Support.com 2006 Annual Report Download - page 57

SUPPORTSOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 1. Organization and Summary of Significant Accounting Policies (Continued)
the functionality of other elements of the arrangement. 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. 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.
In connection with licensing arrangements we may also provide hosting of our own software, a service for which SupportSoft does
not have VSOE currently. If hosting services are sold with perpetual licenses, license revenue is recognized ratably over the term of
the hosting contract. Hosting revenue is also recognized ratably over the duration of the hosting contract. Consulting services sold in
conjunction with arrangements that include licenses and hosting services are recognized ratably over the duration of the hosting term.
Research and Development
Research and development expenditures are 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 statements of
operations. 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 perpetual license, the commission expense
attributable to the license fees are recorded in the month license revenue is recognized. For term licenses and other ratable license
arrangements, sales commissions are deferred and amortized over the non−cancelable terms of the related customer contracts, which
are typically 12 to 36 months. The sales commissions, which are paid in the month following the time an order is consummated or
when customer payment is received, are a direct and incremental cost of the revenue arrangements. The deferred commission amounts
are recoverable through the future revenue streams under the non−cancelable customer contracts. Commissions payments made to
sales personnel are non−refundable unless amounts due from a customer are determined to be uncollectible in which cash
commissions paid are generally recoverable by the Company.
Advertising Costs
Advertising costs are recorded as sales and marketing expense in the period in which they are incurred. Advertising expense was
$725,000, $224,000, and $357,000 for the years ended December 31, 2006, 2005, and 2004, respectively.
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Source: SUPPORTSOFT INC, 10−K, March 16, 2007