| 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 June 30, 2020 and the consolidated statements of operations and comprehensive income for the three
months ended June 30, 2020 and 2019 and the consolidated statements of cash flows for the six months ended June 30, 2020 and 2019
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, 2019 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, 2019, filed with the SEC on March 18, 2020. 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 June 30, 2020; 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. 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. 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 June 30, Six Months Ended June 30,
2020 2019 2020 2019
Services $ 10,606 $ 15,508 $ 22,117 $ 32,372
Software and other 428 1,188 866 2,388
Total revenue $ 11,034 $ 16,696 $ 22,983 $ 34,760 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
three 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 six months ended June 30, 2020 and 2019 (in thousands): Changes in deferred revenues were as follows:
Balance as
of December 31, 2019 $ 1,193
Deferred revenue 1,452
Recognition of unearned revenue (1,619 )
Balance as of June 30, 2020 $ 1,026
Balance as of December 31, 2018 $ 1,135
Deferred revenue 1,238
Recognition of unearned revenue (1,163 )
Balance as of June 30, 2019 $ 1,210 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 June 30, 2020, 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, and 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 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
June 30, 2020, 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 June 30, 2020 and December 31, 2019, the fair value of cash, cash
equivalents and investments was $29.7 million and $26.4 million, respectively. The following is a summary of cash, cash equivalents
and investments at June 30, 2020 and December 31, 2019 (in thousands):
As of June 30, 2020
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses Fair Value
Cash $ 10,936 $ — $ — $ 10,936
Money market funds 10,297 — — 10,297
Certificates of deposit 455 — — 455
Corporate notes and bonds 5,810 40 — 5,850
U.S. government agency securities 2,150 6 — 2,156
$ 29,648 $ 46 $ — $ 29,694
Classified as:
Cash and cash equivalents $ 21,233 $ — $ — $ 21,233
Short-term investments 8,415 46 — 8,461
$ 29,648 $ 46 $ — $ 29,694
As of December 31, 2019
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses Fair Value
Cash $ 7,814 $ — $ — $ 7,814
Money market funds 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 The following table summarizes the estimated fair
value of our marketable securities classified by the stated maturity date of the security (in thousands):
June 30, 2020
December 31, 2019
Due within one year $ 7,461 $ 12,754
Due within two years 1,000 3,573
$ 8,461 $ 16,327 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 June 30, 2020 and December 31, 2019 (in thousands):
As of June 30, 2020 Level 1 Level 2 Level 3 Total
Money market funds $ 10,297 $ — $ — $ 10,297
Certificates of deposit — 455 — 455
Corporate notes and bonds — 5,850 — 5,850
U.S. government agency securities — 2,156 — 2,156
Total $ 10,297 $ 8,461 $ — $ 18,758
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 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. For the three months ended June 30, 2020, Comcast
and Cox Communications accounted for 46% and 40%, respectively, of our total revenue. For the six months ended June 30, 2020, Comcast
and Cox Communications accounted for 48% and 38%, respectively, of our total revenue. For the three months ended June 30, 2019,
Comcast and Cox Communications accounted for 65% and 22%, respectively, of our total revenue. For the six months ended June 30,
2019, Comcast and Cox Communications accounted for 66% and 21%, respectively, of our total revenue. There were no other customers
that accounted for 10% or more of total revenue for the three and six months ended June 30, 2020 and 2019. 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 June 30, 2020, Comcast and Cox Communications accounted for 47% and 44%, respectively, of
our total accounts receivable. As of June 30, 2019, Comcast and Cox Communications accounted for 67% and 23%, respectively, of
our total accounts receivable. There were no other customers that accounted for 10% or more of our total accounts receivable as
of June 30, 2020 and December 31, 2019. 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 $38,000 and $28,000 at June 30, 2020 and December 31, 2019, 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 June 30, 2020, the Company had approximately $256,000 in reserve for its
self-funded health insurance program. As of December 31, 2019, the Company had approximately $404,000 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 Gains on Investments Total
Balance as of December 31, 2019 $ (2,389 ) $ 9 $ (2,380 )
Current-period other comprehensive income (loss) (222 ) 37 (185 )
Balance as of June 30, 2020 $ (2,611 ) $ 46 $ (2,565 )
Foreign Currency Translation Losses
Unrealized Gains on Investments Total
Balance as of March 31,
2020 $ (2,600 ) $ 8 $ (2,592 )
Current-period other comprehensive income (loss) (11 ) 38 27
Balance as of June 30, 2020 $ (2,611 ) $ 46 $ (2,565 )
Foreign Currency Translation Losses
Unrealized Gains (Losses) on Investments Total
Balance as of December 31, 2018 $ (2,438 ) $ (69 ) $ (2,507 )
Current-period other comprehensive income 105 81 186
Balance as of June 30, 2019 $ (2,333 ) $ 12 $ (2,321 )
Foreign Currency Translation Losses
Unrealized Gains (Losses) on Investments Total
Balance as of March 31,
2019 $ (2,339 ) $ (19 ) $ (2,358 )
Current-period other comprehensive income 6 31 37
Balance as of June 30, 2019 $ (2,333 ) $ 12 $ (2,321 ) 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 six months ended June 30, 2020 and 2019.
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Stock Option Plan:
Risk-free interest rate 0.2 % 1.7 % 0.6 % 1.7 %
Expected term 2 years 3 years 4 years 3 years
Volatility 50.5 % 34.7 % 34.5 % 34.7 %
Expected dividend 0 % 0 % 0 % 0 %
Weighted average fair value (per share) $ 0.38 $ 0.56 $ 0.20 $ 0.56
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Employee Stock Purchase
Plan:
Risk-free interest rate 0.2 % 2.43 % 0.2 % 2.43 %
Expected term 0.5 years 0.5 years 0.5 years 0.5 years
Volatility 97.19 % 32.98 % 97.19 % 32.98 %
Expected dividend 0 % 0 % 0 % 0 %
Weighted average fair value (per share) $ 0.33 $ 0.24 $ 0.33 $ 0.24 We recorded the following stock-based compensation
expense for the three and six months ended June 30, 2020 and 2019 (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Stock-based compensation expense related to grants of:
Stock options $ 31 $ 37 $ 62 $ 70
Employee Stock Purchase Plan (“ESPP”) 4 13 4 13
Restricted Stock Units (“RSU”) 83 40 166 59
$ 118 $ 90 $ 232 $ 142
Stock-based compensation expense recognized in:
Cost of services $ 8 $ 18 $ 13 $ 26
Engineering and IT 3 8 5 15
Sales and marketing 9 12 17 24
General and administrative 98 52 197 77
$ 118 $ 90 $ 232 $ 142 Earnings Per Share Basic earnings per share is computed using our
net income and the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share
is 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 when dilutive. For the three and six months ended June 30, 2020
and 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. The following table sets forth the computation
of basic and diluted earnings per share (in thousands, except per share amounts):
Three Months Six Months
Ended Ended
June 30, June 30,
2020 2019 2020 2019
Net income $ 617 $ 653 $ 981 $ 2,096
Basic:
Weighted-average shares of common stock outstanding and used in computing basic income per share 19,054 18,962 19,060 18,959
Basic earnings per share 0.03 0.03 0.05 0.11
Diluted:
Weighted-average shares of common stock outstanding 19,054 18,962 19,060 18,959
Add: Common equivalent shares outstanding 298 56 276 51
Shares used in computing diluted earnings per share 19,352 19,018 19,336 19,010
Diluted earnings per share $ 0.03 $ 0.03 $ 0.05 $ 0.11 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 June
30, 2020, we have not been required to make any payment resulting from infringement claims asserted against our customers and have
not recorded any related accruals. Leases We recognized 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 determine if an arrangement is a lease
at inception. Operating leases are included in operating lease 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. 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. We account for the lease and non-lease components as a single lease
component. Recent Accounting Pronouncements Recently Adopted Accounting Standards Financial Instruments 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 adopted the new standard
effective January 1, 2020 and the standard did not have an impact in our consolidated financial statements. New Accounting Standards to be adopted in Future Periods Financial Instruments In
June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments. The standard's main goal is to improve financial reporting by requiring earlier recognition of credit
losses on financing receivables and other financial assets in scope. The effective date for all public companies, except smaller
reporting companies, is fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The
effective date for all other entities is fiscal years beginning after December 15, 2022, including interim periods within those
fiscal years. 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 |
