| Significant Accounting Policies | Basis of Presentation The accompanying unaudited interim condensed
consolidated financial statements include the accounts of Support.com, Inc. (the “Company”, “Support.com”,
“We” or “Our”) and its wholly owned subsidiaries. All intercompany balances and transactions have been
eliminated. The condensed consolidated balance sheet as of March 31, 2019 and the consolidated statements of operations and comprehensive
income (loss) for the three months ended March 31, 2019 and 2018 and the consolidated statements of cash flows for the three months
ended March 31, 2019 and 2018 are unaudited. In the opinion of management, these unaudited interim condensed consolidated financial
statements reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of
the results for, and as of, the periods shown. The results of operations for such periods are not necessarily indicative of the
results expected for the full fiscal year or for any future period. The condensed consolidated balance sheet information as of
December 31, 2018 is derived from audited financial statements as of that date. These financial statements have been prepared
based upon Securities and Exchange Commission (“SEC”) rules that permit reduced disclosure for interim periods. For
a more complete discussion of significant accounting policies and certain other information, these unaudited interim condensed
consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included
in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 8, 2019. 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 condensed 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 accruals, the valuation and recognition 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. Leases On January 1, 2019, we adopted Accounting
Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which supersedes the lease accounting guidance
under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use
(ROU) assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows
arising from leasing arrangements. We adopted the new guidance using the modified retrospective transition approach by applying
the new standard to all leases existing at the date of initial application and not restating comparative periods. The most significant
impact was the recognition of ROU assets and lease liabilities for operating leases, while our accounting for finance leases remained
substantially unchanged. See Note 7 — Leases in the notes to the condensed consolidated financial statements included in
Part I, Item 1, of this Quarterly Report on Form 10-Q for additional information regarding the adoption. We determine if an arrangement is a lease
at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and short- and long-term
lease liabilities in our consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities,
and other long-term liabilities in our consolidated balance sheets. As of adoption of ASC 842 and as of January 1, 2019, the Company
was not party to finance lease arrangements. ROU assets represent our right to use
an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the
lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments
over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the
information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily
determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms
may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense
for lease payments is recognized on a straight-line basis over the lease term. Under the available practical expedient,
we account for the lease and non-lease components as a single lease component. There have been no other changes to the
accounting policies except the Leases, which are disclosed in our most recent Annual Report on Form 10-K. The accompanying unaudited
Condensed Consolidated Financial Statements we present in this report have been prepared in accordance with our policies. Revenue Recognition Disaggregation of Revenue We generate revenue from the sale of
services and sale of software fees 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:
Three Months Ended
March 31,
Revenue from Contracts with Customers: 2019 2018
Services $ 16,864 $ 15,200
Software and other 1,200 1,322
Total revenue $ 18,064 $ 16,522 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. 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 four types of 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. The following table represent deferred revenue activity for the three
months ended March 31, 2019 (in thousands): 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. Services revenue also includes fees from
licensing of Support.com cloud-based software. In such arrangements, customers receive a right to use our Support.com Cloud applications
in their own support organizations. We license our cloud based software using a software-as-a-service (“SaaS”) model
under which customers cannot take possession of the technology and pay us on a per-user or usage 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 March 31, 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 control transfers to our partners. 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 condensed
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, 2018, the Company evaluated its unrealized losses on marketable securities 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. At March 31, 2019 and December 31, 2018, the fair
value of cash, cash equivalents and investments was $48.0 million and $49.6 million, respectively. The following is a summary of cash, cash
equivalents and investments at March 31, 2019 and December 31, 2018 (in thousands):
As of March 31, 2019
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses Fair Value
Cash $ 6,445 $ — $ — $ 6,445
Money market funds 22,211 — — 22,211
Certificates of deposit 463 — — 463
Commercial paper 2,426 — (1 ) 2,425
Corporate notes and bonds 15,465 — (19 ) 15,446
U.S. government agency securities 998 — — 998
$ 48,008 $ — $ (20 ) $ 47,988
Classified as:
Cash and cash equivalents $ 29,585 $ — $ (1 ) $ 29,584
Short-term investments 18,423 — (19 ) 18,404
$ 48,008 $ — $ (20 ) $ 47,988
As of December 31, 2018
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses Fair Value
Cash $ 8,391 $ — $ — $ 8,391
Money market funds 14,295 — — 14,295
Certificates of deposit 1,171 — (1 ) 1,170
Commercial paper 3,986 — (66 ) 3,985
Corporate notes and bonds 14,899 — (1 ) 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):
March 31, 2019
December 31, 2018
Due within one year $ 12,812 $ 20,874
Due within two years 5,592 3,593
$ 18,404 $ 24,467 Fair Value Measurements Accounting Standards Codification (“ASC”)
820, Fair Value Measurements and Disclosures,
● 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. In accordance with ASC 820, 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 March 31, 2019 and December 31, 2018 (in thousands):
As of March 31, 2019 Level 1 Level 2 Level 3 Total
Money market funds $ 22,211 $ — $ — $ 22,211
Certificates of deposit — 463 — 463
Commercial paper — 2,425 — 2,425
Corporate notes and bonds — 15,446 — 15,446
U.S. government agency securities — 998 — 998
Total $ 22,211 $ 19,332 $ — $ 41,543
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 to recognize the transfer of financial
instruments between levels at the end of our quarterly reporting period. 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.
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 consolidated
balance sheets. 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. For the three months ended March 31,
2019, Comcast and Cox Communications accounted for 68% and 20%, respectively, of our total revenue. For the three months ended
March 31, 2018, Comcast and Cox Communications accounted for 69% and 12%, respectively, of our total revenue. There were no other
customers that accounted for 10% or more of total revenue for the three months ended March 31, 2019 and 2018. 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. As of March 31, 2019, Comcast and Cox Communications accounted for 75% and 18%, respectively,
of our total accounts receivable. As of December 31, 2018, Comcast and Cox Communications accounted for 71% and 20%, respectively,
of our total accounts receivable. There were no other customers that accounted for 10% or more of our total accounts receivable
as of March 31, 2019 and December 31, 2018. 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. Reserves are made based on a specific review of all significant outstanding invoices. For those invoices
not specifically provided for, reserves 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. We had an allowance for doubtful accounts of $7,000 and $13,000 at March 31, 2019 and December 31, 2018,
respectively. Self-Funded Health Insurance Effective January 1, 2015, the Company
maintains a self-funded health insurance program with a stop-loss umbrella policy with a third party insurer to limit the maximum
potential liability for medical claims. With respect to this program, the Company considers historical and projected medical utilization
data when estimating its health insurance program liability and related expense. As of March 31, 2019, the Company had approximately
$501,000 in reserve for its self-funded health insurance program. As of December 31, 2018, the Company had approximately $585,000
in reserve for its self-funded health insurance program. The reserve is included in “other accrued liabilities” in
the condensed consolidated balance sheets. The Company regularly analyzes its reserves
for incurred but not reported claims and for reported but not paid claims related to its self-funded insurance program. The Company
believes its reserves are adequate. However, significant judgment is involved in assessing these reserves such as assessing historical
paid claims, average lags between the claims’ incurred date, reported dates and paid dates, and the frequency and severity
of claims. There may be differences between actual settlement amounts and recorded reserves and any resulting adjustments are
included in expense once a probable amount is known. 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 Losses Unrealized Losses on Investments Total
Balance as of December 31, 2018 $ (2,438 ) $ (69 ) $ (2,507 )
Current-period other comprehensive income 99 50 149
Balance as of March 31, 2019 $ (2,339 ) $ (19 ) $ (2,358 ) 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 condensed 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 loss for each of the periods presented is not significant. Stock-Based Compensation We apply the provisions of ASC 718, Compensation
- Stock Compensation The fair value of our stock-based awards
was estimated using the following weighted average assumptions for the three months ended March 31, 2019 and 2018:
Stock Option Plan Employee Stock Purchase Plan
Three Months Ended March 31,
2019 (1) 2018 2019
2018
Risk-free interest rate 0% 2.4% 2.52% 0.5%
Expected term (in years) 0.0 3.0 0.5 0.5
Volatility 0% 41.3% 25.5% 39.0%
Expected dividend 0% 0% 0% 0%
Weighted average grant-date fair value $0.00 $0.84 $0.62 $0.39
(1) There was no options granted for the three months ended March 31, 2019. We recorded the following stock-based
compensation expense for the three months ended March 31, 2019 and 2018 (in thousands):
Three Months Ended March 31,
Stock-based compensation expense related to grants of: 2019 2018
Stock options $ 33 $ 288
Employee Stock Purchase Plan (“ESPP”) - 5
Restricted stock units
(“RSUs”) 19 83
$ 52 $ 376
Stock-based compensation expense
recognized in:
Cost of service $ 8 $ 21
Research and development 7 14
Sales and marketing 12 19
General and administrative 25 322
$ 52 $ 376 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 three months ended March 31,
2019 and 2018, 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. The following table sets forth the computation
of basic and diluted earnings (loss) per share (in thousands, except per share amounts):
Three Months
Ended
March 31,
2019 2018
Net income (loss) $ 1,443 $ (766 )
Basic:
Weighted-average shares of common stock outstanding 18,955 18,729
Shares used in computing basic income (loss) per share 18,955 18,729
Basic earnings (loss) per share 0.08 (0.04 )
Diluted:
Weighted-average shares of common stock outstanding 18,955 18,729
Add: Common equivalent shares outstanding 49 -
Shares used in computing diluted earnings (loss) per share 19,004 18,729
Diluted earnings (loss) per share $ 0.08 $ (0.04 ) The following potential common shares
outstanding were excluded from the computation of diluted loss per share because including them would have been antidilutive (in
thousands):
Three Months Ended March 31,
2019 2018
Stock options 765 721
RSUs 78 69
Total common share equivalents 843 790 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 March
31, 2018, we have not been required to make any payment resulting from infringement claims asserted against our customers and
have not recorded any related accruals. Recent Accounting Pronouncements 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, the first day of fiscal year 2019, and 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. There was an increase
in assets of $230,000 and liabilities of $231,000 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 the difference of $1,000 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 New Accounting Standards to be
adopted in Future Periods Intangible Assets Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment |
