TeleNav 2010 Annual Report Download - page 85

TELENAV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
year in which the differences are expected to affect taxable income. Valuation allowances are provided when
necessary to reduce deferred tax assets to the amount that will more likely than not be realized.
Research and software development costs
We expense research and development costs as incurred. We account for the costs of computer software we
develop for internal use by capitalizing qualifying costs, which are incurred during the application development
stage, and amortizing those costs over the application’s estimated useful life which generally ranges from 18 to
24 months, depending on the type of application. We capitalized $2.4 million, $1.6 million and $438,000 of
software development costs during fiscal 2010, 2009 and 2008, respectively. Amortization expense related to
these costs, which has been recorded in cost of revenue, totaled $939,000, $418,000 and $279,000 for fiscal
2010, 2009 and 2008, respectively. As of June 30, 2010 and 2009 unamortized capitalized software development
costs, which were included in deposits and other assets, were $3.2 million and $1.6 million, respectively.
Advertising expense
Advertising costs are expensed as incurred. Advertising expense was $182,000, $662,000 and $676,000 for
fiscal 2010, 2009 and 2008, respectively.
Recent accounting pronouncements
In October 2009, the Financial Accounting Standards Board, or FASB, issued its revised standard which
supersedes certain guidance with respect to accounting for revenue arrangements with multiple deliverables. The
revised standard changes the determination of when individual deliverables in a multiple element arrangement
may be treated as separate units of accounting and modifies the manner in which the transaction consideration is
allocated across separately identifiable deliveries. The revised standard is effective for our fiscal year beginning
July 1, 2010. We are in the process of assessing the potential impact, if any, of the revised standard on our
financial position, cash flows and results of operations.
2. Net income per share
In May 2010, all of our outstanding convertible preferred stock converted into common stock in connection
with our initial public offering. Prior to our initial public offering, basic and diluted net income per share
applicable to common stockholders were presented in conformity with the two-class method required for
participating securities. Our Series E convertible preferred stock was a participating security. Holders of Series E
convertible preferred stock were each entitled to receive cumulative dividends, payable prior and in preference to
any dividends on any other shares of our capital stock. In the event a dividend was paid on any share of common
stock, Series E convertible preferred stockholders were entitled to a proportionate share of any such dividend as
if they were holders of common stock (on an as if converted basis).
Under the two-class method, basic net income per share applicable to common stockholders is computed by
dividing the net income attributable to common stockholders by the weighted average number of common shares
outstanding during the period. Net income applicable to common stockholders is determined by allocating
undistributed earnings, calculated as net income less current period Series E convertible preferred stock
cumulative dividends, between common and Series E convertible preferred stockholders. Diluted net income per
share applicable to common stockholders is computed by using the weighted average number of shares of
common stock outstanding, including potential dilutive common shares assuming (i) the dilutive effect of
outstanding stock options and warrants using the treasury stock method and (ii) the issuance of shares upon the
conversion of outstanding Series A, Series B, Series B Prime, Series C, Series C Prime and Series D convertible
preferred stock.
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