| 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 September 30, 2019 and the consolidated statements of operations and
comprehensive income (loss) for the three months ended September 30, 2019 and 2018 and the consolidated statements of cash flows
for the nine months ended September 30, 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: Revenue from Contracts with Customers:
Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Services $ 14,327 $ 16,759 $ 46,698 $ 48,179
Software and other 922 1,258 3,310 3,828
Total revenue $ 15,249 $ 18,017 $ 50,008 $ 52,007 Services Revenue Services revenue is comprised primarily of fees
for technology support services. Our service programs are designed for both the consumer and small and medium business (“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 tables represent deferred revenue
activity for the nine months ended September 30, 2019 and three months ended September 30, 2019 and 2018 (in thousands):
Balance as of December 31, 2018 $ 1,315
Deferred revenue 546
Recognition of unearned revenue (583 )
Balance as of September 30, 2019 $ 1,098
Balance as of June 30, 2019 $ 1,210
Deferred revenue 471
Recognition of unearned revenue (583 )
Balance as of September 30, 2019 $ 1,098
Balance as of June 30, 2018 $ 1,450
Deferred revenue 471
Recognition of unearned revenue (727 )
Balance as of September 30, 2018 $ 1,244 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. 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 September 30, 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 September 30, 2019 and December 31, 2018, the fair value of cash,
cash equivalents and investments was $43.2 million and $49.6 million, respectively. The following is a summary of cash, cash equivalents
and investments at September 30, 2019 and December 31, 2018 (in thousands):
As of September 30, 2019 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
Cash $ 9,294 $ — $ — $ 9,294
Money market funds 10,357 — — 10,357
Certificates of deposit 467 — — 467
Commercial paper 4,445 — (1 ) 4,444
Corporate notes and bonds 10,225 9 — 10,234
U.S. government agency securities 9,956 2 — 9,958
$ 44,744 $ 11 $ (1 ) $ 44,754
Classified as:
Cash and cash equivalents $ 22,096 $ — $ — $ 22,096
Short-term investments 22,648 11 (1 ) 22,658
$ 44,744 $ 11 $ (1 ) $ 44,754
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 — (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):
September 30, 2019
December 31, 2018
Due within one year $ 17,828 $ 20,874
Due within two years 4,830 3,593
$ 22,658 $ 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 September 30, 2019 and December 31, 2018 (in thousands):
As of September 30, 2019 Level 1 Level 2 Level 3 Total
Money market funds $ 10,357 $ — $ — $ 10,357
Certificates of deposit — 467 — 467
Commercial paper — 4,444 — 4,444
Corporate notes and bonds — 10,234 — 10,234
U.S. government agency securities — 9,958 — 9,958
Total $ 10,357 $ 25,103 $ — $ 35,460
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 September 30, 2019,
Comcast and Cox Communications accounted for 59% and 28%, respectively, of our total revenue. For the nine months ended September
30, 2019, Comcast and Cox Communications accounted for 64% and 23%, respectively, of our total revenue. For the three months ended
September 30, 2018, Comcast and Cox Communications accounted for 70% and 16%, respectively, of our total revenue. For the nine
months ended September 30, 2018, Comcast and Cox Communications accounted for 70% and 14%, respectively, of our total revenue.
There were no other customers that accounted for 10% or more of total revenue for the three and nine months ended September 30,
2019 and 2018. As of September 30, 2019, Comcast and Cox Communications
accounted for 57% and 27%, respectively, of our total accounts receivable. As of December 31, 2018, Comcast and Cox Communications
accounted for 69% and 15%, respectively, of our total accounts receivable. There were no other customers that accounted for 10%
or more of our total accounts receivable as of September 30, 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 $4,400 and $13,000 at September 30, 2019 and December 31, 2018,
respectively. Self-Funded Health Insurance 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 September 30, 2019, the Company had approximately $437,000 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 40 79 119
Balance as of September 30, 2019 $ (2,398 ) $ 10 $ (2,388 ) 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 income (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 and nine months ended September 30, 2019 and 2018.
There were stock option and award grants during the three and nine months ended September 30, 2019 and 2018.
Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Stock Option Plan:
Risk-free interest rate 1.6 % 2.9 % 1.7 % 2.4 %
Expected term 3 years 3.2 years 3 years 3 years
Volatility 37.3 % 39.5 % 35.6 % 41.2 %
Expected dividend — % — % — % — %
Weighted average fair value (per share) $ 0.43 $ 0.88 $ 0.52 $ 0.84
Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Employee Stock Purchase Plan:
Risk-free interest rate — 2.09 % 2.43 % 2.09 %
Expected term — 0.5 years 0.5 years 0.5 years
Volatility — 32.55 % 32.98 % 32.55 %
Expected dividend — 0 % 0 % 0 %
Weighted average fair value (per share) — $ 0.72 $ 0.24 $ 0.72 We recorded the following stock-based compensation
expense for the three and nine months ended September 30, 2018 and 2017 (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Stock-based compensation expense related to grants of:
Stock options $ 31 $ 38 $ 101 $ 358
Employee Stock Purchase Plan (“ESPP”) - - 13 11
Restricted Stock Units (“RSU”) 48 64 107 217
$ 79 $ 102 $ 221 $ 586
Stock-based compensation
expense recognized in:
Cost of services $ 5 $ 11 $ 31 $ 49
Cost of software and other — — — —
Research and development 6 9 21 33
Sales and marketing 7 14 31 40
General and administrative 61 68 138 464
$ 79 $ 102 $ 221 $ 586 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 September 30, 2019
and 2018 and for the nine months ended September 30, 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 nine months ended September 30, 2018, we were in a loss position, therefore all shares were anti-dilutive.” The following table sets forth the computation
of basic and diluted earnings (loss) per share (in thousands, except per share amounts):
Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Net income (loss) $ 1,593 $ (9,148 ) $ 3,689 $ (9,518 )
Basic:
Weighted-average shares of common stock outstanding and used
in computing basic income (loss) per share 19,011 18,805 18,977 18,786
Basic earnings (loss) per share 0.08 (0.49 ) 0.19 (0.51 )
Diluted:
Weighted-average shares of common stock outstanding 19,011 18,805 18,977 18,786
Add: Common equivalent shares outstanding 34 - 49 -
Shares used in computing diluted earnings (loss) per share 19,045 18,805 19,026 18,786
Diluted earnings (loss) per share $ 0.08 $ (0.49 ) $ 0.19 $ (0.51 ) The following potential common shares outstanding
were excluded from the computation of diluted earnings (loss) per share because including them would have been antidilutive (in
thousands):
As of September 30,
2019 2018
Stock options ... 845 872
RSUs 131 96
976 968 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 September
30, 2019, 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. As of September 30, 2019, there was
an increase in assets of $113,000 and liabilities of $113,000 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 the difference of $0 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 In January 2017, the FASB
issued Accounting Standards Update No. 2017-04, Intangibles Goodwill and Other (Topic 350): Simplifying the
Test for Goodwill Impairment |
