Support.com 2007 Annual Report Download - page 44

Cost of services. Cost of services consists primarily of cost of our professional services organization such as compensation, travel, related overhead
expenses for professional services personnel, customer support agents, and costs of third parties for subcontracted consulting services. Cost of services revenue
was $20.3 million in 2007, $13.6 million in 2006, and $13.1 million in 2005. The year-over-year increases in cost of service revenue were due to:
•
An increase in costs for our customer support agents and other costs to support our consumer offerings that we launched in January 2007.
•
Increases in salary and related employees costs as a result of an increase in the number of professional services personnel.
•
Increases in stock compensation expense for additional professional services personnel. For the years ended December 31, 2007 and 2006
stock compensation expense was $757,000 and $379,000, respectively. There were no comparable expenses in 2005 because we adopted
the provisions of SFAS 123R effective January 1, 2006.
Amortization/write-down of intangible assets. The increase in amortization expense of intangible assets in 2007, as compared with the prior two years is
due to a write-down of the carrying value of the intangible assets during the fourth quarter of 2007. Effective December 31, 2007, we ceased actively selling one
of the products we had previously acquired from Core Networks in 2004. In connection with this action and a reevaluation of all of the Core Network intangible
assets, we recognized a non-cash write-down of approximately $1.7 million in the fourth quarter of 2007. An impairment loss was recorded because the sum of
the discounted future net cash flows expected to result from the use of the assets and their eventual disposition was less than the carrying amounts. Such
impairment loss was measured as the difference between the carrying amounts of the assets and their fair value.
Operating expenses
($ in thousands)
2007
% Change
2006 to 2007 2006
% Change
2005 to 2006 2005
Research and development $ 9,441 2% $ 9,247 (17)% $ 11,185
Sales and marketing 30,410 30% 23,336 (7)% 25,159
General and administrative 9,296 (9)% 10,163 18% 8,618
Total operating expenses $ 49,147 15% $ 42,746 (5)% $ 44,962
Research and development. Research and development costs are expensed as incurred. Research and development expense consists primarily of
compensation costs, third-party consulting expenses and related overhead costs for research and development personnel. Research and development expense was
relatively consistent between 2007 and 2006. Included in research and development expenses for years ended December 31, 2007 and 2006 was $510,000 and
$422,000 of stock-based compensation expenses. There were no comparable stock-based compensation expenses in 2005, because we adopted the provisions of
SFAS 123R effective January 1, 2006. The decrease in research and development expense in 2006 from 2005 was primarily due to a workforce reduction in the
third quarter of 2006.
Sales and marketing. Sales and marketing expense consists primarily of compensation costs, including salaries, sales commissions and related overhead
costs for sales, business development and marketing personnel; expenses for lead generation activities; and promotional expenses, including public relations,
advertising and marketing events, in both the enterprise and consumer businesses. Sales and marketing expense increased in 2007 from 2006 due primarily to
increases in salary and related employees costs as a result of added personnel and increased advertising expenses. The decrease in sales and marketing expense in
2006 from 2005 was primarily due to a reduction in commission expenses as a result of lower revenue in 2006 and a workforce reduction during the third quarter
of
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Source: SUPPORTSOFT INC, 10-K, March 13, 2008