NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
Note 1. 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, 2021 and the
condensed consolidated statements of operations, comprehensive
income (loss), stockholders’ equity, and cash flows for the
three months ended March 31, 2021 and 2020 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, 2020 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 our Annual Report on Form 10-K for the
year ended December 31, 2020, filed with the SEC on March 30,
2020.
Merger Agreement
As
previously disclosed, on March 19, 2021, the Company, Greenidge
Generation Holdings, Inc. (“Greenidge”) and GGH Merger
Sub, Inc., a wholly-owned subsidiary of Greenidge (“Merger
Sub”) entered into an Agreement and Plan of Merger (the
“Merger Agreement”), pursuant to which Merger Sub will
be merged with and into the Company, with the Company continuing as
the surviving corporation and a wholly-owned subsidiary of
Greenidge (such transaction, the “Merger”). The Merger
is subject to certain closing conditions, including the adoption of
the Merger Agreement by a majority of the holders of the
outstanding shares of common stock of the Company entitled to vote
at a special meeting (the “Stockholder
Approval”).
Under the Merger Agreement, the aggregate consideration payable to
holders of shares of common stock of the Company, restricted stock
units (“Support Awards”) and options to purchase shares
of the Company’s common stock (“Support Options”)
consists of 2,998,261 shares of class A common stock, par value
$0.0001 per share, of Greenidge (“Greenidge Class A Common
Stock”) (the “Merger Consideration”). If the
Merger is completed, at the effective time of the Merger and
subject to the terms and conditions set forth in the Merger
Agreement, except for shares held in treasury by the Company, each
outstanding share of the Company’s common stock and each
outstanding Support Award and Support Option will be cancelled and
converted into the right to receive a number of shares of Greenidge
Class A Common Stock equal to an exchange ratio as calculated in
accordance with the Merger Agreement (the “Exchange
Ratio”). Assuming the Merger were to be completed as of May
3, 2021, the Merger Consideration would represent approximately
7.7% of the outstanding capital stock of Greenidge, after giving
effect to the shares to be issued in or underlying the Greenidge
Issuances (as defined below), and the current stockholders of
Greenidge would own approximately 90.0% of the outstanding capital
stock of Greenidge, after giving effect to the shares to be issued
in or underlying the Greenidge Issuances. “Greenidge
Issuances” means the issuance of (i) from and after
consummation of the Merger, 562,174 shares of Greenidge Class A
Common Stock to 210 Capital as a consulting fee in connection with
the transactions contemplated by the Merger Agreement, (ii) from
and after consummation of the Merger, options or warrants to
purchase 344,800 shares of Greenidge Class A Common Stock at an
exercise price of $6.25 per share of Greenidge Class A Common Stock
to B. Riley Securities, Inc., (iii) 160,000 shares of class B
common stock, par value $0.0001 per share, of Greenidge
(“Greenidge Class B Common Stock”, and together with
Greenidge Class A Common Stock, “Greenidge Common
Stock”) issued as consideration for bitcoin mining equipment,
and (iv) all of the shares of Greenidge Common Stock underlying
outstanding vested options reserved under Greenidge’s 2021
Equity Incentive Plan.
If the
Merger Agreement is terminated under certain circumstances, the
Company would be required to pay a termination fee.
In connection with and as a condition to Greenidge’s
willingness to enter into the Merger Agreement, on March 19, 2021,
the Company entered into a subscription agreement (the
“Subscription Agreement”) with 210 Capital, pursuant to
which 210 Capital subscribed for and purchased, and the Company
issued and sold, an aggregate of 3,909,871 shares of the
Company’s Common Stock for a purchase price of $1.85 per
share, for aggregate gross proceeds to the Company of
$7,233,261.35. Pursuant to and subject to the terms and conditions
set forth in the Subscription Agreement, among other things, and
only upon any termination of the Merger Agreement, the Company has
agreed that, not later than the earlier of (i) thirty (30) days
following the date of such termination and (ii) December 31, 2021
(such earlier date, the “Post-Termination Date”), it
will increase the size of the Board in order to appoint two
individuals designated by 210 Capital (each, a
“Designee”) to the Board for a term expiring at the
next succeeding annual meeting of the Company’s stockholders.
At such year’s annual meeting of the Company’s
stockholders, the Company has agreed to nominate each Designee for
election as a director with a term expiring at the subsequent
annual meeting of the Company’s stockholders, subject to
certain terms and conditions provided in the Subscription
Agreement. On and after the Post-Termination Date, so long as 210
Capital beneficially owns at least 10% of the Company’s
common stock on an as-converted basis, 210 Capital will have the
right to designate two Designees as nominees for election to the
Board. So long as 210 Capital beneficially owns between 5% and 10%
of the Company’s common stock on an as-converted basis, 210
Capital will have the right to designate one Designee as a nominee
for election to the Board.
Greenidge filed with the SEC a registration statement on Form S-4
(the “Form S-4”) on May 4, 2021 to register the Merger
Consideration, which also constitutes a proxy statement of Support
under Section 14(a) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). Upon the effectiveness of
the Form S-4, the Company intends to solicit the Stockholder
Approval. The Merger is expected to close during the third quarter
of 2021.
Four lawsuits relating to the Merger have
been filed, each by an individual stockholder of the
Company. Two lawsuits have been filed in the United States District Court for the
District of Delaware: Stein v. Support.com, Inc.
et al, Case No.
1:21-cv-00650-UNA, filed on May 5, 2021, and Bell v. Support.com, Inc. et
al, Case No.
1:21-cv-00672-UNA, filed on May 7, 2021. The other lawsuits
have been filed in the United States District Court for the Eastern
District of New York and the United States District Court for the
Southern District of New York, respectively: Steinmetz v. Support.com, Inc. et al,
Case No. 1:21-cv-02647-UNA, filed on May 11, 2021, and Broder v. Support.com, Inc. et al, Case
No. 1:21-cv-04262-UNA, filed on May 12, 2021. The
Company and individual members of
the Board are named as defendants in the Stein and Steinmetz complaints, and the Company, individual members of the
Board, Greenidge and Merger Sub are named as defendants in
the Bell complaint. The Stein, Bell,
Steinmetz and Broder complaints generally allege that
the defendants violated the Exchange Act by failing to disclose
material information in the Form S-4, and generally seek, among
other things, injunctive relief prohibiting consummation of the
Merger and unspecified damages and attorneys’ fees. The
Company believes that the allegations made in the complaints are
without merit.
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 millions 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, our
operations have not been significantly impacted; however, we
continue 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 March 31, 2021; however, due to
significant uncertainty surrounding the situation, management's
judgment regarding this could change in the future. In addition,
while our 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 accounting
principles generally accepted 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 valuation
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. Revenue is disaggregated by type as
presented in the condensed consolidated statements of operations
and is consistent with how we evaluate our financial
performance.
Services Revenue
Services revenue is primarily comprised of fees
for customer support and technology support services. Our service
programs are designed for enterprise clients, as well as the
consumer and small and medium business (“SMB”)
markets, and include customer service,
sales support, and technical support, including computer and mobile
device set-up, security and support, virus and malware removal,
wireless network set-up, and automation system onboarding and
support.
We
offer customer support, technical support, and technology services
to large corporations, consumers and SMBs, directly and 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. In direct transactions, we sell
directly to the customer at the retail price.
The
services described above include four types of
offerings:
●
Time-Based
Services - In connection with the provisions of certain services
programs, fees are calculated based on contracted time-based rates
with partners. For these programs, we recognize revenue as services
are performed, based on billable time 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.
●
Tier-Based
Services – In connection with the provisions of certain
services programs, fees are calculated on partner subscription
tiers based on number of subscribers. For these programs, we
recognize revenue as services are performed, and are billed based
on the tier level of number of subscribers supported by our
experts.
●
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 represents deferred revenue activity for the three months
ended March 31, 2021 and 2020 (in thousands):
|
Balance
at December 31, 2020
|
$881
|
|
Deferred
revenue
|
1,257
|
|
Recognition
of unearned revenue
|
(992)
|
|
Balance
at March 31, 2021
|
$1,146
|
|
|
|
|
|
|
|
Balance
at December 31, 2019
|
$1,193
|
|
Deferred
revenue
|
403
|
|
Recognition
of unearned revenue
|
(459)
|
|
Balance
at March 31, 2020
|
$1,137
|
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 March 31, 2021, revenues from implementation services are not
material.
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 primarily on an annual subscription with
automatic renewal. We provide regular, significant upgrades over
the subscription period and therefore recognize revenue for these
products ratably over the subscription period. 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 software upgrades
are unpredictable and therefore we recognize revenue consistent
with the sale of the 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.
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.
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 notes and bonds, and U.S. government agency securities.
Our interest income on cash, cash equivalents and investments is
included in interest income and other, net in the condensed
consolidated statements of operations.
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
condensed consolidated balance sheets and in the condensed
consolidated statements of comprehensive income (loss). We view
this investment portfolio as available for use in our current
operations, and therefore, we present marketable securities as
short-term assets.
We
monitor our investments for impairment on a quarterly basis to
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, our intent to sell the security and our 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 the 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 March 31, 2021, we evaluated unrealized losses on
marketable securities and determined them to be temporary. We
currently do not intend to sell securities with unrealized losses
and concluded that we will not be required to sell these securities
before the recovery of their amortized cost basis. At March 31,
2021 and December 31, 2020, the fair value of cash, cash
equivalents and investments was $29.7 million and $30 million,
respectively.
The
following is a summary of cash, cash equivalents and investments at
March 31, 2021 and December 31, 2020 (in thousands):
|
As of March 31, 2021
|
|
|
|
|
|
Cash
|
$9,016
|
$-
|
$-
|
$9,016
|
|
Money
market funds
|
19,989
|
-
|
-
|
19989
|
|
Certificates
of deposit
|
499
|
-
|
-
|
499
|
|
Commercial
paper
|
1,524
|
-
|
-
|
1524
|
|
Corporate
notes and bonds
|
6,994
|
-
|
(1)
|
6993
|
|
|
1,000
|
-
|
-
|
1000
|
|
Total
|
$39,022
|
$-
|
$(1)
|
$39,021
|
|
|
|
|
|
|
|
Classsified
as:
|
|
|
|
|
|
Cash
and cash equivalents
|
$29,005
|
$-
|
$-
|
$29,005
|
|
Short-term
investments
|
10,017
|
-
|
(1)
|
10,016
|
|
Total
|
$39,022
|
$-
|
$(1)
|
$39,021
|
|
As of December 31, 2020
|
|
|
|
|
|
Cash
|
$10,918
|
$-
|
$-
|
$10,918
|
|
Money
market funds
|
1,258
|
-
|
-
|
1,258
|
|
Certificates
of deposit
|
492
|
-
|
-
|
492
|
|
Commercial
paper
|
3,274
|
-
|
(1)
|
3,273
|
|
Corporate
notes and bonds
|
9,423
|
4
|
-
|
9,427
|
|
|
4,599
|
-
|
-
|
4,599
|
|
Total
|
$29,964
|
$4
|
$(1)
|
$29,967
|
|
|
|
|
|
|
|
Classsified
as:
|
|
|
|
|
|
Cash
and cash equivalents
|
13,526
|
-
|
-
|
13,526
|
|
Short-term
investments
|
16,438
|
4
|
(1)
|
16,441
|
|
Total
|
$29,964
|
$4
|
$(1)
|
$29,967
|
The
following table summarizes the estimated fair value of our
marketable securities classified by the stated maturity date of the
security (in thousands):
|
|
|
|
|
Due
within one year
|
$8,591
|
$13,248
|
|
Due
within two years
|
1,425
|
3,193
|
|
|
$10,016
|
$16,441
|
Fair Value Measurements
Accounting
Standards Codification (“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 price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
Valuation techniques used to measure fair value according to 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:
●
Level 1 –
Quoted prices for identical instruments in active
markets.
●
Level 2
–
Quoted prices for similar instruments in active markets, quoted
prices for identical or similar instruments in markets that are not
active, and model derived valuations in which all significant
inputs and significant value drivers are observable in active
markets.
●
Level 3
–
Valuations derived from valuation techniques in which one or more
significant inputs or significant value drivers are
unobservable.
In
accordance with ASC 820, financial assets (cash equivalents and
investments) are measured at fair value on a recurring basis. Money
market funds, which are cash equivalents, are measured at fair
value using level 1 inputs. Certificates of deposit, commercial
paper, corporate notes and bonds, and U.S. government agency
securities, which are short-term investments, are measured at fair
value using level 2 inputs.
For
short-term investments, we review trading activity and pricing 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
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 condensed consolidated balance sheets.
For the
three months ended March 31, 2021 and 2020, our two largest
customers accounted for 83% and 84% of total revenue, respectively.
There were no other customers that accounted for 10% or more of
total revenue for the three months ended March 31, 2021 and
2020.
The
credit risk in trade accounts receivable is substantially mitigated
by reasonably short payment terms and an evaluation of the
customers’ financial conditions when we enter into business
with them. As of March 31, 2021, our two largest customers
accounted for 92% of total accounts receivable. As of December 31,
2020, our two largest customers accounted for 90% of total accounts
receivable. There were no other customers that accounted for 10% or
more of our total accounts receivable as of March 31, 2021 and
December 31, 2020.
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.
As of March 31, 2021, and December 31, 2020, allowance for doubtful
accounts was $4,000 and $4,000, respectively.
Self-Funded Health Insurance
Prior
to the current period, we maintained 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. The
program was terminated at December 31, 2020. However, previously
incurred-but-not-reported claims and related expenses were incurred
during the current quarter. With respect to this program, we
considered historical and projected medical utilization data when
estimating the health insurance program liability and related
expense. As of March 31, 2021, $0.1 million was in reserve for the
self-funded health insurance program. As of December 31, 2020, $0.2
million was in reserve for the self-funded health insurance
program. The reserve is included in other accrued liabilities on
the condensed consolidated balance sheets.
We
regularly analyze our reserves for incurred-but-not-reported claims
and for reported-but-not-paid claims related to the self-funded
insurance program. We believe our 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 relate entirely
to accumulated foreign currency translation losses associated with
our foreign subsidiaries and unrealized losses on
investments.
Realized
gains/losses on investments reclassified from accumulated other
comprehensive loss are reported as interest income and other, net
in the condensed 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,
which requires the measurement and recognition of compensation
expense for all stock-based payment awards, including grants of
restricted stock units (“RSUs”) and options to purchase
stock, made to employees and directors based on estimated fair
values.
In
accordance with ASC 718, Compensation - Stock Compensation, we
recognize stock-based compensation by measuring the cost of
services to be rendered based on the grant date fair value of the
equity award. We recognize stock-based compensation over the period
an employee is required to provide service in exchange for the
award, generally referred to as the requisite service period. For
awards with market-based performance conditions, the cost of the
awards is recognized as the requisite service is rendered by
employees, regardless of when, if ever, the market-based
performance conditions are satisfied.
The
Black-Scholes option pricing model is used to estimate the fair
value of service-based stock options and shares purchased under our
Employee Stock Purchase Plan (“ESPP”). The
determination of the fair value of options is affected by our stock
price and a number of assumptions, including expected volatility,
expected life, risk-free interest rate and expected dividends. We
use historical data for estimating the expected volatility and
expected life of stock options required in the Black-Scholes model.
The risk-free interest rate assumption is based on observed
interest rates appropriate for the expected terms of the stock
options.
The
Monte-Carlo simulation model is used to estimate fair value of
market-based performance stock options. The Monte-Carlo simulation
model calculates multiple potential outcomes for an award and
establishes a fair value based on the most likely outcome. Key
assumptions for the Monte-Carlo simulation model include the
risk-free rate, expected volatility, expected dividends and the
correlation coefficient.
The
fair value of restricted stock grants is based on the closing
market price of our stock on the date of grant less the expected
dividend yield.
Earnings Per Share
Basic
earnings per share is computed using net income and the
weighted-average number of common shares outstanding during the
reporting period. Diluted earnings per share is computed using 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.
The
following table sets forth the computation of basic and diluted
earnings per share for the three months ended March 31, 2021 and
2020 (in thousands, except per share amounts):
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
$(1,995)
|
$364
|
|
|
|
|
|
Earnings
per share - basic and diluted
|
$(0.10)
|
$0.02
|
|
|
|
|
|
Weighted-average
shares of common stock outstanding - basic
|
20,205
|
19,054
|
|
Weighted-average
shares of common stock outstanding - diluted
|
20,205
|
19,233
|
Warranties and Indemnifications
We
generally provide a refund period on direct-to-consumer sales,
during which refunds may be granted to consumers under certain
circumstances, including the inability to resolve certain support
issues. For channel sales of our direct-to-consumer offering, 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 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 customers against legal claims that
end-user software products infringe certain third-party
intellectual property rights. As of March 31, 2021, we have not
been required to make any payment resulting from infringement
claims asserted against customers and have not recorded any related
accruals.
Leases
We
account for leases in accordance with ASC 842. We recognize
operating and finance lease liabilities and corresponding
right-of-use (“ROU”) assets on the condensed
consolidated balance sheets and 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 condensed consolidated balance
sheets. Finance leases are included in property and equipment,
other current liabilities, and other long-term liabilities in our
condensed consolidated balance sheets.
ROU
assets represent the right to use an underlying asset for the lease
term and lease liabilities represent the 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. The
implicit rate is used when readily determinable. The operating
lease ROU asset also includes any lease payments made and excludes
lease incentives. The 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.
We
have entered into various non-cancelable operating lease agreements
for certain offices and certain equipment. No leases have been
entered in to and no leases have been renewed in the current
quarter. The Sunnyvale, California office lease expired on March
31, 2021 and the Louisville, Colorado office lease will expire on
April 30, 2021.
Recent Accounting Pronouncements
Recently Adopted Accounting Standards
In August 2018, the FASB issued Accounting
Standard Update (“ASU”) 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 on the consolidated financial
statements.
In December 2019, the
FASB issued ASU No. 2019-12, Income
Taxes (Topic
740): Simplifying
the Accounting for Income Taxes (ASU 2019-12), which
simplifies the accounting for income taxes. We adopted the new
standard effective January 1, 2021. The adoption had an immaterial
impact on the Company’s consolidated financial
statements.
New Accounting Standards to be adopted in Future
Periods
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 new
standard to have a material impact on the consolidated financial
statements.
The Company reviewed all other recently issued, but not yet
effective, accounting pronouncements and does not expect the future
adoption of any such pronouncements will have a material impact on
the consolidated financial statements.
Note 2. Income Taxes
We
recorded an income tax provision of $17,000 and $49,000 for the
three months ended March 31, 2021 and 2020, respectively. The
income tax provision for interim periods is determined using an
estimate of the annual effective tax rate, adjusted for discrete
items, if any, that are taken into account in the relevant period.
Each quarter, the estimate of the annual effective tax rate is
updated, and if the estimated effective tax rate changes, a
cumulative adjustment is made. There is a potential for volatility
of the effective tax rate due to several factors, including changes
in the mix of the pre-tax income and the jurisdictions to which it
relates, changes in tax laws and settlements with taxing
authorities and foreign currency fluctuations.
As of
March 31, 2021, deferred tax assets are fully offset by a valuation
allowance, except in those jurisdictions where it is determined
that a valuation allowance is not required.
ASC
740, Income Taxes, provides
for the recognition of deferred tax assets if realization of such
assets is more likely than not. Based upon the weight of available
evidence, which includes historical operating performance, reported
cumulative net losses since inception and difficulty in accurately
forecasting our future results, we provided a full valuation
allowance against net U.S. deferred tax assets and a partial
valuation allowance against foreign deferred tax assets. We
reassess the need for a valuation allowance on a quarterly basis.
If it is later determined that a portion or all of the valuation
allowance is not required, it generally will be a benefit to the
income tax provision in the period such determination is
made.
We do
not anticipate a material change in the total amount or composition
of our unrecognized tax benefits as of March 31, 2021.
Note 3. Commitments and Contingencies
Contingencies
We account for contingent liabilities
in accordance with ASC 450, Contingencies.
This guidance requires management to assess potential contingent
liabilities that may exist as of the date of the financial
statements to determine the probability and amount of loss that may
have occurred, which inherently involves an exercise of judgment.
If the assessment of a contingency indicates that it is probable
that a material loss has been incurred and the amount of the
liability can be estimated, then the estimated liability would be
accrued in the financial statements. If the assessment indicates
that a potential material loss contingency is not probable but is
reasonably possible, or is probable but cannot be estimated, then
the nature of the contingent liability, and an estimate of the
range of possible losses, if determinable and material, would be
disclosed. For loss contingencies considered remote, no accrual or
disclosures are generally made.
Legal matters
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, requiring
us to produce certain documents and materials and to answer certain
interrogatories relating to PC Healthcheck, an obsolete software
program that we developed on behalf of a third party for their use
with their customers. The investigation relates to us providing
software like PC Healthcheck to third parties for their use prior
to December 31, 2016, when we were under management of the previous
Board and executive team. Since issuing the CID, the FTC has sought
additional written and testimonial evidence. We have cooperated
fully with the FTC’s investigation and provided all requested
information. In addition, we have not used PC Healthcheck nor
provided it to any customers since December
2016.
On March 9, 2018, the FTC notified us that it was willing to engage
in settlement discussions. On November 6, 2018, Support.com and the
FTC entered into a proposed Stipulation to Entry of Order for
Permanent Injunction and Monetary Judgment (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 resolved the FTC’s multi-year
investigation of Support.com.
Pursuant to the Consent Order, under which we neither admitted nor
denied the FTC’s allegations (except as to the Court having
jurisdiction over the matter), the FTC agreed to accept a payment
of $10 million in settlement of the matter, subject to the factual
accuracy of the information we provided as part of our financial
representations. The $10 million payment was made on April 1, 2019
and was recognized in operating expenses within our consolidated
statements of operations for the year ended December 31,
2018.
Additionally, pursuant to the Consent Order, we agreed to implement
certain new procedures and enhance certain existing procedures. For
example, the Consent Order necessitates that we cooperate with
representatives of the Commission on associated investigations if
needed; imposes requirements on Support.com regarding obtaining
acknowledgements of the Consent Order and compliance certification,
including record creation and maintenance; and prohibits us 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. We continue to monitor the
impact of the Consent Order regularly. If we are unable to comply
with the Consent Order, then this could result in a material and
adverse impact to the results of operations and financial
condition.
Verizon Media. As previously disclosed, On
March 22, 2010, the Company and AOL Fulfillment Services, who now
does business as Verizon Media (“Verizon Media”),
entered into a Fulfillment Services Promotion and Marketing
Agreement (“Agreement”). The Agreement related to the
development and sale of certain products and services. The Company
sold software products to Verizon Media pursuant to the terms of
the Agreement under two programs – SUPERAntiSpyware and
Computer Check-Up. Verizon Media offered these software products to
its end-customers. On May 24, 2019, the Company received a letter
from Verizon Media providing notice that it wished to terminate the
Agreement and work with the Company to wind-down all remaining
subscriptions for both programs. The Company has wound-down all
services under the Computer Check-Up program and the
SUPERAntiSpyware program. In connection with the termination of the
Computer Check-Up program, Verizon Media requested that the Company
fund rebates to its end-customers who elect to accept a refund
offer from Verizon Media. Although the Company, to date, has not
agreed with this request, Verizon Media commenced its rebate
program.
On
November 15, 2019, the Company received a letter from Verizon Media
informing the Company that, to date, Verizon Media has issued
rebates totaling $2.6 million and requesting reimbursement of this
amount from the Company (the “Dispute”). Subsequently,
the parties entered into negotiations toward a settlement of any
potential claims, which culminated in the execution of a
Confidential Settlement and Release Agreement dated September 29,
2020, pursuant to which the Company issued a one-time payment to
Verizon Media in exchange for a full and complete release from any
claims related to or arising out of the Dispute. The Company
admitted no liability and incurred no financial impact from the
settlement, as the payment was funded by the Company’s
insurance carrier.
Other Matters
We have
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. We intend to cooperate with
these information requests and is not aware of any other legal
proceedings against us 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 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 our 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 these
thresholds are not met, 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. During the three months ended March 31, 2021 and
2020, we did not incur any costs as a result of such obligations.
We have not accrued any liabilities related to such obligations in
the condensed consolidated financial statements as of March 31,
2021 and December 31, 2020.
Note 4. Stockholder’s Equity
During
the three months ended March 31, 2021, 0.59 million shares of
common stock were issued as a result of the exercise of stock
options. During the three months ended March 31, 2020, no shares of
common stock were issued as a result of the exercise of stock
options.
During
the three months ended March 31, 2021, 0.1 million shares of common
stock were issued as a result of RSU releases. During the three
months ended December 31, 2020, no shares of common stock were
issued as a result of RSU releases.
During
the three months ended March 31, 2021, and 2020 no shares of common
stock were issued under the ESPP.
During
the three months ended March 31, 2021, in connection with the
Merger Agreement (as defined above), the Company issued and sold
approximately 3.9 million shares of the Company’s common
stock to 210 Capital, LLC (“210 Capital”), pursuant to
a stock subscription agreement with 210 Capital. Refer to Note 1
and Item 2 for additional transaction details regarding the Merger
with Greenidge.
Stock Repurchase Program
On
April 27, 2005, our Board of Directors (“Board”)
authorized the repurchase of up to 666,666 outstanding shares of
our common stock. As of March 31, 2021, the maximum number of
shares remaining that can be repurchased under this program was
602,467. No shares were repurchased during the three and nine
months ended March 31, 2021. We do not intend to repurchase shares
without further approval from the Board.
Note 5. Stock-Based Compensation
Equity Compensation Plans
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 approval from our 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. At the 2020
Annual Meeting, our stockholders approved the amendment and
restatement of the Second Amended and Restated 2010 Stock Plan
(such plan, after the amendment and restatement is now be the Third
Amended and Restated 2010 Equity and Performance Incentive Plan,
referred to herein as the “Restated Plan”). The purpose
of amending the 2010 Stock Plan was (i) to increase the number of
shares of common stock available for issuance under the Restated
Plan by 2,000,000 shares, (ii) to extend the term of the 2010 Stock
Plan, which otherwise expires on May 19, 2020, so that the Restated
Plan will continue until terminated by the Board in its discretion,
and (iii) to eliminate obsolete provisions while adding other
provisions consistent with certain compensation and governance best
practices. As of March 31, 2021, approximately 4.0 million shares
remain available for grant under the Restated Plan.
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. As of
March 31, 2021, approximately 0.2 million shares remain available
for grant under the Inducement Plan.
Employee Stock Purchase Plan
Effective May 15,
2011, our Board and stockholders approved an ESPP and reserved
333,333 shares of our common stock for issuance. The ESPP was
established to advance our interests and our stockholders'
interests by providing an incentive to attract, retain and reward
eligible employees and by motivating such persons to contribute to
our growth and profitability. At the 2020 Annual Meeting of
stockholders, our stockholders approved a proposal amending and
restating the 2011 ESPP to (i) increase the maximum number of
shares of common stock available for future issuance under the ESPP
by 1,000,000 shares, (ii) extend the
term, which otherwise would have expired on May 15, 2021, so that
the ESPP will continue until terminated by the Board in its
discretion, and (iii) make certain other administrative
changes.
The
ESPP consists of six-month offering periods during which employees
may enroll in the plan. Shares of common stock may be purchased
under the ESPP at a price established by the Compensation Committee
of the Board of Directors, provided that the price may 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. As of March 31, 2021, approximately 1.1 million
shares remain available for issuance under the ESPP.
Stock-Based Compensation
In
accordance with accounting guidance for stock-based compensation,
payments in equity instruments for goods or services are accounted
for by the fair value method. For the three months ended March 31,
2021 and 2020, stock-based compensation expense was $0.2 million
and $0.1 million, respectively.
As of
March 31, 2021, $0.9 million of unrecognized compensation cost
related to existing options was outstanding, which is expected to
be recognized over a weighted average period of 2.75 years. As of
March 31, 2021, $0.1 million of unrecognized compensation cost
related to RSUs was outstanding, which is expected to be recognized
within one year.
Stock Options
The
following table represents the stock option activity for the three
months ended March 31, 2021:
|
|
Number of Shares (in thousands)
|
Weighted Average Exercise Price per Share
|
Weighted Average Remaining Contractual Term (in years)
|
Aggregate Intrinsic Value (in thousands)
|
|
Outstanding
at December 31, 2020
|
2,629
|
$1.64
|
8.79
|
$1,605
|
|
Granted
|
10
|
2.13
|
9.81
|
|
|
Exercised
|
(589)
|
1.69
|
-
|
|
|
Forfeited
|
(132)
|
1.88
|
-
|
|
|
Outstanding
at March 31, 2021
|
1,918
|
$1.61
|
8.87
|
$5,771
|
|
|
|
|
|
|
|
Exercisable
at March 31, 2021
|
302,955
|
$1.63
|
6.50
|
951
|
Restricted
Stock Units
The following table represents RSU activity for the three months
ended March 31, 2021:
|
|
Number of Shares (in thousands)
|
Weighted Average Exercise Price per Share
|
Weighted Average Remaining Contractual Term (in years)
|
Aggregate Intrinsic Value (in thousands)
|
|
Outstanding
at December 31, 2020
|
131
|
$2.05
|
0.7
|
$287
|
|
Granted
|
100
|
2.15
|
|
|
|
Released
|
(100)
|
$2.15
|
|
|
|
Forfeited
|
-
|
-
|
|
|
|
Outstanding
at March 31, 2021
|
131
|
1.97
|
0.45
|
$599
|
|
|
|
|
|
|
|
Exercisable
at March 31, 2021
|
-
|
-
|
|
-
|