Enom 2013 Annual Report Download - page 92

Under the Demand Media Employee Stock Purchase Plan ("ESPP"), eligible officers and employees could purchase a limited amount of
Demand Media's common stock at a discount to the market price in accordance with the terms of the plan as described in Note 1 2 ("Stock-
based
Compensation Plans and Awards ") to our consolidated financial statements. Demand Media uses the Black-Scholes-Merton option pricing
model to determine the fair value of the ESPP awards granted which is recognized straight-line over the total offering period.
Stock Repurchases
Under a stock repurchase plan, shares repurchased by us are accounted for when the transaction is settled. Repurchased shares held for
future issuance are classified as treasury stock. Shares formally or constructively retired are deducted from common stock at par value and from
additional paid in capital for the excess over par value. If additional paid in capital has been exhausted, the excess over par value is deducted
from retained earnings. Direct costs incurred to acquire the shares are included in the total cost of the repurchased shares.
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. The net book value of capitalized software development costs is $17.6 million (net of
$30.8 million accumulated amortization) and $15.3 million (net of $24.5 million accumulated amortization) as of December 31, 2013 and 2012,
respectively.
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. We evaluate the realizability of deferred tax assets and
recognizes a valuation allowance for our deferred tax assets when it is more likely than not that a future benefit on such deferred tax assets will
not be realized.
We recognize 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 technical merits of the position. The tax benefits recognized in the consolidated financial
statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon
settlement. We recognize interest and penalties accrued related to unrecognized tax benefits in our income tax (benefit) provision in the
accompanying statements of operations.
Net Income (Loss) Per Share
Basic income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average
number of common shares outstanding during the period. Net loss attributable to common stockholders is increased for cumulative preferred
stock dividends earned during the period. Diluted loss per share is computed by dividing the net loss attributable to common stockhol
ders by the
weighted average common shares outstanding plus potentially dilutive common shares. We reported net losses for the years ended December 31,
2013, and 2011, all potentially dilutive common shares comprising of stock options, restricted stock units (“RSUs”), stock from the employee
stock purchase plan, warrants and convertible preferred stock are considered antidilutive for those periods.
RSUs and other restricted awards are considered outstanding common shares and included in the computation of basic earnings per share
as of the date that all necessary conditions of vesting are satisfied. RSUs are excluded from the dilutive earnings per share calculation when their
impact is antidilutive.
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