Support.com 2006 Annual Report Download - page 34

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We have also begun the development of packaged product and service offerings capable of delivering return on investment in shorter
time frames. Finally, we have entered the consumer technology support market with our support.com and consumer technology
solutions offerings.
We do not expect immediate returns from our initiatives but believe they can create sustainable revenue growth over time.
Although we intend to leverage many of our existing resources, we are making significant incremental investments in support of these
initiatives, including investments to operate our outsourced call center, to promote our consumer offerings, to expand our professional
services organization and to increase visibility of our enterprise offerings. We expect that these additional investments will precede
any material revenue increase from our new business initiatives. As a result, we currently expect to incur a net loss in each quarter, at
least through 2007. We expect that our net loss in each quarter, as well as for the full year in 2007, will significantly exceed the net
losses we incurred during fiscal 2006.
Based upon our recent history, we expect to experience downward revenue seasonality between the fourth and first quarters.
Consequently, we expect revenues for the first quarter of 2007 to be significantly lower than revenue recorded in the fourth quarter of
2006. This seasonal revenue decline, coupled with the incremental investments noted above will likely result in a significantly larger
net loss in the first quarter of 2007 as compared with the fourth quarter of 2006. Furthermore, as of the filing date of this Form 10−K,
we are in the sales and negotiation process with several companies for the purchase of our products and services. Ultimate closure of
these transactions prior to March 31, 2007 will have a significant influence on whether or not we meet expectations for revenue in the
first quarter of 2007.
We intend the following discussion of our financial condition and results of operations that follows to provide information that
will assist in understanding our financial statements, the changes in certain key items in those financial statements from year to year,
and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect
our financial statements.
Critical Accounting Policies and Estimates
In preparing our consolidated financial statements in conformity with accounting principles generally accepted in the United
States, we make assumptions, judgments and estimates that can have a significant impact on our net revenue, and operating results, as
well as on the value of certain assets and liabilities on our consolidated balance sheet. We base our assumptions, judgments and
estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results
could differ materially from these estimates under different assumptions or conditions. On a regular basis we evaluate our
assumptions, judgments and estimates and make changes accordingly. We believe that the assumptions, judgments and estimates
involved in the accounting for revenue recognition, allowance for doubtful accounts, accounting for income taxes, accounting for
goodwill and other intangible assets, and stock−based compensation have the greatest potential impact on our consolidated financial
statements, so we consider these to be our critical accounting policies. We discuss below the critical accounting estimates associated
with these policies. For further information on the critical accounting policies, see Note 1 of our Notes to Consolidated Financial
Statements.
Revenue Recognition
We recognize revenue in accordance with generally accepted accounting principles that have been prescribed for the software
industry. Revenue recognition requirements in the software industry are very complex and are subject to change. Our revenue
recognition policy is one of our critical accounting policies because revenue is a key component of our results of operations and is
based on complex rules which require us to make judgments. In applying our revenue recognition policy we must determine which
portions of our revenue are recognized currently and which portions must be deferred. In order to
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Source: SUPPORTSOFT INC, 10−K, March 16, 2007