Support.com 2005 Annual Report Download - page 52

SUPPORTSOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
perpetual arrangements may include contractual obligations such as rights to unspecified future products which requires license
revenue to be taken ratably (monthly) over the contract period. In addition, our perpetual arrangements may include payment terms
beyond our normal terms, in which case the license revenue is recognized as such payments become due.
Term licenses are sold with maintenance for which SupportSoft does not have VSOE to determine fair value. As a result, license
revenue for term licenses is recognized ratably over the duration of the agreement. License revenue in the accompanying financial
statements includes maintenance for term licenses. We do not allocate maintenance revenue from term licenses to services revenue, as
we do not believe there is an allocation methodology that provides a meaningful and supportable allocation between license and
maintenance revenues. Services revenue associated with the term licenses are recognized ratably over the period associated with the
initial payment, generally one year.
We also recognize license revenue from arrangements with resellers. These arrangements may be either term or perpetual
licenses of our software. When term licensing arrangements with resellers include guaranteed minimum amounts due, revenue is
recognized ratably over the term of the arrangement commencing when payments are made or become due. When the arrangements
do not include guaranteed minimum amounts due but are instead based upon the license of our software through to the end user,
revenue recognition commences upon persuasive evidence that the products have been sold to an end user. Whether the license
revenue is then recognized immediately or ratably depends upon the terms of the arrangements with the reseller. If a reseller is not
deemed creditworthy, revenue is recognized upon cash receipt.
Services revenue is primarily comprised of revenue from professional services, such as maintenance, consulting and training.
Arrangements that include services are evaluated to determine whether those services are essential to the functionality of other
elements of the arrangement. Non-essential consulting and training revenues are generally recognized as the services are performed or
project milestones are accepted by the customer. When non-essential services are bundled in a term licensing arrangement, revenue
from the services is recognized ratably over the period associated with the initial payment, generally one year. Maintenance revenues
are recognized over the term of the maintenance period which is generally one year. In the event services are considered essential to
the functionality of other elements of the arrangement, revenue under the arrangement is recognized using contract accounting.
Research and Development
Research and development expenditures are generally charged to operations as incurred. Statement of Financial Accounting
Standards No. 86, “Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed,” requires the
capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on
SupportSoft’s product development process, technological feasibility is established upon the completion of a working model. Costs
incurred by SupportSoft between the completion of the working model and the point at which the product is ready for general release
have been insignificant. Accordingly, SupportSoft has charged all such costs to research and development expense in the
accompanying statement of income. SupportSoft did not incur any cost related to software developed or for software obtained for
internal use as defined in SOP 98-1.
Sales Commissions
Sales commissions are the incremental costs that are directly associated with non-cancelable contracts with customers and
consist of commissions paid to the Company’s sales personnel. If the customer contract is a
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