Enom 2010 Annual Report Download - page 114

Table of Contents
Demand Media, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(In thousands, except per share amounts)
2. Summary of Significant Accounting Policies (Continued)
more reliably measured than the fair value of the services received. The fair value of each non-employee stock-based compensation award is re-measured each
period until a commitment date is reached, which is generally the vesting date.
Advertising Costs
Advertising costs are expensed as incurred and generally consist of Internet based advertising, sponsorships, and trade shows. Such costs are included in
sales and marketing expense in Company's consolidated statements of operations. Advertising expense was $1,097, $2,230 and $2,699 for the years ended
December 31, 2008, 2009 and 2010, respectively.
Product Development and Software Development Costs
Product development expenses consist primarily of expenses incurred in research and development, software engineering and web design activities and
related personnel compensation to create, enhance and deploy our software infrastructure. Product and software development costs, other than software
development costs qualifying for capitalization, are expensed as incurred. Costs of computer software developed or obtained for internal use that are incurred
in the preliminary project and post implementation stages are expensed as incurred. Certain costs incurred during the application and development stage,
which include compensation and related expenses, costs of computer hardware and software, and costs incurred in developing additional features and
functionality of the services, are capitalized. The estimated useful life of costs capitalized is evaluated for each specific project. Capitalized costs are generally
amortized using the straight-line method over a three year estimated useful life, beginning in the period in which the software is ready for its intended use.
Unamortized amounts are included in property and equipment, net in the accompanying consolidated balance sheets. Capitalized software development costs
totaled $13,696 (net of $7,603 accumulated amortization) and $16,362 (net of $11,371 accumulated amortization) as of December 31, 2009 and 2010,
respectively.
Preferred Stock Warrants
Preferred stock warrants on shares subject to mandatory or contingent redemption are classified as liabilities as the underlying preferred stock contains
provisions that allow the holders the right to receive cash in the event of a deemed liquidation. Preferred stock warrants are recorded at fair value and are
remeasured each reporting period, with changes in fair value recorded in other income (expense) in the accompanying statements of operations.
Income Taxes
Deferred income taxes are recognized for differences between financial reporting and tax bases of assets and liabilities at the enacted statutory tax rates
in effect for the years in which the temporary differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income
in the period that includes the enactment date. The Company evaluates the realizability of deferred tax assets and recognizes a valuation allowance for its
deferred tax assets when it is more likely than not that a future benefit on such deferred tax assets will not be realized.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the
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