Incredimail 2012 Annual Report Download - page 40

Income Tax Expense
Our Israeli operations were granted "Approved Enterprise" and "Beneficiary Enterprise" status. These programs allow for 0%
corporate tax for a limited period of time on undistributed profits generated from operations, and preferential taxation of the distributed portion,
requiring regular Israeli corporate tax on income generated from other sources. To the extent we distribute dividends from profits generated
under this program, as we did in 2009 and 2010, the distributed sum would benefit only partially from this program. We have elected to
implement the recent tax reform, referred to as a Preferred Enterprise, starting with our 2011 "preferred income", according to which, a reduced
tax rate of 15% is applied to our preferred income. A distribution from a Preferred Enterprise out of the “preferred income”
would be subject to
15% withholding tax for Israeli-resident individuals and non-Israeli residents (subject to applicable treaty rates).
See "Item 10.E Taxation - Israeli Taxation -
Law for the Encouragement of Capital Investments, 1959" and Item 8. Financial
Information A. Consolidated Statements and Other Financial Information -
Policy on Dividend Distribution", for more information about these
programs and the Company’s dividend policy.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operation are based on our financial statements, which have been
prepared in conformity with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate these
estimates on an on-
going basis. We base our estimates on our historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amount values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions. Under U.S. GAAP, when more than one accounting method or policy or its application is generally accepted, our management
selects the accounting method or policy that it believes to be most appropriate in the specific circumstances. Our management considers some of
these accounting policies to be critical.
A critical accounting policy is an accounting policy that management believes is both most important to the portrayal of our financial
condition and results and requires management’
s most difficult subjective or complex judgment, often as a result of the need to make accounting
estimates about the effect of matters that are inherently uncertain. While our significant accounting policies are discussed in Note 3 to our
financial statements, we believe the following accounting policies to be critical:
Revenue recognition
Search generated and other revenues from advertising, whether from keyword search, advertising on our website or in our email client,
are recognized when we are entitled to receive the fee. Advertisers are charged and pay monthly, based on the number of clicks generated by
users clicking on these ads. Persuasive evidence of an arrangement exists based upon a written agreement or purchase order with a search
provider or display advertiser. Delivery occurs when an advertisement is offered by us and a user clicks on it in the case of a cost-per-
click
(CPC) arrangement, or the requisite number of impressions are displayed pursuant to a cost-per-
thousand impression (CPM) arrangement, or
when a user installs our software.
In accordance with ASC 605-
50, "Customer Payments and Incentives", we account for cash consideration given to customers, for which
we do not receive a separately identifiable benefit or cannot reasonably estimate fair value, as a reduction of revenue rather than as an expense.
Revenues from email software license sales are recognized when all criteria outlined in ASC 985-605, "Software –
Revenue
Recognition" are met. Revenues from software license are recognized when persuasive evidence of an agreement exists, delivery of the product
has occurred, the fee is fixed or determinable and collectability is probable.
For substantially all of our software arrangements, we evaluate each of these criteria as follows:
Evidence of an arrangement : We consider a clicking on "acceptance" of the agreement terms to be evidence of an arrangement.
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