Incredimail 2013 Annual Report Download - page 43

Impairment of Long
-Lived Assets
We are required to assess the impairment of tangible and intangible long-
lived assets subject to amortization, under ASC 360 "Property,
Plant and Equipment", on a periodic basis and when events or changes in circumstances indicate that the carrying value may not be recoverable.
Impairment indicators include any significant changes in the manner of our use of the assets or the strategy of our overall business, significant
negative industry or economic trends and significant decline in our share price for a sustained period.
Upon determination that the carrying value of a long-
lived asset may not be recoverable based upon a comparison of aggregate
undiscounted projected future cash flows from the use of the asset or asset group to the carrying amount of the asset, an impairment charge is
recorded for the excess of carrying amount over the fair value. We measure fair value using discounted projected future cash flows. We base our
fair value estimates on assumptions we believe to be reasonable, but these estimates are unpredictable and inherently uncertain. If these estimates
or their related assumptions change in the future, we may be required to record impairment charges for our tangible and intangible long-
lived
assets subject to amortization. No impairment charges were recognized during 2011, 2012, or 2013.
Research and Development Expenses, Net
Research and development costs incurred in the process of software development before establishment of technological feasibility are
charged to expenses as incurred. Costs of the production of a detailed program design incurred subsequent to the establishment of technological
feasibility are capitalized. Based on our product development process, technological feasibility is established upon completion of a detailed
program design.
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.
At each balance sheet date, we assess the recoverability of this intangible asset by comparing the unamortized capitalized software costs
to the net realizable value on a product by product basis. Should the amount of the unamortized capitalized costs of a computer software product
exceed the net realizable value, these products will be written down by the excess amount .
Results of Operations
The following table sets forth, for the periods indicated, our statements of operations expressed as a percentage of total revenues (the
percentages may not equal 100% because of the effects of rounding):
As shown in the above table, our operations are generally characterized by high gross profit margins, which are attributable mainly to
two factors: (i) we do not have manufacturing costs for our products, and (ii) our search generated revenues have virtually no direct cost
associated with them. Starting in the second half of 2011, we dramatically increased our investment in customer acquisition costs to fuel future
growth. These expenses increased from $8.1 million in 2011 to $22.1 million in 2012 to $32.3 million in 2013. This was the primary reason for
the increase in selling and marketing expenses in 2012, both nominally and as a percentage of sales, resulting in lower operating and net income
margins in 2012 and 2013. We expect to further increase our customer acquisition costs in 2014, increasing our sales and marketing expenses,
both nominally and as a percentage of sales. In addition, general and administrative expenses included expenses related to the acquisition of
subsidiaries of $1.1 million, $2.1 million and $6.2 million in 2011, 2012 and 2013, respectively. However, as a result of these acquisitions, we
expect increased revenues and improved operating margins in 2014.
Year Ended December 31,
2011
2012
2013
Revenues:
Search
72
%
63
%
68
%
Products
20
29
20
Advertising and Other
8
8
12
Total revenues
100
%
100
%
100
%
Cost of revenues
8
9
13
Gross profit
92
91
87
Operating expenses
Research and development, net
21
18
15
Selling and marketing
37
49
50
General and administrative
22
14
17
Total operating expenses
80
81
82
Operating income
12
10
4
Financial income (expense), net
4
0
(1
)
Income before taxes on income
16
10
3
Income tax expense
-
4
3
Net income
16
%
6
%
0
%
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