Support.com 2005 Annual Report Download - page 36

For the year ended December 31, 2005, no customers accounted for 10% or more of our total revenue. For the year ended
December 31, 2004, two customers accounted for 13% and 10% of our total revenue. For the year ended December 31, 2003, a single
customer accounted for 17% of our total revenue.
Cost of license fees and services and the amortization of intangible assets
($ in thousands)
Cost of license fees. Cost of license fees consists primarily of costs related to third-party royalty fees under license
arrangements for technology embedded into our products. Cost of license revenue was $555,000 in 2005, $295,000 in 2004 and
$369,000 in 2003. Cost of license revenue increased approximately $260,000, or 88%, in 2005 from 2004, and decreased
approximately $74,000, or 20%, in 2004 from 2003. The increase in cost of license revenue in 2005 from 2004 was due primarily to
royalties for third party technology and products integrated or resold with our products. The decrease in cost of license revenue in
2004 from 2003 was due primarily to a renewal of technology license arrangements with a third party at a lower price.
Cost of services. Cost of services consists primarily of compensation costs, travel costs, related overhead expenses for services
personnel and costs from third parties for subcontracted consulting services. Cost of services revenue was $14.1 million in 2005, $10
million in 2004, and $6.8 million in 2003. Cost of services revenue increased by $4.1 million, or 41%, in 2005 from 2004 and $3.2
million, or 46%, in 2004 from 2003. The increase in cost of service revenue in 2005 from 2004 and in 2004 from 2003 was due
primarily to an increase in salary and related employees costs and travel expenses as a result of an increase in the number of services
personnel, commensurate with the increase in services revenue.
Amortization of intangible assets. Amortization of intangible assets increased approximately $727,000, or 200% in 2005 from
2004 and increased $363,000, or 100%, in 2004 from 2003. The increase in amortization of intangible assets in 2005 from 2004, and
2004 from 2003 was due primarily to the acquisition of substantially all of the assets of Core Networks Incorporated which was
effective September 2, 2004. Consequently, 2005 includes a full twelve months of amortization, compared with only four months of
amortization in 2004.
Operating expenses
($ in thousands)
Research and development. Research and development costs are expensed as incurred. Research and development expense
consists primarily of compensation costs, consulting expenses and related overhead costs for research and development personnel.
Research and development expense was $11.2 million in 2005, $9.7
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2005
% Change
2004 to 2005 2004
% Change
2003 to 2004
2003
Cost of license fees $555 88% $295 (20)% $369
Cost of services
14,116 41% 10,010 46% 6,846
Amortization of intangible assets 1,090 200% 363 N/A
—
Total cost of revenues $15,761 48% $10,668 48% $7,215
2005
% Change
2004 to 2005
2004
% Change
2003 to 2004
2003
Research and developmen
t
$11,185 15 % $9,746 6% $9,199
Sales and marketing
25,159 5 % 23,965 9% 22,038
General and administrative 8,618 34 % 6,454 19% 5,405
In-process research & developmen
t
—
(100)% 1,618 N/A
—
Total operating expenses $44,962 8 % $41,783 14% $36,642