013 Annual Report Download - page 108

PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
Due to the proximity of the business combination and the commercial agreement, the nature of the transactions,
management concluded that the effect of transactions with Conduit will be recorded on a net basis. Therefore, with regard
to the activity during the period of August through October the net amount of $ 533, which were realized, are included
within 2013 search revenues on the statement of income. In light of the agreement closing in the beginning of January
2014, the net effect of November through December transactions with Conduit, of $ 3,146 which was not realized on as if
consolidated basis as of December 31, 2013, is included within deferred revenues on the balance sheet.
Cost of revenues consists primarily of salaries and related expenses, license fees, amortization of acquired technology,
amortization of capitalized research and development costs and payments for content and server maintenance, all related
to its product revenues and communicating with its users. The direct cost relating to search and advertising revenues is
immaterial.
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 the detailed program design ("DPD") (the DPD of a computer software
product that takes product function, feature, and technical requirements to their most detailed, logical form and is ready for
coding).
Costs incurred by the Company between completion of the DPD and the point at which the product is ready for general
release, are capitalized unless considered immaterial.
Capitalized software development costs are amortized commencing with general product release by the straight-
line
method over the estimated useful life of the software product, which is generally 3 - 5 years.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
j.
Cost of revenues:
k.
Research and development costs:
F
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