Support.com 2008 Annual Report Download - page 63

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Table of Contents
SUPPORTSOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
contracted to license the software to a named end user (sell-through), assuming all other criteria for revenue recognition have been met. The forms of sell-through
acceptable to us include one or more of the following: i) a copy of the agreement or license between the reseller and the end user, ii) a purchase order from the
end user to the reseller, iii) a written communication from the reseller specifically identifying the end user, or iv) delivery made directly by SupportSoft to the
end user. Whether the license revenue is then recognized immediately or ratably depends upon the terms of the arrangements with the reseller regarding the
sublicense (i.e. perpetual license or term license). If a reseller is not deemed creditworthy, revenue otherwise recognizable is deferred until cash is received.
Maintenance revenue is primarily comprised of revenue from post-contract technical support services, which includes software product updates.
Maintenance revenue is recognized ratably over the term of the maintenance period, which is generally one year. Multi-year maintenance agreements are divided
into annual periods over which revenue is recognized ratably. We invoice customers who elect to renew their maintenance agreements. An equal amount is
recorded as accounts receivable and deferred revenue.
Services revenue is primarily comprised of revenue from professional services such as consulting, training and hosting fees. Arrangements are evaluated to
determine whether those services are essential to 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. 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
60
Source: SUPPORTSOFT INC, 10-K, March 11, 2009