Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2019
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from
to
Commission File No. 000-30901
SUPPORT.COM,
INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
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94-3282005
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(State
or Other Jurisdiction of Incorporation or
Organization)
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(I.R.S. Employer Identification No.)
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1521 Concord Pike (US 202), Suite 301, Wilmington, DE
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94089
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(Address
of Registrant’s Principal Executive Offices)
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(Zip Code)
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Registrant’s telephone number including area code: (650)
556-9440
Securities registered pursuant to Section 12(b) of the
Act:
Title of each class
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Name of each exchange on which registered
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Common
Stock, $.0001 par value
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The NASDAQ Global Select Market
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Preferred
Stock Purchase Rights
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The NASDAQ Global Select Market
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Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if registrant is a
well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes ☐
No ☒
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of
the Act. Yes ☐
No ☒
Indicate by check mark whether the registrant: (1)
has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒
No ☐
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ☒
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
"large accelerated filer," "accelerated filer," "smaller reporting
company," and "emerging growth company" in Rule 12b-2 of the
Exchange Act.
Large accelerated filer ☐
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Accelerated filer ☐
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Non-accelerated filer ☐
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Smaller reporting company ☒
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Emerging growth company ☐
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(Do not check if a smaller reporting company)
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If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ☐
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files).Yes ☒ No
☐
The
aggregate market value of the registrant’s common stock held
by non-affiliates was $27,811,063 as of June 30, 2019. Shares
of common stock held by each executive officer, director, and
stockholder known by the registrant to own 10% or more of the
outstanding stock based on Schedule 13G filings and other
information known to us, have been excluded since such persons may
be deemed affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other
purposes.
As of February 28, 2020, there were
19,053,854 shares of the registrant’s common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III, Items 10 (as to directors, section 16(a) beneficial
ownership and audit committee and audit committee financial
expert), 11, 12 (as to beneficial ownership), 13 and 14 incorporate
by reference information from the registrant’s definitive
proxy statement (the “Proxy Statement”) to be mailed to
stockholders in connection with the solicitations of proxies for
its 2020 annual meeting of stockholders. Except as expressly
incorporated by reference, the registrant’s Proxy Statement
shall not be deemed to be part of this report.
SUPPORT.COM, INC.
FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2018
TABLE OF CONTENTS
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Page
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PART I
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4
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8
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23
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23
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23
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23
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PART II
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24
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24
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25
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25
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32
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33
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34
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62
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62
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62
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63
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PART III
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64
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64
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64
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64
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64
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64
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PART IV
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65
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65
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69
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70
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2
FORWARD LOOKING STATEMENTS AND PRESENTATION OF FINANCIAL AND OTHER
INFORMATION
This Annual Report on Form 10-K (the “Form
10-K”) contains forward-looking statements that involve risks
and uncertainties. Please see the section entitled
“Risk
Factors” in Item 1A of
this Report for important information to consider when evaluating
these statements.
In
this Form 10-K, unless the context indicates otherwise, the terms
“we,” “us,” “Support.com,”
“the Company” and “our” refer to
Support.com, Inc., a Delaware corporation, and its subsidiaries.
References to “$” are to United States
dollars.
We
have compiled the market size and growth data in this Form 10-K
using statistics and other data obtained from several third-party
sources. Some market and statistical data are also based on
our good faith estimates, which are derived from our review of
internal surveys, as well as the third-party sources referred
to. This information may prove to be inaccurate because of
the method by which the data is obtained or because this
information cannot be verified with complete certainty due to the
limits on the availability and reliability of raw data, the
voluntary nature of the data gathering process and other
limitations and uncertainties. As a result, although we
believe this information is reliable, we have not independently
verified the third-party data and cannot guarantee the accuracy and
completeness of this information.
Various
amounts and percentages used in this Form 10-K have been rounded
and, accordingly, they may not total 100%.
We
own or otherwise have rights to the trademarks and trade names,
including those mentioned in this Form 10-K, used in conjunction
with the marketing and sale of our products.
3
PART I
ITEM 1.
BUSINESS.
Overview
Technology
is an increasingly essential feature of the modern life. Personal
computers, printers, tablets, smartphones, digital cameras,
connected entertainment systems, intelligent virtual assistants,
home automation systems, and smart home appliances have become
ubiquitous. Each year, these products become more feature-rich,
offering many new capabilities. Consumers and small and
medium-sized businesses (“SMBs”) now depend on such
technology for “must-have” information, communication,
and entertainment as well as for tasks and activities in their
daily lives. As connected devices proliferate and their eco-systems
become more complex, users are facing an increasing number of
device-specific issues and interoperability
challenges.
The
complexity of this environment not only creates challenges for the
consumers and small businesses that use the technology, but also
for the providers of the devices and connectivity that keeps them
working. Customer support organizations increasingly face more
difficult problems to solve, often including the need to support
third-party products that is beyond their scope and ability. As a
result, customer support organizations are increasingly compelled
to use third-party expert agents, effective self-service tools, and
integrated software and analytics to fundamentally transform how
support is delivered.
Moreover,
consumers need assistance across the connected device lifecycle,
including help with installing, maintaining, and troubleshooting
their devices, addressing inter-operability issues, and even
learning how to use new features. Consumers need support 24/7,
available via desktop, laptop or mobile, and delivered through
professionally-trained, expert agents and effective self-service
tools. In addition, small businesses need on-demand Help Desk
support and managed services to keep their businesses running
smoothly.
Support.com,
Inc. is a full-spectrum leader in outsourced call center and
direct-to-consumer and small business technical support solutions.
With more than 20 years serving both businesses and consumers
through white-labeled partnerships or direct solutions, Support.com
has the expertise, tools and software to troubleshoot and support
all the devices in the connected home, helping people get the most
out of their technology.Support.com offers outsourced call center
tech support services, cloud-based call center software, and
premium tech support and anti-malware software for consumers and
small businesses. Our skilled US-based workforce delivers high
quality, turnkey support solutions, including presale and post-sale
support across all devices in the connected home. Our customers
include enterprise-level businesses, small businesses, and
individual consumers.
Support.com
offers turnkey, outsourced support services for service providers,
retailers, original equipment manufacturers (“OEMs”),
and warranty providers, internet of things (“IoT”)
solution providers, and other technology companies. Designed for
both the consumer and SMB end-user markets, our programs include a
range of services for connected devices, including pre-purchase
concierge advice, device set-up and troubleshooting,
inter-operability problem resolution, and virus and malware
removal. We help businesses increase revenue, reduce costs, and
delight their customers. Our programs offer integrated self-service
tools and live agent access, enabling us to offer a lower-cost
solution than models based entirely off of live agent interaction,
and affording higher levels of customer satisfaction.
Support.com’s
enhanced direct-to-consumer and small business offering called
TechSolutions enables people to get the most out of their
technology, and small businesses to keep their businesses running
smoothly. TechSolutions helps users solve a wide range of problems,
including setup and troubleshooting, connectivity and
interoperability problems, learning new features, and even choosing
the right device for them. TechSolutions provides a
fully-integrated, seamless tech support experience, featuring both
a robust library of free, self-support tools (Guided Paths®)
and stellar live support through the company’s Tech Pros who
are accessible by phone, chat, or virtual house call, 24/7. Users
can access a Tech Pro directly or escalate from a Guided Path
without repeating steps, purchasing premium tech support on a
subscription or incident basis.
4
Our Support.com Cloud
offering is a
software-as-a-service
(“SaaS”) solution that enables
companies to optimize support interactions with their customers
using their own or third-party support personnel. The solution allows companies to
more quickly resolve complex technology issues for their customers
while providing effective self-service tools that reduce overall
call volume, resulting in higher agent productivity and a
dramatically improved customer experience.
Our Technical Support Services Programs
Support.com®
support services are distributed through partners, using the
partner’s brand or in referral programs using the
Support.com® brand. Partners include broadband
providers, retailers, OEMs, software providers, internet services
providers and warranty providers. The services programs
include access to our library of Guided Paths®; one-time
services (“incidents”), subscriptions, and bundled
components of broader offerings.
For
connected home technology and automation systems, we offer a
complete range of services to help customers select, set up,
configure and use new systems, including helping consumers
personalize system settings to meet specific lifestyle
needs.
We
offer a variety of troubleshooting, installation, set-up and
enablement services for computers, peripherals, mobile devices and
gaming systems and their connectivity. We identify, diagnose and
repair technical problems, including issues associated with
viruses, spyware, and other forms of malware, connectivity issues,
and issues with software applications. We create new user
accounts, configure automatic system updates, remove unnecessary
trial software, connect devices to the cloud, find and install
applications, and synchronize data among devices. These services
cover a wide variety of devices, regardless of manufacturer.
Support is provided for devices including personal computer,
laptops, tablets, mobile devices, gaming systems and other
connected devices. Our smartphone and tablet services include
configuring mobile devices for wireless network (WiFi) access,
setting up email, and educating customers on how to browse the
Internet and install apps. We secure and repair problems with
wireless networks. We configure, connect and establish secure
connections among computers, the wireless network and supported
devices. We provide outsourced IT services to SMBs including
technology assessments, equipment and service selection,
procurement, installation, monitoring and ongoing support for
customer’s networking, backup, mobile, telephony, server,
software, license management and other technology
needs.
We
deliver our services using our proprietary agent facing and
consumer self-help diagnostic tools known as Guided Paths® and
technology support specialists who work from their homes rather
than in brick and mortar facilities. Our library of Guided
Paths® is constantly growing and under refinement as the
technology landscape continues to rapidly evolve. Our
technology specialists are recruited, tested, hired and trained on
a virtual basis using proprietary methods and remote
technology.
Our Support.com Cloud Offering
Support.com
Cloud is a SaaS offering that provides significant levels of
automation and analytics that enable companies to deliver superior
customer support issue resolution while improving both the customer
experience and operational performance. Based on insights from
supporting millions of connected technology transactions annually,
our software architecture is designed to enable problem resolution
in a consistent manner by using proprietary, automated workflow
while capturing rich data for service delivery optimization.
Flexible architecture means that companies can take advantage of
additional functionality as their business requirements change, and
can add richer analytics, marketing and subscription management,
and third-party applications to resolve issues.
Our End-User Software Products
SUPERAntiSpyware®
is a malware protection and removal software product available for
personal computers and tablets. The software is licensed on an
annual, subscription, or perpetual basis, and is sold direct to
consumers and businesses, or through re-sellers.
5
Sales and Marketing
Technology Support
Services. We sell
our services through partners and direct to consumers or small
businesses. Our partners include leading communication providers,
retailers, warranty providers and technology companies. We acquire
partners through our business development organization, and we
support partners through our account management organization.
Our partnerships typically begin with a pilot phase and can take
several weeks to more than a year to progress to a broader
roll-out. We typically provide wholesale services to our partners
on a per-incident, per-subscription or labor rate basis and our
partners bundle our services with their own to their customers
– consumers and SMBs. In these partnerships, the
services are generally sold under the partner’s brand. We
also sell our services direct to consumers and small businesses
using online and offline marketing channels, including but not
limited to search engine optimization (SEO), social media,
affiliate marketing, and content marketing.
Support.com Cloud
Offering. We license
Support.com Cloud applications separately from support services
provided by our customer support specialists. In such an
arrangement, customers receive the right to use our cloud-based
software in their own support organization, using a SaaS model
under which customers pay us on a per-user or a per-session basis
during the term of the arrangement. We also provide implementation
services to customers, typically covering integration of our
software with other customer’s systems. We charge for these
services on a time-and-materials basis or as part of a fixed-fee
package.
We
acquire Support.com Cloud customers through our direct sales
channel, using Internet-based lead generation strategy, direct
outreach, and brand awareness to drive demand.
End-User Software
Products. We license our
end-user software products directly to customers and through
re-sellers or partners. To date, a majority of our end-user
software revenue has come through direct sales to customers. Online
advertising allows customers to click through to our software
offerings where they can order and download our products on demand.
In addition to fully featured software products available for a
license fee, a substantial percentage of our end-user software
revenue arises from customers who download free trial versions of
our software or free versions of our software with limited
functionality before making a purchase
decision.
Engineering and IT
We
maintain dedicated engineering and IT teams in Sunnyvale,
California, and Eugene, Oregon. Engineering and IT expense was $4.1
million in 2019 and $2.8 million in 2018.
We
develop, maintain, and continue to improve proprietary,
market-leading, cloud-based technologies that are essential to our
business. We focus our investment in engineering and IT across the
following major areas: the creation and refinement of our Guided
Paths® library; solutions for support interaction
optimization; endpoint applications and other extensions to gather
data to assist support interactions and allow remote support when
necessary; business analytics and reporting; open application
interfaces; and internal service delivery management
tools.
Our
SaaS technology includes Guided Paths® automated workflows,
remote control of customer devices, automated device and systems
data collection, and business analytics.
The
service delivery management tools used by our agents for technology
support services include our own Support.com cloud-based software
capabilities and other contact center applications such as customer
relationship management (“CRM”), ticketing, ordering,
methods of payment, and telephony, which are all integrated into
highly effective and efficient application for our technology
specialists.
For
business analytics and reporting, we build and maintain a data
warehouse that securely aggregates and restructures data from all
of our applications to create a comprehensive view of the service
delivery lifecycle, as well as data about the disposition of
support interactions. This rich data set provides visibility
into sales conversion effectiveness, service delivery efficiency,
service level performance, subscription utilization, partner
program performance and many other aspects of running and
optimizing our business. Our partners also receive reports
and analytic information from the warehouse for their programs on a
regular basis via secure data feeds.
6
Open
application interfaces of our Support.com Cloud enable
integration with CRM, ticketing systems, and other contact center
applications.
Intellectual Property
We own the registered trademarks
SUPPORT.COM®, GUIDED PATHS®, PERSONAL
TECHNOLOGY EXPERTS®, BUSINESS TECHNOLOGY EXPERTS® and
NEXUS® in the United States for specified support services and
software, and we have registrations and common law rights for
several related trademarks in the U.S. and certain other countries.
We own the domain name Support.com and additional other domain
names. We also retain exclusive rights to our proprietary services
technology, and our end user software products. In addition, we
hold non-exclusive rights to sell and distribute certain other
software products.
We
own two U.S. patents related to our business and have a number of
pending patent applications covering certain advanced technology.
Our issued patents include U.S. Patent No. 8,020,190
(“Enhanced Browser Security”) and U.S. Patent No.
6,754,707 (“Secure Computer Support System”). However,
we do not know if our current patent applications or any future
patent application will result in a patent being issued with the
scope of the claims we seek, if at all. Also, we do not know
whether any patents we have or may receive will be challenged or
invalidated. It is difficult to monitor unauthorized use of
technology, particularly in foreign countries where the laws may
not protect our proprietary rights as fully as they do in the
United States, and our competitors may develop technology that
competes with ours but nevertheless does not infringe our
intellectual property rights.
We
rely on a combination of copyright, trade secret, trademark and
contractual protection to establish and protect our proprietary
rights that are not protected by patents. We also enter into
confidentiality agreements with our employees and consultants
involved in product development. We generally require our
employees, customers and potential business partners to enter into
confidentiality agreements before we will disclose any sensitive
aspects of our business. Also, we generally require employees and
contractors to agree to assign and surrender to us any proprietary
information, inventions or other intellectual property they
generate while working for us in the scope of employment. These
precautions, and our efforts to register and protect our
intellectual property, may not prevent misappropriation or
infringement of our intellectual property.
Competition
We
are active in markets that are highly competitive and subject to
rapid change. Although we do not believe there is one principal
competitor for all aspects of our offerings, we do compete with a
number of other vendors.
With
respect to partnerships for our technology support services, our
competitors include companies focused on premium technology
services, providers of electronics warranties, emerging IoT
technology support providers, global business process outsourcing
providers or contact centers focused on technical support and other
companies who offer technical support through partners. We believe
the principal competitive factors in our services market include:
pricing; breadth and depth of service offerings; quality of the
customer experience; proprietary technology; time to market;
account management; vendor reputation; scale; and financial
resources.
With regard to our
direct-to-consumer and SMB technical support services, our
competitors include retailers, multiple system operators
(MSOs)/internet service providers (ISPs), and smaller
privately-held or local companies in the home installation,
computer repair, or general tech support space. We believe the principal
competitive factors in our premium tech support market include the
breadth of service offering, value-based and flexible pricing,
customer experience and service levels, and company reputation and
heritage.
With
respect to licenses of our Support.com Cloud offering, our
competitors include companies focused on service desk, knowledge
management, remote support and IT process automation. We believe
the principal competitive factors in our SaaS offering include
breadth and depth of functionality; ease of implementation;
performance; scalability; pricing; vendor reputation; financial
resources; and customer support. We believe that our
Support.com Cloud offering can compete favorably because it
provides an integrated solution that covers different areas of
functionality required by customers.
7
In
the market for our end-user software products, we face direct
competition from software vendors, application providers, operating
system providers, network equipment manufacturers, and other OEMs
that may provide similar solutions and function in their products,
and from individuals and groups who offer “free” and
open source utilities online.
The
competitors in our markets for services and software can have some
or all of the following competitive advantages: longer operating
histories, greater economies of scale, greater financial resources,
greater engineering and technical resources, greater sales and
marketing resources, stronger strategic alliances and distribution
channels, larger user bases, products with different functions and
feature sets and greater brand recognition than we have. We expect
new competitors to continue to enter the markets in which we
operate.
For
additional information related to competition, see Item 1A, Risk
Factors.
Employees
As
of December 31, 2019, we had 1,231 employees, of whom 1,140 were
work-from-home agents and 91 were corporate employees. In addition
to our work-from-home employees, we also use contract labor.
None of our employees are covered by collective bargaining
agreements.
Securities and Exchange Commission (“SEC”) Filings and
Other Available Information
We were incorporated in Delaware in December 1997.
We file reports with the SEC, including without limitation annual
reports on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (the “Exchange
Act”). The public may read and copy any materials we file
with the SEC at the SEC’s Public Reference Room at 100 F
Street, N.E., Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by
calling the SEC at (202) 551-8090. In addition, we are an
electronic filer. The SEC maintains an Internet site that contains
reports, proxy and information statements, and other information
regarding issuers, including us, that file electronically with the
SEC at the website address located at www.sec.gov.
Our telephone number is 650-556-9440 and our
website address is www.support.com. The information contained
on our website does not form any part of this Annual Report on Form
10-K. However, we make available, free of charge through our
website, our annual reports on Form 10-K, our quarterly reports on
Form 10-Q and our current reports on Form 8-K filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 as soon as reasonably practicable after we electronically
file this material with, or furnish it to, the SEC. In addition, we
also make available on
https://www.support.com/about-us/investor-relations/corporate-governance/our
Code of Ethics and Business Conduct for Employees, Officers and
Directors. This Code is also available in print without charge to
any person who requests it emailing us at IR@Support.com.
ITEM 1A.
RISK FACTORS
This
report contains forward-looking statements regarding our business
and expected future performance as well as assumptions underlying
or relating to such statements of expectation, all of which are
“forward looking statements” within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. We are subject to many risks and
uncertainties that may materially affect our business and future
performance and cause those forward-looking statements to be
inaccurate. Words such as “expects,”
“anticipates,” “intends,”
“plans,” “believes,”
“forecasts,” “estimates,”
“seeks,” “may result in,” “focused
on,” “continue to,” “on-going” and
similar expressions often identify forward-looking statements. In
this report, forward-looking statements include, without
limitation, statements regarding the following:
●
Our expectations
regarding revenues, cash flows, expenses, including cost of
revenue, sales and marketing, engineering and IT efforts, and
administrative expenses, and profits;
●
Our expectations
regarding partners, renewal of contracts with these partners and
the anticipated timing and magnitude of revenue from programs with
these partners;
8
●
Our ability to
successfully license and grow revenue related to our consumer
software, Support.com technical support subscriptions, Guided
Paths® and our technology support service
offerings;
●
Our expectations
regarding sales of our end-user software products, and our ability
to source, develop and distribute enhanced versions of these
products;
●
The market appeal
and efficacy of our Guided Paths® self-help solution and
diagnostic tools;
●
Our ability to
expand and diversify our customer base;
●
Our ability to
attract and retain qualified management and employees;
●
Our ability to
hire, train, manage and retain customer support specialists in a
home-based model in quantities sufficient to meet forecast
requirements and in a cost-effective manner, and our ability to
continue to enhance the flexibility of our staffing
model;
●
Our ability to
adapt to changes in the market for customer support
services;
●
Our expectations
regarding unit volumes, pricing and other factors in the market for
computers and other technology devices, and the effects of such
factors on our business;
●
Our expectations
regarding the results of pending, threatened or future litigation;
and
●
Our expectations
regarding the results of pending, threatened or future government
investigations and audits, including, without limitation, those
investigations and audits described in Part II. Item 3. Legal
Proceedings of this report.
An
investment in our stock involves risk, and we caution investors
that forward-looking statements are only predictions based on our
current expectations about future events and are not guarantees of
future performance. We encourage you to read carefully all
information provided in this report and in our other filings with
the SEC before deciding to invest in our stock or to maintain or
change your investment. Forward-looking statements are based on
information as of the filing date of this report, and we undertake
no obligation to publicly revise or update any forward-looking
statement for any reason.
Because
forward-looking statements involve risks and uncertainties, there
are important factors that may cause actual results to differ
materially from our stated expectations. While a number of
these factors are described below, this list does not include all
risks that could affect our business or that could cause our stock
price to decline. If these or any other risks or uncertainties
materialize, or if our underlying assumptions prove to be
inaccurate, actual results could differ materially from past
results and from our expected future results, our operating results
and financial condition could be harmed and our stock price could
decline.
Our financial condition and results of operations may vary from
quarter to quarter, which may cause the price of our common shares
to decline.
Our
quarterly results of operations have fluctuated in the past and
could do so in the future. Because our results of operations are
difficult to predict, you should not rely on quarterly comparisons
of our results of operations as an indication of our future
performance. Fluctuations in our results of operations may be due
to a number of factors, including, but not limited to, those listed
below and those identified throughout this “Risk
Factors” section:
●
The performance of
our partners, including the success of our partners in attracting
end users of our products, which can impact the amount of revenue
we derive from our partners;
●
Change, or
reduction in or discontinuance of our programs with
partners;
●
Cancellations,
rescheduling or deferrals of significant customer products or
service programs;
●
Our reliance on a
small number of partners for a substantial majority of our
revenue;
●
Our ability to
successfully license and grow revenue related to our SAS software,
Guided Paths®, Support.com Cloud and our service
offerings;
●
The timing of our
sales to our partners and our partners’ resale of our
products to end users and our ability to enter into new sales with
partners and renew existing programs with our
partners;
●
The availability
and cost-effectiveness of advertising placements for our software
products and services and our ability to respond to changes in the
advertising markets in which we participate;
●
The efficiency and
effectiveness of our technology specialists;
●
Our ability to
effectively match staffing levels with service volumes on a
cost-effective basis;
●
Our ability to
manage contract labor;
9
●
Our ability to
hire, train, manage and retain our home-based customer support
specialists and enhance the flexibility of our staffing model in a
cost-effective fashion and in quantities sufficient to meet
forecast requirements;
●
Our ability to
manage costs under our self-funded health insurance
program;
●
Usage rates on the
subscriptions we offer;
●
Our ability to
maintain a competitive cost structure for our
organization;
●
The rate of
expansion of our offerings and our investments
therein;
●
Changes in the
markets for computers and other technology devices relating to unit
volume, pricing and other factors, including changes driven by
declines in sales of personal computers and the growing popularity
of tablets, and other mobile devices and the introduction of new
devices into the connected home;
●
Our ability to
adapt to our customers’ needs in a market space defined by
frequent technological change;
●
Severe financial
hardship or bankruptcy of one or more of our major
customers;
●
The amount and
timing of operating costs and capital expenditures in our
business;
●
Failure to protect
our intellectual property;
●
Diversion of
management’s attention from other business concerns,
incurrence of costs and disruption of our ongoing business
activities as a result of acquisitions or divestitures by
us;
●
Costs related to
the defense and settlement of litigation, which can also have an
additional adverse impact on us because of negative publicity,
diversion of management resources and other factors;
●
Costs related to
the defense and settlement of government investigations, requests
for information and audits, which can also have an additional
adverse impact on us because of negative publicity, diversion of
management resources and other factors, including, without
limitation, those audits, requests for information and
investigations described in Part II. Item 3. Legal Proceedings of
this report;
●
The effects of any
acquisitions, divestitures or significant investments;
and
●
Potential losses on
investments, or other losses from financial instruments we may hold
that are exposed to market risk.
Due
to fluctuations in our quarterly and annual results of operations
and other factors, the price at which our common shares trades may
be volatile. Accordingly, you may not be able to resell your common
shares at or above the price you paid. In future periods, our stock
price could decline if, amongst other factors, our revenue or
operating results are below our estimates or the estimates or
expectations of securities analysts and investors.
Our sales are concentrated in a few large customers with whom we
have long-term agreements that have termination for convenience
provisions and no minimum purchase commitments. If we are unable to
increase the number of large customers in key markets, or if we
lose or experience a significant reduction in sales to these key
customers, if these key customers experience a significant decline
in market share, or if these customers experience significant
financial difficulties, our revenue may decrease substantially and
our results of operations and financial condition may be
harmed.
We receive a significant amount of our revenue
from a limited number of customers. For the year ended December 31,
2019, two customers accounted for over 80% of our total revenue. We
have long-term agreements that have termination for convenience
provisions and no minimum purchase or billable hour commitments in
place with our two major customers. As a result, the amount of
revenue we derive from these customers can vary significantly, and
they may terminate our relationship with them with no advance
notice. In the past, sales to our largest customers have fluctuated
significantly from period to period and year to year and will
likely continue to fluctuate in the future. The loss of these or
other significant relationships, the change of the terms or
terminations of our arrangements with any of these customers, the
reduction or discontinuance of programs or billable hours with any
of these customers, or the failure of any of these customers to
achieve their targets has in the past adversely affected, and could
in the future adversely affect our business. For example, our
partners may decide to shorten our billable hours and use other
vendors in the provision of their business and/or may periodically
place these types of services out for bid. Our competitors, many of
whom have significantly more resources than we do, may offer more
favorable bids for the same business compared to what we offer; and
as a result, we may lose, or face a decline in the business we do
with these significant customers.
10
Generally, the agreements with our partners do not require them to
conduct any minimum amount of business with us, and therefore they
have decided in the past and could decide at any time in the future
to reduce or eliminate their programs or the use of our products
and/or services in such programs. They may also enter into
multi-sourcing arrangements with other vendors for services
previously provided exclusively by us. In addition, our top
customers’ purchasing power has, in some cases, given them
the ability to make greater demands on us with regard to pricing
and contractual terms in general. We expect this trend to continue,
which may adversely affect our business and, should we fail to
comply with such terms, might also result in substantial liability
that could harm our business, financial condition and results of
operations. Further, we may not successfully obtain new partners or
customers. There is also the risk that, our established programs
with these and other partners may take longer than we expect to
produce revenue or may not produce revenue at all, and the revenue
produced may not be profitable if the costs of performing under the
program are greater than anticipated or the program terminates
before up-front investments can be recouped. One or more of our key
partners may also choose not to renew their relationship with us,
discontinue certain products or programs, offer them only on a
limited basis or devote insufficient time and attention to
promoting them to their customers. Some of our key partners may
prefer not to work with us due to our past or present involvement
in any legal or administrative proceedings. Overall, the loss of
any of our large customers or a significant reduction in sales we
make to them could have a material adverse effect on our operating
results and financial condition.
Our business is based on a relatively new and evolving business
model.
We
are executing a plan to grow our business by providing customer
support services, creating a robust, timely and innovative library
of Guided Path® self-support tools, licensing our Support.com
Cloud application, and providing end-user consumer software
products. We may not be able to offer these services and software
products successfully. Our customer support specialists are
generally home-based, which requires a high degree of coordination
and quality control of employees working from diverse and remote
locations. We expect to invest cash generated from our existing
business to support our growth initiatives. Our investments, which
typically are made in advance of revenue, may not yield increased
revenue to offset these expenses. As a result of these factors, the
future revenue and income potential of our business is uncertain.
Any evaluation of our business and our prospects must be considered
in light of these factors and the risks and uncertainties often
encountered by companies in our stage of development. Some of these
risks and uncertainties relate to our ability to do the
following:
●
Maintain our
current relationships and service programs, and develop new
relationships, with service partners, subscriptions, and licensees
of our Support.com technical support offering on acceptable terms
or at all;
●
Reach prospective
customers for our software products in a cost-effective
fashion;
●
Reduce our
dependence on a limited number of partners for a substantial
majority of our revenue;
●
Successfully
license and grow revenue related to our consumer software,
Support.com technical support subscriptions, Guided Paths® and
our technology support service offerings;
●
Manage our
employees and contract labor efficiently and
effectively;
●
Maintain gross and
operating margins;
●
Match staffing
levels with demand for services and forecast
requirements;
●
Obtain bonuses and
avoid penalties in contractual arrangements;
●
Operate
successfully in a time-based pricing model;
●
Operate effectively
in the SMB market;
●
Successfully
introduce new, and adapt our existing, services and products for
consumers and businesses;
●
Respond effectively
to changes in the market for customer support
services;
●
Realize benefits of
any acquisitions we make;
●
Adapt to changes in
the markets we serve;
●
Adapt to changes in
our industry, including consolidation;
●
Respond to
government regulations relating to our current and future
business;
●
Manage and respond
to present, threatened, and future litigation; and
●
Manage and respond
to present, threatened or future government investigations and
audits, including, without limitation, those audits and
investigations described in Part II. Item 3 Legal Proceedings of
this report.
11
If
we are unable to address these risks, our business, results of
operations and prospects could suffer.
We have been, are currently and may be in the future the subject of
governmental investigations relating to past products and services
and how those products and services were used by our third-party
partners. These investigations could harm our reputation, result in
additional fines and other payments and cause us to incur expenses
to respond and defend the company or our current and former
employees.
We
have been, are currently and may in the future be the subject of
governmental investigations relating to our past products and how
those products were used by our third-party partners. On November
6, 2018, we entered into a Stipulation to Entry of Order for
Permanent Injunction and Monetary Judgment, or the Consent Order,
with the Federal Trade Commission, or FTC, resolving a multi-year
FTC investigation relating to PC Healthcheck, an obsolete software
program that we developed on behalf of a third party for their use
with their customers. As part of the Consent Order, we agreed to
pay $10 million and to implement certain new procedures and enhance
certain existing procedures.
These
governmental inquiries and the Consent Order with the FTC could
harm our reputation with customers and negatively impact our
ability to sell to existing customers or attract new customers. In
addition to the ongoing costs to respond to these inquiries, we
could be required to make additional payments to resolve these or
other governmental proceedings that may be brought in the future.
In some cases, we may not be the subject of an investigation, but
we may be required to expend resources, including time from our
management team, to address information requests or to indemnify
individual current or former employees who may become involved in
governmental proceedings or also be requested to provide
information. These historical proceedings, our ongoing matters and
any inquiries or proceedings that arise in the future could have a
material adverse effect on our operations, financial results and
our stock price.
We have been named as a party to legal proceedings, including
governmental proceedings, in the past and may be named in
additional ones in the future, which could subject us to liability,
require us to indemnify our customers or employees, require us to
obtain or renew licenses, require us to stop selling our products,
services and/or programs, or force us to redesign our products,
services and/or programs.
We
have been named as a party to several lawsuits, government
inquiries or investigations and other legal proceedings (referred
to as “litigation”), and we may be named in additional
ones in the future. Please see “Part II, Item 3. Legal
Proceedings” for a more detailed description of material
litigation matters in which we are currently engaged. Any potential
litigation also could force us to do one or more of the
following:
●
stop selling,
offering for sale, making, having made or exporting products,
services and/or programs;
●
limit or restrict
the type of work that employees involved in such litigation may
perform for us;
●
pay substantial
damages and/or license fees and/or royalties to the party bringing
the claim that could adversely impact our liquidity or operating
results; and
●
attempt to redesign
those products, services and/or programs that contain the allegedly
problematic component.
Under
certain circumstances, we have contractual and other legal
obligations to indemnify and to incur legal expenses for current
and former directors and officers. Additionally, from time to time,
we have agreed to indemnify or reimburse select customers or end
customers for a number of potential claims. For example, we
recently received notice from a customer, AOL (acquired by Verizon
Communications), that it may seek reimbursement from us in order to
reimburse its customers related to their use of a software product.
If we are required to make a significant payment under any of our
indemnification obligations, including those to our customers
and/or on behalf of our former or current employees, could have a
material adverse effect on our business and the trading price for
our securities. Litigation may be time consuming, expensive, and
disruptive to normal business operations, and the outcome of
litigation is difficult to predict. The ultimate outcome of
litigation could have a material adverse effect on our business and
the trading price for our securities. Furthermore, litigation,
regardless of the outcome, may result in significant expenditures,
diversion of our management’s time and attention from the
operation of our business and damage to our reputation or
relationship with third parties, which could materially and
adversely affect our business, financial condition, results of
operations, cash flows and stock price.
12
Our product and service offerings are in their early stages and
failure to market, sell and develop the offerings effectively and
competitively could result in a lack of growth.
A
number of competitive offerings exist in the market, providing
various features that may overlap with our Support.com offerings
today or in the future. Some competitors in these markets far
exceed our spending on sales and marketing activities and benefit
from greater existing brand awareness, channel relationships and
existing customer relationships. We may not be able to reach the
market effectively and adequately or convey our differentiation as
needed to grow our customer base. To reach our target market
effectively, we may be required to continue to invest substantial
resources in sales and marketing and engineering and IT activities,
which could have a material adverse effect on our financial
results. In addition, if we fail to develop and maintain
competitive features, deliver high-quality products and satisfy
existing customers, our Support.com offerings could fail to grow.
Disruptions in infrastructure operations could impair our ability
to deliver Support.com offerings to customers, thereby affecting
our reputation with existing and prospective customers and possibly
resulting in monetary penalties or financial losses.
Our end-user software revenues are dependent on online traffic
patterns and the availability and cost of online advertising in
certain key placements.
Some
of our consumer end-user software revenue stream is obtained
through advertising placements in certain key online media
placements. From time to time a trend or a change in a key
advertising placement will impact us, decreasing traffic or
significantly increasing the cost or effectiveness of online
advertising and therefore compromising our ability to purchase a
desired volume and placement of advertisements at profitable rates.
If such a change were to continue to occur, as it did in 2013 and
on several occasions in the past, we may be unable to attract
desired amounts of traffic, our costs for advertising may further
increase beyond our forecasts and our software revenues may further
decrease. As a result, our operating results would be negatively
impacted.
We operate in a highly competitive industry, with intense price
competition, which may intensify as our competitors expand their
operations.
The
industry in which we operate is highly competitive and includes
numerous small companies capable of competing effectively in our
markets on a local basis, as well as several large companies that
possess substantially greater financial resources than we do.
Contracts are traditionally awarded on the basis of competitive
bids or direct negotiations with customers.
The
competitive factors in our markets include, amongst others, are
product and service quality and availability, responsiveness,
experience, technology, equipment quality, reputation for retaining
highly-skilled agents and price. The competitive environment has
intensified as mergers among industry partners have reduced the
number of available customers and mergers amongst our competitors
have created larger companies for us to compete against. Some of
our current and potential competitors have greater resources,
longer histories, more customers, and/or greater brand recognition.
They may secure better terms from vendors, adopt more aggressive
pricing, and devote more resources to technology, infrastructure,
fulfillment, and marketing.
Competition
may intensify, including with the development of new business
models and the entry of new and well-funded competitors, and as our
competitors enter into business combinations or alliances and
established companies in other markets expand to become competitive
with our business. Furthermore, we cannot be sure that our
competitors will not develop competing products, systems, services
or technologies that gain market acceptance in advance of our
products, systems, services or technologies, or that our
competitors will not develop new products, systems, services or
technologies that cause our existing products, systems, services or
technologies to become non-competitive or obsolete, which may
adversely affect our results of operations through the potential
reduction of sales and profits.
13
Our business is highly dependent upon our brand recognition and
reputation, and the failure to maintain or enhance our brand
recognition or reputation would likely have a material adverse
effect on our business.
Our
brand recognition and reputation are critical aspects of our
business. We believe that maintaining and further enhancing our
brand as well as our reputation will be critical to retaining
existing customers and attracting new customers. We also believe
that the importance of our brand recognition and reputation will
continue to increase as competition in our markets continues to
develop. Our success in this area will be dependent on a wide range
of factors, some of which are out of our control, including the
following:
●
the efficacy of our
marketing efforts;
●
our ability to
retain existing and obtain new customers and strategic
partners;
●
the quality and
perceived value of our services;
●
actions of our
competitors, our strategic partners, and other third
parties;
●
positive or
negative publicity, including material on the
Internet;
●
regulatory and
other governmental related developments; and
●
litigation related
developments.
If
we implement new marketing and advertising strategies, we may
utilize marketing and advertising channels with significantly
higher costs than our current channels, which in turn could
adversely affect our operating results. Implementing new marketing
and advertising strategies also would increase the risk of devoting
significant capital and other resources to endeavors that do not
prove to be cost effective. Further, we also may incur marketing
and advertising expenses significantly in advance of the time we
anticipate recognizing revenue associated with such expenses, and
our marketing and advertising expenditures may not generate
sufficient levels of brand awareness or result in increased
revenue. Even if our marketing and advertising expenses result in
increased revenue, the increase might not offset our related
expenditures. If we are unable to maintain our marketing and
advertising channels on cost-effective terms or replace or
supplement existing marketing and advertising channels with
similarly or more effective channels, our marketing and advertising
expenses could increase substantially, our customer base could be
adversely affected, and our business, operating results, financial
condition, and reputation could suffer.
Furthermore,
negative publicity, whether or not justified, relating to events or
activities attributed to us, our employees, our strategic partners,
our affiliates, or others associated with any of these parties, may
tarnish our reputation and reduce the value of our brands. Damage
to our reputation and loss of brand equity may reduce demand for
our products and services and have an adverse effect on our
business, operating results, and financial condition. Moreover, any
attempts to rebuild our reputation and restore the value of our
brands may be costly and time consuming, and such efforts may not
ultimately be successful.
Our success depends upon our ability to attract, develop and retain
highly qualified employees while also controlling our labor costs
in a competitive labor market.
Our
customers expect a high level of customer service and product
knowledge from our employees. To meet the needs and expectations of
our customers, we must attract, develop and retain a large number
of highly qualified employees while at the same time control labor
costs. Our ability to control labor costs is subject to numerous
external factors, including prevailing wage rates and health and
other insurance costs, as well as the impact of legislation or
regulations governing labor relations, minimum wage, or healthcare
benefits. An inability to provide wages and/or benefits that are
competitive within the markets in which we operate could adversely
affect our ability to retain and attract employees. Likewise,
changes in market compensation rates may adversely affect our labor
costs. In addition, we compete with other retail businesses for
many of our employees in hourly positions, and we invest
significant resources in training and motivating them to maintain a
high level of job satisfaction. These positions have historically
had high turnover rates, which can lead to increased training and
retention costs, particularly in a competitive labor market.
Effective succession planning is also important to our long-term
success. Failure to ensure effective transfer of knowledge and
smooth transitions involving key employees and executive management
could hinder our strategic planning and execution. There is no
assurance that we will be able to attract or retain highly
qualified employees in the future. As such, our ability to develop
and deliver successful products and services may be adversely
affected.
14
Our business would be adversely affected by the departure of
existing members of our senior management team.
Our
business would be adversely affected by the departure of existing
members of our senior management team. Our success depends, in
large part, on the continued contributions of our senior management
team. Effective succession planning is also important for our
long-term success. Failure to ensure effective transfers of
knowledge and smooth transitions involving senior management could
hinder our strategic planning and execution. We do not currently
maintain key person life insurance covering our senior management.
The loss of any of our senior management could harm our ability to
implement our business strategy and respond to the rapidly changing
market conditions in which we operate.
If we fail to attract, train and manage our consumer support
specialists in a manner that meets forecast requirements and
provides an adequate level of support for our customers, our
reputation and financial performance could be harmed.
Our
business depends in part on our ability to attract, manage and
retain our customer support specialists and other support
personnel. If we are unable to attract, train and manage in a
cost-effective manner adequate numbers of competent specialists and
other support personnel to be available as service volumes vary,
particularly as we seek to expand the breadth and flexibility of
our staffing model, our service levels could decline, which could
harm our reputation, result in financial losses under contract
terms, cause us to lose customers and partners, and otherwise
adversely affect our financial performance. Our ability to meet our
need for support personnel while controlling our labor costs is
subject to numerous external factors, including the level of demand
for our products and services, the availability of a sufficient
number of qualified persons in the workforce, unemployment levels,
prevailing wage rates, changing demographics, health and other
insurance costs, including managing costs under our self-funded
health insurance program which can vary substantially each
reporting period, and the cost of compliance with labor and wage
laws and regulations. In the case of programs with time-based
pricing models, the impact of failing to attract, train and manage
such personnel could directly and adversely affect our revenue and
profitability. Although our service delivery and communications
infrastructure enables us to monitor and manage customer support
specialists remotely, because they are typically home-based and
geographically dispersed, we could experience difficulties meeting
services levels and effectively managing the costs, performance and
compliance of these customer support specialists and other support
personnel. Any problems we encounter in effectively
attracting,
managing and retaining our customer support specialists and other
support personnel could seriously jeopardize our service delivery
operations and our financial results.
Changes in the market for computers and other consumer electronics
and in the technology support services market could adversely
affect our business.
Reductions
in unit volumes of sales for computers and other devices we
support, or in the prices of such equipment, could adversely affect
our business. We offer both services that are attached to the sales
of new computers and other devices, and services designed to fix
existing computers and other devices. Declines in the unit volumes
sold of these devices or declines in the pricing of such devices
could adversely affect demand for our services or our revenue mix,
either of which would harm our operating results. Further, we do
not support all types of computers and devices, meaning that we
must select and focus on certain operating systems and technology
standards for computers, tablets, smart phones, and other devices.
We may not be successful in supporting new devices in the connected
home and “Internet of Things,” and consumers and SMBs
may prefer equipment we do not support, which may decrease the
market for our services and products if customers migrate away from
platforms we support. In addition, the structures and pricing
models for programs in the technology support services market may
change in ways that reduce our revenues and our
margins.
15
Disruptions in our information technology and service delivery
infrastructure and operations could impair the delivery of our
services and harm our business.
We
depend on the continuing operation of our information technology
and communication systems and those of our third-party service
providers. Any interruption or failure of our internal or external
systems could prevent us or our service providers from accepting
orders and delivering services, or cause company and consumer data
to be unintentionally lost, destroyed or disclosed. Our continuing
efforts to upgrade and enhance the security and reliability of our
information technology and communications infrastructure could be
very costly, and we may have to expend significant resources to
remedy problems such as a security breach or service interruption.
Interruptions in our services resulting from labor disputes,
telephone or Internet failures, power or service outages, natural
disasters or other events, or a security breach could reduce our
revenue, increase our costs, cause customers and partners and
licensees to fail to renew or to terminate their use of our
offerings, and harm our reputation and our ability to attract new
customers.
Costs related to software or other errors in our products could
have a material adverse effect on us.
From
time to time, we may experience software defects, bugs and other
errors associated with the introduction and/or use of our complex
software products. Despite our testing procedures, errors may occur
in new products or releases after commencement of commercial
deployments in the future. Such errors could result
in:
●
Loss of or delay in
market acceptance of our products;
●
Material recall and
replacement costs;
●
Delay in revenue
recognition or loss of revenue;
●
The diversion of
the attention of our engineering personnel from product development
efforts;
●
Our having to
defend against litigation related to defective products;
and
●
Damage to our
reputation in the industry that could adversely affect our
relationships with our customers.
In
addition, the process of identifying a software error in software
products that have been widely distributed may be lengthy and
require significant resources. We may have difficulty identifying
the end customers of the defective products in the field, which may
cause us to incur significant replacement costs, contract damage
claims from our customers and further reputational harm. For
example, we recently received notice from a customer, AOL (acquired
by Verizon Communications), that it may seek reimbursement from us
in order to reimburse its customers related to their use of a
software product. Any of these problems could materially and
adversely affect our results of operations. Despite our best
efforts, security vulnerabilities may exist with respect to our
products. Mitigation techniques designed to address such security
vulnerabilities, including software and firmware updates or other
preventative measures, may not operate as intended or effectively
resolve such vulnerabilities. Software and firmware updates and/or
other mitigation efforts may result in performance issues, system
instability, data loss or corruption, unpredictable system
behavior, or the theft of data by third parties, any of which could
significantly harm our business and reputation.
We may engage in the acquisition of other companies, joint ventures
and strategic alliances outside of our current line of business,
which may have an adverse material effect on our existing
business.
We
may engage in the acquisition of other companies, joint ventures
and strategic alliances outside of our current line of business to
design and develop new technologies and products, to strengthen
competitiveness by scaling up and to expand our existing business
line into new regions. Such transactions, especially in new lines
of business, inherently involve risk due to the difficulties in
integrating operations, technologies, products and personnel.
Integration issues are complex, time-consuming and expensive and,
without proper planning and implementation, may adversely affect
our existing business. Furthermore, we may incur significant
acquisition, administrative and other costs in connection with
these transactions, including costs related to integration or
restructuring of acquired businesses. There can be no assurance
that these transactions will be beneficial to our business or
financial condition. Even assuming these transactions are
beneficial, there can be no assurance that we will be able to
successfully integrate the new business lines acquired or achieve
all or any of the initial objectives of these
transactions.
16
We may make acquisitions that deplete our resources and do not
prove successful.
We
have made acquisitions in the past and may make additional
acquisitions in the future. Our management may not be able to
effectively implement our acquisition program and internal growth
strategy simultaneously. The integration of acquisitions involves a
number of risks and presents financial, managerial and operational
challenges. We may have difficulty, and may incur unanticipated
expenses related to, integrating management and personnel from
these acquired entities with our management and personnel. Our
failure to identify, consummate or integrate suitable acquisitions
could adversely affect our business and results of operations. We
cannot readily predict the timing, size or success of our future
acquisitions. Even successful acquisitions could have the effect of
reducing our cash balances.
We may pursue investments, joint ventures and dispositions, which
could adversely affect our results of operations.
We
may invest in businesses that offer complementary products,
services and technologies, augment our market coverage, or enhance
our technological capabilities. We may also enter into strategic
alliances or joint ventures to achieve these goals. We may not be
able to identify suitable investment, alliance, or joint venture
opportunities, or to consummate any such transactions. In addition,
our original estimates and assumptions used in assessing any
transaction may be inaccurate and we may not realize the expected
financial or strategic benefits of any such
transaction.
We
may also seek to divest or wind down portions of our business,
either acquired or otherwise, each of which could materially affect
our cash flows and results of operations. Any future dispositions
we may make could involve risks and uncertainties, including our
ability to sell such businesses on terms acceptable to us, or at
all. In addition, any such dispositions could result in disruption
to other parts of our business, potential loss of employees or
customers, or exposure to unanticipated liabilities or ongoing
obligations to us following any such dispositions. For example, in
connection with such dispositions, we may agree to provide certain
indemnities to the purchaser, which may result in additional
expenses and may adversely affect our financial condition and
results of operations. In addition, dispositions may include the
transfer of technology and/or the licensing of certain IP rights to
third-party purchasers, which could limit our ability to utilize
such IP rights or assert these rights against such third-party
purchasers or other third parties.
Our stock price is subject to volatility.
Our
stock price has experienced substantial price volatility in the
past and may continue to do so in the future. Further, our
business, the technology industry and the stock market as a whole
have experienced extreme stock price and volume fluctuations that
have affected stock prices in ways that may have been unrelated to
corporate operating performance. We believe our stock price should
reflect expectations of future growth and profitability. If we fail
to meet expectations related to future growth, profitability,
potential future dividends or share repurchases, or other market
expectations, our stock price may decline significantly, which
could have a material adverse impact on the confidence of our
investors and employee retention.
Our indemnification obligations and limitations of our director and
officer liability insurance may have a material adverse effect on
our financial condition, results of operations and cash
flows.
Under
Delaware law, our Articles of Incorporation and Amended and
Restated Bylaws and indemnification agreements to which we are a
party, we have an obligation to indemnify, or we have otherwise
agreed to indemnify, certain of our current and former directors,
officers and/or employees with respect to past, current and future
investigations and litigation. For example, we have incurred
indemnification expenses in connection with the FTC investigation
completed in March 2019 and other pending government
investigations. In connection with some of these pending matters,
we are required to, or we have otherwise agreed to, advance, and
have advanced, legal fees and related expenses to certain of our
current and former directors, officers and employees, and expect to
continue to do so while these matters are pending. Indemnification
obligations may not be “covered matters” under our
directors’ and officers’ liability insurance, or there
may be insufficient coverage available. Further, in the event the
directors and officers are ultimately determined not to be entitled
to indemnification, we may not be able to recover any amounts we
previously advanced to them. We cannot provide any assurances that
future indemnification claims, including the cost of fees,
penalties or other expenses, will not exceed the limits of our
insurance policies, that such claims are covered by the terms of
our insurance policies or that our insurance carrier will be able
to cover our claims. Additionally, to the extent there is coverage
of these claims, the insurers also may seek to deny or limit
coverage in some or all of these matters. Furthermore, the insurers
could become insolvent and unable to fulfill their obligation to
defend, pay or reimburse us for insured claims. Accordingly, we
cannot be sure that claims will not arise that are in excess of the
limits of our insurance or that are not covered by the terms of our
insurance policy. Due to these coverage limitations, we may incur
significant unreimbursed costs to satisfy our indemnification
obligations, which may have a material adverse effect on our
financial condition, results of operations or cash
flows.
17
Our provision for income taxes is subject to volatility and could
be adversely affected by a number of factors.
Our
overall tax provisions and accruals are affected by a number of
factors, including any potential reorganization or restructuring of
our businesses, including tangible and intangible assets, the
resulting tax effects of differing tax rates in different state
jurisdictions, changes in transfer pricing rules or methods of
applying these rules, and changes in tax laws in various
jurisdictions. While we believe our tax estimates are reasonable,
there is no assurance that the final determination of our income
tax liability will not be materially different than what is
reflected in our income tax provisions and accruals. Significant
judgment is required to determine the recognition and measurement
of tax liabilities prescribed in the relevant accounting guidance
for uncertainty in income taxes. The accounting guidance for
uncertainty in income taxes applies to all income tax positions,
which, if resolved unfavorably, could adversely impact our
provision for income taxes and our payment obligation with respect
to any such taxes.
Our systems collect, access, use, and store personal customer
information and enable customer transactions, which poses security
risks, requires us to invest significant resources to prevent or
correct problems that may be caused by security breaches, and may
harm our business.
A
fundamental requirement for online communications, transactions and
support is the secure collection, storage and transmission of
confidential information. Our systems collect and store
confidential and personal information of our individual customers
as well as our partners and their customers’ users, including
personally identifiable information and payment card information,
and our employees and contractors may access and use that
information in the course of providing services. In addition, we
collect and retain personal information of our employees in the
ordinary course of our business. We and our third-party contractors
use commercially available technologies to secure this information.
Despite these measures, parties may attempt to breach the security
of our data or that of our customers. In addition, errors in the
storage or transmission of data could breach the security of that
information. We may be liable to our customers for any breach in
security and any breach could subject us to governmental or
administrative proceedings or monetary penalties, damage our
relationships with partners and harm our business and reputation.
Also, computers are vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions, which could lead to
interruptions, delays or loss of data. We may be required to expend
significant capital and other resources to comply with mandatory
privacy and security standards required by law, industry standard,
or contract, and to further protect against security breaches or to
correct problems caused by any security breach.
A breach of our security systems may have a material adverse effect
on our business.
Our
security systems are designed to maintain the physical security of
our facilities and protect our customers’ and
employees’ confidential information, as well as our own
proprietary information. However, we are also dependent on a number
of third-party cloud-based and other service providers of critical
corporate infrastructure services relating to, among other things,
human resources, electronic communication services and certain
finance functions, and we are, of necessity, dependent on the
security systems of these providers. Accidental or willful security
breaches or other unauthorized access by third parties or our
employees or contractors of our facilities, our information systems
or the systems of our cloud-based or other service providers, or
the existence of computer viruses or malware in our or their data
or software could expose us to a risk of information loss and
misappropriation of proprietary and confidential information,
including information relating to our products or customers and the
personal information of our employees. In addition, we have, from
time to time, also been subject to unauthorized network intrusions
and malware on our own IT networks. Any theft or misuse of
confidential, personal or proprietary information as a result of
such activities could result in, among other things, unfavorable
publicity, damage to our reputation, loss of our trade secrets and
other competitive information, difficulty in marketing our
products, allegations by our customers that we have not performed
our contractual obligations, litigation by affected parties and
possible financial obligations for liabilities and damages related
to the theft or misuse of such information, as well as fines and
other sanctions resulting from any related breaches of data privacy
regulations, any of which could have a material adverse effect on
our reputation, business, profitability and financial condition.
Since the techniques used to obtain unauthorized access or to
sabotage systems change frequently and are often not recognized
until launched against a target, we may be unable to anticipate
these techniques or to implement adequate preventative
measures.
18
Data privacy regulations are expanding and compliance with, and any
violations of, these regulations may cause us to incur significant
expenses.
Privacy
legislation, enforcement and policy activity in this area are
expanding rapidly in many jurisdictions and creating a complex
regulatory compliance environment. Costs to comply with and
implement these privacy-related and data protection measures could
be significant. In addition, even our inadvertent failure to comply
with federal, state or international privacy-related or data
protection laws and regulations could result in proceedings against
us by governmental entities or others, and substantial fines and
damages. The theft, loss or misuse of personal data collected,
used, stored or transferred by us to run our business could result
in significantly increased business and security costs or costs
related to defending legal claims.
We are exposed to risks associated with payment card and payment
fraud and with payment card processing.
Certain
of our customers use payment cards to pay for our services and
products. We may suffer losses as a result of orders placed with
fraudulent payment cards or other payment data. Our failure to
detect or control payment fraud could have an adverse effect on our
results of operations. We are also subject to payment card
association operating standards and requirements, as in effect from
time to time. Compliance with those standards requires us to invest
in network and systems infrastructure and processes. Failure to
comply with these rules or requirements may subject us to fines,
potential contractual liabilities, and other costs, resulting in
harm to our business and results of operations.
Privacy concerns and laws or other domestic or foreign regulations
may require us to incur significant costs and may reduce the
effectiveness of our solutions, and our failure to comply with
those laws or regulations may harm our business and cause us to
lose customers.
Our
software and services contain features that allow our technology
specialists and other personnel to access, control, monitor, and
collect information from computers and other devices.
Federal, state and foreign government bodies and agencies, however,
have adopted or are considering adopting laws and regulations
restricting or otherwise regulating the collection, use and
disclosure of personal information obtained from consumers and
individuals. Those regulations could require costly compliance
measures, could reduce the efficiency of our operations, or could
require us to modify or cease to provide our systems or services.
Liability for violation of, costs of compliance with, and other
burdens imposed by such laws and regulations may limit the use and
adoption of our services and reduce overall demand for them. Even
the perception of privacy concerns, whether or not valid, may harm
our reputation and inhibit adoption of our solutions by current and
future customers. In addition, we may face claims about
invasion of privacy or inappropriate disclosure, use, storage, or
loss of information obtained from our customers. Any imposition of
liability could harm our reputation, cause us to lose customers and
cause our operating results to suffer.
We rely on third-party technologies in providing certain of our
software and services. Our inability to use, retain or integrate
third-party technologies could delay service or software
development and could harm our business.
We
license technologies from third parties, which are integrated into
our services, technology and end user software. Our use of
commercial technologies licensed on a non-exclusive basis from
third parties poses certain risks. Some of the third-party
technologies we license may be provided under “open
source” licenses, which may have terms that require us to
make generally available our modifications or derivative works
based on such open source code. Our inability to obtain or
integrate third-party technologies with our own technology could
delay service development until equivalent compatible technology
can be identified, licensed and integrated. These third-party
technologies may not continue to be available to us on commercially
reasonable terms or at all. If our relationship with third
parties were to deteriorate, or if such third parties were unable
to develop innovative and saleable products, or component features
of our products, we could be forced to identify a new developer and
our future revenue could suffer. We may fail to successfully
integrate any licensed technology into our services or software, or
maintain it through our own development work, which would harm our
business and operating results.
19
Our business operates in regulated industries.
Our
current and anticipated service offerings operate in industries,
such as home security, that are subject to various federal, state,
provincial and local laws and regulations in the markets in which
we operate. In certain jurisdictions, we may be required to
obtain licenses or permits in order to comply with standards
governing employee selection and training and to meet certain
standards or licensing requirements in the conduct of our
business. The loss of such licenses or permits or the
imposition of conditions to the granting or retention of such
licenses or permits could have a material adverse effect on
us.
Changes
in laws or regulations could require us to change the way we
operate or to utilize resources to maintain compliance, which could
increase costs or otherwise disrupt operations. In addition,
failure to comply with any applicable laws or regulations could
result in substantial fines or revocation of our operating permits
and licenses for us or our partners. If laws and regulations were
to change, or if we or our products and services were deemed not to
comply with them, our business, financial condition, results of
operations and cash flows could be materially and adversely
affected.
If our services are used to commit fraud or other similar
intentional or illegal acts, we may incur significant liabilities,
our services may be perceived as not secure and customers may
curtail or stop using our services.
Certain
software and services we provide, including our Support.com Cloud
applications, enable remote access to and control of third-party
computer systems and devices. We generally are not able to
control how such access may be used or misused by licensees of our
software offerings or our employees. If our software is used by our
employees or others to commit fraud or other illegal acts,
including, but not limited to, violating data privacy laws,
proliferating computer files that contain a virus or other harmful
elements, interfering or disrupting third-party networks,
infringing any third party’s copyright, patent, trademark,
trade secret or other rights, transmitting any unlawful, harassing,
libelous, abusive, threatening, vulgar, obscene or otherwise
objectionable material, or committing unauthorized access to
computers, devices, or protected information, third parties may
seek to hold us legally liable. As a result, defending such
claims could be expensive and time-consuming regardless of the
merits, and we could incur significant liability or be required to
undertake expensive preventive or remedial actions. As a
result, our operating results may suffer and our reputation may be
damaged.
We may face intellectual property infringement claims that could be
costly to defend and result in our loss of significant
rights.
Our
business relies on the use and licensing of technology. Other
parties may assert intellectual property infringement claims
against us or our customers, and our products may infringe the
intellectual property rights of third parties. For example,
our products may infringe patents issued to third parties. In
addition, as is increasingly common in the technology sector, we
may be confronted with the aggressive enforcement of patents by
companies whose primary business activity is to acquire patents for
the purpose of offensively asserting them against other
companies. From time to time, we have received allegations or
claims of intellectual property infringement, and we may receive
more claims in the future. We may also be required to pursue
litigation to protect our intellectual property rights or defend
against allegations of infringement. Intellectual property
litigation is expensive and time-consuming and could divert
management’s attention from our business. The outcome of any
litigation is uncertain and could significantly impact our
financial results. If there is a successful claim of
infringement, we may be required to develop non-infringing
technology or enter into royalty or license agreements which may
not be available on acceptable terms, if at all. Our failure to
develop non-infringing technologies or license proprietary rights
on a timely basis would harm our business.
20
If we are unable to protect or enforce our intellectual property
rights, or we lose our ability to utilize the intellectual property
of others, our business could be adversely affected.
Our
success depends, in part, upon our ability to obtain intellectual
property protection for our proprietary processes, software and
other solutions. We rely upon confidentiality policies,
nondisclosure and other contractual arrangements, and patent, trade
secret, copyright and trademark laws to protect our intellectual
property rights. These laws are subject to change at any time and
could further limit our ability to obtain or maintain intellectual
property protection. There is uncertainty concerning the scope of
patent and other intellectual property protection for software and
business methods, which are fields in which we rely on intellectual
property laws to protect our rights. Even where we obtain
intellectual property protection, our intellectual property rights
may not prevent or deter competitors, former employees, or other
third parties from reverse engineering our solutions or software.
Further, the steps we take in this regard might not be adequate to
prevent or deter infringement or other misappropriation of our
intellectual property by competitors, former employees or other
third parties, and we may not be able to detect unauthorized use
of, or take appropriate and timely steps to enforce, our
intellectual property rights. Enforcing our rights might also
require considerable time, money and oversight, and we may not be
successful. Further, we rely on third-party software in providing
some of our services and solutions. If we lose our ability to
continue using any such software for any reason, including because
it is found to infringe the rights of others, we will need to
obtain substitute software or find alternative means of obtaining
the technology necessary to continue to provide our solutions. Our
inability to replace such software, or to replace such software in
a timely or cost-effective manner, could materially adversely
affect our results of operations
We may face class actions and similar claims that could be costly
to defend or settle and result in negative publicity and diversion
of management resources.
Our business involves direct sale and licensing of
services and software to consumers and SMBs, and we typically
include customary indemnification provisions in favor of our
partners in our agreements for the distribution of our services and
software. As a result, we can be subject to consumer
litigation and legal proceedings related to our services and
software, including putative class action claims and similar legal
actions, including, but not limited to, consumer litigation and
legal proceedings that may arise related to the FTC and DOL
investigations described in Part II. Item 3. Legal Proceedings in
this report. We can also be subject
to employee litigation and legal proceedings related to our
employment practices attempted on a class or representative
basis. Such litigation can be
expensive and time-consuming regardless of the merits of any action
and could divert management’s attention from our
business. The cost of defense can be large as can any
settlement or judgment in an action. The outcome of any
litigation is uncertain and could significantly impact our
financial results. Regardless of outcome, litigation can have an
adverse impact on us because of defense costs, negative publicity,
diversion of management resources and other
factors.
We must comply with a variety of existing and future laws and
regulations that could impose substantial costs on us and may
adversely impact our business.
We
are subject to a variety of laws and regulations, which may differ
among jurisdictions, affecting our operations in areas including,
but not limited to: intellectual property ownership and
infringement; tax; anti-corruption such as the Foreign Corrupt
Practices Act and the UK Bribery Act; foreign exchange controls and
cash repatriation restrictions; data privacy requirements such as
the European Economic Area Privacy Regulation, the General Data
Protection Regulation (“GDPR”) and the California
Consumer Privacy Act (“CCPA”); competition; Consent
Order terms (for example, the recent Consent Order we entered into
with the FTC); advertising; employment; product regulations; health
and safety requirements; and consumer laws. If we fail to continue
to comply with these regulations, we may be unable to provide
products or services to certain customers, or we may incur
penalties or fines. We are unable to predict the outcome or effects
of any of these potential actions or any other legislative or
regulatory proposals on our business. Any changes to the legal and
regulatory framework applicable to our businesses could have an
adverse impact on the results of our operations. Although our
management systems are designed to maintain compliance, if we
violate or fail to comply with any laws or regulations, applicable
consent orders or decrees, a range of consequences could result,
including fines, sales limitations, criminal and civil liabilities
or other sanctions. The costs of complying with these laws
(including the costs of any investigations, auditing and
monitoring) could adversely affect our current or future
business.
21
Delaware law and our certificate of incorporation and bylaws
contain anti-takeover provisions, and our Board adopted a Section
382 Tax Benefits Preservation Plan, any of which could delay or
discourage takeover attempts that some stockholders may consider
favorable.
Delaware
law and our certificate of incorporation and amended and restated
bylaws contain certain provisions, any of which could render more
difficult, or discourage a merger, tender offer, or assumption of
control of the Company that is not approved by our Board of
Directors that some stockholders may consider favorable. In
addition, on August 21, 2019, our Board acted to preserve the
potential benefits of our NOLs from being limited pursuant to
Section 382 of the Code by adopting a Section 382 Tax Benefits
Preservation Plan (the “Section 382 Tax Benefits Preservation
Plan”). The principal reason our Board adopted the Section
382 Tax Benefits Preservation Plan is that we believe that the NOLs
are a potentially valuable asset and the Board believes it is in
the Company’s best interests to attempt to protect this asset
by preventing the imposition of limitations on their use. While the
Section 382 Tax Benefits Preservation Plan is not principally
intended to prevent a takeover, it does have a potential
anti-takeover effect because an “acquiring person”
thereunder may be diluted upon the occurrence of a triggering
event. Accordingly, the overall effects of the Section 382 Tax
Benefits Preservation Plan may be to render more difficult, or
discourage merger, tender offer, or assumption of control by a
substantial holder of our securities.
Our ability to use net operating loss carryforwards to offset
future taxable income for U.S. federal income tax purposes may be
limited.
We
have a federal net operating loss (NOL) carryforwards that are
available to offset future taxable income. We may recognize
additional NOLs in the future. Section 382 of the Internal
Revenue Code of 1986, as amended (the Code) imposes an annual
limitation on the amount of taxable income that may be offset by a
corporation's NOLs if the corporation experiences an
“ownership change” as defined in Section 382 of
the Code. An ownership change occurs when our
“five-percent shareholders” (as defined in
Section 382 of the Code) collectively increase their ownership
in the Company by more than 50 percentage points (by value) over a
rolling three-year period. Additionally, various states have
similar limitations on the use of state NOLs following an ownership
change.
If
an ownership change occurs, the amount of the taxable income for
any post-change year that may be offset by a pre-change loss is
subject to an annual limitation that is cumulative to the extent it
is not all utilized in a year. This limitation is derived by
multiplying the fair market value of our stock as of the ownership
change by the applicable federal long-term tax-exempt rate. To the
extent that a company has a net unrealized built-in gain at the
time of an ownership change, which is realized or deemed recognized
during the five-year period following the ownership change, there
is an increase in the annual limitation for each of the first
five-years that is cumulative to the extent it is not all utilized
in a year. If an ownership change should occur in the future, our
ability to use the NOL to offset future taxable income will be
subject to an annual limitation and will depend on the amount of
taxable income generated by us in future periods. There is no
assurance that we will be able to fully utilize the NOL and we may
be required to record an additional valuation allowance related to
the amount of the NOL that may not be realized, which could impact
our result of operations.
As
noted, we believe that these NOL carryforwards are a valuable asset
for us. Consequently, we have a Section 382 Tax Benefits
Preservation Plan in place, to protect our NOLs during the
effective period of the rights plan. Although the Tax Benefits
Preservation Plan is intended to reduce the likelihood of an
“ownership change” that could adversely affect us,
there is no assurance that the restrictions on transferability in
the rights plan will prevent all transfers that could result in
such an “ownership change”. The Tax Benefits
Preservation Plan could make it more difficult for a third party to
acquire, or could discourage a third party from acquiring, our
Company or a large block of our common stock. A third party that
acquires 4.9% or more of our common stock could suffer substantial
dilution of its ownership interest under the terms of the Tax
Benefits Preservation Plan through the issuance of common stock or
common stock equivalents to all stockholders other than the
acquiring person. The foregoing provisions may adversely affect the
marketability of our common stock by discouraging potential
investors from acquiring our stock. In addition, these
provisions could delay or frustrate the removal of incumbent
directors and could make more difficult a merger, tender offer or
proxy contest involving us, or impede an attempt to acquire a
significant or controlling interest in us, even if such events
might be beneficial to us and our stockholders.
22
ITEM
1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2.
PROPERTIES.
Administrative
and engineering activities are conducted in in Sunnyvale,
California. On March 23, 2018, we entered into a two-year lease
agreement with an effective date of April 1, 2018 for our
Sunnyvale, CA office facility, covering approximately 6,283 square
feet with the monthly rent of $15,000. The lease is scheduled to
expire on March 31, 2020. We also lease office facilities in
Eugene, Oregon for which the lease agreement expired on December
31, 2018 and we have renewed the 3-year term from January 1, 2018
to December 31, 2020. We also lease an office in Louisville,
Colorado for which the lease agreement expired on January 31, 2017
and afterward the lease term is auto renewal every 12 months. We
recently signed a one-year lease in Louisville, Colorado from
February 1, 2019 to January 31, 2020 and thereafter converted to a
month-to-month basis. In addition, we lease office space in Manila,
Philippines for which the lease expired on May 15, 2018 and
converted to a month-to-month basis. On January 8, 2019, we signed
a new lease for the office in Manila, Philippines and the lease
term is on a month to month basis.
ITEM 3.
LEGAL PROCEEDINGS
On December 20, 2016 the Federal Trade Commission
(“FTC”) issued a confidential Civil Investigative
Demand, or CID, to the Company requiring the Company to produce
certain documents and materials and to answer certain
interrogatories relating to PC Healthcheck, an obsolete software
program that the Company developed on behalf of a third party for
their use with their customers. The investigation relates to the
Company providing software like PC Healthcheck to third parties for
their use prior to December 31, 2016, when the Company was under
management of the previous Board and executive team. Since issuing
the CID, the FTC has sought additional written and testimonial
evidence from the Company. We have cooperated fully with the
FTC’s investigation and provided all requested information.
In addition, the Company has not used PC Healthcheck nor provided
it to any customers since December 2016.
On March 9, 2018, the
FTC notified the Company that the FTC was willing to engage in
settlement discussions. On November 6, 2018, the Company and
the FTC entered into a proposed Stipulation to Entry of Order for
Permanent Injunction and Monetary Judgment, or the Consent Order.
The Consent Order was approved by the
Commission on March 26, 2019 and entered by the U.S. District
Court for the Southern District of Florida on March 29, 2019. Entry
of the Consent Order by the Court has finally resolved the
FTC’s multi-year investigation of this
matter.
Pursuant to the Consent Order, under which the Company neither
admitted nor denied the FTC’s allegations (except as to the
Court having jurisdiction over the matter), the FTC has agreed to
accept a payment of $10 million in settlement of the $35 million
judgement, subject to the factual accuracy of the information the
Company has provided as part of our financial representations. The
$10 million payment was made on April 1, 2019 and has been
recognized in operating expenses within the Company’s
consolidated statements of operations for the year ended December
31, 2018.
Additionally, pursuant to the Consent Order, the Company has agreed
to implement certain new procedures and enhance certain existing
procedures. For example, the Consent Order necessitates that the
Company cooperate with representatives of the Commission on
associated investigations if needed; imposes requirements on the
Company regarding obtaining acknowledgements of the Consent Order
and compliance certification, including record creation and
maintenance; and prohibits the Company from making
misrepresentations and misleading claims or providing the means for
others to make such claims regarding, among other things, detection
of security or performance issues on consumer’s Electronic
Devices. Electronic Devices include, but are not limited to, cell
phones, tablets and computers. The Company intends to monitor the
impact of the Consent Order regularly and, while the Company
currently does not expect the settlement to have a long-term and
materially adverse impact on its business, the Company’s
business may be negatively impacted as the Company adjusts to some
of the changes. If the Company is unable to comply with the Consent
Order, then this could result in a material and adverse impact to
the Company’s results of operations and financial
condition.
Other Proceedings
The
Company has received and may in the future receive additional
requests for information, including subpoenas, from other
governmental agencies relating to the subject matter of the Consent
Order and the Civil Investigative Demand described above. The
Company intends to cooperate with these information requests and is
not aware of any other legal proceedings against the Company by
governmental authorities at this time.
ITEM 4.
MINE SAFETY DISCLOSURES.
Not
applicable.
23
PART II
ITEM 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES.
Market of Common Stock
Our
common stock has been traded publicly on the Nasdaq Global Select
Market (“Nasdaq”) under the symbol “SPRT”
since July 19, 2000. Before July 19, 2000, there was no public
market for our common stock. The following table sets forth the
highest and lowest sale price of our common stock for the quarters
indicated:
|
Low
|
High
|
Fiscal Year 2019:
|
|
|
First
Quarter
|
$2.07
|
$2.60
|
Second
Quarter
|
$1.48
|
$2.78
|
Third
Quarter
|
$1.48
|
$1.73
|
Fourth
Quarter
|
$1.05
|
$2.20
|
Fiscal Year 2018:
|
|
|
First
Quarter
|
$2.41
|
$2.99
|
Second
Quarter
|
$2.56
|
$3.15
|
Third
Quarter
|
$2.63
|
$3.01
|
Fourth
Quarter
|
$2.29
|
$3.03
|
Holders of Record
As of February 29, 2020, there were
approximately 89
holders of record of our common stock
(not including beneficial holders of stock held in street
name).
Dividend Policy
Historically,
we have not declared or paid any cash dividends on our capital
stock. As a part of the board of directors’ ongoing capital
allocation review, on December 6, 2019 the board of directors
authorized and declared a special cash distribution of $1.00 per
share on each outstanding share of the Company’s common
stock. The record date for this distribution was December 17, 2019
and the payment date was December 26, 2019. Accordingly, the
Company paid $19.1 million to shareholders on December 26,
2019.
We
currently anticipate that all future earnings, if any, generated
from operations will be retained by us to develop and expand our
business. Any future determination with respect to the payment of
dividends will be at the discretion of the Board of Directors and
will depend on, among other things, our operating results,
financial condition and capital requirements, the terms of
then-existing indebtedness, general business conditions and such
other factors as the Board of Directors deems
relevant.
24
Securities Authorized for Issuance Under Equity Compensation
Plans
Information
regarding the securities authorized for issuance under our equity
compensation plans can be found under Item 12 of Part III of this
Report.
ITEM 6.
SELECTED CONSOLIDATED FINANCIAL DATA.
As a “smaller
reporting company,” as defined in Rule 12b-2 of the Exchange
Act, we are not required to provide the information called for by
this Item.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated
financial statements and the related notes included elsewhere in
this Form 10-K. The following discussion includes forward-looking
statements. Please see the section entitled “Risk
Factors” in Item 1A of
this Report for important information to consider when evaluating
these statements.
Overview
Support.com, Inc. is a full-spectrum leader in outsourced call
center and direct-to-consumer and small business technical support
solutions. With more than 20 years of providing high quality
technical support services to consumers and small businesses
through white-labeled partnerships or direct solutions, Support.com
has the expertise, tools and software solutions to troubleshoot and
maintain all the devices in the connected home and business. The
company's skilled U.S.-based live agents and rich self-support
tools troubleshoot thousands of technical support issues consumers
and small businesses face on an ongoing basis. Support.com delivers
high quality, turnkey technical support solutions, software and
digital support experiences that enable customers to get the most
out of their technology.
Total
revenue for the year ended December 31, 2019 decreased by $6.2
million, or 8.9%, from 2018. The decrease in service revenue of
$4.9 million was primarily due to a decrease in the billable hours
of our largest customer somewhat offset by an increase in revenues
of other major customers. Revenue from software and other for
the year ended December 31, 2019 decreased by $1.3 million from
2018 primarily due to the termination of a sales agreement with a
major customer.
Cost of
services. Cost of services
consists primarily of compensation costs, and contractor,
technology and telecommunication expenses related to the delivery
of services. The decrease of $10.7 million, or 19%, from 2018 was
primarily attributable lower
compensation costs commensurate with the lower revenues
as
headcount decreased from 2,035
employees at December 31, 2018 to 1,231 employees at December 31,
2019.
Cost of software and
other. Cost of software and
other fees consists primarily of third-party royalty fees for our
end-user software products. The modest decrease in cost of software
and other was mainly driven by lower third party
fees.
Total
gross profit increased from 17% to 26%, year-over-year, due to the
lower cost of services which is attributable to primarily lower
compensation and employee related costs.
Operating expenses for the year ended December 31,
2019 decreased by $8.5 million or 39% from 2018. The decrease
is primarily driven by the one-time $10 million litigation
settlement charge incurred in 2018 offset by increased compensation
and consulting costs in Engineering and IT during
2019.
We
intend the following discussion of our financial condition and
results of operations to provide information that will assist in
understanding our consolidated financial statements, the changes in
certain key items in those consolidated financial statements from
year to year, and the primary factors that accounted for those
changes, as well as how certain accounting principles, policies and
estimates affect our consolidated financial
statements.
25
Critical Accounting Policies and Estimates
In preparing our consolidated financial statements
in conformity with generally accepted accounting principles in the
United States, we make assumptions, judgments and estimates that
can have a significant impact on our revenue and operating results,
as well as on the value of certain assets and liabilities on our
consolidated balance sheet. We base our assumptions, judgments and
estimates on historical experience and various other factors that
we believe to be reasonable under the circumstances. Actual results
could differ materially from these estimates under different
assumptions or conditions. On a regular basis we evaluate our
assumptions, judgments and estimates and make changes accordingly.
We believe that the assumptions, judgments and estimates involved
in the accounting for revenue recognition, fair value measurements,
self-insurance accruals, accounting for intangible assets,
stock-based compensation and accounting for income taxes have the
greatest potential impact on our consolidated financial statements,
so we consider these to be our critical accounting policies. We
discuss below the critical accounting estimates associated with
these policies. For further information on the critical accounting
policies, see Note 1 of our Notes to Consolidated Financial
Statements. There have been no significant changes in these
critical accounting policies and estimates except the accounting
for leases during the year ended December 31, 2019. For information
regarding the impact of Topic 842 adoption,
see Significant Accounting
Policies - Leases and Note
8— Leases.
Disaggregation of
Revenue
We
generate revenue from the sale of services and sale of software for
end-user software products provided through direct customer
downloads and through the sale of these end-user software products
via partners. The following table depicts the disaggregation of
revenue (in thousands) according to revenue type and is consistent
with how we evaluate our financial performance:
Revenue from Contracts with Customers:
|
Twelve months ended December 31,
|
|
|
2019
|
2018
|
Services
|
$59,545
|
$64,476
|
Software
and other
|
3,788
|
5,073
|
Total
revenue
|
$63,333
|
$69,549
|
Fair Value Measurements
ASC 820, Fair Value Measurements and
Disclosures, defines fair
value, establishes a framework for measuring fair value under
generally accepted accounting principles and enhances disclosures
about fair value measurements. Fair value is defined as the
exchange price that would be received for an asset or paid to
transfer a liability in the principal or most advantageous market
for the asset or liability in an orderly transaction between market
participants on the measurement date. Valuation techniques used to
measure fair value must maximize the use of observable inputs and
minimize the use of unobservable inputs. The standard describes a
fair value hierarchy based on three levels of inputs, of which the
first two are considered observable and the last unobservable, that
may be used to measure fair value, which are the
following:
●
Level
1 - Quoted prices in active markets for identical assets or
liabilities. Therefore, determining fair value for Level 1
instruments generally does not require significant management
judgment, and the estimation is not difficult.
●
Level
2 - Inputs other than Level 1 that are observable, either directly
or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities. Level 2 instruments require limited management
judgment.
●
Level
3 - Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities. The determination of fair value for Level 3
instruments requires the most management judgment and
subjectivity.
26
Our
Level 2 securities are priced using quoted market prices for
similar instruments, nonbinding market prices that are corroborated
by observable market data, or discounted cash flow techniques.
Marketable securities, measured at fair value using Level 2 inputs,
are primarily comprised of commercial paper, corporate bonds,
corporate notes and U.S. government agencies securities. We
review trading activity and pricing for these investments as of the
measurement date. When sufficient quoted pricing for identical
securities is not available, we use market pricing and other
observable market inputs for similar securities obtained from
various third-party data providers. These inputs either represent
quoted prices for similar assets in active markets or have been
derived from observable market data.
Stock-Based Compensation
We account for stock-based compensation in
accordance with the provisions of ASC 718, Compensation - Stock
Compensation. Under the fair
value recognition provisions of ASC 718, stock-based compensation
cost is estimated at the grant date based on the fair value of the
award and is recognized as expense ratably over the requisite
service period of the award. We estimate the fair value of
stock-based awards on the grant date using (i) the
Black-Scholes-Merton option-pricing model for service-based stock
options and (ii) the quoted prices of the Company’s common
stock for restricted stock units. Determining the appropriate fair
value model and calculating the fair value of stock-based awards
requires judgment, including estimating stock price volatility,
forfeiture rates and expected life. If any of these assumptions
used in the option-pricing models change, our stock-based
compensation expense could change on our consolidated financial
statements.
Accounting for Income Taxes
We
are required to estimate our income taxes in each of the tax
jurisdictions in which we operate. This process involves
management’s estimation of our current tax exposures together
with an assessment of temporary differences determined based on the
difference between the financial statement and tax basis of certain
items. These differences result in net deferred tax assets and
liabilities, which are included in our consolidated balance sheet.
We must assess the likelihood that we will be able to recover our
deferred tax assets. If recovery is not likely, we must
increase our provision for taxes by recording a valuation allowance
against the deferred tax assets that we estimate will not
ultimately be recoverable. We currently have provided a full
valuation allowance on our U.S. deferred tax assets that management
determined are not likely to be realized due to cumulative net
losses since inception and the difficulty in accurately forecasting
the Company’s results. In addition, we currently have
provided a partial valuation allowance on certain foreign deferred
tax assets. If any of our estimates change, we may change the
likelihood of recovery and our tax expense as well as the value of
our deferred tax assets would change.
Our
income tax calculations are based on the application of the
respective U.S. Federal, state or foreign tax law. The
Company’s tax filings, however, are subject to audit by the
respective tax authorities. Accordingly, we recognize tax
liabilities based on our estimate of whether, and the extent to
which, additional taxes will be due when such estimates are
more-likely-than-not to be sustained. An uncertain income tax
position will not be recognized if it has less than a 50%
likelihood of being sustained. Our policy is to include interest
and penalties related to unrecognized tax benefits as a component
of income tax expense. To the extent the final tax liabilities are
different than the amounts originally accrued, the increases or
decreases are recorded as income tax expense or benefit in the
consolidated statements of operations.
27
Results of Operations
The
following table presents certain Consolidated Statements of
Operations data for the periods indicated as a percentage of total
revenue:
|
Year Ended December 31,
|
|
|
2019
|
2018
|
Revenue:
|
|
|
Services
|
94%
|
93%
|
Software
and other
|
6
|
7
|
Total
revenue
|
100
|
100
|
Cost
of revenue:
|
|
|
Cost
of services
|
74
|
82
|
Cost
of software and other
|
-
|
1
|
Total
cost of revenue
|
74
|
83
|
Gross
profit
|
26
|
17
|
Operating
expenses:
|
|
|
Engineering
and IT
|
7
|
4
|
Sales
and marketing
|
3
|
3
|
General
and administrative
|
12
|
11
|
Legal
settlement
|
-
|
14
|
Total
operating expenses
|
22
|
32
|
Income
(loss) from operations
|
4
|
(15)
|
Interest
income and other, net
|
2
|
1
|
Income
(loss), before income taxes
|
6
|
(14)
|
Income
tax provision
|
-
|
-
|
Income
(loss), after income taxes
|
6%
|
(14)%
|
Years Ended December 31, 2019 and 2018:
Revenue
($ in thousands)
|
2019
|
% Change
2018 to 2019
|
2018
|
Services
|
$59,545
|
(8)%
|
$64,476
|
Software
and other
|
3,788
|
(25)%
|
5,073
|
Total
revenue
|
$63,333
|
(9)%
|
$69,549
|
Services. Services revenue
consists primarily of fees for customer support services generated
from our partners. We provide these services remotely,
generally using personnel who utilize our proprietary technology to
deliver the services. Services revenue is also comprised of
licensing of our Support.com Cloud applications.
Services revenue for the year ended
December 31, 2019 decreased by $4.9 million from 2018. The
decrease in service revenue was primarily due to the decrease in
the billable hours of our major customers. For the year ended
December 31, 2019, services revenue generated from our partnerships
was $56.6 million compared to $61.0 million for 2018. For the year
ended December 31, 2019, direct services revenue
was $2.9 million compared to $3.5 million for
2018. As with any market that
is undergoing shifts, timing of downward pressures and growth
opportunities in our services programs are difficult to predict. We
are experiencing downward pressure with some of our services
programs as personal computer
and certain retail markets are subject to internal re-alignment and
other sector specific softness. However, we still see
opportunity in the market for growth with our service partners as a
result of the evolving support market trends.
28
Software and
other. Software and other
revenue is comprised primarily of fees for end-user software
products provided through direct customer downloads, and, to a
lesser extent, through the sale of these software products via
partners. Software and other revenue for the year ended December 31, 2019
decreased compared with the year ended 2018 primarily due to the
cancellation of a significant partner contract as well as some
softness in new subscriptions and
renewals. For the year ended
December 31, 2019, direct
software and other revenue
was $1.9
million compared to $2.8 million for 2018. For the year ended December 31, 2019, software
and other revenue generated from our
partnerships was
$1.9
million compared to $2.7 million for 2018.
Revenue Mix
The
components of revenue, expressed as a percentage of total revenue
were:
|
Year Ended December 31
|
|
|
2019
|
2018
|
Services
|
94%
|
93%
|
Software
and other
|
6%
|
7%
|
Total
revenue
|
100%
|
100%
|
For the year ended December 31, 2019,
Comcast and
Cox Communications accounted
for 65% and 26% of our total revenue, respectively. For the year
ended December 31, 2018, Comcast and Cox
Communications accounted for 63% and 25% of our total revenue,
respectively. No other
customers accounted for 10% or more of our total revenue in any
year presented. Revenue from customers outside the United
States was less than 1% of our total revenue in 2019 and
2018.
Cost of Revenue
($ in thousands)
|
2019
|
% Change
2018 to 2019
|
2018
|
Cost
of services
|
$46,714
|
(19)%
|
$57,396
|
Cost
of software and other
|
151
|
(27)%
|
208
|
Total
cost of revenues
|
$46,865
|
(19)%
|
$57,604
|
Cost of
services. Cost of services
consists primarily of compensation costs and contractor expenses
for providing services, technology and telecommunication expenses
related to the delivery of services and other personnel-related
expenses in service delivery. The decrease of $10.7 million in cost of services
for the year ended December 31, 2019 compared to 2018
includes a
decrease in compensation and employee related charges associated
with the decrease in headcount.
Cost of software and
other. Cost of software and
other fees consists primarily of third-party royalty fees for our
end-user software products, wages, and processing fees. Cost
of software and other were relatively flat
year-over-year.
Operating expenses
($ in thousands)
|
2019
|
% Change
2018 to 2019
|
2018
|
Engineering
and IT
|
$4,078
|
47%
|
$2,780
|
Sales
and marketing
|
1,760
|
(4)%
|
1,823
|
General
and administrative
|
7,679
|
4%
|
7,408
|
Legal
settlement
|
—
|
(100)%
|
10,000
|
Total
operating expenses
|
$13,517
|
(39)%
|
$22,011
|
29
Engineering and
IT. Engineering an IT
expense consists primarily of compensation costs, third-party
consulting expenses and related overhead costs for engineering and
IT personnel. Engineering an IT costs are expensed as they are
incurred. The increase of $1.3
million in engineering an IT
expense for the year ended December
31, 2019 compared to 2018 resulted primarily from an
increase in
salary and employee related expenses due to changes in headcount and higher consulting
fees.
Sales and marketing.
Sales and marketing expense consists
primarily of compensation costs of business development, program
management and marketing personnel, as well as expenses for lead
generation and promotional activities, including public relations,
advertising and marketing. Sales and marketing costs for the year
ended December 31, 2019 were relatively flat with 2018, with no
significant changes in the components of these
amounts.
General and
administrative. General and
administrative expense consists primarily of compensation costs and
related overhead costs for administrative personnel and
professional fees for legal, accounting and other professional
services. General and
administrative expense for the year ended December 31, 2019 were
relatively flat with 2018, with no significant changes in the
components of these amounts.
Legal settlement.
Legal settlement consists of a legal
settlement with a FTC related
investigation. On November 6, 2018, the FTC and the Company reached
a $10 million settlement agreement and the Company agreed to record
a $10.0 million legal settlement on the Consolidated Statements of
Operations for the period ended December 31, 2018. This amount was
paid on April 1, 2019.
Interest income and other, net
($ in thousands)
|
2019
|
% Change
2018 to 2019
|
2018
|
Interest
income and other, net
|
$1,049
|
9%
|
$965
|
Interest income and other,
net. Interest income and
other, net consists primarily of interest income on our cash, cash
equivalents and short-term investments. The increase in
interest income and other, net of $84,000 for the year ended
December 31, 2019 compared to 2018 was primarily due to due to
higher yields on investments.
Income tax provision (benefit)
($ in thousands)
|
2019
|
% Change
2018 to 2019
|
2018
|
Income tax
provision (benefit)
|
$154
|
(155%)
|
$(1)
|
Income tax provision
(benefit). The income tax
provision (benefit) is comprised of estimates of current taxes due
in domestic and foreign jurisdictions and changes in deferred tax
balances. For the year ended December 31, 2019, the income tax
provision consisted of a $138 provision for foreign taxes and a $16
provision for state income tax. For the year ended December 31,
2018, the income tax provision / (benefit) consisted of a ($9)
provision (benefit) for foreign taxes and an $8 provision for state
income tax.
Liquidity and Capital Resources
Total cash, cash equivalents and
short-term investments at December 31, 2019 and 2018 was $26.4
million and $49.6 million, respectively. Cash equivalents and
short-term investments are comprised of money market funds,
certificates of deposit, corporate notes and bonds, and U.S.
government agency securities. The decrease in cash, cash
equivalents and investments was primarily due to the cash payment
of $10.0 million to the FTC on April 1, 2019 in settlement of the
previously disclosed on-going investigation and the Company’s
cash distribution to shareholders of $19.1 million on December 26,
2019. These payments were offset by net income for the period and
changes impacting other working capital accounts.
30
Operating Activities
Net
cash provided by (used in) operating activities was $(4.1) million
for the year ended December 31, 2019, and $0.8 million for the year
ended December 31, 2018. Net cash provided by (used in)
operating activities primarily reflects the net income (loss) for
the period, adjusted for non-cash items and changes in operating
assets and liabilities.
Net
cash used in operating activities during 2019 was the result of a
net income for the period of $3.8 million, adjusted for non-cash
items totaling $0.7 million and changes in operating assets and
liabilities of ($8.6) million. Adjustments for non-cash items
primarily consisted of stock-based compensation expense of $0.3
million and depreciation on fixed assets of $0.3 million.
Changes in operating assets and liabilities primarily consisted of
the $10 million payment of the accrued legal settlement related to
the FTC investigation and a $1.8 million decrease in accrued
compensation due to the timing of our payroll cycles offset by a
decrease in accounts receivable, net, of $2.9 million due to
decreased revenue from Comcast, and a $0.3 million decrease in
prepaid and other current assets.
Net cash provided by operating activities during
2018 was the result of a net loss for the period of ($9.1) million,
adjusted for non-cash items totaling $1.5 million and changes in
operating assets and liabilities of $8.4 million. Adjustments
for non-cash items primarily consisted of stock-based compensation
expense of $0.7 million and depreciation on fixed assets of $0.6
million. Changes in operating assets and liabilities
primarily consisted of a $10 million increase in the accrued legal
settlement related to the FTC investigation and a $0.3 million
increase in accrued compensation due to the timing of our payroll
cycles offset by an increase in accounts receivable, net, of $0.3
million due to increased revenue as well as timing of collections
with a larger percentage of accounts receivable shifting to
customers with slightly longer payment terms, a $0.9 million
decrease in deferred revenue due to a shift in our customer mix and
the termination of the Professional
Services Agreement with Office Depot in 2017, and a $0.4 million decrease in other accrued
liabilities primarily from Office Depot and Office Max due to the
cancellation of Professional Services Agreement as the Company no
longer needs to accrue for the customer rebate
incentive.
Investing Activities
Net
cash provided by investing activities was $8.0 million for the year
ended December 31, 2019 and $6.3 million for the year ended
December 31, 2018. Net cash provided by investing activities
in 2019 was primarily due to sales and maturities of investments of
$43.0 million offset by purchases of investments of ($34.9) million
and purchases of property and equipment of ($0.1)
million.
Net
cash provided by investing activities was $6.3 million for the year
ended December 31, 2018. Net cash provided by investing
activities in 2018 was primarily due to purchases of investments of
($30.0) million and purchases of property and equipment of ($0.2)
million offset by sales and maturities of investments of $37.0
million.
Financing Activities
Net
cash provided by (used in) financing activities was ($19.0) million
for the year ended December 31, 2019 and $257,000 for the year
ended December 31, 2018. In 2019, cash used in financing
activities was primarily attributable to the $19.1 million payment
of a special distribution to shareholders and $48,000 of proceeds
from the issuance of common stock under employee stock purchase
plans.
Net
cash provided by financing activities was $0.3 million for the year
ended December 31, 2018. In 2018, cash provided by financing
activities was primarily attributable to the $0.2 million in
proceeds from exercise of stock options and $0.1 million in
proceeds from the issuance of common stock under employee stock
purchase plans.
31
Working Capital and Capital Expenditure Requirements
At
December 31, 2019, we had stockholders’ equity of $33.2
million and working capital of $32.5 million. We believe that our
existing cash balances will be sufficient to meet our working
capital requirements for at least the next 12 months.
If
we require additional capital resources to grow our business
internally or to acquire complementary technologies and businesses
at any time in the future, we may seek to sell additional equity or
debt securities. The sale of additional equity could result in more
dilution to our stockholders.
Contractual Obligations
The
following table summarizes our contractual obligations at December
31, 2019 and the effect these contractual obligations are expected
to have on our liquidity and cash flows in future periods (in
thousands):
|
Payments Due By Period
|
|||
|
Total
|
Less than
1 year
|
1 - 3
Years
|
More
than 3
Years
|
Operating
leases
|
$381
|
$274
|
$107
|
$—
|
Uncertain
tax positions, including interest and penalties
|
137
|
—
|
—
|
137
|
|
$518
|
$274
|
$107
|
$137
|
These
obligations are for non-cancelable operating leases including our
headquarters office and offices to carry out engineering and IT and
operations globally.
Off-Balance Sheet Arrangements
At
December 31, 2019, we did not have any significant off-balance
sheet arrangements, as defined in Item 303(a) (4) (ii) of
Regulation S-K.
Recent Accounting Pronouncements
See
Note 1 – Organization and Summary of Significant Accounting
Policies to the Consolidated Financial Statements included in Part
II, Item 8 of this Annual Report on Form 10-K for a summary of new
accounting standards.
ITEM
7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
As a “smaller
reporting company,” as defined in Rule 12b-2 of the Exchange
Act, we are not required to provide the information called for by
this Item.
32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.
SUPPORT.COM, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page
|
|
|
34
|
|
|
|
35
|
|
|
|
36
|
|
|
|
37
|
|
|
|
38
|
|
|
|
39
|
|
|
|
40
|
33
Report of Independent Registered Public
Accounting Firm
To the Stockholders and Board of Directors of Support.com,
Inc.
Opinion on the Consolidated Financial Statements
We
have audited the accompanying consolidated balance sheet of
Support.com, Inc. (the “Company”) as of December 31,
2019 and 2018, the related consolidated statement of operations,
comprehensive income, stockholders' equity, and cash flows for each
of the years ended December 31, 2019 and 2018, and the related
notes collectively referred to as the “financial
statements”. In our opinion, the financial statements
referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2019 and 2018,
and the results of its operations and its cash flows for the year
ended December 31, 2019 and 2018, in conformity with accounting
principles generally accepted in the United States of
America.
Basis for Opinion
The Company's management is responsible for these financial
statements. Our responsibility is to express an opinion on the
Company’s financial statements based on our audit. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. As part of our audit we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company's internal control over financial reporting.
Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audit also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audit provide a reasonable basis
for our opinion.
/s/ Plante & Moran, PLLC
Denver, Colorado
March
18, 2020
We have
served as the Company’s auditor since 2017.
34
SUPPORT.COM, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share data)
|
December 31,
|
|
|
2019
|
2018
|
ASSETS
|
|
|
Current
assets:
|
|
|
Cash
and cash equivalents
|
$10,087
|
$25,182
|
Short-term
investments
|
16,327
|
24,467
|
Accounts
receivable, less allowance of $28 and $13 at December 31, 2019 and
2018, respectively
|
9,398
|
12,292
|
Prepaid
expenses and other current assets
|
728
|
999
|
Total
current assets
|
36,540
|
62,940
|
Property
and equipment, net
|
533
|
703
|
Intangible
assets
|
250
|
250
|
Other
assets
|
717
|
707
|
Total
assets
|
$38,040
|
$64,600
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
Current
liabilities:
|
|
|
Accounts
payable
|
$277
|
$368
|
Accrued
compensation
|
1,610
|
3,423
|
Other
accrued liabilities
|
1,001
|
978
|
Accrued
legal settlement
|
-
|
10,000
|
Short-term
deferred revenue
|
1,193
|
1,135
|
Total
current liabilities
|
4,081
|
15,904
|
Other
long-term liabilities
|
792
|
800
|
Total
liabilities
|
4,873
|
16,704
|
Commitments
and contingencies (Note 4)
|
|
|
Stockholders’
equity:
|
|
|
Common
stock; par value $0.0001, 50,000,000 shares authorized; 19,536,768
issued and 19,053,854 outstanding at December 31, 2019; 19,438,178
issued and 18,955,264 outstanding at December 31, 2018
|
2
|
2
|
Additional
paid-in capital
|
250,092
|
268,794
|
Treasury
stock, at cost (482,914 shares at December 31, 2019 and December
31, 2018)
|
(5,297)
|
(5,297)
|
Accumulated
other comprehensive loss
|
(2,380)
|
(2,507)
|
Accumulated
deficit
|
(209,250)
|
(213,096)
|
Total
stockholders’ equity
|
33,167
|
47,896
|
Total
liabilities and stockholders’ equity
|
$38,040
|
$64,600
|
See accompanying notes.
35
SUPPORT.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
|
Year Ended December 31,
|
|
|
2019
|
2018
|
Revenue:
|
|
|
Services
|
$59,545
|
$64,476
|
Software
and other
|
3,788
|
5,073
|
Total
revenue
|
63,333
|
69,549
|
Costs
of revenue:
|
|
|
Cost
of services
|
46,714
|
57,396
|
Cost
of software and other
|
151
|
208
|
Total
cost of revenue
|
46,865
|
57,604
|
Gross
profit
|
16,468
|
11,945
|
Operating
expenses:
|
|
|
Engineering
and IT
|
4,078
|
2,780
|
Sales
and marketing
|
1,760
|
1,823
|
General
and administrative
|
7,679
|
7,408
|
Legal
settlement
|
—
|
10,000
|
Total
operating expenses
|
13,517
|
22,011
|
Income
(loss) from operations
|
2,951
|
(10,066)
|
Interest
income and other, net
|
1,049
|
965
|
Income
(loss) from operations, before income taxes
|
4,000
|
(9,101)
|
Income
tax provision (benefit)
|
154
|
(1)
|
Net
income (loss)
|
$3,846
|
$(9,100)
|
|
|
|
Basic
and diluted income (loss) per share
|
|
|
Basic
|
$0.20
|
$(0.48)
|
Diluted
|
$0.20
|
$(0.48)
|
|
|
|
Shares used in
computing per share amounts
|
|
|
Basic
|
18,977
|
18,826
|
Diluted
|
19,026
|
18,826
|
See accompanying notes.
36
SUPPORT.COM, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
|
Year Ended December 31,
|
|
|
2019
|
2018
|
|
|
|
Net
income (loss)
|
$3,846
|
$(9,100)
|
|
|
|
Other
comprehensive income (loss):
|
|
|
Change
in foreign currency translation adjustment
|
49
|
(414)
|
Change
in net unrealized gain on investments
|
78
|
15
|
Other
comprehensive income (loss)
|
127
|
(399)
|
|
|
|
Comprehensive
income (loss)
|
$3,973
|
$(9,499)
|
See accompanying notes.
37
SUPPORT.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
|
Common Stock
|
|
|
|
|
|
|
|
Shares
|
Amount
|
Additional
Paid-In
Capital
|
Treasury
Stock
|
Accumulated
Other Comprehensive
Loss
|
Accumulated
Deficit
|
Total Stockholders’
Shares
|
Balances
at December 31, 2016
|
18,548,180
|
$2
|
$267,400
|
$(5,295)
|
$(2,329)
|
$(202,470)
|
$57,308
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
(1,526)
|
(1,526)
|
Partial
shares in reverse split
|
(40)
|
|
(1)
|
|
|
|
(1)
|
Other
comprehensive income
|
—
|
—
|
—
|
—
|
221
|
—
|
221
|
Stock-based
compensation expense
|
—
|
—
|
430
|
—
|
—
|
—
|
430
|
Issuance
of common stock upon exercise of stock options for cash and
releases of RSUs
|
153,824
|
—
|
|
—
|
—
|
—
|
|
Issuance
of common stock under employee stock purchase plan
|
28,018
|
—
|
28
|
—
|
—
|
—
|
28
|
Repurchase
of common stock
|
(1,070)
|
—
|
—
|
(2)
|
—
|
—
|
(2)
|
Balances
at December 31, 2017
|
18,728,912
|
$2
|
$267,857
|
$(5,297)
|
$(2,108)
|
$(203,996)
|
$56,458
|
Net
loss
|
—
|
—
|
—
|
—
|
|
(9,100)
|
(9,100)
|
Other
comprehensive income
|
—
|
—
|
—
|
—
|
(399)
|
—
|
(399)
|
Stock-based
compensation expense
|
—
|
—
|
680
|
—
|
—
|
—
|
680
|
Issuance
of common stock under employee stock purchase plan
|
31,387
|
—
|
72
|
—
|
—
|
—
|
72
|
Balances
at December 31, 2018
|
18,955,264
|
$2
|
$268,794
|
$(5,297)
|
$(2,507)
|
$(213,096)
|
$47,896
|
Net
income
|
—
|
|
—
|
—
|
|
3,846
|
3,846
|
Other
comprehensive income
|
—
|
—
|
—
|
—
|
127
|
—
|
127
|
Stock-based
compensation expense
|
—
|
—
|
304
|
—
|
—
|
—
|
304
|
Dividend
payout
|
|
|
(19,054)
|
|
|
|
(19,054)
|
Issuance
of common stock upon exercise of stock options for cash and
releases of RSUs
|
72,724
|
—
|
—
|
—
|
—
|
—
|
—
|
Issuance
of common stock under employee stock purchase plan
|
25,866
|
—
|
48
|
—
|
—
|
—
|
48
|
Balances
at December 31, 2019
|
19,053,854
|
$2
|
$250,092
|
$(5,297)
|
$(2,380)
|
$(209,250)
|
$33,167
|
See accompanying notes.
38
SUPPORT.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
Year
Ended December 31,
|
|
|
2019
|
2018
|
Operating
activities:
|
|
|
Net
income (loss)
|
$3,846
|
$(9,100)
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in)
operating activities:
|
|
|
Stock-based
compensation expense
|
304
|
680
|
Amortization
of premiums and discounts on investments
|
83
|
176
|
Depreciation
|
294
|
638
|
Deferred
income taxes
|
-
|
-
|
Changes
in operating assets and liabilities:
|
|
|
Accounts
receivable, net
|
2,893
|
341
|
Prepaid
expenses and other current assets
|
282
|
(210)
|
Other
assets
|
40
|
159
|
Accounts
payable
|
(92)
|
136
|
Accrued
legal settlement
|
(10,000)
|
10,000
|
Accrued
compensation
|
(1,804)
|
257
|
Other
accrued liabilities
|
26
|
(358
|
Other
long-term liabilities
|
18
|
(85)
|
Deferred
revenue
|
58
|
(884)
|
Net
cash provided by (used in) operating activities
|
(4,052)
|
796
|
|
|
|
Investing
activities:
|
|
|
Purchases
of property and equipment
|
(124)
|
(208)
|
Disposal
of property and equipment
|
3
|
-
|
Purchases
of investments
|
(34,898)
|
(30,049)
|
Proceeds
from sale of investments
|
9,766
|
-
|
Maturities
of investments
|
33,267
|
36,604
|
Net
cash provided by investing activities
|
8,014
|
6,347
|
|
|
|
Financing
activities:
|
|
|
Proceeds
from exercise of stock options
|
-
|
185
|
Proceeds
from employee stock purchase plan
|
48
|
72
|
Payment
of dividend
|
(19,054)
|
-
|
Net
cash provided by (used in) financing activities
|
(19,006)
|
257
|
Net
increase (decrease) in cash and cash equivalents
|
(15,044)
|
7,400
|
Effect
of exchange rate changes on cash and cash equivalents
|
(51)
|
(268)
|
Cash
and cash equivalents at beginning of year
|
25,182
|
18,050
|
Cash
and cash equivalents at end of year
|
$10,087
|
$25,182
|
|
|
|
Supplemental
schedule of cash flow information:
|
|
|
|
|
|
Cash
paid for income taxes
|
$98
|
$72
|
See accompanying notes.
39
SUPPORT.COM, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Summary of Significant Accounting
Policies
Nature of Operations
Support.com,
Inc. (“Support.com”, “the Company”,
“We” or “Our”), was incorporated in the
state of Delaware on December 3, 1997. Our common stock
trades on the Nasdaq Capital Market under the symbol
“SPRT.”
Support.com
provides technical support solutions for both businesses and
consumers, delivering the expertise, tools, and software solutions
to support all the devices in the connected home and business.
Support.com’s tech support solutions cover the lifecycle of
the connected device, including setup, troubleshooting,
connectivity and interoperability problems, learning to use new
features, and even pre-sales questions such as device
compatibility. Functioning as a partner to large enterprise and
retailer customers, Support.com offers OEMs, MSOs/ISPs, retailers,
and other enterprise customers customized, turnkey support
programs--including pre-sale and post-sale support--with a
comprehensive, integrated approach covering all connected devices.
Through TechSolutions, Support.com provides its technical expertise
direct to consumers and small businesses with affordable, 24/7
access to expert tech support via phone, chat, virtual house calls,
or step-by-step DIY guides. TechSolutions’ fully-integrated,
seamless tech support experience combines live agents, available
via phone or chat, with a robust library of free, DIY self-support
tools, called Guided Paths, which offer step-by-step instructions
and tutorials for thousands of tech problems.
Basis of Presentation
The
consolidated financial statements include the accounts of
Support.com and its wholly-owned foreign subsidiaries. All
intercompany transactions and balances have been
eliminated.
Impact of Disease Outbreak
On
March 11, 2020, the World Health Organization declared the outbreak
of a respiratory disease caused by a new coronavirus as a
“pandemic”. First identified in late 2019 and known now
as COVID-19, the outbreak has impacted thousands of individuals
worldwide. In response, many countries have implemented measures to
combat the outbreak which have impacted global business operations.
As of the date of issuance of the financial statements, the
Company’s operations have not been significantly impacted,
however, the Company continues to monitor the situation. No
impairments were recorded as of the balance sheet date as no
triggering events or changes in circumstances had occurred as of
year-end; however, due to significant uncertainty surrounding the
situation, management's judgment regarding this could change in the
future. In addition, while the Company’s results of
operations, cash flows and financial condition could be negatively
impacted, the extent of the impact cannot be reasonably estimated
at this time.
Foreign Currency Translation
The
functional currency of our foreign subsidiaries is generally the
local currency. Assets and liabilities of our wholly owned foreign
subsidiaries are translated from their respective functional
currencies at exchange rates in effect at the balance sheet date,
and revenues and expenses are translated at average exchange rates
prevailing during the year. Any material resulting translation
adjustments are reflected as a separate component of
stockholders’ equity in accumulated other comprehensive
income (loss). Realized foreign currency transaction gains (losses)
were not material during the years ended December 31, 2019 and
2018.
Use of Estimates
The
preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and
accompanying notes. The accounting estimates that require
management’s most significant, difficult and subjective
judgments include accounting for revenue recognition, assumptions
used to estimate self-insurance and litigation accruals, the
valuation of investments, the assessment of recoverability of
intangible assets and their estimated useful lives, the valuations
and recognition of stock-based compensation and the recognition and
measurement of current and deferred income tax assets and
liabilities. Actual results could differ materially from these
estimates.
Concentrations of Credit Risk
Financial
instruments that potentially subject us to concentrations of credit
risk consist principally of cash equivalents, investments and trade
accounts receivable. Periodically throughout the year, the Company
has maintained balances in various operating accounts in excess of
federally insured limits. Our investment portfolio consists of
investment grade securities. Except for obligations of the United
States government and securities issued by agencies of the United
States government, we diversify our investments by limiting our
holdings with any individual issuer. We are exposed to credit risks
in the event of default by the issuers to the extent of the amount
recorded on the balance sheet. The credit risk in our trade
accounts receivable is substantially mitigated by our evaluation of
the customers’ financial conditions at the time we enter into
business and reasonably short payment terms.
40
Trade Accounts Receivable and Allowance for Doubtful
Accounts
Trade
accounts receivable are recorded at the invoiced amount. We perform
evaluations of our customers’ financial condition and
generally do not require collateral. We make judgments as to our
ability to collect outstanding receivables and provide allowances
for a portion of receivables when collection becomes
doubtful. Our allowances are made based on a specific review
of all significant outstanding invoices. For those invoices not
specifically provided for, allowances are recorded at differing
rates, based on the age of the receivable. In determining these
rates, we analyze our historical collection experience and current
payment trends. The determination of past-due accounts is based on
contractual terms.
The
following table summarizes the allowance for doubtful accounts as
of December 31, 2019 and 2018 (in thousands):
|
Balance at
Beginning of
Period
|
Adjustments to
Costs and
Expenses
|
Write-
offs
|
Balance at
End of
Period
|
Allowance
for doubtful accounts:
|
|
|
|
|
Year
ended December 31, 2018
|
$9
|
$24
|
$(20)
|
$13
|
Year
ended December 31, 2019
|
$13
|
$40
|
$(25)
|
$28
|
As
of December 31, 2019, Comcast and Cox Communications accounted for
approximately 59% and 33% of our total accounts receivable,
respectively. As of December 31, 2018, Comcast and Cox
Communications accounted for approximately 71% and 20% of our total
accounts receivable, respectively. No other customers accounted for
10% or more of our total accounts receivable as of December 31,
2019 and 2018.
Cash, Cash Equivalents and Investments
All
liquid instruments with an original maturity at the date of
purchase of 90 days or less are classified as cash equivalents.
Cash equivalents and short-term investments consist primarily of
money market funds, certificates of deposit, commercial paper,
corporate and municipal bonds. Our interest income on cash, cash
equivalents and investments is recorded monthly and reported as
interest income and other in our consolidated statements of
operations.
Our
cash equivalents and short-term investments are classified as
investment, and are reported at fair value with unrealized
gains/losses included in accumulated other comprehensive loss
within stockholders’ equity on the consolidated balance
sheets and in the consolidated statements of comprehensive income
(loss). We view this investment portfolio as available for use in
our current operations, and therefore we present our marketable
securities as short-term assets.
We
monitor our investments for impairment on a quarterly basis and
determine whether a decline in fair value is other-than-temporary
by considering factors such as current economic and market
conditions, the credit rating of the security’s issuer, the
length of time an investment’s fair value has been below our
carrying value, the Company’s intent to sell the security and
the Company’s belief that it will not be required to sell the
security before the recovery of its amortized cost. If an
investment’s decline in fair value is deemed to be
other-than-temporary, we reduce its carrying value to its estimated
fair value, as determined based on quoted market prices or
liquidation values. Declines in value judged to be
other-than-temporary, if any, are recorded in operations as
incurred. At December 31, 2019, the Company evaluated its
unrealized losses on security investments and determined them to be
temporary. We currently do not intend to sell securities with
unrealized losses, and we concluded that we will not be required to
sell these securities before the recovery of their amortized cost
basis.
41
At
December 31, 2019 and 2018, the estimated fair value of cash, cash
equivalents and investments was $26.4 million and $49.6 million,
respectively. The following is a summary of cash, cash
equivalents and investments at December 31, 2019 and 2018 (in
thousands):
|
For the Year Ended December 31, 2019
|
|||
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair Value
|
Cash
|
$7,814
|
$—
|
$—
|
$7,814
|
Money
market fund
|
1,137
|
—
|
—
|
1,137
|
Certificates
of deposit
|
475
|
—
|
—
|
475
|
Commercial
paper
|
6,912
|
—
|
(1)
|
6,911
|
Corporate
notes and bonds
|
7,922
|
15
|
(4)
|
7,933
|
U.S.
government agency securities
|
2,145
|
—
|
(1)
|
2,144
|
|
$26,405
|
$15
|
$(6)
|
$26,414
|
Classified
as:
|
|
|
|
|
Cash
and cash equivalents
|
$10,087
|
$—
|
$—
|
$10,087
|
Short-term
investments
|
16,318
|
15
|
(6)
|
16,327
|
|
$26,405
|
$15
|
$(6)
|
$26,414
|
|
For the Year Ended December 31, 2018
|
|||
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair Value
|
Cash
|
$8,391
|
$—
|
$—
|
$8,391
|
Money
market fund
|
14,295
|
—
|
—
|
14,295
|
Certificates
of deposit
|
1,171
|
—
|
(1)
|
1,170
|
Commercial
paper
|
3,986
|
—
|
(1)
|
3,985
|
Corporate
notes and bonds
|
14,899
|
—
|
(66)
|
14,833
|
U.S.
government agency securities
|
6,976
|
—
|
(1)
|
6,975
|
|
$49,718
|
$—
|
$(69)
|
$49,649
|
Classified
as:
|
|
|
|
|
Cash
and cash equivalents
|
$25,182
|
$—
|
$—
|
$25,182
|
Short-term
investments
|
24,536
|
—
|
(69)
|
24,467
|
|
$49,718
|
$—
|
$(69)
|
$49,649
|
The
following table summarizes the estimated fair value of our
marketable securities classified by the stated maturity date of the
security (in thousands):
|
December 31,
|
|
|
2019
|
2018
|
Due
within one year
|
$12,754
|
$20,874
|
Due
within two years
|
3,573
|
3,593
|
|
$16,327
|
$24,467
|
We
determined that the gross unrealized losses on our security
investments as of December 31, 2019 are temporary in nature. The
fair value of our security investments at December 31, 2019 and
2018 reflects a net unrealized gain (loss) of $9,000 and $(69,000),
respectively. There was net realized gains of $2,000 and $0
on security investments in the years ended December 31, 2019 and
2018. The cost of securities sold is based on the specific
identification method.
42
The
following table sets forth the unrealized losses for the
Company’s security investments as of December 31, 2019 and
2018 (in thousands):
As of December 31, 2019
|
In Gain Position
Less Than 12 Months
|
In (Loss) Position
More Than 12 Months
|
Total in Gain Position
|
|||
Description
|
Fair Value
|
Unrealized Gain (Losses)
|
Fair Value
|
Unrealized (Losses)
|
Fair Value
|
Unrealized Gain (Losses)
|
Certificates
of deposit
|
$475
|
$—
|
$—
|
$—
|
$475
|
$—
|
Corporate
notes and bonds
|
10,120
|
15
|
4,714
|
(5)
|
14,834
|
10
|
U.S.
government agency securities
|
2,145
|
(1)
|
—
|
—
|
2,145
|
(1)
|
Total
|
$12,740
|
$14
|
$4,714
|
$(5)
|
$17,454
|
$9
|
As of December 31, 2018
|
In Loss Position
Less Than 12 Months
|
In Loss Position
More Than 12 Months
|
Total in Loss Position
|
|||
Description
|
Fair Value
|
Unrealized Losses
|
Fair Value
|
Unrealized Losses
|
Fair Value
|
Unrealized Losses
|
Certificates
of deposit
|
$1,171
|
$(1)
|
$—
|
$—
|
$1,171
|
$(1)
|
Corporate
notes and bonds
|
18,885
|
(67)
|
—
|
—
|
18,885
|
(67)
|
U.S.
government agency securities
|
6,976
|
(1)
|
—
|
—
|
6,976
|
(1)
|
Total
|
$27,032
|
$(69)
|
$—
|
$—
|
$27,032
|
$(69)
|
Property and Equipment
Property
and equipment are stated at cost, less accumulated depreciation and
amortization which is determined using the straight-line method
over the estimated useful lives of two to five years for computer
equipment and software, three years for furniture and fixtures, and
the shorter of the estimated useful lives or the lease term for
leasehold improvements. Repairs and maintenance costs are expensed
as they are incurred.
Long-Lived Assets
We
record purchased identifiable intangible assets at fair value as
part of a business combination. Useful life is estimated as
the period over which the identifiable intangible assets are
expected to contribute directly or indirectly to the future cash
flows of the Company. As we do not believe that we can
reliably determine a pattern by which the economic benefits of
these identifiable intangible assets will be consumed, management
adopted straight-line amortization. The original cost is amortized
on a straight-line basis over the estimated useful life of each
identifiable intangible asset.
The
Company assesses its long-lived assets, which includes property and
equipment and identifiable intangible assets, for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment
loss would be recognized when the sum of the future net cash flows
expected to result from the use of the asset and its eventual
disposition is less than its carrying amount. If our estimates
regarding future cash flows derived from such assets were to
change, we may record an impairment charge to the value of these
assets. Such impairment loss would be measured as the
difference between the carrying amount of the asset and its fair
value.
43
Revenue Recognition
On January 1, 2018, the Company adopted Financial
Accounting Standards Board ("FASB") Accounting Standards
Codification Topic 606, Revenue from Contracts with Customers
(“ASC 606"). As a result, the Company has changed its
accounting policy for revenue recognition and applied ASC 606 using
the modified retrospective method. Typically, this approach would
result in recognizing the cumulative effect of initially applying
ASC 606 as an adjustment to the opening retained earnings at
January 1, 2018, while prior period
amounts are not adjusted and continue to be reported in accordance
with the Company's historic revenue recognition methodology under
ASC 605, Revenue
Recognition.
Based on our assessment of the
guidance in ASC 606, the Company did not have a material change in
financial position, results of operations, or cash flows and
therefore there is no cumulative impact recorded to opening
retained earnings. However, we have included additional qualitative
and quantitative disclosures about our revenues as is required
under the new revenue standard.
Disaggregation of Revenue
We
generate revenue from the sale of services and sale of software for
end-user software products provided through direct customer
downloads and through the sale of these end-user software products
via partners. The following table depicts the disaggregation of
revenue (in thousands) according to revenue type and is consistent
with how we evaluate our financial performance:
Revenue from Contracts with Customers:
|
Twelve months ended December 31,
|
|
|
2019
|
2018
|
Services
|
$59,545
|
$64,476
|
Software
and other
|
3,788
|
5,073
|
Total
revenue
|
$63,333
|
$69,549
|
Under
Topic 606, revenue is recognized when control of the promised goods
or services is transferred to our customers, in an amount that
reflects the consideration we expect to be entitled to in exchange
for those goods or services.
We
determine revenue recognition through the following
steps:
●
identification
of the contract, or contracts, with a customer;
●
identification
of the performance obligations in the contract;
●
determination
of the transaction price;
●
allocation
of the transaction price to the performance obligations in the
contract; and
●
recognition
of revenue when, or as, we satisfy a performance
obligation.
Services Revenue
Services
revenue is comprised primarily of fees for technology support
services. Our service programs are designed for both the consumer
and SMB markets, and include computer and mobile device set-up,
security and support, virus and malware removal and wireless
network set-up, and automation system onboarding and
support.
44
We
offer technology services to consumers and SMBs, primarily through
our partners (which include communications providers, retailers,
technology companies and others) and to a lesser degree directly
through our website at www.support.com. We transact with customers
via reseller programs, referral programs and direct transactions.
In reseller programs, the partner generally executes the financial
transactions with the customer and pays a fee to us which we
recognize as revenue when the service is delivered. In referral
programs, we transact with the customer directly and pay a referral
fee to the referring party. Referral fees are generally expensed in
the period in which revenues are recognized. In such referral
programs, since we are the primary obligor and bear substantially
all risks associated with the transaction, we record the gross
amount of revenue. In direct transactions, we sell directly to the
customer at the retail price.
The
technology services described above include the following
offerings:
●
Hourly-Based
Services - In connection with the provisions of certain services
programs, fees are calculated based on contracted hourly rates with
partners. For these programs, we recognize revenue as services are
performed, based on billable hours of work delivered by our
technology specialists. These services programs also include
performance standards, which may result in incentives or penalties,
which are recognized as earned or incurred.
●
Subscriptions
- Customers purchase subscriptions or “service plans”
under which certain services are provided over a fixed subscription
period. Revenues for subscriptions are recognized ratably over the
respective subscription periods.
●
Incident-Based
Services - Customers purchase a discrete, one-time service. Revenue
recognition occurs at the time of service delivery. Fees paid for
services sold but not yet delivered are recorded as deferred
revenue and recognized at the time of service
delivery.
In
certain cases, we are paid for services that are sold but not yet
delivered. We initially record such balances as deferred revenue,
and recognize revenue when the service has been provided or, on the
non-subscription portion of these balances, when the likelihood of
the service being redeemed by the customer is remote
(“services breakage”). Based on our historical
redemption patterns for these relationships, we believe that the
likelihood of a service being delivered more than 90 days after
sale is remote. We therefore recognize non-subscription
deferred revenue balances older than 90 days as services revenue.
For the years ended December 31, 2019 and 2018, services breakage
revenue accounted for less than 1% of total services
revenue.
The following table represent deferred revenue activity for the
years ended December 31, 2019 and 2018 (in thousands):
Changes in
deferred revenues were as follows:
|
Year Ended December
31,
|
|
|
2019
|
2018
|
Balance, beginning of period
|
$1,135
|
$2,019
|
Deferred revenue
|
1,887
|
1,120
|
Recognition of unearned
revenue
|
(1,829)
|
(2,004)
|
Balance, end of period
|
$1,193
|
$1,135
|
Partners
are generally invoiced monthly. Fees from customers via referral
programs and direct transactions are generally paid with a credit
card at the time of sale. Revenue is recognized net of any
applicable sales tax.
We
generally provide a refund period on services, during which refunds
may be granted to customers under certain circumstances, including
inability to resolve certain support issues. For our partnerships,
the refund period varies by partner, but is generally between 5 and
14 days. For referral programs and direct transactions, the refund
period is generally 5 days. For all channels, we recognize revenue
net of refunds and cancellations during the period. Refunds and
cancellations have not been material.
45
Services
revenue also includes fees from licensing of our Support.com
cloud-based software. In such arrangements, customers receive
a right to use our Support.com Cloud in their own technology
support organizations. We license our cloud-based software using a
SaaS model under which customers cannot take possession of the
technology and pay us on a per-user basis during the term of the
arrangement. In addition, services revenue includes fees from
implementation services of our cloud-based software.
Currently, revenues from implementation services are recognized
ratably over the customer life which is estimated as the term of
the arrangement once the Support.com Cloud services are made
available to customers. We generally charge for these services on a
time and material basis. As of December 31, 2018 and 2019, revenues
from implementation services are di minimus.
Software and Other Revenue
Software
and other revenue is comprised primarily of fees for end-user
software products provided through direct customer downloads and
through the sale of these end-user software products via partners.
Our software is sold to customers as a perpetual license or as a
fixed period subscription. We offer when-and-if-available software
upgrades to our end-user products. Management has determined that
these upgrades are not distinct, as the upgrades are an input into
a combined output. In addition, Management has determined that the
frequency and timing of the when-and-if-available upgrades are
unpredictable and therefore we recognize revenue consistent with
the sale of the perpetual license or subscription. We generally
control fulfillment, pricing, product requirements, and collection
risk and therefore we record the gross amount of revenue. We
provide a 30-day money back guarantee for the majority of our
end-user software products.
For
certain end-user software products, we sell perpetual
licenses. We provide a limited amount of free technical
support to customers. Since the cost of providing this free
technical support is insignificant and free product enhancements
are minimal and infrequent, we do not defer the recognition of
revenue associated with sales of these products.
For
certain of our end-user software products (principally
SUPERAntiSpyware), we sell licenses for a fixed subscription
period. We provide regular, significant updates over the
subscription period and therefore recognize revenue for these
products ratably over the subscription period.
Other
revenue consists primarily of revenue generated through partners
advertising to our customer base in various forms, including
toolbar advertising, email marketing, and free trial offers. We
recognize other revenue in the period in which our partners notify
us that the revenue has been earned.
Engineering and IT
Engineering
and IT expenditures are charged to operations as they are
incurred.
Software Development Costs
Based
on our product development process, technological feasibility is
established on the completion of a working model. The Company
determined that technological feasibility is reached shortly before
the product is ready for general release and therefore development
costs incurred have been insignificant. Accordingly, we have
charged all such costs to engineering and IT expense in the period
in which they were incurred.
Purchased Technology for Internal Use
We
capitalize costs related to software that we license and
incorporate into our product and service offerings or develop for
internal use.
Advertising Costs
Advertising
costs are recorded as sales and marketing expense in the period in
which they are incurred. Advertising expense was $24,000 and
$18,000 for the years ended December 31, 2019 and 2018,
respectively.
46
Earnings (Loss) Per Share
Basic
earnings (loss) per share is computed using our net income (loss)
and the weighted average number of common shares outstanding during
the reporting period. Diluted earnings (loss) per share is computed
using our net income (loss) and the weighted average number of
common shares outstanding, including the effect of the potential
issuance of common stock such as stock issuable pursuant to the
exercise of stock options and warrants and vesting of RSUs using
the treasury stock method when dilutive.
For
the year ended December 31, 2019, diluted earnings per share was
computed using our net income and the weighted average number of
common shares outstanding, including the effect of the potential
issuance of common stock such as stock issuable pursuant to the
exercise of stock options and warrants and vesting of RSUs using
the treasury stock method. For the year ended December 31,
2018, we were in a loss position, therefore all shares were
anti-dilutive.”
The
following table sets forth the computation of basic and diluted net
earnings (loss) per share (in thousands, except per share
amounts):
|
Year Ended December 31,
|
|
|
2019
|
2018
|
Net
income (loss)
|
$3,846
|
$(9,100)
|
Basic:
|
|
|
Weighted-average
shares of common stock outstanding
|
18,977
|
18,826
|
Shares
used in computing basic net income (loss) per share
|
18,977
|
18,826
|
Basic
net income (loss) per share
|
$0.20
|
$(0.48)
|
Diluted:
|
|
|
Weighted-average
shares of common stock outstanding
|
18,977
|
18,826
|
Add:
Common equivalent shares outstanding
|
49
|
—
|
Shares
used in computing diluted net loss per share
|
19,026
|
18,826
|
Diluted
net income (loss) per share
|
$0.20
|
$(0.48)
|
Accumulated Other Comprehensive Loss
The
components of accumulated other comprehensive loss, which relate
entirely to accumulated foreign currency translation losses
associated with our foreign subsidiaries and unrealized losses on
investments, consisted of the following (in
thousands):
|
Foreign
Currency
Translation
Gain (Loss)
|
Unrealized
Gain
(Loss) on
Investments
|
Total
|
Balance
as of December 31, 2018
|
$(2,438)
|
$(69)
|
$(2,507)
|
Current-period
other comprehensive gain
|
49
|
78
|
127
|
Balance
as of December 31, 2019
|
$(2,389)
|
$9
|
$(2,380)
|
Realized
gains/losses on investments reclassified from accumulated other
comprehensive loss are reported as interest income and other, net
in our consolidated statements of operations.
The
amounts noted in the consolidated statements of comprehensive loss
are shown before taking into account the related income tax
impact. The income tax effect allocated to each component of
other comprehensive income for each of the periods presented is not
significant.
47
Stock-Based Compensation
We apply the provisions of ASC 718,
Compensation -
Stock Compensation, which
requires the measurement and recognition of compensation expense
for all stock-based payment awards, including grants of stock and
options to purchase stock, made to employees and directors based on
estimated fair values.
Determining Fair Value of Share-Based Payments
Valuation and Attribution Method: Stock-based
compensation expense for service-based stock options and employee
stock purchase plan (“ESPP”) is estimated at the date
of grant based on the fair value of awards using the
Black-Scholes-Merton
option pricing model. Stock-based
compensation expense for RSUs is estimated at the date of grant
based on the number of shares granted and the quoted price of the
Company’s common stock on the grant date. Stock options vest
on a graded schedule; however, we recognize the expense over the
requisite service period based on the straight-line method for
service-based stock options and the accelerated method for
market-based stock options, which is generally four years for stock
options, three years or four years for RSUs and six months for
ESPP, net of estimated forfeitures. These limitations require that
on any date the compensation cost recognized is at least equal to
the portion of the grant-date fair value of the award that is
vested at that date. The Company estimates pre-vesting forfeitures
at the time of grant by analyzing historical data and revises those
estimates in subsequent periods if actual forfeitures differ from
those estimates. The total expense recognized over the vesting
period will only be for those awards that ultimately
vest.
Risk-free
Interest Rate: We base our risk-free interest rate on the yield
currently available on U.S. Treasury zero coupon issues for the
expected term of the stock options.
Expected
Term: Our expected term represents the period that our stock
options are expected to be outstanding and is determined based on
historical experience of similar stock options considering the
contractual terms of the stock options, vesting schedules and
expectations of future employee behavior.
Expected
Volatility: Our expected volatility represents the amount by
which the stock price is expected to fluctuate throughout the
period that the stock option is outstanding. The expected
volatility is based on the historical volatility of the
Company’s stock.
Expected
Dividend: As a part of the board of directors’ ongoing
capital allocation review, on December 6, 2019 the board of
directors authorized and declared a special cash distribution of
$1.00 per share on each outstanding share of the Company’s
common stock. The record date for this distribution was December
17, 2019 and the payment date was December 26, 2019. Accordingly,
the Company paid $19.1 million to shareholders on December 26,
2019.
The
fair value of our stock-based awards was estimated using the
following weighted average assumptions for the years ended December
31, 2019 and 2018:
|
Stock Option Plan
|
Employee Stock Purchase Plan
|
||
|
2019
|
2018
|
2019
|
2018
|
Risk-free
interest rate
|
1.67%
|
2.43%
|
2.01%
|
2.31%
|
Expected
term (in years)
|
3.1
|
3.0
|
0.5
|
0.5
|
Volatility
|
35.6%
|
41.2%
|
42.4%
|
29.0%
|
Expected
dividend
|
0%
|
0%
|
0%
|
0%
|
Weighted
average grant-date fair value
|
$0.52
|
$0.84
|
$0.43
|
$0.67
|
48
We
recorded the following stock-based compensation expense for the
fiscal years ended December 31, 2019 and 2018 (in
thousands):
|
For the Year Ended December 31,
|
|
|
2019
|
2018
|
Stock-based compensation expense related to grants of:
|
|
|
Stock
options
|
$130
|
$395
|
ESPP
|
19
|
16
|
RSU
|
155
|
269
|
|
$304
|
$680
|
Stock-based compensation expense recognized in:
|
|
|
Cost
of service
|
$40
|
$63
|
Engineering
and IT
|
25
|
42
|
Sales
and marketing
|
38
|
54
|
General
and administrative
|
201
|
521
|
|
$304
|
$680
|
Cash
provided by (used in) from the payment of dividend, issuance of
common stock, net of repurchase of common stock, was $(19,006,000)
and $257,000 for the years ended December 31, 2019 and 2018,
respectively.
Income Taxes
Income
taxes are accounted for under the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases, and operating
losses and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be
reversed or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the
consolidated statements of operations in the period that includes
the enactment date. A valuation allowance is recorded to reduce the
carrying amounts of deferred tax assets, if it is more likely than
not, that such assets will not be realized. The Company’s
deferred tax asset and related valuation allowance decreased by
$438K to $46 million. As the deferred tax asset is fully allowed
for, this change had no impact on the Company’s financial
position or results of operations.
Warranties and Indemnifications
We
generally provide a refund period on sales, during which refunds
may be granted to consumers under certain circumstances, including
our inability to resolve certain support issues. For our
partnerships, the refund period varies by partner, but is generally
between 5-14 days. For referral programs and direct transactions,
the refund period is generally 5 days. For the majority of our
end-user software products, we provide a 30-day money back
guarantee. For all channels, we recognize revenue net of
refunds and cancellations during the period. Refunds and
cancellations have not been material to date.
We
generally agree to indemnify our customers against legal claims
that our end-user software products infringe certain third-party
intellectual property rights. As of December 31, 2019 and 2018, we
were not required to make any payment resulting from infringement
claims asserted against our customers and have not recorded any
related accruals.
Fair Value Measurements
ASC 820, Fair Value Measurements and
Disclosures, defines fair
value, establishes a framework for measuring fair value under
generally accepted accounting principles and enhances disclosures
about fair value measurements. Fair value is defined under ASC 820
as the exchange price that would be received for an asset or paid
to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date.
Valuation techniques used to measure fair value ASC 820 must
maximize the use of observable inputs and minimize the use of
unobservable inputs. The standard describes a fair value hierarchy
based on three levels of inputs, of which the first two are
considered observable and the last unobservable, that may be used
to measure fair value, which are the following:
49
●
Level
1 - Quoted prices in active markets for identical assets or
liabilities.
●
Level
2 - Inputs other than Level 1 that are observable, either directly
or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities.
●
Level
3 - Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities.
The
following table represents our fair value hierarchy for our
financial assets (cash equivalents and investments) measured at
fair value on a recurring basis as of December 31, 2019 and 2018
(in thousands):
As of December 31, 2019
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Money
market funds
|
$1,137
|
$—
|
$—
|
$1,137
|
Certificates
of deposit
|
—
|
475
|
—
|
475
|
Commercial
paper
|
—
|
6,911
|
—
|
6,911
|
Corporate
notes and bonds
|
—
|
7,933
|
—
|
7,933
|
U.S.
government agency securities
|
—
|
2,144
|
—
|
2,144
|
Total
|
$1,137
|
$17,463
|
$—
|
$18,600
|
As of December 31, 2018
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Money
market funds
|
$14,295
|
$—
|
$—
|
$14,295
|
Certificates
of deposit
|
—
|
1,170
|
—
|
1,170
|
Commercial
paper
|
—
|
3,985
|
—
|
3,985
|
Corporate
notes and bonds
|
—
|
14,833
|
—
|
14,833
|
U.S.
government agency securities
|
—
|
6,975
|
—
|
6,975
|
Total
|
$14,295
|
$26,963
|
$—
|
$41,258
|
For
short-term investments, measured at fair value using Level 2
inputs, we review trading activity and pricing for these
investments as of the measurement date. When sufficient quoted
pricing for identical securities is not available, we use market
pricing and other observable market inputs for similar securities
obtained from various third-party data providers. These
inputs either represent quoted prices for similar assets in active
markets or have been derived from observable market data. Our
policy is that the end of our quarterly reporting period determines
when transfers of financial instruments between levels are
recognized. No transfers were made between level 1, level 2 and
level 3 for the years ended December 31, 2019 and
2018.
Segment Information
The
Company reports its operations as a single operating segment and
has a single reporting unit. Our Chief Operating Decision Maker
(“CODM”), our Chief Executive Officer, manages our
operations on a consolidated basis for purposes of allocating
resources. When evaluating performance and allocating resources,
the CODM reviews financial information presented on a consolidated
basis.
Revenue
from customers located outside the United States was less than 1%
of total for the years ended December 31, 2019 and
2018.
For
the year ended December 31, 2019, Comcast and Cox Communications
accounted for approximately 63% and 25%, respectively, of our total
revenue. For the year ended December 31, 2018, Comcast and Cox
Communications accounted for approximately 69% and 15%,
respectively, of our total revenue. There were no other customers
that accounted for 10% or more of our total revenue in any of the
periods presented.
50
Long-lived
assets are attributed to the geographic location in which they are
located. We include in long-lived assets all tangible
assets. Long-lived assets by geographic areas are as follows
(in thousands):
|
December 31,
|
|
|
2019
|
2018
|
United
States
|
$532
|
$702
|
Philippines
|
1
|
1
|
Total
|
$533
|
$703
|
Recent Accounting Pronouncements
Recent Accounting Standards Adopted in the Current
Period
Lease Accounting
In
February 2016, the FASB issued ASU 2016-02, Leases (“ASU
2016-02”). This new standard establishes a right-of-use (ROU)
model that requires a lessee to record a ROU asset and a lease
liability on the balance sheet for all leases with terms longer
than 12 months. Leases will be classified as either finance or
operating, with classification affecting the pattern of expense
recognition in the income statement. ASU 2016-02 is effective for
fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. Early adoption is permitted. In
July 2018, the FASB issued ASU No. 2018-11 which provides an
alternative transition method that allows entities to apply the new
leases standard at the adoption date and recognize a
cumulative-effect adjustment to the opening balance of retained
earnings in the period of adoption. The Company has adopted the
requirements of ASU 2016-02 on January 1, 2019 using the option
transition method. The Company took advantage of the practical
expedient options, which allows an entity not to reassess whether
any existing or expired contracts contain leases. As of December
31, 2019, there was an increase in assets of $68,000 and
liabilities of $68,000 since the adoption of the standard due to
the recognition of the required right-of-use asset and
corresponding liability for all lease obligations that are
currently classified as operating leases with a minimal difference
related to existing deferred rent that reduced the ROU asset
recorded. The standard did not have an impact in our consolidated
income statements.
For information regarding the impact of Topic 842
adoption, see Significant Accounting
Policies - Leases and Note
8— Leases.
Fixed Assets
In August 2018,
the FASB issued Accounting Standard Update No. 2018-15, Customer’s Accounting
for Implementation Costs Incurred in a Cloud Computing Arrangement
That Is a Service Contract simplifies the Process for Accounting for Cloud
Computing Expenses. The guidance states that
implementation costs should be amortized over the term of the
associated cloud computing arrangement service on a straight-line
basis. In addition, it states that the usage rate (number of
transactions, users, data throughput) should not be used as a basis
for amortization. This guidance will be effective
after December 15, 2019, and early adoption is
permitted. The Company adopted the guidance as of December 31,
2019. As of December 31, 2019,
the Company capitalized $74,000 of cloud implementation costs as
part of software in Property and Equipment in the consolidated
balance sheets and is amortizing it over 3 years on a straight-line
basis.
New Accounting Standards to be adopted in Future
Periods
Financial Instruments
In
January 2016, the FASB issued ASU No. 2016-01, Financial Instruments -
Recognition and Measurement of Financial Assets and Financial
Liabilities (Topic 825). ASU No. 2016-01 revises the classification and
measurement of investments in certain equity investments and the
presentation of certain fair value changes for certain financial
liabilities measured at fair value. ASU No. 2016-01 requires the
change in fair value of many equity investments to be recognized in
net income. The Company adopted ASU 2016-01 in its first quarter of
2020 utilizing the modified retrospective transition method. Based
on the composition of the Company’s investment portfolio, the
adoption of ASU 2016-01 did not have a material impact on its
consolidated financial statements.
51
In August 2018, the FASB issued Accounting
Standard Update No. 2018-13, Changes to Disclosure
Requirements for Fair Value Measurements (Topic
820) (ASU 2018-13), which
improved the effectiveness of disclosure requirements for recurring
and nonrecurring fair value measurements. The standard removes,
modifies, and adds certain disclosure requirements. We will adopt
the new standard effective January 1, 2020 and do not expect the
adoption of this guidance to have a material impact on its
consolidated financial statements.
Intangible Assets
In January 2017, the FASB issued Accounting
Standards Update No. 2017-04, Intangibles—Goodwill and Other (Topic
350): Simplifying the Test for Goodwill
Impairment (ASU 2017-04),
which eliminates step two from the goodwill impairment test. Under
ASU 2017-04, an entity should recognize an impairment charge for
the amount by which the carrying amount of a reporting unit exceeds
its fair value up to the amount of goodwill allocated to that
reporting unit. This guidance will be effective for us in the first
quarter of 2020 on a prospective basis, and early adoption is
permitted. We do not expect the standard to have a material impact
on our consolidated financial statements.
Income Taxes
In December 2019, the
FASB issued Accounting Standard Update No.
2019-12, Income
Taxes (Topic
740): Simplifying
the Accounting for Income Taxes (ASU 2019-12),
which simplifies the accounting for income taxes. This guidance
will be effective for us in the first quarter of 2021 on a
prospective basis, and early adoption is permitted. We are
currently evaluating the impact of the new guidance on our
consolidated financial statements.
Note 2. Property and Equipment
Property
and equipment are stated at cost, less accumulated depreciation,
and consist of the following as of December 31, 2019 and 2018 (in
thousands):
|
December 31,
|
|
|
2019
|
2018
|
Computer
equipment and software
|
$7,233
|
$7,143
|
Furniture
and office equipment
|
142
|
142
|
Leasehold
improvements
|
348
|
348
|
Construction
in progress
|
32
|
—
|
|
7,755
|
7,633
|
Accumulated
depreciation
|
(7,222)
|
(6,930)
|
|
$533
|
$703
|
Depreciation
expense was $294,000 and $638,000 for the years ended December 31,
2019 and 2018, respectively.
Note 3. Intangible Assets
Amortization
expense related to intangible assets was $0 for the years ended
December 31, 2019 and 2018, respectively.
In
December 2006, we acquired the use of a toll-free telephone number
for cash consideration of $250,000. This asset has an indefinite
useful life. The intangible asset is tested for impairment annually
or more often if events or changes in circumstances indicate that
the carrying value may not be recoverable.
As
of December 31, 2019, all intangible assets have been fully
amortized with the exception of the indefinite-life
intangibles.
52
Note 4. Commitments and Contingencies
Lease commitments
Sunnyvale office lease.
On March 23, 2018, we entered into a
two-year lease agreement with an effective date of April 1, 2018
for our Sunnyvale facility, covering approximately 6,283 square
feet with the monthly rent of $14,000. The lease is scheduled
to expire on March 31, 2020.
Other facility leases.
We lease our facilities under
non-cancelable operating lease agreements, which expire at various
dates through December 2020.
Total
facility rent expense pursuant to all operating lease agreements
was $512,000 and $401,000 for the years ended December 31, 2019 and
2018, respectively.
As
of December 31, 2019, minimum payments due under all non-cancelable
lease agreements were as follows (in thousands):
Years ending December 31,
|
Operating Leases
|
2020
|
$274
|
2021
|
107
|
Total
minimum lease and principal payments
|
$381
|
Legal contingencies
Federal Trade Commission
Consent Order. As previously
disclosed, on December 20, 2016 the Federal Trade Commission
(“FTC”) issued a confidential Civil Investigative
Demand, or CID, to the Company requiring the Company to produce
certain documents and materials and to answer certain
interrogatories relating to PC Healthcheck, an obsolete software
program that the Company developed on behalf of a third party for
their use with their customers. The investigation relates to the
Company providing software like PC Healthcheck to third parties for
their use prior to December 31, 2016, when the Company was under
management of the previous Board and executive team. Since issuing
the CID, the FTC has sought additional written and testimonial
evidence from the Company. We have cooperated fully with the
FTC’s investigation and provided all requested information.
In addition, the Company has not used PC Healthcheck nor provided
it to any customers since December 2016.
On March 9, 2018, the FTC notified the Company that the FTC was
willing to engage in settlement discussions. On November 6,
2018, the Company and the FTC entered into a proposed Stipulation
to Entry of Order for Permanent Injunction and Monetary Judgment,
or the Consent Order. The Consent Order was approved by the
Commission on March 26, 2019 and entered by the U.S. District
Court for the Southern District of Florida on March 29, 2019. Entry
of the Consent Order by the Court has finally resolved the
FTC’s multi-year investigation of the Company.
Pursuant to the Consent Order, under which the Company neither
admitted nor denied the FTC’s allegations (except as to the
Court having jurisdiction over the matter), the FTC has agreed to
accept a payment of $10 million in settlement of the $35 million
judgement, subject to the factual accuracy of the information the
Company has provided as part of our financial representations. The
$10 million payment was made on April 1, 2019 and has been
recognized in operating expenses within the Company’s
consolidated statements of operations for the year ended December
31, 2018.
Additionally, pursuant to the Consent Order, the Company has agreed
to implement certain new procedures and enhance certain existing
procedures. For example, the Consent Order necessitates that the
Company cooperate with representatives of the Commission on
associated investigations if needed; imposes requirements on the
Company regarding obtaining acknowledgements of the Consent Order
and compliance certification, including record creation and
maintenance; and prohibits the Company from making
misrepresentations and misleading claims or providing the means for
others to make such claims regarding, among other things, detection
of security or performance issues on consumer’s Electronic
Devices. Electronic Devices include, but are not limited to, cell
phones, tablets and computers. The Company intends to monitor the
impact of the Consent Order regularly and, while the Company
currently does not expect the settlement to have a long-term and
materially adverse impact on its business, the Company’s
business may be negatively impacted as the Company adjusts to some
of the changes. If the Company is unable to comply with the Consent
Order, then this could result in a material and adverse impact to
the Company’s results of operations and financial
condition.
53
Other
Matters. The
Company has received and may in the future receive additional
requests for information, including subpoenas, from other
governmental agencies relating to the subject matter of the Consent
Order and the Civil Investigative Demands described above. The
Company intends to cooperate with these information requests and is
not aware of any other legal proceedings against the Company by
governmental authorities at this time.
We
are also subject to other routine legal proceedings, as well as
demands, claims and threatened litigation, that arise in the normal
course of our business, potentially including assertions that we
may be infringing patents or other intellectual property rights of
others. We currently do not believe that the ultimate amount of
liability, if any, for any pending claims of any type (alone or
combined) will materially affect our financial position, results of
operations or cash flows. The ultimate outcome of any litigation is
uncertain; however, any unfavorable outcomes could have a material
negative impact on our financial condition and operating results.
Regardless of outcome, litigation can have an adverse impact on us
because of defense costs, negative publicity, diversion of
management resources and other factors.
Guarantees
We have identified guarantees in accordance with
ASC 450, Contingencies.
This guidance stipulates that an entity must recognize an initial
liability for the fair value, or market value, of the obligation it
assumes under the guarantee at the time it issues such a guarantee,
and must disclose that information in its interim and annual
financial statements. We have entered into various service level
agreements with our partners, in which we may guarantee the
maintenance of certain service level thresholds. Under some
circumstances, if we do not meet these thresholds, we may be liable
for certain financial costs. We evaluate costs for such guarantees
under the provisions of ASC 450. We consider such factors as the
degree of probability that we would be required to satisfy the
liability associated with the guarantee and the ability to make a
reasonable estimate of the resulting cost. We incurred zero costs
as a result of such obligations during the years ended December 31,
2019 and 2018, respectively. We have not accrued any liabilities
related to such obligations in the consolidated financial
statements as of December 31, 2019 and 2018.
Note 5. Other Accrued and Other Long-Term Liabilities
Other
accrued liabilities consist of the following (in
thousands):
|
As of December 31,
|
|
|
2019
|
2018
|
Accrued
expenses
|
$443
|
$338
|
Self-insurance
accruals
|
404
|
585
|
Lease
liabilities
|
68
|
-
|
Other
accrued liabilities
|
86
|
55
|
Total
other accrued liabilities
|
$1,001
|
$978
|
Other
long-term liabilities consist of the following (in
thousands):
|
As of December 31,
|
|
|
2019
|
2018
|
Long-term
income tax payable
|
$783
|
$545
|
FIN48
long-term income tax payable
|
-
|
253
|
Other
long-term liabilities
|
9
|
2
|
Total
other long-term liabilities
|
$792
|
$800
|
54
Note 6. Stockholders’ Equity
Equity Compensation Plan
We
adopted the amended and restated 2010 Equity and Performance
Incentive Plan (the “2010 Plan”), effective as of May
19, 2010. Under the 2010 Plan, the number of shares of Common
Stock that may be issued will not exceed in the aggregate 1,666,666
shares of Common Stock plus the number of shares of Common Stock
relating to prior awards under the 2000 Omnibus Equity Incentive
Plan that expire, are forfeited or are cancelled after the adoption
of the 2010 Plan, subject to adjustment as provided in the 2010
Plan. Pursuant to an approval from the Company’s
shareholders, the number of shares of Common Stock that may be
issued under the 2010 Plan was increased by 750,000 shares of
Common Stock in May 2013 and 333,333 shares in June 2016. No
grants will be made under the 2010 Plan after the tenth anniversary
of its effective date. Under our 2010 Plan, as of December
31, 2019, there were approximately 1.8 million shares available for
grant.
We
adopted the 2014 Inducement Award Plan (the “Inducement
Plan”), effective as of May 13, 2014. Under the
Inducement Plan, the number of shares of Common Stock that may be
issued will not exceed in the aggregate 666,666 shares of Common
Stock. Under our Inducement Plan, as of December 31, 2019,
there were approximately 366,000 shares available for
grant.
Stock Options
The
following tables represent stock option activity for the years
ended December 31, 2019 and 2018:
|
Number of
Shares
|
Weighted
Average
Exercise Price
per Share
|
Weighted
Average
Remaining
Contractual
Term (in years)
|
Aggregate
Intrinsic Value
(in thousands)
|
Outstanding
options at December 31, 2017
|
732,190
|
$3.72
|
8.17
|
$56
|
Granted
|
330,000
|
$2.75
|
|
|
Exercised
|
(75,022)
|
$2.46
|
|
|
Forfeited
|
(183,848)
|
$6.14
|
|
|
Outstanding
options at December 31, 2018
|
803,320
|
$2.89
|
8.43
|
$54
|
Granted
|
90,000
|
$0.94
|
|
|
Exercised
|
-
|
$-
|
|
|
Forfeited
|
(77,135)
|
$1.97
|
|
|
Outstanding
options at December 31, 2019
|
816,185
|
$1.77
|
7.49
|
$16
|
Options
vested and expected to vest
|
816,185
|
$1.77
|
7.49
|
$16
|
Exercisable
at December 31, 2019
|
698,879
|
$1.88
|
7.34
|
$7
|
A
summary of additional information related to the options
outstanding as of December 31, 2018 under the 2010 and 2014 Plans
are as follows:
Option Plans Range of Exercise Prices
|
Number of Outstanding Options
|
Weighted Average Remaining Contractual Life
|
Weighted Average Exercise Price
|
|
|
|
|
$0.56 - $1.14
|
90,000
|
9.41
|
$0.94
|
$1.29-$1.29
|
271,234
|
7.17
|
$1.29
|
$1.51-$1.56
|
90,232
|
5.27
|
$1.52
|
$1.74-$1.74
|
300,000
|
8.15
|
$1.74
|
$1.88-$12.44
|
56,723
|
6.57
|
$3.96
|
$12.50-$16.67
|
7,996
|
3.61
|
$15.88
|
|
816,185
|
|
|
55
The aggregate intrinsic value in the table above
represents the total pre-tax intrinsic value that would have been
received by the option holders had they all exercised their options
on December 31, 2019 and 2018. This amount will change based on the
fair market value of our stock. The total aggregate intrinsic value
of options exercised under our stock option plans was $0 and
$27,000 for the years ended December 31, 2019 and 2018,
respectively. The total fair value of options vested during 2019
and 2018 was $53,000 and $22,000, respectively.
At
December 31, 2019, there was $0 of unrecognized compensation cost
related to stock options which is expected to be recognized over a
weighted average period of 0.7 years.
Employee Stock Purchase Plan
In
the second quarter of 2011, to advance the interests of the Company
and its stockholders by providing an incentive to attract, retain
and reward eligible employees and by motivating such persons to
contribute to the growth and profitability of the Company, the
Company’s Board of Directors and stockholders approved a new
Employee Stock Purchase Plan and reserved 1,000,000 shares of our
common stock for issuance effective as of May 15, 2011. The ESPP
continues in effect for ten (10) years from its effective date
unless terminated earlier by the Company. The ESPP consists of
six-month offering periods during which employees may enroll in the
plan. The purchase price on each purchase date shall not
be less than eighty-five percent (85%) of the lesser of (a) the
fair market value of a share of stock on the offering date of the
offering period, or (b) the fair market value of a share of stock
on the purchase date.
A
total of 25,866 shares and 28,018 shares were issued under the ESPP
during the years ended December 31, 2019 and 2018,
respectively.
As
of December 31, 2019, approximately 104,071 shares remain available
for grant under the ESPP.
Restricted Stock Units
The
following table represents RSU activity for the years ended
December 31, 2019 and 2018:
|
Number of Shares
|
Weighted Average Grant-Date Fair Value per Share
|
Weighted Average Remaining Contractual Term
(in years)
|
Aggregate Intrinsic Value (in thousands)
|
Outstanding
RSUs at December 31, 2017
|
136,329
|
$2.80
|
0.80
|
$329
|
Awarded
|
90,905
|
$2.75
|
|
|
Released
|
(119,943)
|
$2.79
|
|
|
Forfeited
|
(11,061)
|
$2.67
|
|
|
Outstanding
RSUs at December 31, 2018
|
96,230
|
$2.78
|
0.60
|
$227
|
Awarded
|
243,348
|
$1.39
|
|
|
Released
|
(72,724)
|
$2.06
|
|
|
Forfeited
|
(18,305)
|
$2.75
|
|
|
Outstanding RSUs at December 31, 2019
|
248,549
|
$1.62
|
0.60
|
$227
|
At
December 31, 2018, there was $112,000 of unrecognized compensation
cost related to RSUs which is expected to be recognized over a
weighted average period of 0.6 years.
Cash Dividend
As
a part of the board of directors’ ongoing capital allocation
review, on December 6, 2019 the board of directors authorized and
declared a special cash distribution of $1.00 per share on each
outstanding share of the Company’s common stock. The record
date for this distribution was December 17, 2019 and the payment
date was December 26, 2019. Accordingly, the Company paid $19.1
million to shareholders on December 26, 2019.
In
connection with the special cash distribution of $1.00 per share,
the exercise price on all outstanding options as of December 27,
2019 was reduced by $1.00 as permitted under the 2010 and 2014
Plans which includes an antidilution feature designed to equalize
the fair value of options as a result of a transaction such as this
special distribution. This adjustment did not affect the fair
value, vesting conditions or classification of the outstanding
options.
56
Stock Program
On
April 27, 2005, our Board of Directors authorized the repurchase of
up to 666,666 outstanding shares of our common stock. As of
December 31, 2018, the maximum number of shares remaining that can
be repurchased under this program was 602,467. The Company
does not intend to repurchase shares without a pre-approval from
its Board of Directors.
Stockholder Rights Agreement and Tax Benefits Preservation
Plan
Our
Board adopted the Section 382 Tax Benefits Preservation Plan in an
effort to diminish the risk that the Company’s ability to
utilize its net operating loss carryovers (collectively, the
“NOLs”) to reduce potential future federal income tax
obligations may become substantially limited. Under the Internal
Revenue Code of 1986, as amended (the “Code”), and the
regulations promulgated thereunder by the U.S. Treasury Department,
these NOLs may be “carried forward” in certain
circumstances to offset any current and future taxable income and
thus reduce federal income tax liability, subject to certain
requirements and restrictions. However, if the Company experiences
an “ownership change,” within the meaning of Section
382 of the Code (“Section 382”), its ability to utilize
the NOLs may be substantially limited, and the timing of the usage
of the NOLs could be substantially delayed, which could therefore
significantly impair the value of those assets. Section 382 and the
Treasury regulations thereunder make the Company’s commercial
risk from a Section 382 limitation triggering event particularly
acute given the relative size of its current cash on hand to its
market capitalization. As applied to the Company’s current
cash position and current market capitalization, if the Company was
to currently experience an ownership change, it would be subject to
Section 382’s “non-business asset” limitation
which would result in the Company permanently losing all $151.1
million of its NOLs.
The
Section 382 Tax Benefits Preservation Plan is intended to act as a
deterrent to any person or group acquiring beneficial ownership of
4.99% or more of the outstanding Common Stock without the approval
of the Board (such person, an “Acquiring Person”). A
person who acquires, without the approval of the Board, beneficial
ownership (other than as a result of repurchases of stock by the
Company, dividends or distributions by the Company or certain
inadvertent actions by stockholders) of 4.99% or more of the
outstanding Common Stock (including any ownership interest held by
that person's Affiliates and Associates as defined under the
Section 382 Tax Benefits Preservation Plan) could be subject to
significant dilution. Stockholders who beneficially own 4.99%
or more of the outstanding Common Stock prior to the first public
announcement by the Company of the Board’s adoption of the
Section 382 Tax Benefits Preservation Plan will not trigger the
Section 382 Tax Benefits Preservation Plan so long as they do not
acquire beneficial ownership of additional shares of the Common
Stock (other than pursuant to a dividend or distribution paid or
made by the Company on the outstanding shares of Common Stock or
pursuant to a split or subdivision of the outstanding shares of
Common Stock) at a time when they still beneficially own 4.99% or
more of such stock. In addition, the Board retains the sole
discretion to exempt any person or group from the penalties imposed
by the Section 382 Tax Benefits Preservation Plan.
In
the event that a person becomes an Acquiring Person, each holder of
a Right, other than Rights that are or, under certain
circumstances, were beneficially owned by the Acquiring Person
(which will thereupon become void), will thereafter have the right
to receive upon exercise of a Right and payment of the Purchase
Price, and subject to the terms, provisions and conditions of the
Section 382 Tax Benefits Preservation Plan, a number of shares of
the Common Stock having a market value of two times the Purchase
Price.
57
Note 7. Income Taxes
The
components of our income (loss) before income taxes are as follows
(in thousands):
|
Year Ended December 31,
|
|
|
2019
|
2018
|
United
States
|
$3,634
|
$(9,458)
|
Foreign
|
366
|
357
|
Total
|
$4,000
|
$(9,101)
|
The
provision (benefit) for income taxes from continuing operations
consisted of the following (in thousands):
|
Year Ended December 31,
|
|
Current:
|
2019
|
2018
|
Federal
|
$—
|
$—
|
State
|
16
|
8
|
Foreign
|
118
|
(38)
|
Total
Current
|
$134
|
$(30)
|
Deferred
|
|
|
Federal
|
$—
|
$—
|
State
|
—
|
—
|
Foreign
|
20
|
29
|
Total
Deferred
|
$20
|
$29
|
Provision
(benefit) for income taxes
|
$154
|
$(1)
|
The
reconciliation of the Federal statutory income tax rate to our
effective income tax rate is as follows (in
thousands):
|
Year Ended December 31,
|
|
|
2019
|
2018
|
Provision
at Federal statutory rate
|
$835
|
$(1,911)
|
State
taxes
|
16
|
8
|
Permanent
differences/other
|
(13)
|
65
|
Stock-based
compensation
|
23
|
81
|
Federal
valuation allowance (used) provided
|
(707)
|
1,756
|
Provision
(benefit) for income taxes
|
$154
|
$(1)
|
Deferred
income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of our deferred tax assets
and liabilities are as follows (in thousands):
|
December
31,
|
|
|
2019
|
2018
|
Deferred
Tax Assets
|
|
|
Fixed
assets
|
$78
|
$66
|
Accruals
and reserves
|
92
|
2,673
|
Stock
options
|
197
|
179
|
Net
operating loss carryforwards
|
38,335
|
35,522
|
Federal
and state credits
|
3,461
|
3,461
|
Foreign
credits
|
159
|
152
|
Intangible
assets
|
1,789
|
2,139
|
Research
and development expense
|
1,858
|
2,224
|
Gross
deferred tax assets
|
45,969
|
46,416
|
Valuation
allowance
|
(45,846)
|
(46,283)
|
Total
deferred tax assets
|
123
|
133
|
Deferred
Tax Liabilities (1)
|
(551)
|
(543)
|
Net
deferred liabilities
|
$(428)
|
$(410)
|
(1)
Of this amount,
$534,000 relates to the Indian subsidiaries unremitted earnings
deferred tax liability.
58
ASC 740, Income
Taxes, provides for the
recognition of deferred tax assets if realization of such assets is
more likely than not to occur. Based on management’s review
of both the positive and negative evidence, which includes our
historical operating performance, reported cumulative net losses
since inception and difficulty in accurately forecasting its
results, the Company has concluded that it is not more likely than
not that the Company will be able to realize all the
Company’s U.S. deferred tax assets. Therefore, the
Company has provided a full valuation allowance against its U.S.
deferred tax assets.
Based
on management’s review of both positive and negative
evidence, which includes the historical operating performance of
our Canadian subsidiary, the Company has concluded that it is more
likely than not that the Company will be able to realize a portion
of the Company’s Canadian deferred tax assets.
Therefore, the Company has a partial valuation allowance on
Canadian deferred tax assets. There is no valuation allowance
against the Company’s Indian deferred tax assets. The
Company reassesses the need for its valuation allowance on a
quarterly basis.
Based
on management’s review discussed above, the realization of
deferred tax assets is dependent on improvements over present
levels of pre-tax income. Until the Company is consistently
profitable in the U.S., it will not realize its deferred tax
assets.
Due
to the complexities involved in accounting for the recently enacted
Tax Act, the U.S. Securities and Exchange Commission’s Staff
Accounting Bulletin (“SAB”) 118 requires that the
Company include in its financial statements a reasonable estimate
of the impact of the Tax Act on earnings to the extent such
estimate has been determined. Pursuant to the SAB 118, the
Company is allowed a measurement period of up to one year after the
enactment date of the Tax Act to finalize the recording of the
related tax impacts. December 22, 2018 marked the end of the
measurement period for purposes of SAB 118. As such, the Company
has completed the analysis relating to the Act which resulted in no
additional SAB 118 tax effect in the fourth quarter of 2018 for the
year ended December 31, 2018.
Beginning in 2018, the Tax Act
provides a 100% deduction for dividends received from 10-percent
owned foreign corporations by U.S. corporate shareholders, subject
to a one-year holding period. Although dividend income is now
exempt from U.S. federal tax in the hands of the U.S. corporate
shareholders, companies must still apply the guidance of ASC
740-30-25-18 to account for the tax consequences of outside basis
differences and other tax impacts of their investments in non-U.S.
subsidiaries. Deferred income taxes have not been provided on the
cumulative undistributed earnings of foreign subsidiaries except
for a change in assertion at December 31, 2017 for
Support.com
India Private Ltd.
The amount of cumulative undistributed Indian subsidiary’s
earnings at December 31, 2017 for which the Company is changing its
assertion under ASC 740-30-25 was $2.67 million. Under the Tax Cuts
and Jobs Act of 2017, all foreign subsidiaries’ accumulated
earnings through December 31, 2019 has been included in U.S.
taxable income. As such, the only tax related to the Indian
subsidiary remittance would be a dividend distribution tax of
$534,000 as of December 31, 2019.
The
net valuation allowance decreased and increased by approximately
$0.4 million and $2.1 million during the years ended December 31,
2019 and 2018, respectively. As of December 31, 2019, the Company
had Federal and state net operating loss carryforwards of
approximately $151.1 million and $91.2 million, respectively. The
Federal net operating loss and credit carryforwards will expire at
various dates beginning in 2020 through 2039, if not utilized. The
state net operating loss carryforwards will expire at various dates
beginning in 2020 through 2039, if not utilized.
The
Company also had Federal and state research and development credit
carryforwards of approximately $2.8 million and $2.4 million,
respectively. The federal credits expire in varying amounts between
2020 and 2031. The state research and development credit
carryforwards do not have an expiration date.
Utilization
of net operating loss carryforwards and credits may be subject to
substantial annual limitation or could be lost due to the ownership
change limitations provided by the Internal Revenue Code of 1986,
as amended and similar state provisions. The annual limitation may
result in the expiration of net operating losses and credits before
utilization.
59
ASC
740-10 clarifies the accounting for uncertainties in income taxes
by prescribing guidance for the recognition, de-recognition and
measurement in financial statements of income tax positions taken
in previously filed tax returns or tax positions expected to be
taken in tax returns, including a decision whether to file or not
to file in a particular jurisdiction. ASC 740-10 requires the
disclosure of any liability created for unrecognized tax
benefits. The application of ASC 740-10 may also affect the
tax bases of assets and liabilities and therefore may change or
create deferred tax liabilities or assets.
A
reconciliation of the beginning and ending amount of unrecognized
tax benefits is as follows (in thousands):
|
Year Ended December 31,
|
|
|
2019
|
2018
|
Balance
at beginning of year
|
$2,117
|
$2,229
|
Increase
related to prior year tax positions
|
4
|
—
|
Decrease
related to prior year tax positions
|
—
|
(20)
|
Settlements
with tax authorities
|
—
|
(92)
|
Balance
at end of year
|
$2,121
|
$2,117
|
The
Company’s total amounts of unrecognized tax benefits that, if
recognized, that would affect its tax rate are $0.1 million and
$0.1 million as of December 31, 2019 and 2018,
respectively.
The
Company’s policy is to include interest and penalties related
to unrecognized tax benefits within its provision for (benefit
from) income taxes. The Company had $113,000 accrued for payment of
interest and penalties related to unrecognized tax benefits as of
December 31, 2019. The Company had $110,000 accrued for
payment of interest and penalties related to unrecognized tax
benefit as of December 31, 2018.
As
of December 31, 2019, it is reasonably possible that the
balance of unrecognized tax benefits could significantly change
within the next twelve months. However, an estimate of the range of
reasonably possible adjustments cannot be made at this
time.
The
Company files federal, state and foreign income tax returns in
jurisdictions with varying statutes of limitations. Due to its net
operating loss carryforwards, the Company’s income tax
returns generally remain subject to examination by federal and most
state authorities. In our foreign jurisdictions, the 2009 through
2018 tax years remain subject to examination by their respective
tax authorities.
We
are required to make periodic filings in the jurisdictions where we
are deemed to have a presence for tax purposes. We have undergone
audits in the past and have paid assessments arising from these
audits. Our India entity was issued notices of income tax
assessment pertaining to the 2004-2009 fiscal years. The
notices claimed that the transfer price used in our inter-company
agreements resulted in understated income in our Indian entity.
During the fourth quarter of 2014, the Company re-evaluated the
probability of its tax position and recorded an ASC 740-10 reserve
related to India transfer pricing. As of December 31, 2019, the ASC
740-10 reserve for India transfer pricing totals $250,000.
The Company’s tax position related to India has not changed
in 2019 aside from an additional $3,000 increase to the reserve
representing accrued interest.
We may be subject to other income tax assessments
in the future. We evaluate estimated expenses that could
arise from those assessments in accordance with ASC
740-10. We consider such factors as the degree of
probability of an unfavorable outcome and the ability to make a
reasonable estimate on the amount of expenses. We record the
estimated liability amount of those assessments that meet the
definition of an uncertain tax position under ASC
740-10.
Note 8. Leases
We
have entered into various non-cancelable operating lease agreements
for certain of our offices, and certain equipment. Our leases have
original lease periods expiring
between 2019 and 2020.
60
The
components of lease costs, lease term and discount rate are as
follows (in thousands except lease term and discount
rate):
|
For the Year ended
December 31,
2019
|
Operating leases
|
|
Operating
lease right-of-use assets
|
$68
|
|
|
Operating
lease liabilities – short term
|
$61
|
Operating
lease liabilities – long-term
|
7
|
Total
operating lease liabilities
|
$68
|
Weighted
Average Remaining Lease Term
|
|
Operating
leases
|
0.4 years
|
Weighted
Average Discount Rate
|
|
Operating
leases
|
4.5%
|
The
following represents maturities of operating lease liabilities as
of December 31, 2019 (in thousands):
|
Operating Leases
|
2020
|
$62
|
2021
|
5
|
2022
|
3
|
Total
undiscounted cash flows
|
70
|
Less
imputed interest
|
(2)
|
Present
value of lease liabilities
|
$68
|
Supplemental
cash flow information related to leases are as follows (in
thousands):
Cash paid for amounts included in the measurement
of lease liabilities:
|
For the Year
Ended
December 31,
2019
|
Operating
cash flows from operating leases
|
$181
|
Right-of-use
assets obtained in exchange for lease obligations:
|
|
Operating
leases
|
$-
|
The
Company recorded the operating lease liabilities under other
accrued liabilities on the consolidated balance sheet as of
December 31, 2019.
61
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None
ITEM
9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the
participation of the Company’s management, the
Company’s principal executive officer and principal financial
officer have concluded that the Company’s disclosure controls
and procedures as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act were effective as of December 31,
2019 to provide reasonable assurance that information required
to be disclosed by the Company in reports that it files or submits
under the Exchange Act is (i) recorded, processed, summarized
and reported within the time periods specified in the SEC rules and
forms and (ii) accumulated and have been communicated to the
Company’s management, including its principal executive
officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure.
Inherent Limitations Over Internal Controls
The Company’s internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with U.S. generally accepted
accounting principles (“GAAP”). The Company’s
internal control over financial reporting includes those policies
and procedures that:
(i)
pertain
to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the Company’s assets;
(ii)
provide
reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with GAAP,
and that the Company’s receipts and expenditures are being
made only in accordance with authorizations of the Company’s
management and directors; and
(iii)
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
Company’s assets that could have a material effect on the
financial statements.
Management, including the Company’s Chief Executive Officer
and Chief Financial Officer, does not expect that the
Company’s internal controls will prevent or detect all errors
and all fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of internal controls can provide
absolute assurance that all control issues and instances of fraud,
if any, have been detected. Also, any evaluation of the
effectiveness of controls in future periods are subject to the risk
that those internal controls may become inadequate because of
changes in business conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management’s Annual
Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and
maintaining adequate internal control over financial reporting (as
defined in Rule 13a-15(f) under the Exchange Act). Management
conducted an assessment of the effectiveness of the Company’s
internal control over financial reporting based on the criteria set
forth in Internal Control – Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework). Based on the Company’s
assessment, management has concluded that its internal control over
financial reporting was effective as of December 31,
2019 to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
in accordance with GAAP.
62
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over
financial reporting during the fourth quarter of Year 2019, which
were identified in connection with management’s evaluation
required by paragraph (d) of Rules 13a-15 and 15d-15 under the
Exchange Act, that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control
over financial reporting.
This
report does not include an auditors' report on the effectiveness of
internal control over financial reporting due to SEC rules that
exempt smaller reporting companies such as Support.com from
providing such a report.
/s/
RICHARD A. BLOOM
|
|
RICHARD A. BLOOM
President and Chief Executive Officer
|
|
/s/ RICHARD A.
BLOOM
|
|
RICHARD A. BLOOM
Principal Financial Officer
|
|
ITEM
9B. OTHER INFORMATION.
None.
63
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.
The
information required by Item 10 of Form 10-K with respect to
Item 401 of Regulation S-K regarding our directors is
incorporated herein by reference from the information contained in
the section entitled “Directors and Nominees” in our
definitive Proxy Statement for the 2018 Annual Meeting of
Stockholders (the “Proxy Statement”), a copy of which
will be filed with the Securities and Exchange
Commission.
The
information required by Item 10 of Form 10-K with respect to Item
401 of Regulation S-K regarding our executive officers is
incorporated herein by reference from the information contained in
the section entitled “Executive Compensation and Related
Information” in our definitive Proxy Statement.
The
information required by Item 10 of Form 10-K with respect to
Item 405 of Regulation S-K regarding section 16(a)
beneficial ownership compliance is incorporated by reference from
the information contained in the section entitled
“Section 16(a) Beneficial Ownership Compliance” in
our Proxy Statement.
We
have adopted a Code of Ethics and Business Conduct for Employees,
Officers and Directors which is applicable to all of our directors,
executive officers and employees, including our Chief Executive
Officer and Chief Financial Officer (our principal executive
officer and principal financial and accounting officer,
respectively). The Code of Ethics and Business Conduct for
Employees, Officers and Directors is available on our website at
http://www.support.com/about/investor-relations/corporategovernance.
A copy of the Code of Ethics and Business Conduct for Employees,
Officers and Directors will be provided without charge to any
person who requests it by emailing us at IR@Support.com, or
telephoning 1-650-556-9440. We will disclose on our website
amendments to or waivers from our Code of Ethics and Business
Conduct applicable to our directors or executive officers,
including our Chairman, our Chief Executive Officer and our Chief
Financial Officer, in accordance with all applicable laws and
regulations.
The
information required by Item 10 of Form 10-K with respect
to Items 407(c)(3), 407(d)(4) and 407(d)(5) of Regulation S-K
is incorporated by reference from the information contained in the
sections entitled “Director Nominations,”
“Corporate Governance” and “Committees of the
Board of Directors” in our Proxy Statement.
ITEM
11. EXECUTIVE COMPENSATION.
The
information required by Item 11 of Form 10-K is
incorporated herein by reference from the information contained in
the sections entitled “Executive Compensation and Related
Information,” “Director Compensation,”
“Compensation Committee Report” and “Compensation
Committee Interlocks and Insider Participation” in our Proxy
Statement.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The
information required by Item 12 of Form 10-K with respect
to Item 201 of Regulation S-K regarding securities authorized for
issuance under equity compensation plans and Item 403 of
Regulation S-K regarding security ownership of certain
beneficial owners and management is incorporated herein by
reference from the information contained in the section entitled
“Security Ownership of Certain Beneficial Owners and
Management” in the Proxy Statement.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE.
The
information required by Item 13 of Form 10-K is
incorporated herein by reference from the information contained in
the sections entitled “Certain Relationships and Related
Transactions,” “Compensation Committee Interlocks and
Insider Participation” and “Director
Independence” in our Proxy Statement.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The
information required by Item 14 of Form 10-K is
incorporated herein by reference from the information contained in
the sections entitled “Principal Accountant Fees and
Services” and “Audit Committee Pre-Approval Policies
and Procedures” in our Proxy Statement.
64
PART IV
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)
The
following documents are filed as part of this report:
(1)
Financial
Statements—See Index to the Consolidated Financial Statements
and Supplementary Data in Item 8 of this report.
(2)
Financial
Statement Schedules.
Schedule II—Valuation and qualifying accounts was
omitted as the required disclosures are included in Note 1 to
the Consolidated Financial Statements.
All other schedules are omitted since the information required is
not applicable or is shown in the Consolidated Financial Statements
or notes thereto.
(3)
Exhibits—See
in Item 15(b) of this report.
(b)
Exhibits.
Exhibit
|
|
Description of Document
|
|
Restated
Certificate of Incorporation, as amended (incorporated by reference
to Exhibit 3.1 of Support.com’s annual report on
Form 10-K for the year ended December 31,
2001)
|
|
|
Certificate of
Amendment to Support.com’s Amended and Restated Certificate
of Incorporation (incorporated by reference to Exhibit 3.1 of
Support.com’s current report on Form 8-K filed with the SEC
on June 23, 2009)
|
|
|
Certificate of
Designation of Series A Junior Participating Preferred Stock of
Support.com (incorporated by reference to Exhibit 3.1 of
Support.com’s current report on Form 8-K filed with the SEC
on October 14, 2015)
|
|
|
Amended and
Restated Bylaws (incorporated by reference to Exhibit 3.1 of
Support.com’s current report on Form 8-K filed with the
SEC on February 5, 2016)
|
|
|
Certificate of
Designation of Series B Junior Participating Preferred Stock, as
filed with the Secretary of State of Delaware on April 21, 2016
(incorporated by reference to Exhibit 3.1 of Support.com’s
current report on Form 8-K filed with the SEC on April 21,
2016)
|
|
|
Certificate of
Amendment to the Restated Certificate of Incorporation of the
Company effective January 20, 2017, filed on January 13, 2017
(incorporated by reference to Exhibit 3.1 of Support.com’s
current report on Form 8-K filed with the SEC on January 13,
2017
|
|
|
Amended and
Restated Certificate of Designation of Series B Junior
Participating Preferred Stock of the Company (incorporated by
reference to Exhibit 3.1 of Support.coms current report on Form 8-K
filed with the SEC on August 22, 2019)
|
|
|
Form of Common
Stock Certificate (incorporated by reference to Exhibit 4.1 of
Support.com’s quarterly report on Form 10-Q for the
quarter ended June 30, 2002)
|
|
|
Rights Agreement
with Computershare Trust Company, N.A., dated October 13, 2015
(incorporated by reference to Exhibit 4.1 of
Support.com’s current report on Form 8-K filed with the SEC
on October 14, 2015).
|
|
|
Section 382 Tax
Benefits Preservation Plan, dated as of April 20, 2016, by and
between Support.com, Inc. and Computershare Trust Company, N.A., as
Rights Agent (incorporated by reference to Exhibit 4.1 of
Support.com’s current report on Form 8-K filed with the SEC
on April 21, 2016)
|
|
|
Amendment No. 1,
dated as of April 20, 2016, to the Rights Agreement, dated as of
October 13, 2015, by and between Support.com, Inc. and
Computershare Trust Company, N.A., as Rights Agent (incorporated by
reference to Exhibit 4.2 to Support.com’s Form 8-A/A filed
with the SEC on April 21, 2016)
|
|
|
Certificate of
Elimination of the Series A Preferred Stock filed with the
Secretary of State of the State of Delaware on April 21, 2016
(incorporated by reference to Exhibit 4.3 to Support.com’s
Form 8-A/A filed with the SEC on April 21, 2016)
|
|
|
Support.com, Inc.
Second Amended and Restated 2010 Equity and Performance Incentive
Plan (incorporated by reference to Appendix B of Support.com's
proxy statement on Schedule 14a, filed with the SEC on May 12,
2016)
|
|
|
Section
382 Tax Benefits Preservation Plan, dated as of August 21, 2019, by
and between Support.com, Inc. and Computershare Trust Company,
N.A., as Rights Agent (incorporated by reference to Exhibit 4.1 of
Support.coms current report on Form 8-K filed with the SEC on
August 22, 2019)
|
|
|
Support.com’s
amended and restated 2010 Equity and Incentive Compensation Plan
(incorporated by reference to Exhibit 4.1 of Support.com’s
current report on Form 8-K filed with the SEC on May 21,
2010)
|
|
|
Support.com’s
2011 Employee Stock Purchase Plan (incorporated by reference to
Annex A of Support.com’s definitive proxy statement for
Support.com’s 2011 annual meeting of stockholders filed on
April 15, 2011)
|
|
|
Support.com’s
2014 Inducement Award Plan (incorporated by reference to Exhibit
10.2 of Support.com’s current report on Form 8-K filed with
the SEC on May 19, 2014)
|
|
|
Form of
Directors’ and Officers’ Indemnification Agreement
(incorporated by reference to Exhibit 10.4 of
Support.com’s registration statement on Form S-1 filed
with the SEC on February 18, 2000)
|
|
|
Form of Stock
Option Grant Notification for Officers and Employees (incorporated
by reference to Exhibit 10.1(a) of Support.com’s quarterly
report on Form 10-Q filed on November 5, 2009).
|
|
|
Sublease Agreement
with TYCO Healthcare Group LP dated June 7, 2012 (incorporated by
reference to Exhibit 10.1 of Support.com’s quarterly
report on form 10-Q filed with the SEC on August 8,
2012).
|
65
|
Master Services
Agreement Call Handling Services between Comcast and Support.com,
effective as of October 1, 2013 (incorporated by reference to
Exhibit 10.19 of Support.com’s annual report on Form 10-K
filed with the SEC on March 7, 2014) (1)
|
|
|
Statement of Work
Number 1 to Master Services Agreement Call Handling Services
between Comcast and Support.com, effective as of October 1, 2013
(incorporated by reference to Exhibit 10.20 of Support.com’s
annual report on Form 10-K filed with the SEC on March 7, 2014)
(1)
|
|
|
Change Management
Form Number 1 under Statement of Work Number 1 to Master Services
Agreement Call Handling Services between Comcast and Support.com,
effective as of December 22, 2013 (incorporated by reference to
Exhibit 10.24 of Support.com’s annual report on Form 10-K
filed with the SEC on March 7, 2014 (1)
|
|
|
Amendment Number 1
to Statement of Work Number 1 to Master Services Agreement Call
Handling Services between Comcast and Support.com, effective as of
December 31, 2013 (incorporated by reference to Exhibit 10.21 of
Support.com’s annual report on Form 10-K filed with the SEC
on March 7, 2014)
|
|
|
Statement of Work
Number 2 to Master Services Agreement Call Handling Services
between Comcast and Support.com, effective as of December 31, 2013
(incorporated by reference to Exhibit 10.22 of Support.com’s
annual report on Form 10-K filed with the SEC on March 7, 2014)
(1)
|
|
|
Statement of Work
Number 3 to Master Services Agreement Call Handling Services
between Comcast and Support.com, effective as of March 21, 2014
(incorporated by reference to Exhibit 10.3 of Support.com’s
quarterly report on Form 10-Q filed with the SEC on May 8, 2014)
(1)
|
|
|
Change Management
Form Number 2 under Statement of Work Number 1 to Master Services
Agreement Call Handling Services between Comcast and Support.com,
effective as of February 27, 2014 (incorporated by reference to
Exhibit 10.1 of Support.com’s quarterly report on Form 10-Q
filed with the SEC on May 8, 2014) (1)
|
|
|
Change Management
Form Number 3 under Statement of Work Number 1 to Master Services
Agreement Call Handling Services between Comcast and Support.com,
effective as of March 4, 2014 (incorporated by reference to Exhibit
10.2 of Support.com’s quarterly report on Form 10-Q filed
with the SEC on May 8, 2014) (1)
|
|
|
First Change
Management Form to Statement of Work Number 3 to Master Services
Agreement Call Handling Services between Comcast and Support.com,
effective as of June 4, 2014 (incorporated by reference to Exhibit
10.1 of Support.com’s current report on Form 8-K filed with
the SEC on June 11, 2014)
|
|
|
Reseller Agreement
between Comcast and Support.com, effective as of June 6, 2014
(incorporated by reference to Exhibit 10.1 of Support.com’s
current report on Form 8-K filed with the SEC on June 18, 2014)
(1)
|
|
|
Change Management
Form Number 4 under Statement of Work Number 1 to Master Services
Agreement Call Handling Services between Comcast and Support.com,
effective as of September 17, 2014 (incorporated by reference to
Exhibit 10.1 of Support.com’s current report on Form 8-K
filed with the SEC on October 6, 2014) (1)
|
|
|
Change Management
Form Number 5 under Statement of Work Number 1 to Master Services
Agreement Call Handling Services between Comcast and Support.com,
effective as of September 18, 2014 (incorporated by reference to
Exhibit 10.2 of Support.com’s current report on Form 8-K
filed with the SEC on October 6, 2014) (1)
|
|
|
Statement of Work
Number 4 to Master Services Agreement Call Handling Services
between Comcast and Support.com, effective as of February 6, 2015
(incorporated by reference to Exhibit 10.1 of Support.com’s
current report on Form 8-K filed with the SEC on February 18, 2015)
(1)
|
|
|
Compensatory
Arrangement between Support.com and Jim Stephens for his term as
Executive Chairman and Interim CEO commencing March 25, 2014
(incorporated by reference to Support.com’s current report on
Form 8-K filed with the SEC on March 14, 2014
|
|
|
Change Management
Form Number 6 under Statement of Work Number 3 to Master Services
Agreement Call Handling Services between Comcast and Support.com,
effective as of April 6, 2015 (incorporated by reference to Exhibit
10.2 of Support.com’s current report on Form 8-K filed with
the SEC on April 9, 2015) (1)
|
66
|
Amendment Number 1
to Statement of Work Number 3 to Master Services Agreement Call
Handling Services between Comcast and Support.com, effective as of
June 2, 2015 (incorporated by reference to Exhibit 10.2 of
Support.com’s current report on Form 8-K filed with the SEC
on July 2, 2015) (1)
|
|
|
Change Management
Form Number 6 under Statement of Work Number 1 to Master Services
Agreement Call Handling Services between Comcast and Support.com,
effective as of November 18, 2015 (incorporated by reference to
Exhibit 10.1 of Support.com’s current report on Form 8-K
filed with the SEC on November 24, 2015) (1)
|
|
|
Change Management
Form Number 7 under Statement of Work Number 3 to Master Services
Agreement Call Handling Services between Comcast and Support.com,
effective as of November 18, 2015 (incorporated by reference to
Exhibit 10.2 of Support.com’s current report on Form 8-K
filed with the SEC on November 24, 2015) (1)
|
|
|
Form of
Directors’ and Officers’ Indemnification Agreement
(incorporated by reference to Exhibit 10.1 of
Support.com’s current report on Form 8-K filed with the
SEC on December 10, 2015).
|
|
|
Change Management
Form Number 1 to Master Services Agreement Call Handling Services
between Comcast and Support.com, effective as of December 15, 2015
(incorporated by reference to Exhibit 10.1 of Support.com’s
current report on Form 8-K filed with the SEC on December 16, 2015)
(1)
|
|
|
Amendment to Master
Services Agreement Call Handling Services between Comcast and
Support.com, Inc. effective as of May 23, 2016 (incorporated by
reference to Exhibit 10.1 of Support.com’s current report on
Form 8-K filed with the SEC on May 26, 2016)
|
|
|
Change Management
Form #8 to Statement of Work #1, between Comcast and Company,
signed June 2, 2016 (incorporated by reference to Exhibit 10.1 of
Support.com’s current report on Form 8-K filed with the SEC
on June 7, 2016) (1)
|
|
|
Change Management
Form #8 to Statement of Work #3, between Comcast and Company,
signed June 2, 2016 (incorporated by reference to Exhibit 10.2 of
Support.com’s current report on Form 8-K filed with the SEC
on June 7, 2016) (1)
|
|
|
Change Management
Form #9 to Statement of Work #3, between Comcast and Support.com,
signed July 13, 2016 (incorporated by reference to Exhibit 10.1 of
Support.com’s current report on Form 8-K filed with the SEC
on July 29, 2016) (1)
|
|
|
Separation
Agreement and General Release, dated October 31, 2016, by and
between Support.com, Inc. and Elizabeth M. Cholawsky (incorporated
by reference to Exhibit 10.1 of Support.com’s current report
on Form 8-K filed with the SEC on November 1, 2016)
|
|
|
Change Management
Form #7 to Statement of Work #1, between Comcast and Company,
signed December 9, 2016 (incorporated by reference to Exhibit 10.1
of Support.com’s current report on Form 8-K filed with the
SEC on December 20, 2016) (1)
|
|
|
Change Management
Form #10 to Statement of Work #3, between Comcast and Support.com,
signed December 9, 2016 (incorporated by reference to Exhibit 10.2
of Support.com’s current report on Form 8-K filed with the
SEC on December 20, 2016) (1)
|
|
|
Lease Agreement
between HCP LS Redwood City, LLC and the Company dated December 20,
2016 (incorporated by reference to Exhibit 10.36 of
Support.com’s annual report on Form 10-K filed with the SEC
on March 7, 2017)
|
|
|
Employment Offer
Letter between Rick Bloom and Support.com, Inc., dated December 21,
2016 and effective as of October 28, 2016 (incorporated by
reference to Exhibit 10.1 of Support.com’s current report on
Form 8-K filed with the SEC on December 22, 2016)
|
|
|
Change Management
Form #11 to Statement of Work #3, between Comcast and Company,
signed February 6, 2017 (incorporated by reference to Exhibit 10.1
of Support.com’s Form 8-K filed with the SEC on February 10,
2017) (1)
|
|
|
Change Management
Form #12 to Statement of Work #3, between Comcast and Company,
signed March 7, 2017 (incorporated by reference to Exhibit 10.1 of
Support.com’s Form 8-K filed with the SEC on March 16, 2017)
(1)
|
|
|
Change Management
Form #9 to Statement of Work #1, between Comcast and Company,
signed February 24, 2017 (incorporated by reference to Exhibit 10.2
of Support.com’s Form 8-K filed with the SEC on March 16,
2017) (1)
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67
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Change Management
Form #13 to Statement of Work #3, between Comcast and Company,
signed February 24, 2017 (incorporated by reference to Exhibit 10.3
of Support.com’s Form 8-K filed with the SEC on March 16,
2017) (1)
|
|
|
Change Management
Form #14 to Statement of Work #3, between Comcast and Company,
signed February 24, 2017 (incorporated by reference to Exhibit 10.4
of Support.com’s Form 8-K filed with the SEC on March 16,
2017) (1)
|
|
|
Standard Sublease
between the Company and NantMobile, LLC dated April 29, 2017
(incorporated by reference to Exhibit 10.1 of Support.com’s
Form 8-K filed with the SEC on May 3, 2017)
|
|
|
Change Management
Form 15 to Statement of Work #3, between Comcast and Company,
signed May 17, 2017 (incorporated by reference to Exhibit 10.1 of
Support.com’s Form 8-K filed with the SEC on May 23, 2017)
(1)
|
|
|
Change Management
Form to Statement of Work #3 between Comcast and Company, signed
July 6, 2017 (incorporated by reference to Exhibit 10.1 of
Support.com’s Form 8-K filed with the SEC on July 13,
2017)(1)
|
|
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Amendment #3 to
Master Services Agreement Call Handling Services between Comcast
and Company, entered into on July 24, 2017 (incorporated by
reference to Exhibit 10.1 of Support.com’s Form 8-K filed
with the SEC on July 27, 2017)
|
|
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Change Management
Form to Statement of Work #1 and Statement of Work #3 between
Comcast and Company, signed August 10, 2017 (incorporated by
reference to Exhibit 10.1 of Support.com’s Form 8-K filed
with the SEC on August 23, 2017)
|
|
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Change Management
Form to Statement of Work #3 between Comcast and Company, signed
August 10, 2017 (incorporated by reference to Exhibit 10.2 of
Support.com’s Form 8-K filed with the SEC on August 23, 2017)
(1)
|
|
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Settlement
Agreement (Consent Order) between the U.S. Federal Trade Commission
and Company entered into on November 6, 2018 (incorporated by
reference to Support.com’s current report on Form 8-K filed
with the SEC on November 7, 2018)
|
|
|
Extension of Lease
Agreement between the Company and Mariposa Building, LLC executed
on February 21, 2019 (incorporated by reference to Exhibit 10.1 of
Support.com’s Form 8-K filed with the SEC on February 26,
2019)
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|
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Subsidiaries of
Support.com, Inc.
|
|
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Consent of
Independent Registered Public Accounting Firm
|
|
|
Power of Attorney
(see the signature page of this Form 10-K)
|
|
|
Chief Executive
Officer Section 302 Certification.
|
|
|
Chief Financial
Officer Section 302 Certification.
|
|
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Statement of the
Chief Executive Officer under 18 U.S.C.
§ 1350(2)
|
|
|
Statement of the
Chief Financial Officer under 18 U.S.C.
§ 1350(2)
|
|
101.INS
|
|
XBRL Instance
Document
|
101.SCH
|
|
XBRL Taxonomy
Extension Schema
|
101.CAL
|
|
XBRL Taxonomy
Extension Calculation Linkbase
|
101.DEF
|
|
XBRL Taxonomy
Extension Definition Linkbase
|
101.LAB
|
|
XBRL Taxonomy
Extension Label Linkbase
|
101.PRE
|
|
XBRL Taxonomy
Extension Presentation Linkbase
|
*
Denotes
an executive or director compensation plan or
arrangement.
(1)
Confidential
treatment has been requested for portions of this
exhibit.
(2)
The
material contained in Exhibit 32.1 and 32.2 shall not be
deemed “filed” with the SEC and is not to be
incorporated by reference into any filing of the Company under the
Securities Act of 1933 or the Securities Exchange Act of 1934,
whether made before or after the date hereof irrespective of any
general incorporation language contained in such filing, except to
the extent that the registrant specifically incorporates it by
reference.
c)
Financial
Statement Schedules.
No
schedules have been filed because the information required to be
set forth therein is not applicable or is shown in the financial
statements or related notes included as part of this
report.
68
SIGNATURES
Pursuant to the requirements of the
Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on
this 18th day of March,
2020.
|
SUPPORT.COM, INC.
|
|
|
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|
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By:
|
/s/ RICHARD A.
BLOOM
|
|
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Richard A. Bloom
|
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President and Chief Executive Officer
|
POWER OF ATTORNEY
KNOW
ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Rick Bloom and each of them
individually, as his or her attorney-in-fact, each with full power
of substitution, for him or her in any and all capacities, to sign
any and all amendments to this Report on Form 10-K, and to
file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-fact, or
his or her substitute, may do or cause to be done by virtue
hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the registrant in the capacities and on the dates
indicated:
Signature
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Title
|
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Date
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/s/ Richard A.
Bloom
|
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President and Chief Executive Officer and
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March 18, 2020
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Richard A. Bloom
|
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Director
|
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(Principal Executive Officer)
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/s/ Richard A.
Bloom
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Principal Financial Officer
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March 18, 2020
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Richard A. Bloom
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(Principal Accounting Officer)
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/s/ JOSHUA E. SCHECHTER
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Chairman of the Board of Directors
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March 18, 2020
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Joshua E. Schechter
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/s/ BRADLEY L.
RADOFF
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Director
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March 18, 2020
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Bradley L. Radoff
|
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/s/ BRIAN
KELLEY
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Director
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March 18, 2020
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Brian
Kelley
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69
Exhibit
|
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Description of Document
|
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Restated
Certificate of Incorporation, as amended (incorporated by reference
to Exhibit 3.1 of Support.com’s annual report on
Form 10-K for the year ended December 31,
2001)
|
|
|
Certificate
of Amendment to Support.com’s Amended and Restated
Certificate of Incorporation (incorporated by reference to Exhibit
3.1 of Support.com’s current report on Form 8-K filed with
the SEC on June 23, 2009)
|
|
|
Certificate
of Designation of Series A Junior Participating Preferred Stock of
Support.com (incorporated by reference to Exhibit 3.1 of
Support.com’s current report on Form 8-K filed with the SEC
on October 14, 2015)
|
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Amended
and Restated Bylaws (incorporated by reference to Exhibit 3.1
of Support.com’s current report on Form 8-K filed with
the SEC on February 5, 2016)
|
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Certificate
of Designation of Series B Junior Participating Preferred Stock, as
filed with the Secretary of State of Delaware on April 21, 2016
(incorporated by reference to Exhibit 3.1 of Support.com’s
current report on Form 8-K filed with the SEC on April 21,
2016)
|
|
|
Certificate
of Amendment to the Restated Certificate of Incorporation of the
Company effective January 20, 2017, filed on January 13, 2017
(incorporated by reference to Exhibit 3.1 of Support.com’s
current report on Form 8-K filed with the SEC on January 13,
2017
|
|
|
Amended and Restated Certificate of Designation of Series B Junior
Participating Preferred Stock of the Company (incorporated by
reference to Exhibit 3.1 of Support.coms current report on Form 8-K
filed with the SEC on August 22, 2019)
|
|
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Form
of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 of Support.com’s quarterly report on
Form 10-Q for the quarter ended June 30,
2002)
|
|
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Rights
Agreement with Computershare Trust Company, N.A., dated October 13,
2015 (incorporated by reference to Exhibit 4.1 of
Support.com’s current report on Form 8-K filed with the SEC
on October 14, 2015).
|
|
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Section
382 Tax Benefits Preservation Plan, dated as of April 20, 2016, by
and between Support.com, Inc. and Computershare Trust Company,
N.A., as Rights Agent (incorporated by reference to Exhibit 4.1 of
Support.com’s current report on Form 8-K filed with the SEC
on April 21, 2016)
|
|
|
Amendment
No. 1, dated as of April 20, 2016, to the Rights Agreement, dated
as of October 13, 2015, by and between Support.com, Inc. and
Computershare Trust Company, N.A., as Rights Agent (incorporated by
reference to Exhibit 4.2 to Support.com’s Form 8-A/A filed
with the SEC on April 21, 2016)
|
|
|
Certificate
of Elimination of the Series A Preferred Stock filed with the
Secretary of State of the State of Delaware on April 21, 2016
(incorporated by reference to Exhibit 4.3 to Support.com’s
Form 8-A/A filed with the SEC on April 21, 2016)
|
|
|
Support.com,
Inc. Second Amended and Restated 2010 Equity and Performance
Incentive Plan (incorporated by reference to Appendix B of
Support.com's proxy statement on Schedule 14a, filed with the SEC
on May 12, 2016)
|
|
|
Section 382 Tax Benefits Preservation Plan, dated as of August 21,
2019, by and between Support.com, Inc. and Computershare Trust
Company, N.A., as Rights Agent (incorporated by reference to
Exhibit 4.1 of Support.coms current report on Form 8-K filed with
the SEC on August 22, 2019)
|
|
|
Support.com’s
amended and restated 2010 Equity and Incentive Compensation Plan
(incorporated by reference to Exhibit 4.1 of Support.com’s
current report on Form 8-K filed with the SEC on May 21,
2010)
|
|
|
Support.com’s
2011 Employee Stock Purchase Plan (incorporated by reference to
Annex A of Support.com’s definitive proxy statement for
Support.com’s 2011 annual meeting of stockholders filed on
April 15, 2011)
|
|
|
Support.com’s
2014 Inducement Award Plan (incorporated by reference to Exhibit
10.2 of Support.com’s current report on Form 8-K filed with
the SEC on May 19, 2014)
|
|
|
Form
of Directors’ and Officers’ Indemnification Agreement
(incorporated by reference to Exhibit 10.4 of
Support.com’s registration statement on Form S-1 filed
with the SEC on February 18, 2000)
|
|
|
Form
of Stock Option Grant Notification for Officers and Employees
(incorporated by reference to Exhibit 10.1(a) of
Support.com’s quarterly report on Form 10-Q filed on November
5, 2009).
|
|
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Sublease
Agreement with TYCO Healthcare Group LP dated June 7, 2012
(incorporated by reference to Exhibit 10.1 of
Support.com’s quarterly report on form 10-Q filed with the
SEC on August 8, 2012).
|
70
|
Master
Services Agreement Call Handling Services between Comcast and
Support.com, effective as of October 1, 2013 (incorporated by
reference to Exhibit 10.19 of Support.com’s annual report on
Form 10-K filed with the SEC on March 7, 2014) (1)
|
|
|
Statement
of Work Number 1 to Master Services Agreement Call Handling
Services between Comcast and Support.com, effective as of October
1, 2013 (incorporated by reference to Exhibit 10.20 of
Support.com’s annual report on Form 10-K filed with the SEC
on March 7, 2014) (1)
|
|
|
Change
Management Form Number 1 under Statement of Work Number 1 to Master
Services Agreement Call Handling Services between Comcast and
Support.com, effective as of December 22, 2013 (incorporated by
reference to Exhibit 10.24 of Support.com’s annual report on
Form 10-K filed with the SEC on March 7, 2014 (1)
|
|
|
Amendment
Number 1 to Statement of Work Number 1 to Master Services Agreement
Call Handling Services between Comcast and Support.com, effective
as of December 31, 2013 (incorporated by reference to Exhibit 10.21
of Support.com’s annual report on Form 10-K filed with the
SEC on March 7, 2014)
|
|
|
Statement
of Work Number 2 to Master Services Agreement Call Handling
Services between Comcast and Support.com, effective as of December
31, 2013 (incorporated by reference to Exhibit 10.22 of
Support.com’s annual report on Form 10-K filed with the SEC
on March 7, 2014) (1)
|
|
|
Statement
of Work Number 3 to Master Services Agreement Call Handling
Services between Comcast and Support.com, effective as of March 21,
2014 (incorporated by reference to Exhibit 10.3 of
Support.com’s quarterly report on Form 10-Q filed with the
SEC on May 8, 2014) (1)
|
|
|
Change
Management Form Number 2 under Statement of Work Number 1 to Master
Services Agreement Call Handling Services between Comcast and
Support.com, effective as of February 27, 2014 (incorporated by
reference to Exhibit 10.1 of Support.com’s quarterly report
on Form 10-Q filed with the SEC on May 8, 2014) (1)
|
|
|
Change
Management Form Number 3 under Statement of Work Number 1 to Master
Services Agreement Call Handling Services between Comcast and
Support.com, effective as of March 4, 2014 (incorporated by
reference to Exhibit 10.2 of Support.com’s quarterly report
on Form 10-Q filed with the SEC on May 8, 2014) (1)
|
|
|
First
Change Management Form to Statement of Work Number 3 to Master
Services Agreement Call Handling Services between Comcast and
Support.com, effective as of June 4, 2014 (incorporated by
reference to Exhibit 10.1 of Support.com’s current report on
Form 8-K filed with the SEC on June 11, 2014)
|
|
|
Reseller
Agreement between Comcast and Support.com, effective as of June 6,
2014 (incorporated by reference to Exhibit 10.1 of
Support.com’s current report on Form 8-K filed with the SEC
on June 18, 2014) (1)
|
|
|
Change
Management Form Number 4 under Statement of Work Number 1 to Master
Services Agreement Call Handling Services between Comcast and
Support.com, effective as of September 17, 2014 (incorporated by
reference to Exhibit 10.1 of Support.com’s current report on
Form 8-K filed with the SEC on October 6, 2014) (1)
|
|
|
Change
Management Form Number 5 under Statement of Work Number 1 to Master
Services Agreement Call Handling Services between Comcast and
Support.com, effective as of September 18, 2014 (incorporated by
reference to Exhibit 10.2 of Support.com’s current report on
Form 8-K filed with the SEC on October 6, 2014) (1)
|
|
|
Statement
of Work Number 4 to Master Services Agreement Call Handling
Services between Comcast and Support.com, effective as of February
6, 2015 (incorporated by reference to Exhibit 10.1 of
Support.com’s current report on Form 8-K filed with the SEC
on February 18, 2015) (1)
|
|
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Compensatory
Arrangement between Support.com and Jim Stephens for his term as
Executive Chairman and Interim CEO commencing March 25, 2014
(incorporated by reference to Support.com’s current report on
Form 8-K filed with the SEC on March 14, 2014
|
|
|
Change
Management Form Number 6 under Statement of Work Number 3 to Master
Services Agreement Call Handling Services between Comcast and
Support.com, effective as of April 6, 2015 (incorporated by
reference to Exhibit 10.2 of Support.com’s current report on
Form 8-K filed with the SEC on April 9, 2015) (1)
|
71
|
Amendment
Number 1 to Statement of Work Number 3 to Master Services Agreement
Call Handling Services between Comcast and Support.com, effective
as of June 2, 2015 (incorporated by reference to Exhibit 10.2 of
Support.com’s current report on Form 8-K filed with the SEC
on July 2, 2015) (1)
|
|
|
Change
Management Form Number 6 under Statement of Work Number 1 to Master
Services Agreement Call Handling Services between Comcast and
Support.com, effective as of November 18, 2015 (incorporated by
reference to Exhibit 10.1 of Support.com’s current report on
Form 8-K filed with the SEC on November 24, 2015) (1)
|
|
|
Change
Management Form Number 7 under Statement of Work Number 3 to Master
Services Agreement Call Handling Services between Comcast and
Support.com, effective as of November 18, 2015 (incorporated by
reference to Exhibit 10.2 of Support.com’s current report on
Form 8-K filed with the SEC on November 24, 2015) (1)
|
|
|
Form
of Directors’ and Officers’ Indemnification Agreement
(incorporated by reference to Exhibit 10.1 of
Support.com’s current report on Form 8-K filed with the
SEC on December 10, 2015).
|
|
|
Change
Management Form Number 1 to Master Services Agreement Call Handling
Services between Comcast and Support.com, effective as of December
15, 2015 (incorporated by reference to Exhibit 10.1 of
Support.com’s current report on Form 8-K filed with the SEC
on December 16, 2015) (1)
|
|
|
Amendment
to Master Services Agreement Call Handling Services between Comcast
and Support.com, Inc. effective as of May 23, 2016 (incorporated by
reference to Exhibit 10.1 of Support.com’s current report on
Form 8-K filed with the SEC on May 26, 2016)
|
|
|
Change
Management Form #8 to Statement of Work #1, between Comcast and
Company, signed June 2, 2016 (incorporated by reference to Exhibit
10.1 of Support.com’s current report on Form 8-K filed with
the SEC on June 7, 2016) (1)
|
|
|
Change
Management Form #8 to Statement of Work #3, between Comcast and
Company, signed June 2, 2016 (incorporated by reference to Exhibit
10.2 of Support.com’s current report on Form 8-K filed with
the SEC on June 7, 2016) (1)
|
|
|
Change
Management Form #9 to Statement of Work #3, between Comcast and
Support.com, signed July 13, 2016 (incorporated by reference to
Exhibit 10.1 of Support.com’s current report on Form 8-K
filed with the SEC on July 29, 2016) (1)
|
|
|
Separation
Agreement and General Release, dated October 31, 2016, by and
between Support.com, Inc. and Elizabeth M. Cholawsky (incorporated
by reference to Exhibit 10.1 of Support.com’s current report
on Form 8-K filed with the SEC on November 1, 2016)
|
|
|
Change
Management Form #7 to Statement of Work #1, between Comcast and
Company, signed December 9, 2016 (incorporated by reference to
Exhibit 10.1 of Support.com’s current report on Form 8-K
filed with the SEC on December 20, 2016) (1)
|
|
|
Change
Management Form #10 to Statement of Work #3, between Comcast and
Support.com, signed December 9, 2016 (incorporated by reference to
Exhibit 10.2 of Support.com’s current report on Form 8-K
filed with the SEC on December 20, 2016) (1)
|
|
|
Lease
Agreement between HCP LS Redwood City, LLC and the Company dated
December 20, 2016 (incorporated by reference to Exhibit 10.36 of
Support.com’s annual report on Form 10-K filed with the SEC
on March 7, 2017)
|
|
|
Employment
Offer Letter between Rick Bloom and Support.com, Inc., dated
December 21, 2016 and effective as of October 28, 2016
(incorporated by reference to Exhibit 10.1 of Support.com’s
current report on Form 8-K filed with the SEC on December 22,
2016)
|
|
|
Change
Management Form #11 to Statement of Work #3, between Comcast and
Company, signed February 6, 2017 (incorporated by reference to
Exhibit 10.1 of Support.com’s Form 8-K filed with the SEC on
February 10, 2017) (1)
|
|
|
Change
Management Form #12 to Statement of Work #3, between Comcast and
Company, signed March 7, 2017 (incorporated by reference to Exhibit
10.1 of Support.com’s Form 8-K filed with the SEC on March
16, 2017) (1)
|
|
|
Change
Management Form #9 to Statement of Work #1, between Comcast and
Company, signed February 24, 2017 (incorporated by reference to
Exhibit 10.2 of Support.com’s Form 8-K filed with the SEC on
March 16, 2017) (1)
|
72
|
Change
Management Form #13 to Statement of Work #3, between Comcast and
Company, signed February 24, 2017 (incorporated by reference to
Exhibit 10.3 of Support.com’s Form 8-K filed with the SEC on
March 16, 2017) (1)
|
|
|
Change
Management Form #14 to Statement of Work #3, between Comcast and
Company, signed February 24, 2017 (incorporated by reference to
Exhibit 10.4 of Support.com’s Form 8-K filed with the SEC on
March 16, 2017) (1)
|
|
|
Standard
Sublease between the Company and NantMobile, LLC dated April 29,
2017 (incorporated by reference to Exhibit 10.1 of
Support.com’s Form 8-K filed with the SEC on May 3,
2017)
|
|
|
Change
Management Form 15 to Statement of Work #3, between Comcast and
Company, signed May 17, 2017 (incorporated by reference to Exhibit
10.1 of Support.com’s Form 8-K filed with the SEC on May 23,
2017) (1)
|
|
|
Change
Management Form to Statement of Work #3 between Comcast and
Company, signed July 6, 2017 (incorporated by reference to Exhibit
10.1 of Support.com’s Form 8-K filed with the SEC on July 13,
2017)(1)
|
|
|
Amendment
#3 to Master Services Agreement Call Handling Services between
Comcast and Company, entered into on July 24, 2017 (incorporated by
reference to Exhibit 10.1 of Support.com’s Form 8-K filed
with the SEC on July 27, 2017)
|
|
|
Change
Management Form to Statement of Work #1 and Statement of Work #3
between Comcast and Company, signed August 10, 2017 (incorporated
by reference to Exhibit 10.1 of Support.com’s Form 8-K filed
with the SEC on August 23, 2017)
|
|
|
Change
Management Form to Statement of Work #3 between Comcast and
Company, signed August 10, 2017 (incorporated by reference to
Exhibit 10.2 of Support.com’s Form 8-K filed with the SEC on
August 23, 2017) (1)
|
|
|
Settlement
Agreement (Consent Order) between the U.S. Federal Trade Commission
and Company entered into on November 6, 2018 (incorporated by
reference to Support.com’s current report on Form 8-K filed
with the SEC on November 7, 2018)
|
|
|
Extension
of Lease Agreement between the Company and Mariposa Building, LLC
executed on February 21, 2019 (incorporated by reference to Exhibit
10.1 of Support.com’s Form 8-K filed with the SEC on February
26, 2019)
|
|
|
Subsidiaries
of Support.com, Inc.
|
|
|
Consent
of Independent Registered Public Accounting Firm
|
|
|
Power
of Attorney (see the signature page of this
Form 10-K)
|
|
|
Chief
Executive Officer Section 302 Certification.
|
|
|
Chief
Financial Officer Section 302 Certification.
|
|
|
Statement
of the Chief Executive Officer under 18 U.S.C.
§ 1350(2)
|
|
|
Statement
of the Chief Financial Officer under 18 U.S.C.
§ 1350(2)
|
|
101.INS
|
|
XBRL
Instance Document
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase
|
*
Denotes
an executive or director compensation plan or
arrangement.
(1)
Confidential
treatment has been requested for portions of this
exhibit.
(2)
The material contained in Exhibit 32.1 and
32.2 shall not be deemed “filed” with the SEC and is
not to be incorporated by reference into any filing of the Company
under the Securities Act of 1933 or the Securities Exchange Act of
1934, whether made before or after the date hereof irrespective of any general
incorporation language contained in such filing, except to the
extent that the registrant specifically incorporates it by
reference.
(c)
Financial Statement Schedules.
No
schedules have been filed because the information required to be
set forth therein is not applicable or is shown in the financial
statements or related notes included as part of this
report.
73