Incredimail 2014 Annual Report Download - page 43

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Research and Development Expenses
Our research and development expenses consist primarily of salaries and other personnel-
related expenses for employees primarily
engaged in research and development activities, allocated facilities costs, subcontractors and consulting fees. Our research and development
expenditures in 2014 increased compared to the prior year, primarily as a result of our concentrated effort in developing an advertising platform
for mobile app developers. In addition, we discontinued some of the consumer app developed and as a result impaired in-
process research and
development acquired in the acquisition of Perion, as we realigned our product development focus in this direction. We continue to develop our
mobile advertising platform, currently with an emphasis on the self-
service offering. In addition, we are developing a platform for optimizing
and increasing the retention and subsequent monetization from the users of our partners' mobile apps. This in addition to the ongoing
development effort required in our desktop monetization offering, adapting and maintain compatibility with the ever-
changing software
landscape in which we operate. As a result, we expect a nominal increase in research and development expense in 2015, which, coupled with a
decrease in revenues, would cause this expense to increase as a percentage of revenues, as well.
The number of employees in research and development were 146, 173, and 217 at the end of 2012, 2013, and 2014, respectively.
Selling and Marketing Expenses
Our selling and marketing expenses consist primarily of salaries and other personnel-
related expenses for employees primarily engaged
in marketing activities, allocated facilities costs, as well as other outsourced marketing activity. The number of employees in sales and marketing
was 56, 66, and 115 at the end of 2012, 2013, and 2014, respectively.
General and Administrative Expenses ("G&A")
Our general and administrative expenses consist primarily of salaries and other personnel-
related expenses for executive and
administrative personnel, allocated facilities costs, professional fees and other general corporate expenses. G&A expenses in 2013 are those of
ClientConnect prior to the acquisition of Perion and reflect the G&A expenses of a private company, acting as a division of a larger one, focused
on organic growth. G&A expenses in 2014 are reflective of an independent public company, with all of its requisite costs, managing organic
activity as well as being an active acquire of other businesses. This is also reflected in the significant increase in the number of G&A employees
from 2013 to 2014. The number of G&A employees was 40, 55, and 98, at the end of 2012, 2013, and 2014, respectively.
We continue to enhance our management team with experienced professionals capable of managing constant change and new
businesses, organic and acquired. G&A expenses, primarily salaries and share based compensation, increased nominally in 2012, 2013 and 2014.
Looking forward, in 2015 we expect G&A expenses (excluding costs stemming from new acquisitions) to remain at the same level.
Impairment and Restructuring Charges
In 2014, we incurred impairment charges of $19.9 million related to intangible assets associated with desktop technologies acquired in
the acquisition of Perion, that were determined during the process of integration with Perion to be redundant to the technology of ClientConnect.
This impairment was also a result of our shifting future growth strategy towards mobile platforms and discontinuing some of the consumer
products developed.
Costs related to the restructuring of our search monetization business, including a head count reduction as well as other cost saving
measures, such as the consolidation of our Israeli offices from three floors to two in order to sublease the third floor, amounted to $4.0 million in
2014.
Income Tax Expense
A significant portion of our income is taxed in Israel. The standard corporate tax rate in Israel for 2014 and thereafter is 26.5% and was
25.0% in 2012 and 2013. For our Israeli operations we have elected to implement a tax incentive program pursuant to a 2011 Israeli tax reform,
referred to as a "Preferred Enterprise," according to which a reduced tax rate of 16.0% is applied to our preferred income in 2014.
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