NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Note 1. Organization and Summary of Significant Accounting
Policies
Nature of Operations
Support.com,
Inc. (“Support.com,” “the Company,”
“We” or “Our”) was incorporated in the
state of Delaware on December 3, 1997. Our common stock trades on
the Nasdaq Capital Market under the symbol
“SPRT.”
We
provide customer and technical support solutions delivered by
home-based employees. Our homesourcing model, which enables
outsourced work to be delivered by people working from home, has
been specifically designed for remote work and optimized for
security, recruiting, training, delivery and employee
engagement.
We
provide outsourced customer care and cloud-based technology
platforms to companies in multiple industry verticals, helping them
strengthen customer relationships and brand loyalty, increase
revenue, and reduce costs. We serve clients in verticals such as
healthcare, retail, communication services, and technology with
omnichannel programs that include voice, chat, and self-service. We
meet client needs through our scalable, global network of
home-based employees and secure, proprietary, cloud-based
platforms. With our fully distributed team, we are able to flex
staffing levels and skill sets to address client requirements,
offering business process continuity. We custom-profile customer
care professionals (called “experts”) who meet the
requirements for the work-from-home environment and for specific
client criteria related to industry experience, skill set,
etc.
We
offer fully-managed premium technical support programs to our
enterprise clients that are upsold to the clients’ end
customers. These tailored programs can be bundled with
complementary services or offered on a stand-alone basis as a
subscription or one-time purchase. These tech support programs help
clients drive incremental revenue, reduce costs, and increase
customer satisfaction.
Basis of Presentation
The
consolidated financial statements include the accounts of
Support.com and its wholly-owned foreign subsidiaries. All
intercompany transactions and balances have been
eliminated.
Re-issuance of Financial Statements
The
financial statements have been reissued to revise the segment
information disclosure in Note 1, to identify and breakout the
significant customers and respective percentages of
revenue.
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.
During 2020 and as of the financial statement date of issuance, our
operations have not been significantly impacted; however, we
continue to monitor the situation. With respect to the pandemic, no
impairments were recorded as of the balance sheet date as no
triggering events or changes in circumstances had occurred as of
December 31, 2020; 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 have not been
significantly impacted to date, they could be negatively impacted
in the future. The extent of the impact, if any, cannot be
reasonably estimated at this time.
Foreign Currency Translation
The
functional currency of our foreign subsidiaries is generally the
local currency. Assets and liabilities of our wholly owned foreign
subsidiaries are translated from their respective functional
currencies at exchange rates in effect at the balance sheet date,
and revenues and expenses are translated at average exchange rates
prevailing during the year. Any material resulting translation
adjustments are reflected as a separate component of
stockholders’ equity in accumulated other comprehensive
income. Realized foreign currency transaction gains (losses) were
not material during the years ended December 31, 2020 and
2019.
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 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.
Concentrations of Credit Risk
Financial
instruments that potentially subject us to concentrations of credit
risk consist principally of cash equivalents, investments and trade
accounts receivable. Periodically throughout the year, we have
maintained balances in various operating accounts in excess of
federally insured limits. Our investment portfolio consists of
investment grade securities. Except for obligations of the United
States government and securities issued by agencies of the United
States government, we diversify our investments by limiting our
holdings with any individual issuer. We are exposed to credit risks
in the event of default by the issuers to the extent of the amount
recorded on the 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.
Cash, Cash Equivalents and Investments
All
liquid instruments with an original maturity at the date of
purchase of 90 days or less are classified as cash equivalents.
Cash equivalents and short-term investments consist primarily of
money market funds, certificates of deposit, commercial paper,
corporate and municipal bonds. Our interest income on cash, cash
equivalents and investments is recorded monthly and reported as
interest income and other in our consolidated statements of
operations.
Our
cash equivalents and short-term investments are classified as
investments 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.
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, our intent to sell the security and our belief that
we 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, 2020, we evaluated unrealized losses on
security investments and determined them to be temporary. We
currently do not intend to sell securities with unrealized losses,
and we concluded that we will not be required to sell these
securities before the recovery of their amortized cost
basis.
At
December 31, 2020 and 2019, the estimated fair value of cash, cash
equivalents and investments was $30.0 million and $26.4 million,
respectively. At December 31, 2020 and 2019, the amount of our
foreign subsidiary cash, cash equivalents and investments was $4.3
million and $4.2 million, respectively. The following is a summary
of cash, cash equivalents and investments at December 31, 2020 and
2019 (in thousands):
|
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
|
|
U.S.
government treasury
|
4,599
|
—
|
—
|
4,599
|
|
|
$29,964
|
$4
|
$(1)
|
$29,967
|
|
Classified
as:
|
|
|
|
|
|
Cash
and cash equivalents
|
$13,526
|
$—
|
$—
|
$13,526
|
|
Short-term
investments
|
16,438
|
4
|
(1)
|
16,441
|
|
|
$29,964
|
$4
|
$(1)
|
$29,967
|
|
As of December 31, 2019
|
|
|
|
|
|
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):
|
|
|
|
|
|
|
|
Due
within one year
|
$13,248
|
$12,754
|
|
Due
within two years
|
3,193
|
3,573
|
|
|
$16,441
|
$16,327
|
We
determined that the gross unrealized losses on our security
investments as of December 31, 2020 are temporary in nature. The
fair value of our security investments at December 31, 2020 and
2019 reflects net unrealized gains of $3,000 and $9,000,
respectively. There were net realized gains of $1,000 and $2,000 on
security investments in the years ended December 31, 2020 and 2019,
respectively. The cost of securities sold is based on the specific
identification method.
The
following table sets forth the unrealized gains/losses for security
investments as of December 31, 2020 and 2019 (in
thousands):
|
As of December 31, 2020
|
In Gain Position
Less Than 12 Months
|
In Loss Position
More Than 12 Months
|
|
|
Description
|
|
|
|
|
|
|
|
Certificates
of deposit
|
$492
|
$—
|
$—
|
$—
|
$492
|
$—
|
|
Corporate
notes and bonds
|
9,502
|
5
|
3,195
|
(2)
|
12,697
|
3
|
|
U.S.
government agency securities
|
4,599
|
—
|
—
|
—
|
4,599
|
—
|
|
Total
|
$14,593
|
$6
|
$3,195
|
$(2)
|
$17,788
|
$3
|
|
As of December 31, 2019
|
In Gain Position
Less Than 12 Months
|
In Loss Position
More Than 12 Months
|
|
|
Description
|
|
|
|
|
|
|
|
Certificates
of deposit
|
$475
|
$—
|
$—
|
$—
|
$475
|
$—
|
|
Corporate
notes and bonds
|
10,120
|
15
|
4,714
|
(5)
|
14,834
|
10
|
|
U.S.
government agency securities
|
2,145
|
(1)
|
—
|
—
|
2,145
|
(1)
|
|
Total
|
$12,740
|
$14
|
$4,714
|
$(5)
|
$17,454
|
$9
|
Trade Accounts Receivable and Allowance for Doubtful
Accounts
Trade
accounts receivable are recorded at the invoiced amount. We perform
evaluations of our customers’ financial condition and
generally do not require collateral. We make judgments as to our
ability to collect outstanding receivables and provide allowances
for a portion of receivables when collection becomes doubtful. Our
allowances are made based on a specific review of all significant
outstanding invoices. For those invoices not specifically provided
for, allowances are recorded at differing rates, based on the age
of the receivable. In determining these rates, we analyze our
historical collection experience and current payment trends. The
determination of past-due accounts is based on contractual
terms.
The
following table summarizes the allowance for doubtful accounts as
of December 31, 2020 and 2019 (in thousands):
|
|
|
|
Balance,
December 31, 2018
|
$13
|
|
Provision
for doubtful accounts
|
40
|
|
Accounts
written off
|
(25)
|
|
Balance,
December 31, 2019
|
28
|
|
Provision
for doubtful accounts
|
37
|
|
Accounts
written off
|
(61)
|
|
Balance,
December 31, 2020
|
$4
|
As
of December 31, 2020 and 2019, our two largest customers accounted
for approximately 90% and 92% of our total accounts receivable,
respectively. No other customers accounted for 10% or more of our
total accounts receivable as of December 31, 2020 and
2019.
Property and Equipment
Property
and equipment are stated at cost, less accumulated depreciation and
amortization which is determined using the straight-line method
over the estimated useful lives of two to five years for computer
equipment and software, three years for furniture and fixtures, and
the shorter of the estimated useful lives or the lease term for
leasehold improvements. Repairs and maintenance costs are expensed
as they are incurred.
Intangible Assets
In
December 2006, we acquired the use of a toll-free telephone number
for cash consideration of $250,000. This asset had an indefinite
useful life. The intangible asset is tested for impairment annually
or more often if events or changes in circumstances indicate that
the carrying value may not be recoverable. During the year ended
December 31, 2020, we determined this indefinite-lived intangible
asset was fully impaired, and we recognized a non-cash impairment
loss as an operating expense in our consolidated statement of
operations.
Long-Lived Assets
We
assess long-lived assets, which includes property and equipment and
identifiable intangible assets, for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. An impairment loss would be
recognized when the sum of the future net cash flows expected to
result from the use of the asset and its eventual disposition is
less than its carrying amount. If our estimates regarding future
cash flows derived from such assets were to change, we may record
an impairment charge to the value of these assets. Such impairment
loss would be measured as the difference between the carrying
amount of the asset and its fair value.
Leases
We
account for leases in accordance with Accounting Standards
Codification (“ASC”) 842. We recognize operating and
finance lease liabilities and corresponding right-of-use
(“ROU”) assets on the 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 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 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. The Louisville, Colorado
and Sunnyvale, California office leases were both renewed during
the year ended December 31, 2020, and will expire on April 30, 2021
and March 31, 2021, respectively.
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 consolidated statements of operations and is
consistent with how we evaluate our financial
performance.
Under
ASC 606, revenue is recognized when control of the promised goods
or services is transferred to our customers, in an amount that
reflects the consideration we expect to be entitled to in exchange
for those goods or services.
We
determine revenue recognition through the following
steps:
|
●
|
identification of the contract, or contracts, with a
customer;
|
|
●
|
identification of the performance obligations in the
contract;
|
|
●
|
determination of the transaction price;
|
|
●
|
allocation of the transaction price to the performance obligations
in the contract; and
|
|
●
|
recognition of revenue when, or as, we satisfy a performance
obligation.
|
Services Revenue
Services
revenue is 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:
|
●
|
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 experts. These service 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.
|
In
certain cases, we are paid for services that are sold but not yet
delivered. We initially record such balances as deferred revenue,
and recognize revenue when the service has been provided or, on the
non-subscription portion of these balances, when the likelihood of
the service being redeemed by the customer is remote
(“services breakage”). Based on our historical
redemption patterns for these relationships, we believe that the
likelihood of a service being delivered more than 90 days after
sale is remote. We therefore recognize non-subscription deferred
revenue balances older than 90 days as services revenue. For the
years ended December 31, 2020 and 2019, services breakage revenue
accounted for less than 1% of total services revenue.
The
following table represents deferred revenue activity for the years
ended December 31, 2020 and 2019 (in thousands):
|
|
|
|
Balance,
December 31, 2018
|
$1,135
|
|
Deferred
revenue
|
1,887
|
|
Recognition
of unearned revenue
|
(1,829)
|
|
Balance,
December 31, 2019
|
1,193
|
|
Deferred
revenue
|
1,243
|
|
Recognition
of unearned revenue
|
(1,555)
|
|
Balance,
December 31, 2020
|
$881
|
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.
For the years ended December 31, 2020 and 2019, revenue from
implementation services was 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.
Engineering and IT Costs
Engineering
and IT expenditures are charged to operations as they are
incurred.
Software Development Costs
We
expense software development costs before technological feasibility
is reached. Based on our product development process, technological
feasibility is established on the completion of a working model. We
determined that technological feasibility is reached shortly before
the product is ready for general release and therefore capitalized
development costs incurred are immaterial during the periods
presented.
Purchased Technology for Internal Use
We
capitalize costs related to software that we license and
incorporate into our product and service offerings or develop for
internal use.
Advertising Costs
Advertising
costs are recorded as sales and marketing expense in the period in
which they are incurred. Advertising expense was $0.2 million and
$24,000 for the years ended December 31, 2020 and 2019,
respectively.
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.
The
following table sets forth the computation of basic and diluted net
earnings per share (in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
Net
income
|
$446
|
$3,846
|
|
|
|
|
|
Basic:
|
|
|
|
Weighted-average
common shares outstanding
|
19,192
|
18,977
|
|
Basic
earnings per share
|
$0.02
|
$0.20
|
|
Diluted
|
|
|
|
Weighted-average
common shares outstanding
|
19,192
|
18,977
|
|
Effect
of dilutive securities:
|
|
|
|
Stock
options and restricted stock units
|
177
|
49
|
|
Diluted
weighted-average commons shares outstanding
|
19,369
|
19,026
|
|
Diluted
earnings per share
|
$0.02
|
$0.20
|
Accumulated Other Comprehensive Income
The
components of accumulated other comprehensive loss relate entirely
to accumulated foreign currency translation gain (losses)
associated with our foreign subsidiaries and unrealized gains
(losses) on investments.
Realized
gains/losses on investments reclassified from accumulated other
comprehensive loss are reported as interest income and other, net
in our consolidated statements of operations.
The
amounts noted in the consolidated statements of comprehensive
income are shown before taking into account the related income tax
impact. The income tax effect allocated to each component of other
comprehensive income for each of the periods presented is not
material.
Stock-Based Compensation
We
apply the provisions of Accounting Standards Codification
(“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. For
certain stock options awards, we use historical data for estimating
the expected life of stock options and for others, we use the
simplified method for estimating the expected life. The simplified
method was used during 2020 for “plain vanilla” (as
defined by the SEC) stock option awards. 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.
Income Taxes
Income
taxes are accounted for under the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases, and operating
losses and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be
reversed or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the
consolidated statements of operations in the period that includes
the enactment date. A valuation allowance is recorded to reduce the
carrying amounts of deferred tax assets, if it is more likely than
not, that such assets will not be realized. Our deferred tax asset
and related valuation allowance decreased by $2.6 million to $43
million. As the deferred tax asset is fully allowed for, this
change had no impact on our financial position or results of
operations.
Warranties and Indemnifications
We
generally provide a refund period on sales, during which refunds
may be granted to consumers under certain circumstances. During the
years ended December 31, 2020 and 2019, any refunds granted to
consumers were immaterial to the financial statements.
Fair Value Measurements
ASC 820, Fair Value Measurements and
Disclosures, defines fair
value, establishes a framework for measuring fair value under
generally accepted accounting principles and enhances disclosures
about fair value measurements. Fair value is defined under ASC 820
as the exchange price that would be received for an asset or paid
to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date.
Valuation techniques used to measure fair value 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 in active markets for identical assets or
liabilities.
|
|
●
|
Level 2
– Inputs other than Level 1 that are observable, either
directly or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities.
|
|
●
|
Level 3
– Unobservable inputs that are supported by little or no
market activity and that are significant to the fair value of the
assets or liabilities.
|
The
following table represents our fair value hierarchy for our
financial assets (cash equivalents and investments) measured at
fair value on a recurring basis as of December 31, 2020 and 2019
(in thousands):
|
As of December 31, 2020
|
|
|
|
|
|
Money
market funds
|
$1,258
|
$—
|
$—
|
$1,258
|
|
Certificates
of deposit
|
—
|
492
|
—
|
492
|
|
Commercial
paper
|
—
|
3,273
|
—
|
3,273
|
|
Corporate
notes and bonds
|
—
|
9,427
|
—
|
9,427
|
|
U.S.
government agency securities
|
—
|
4,599
|
—
|
4,599
|
|
Total
|
$1,258
|
$17,791
|
$—
|
$19,049
|
|
As of December 31, 2019
|
|
|
|
|
|
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
that the end of our quarterly reporting period determines when
transfers of financial instruments between levels are recognized.
No transfers were made between level 1, level 2 and level 3 for the
years ended December 31, 2020 and 2019.
Segment Information
We
report our operations as a single operating segment and has a
single reporting unit. Our Chief Operating Decision Maker
(“CODM”), our Chief Executive Officer, manages our
operations on a consolidated basis for purposes of allocating
resources. When evaluating performance and allocating resources,
the CODM reviews financial information presented on a consolidated
basis.
Revenue
from customers located outside the United States was immaterial for
the years ended December 31, 2020 and 2019.
For the years ended December 31, 2020 and 2019,
our largest customer accounted
for 44% and 63% of our total revenue, respectively. For the years
ended December 31, 2020 and 2019, our second largest customer
accounted for 43% and 25% of our total revenue, respectively. There
were no other customers that accounted for 10% or more of our total
revenue in any of the periods presented.
Long-lived
assets are attributed to the geographic location in which they are
located. We include in long-lived assets all tangible assets.
Long-lived assets by geographic areas are as follows (in
thousands):
|
|
|
|
|
|
|
|
United
States
|
$1,110
|
$532
|
|
Philippines
|
4
|
1
|
|
India
|
1
|
—
|
|
Total
|
$1,115
|
$533
|
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.
New Accounting Standards to be adopted in Future
Periods
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. This guidance will be
effective in the first quarter of 2021 on a prospective basis, and
early adoption is permitted. We do not expect the new standard to
have a material impact on the consolidated financial
statements.
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.
Note 2. Property and Equipment
Property
and equipment are stated at cost, less accumulated depreciation,
and consist of the following as of December 31, 2020 and 2019 (in
thousands):
|
|
|
|
|
|
|
|
Computer
equipment and software
|
$8,114
|
$7,233
|
|
Furniture
and office equipment
|
140
|
142
|
|
Leasehold
improvements
|
348
|
348
|
|
Construction
in progress
|
50
|
32
|
|
Accumulated
depreciation
|
(7,537)
|
(7,222)
|
|
Total
property and equipment, net
|
$1,115
|
$533
|
Depreciation
expense was $0.3 million and $0.3 million for the years ended
December 31, 2020 and 2019, respectively.
Note 3. Commitments and Contingencies
Legal contingencies
Federal
Trade Commission Consent Order. As previously
disclosed, on December 20, 2016 the Federal Trade Commission
(“FTC”) issued a confidential Civil Investigative
Demand, or CID, 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 made no agreement to fund such a program, 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.
Note 4. Other Accrued and Other Long-Term Liabilities
Other
accrued liabilities consist of the following (in
thousands):
|
|
|
|
|
|
|
|
Accrued
expenses
|
$369
|
$536
|
|
Self-insurance
accruals
|
270
|
404
|
|
Payroll
tax deferral
|
240
|
—
|
|
Total
other accrued liabilities
|
$879
|
$940
|
Other
long-term liabilities consist of the following (in
thousands):
|
|
|
|
|
|
|
|
Deferred
tax liability, net
|
443
|
428
|
|
Long-term
income tax payable
|
223
|
355
|
|
Payroll
tax deferral
|
240
|
—
|
|
Other
long-term liabilities
|
5
|
9
|
|
Total
other long-term liabilities
|
$911
|
$792
|
Note 5. Stockholders’ Equity
During
the year ended December 31, 2020, 0.1 million shares of common
stock were issued as a result of the exercise of stock options.
During the year ended December 31, 2019, no shares of common stock
were issued as a result of the exercise of stock
options.
During
the year ended December 31, 2020, 0.2 million shares of common
stock were issued as a result of RSU releases. During the year
ended December 31, 2019, 0.1 million shares of common stock were
issued as a result of RSU releases.
During
the year ended December 31, 2020, 44,000 shares of common stock
were issued under the ESPP. During the year ended December 30,
2019, 26,000 shares of common stock were issued under the
ESPP.
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 September 30, 2020, the maximum number of
shares remaining that can be repurchased under this program was
602,467. No shares were repurchased during the year ended December
31, 2020. We do not intend to repurchase shares without further
approval from the Board.
2019 Cash Dividend
As
a part of the board of directors’ ongoing capital allocation
review, on December 6, 2019 the board of directors authorized and
declared a special cash distribution of $1.00 per share on each
outstanding share of our common stock. The record date for this
distribution was December 17, 2019 and the payment date was
December 26, 2019. Accordingly, we paid $19.1 million to
shareholders on December 26, 2019. In connection with the special
cash distribution of $1.00 per share, the exercise price on all
outstanding options as of December 27, 2019 was reduced by $1.00 as
permitted under the 2010 and 2014 Plans which includes an
anti-dilution feature designed to equalize the fair value of
options as a result of a transaction such as this special
distribution. This adjustment did not affect the fair value,
vesting conditions or classification of the outstanding
options.
Stockholder Rights Agreement and Tax Benefits Preservation
Plan
Our
board adopted a Section 382 Tax Benefits Preservation Plan in an
effort to diminish the risk that our ability to utilize net
operating loss carryovers (collectively, the “NOLs”) to
reduce potential future federal income tax obligations may become
substantially limited. Our stockholders approved the Section 382
Tax Benefits Preservation Plan at our annual meeting of
stockholders held on June 5, 2020. Under the Internal Revenue Code
of 1986, as amended (the “Code”), and the regulations
promulgated thereunder by the U.S. Treasury Department, these NOLs
may be “carried forward” in certain circumstances to
offset any current and future taxable income and thus reduce
federal income tax liability, subject to certain requirements and
restrictions. However, if we experience an “ownership
change,” within the meaning of Section 382 of the Code
(“Section 382”), our ability to utilize the NOLs may be
substantially limited, and the timing of the usage of the NOLs
could be substantially delayed, which could therefore significantly
impair the value of those assets. Section 382 and the Treasury
regulations thereunder make our commercial risk from a Section 382
limitation triggering event particularly acute given the relative
size of current cash on hand to market capitalization. As applied
to our current cash position and current market capitalization, if
we were to experience an ownership change, it would be subject to
Section 382’s “non-business asset” limitation,
which would result in permanently losing all $145.6 million of our
NOLs.
The
Section 382 Tax Benefits Preservation Plan is intended to act as a
deterrent to any person or group acquiring beneficial ownership of
4.99% or more of the outstanding Common Stock without the approval
of the board (such person, an “Acquiring Person”). A
person who acquires, without the approval of the board, beneficial
ownership (other than as a result of repurchases of stock by the
Company, dividends or distributions by the Company or certain
inadvertent actions by stockholders) of 4.99% or more of the
outstanding common stock (including any ownership interest held by
that person's Affiliates and Associates as defined under the
Section 382 Tax Benefits Preservation Plan) could be subject to
significant dilution. Stockholders who beneficially own 4.99% or
more of the outstanding common stock prior to the first public
announcement by the Company of the board’s adoption of the
Section 382 Tax Benefits Preservation Plan will not trigger the
Section 382 Tax Benefits Preservation Plan so long as they do not
acquire beneficial ownership of additional shares of the Common
Stock (other than pursuant to a dividend or distribution paid or
made by the Company on the outstanding shares of Common Stock or
pursuant to a split or subdivision of the outstanding shares of
Common Stock) at a time when they still beneficially own 4.99% or
more of such stock. In addition, the board retains the sole
discretion to exempt any person or group from the penalties imposed
by the Section 382 Tax Benefits Preservation Plan.
In
the event that a person becomes an Acquiring Person, each holder of
a Right, other than Rights that are or, under certain
circumstances, were beneficially owned by the Acquiring Person
(which will thereupon become void), will thereafter have the right
to receive upon exercise of a Right and payment of the Purchase
Price, and subject to the terms, provisions and conditions of the
Section 382 Tax Benefits Preservation Plan, a number of shares of
the Common Stock having a market value of two times the Purchase
Price.
Note 6. Stock-Based Compensation
Equity Compensation Plan
We
adopted the amended and restated 2010 Equity and Performance
Incentive Plan (the “2010 Plan”), effective as of May
19, 2010. Under the 2010 Plan, the number of shares of Common Stock
that may be issued will not exceed in the aggregate 1,666,666
shares of Common Stock plus the number of shares of common stock
relating to prior awards under the 2000 Omnibus Equity Incentive
Plan that expire, are forfeited or are cancelled after the adoption
of the 2010 Plan, subject to adjustment as provided in the 2010
Plan. Pursuant to 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 2010 Plan (such plan, after the amendment and
restatement is now the Third Amended and Restated 2010 Equity and
Performance Incentive Plan, referred to herein as the
“Restated Plan”). The purpose of amending the 2010 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 Plan, which otherwise would have
expired 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 December 31, 2020, 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
December 31, 2020, 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 December 31, 2020, approximately 1.1 million
shares remain available for issuance under the ESPP.
Stock-Based Compensation
We
recorded the following stock-based compensation expense of $0.6
million and $0.3 million, respectively, for the fiscal years ended
December 31, 2020 and 2019 as follows (in thousands):
|
|
|
|
|
|
|
|
Stock-based compensation expense related to grants of:
|
|
|
|
Stock
options
|
$224
|
$130
|
|
RSU
|
374
|
155
|
|
ESPP
|
36
|
19
|
|
Total
|
$634
|
$304
|
|
Stock-based compensation expense recognized in:
|
|
|
|
Cost
of service
|
$28
|
$40
|
|
Engineering
and IT
|
25
|
25
|
|
Sales
and marketing
|
38
|
38
|
|
General
and administrative
|
543
|
201
|
|
Total
|
$634
|
$304
|
The
fair value of our stock-based awards was estimated using the
following weighted average assumptions for the years ended December
31, 2020 and 2019:
|
|
|
Employee Stock Purchase Plan
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
0.4%
|
1.7%
|
0.2%
|
2.0%
|
|
Expected
term (in years)
|
6.1
|
3.1
|
0.5
|
0.5
|
|
Volatility
|
42.5%
|
35.6%
|
74.4%
|
42.4%
|
|
Expected
dividend
|
0.0%
|
0.0%
|
0.0%
|
0.0%
|
|
Weighted-average
grant date fair value
|
$0.55
|
$0.52
|
$0.34
|
$0.43
|
Stock Options
The
following tables represent stock option activity for the years
ended December 31, 2020 and 2019:
|
|
|
Weighted-average exercise price per share
|
Weighted-average remaining contractual term (in years)
|
Aggregate intrinsic value (in thousands)
|
|
Outstanding
at December 31, 2018
|
803
|
$2.89
|
8.43
|
$54
|
|
Granted
|
90
|
0.94
|
|
|
|
Exercised
|
—
|
—
|
|
|
|
Forfeited
|
(77)
|
1.97
|
|
|
|
Outstanding
at December 31, 2019
|
816
|
$1.77
|
7.49
|
$16
|
|
Granted
|
2,394
|
1.56
|
|
|
|
Exercised
|
(147)
|
1.30
|
|
116
|
|
Forfeited
|
(434)
|
1.58
|
|
|
|
Outstanding
at December 31, 2020
|
2,629
|
$1.64
|
8.79
|
$1,605
|
|
Exercisable
at December 31, 2020
|
724
|
$1.74
|
6.77
|
$468
|
A
summary of additional information related to the options
outstanding as of December 31, 2020 under the 2010 and 2014 Plans
are as follows:
|
Plan
|
Option plans ranges of exercise prices
|
Number of outstanding options
|
Weighted-average remaining contractual life
|
Weighted-average exercise price
|
|
2010
Plan/Restated Plan
|
$
|
$1.29 –
16.67
|
2,029,176
|
8.61
|
$1.86
|
|
Inducement
Plan
|
$
|
$0.56 –
16.67
|
600,000
|
9.37
|
$1.33
|
|
|
|
|
2,629,176
|
|
|
As
of December 31, 2020, $1.1 million of unrecognized compensation
cost related to existing options was outstanding, which is expected
to be recognized over a weighted average period of 3.0
years.
Restricted Stock Units
The
following table represents RSU activity for the years ended
December 31, 2020 and 2019:
|
|
|
Weighted-average exercise price per share
|
Weighted-average remaining contractual term (in years)
|
Aggregate intrinsic value (in thousands)
|
|
Outstanding
at December 31, 2018
|
96
|
$2.78
|
0.60
|
$227
|
|
Granted
|
243
|
1.39
|
|
|
|
Vested
|
(73)
|
2.06
|
|
|
|
Forfeited
|
(17)
|
2.75
|
|
|
|
Outstanding
at December 31, 2019
|
249
|
$1.62
|
0.60
|
$271
|
|
Granted
|
127
|
1.97
|
|
|
|
Vested
|
(245)
|
1.57
|
|
|
|
Forfeited
|
—
|
—
|
|
|
|
Outstanding
at December 31, 2020
|
131
|
$2.05
|
0.70
|
$287
|
As
of December 31, 2020, $0.2 million of unrecognized compensation
cost related to RSUs was outstanding, which is expected to be
recognized within one year.
Note 7. Income Taxes
The
components of our income before income taxes are as follows (in
thousands):
|
|
|
|
|
|
|
|
United
States
|
$50
|
$3,634
|
|
Foreign
|
498
|
366
|
|
Total
|
$548
|
$4,000
|
The
provision for income taxes from continuing operations consisted of
the following (in thousands):
|
|
|
|
|
|
|
|
Current:
|
|
|
|
Federal
|
$—
|
$—
|
|
State
|
9
|
16
|
|
Foreign
|
45
|
118
|
|
Total
current
|
$54
|
$134
|
|
|
|
|
|
Deferred:
|
|
|
|
Federal
|
$—
|
$—
|
|
State
|
—
|
—
|
|
Foreign
|
48
|
20
|
|
Total
deferred
|
$48
|
$20
|
|
|
|
|
|
Provision
for income taxes
|
$102
|
$154
|
The
reconciliation of the Federal statutory income tax rate to our
effective income tax rate is as follows (in
thousands):
|
|
|
|
|
|
|
|
Provision
of Federal statutory rate
|
$115
|
$835
|
|
State
taxes
|
9
|
16
|
|
Permanent
differences/other
|
1,825
|
(13)
|
|
Stock-based
compensation
|
(23)
|
23
|
|
Federal
valuation allowance used
|
(1,824)
|
(707)
|
|
Provision
for income taxes
|
$102
|
$154
|
Deferred
income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of our deferred tax assets and
liabilities are as follows (in thousands):
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
|
|
Fixed
assets
|
$13
|
$78
|
|
Accruals
and reserves
|
122
|
92
|
|
Stock
options
|
247
|
197
|
|
Net
operating loss carryforwards
|
36,608
|
38,335
|
|
Federal
and state credits
|
3,227
|
3,461
|
|
Foreign
credits
|
163
|
159
|
|
Intangible
assets
|
1,497
|
1,789
|
|
Research
and development expense
|
1,487
|
1,858
|
|
Gross
deferred tax assets
|
43,364
|
45,969
|
|
Valuation
allowance
|
(43,238)
|
(45,846)
|
|
Total
deferred tax assets
|
126
|
123
|
|
|
|
|
|
Deferred
tax liabilities (1)
|
(569)
|
(551)
|
|
|
|
|
|
Net
deferred liabilities
|
$(443)
|
$(428)
|
|
(1)
|
Of this
amount, $554,000 relates to the Indian subsidiaries unremitted
earnings deferred tax liability. The net deferred income tax
liabilities are recorded in other long-term liabilities in the
accompanying balance sheet.
|
ASC 740, Income
Taxes, provides for the
recognition of deferred tax assets if realization of such assets is
more likely than not to occur. Based on management’s review
of both the positive and negative evidence, which includes our
historical operating performance, reported cumulative net losses
since inception and difficulty in accurately forecasting results,
we have concluded that it is not more likely than not that we will
be able to realize all of our U.S. deferred tax assets. Therefore,
we have provided a full valuation allowance against U.S. deferred
tax assets.
Based
on management’s review of both positive and negative
evidence, which includes the historical operating performance of
our Canadian subsidiary, we have concluded that it is more likely
than not that we will be able to realize a portion of the Canadian
deferred tax assets. Therefore, we have a partial valuation
allowance on Canadian deferred tax assets. There is no valuation
allowance against our Indian deferred tax assets. We reassess the
need for a valuation allowance on a quarterly basis.
Based
on management’s review discussed above, the realization of
deferred tax assets is dependent on improvements over present
levels of pre-tax income. Until we are consistently profitable in
the U.S., we will not realize our deferred tax assets.
Beginning
in 2018, the Tax Cuts and Jobs Act of 2017 (“Tax Act”)
provides a 100% deduction for dividends received from 10-percent
owned foreign corporations by U.S. corporate shareholders, subject
to a one-year holding period. Although dividend income is now
exempt from U.S. federal tax in the hands of the U.S. corporate
shareholders, companies must still apply the guidance of ASC
740-30-25-18 to account for the tax consequences of outside basis
differences and other tax impacts of their investments in non-U.S.
subsidiaries. Deferred income taxes have not been provided on the
cumulative undistributed earnings of foreign subsidiaries except
for a change in assertion at December 31, 2017 for Support.com
India Private Ltd. The amount of cumulative undistributed Indian
subsidiary’s earnings at December 31, 2017 for which we are
changing our assertion under ASC 740-30-25 was $2.67 million. Under
the Tax Act, all foreign subsidiaries’ accumulated earnings
through December 31, 2020 has been included in U.S. taxable income.
As such, the only tax related to the Indian subsidiary remittance
would be a dividend distribution tax of $554,000 as of December 31,
2020.
The
net valuation allowance decreased by approximately $2.6 million and
$0.4 million during the years ended December 31, 2020 and 2019,
respectively. As of December 31, 2020, we had Federal and state net
operating loss carryforwards of approximately $145.6 million and
$80.3 million, respectively. The Federal net operating loss and
credit carryforwards will expire at various dates beginning in 2021
through 2040, if not utilized. Approximately $22.5 million of
Federal net operating loss carryforward is expected to expire in
2021. The state net operating loss carryforwards will expire at
various dates beginning in 2021 through 2040, if not
utilized.
We
also had Federal and state research and development credit
carryforwards of approximately $2.8 million and $2.4 million,
respectively. The federal credits expire in varying amounts between
2021 and 2031. The state research and development credit
carryforwards do not have an expiration date.
Utilization
of net operating loss carryforwards and credits may be subject to
substantial annual limitation or could be lost due to the ownership
change limitations provided by the Internal Revenue Code of 1986,
as amended and similar state provisions. The annual limitation may
result in the expiration of net operating losses and credits before
utilization.
ASC
740-10 clarifies the accounting for uncertainties in income taxes
by prescribing guidance for the recognition, de-recognition and
measurement in financial statements of income tax positions taken
in previously filed tax returns or tax positions expected to be
taken in tax returns, including a decision whether to file or not
to file in a particular jurisdiction. ASC 740-10 requires the
disclosure of any liability created for unrecognized tax benefits.
The application of ASC 740-10 may also affect the tax bases of
assets and liabilities and therefore may change or create deferred
tax liabilities or assets.
A
reconciliation of the beginning and ending amount of unrecognized
tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
$2,121
|
$2,117
|
|
Increase
related to prior year tax positions
|
3
|
4
|
|
Decrease
related to prior year tax positions
|
(126)
|
—
|
|
Settlements
with tax authorities
|
(78)
|
—
|
|
Balance,
end of year
|
$1,920
|
$2,121
|
The
total amount of unrecognized tax benefits that, if recognized,
would affect our tax rate, are $0.1 million and $0.1 million as of
December 31, 2020 and 2019, respectively.
Our
policy is to include interest and penalties related to unrecognized
tax benefits within the provision for (benefit from) income taxes.
As of December 31, 2020 and 2019, we had $0.1 million and $0.1
million, respectively, accrued for payment of interest and
penalties related to unrecognized tax benefits.
As
of December 31, 2020, it is reasonably possible that the balance of
unrecognized tax benefits could significantly change within the
next twelve months. However, an estimate of the range of reasonably
possible adjustments cannot be made at this time.
We
file federal, state and foreign income tax returns in jurisdictions
with varying statutes of limitations. Due to our net operating loss
carryforwards, our income tax returns generally remain subject to
examination by federal and most state authorities. In our foreign
jurisdictions, the 2009 through 2020 tax years remain subject to
examination by their respective tax authorities.
We
are required to make periodic filings in the jurisdictions where we
are deemed to have a presence for tax purposes. We have undergone
audits in the past and have paid assessments arising from these
audits. Our India entity was issued notices of income tax
assessment pertaining to the 2004 – 2009 fiscal years. The
notices claimed that the transfer price used in our inter-company
agreements resulted in understated income in our Indian entity.
During the fourth quarter of 2020, the Company re-evaluated the
probability of its tax position and partially released the ASC
740-10 reserve related to India transfer pricing for several
assessment years that were settled with the Indian tax authorities
in November and December of 2020. As of December 31, 2020, the ASC
740-10 reserve for India transfer pricing totals $0.1 million. As a
result of this settlement, the Company no longer records an ASC
740-10 reserve related to fiscal years 2004-2005 and
2005-2006.
We may be subject to other income tax assessments
in the future. We evaluate estimated expenses that could arise from
those assessments in accordance with ASC 740-10. We consider such factors as the degree of
probability of an unfavorable outcome and the ability to make a
reasonable estimate on the amount of expenses. We record the
estimated liability amount of those assessments that meet the
definition of an uncertain tax position under ASC
740-10.
Note 8. Leases
We
have entered into various non-cancelable operating lease agreements
for certain of our offices, and certain equipment. Our leases have
original lease periods expiring during 2021. As of December 31,
2020, the weighted average remaining lease term and weighted
average discount rate for operating leases was 0.6 years and 4.5%,
respectively.
Total
operating lease expense was $0.3 million and $0.5 million for the
years ended December 31, 2020 and 2019, respectively.
The
following table provides a summary of leases by balance sheet
location:
|
|
|
|
Operating leases
|
|
|
|
Right-of-use
assets
|
$61
|
$68
|
|
|
|
|
|
Lease
liabilities – short term
|
$58
|
$61
|
|
Lease
liabilities – long-term
|
3
|
7
|
|
Total
lease liabilities
|
$61
|
$68
|
The
following represents maturities of operating lease liabilities as
of December 31, 2020 (in thousands):
|
|
|
|
2021
|
$59
|
|
2022
|
3
|
|
Total
|
$62
|
|
Less:
imputed interest
|
(1)
|
|
Present
value of lease liabilities
|
$61
|
For
the year ended December 31, 2020, supplemental cash flow
information related to leases are as follows (in
thousands):
|
Operating
cash flows from operating leases
|
$181
|
|
Right-of-use
assets obtained in exchange for lease obligations
|
$169
|
As
of December 31, 2020, minimum payments due under all non-cancelable
lease agreements were as follows (in thousands):
|
Years Ending December 31,
|
|
|
2021
|
$59
|
|
2022
|
3
|
|
Total
minimum lease payments
|
$62
|
Note 9. Subsequent Events
On March 19, 2021, the Company and Greenidge
Generation Holdings, Inc. (“Greenidge”) entered into an
Agreement and Plan of Merger (the “Merger Agreement”)
providing, among other things, that on the terms and subject to the
conditions set forth therein, Greenidge will acquire the
Company through a merger of a wholly owned subsidiary of Greenidge
with and into the Company (the “Merger”). The
Company will survive as a wholly owned subsidiary of Greenidge.
The Merger is subject to customary
closing conditions, including the approval of the shareholders of
the Company. The Merger is expected to close during the third
quarter of 2021. Effective as of the closing of the Merger, all
outstanding shares of the Company’s common stock and all
outstanding restricted stock units and options to purchase shares
of the Company’s common stock will be cancelled and converted
into the right to receive shares of Class A Common Stock of
Greenidge (the “Greenidge Common Stock”). Following
completion of the Merger, it is expected that the Company’s
stockholders and holders of stock options and restricted stock
units collectively will own approximately 8% of the outstanding
shares of the Greenidge Common Stock, and existing Greenidge
stockholders are expected to own approximately 92% of the Greenidge
Common Stock. If the Merger Agreement is terminated under
certain circumstances, the Company will 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, LLC (“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, it will increase the size
of the Company’s board of directors in order to appoint two
individuals designated by 210 Capital to the board of directors for
a term expiring at the next succeeding annual meeting of the
Company’s stockholders.