Company Quick10K Filing
Support.com
Price2.26 EPS0
Shares19 P/E12
MCap43 P/FCF-9
Net Debt-22 EBIT4
TEV21 TEV/EBIT5
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-13
10-K 2019-12-31 Filed 2020-03-18
10-Q 2019-09-30 Filed 2019-11-08
10-Q 2019-06-30 Filed 2019-08-14
10-Q 2019-03-31 Filed 2019-05-13
10-K 2018-12-31 Filed 2019-03-08
10-Q 2018-09-30 Filed 2018-11-07
10-Q 2018-06-30 Filed 2018-08-08
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10-K 2017-12-31 Filed 2018-03-22
10-Q 2017-09-30 Filed 2017-11-09
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10-Q 2017-03-31 Filed 2017-05-15
10-K 2016-12-31 Filed 2017-03-07
10-Q 2016-09-30 Filed 2016-11-04
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10-Q 2016-03-31 Filed 2016-05-02
10-K 2015-12-31 Filed 2016-03-07
10-Q 2015-09-30 Filed 2015-11-04
10-Q 2015-06-30 Filed 2015-08-03
10-Q 2015-03-31 Filed 2015-05-05
10-K 2014-12-31 Filed 2015-03-06
10-Q 2014-09-30 Filed 2014-11-03
10-Q 2014-06-30 Filed 2014-08-04
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10-K 2013-12-31 Filed 2014-03-07
10-Q 2013-09-30 Filed 2013-11-04
10-Q 2013-06-30 Filed 2013-08-05
10-Q 2013-03-31 Filed 2013-05-06
10-K 2012-12-31 Filed 2013-03-08
10-Q 2012-09-30 Filed 2012-11-02
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10-K 2011-12-31 Filed 2012-03-09
10-Q 2011-09-30 Filed 2011-11-07
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10-Q 2011-03-31 Filed 2011-05-06
10-K 2010-12-31 Filed 2011-03-11
10-Q 2010-09-30 Filed 2010-11-05
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-07
10-K 2009-12-31 Filed 2010-03-12
8-K 2020-06-05
8-K 2020-05-12
8-K 2020-04-23
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8-K 2019-05-31
8-K 2019-05-13
8-K 2019-03-07
8-K 2019-03-04
8-K 2019-02-21
8-K 2018-11-07
8-K 2018-10-01
8-K 2018-08-08
8-K 2018-08-07
8-K 2018-06-06
8-K 2018-05-08
8-K 2018-03-22

SPRT 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Note 1. Significant Accounting Policies
Note 2. Income Taxes
Note 3. Commitments and Contingencies
Note 4. Intangible Assets
Note 5. Other Accrued Liabilities
Note 6. Stockholder’S Equity
Note 7. Leases
Item 2. Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors.
Item 6. Exhibits
EX-10.1 sprt_ex10-1.htm
EX-31.1 sprt_ex311.htm
EX-31.2 sprt_ex312.htm
EX-32.1 sprt_ex321.htm
EX-32.2 sprt_ex322.htm

Support.com Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
1159269462302012201420172020
Assets, Equity
25167-2-11-202012201420172020
Rev, G Profit, Net Income
151050-5-102012201420172020
Ops, Inv, Fin

10-Q 1 sprt_10q.htm QUARTERLY REPORT sprt_10q
 

UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
☒                    
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
                    
For the Quarterly Period Ended March 31, 2020
 
                    
OR
 
☐                    
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
                    
For the transition period from to
 
Commission File No. 000-30901
 
SUPPORT.COM, INC.
 (Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
94-3282005
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
1521 Concord Pike (US 202), Suite 301, Wilmington, DE 19803
 
 
(Address of Principal Executive Offices)
(Zip Code)
 
Registrant’s Telephone Number, Including Area Code: (650) 556-9440
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer  ☐
Smaller reporting company ☒
Emerging growth company

(Do not check if a smaller reporting company)
 
 
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No ☒
 
On April 30, 2020, 19,053,854 shares of the Registrant’s Common Stock, $0.0001 par value, were outstanding.
 

 
 
 
SUPPORT.COM, INC.
FORM 10-Q
QUARTERLY PERIOD ENDED MARCH 31, 2020
INDEX
 
 
 
 
 
Page
Part I. Financial Information
 
 
 
3
 
 
3
 
 
4
 
 
5
 
 
6
 
 
7
 
 
8
 
25
 
30
 
30
 
 
 
 
Part II. Other Information
 
 
 
31
 
32
 
43
 
 
44
 
45
 
 
2
 
 
PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
 
 SUPPORT.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
 
 
 
March 31,
2020
 
 
 
December 31,
2019  
 
 
 
(Unaudited)
 
 
   
 
ASSETS
 
 
 
 
   
 
Current assets:
 
 
 
 
   
 
Cash and cash equivalents
 $15,141 
 $10,087 
Short-term investments
  13,275 
  16,327 
Accounts receivable, net
  8,071 
  9,398 
Prepaid expenses and other current assets
  853 
  728 
Total current assets
  37,340 
  36,540 
Property and equipment, net
  462 
  533 
Intangible assets
  250 
  250 
Right of use assets, net
  178 
  - 
Other assets
  624 
  717 
 
    
    
Total assets
 $38,854 
 $38,040 
 
    
    
LIABILITIES AND STOCKHOLDERS’ EQUITY
    
    
Current liabilities:
    
    
    Accounts payable
 $710 
  227 
Accrued compensation
  2,005 
  1,610 
Other accrued liabilities
  615 
  1,001 
Short-term lease liability
  171 
  - 
Short-term deferred revenue
  1,137 
  1,193 
Total current liabilities
  4,638 
  4,081 
Other long-term liabilities
  783 
  792 
Total liabilities
  5,421 
  4,873 
Commitments and contingencies (Note 3)
    
    
Stockholders’ equity:
    
    
Common stock; par value $0.0001, 50,000,000 shares authorized; 19,536,768 issued and 19,053,854 outstanding at March 31, 2020 and December 31, 2019
  2 
  2 
Additional paid-in capital
  250,206 
  250,092 
Treasury stock, at cost (482,914 shares at March 31, 2020 and December 31, 2019)
  (5,297)
  (5,297)
Accumulated other comprehensive loss
  (2,592)
  (2,380)
Accumulated deficit
  (208,886)
  (209,250)
Total stockholders’ equity
  33,433 
  33,167 
 
    
    
Total liabilities and stockholders’ equity
 $38,854 
 $38,040 
 
See accompanying notes.
 
 
3
 
 
SUPPORT.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
 
 
 
Three Months Ended
March 31,
 
 
 
2020
 
 
2019
 
Revenue:
 
 
 
 
 
 
Services
 $11,511 
 $16,864 
Software and other
  438 
  1,200 
Total revenue
  11,949 
  18,064 
Cost of revenue:
    
    
Cost of services
  7,685 
  13,798 
Cost of software and other
  29 
  54 
Total cost of revenue
  7,714 
  13,852 
Gross profit
  4,235 
  4,212 
Operating expenses:
    
    
Engineering and IT
  1,040 
  749 
Sales and marketing
  813 
  392 
General and administrative
  2,053 
  1,896 
 
    
    
Total operating expenses
  3,906 
  3,037 
Income from operations
  329 
  1,175 
Interest income and other, net
  84 
  296 
Income before income taxes
  413 
  1,471 
Income tax provision
  49 
  28 
Net income
 $364 
 $1,443 
 
    
    
Basic and diluted earnings per share:
    
    
Net income
 $0.02 
 $0.08 
Shares used in computing basic net income per share
  19,054 
  18,955 
Shares used in computing diluted net income per share
  19,233 
  19,004 
 
See accompanying notes.
 
 
4
 
 
SUPPORT.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
 
 
 
Three Months Ended
March 31,
 
 
 
2020
 
 
2019
 
Net income
 $364 
 $1,443 
 
    
    
Other comprehensive income (loss):
    
    
Change in foreign currency translation adjustment
  (211)
  90 
Change in net unrealized gain (loss) on investments
  (1)
  50 
Other comprehensive income (loss)
  (212)
  149 
 
    
    
Comprehensive income
 $152 
 $1,592 
 
See accompanying notes.
 
 
5
 
 
 SUPPORT.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Additional
Paid-In
Capital
 
 
Treasury
Stock
 
 
Accumulated
Other
Comprehensive
Loss
 
 
Accumulated
Deficit
 
 
Total
Stockholders’
Shares
 
Balances at December 31, 2018
  18,955,264 
 $2 
 $268,794 
 $(5,297)
 $(2,507)
 $(213,096)
 $47,896 
Net income
   
   
   
   
   
  1,443 
  1,443 
Other comprehensive income
   
   
   
   
  149 
   
  149 
Stock-based compensation expense
    
   
  52 
    
   
   
  52 
Balances at March 31, 2019
  18,955,264 
 $2 
 $268,864 
 $(5,297)
 $(2,358)
 $(211,653)
 $49,540 
Balances at December 31, 2019
  19,053,854 
 $2 
 $250,092 
 $(5,297)
 $(2,380)
 $(209,250)
 $33,167 
Net income
   
   
   
   
   
  364 
  364 
Other comprehensive loss
   
   
   
   
  (212)
   
  (212)
Stock-based compensation expense
    
   
  114 
    
   
   
  114 
Balances at March 31, 2020
  19,053,854 
 $2 
 $250,206 
 $(5,297)
 $(2,592)
 $(208,886)
 $33,433 
 
See accompanying notes.
 
 
6
 
 
SUPPORT.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
 
 
Three Months Ended
March 31,
 
 
 
2020
 
 
2019
 
Operating Activities:
 
 
 
 
 
 
Net income
 $364 
 $1,443 
Adjustments to reconcile net income to net cash used in operating activities:
    
    
Depreciation
  72 
  75 
Amortization of premiums and discounts on investments
  23 
  37 
Stock-based compensation
  114 
  52 
Changes in assets and liabilities:
    
    
Accounts receivable, net
  1,327 
  (2,579)
Prepaid expenses and other current assets
  (143)
  50 
Other assets
  (183)
  72 
Accounts payable
  432 
  (11)
Accrued compensation
  392 
  (1,028)
Other accrued liabilities and lease liability
  (215)
  37 
Other long-term liabilities
  (60)
  - 
Deferred revenue
  (56)
  180 
Net cash provided by (used in) operating activities
  2,067 
  (1,672)
 
    
    
Investing Activities:
    
    
Purchases of property and equipment
  (1)
  (9)
Purchases of investments
  - 
  (3,570)
Maturities of investments
  3,029 
  9,645 
Net cash provided by investing activities
  3,028 
  6,066 
Effect of exchange rate changes on cash and cash equivalents
  (41)
  8 
Net increase in cash and cash equivalents
  5,054 
  4,402 
Cash and cash equivalents at beginning of period
  10,087 
  25,182 
Cash and cash equivalents at end of period
 $15,141 
 $29,584 
 
    
    
Supplemental schedule of cash flow information:
    
    
Income taxes paid
 $- 
 $- 
 
See accompanying notes.
 
 
7
 
 
SUPPORT.COM, INC.
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, 2019 and the consolidated statements of operations and comprehensive income for the three months ended March 31, 2020 and 2019 and the consolidated statements of cash flows for the three months ended March 31, 2020 and 2019 are unaudited. In the opinion of management, these unaudited interim condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of the results for, and as of, the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for the full fiscal year or for any future period. The condensed consolidated balance sheet information as of December 31, 2019 is derived from audited financial statements as of that date. These financial statements have been prepared based upon Securities and Exchange Commission (“SEC”) rules that permit reduced disclosure for interim periods. For a more complete discussion of significant accounting policies and certain other information, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 18, 2020.
 
Impact of Disease Outbreak
 
On March 11, 2020, the World Health Organization declared the outbreak of a respiratory disease caused by a new coronavirus as a “pandemic”. First identified in late 2019 and known now as COVID-19, the outbreak has impacted thousands of individuals worldwide. In response, many countries have implemented measures to combat the outbreak which have impacted global business operations. As of the date of issuance of the financial statements, the Company’s operations have not been significantly impacted, however, the Company continues to monitor the situation. No impairments were recorded as of the balance sheet date as no triggering events or changes in circumstances had occurred as of March 31, 2020; however, due to significant uncertainty surrounding the situation, management's judgment regarding this could change in the future. In addition, while the Company’s results of operations, cash flows and financial condition could be negatively impacted, the extent of the impact cannot be reasonably estimated at this time.
 
Use of Estimates
 
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The accounting estimates that require management’s most significant, difficult and subjective judgments include accounting for revenue recognition, assumptions used to estimate self-insurance accruals, the valuation and recognition of investments, the assessment of recoverability of intangible assets and their estimated useful lives, the valuations and recognition of stock-based compensation and the recognition and measurement of current and deferred income tax assets and liabilities. Actual results could differ materially from these estimates.
 
 
8
 
 
Revenue Recognition
 
Disaggregation of Revenue
 
We generate revenue from the sale of services and sale of software fees for end-user software products provided through direct customer downloads and through the sale of these end-user software products via partners. The following table depicts the disaggregation of revenue (in thousands) according to revenue type and is consistent with how we evaluate our financial performance:
 
 
 
Three Months Ended
 
 
 
March 31,
 
Revenue from Contracts with Customers:
 
2020
 
 
2019
 
Services
 $11,511 
 $16,864 
Software and other
  438 
  1,200 
       Total revenue
 $11,949 
 $18,064 
 
Services Revenue
 
Services revenue is comprised primarily of fees for technology support services. Our service programs are designed for both the consumer and SMB markets, and include computer and mobile device set-up, security and support, virus and malware removal and wireless network set-up, and automation system onboarding and support.
 
We offer technology services to consumers and SMBs, primarily through our partners (which include communications providers, retailers, technology companies and others) and to a lesser degree directly through our website at www.support.com. We transact with customers via reseller programs, referral programs and direct transactions. In reseller programs, the partner generally executes the financial transactions with the customer and pays a fee to us which we recognize as revenue when the service is delivered. In referral programs, we transact with the customer directly and pay a referral fee to the referring party. Referral fees are generally expensed in the period in which revenues are recognized.  In such referral programs, since we are the primary obligor and bear substantially all risks associated with the transaction, we record the gross amount of revenue. In direct transactions, we sell directly to the customer at the retail price.
 
The technology services described above include four types of offerings:
 
● Hourly-Based Services - In connection with the provisions of certain services programs, fees are calculated based on contracted hourly rates with partners. For these programs, we recognize revenue as services are performed, based on billable hours of work delivered by our technology specialists. These services programs also include performance standards, which may result in incentives or penalties, which are recognized as earned or incurred.
 
● Subscriptions - Customers purchase subscriptions or “service plans” under which certain services are provided over a fixed subscription period. Revenues for subscriptions are recognized ratably over the respective subscription periods.
 
● Incident-Based Services - Customers purchase a discrete, one-time service. Revenue recognition occurs at the time of service delivery. Fees paid for services sold but not yet delivered are recorded as deferred revenue and recognized at the time of service delivery.
 
 
9
 

The following table represent deferred revenue activity for the three months ended March 31, 2020 and 2019 (in thousands):
 
 
 
March 31,
2020
 
 
March 31,
2019
 
 
 
 
 
 
 
 
Deferred revenue - beginning of period
 $1,193 
  1,135 
Deferred revenue
  403 
  751 
Recognition of unearned revenue
  (459)
  (571)
Deferred revenue - end of period
 $1,137 
 $1,315 
 
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, 2020, revenues from implementation services are di minimus.
 
Software and Other Revenue
 
Software and other revenue is comprised primarily of fees for end-user software products provided through direct customer downloads and through the sale of these end-user software products via partners. Our software is sold to customers as a perpetual license or as a fixed period subscription. We offer when-and-if-available software upgrades to our end-user products. Management has determined that these upgrades are not distinct, as the upgrades are an input into a combined output. In addition, Management has determined that the frequency and timing of the when-and-if-available upgrades are unpredictable and therefore we recognize revenue consistent with the sale of the perpetual license or subscription. We generally control fulfillment, pricing, product requirements, and collection risk and therefore we record the gross amount of revenue. We provide a 30-day money back guarantee for the majority of our end-user software products.
 
For certain end-user software products, we sell perpetual licenses. We provide a limited amount of free technical support to customers. Since the cost of providing this free technical support is insignificant and free product enhancements are minimal and infrequent, we do not defer the recognition of revenue associated with sales of these products.
 
For certain of our end-user software products (principally SUPERAntiSpyware), we sell licenses for a fixed subscription period. We provide regular, significant updates over the subscription period and therefore recognize revenue for these products ratably over the subscription period.
 
Other revenue consists primarily of revenue generated through partners advertising to our customer base in various forms, including toolbar advertising, email marketing, and free trial offers. We recognize other revenue in the period in which control transfers to our partners.
 
Cash, Cash Equivalents and Investments
 
All liquid instruments with an original maturity at the date of purchase of 90 days or less are classified as cash equivalents. Cash equivalents and short-term investments consist primarily of money market funds, certificates of deposit, commercial paper, corporate and municipal bonds. Our interest income on cash, cash equivalents and investments is recorded monthly and reported as interest income and other in our condensed consolidated statements of operations.
 
We view this investment portfolio as available for use in our current operations, and therefore we present our marketable securities as short-term assets
 
 
10
 
 
We monitor our investments for impairment on a quarterly basis and determine whether a decline in fair value is other-than-temporary by considering factors such as current economic and market conditions, the credit rating of the security’s issuer, the length of time an investment’s fair value has been below our carrying value, the Company’s intent to sell the security and the Company’s belief that it will not be required to sell the security before the recovery of its amortized cost. If an investment’s decline in fair value is deemed to be other-than-temporary, we reduce its carrying value to its estimated fair value, as determined based on quoted market prices or liquidation values. Declines in value judged to be other-than-temporary, if any, are recorded in operations as incurred. At December 31, 2019, the Company evaluated its unrealized losses on marketable securities and determined them to be temporary. We currently do not intend to sell securities with unrealized losses, and we concluded that we will not be required to sell these securities before the recovery of their amortized cost basis. At March 31, 2020 and December 31, 2019, the fair value of cash, cash equivalents and investments was $28.4 million and $26.4 million, respectively.
 
The following is a summary of cash, cash equivalents and investments at March 31, 2020 and December 31, 2019 (in thousands):
As of March 31, 2020
 
Amortized
Cost
 
 
Gross
Unrealized
Gains
 
 
Gross
Unrealized
Losses
 
 
Fair Value
 
Cash
 $9,823 
 $ 
 $ 
 $9,823 
Money market funds
  5,318 
   
   
  5,318 
Certificates of deposit
  438 
   
   
  438 
Commercial paper
  2,797 
  1 
   
  2,798 
Corporate notes and bonds
  8,812 
  4 
  (39)
  8,777 
U.S. government agency securities
  1,251 
  11 
   
  1,262 
 
 $28,439 
 $16 
 $(39)
 $28,416 
Classified as:
    
    
    
    
Cash and cash equivalents
 $15,141 
 $ 
 $ 
 $15,141 
Short-term investments
  13,298 
  16 
  (39)
  13,275 
 
 $28,439 
 $16 
 $(39)
 $28,416 
 
 
11
 
 
As of December 31, 2019
 
Amortized
Cost
 
 
Gross
Unrealized
Gains
 
 
Gross
Unrealized
Losses
 
 
Fair Value
 
Cash
 $7,814 
 $ 
 $ 
 $7,814 
Money market funds
  1,137 
   
   
  1,137 
Certificates of deposit
  475 
   
   
  475 
Commercial paper
  6,912 
   
  (1)
  6,911 
Corporate notes and bonds
  7,922 
  15 
  (4)
  7,933 
U.S. government agency securities
  2,145 
   
  (1)
  2,144 
 
 $26,405 
 $15 
 $(6)
 $26,414 
Classified as:
    
    
    
    
Cash and cash equivalents
 $10,087 
 $ 
 $ 
 $10,087 
Short-term investments
  16,318 
  15 
  (6)
  16,327 
 
 $26,405 
 $15 
 $(6)
 $26,414 
 
The following table summarizes the estimated fair value of our marketable securities classified by the stated maturity date of the security (in thousands):
 
 
 
March 31,
2020
 
 
December 31,
2019
Due within one year 
 $11,043 
 $12,754 
Due within two years 
  2,232 
  3,573 
 
 $13,275 
 $16,327 
 
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 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.
 
 
12
 
 
In accordance with ASC 820, the following table represents our fair value hierarchy for our financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 (in thousands):
 
As of March 31, 2020
 
Level 1  
 
 
Level 2  
 
 
Level 3  
 
 
Total  
 
Money market funds
 $5,318 
 $ 
 $ 
 $5,318 
Certificates of deposit
   
  438 
   
  438 
Commercial paper
   
  2,798 
   
  2,798 
Corporate notes and bonds
   
  8,777 
   
  8,777 
U.S. government agency securities
   
  1,262 
   
  1,262 
Total
 $5,318 
 $13,275 
 $ 
 $18,593 
 
As of December 31, 2019
 
Level 1  
 
 
Level 2  
 
 
Level 3  
 
 
Total  
 
Money market funds
 $1,137 
 $ 
 $ 
 $1,137 
Certificates of deposit
   
  475 
   
  475 
Commercial paper
   
  6,911 
   
  6,911 
Corporate notes and bonds
   
  7,933 
   
  7,933 
U.S. government agency securities
   
  2,144 
   
  2,144 
Total
 $1,137 
 $17,463 
 $ 
 $18,600 
 
For short-term investments, measured at fair value using Level 2 inputs, we review trading activity and pricing for these investments as of the measurement date. When sufficient quoted pricing for identical securities is not available, we use market pricing and other observable market inputs for similar securities obtained from various third party data providers. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data. Our policy is to recognize the transfer of financial instruments between levels at the end of our quarterly reporting period.
 
Concentrations of Credit Risk
 
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash equivalents, investments and trade accounts receivable. Our investment portfolio consists of investment grade securities. Except for obligations of the United States government and securities issued by agencies of the United States government, we diversify our investments by limiting our holdings with any individual issuer. We are exposed to credit risks in the event of default by the issuers to the extent of the amount recorded on the consolidated balance sheets.
 
For the three months ended March 31, 2020, Comcast and Cox Communications accounted for 47% and 37%, respectively, of our total revenue. For the three months ended March 31, 2019, Comcast and Cox Communications accounted for 68% and 20%, respectively, of our total revenue. There were no other customers that accounted for 10% or more of total revenue for the three months ended March 31, 2020 and 2019.
 
The credit risk in our trade accounts receivable is substantially mitigated by our evaluation of the customers’ financial conditions at the time we enter into business and reasonably short payment terms. As of March 31, 2020, Comcast and Cox Communications accounted for 48% and 38%, respectively, of our total accounts receivable. As of December 31, 2019, Comcast and Cox Communications accounted for 59% and 33%, respectively, of our total accounts receivable. There were no other customers that accounted for 10% or more of our total accounts receivable as of March 31, 2020 and December 31, 2019.
 
 
13
 
 
Trade Accounts Receivable and Allowance for Doubtful Accounts
 
Trade accounts receivable are recorded at the invoiced amount. We perform evaluations of our customers’ financial condition and generally do not require collateral. We make judgments as to our ability to collect outstanding receivables and provide allowances for a portion of receivables when collection becomes doubtful. Reserves are made based on a specific review of all significant outstanding invoices. For those invoices not specifically provided for, reserves are recorded at differing rates, based on the age of the receivable. In determining these rates, we analyze our historical collection experience and current payment trends. The determination of past-due accounts is based on contractual terms. We had an allowance for doubtful accounts of $28,000 at both March 31, 2020 and December 31, 2019.
 
Self-Funded Health Insurance
 
Effective January 1, 2015, the Company maintains a self-funded health insurance program with a stop-loss umbrella policy with a third party insurer to limit the maximum potential liability for medical claims. With respect to this program, the Company considers historical and projected medical utilization data when estimating its health insurance program liability and related expense. As of March 31, 2020, the Company had approximately $239,000 in reserve for its self-funded health insurance program. As of December 31, 2019, the Company had approximately $404,000 in reserve for its self-funded health insurance program. The reserve is included in “other accrued liabilities” in the condensed consolidated balance sheets.
 
The Company regularly analyzes its reserves for incurred but not reported claims and for reported but not paid claims related to its self-funded insurance program. The Company believes its reserves are adequate. However, significant judgment is involved in assessing these reserves such as assessing historical paid claims, average lags between the claims’ incurred date, reported dates and paid dates, and the frequency and severity of claims. There may be differences between actual settlement amounts and recorded reserves and any resulting adjustments are included in expense once a probable amount is known.
 
Accumulated Other Comprehensive Loss
 
The components of accumulated other comprehensive loss, which relate entirely to accumulated foreign currency translation losses associated with our foreign subsidiaries and unrealized losses on investments, consisted of the following (in thousands):
 
 
 
Foreign Currency Translation Losses
 
 
Unrealized Losses on Investments
 
 
Total
 
Balance as of December 31, 2019
 $(2,389)
 $9  
 $(2,380)
Current-period other comprehensive (loss) 
  (211)
  (1)
  (212)
Balance as of March 31, 2020
 $(2,600)
 $8  
 $(2,592)
 
 
 
 
Foreign Currency Translation Losses
 
 
Unrealized Losses on Investments
 
 
Total
 
Balance as of December 31, 2018
 $(2,438)
 $(69)
 $(2,507)
Current-period other comprehensive income 
  99  
  50  
  149  
Balance as of March 31, 2019
 $(2,339)
 $(19)
 $(2,358)
 
Realized gains/losses on investments reclassified from accumulated other comprehensive loss are reported as interest income and other, net in our consolidated statements of operations.
 
The amounts noted in the condensed consolidated statements of comprehensive loss are shown before taking into account the related income tax impact. The income tax effect allocated to each component of other comprehensive loss for each of the periods presented is not significant.
 
 
14
 
 
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 stock, restricted stock awards and options to purchase stock, made to employees and directors based on estimated fair values.
 
The fair value of our stock-based awards was estimated using the following weighted average assumptions for the three months ended March 31, 2020 and 2019:
 
 
 
Stock Option Plan
 
 
 
Three Months Ended March 31,
 
 
 
2020
 
 
2019 (1)
 
Risk-free interest rate 
  0.60%
  0%
Expected term (in years) 
  3.13 
  0.0 
Volatility 
  37.2%
  0%
Expected dividend 
  0%
  0%
Weighted average grant-date fair value
 $0.15 
 $0.00 
 
(1)
There were no options granted for the three months ended March 31, 2019.
 
There were no Employee Stock Purchase Plan (“ESPP”) purchases for the three months ended March 31, 2020 and 2019.
 
We recorded the following stock-based compensation expense for the three months ended March 31, 2020 and 2019 (in thousands):
 
 
 
Three Months Ended
March 31,
 
 
 
2020
 
 
2019
 
Stock-based compensation expense related to grants of:
 
 
 
 
 
 
Stock options 
 $31 
 $33 
Restricted stock units (“RSUs”) 
  83  
  19  
 
 $114  
 $52  
Stock-based compensation expense recognized in:
    
    
Cost of service 
 $5 
 $8 
Engineering and IT 
  2 
  7 
Sales and marketing 
  8 
  12 
General and administrative 
  99  
  25  
 
 $114  
 $52  
 
 
15
 
 
Earnings Per Share
 
Basic earnings per share is computed using our net income and the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share is computed using our net income and the weighted average number of common shares outstanding, including the effect of the potential issuance of common stock such as stock issuable pursuant to the exercise of stock options and warrants and vesting of RSUs using the treasury stock method when dilutive.
 
For the three months ended March 31, 2020 and 2019, diluted earnings per share was computed using our net income and the weighted average number of common shares outstanding, including the effect of the potential issuance of common stock such as stock issuable pursuant to the exercise of stock options and warrants and vesting of RSUs using the treasury stock method. 
 
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
 
 
 
Three Months
 
 
 
Ended
 
 
 
March 31,
 
 
 
2020
 
 
2019
 
 
 
 
 
 
 
 
Net income
 $364 
 $1,443 
 
    
    
Basic:
    
    
Weighted-average shares of common stock outstanding
  19,054 
  18,955 
Shares used in computing basic income per share
  19,054 
  18,955 
Basic earnings per share
  0.02 
  0.08 
Diluted:
    
    
Weighted-average shares of common stock outstanding
  19,054 
  18,955 
Add: Common equivalent shares outstanding
  179 
  49 
Shares used in computing diluted earnings per share
  19,233 
  19,004 
Diluted earnings per share
 $0.02 
 $0.08 
 
 
16
 
 
Warranties and Indemnifications
 
We generally provide a refund period on sales, during which refunds may be granted to consumers under certain circumstances, including our inability to resolve certain support issues. For our partnerships, the refund period varies by partner, but is generally between 5-14 days. For referral programs and direct transactions, the refund period is generally 5 days. For the majority of our end-user software products, we provide a 30-day money back guarantee. For all channels, we recognize revenue net of refunds and cancellations during the period. Refunds and cancellations have not been material to date.
 
We generally agree to indemnify our customers against legal claims that our end-user software products infringe certain third-party intellectual property rights. As of March 31, 2020, we have not been required to make any payment resulting from infringement claims asserted against our customers and have not recorded any related accruals.
 
Leases
 
We recognized operating and financing lease liabilities and corresponding right-of-use (ROU) assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and short- and long-term lease liabilities in our consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in our consolidated balance sheets.
 
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. We account for the lease and non-lease components as a single lease component.
 
Recent Accounting Pronouncements
 
Recent Accounting Standards Adopted in the Current Period
 
Financial Instruments
           In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825). ASU No. 2016-01 revises the classification and measurement of investments in certain equity investments and the presentation of certain fair value changes for certain financial liabilities measured at fair value. ASU No. 2016-01 requires the change in fair value of many equity investments to be recognized in net income. The Company adopted ASU 2016-01 in its first quarter of 2018 utilizing the modified retrospective transition method. Based on the composition of the Company's investment portfolio, the adoption of ASU-2016-01 did not have a material impact on the consolidated financial statments.
 
In August 2018, the FASB issued Accounting Standard Update No. 2018-13, Changes to Disclosure Requirements for Fair Value Measurements (Topic 820) (ASU 2018-13), which improved the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements. We adopted the new standard effective January 1, 2019 and do not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
 
New Accounting Standards to be adopted in Future Periods
 
Financial Instruments
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard's main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope. The effective date for all public companies, except smaller reporting companies, is fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The effective date for all other entities is fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.  We do not expect the standard to have a material impact on our consolidated financial statements.
 
Income Taxes
In December 2019, the FASB issued Accounting Standard Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. This guidance will be effective for us in the first quarter of 2021 on a prospective basis, and early adoption is permitted. We are currently evaluating the impact of the new guidance on our consolidated financial statements.
 
 
17
 
 
Note 2. Income Taxes
 
We recorded an income tax provision (benefit) of $49,000 and $28,000 for the three months ended March 31, 2020 and 2019, 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, 2020, our 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 our net U.S. deferred tax assets and a partial valuation allowance against our foreign deferred tax assets.  We reassess the need for our 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.
 
The Company does not anticipate a material change in the total amount or composition of its unrecognized tax benefits as of March 31, 2020.
 
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, to the Company requiring the Company to produce certain documents and materials and to answer certain interrogatories relating to PC Healthcheck, an obsolete software program that the Company developed on behalf of a third party for their use with their customers. The investigation relates to the Company providing software like PC Healthcheck to third parties for their use prior to December 31, 2016, when the Company was under management of the previous Board and executive team. Since issuing the CID, the FTC has sought additional written and testimonial evidence from the Company. We have cooperated fully with the FTC’s investigation and provided all requested information. In addition, the Company has not used PC Healthcheck nor provided it to any customers since December 2016.
 
On March 9, 2018, the FTC notified the Company that the FTC was willing to engage in settlement discussions. On November 6, 2018, the Company and the FTC entered into a proposed Stipulation to Entry of Order for Permanent Injunction and Monetary Judgment, or 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 has finally resolved the FTC’s multi-year investigation of the Company.
 
Pursuant to the Consent Order, under which the Company neither admitted nor denied the FTC’s allegations (except as to the Court having jurisdiction over the matter), the FTC has agreed to accept a payment of $10 million in settlement of the $35 million judgement, subject to the factual accuracy of the information the Company has provided as part of our financial representations. The $10 million payment was made on April 1, 2019 and was recognized in operating expenses within the Company’s consolidated statements of operations for the year ended December 31, 2018.
 
Additionally, pursuant to the Consent Order, the Company has agreed to implement certain new procedures and enhance certain existing procedures. For example, the Consent Order necessitates that the Company cooperate with representatives of the Commission on associated investigations if needed; imposes requirements on the Company regarding obtaining acknowledgements of the Consent Order and compliance certification, including record creation and maintenance; and prohibits the Company 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. The Company intends to monitor the impact of the Consent Order regularly and, while the Company currently does not expect the settlement to have a long-term and materially adverse impact on its business, the Company’s business may be negatively impacted as the Company adjusts to some of the changes. If the Company is unable to comply with the Consent Order, then this could result in a material and adverse impact to the Company’s results of operations and financial condition.
 
Other Matters.  The Company has 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. The Company intends to cooperate with these information requests and is not aware of any other legal proceedings against the Company by governmental authorities at this time.
 
 
18
 
 
We are also subject to other routine legal proceedings, as well as demands, claims and threatened litigation, that arise in the normal course of our 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 its 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 we do not meet these thresholds, 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, 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, 2020 and December 31, 2019.
 
Note 4. Intangible Assets
 
In December 2006, we acquired the use of a toll-free telephone number for cash consideration of $250,000. This asset has an indefinite useful life.
 
As of March 31, 2020, all intangible assets have been fully amortized with the exception of the indefinite-life intangibles.
 
Note 5. Other Accrued Liabilities
 
Other accrued liabilities consist of the following (in thousands):
 
 
 
March 31,
2020
 
 
December 31,
2019
 
Accrued expenses
 $282 
 $443 
Self-insurance accruals
  239 
  404 
Lease liabilities
  - 
  68 
Other accrued liabilities
  94  
  86  
Total other accrued liabilities
 $615  
 $1,001  
 
 
19
 
 
Note 6. Stockholder’s Equity
 
Stock Options
 
The following table represents the stock option activity for the three months ended March 31, 2020:
 
 
 
Number of
Shares
 
 
Weighted
Average
Exercise Price
per Share
 
 
Weighted
Average
Remaining
Contractual
Term (in years)
 
 
Aggregate
Intrinsic Value
(in thousands)
 
Outstanding options at December 31, 2019
  816,185 
 $1.77 
  7.49 
 $16 
Granted
  754,000 
  1.35 
    
    
Exercised
   
   
    
    
Forfeited
  (40,616)
 $1.40 
    
    
Outstanding options at March 31, 2020
  1,529,569  
 $1.57 
  8.78 
 $16 
Options vested and expected to vest
  1,529,569  
 $1.57  
  8.78  
 $16  
Exercisable at March 31, 2020
  703,188  
 $1.85  
  7.59  
 $11  
 
 
20
 
 
The following table represents the stock option activity for the three months ended March 31, 2019:
 
 
 
Number of
Shares
 
 
Weighted
Average
Exercise Price
per Share
 
 
Weighted
Average
Remaining
Contractual
Term (in years)
 
 
Aggregate
Intrinsic Value
(in thousands)
 
Outstanding options at December 31, 2018
  803,320 
 $2.89 
  8.43 
 $54 
Granted
   
   
    
    
Exercised
   
   
    
    
Forfeited
  (26,750)
 $2.71 
    
    
Outstanding options at March 31, 2019
  776,570  
 $2.90 
  8.18 
 $- 
Options vested and expected to vest
  764,988  
 $2.90  
  8.18  
 $-  
Exercisable at March 31, 2019
  584,182  
 $3.08  
  8.09  
 $-  
 
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value that would have been received by the option holders had they all exercised their options on March 31, 2020. This amount changes based on the fair market value of our stock. Total fair value of options vested during the three months ended March 31, 2020 and 2019 was $46,000 and $29,000, respectively.
 
At March 31, 2020, there was $158,000 of unrecognized compensation cost related to existing options outstanding which is expected to be recognized over a weighted average period of 3.7 years.
 
Employee Stock Purchase Plan
 
In the second quarter of 2011, to advance the interests of the Company and its stockholders by providing an incentive to attract, retain and reward eligible employees and by motivating such persons to contribute to the growth and profitability of the Company, the Company’s Board of Directors (the “Board”) and stockholders approved an ESPP and reserved 333,333 shares of our common stock for issuance effective as of May 15, 2011. The ESPP continues in effect for ten (10) years from its effective date unless terminated earlier by the Company. The ESPP consists of six-month offering periods during which employees may enroll in the plan. The purchase price on each purchase date shall 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. During the three months ended March 31, 2020 and 2019, no shares were purchased under ESPP. As of March 31, 2020, approximately 104,071 shares remain available for grant under the ESPP.
 
 
21
 
 
Restricted Stock Units
 
The following table represents RSU activity for the three months ended March 31, 2020:
 
 
 
Number of
Shares
 
 
Weighted
Average
Grant-Date
Fair Value
per Share
 
 
  Weighted Average Remaining Contractual Term (in years)
 
 
Aggregate
Intrinsic Value
(in thousands)
 
Outstanding RSUs at December 31, 2019
  248,549 
 $1.62 
  0.60 
 $271 
Awarded
   
   
    
    
Released
   
   
    
    
Forfeited
   
   
    
    
Outstanding RSUs at March 31, 2020
  248,549 
 $1.62 
  0.34 
 $271 
 
The following table represents RSU activity for the three months ended March 31, 2019:
 
 
 
Number of
Shares
 
 
Weighted
Average
Grant-Date
Fair Value
per Share
 
 
  Weighted Average Remaining Contractual Term (in years)  
 
 
Aggregate
Intrinsic Value
(in thousands)
 
Outstanding RSUs at December 31, 2018
  96,230 
 $2.78 
  0.60 
 $227 
Awarded
   
   
    
    
Released
   
   
    
    
Forfeited
  (18,181)
   
    
    
Outstanding RSUs at March 31, 2019
  78,049 
 $2.27 
  0.35 
 $177 
 
At March 31, 2020, there was $113,000 of unrecognized compensation cost related to RSUs which is expected to be recognized over a weighted average period of 0.3 years.
 
 
22
 
 
Stock Repurchase Program
 
On April 27, 2005, our Board authorized the repurchase of up to 666,666 outstanding shares of our common stock. As of March 31, 2020 the maximum number of shares remaining that can be repurchased under this program was 602,467. The Company does not intend to repurchase shares without further approval from its Board.
 
Note 7. Leases
 
We have entered into various non-cancelable operating lease agreements for certain of our offices, and certain equipment. The Colorado and Sunnyvale office leases were both renewed during the period and will expire on January 31, 2021 and March 31, 2021, respectively.
 
The components of lease costs, lease term and discount rate are as follows (in thousands except lease term and discount rate):
 
 
 
Three Months Ended
March 31,
2020
 
 
Three Months Ended
March 31,
2019
 
Operating leases
 
 
 
 
 
 
Operating lease right-of-use assets
 $178  
 $186  
 
    
    
Operating lease liabilities – short term
 $171 
 $175 
Operating lease liabilities – long-term
  7  
  13  
Total operating lease liabilities
 $178  
 $188  
 
Weighted Average Remaining Lease Term 
 
 
 
 
 
 
Operating leases 
 
1.1 years
 
 
1.1 years
 
Weighted Average Discount Rate 
 
 
 
 
 
 
Operating leases 
  4.5
  4.5
 
 
23
 
 
The following represents maturities of operating lease liabilities as of March 31, 2020 (in thousands):
 
 
 
Operating Leases
 
Reminder of 2020
 $135 
2020
  45 
2021
  2 
Total undiscounted cash flows
  182 
Less imputed interest
  (4)
Present value of lease liabilities
 $178 

Supplemental cash flow information related to leases are as follows (in thousands):
 

 Three Months Ended
March 31,
2020
 
 
Three Months Ended
March 31,
2019
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
 
 
 
Operating cash flows from operating leases
 $45  
 $44 
Right-of-use assets obtained in exchange for lease obligations:


Operating leases
 $ 
 $- 
 
 
24
 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q (the “Report”) and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2019. The following discussion includes forward-looking statements. Please see “Risk Factors” in Item 1A of this Report for important information to consider when evaluating these statements.
 
Overview
 
Support.com, Inc. is a full-spectrum leader in outsourced call center and direct-to-consumer and small business technical support solutions. With more than 20 years of providing high quality technical support services to consumers and small businesses through white-labeled partnerships or direct solutions, Support.com has the expertise, tools and software solutions to troubleshoot and maintain all the devices in the connected home and business. The company's skilled U.S.-based live agents and rich self-support tools troubleshoot thousands of technical support issues consumers and small businesses face on an ongoing basis. Support.com delivers high quality, turnkey technical support solutions, software and digital support experiences that enable customers to get the most out of their technology.
 
Total revenue for the first quarter of 2020 decreased 34% from the first quarter of 2019. Revenue from services decreased 32% from the first quarter of 2019 primarily due to a decrease in billable hours of our largest customer somewhat offset by an increase in revenues of other major customers. Revenue from software and other decreased 64% from the first quarter of 2019 due to lower new subscriptions and renewals.
 
Cost of services for the first quarter of 2020 decreased 44% from the first quarter of 2019which was primarily attributable to lower compensation costs as headcount decreased commensurate with the lower revenues. Cost of software and other for the first quarter of 2020 decreased 46% from the first quarter of 2019. Total gross margin increased from 23% to 35% from the first quarter of 2019.
 
Operating expenses for the first quarter of 2020 increased 29% from the same period in 2019, primarily driven by increases in advertising expense, consulting services, legal fees, stock based compensation and temporary help.
We intend the following discussion of our financial condition and results of operations to provide information that will assist in understanding our consolidated financial statements, the changes in certain key items in those consolidated financial statements from quarter to quarter, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our consolidated financial statements.
 
 Critical Accounting Policies and Estimates
 
In preparing our interim condensed consolidated financial statements, we make estimates, assumptions and judgments that can have a significant impact on our net revenue, operating income or loss and net income or loss, as well as on the value of certain assets and liabilities on our condensed consolidated balance sheet. We believe that the estimates, assumptions and judgments involved in the accounting policies described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 have the greatest potential impact on our interim condensed consolidated financial statements, so we consider them to be our critical accounting policies and estimates. There have been no significant changes in these critical accounting policies and estimates except the accounting for financial instrument during the three months ended March 31, 2020.
 
 
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Critical Accounting Policies
 
In preparing our consolidated financial statements in conformity with generally accepted accounting principles in the United States, we make assumptions, judgments and estimates that can have a significant impact on our revenue and operating results, as well as on the value of certain assets and liabilities on our consolidated balance sheet. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis we evaluate our assumptions, judgments and estimates and make changes accordingly. We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition, fair value measurements, purchase accounting in business combinations, self-insurance accruals, accounting for intangible assets, stock-based compensation and accounting for income taxes have the greatest potential impact on our consolidated financial statements, so we consider these to be our critical accounting policies. We discuss below the critical accounting estimates associated with these policies. For further information on the critical accounting policies, see Note 1 of our Notes to Consolidated Financial Statements.
 
Revenue Recognition
 
For information regarding to the disaggregation of revenue, see Note 1 – Significant Accounting Policies, Revenue Recognition.
 
RESULTS OF OPERATIONS
 
The following table sets forth the results of operations for the three months ended March 31, 2020 and 2019 expressed as a percentage of total revenue:
 
 
 
Three Months Ended  March 31,  
 
 
 
2020  
 
 
2019  
 
Revenue:
 
   
 
 
   
 
Services
  96%
  93%
Software and other
  4 
  7 
 
    
    
Total revenue
  100 
  100 
 
    
    
Cost of revenue:
    
    
Cost of services
  64 
  76 
Cost of software and other
  1 
  1 
Total cost of revenue
  65 
  77 
Gross profit
  35 
  23 
Operating expenses:
    
    
Engineering and IT
  9 
  4 
Sales and marketing
  7 
  2 
General and administrative
  17 
  10 
 
    
    
Total operating expenses
  33 
  16 
 
    
    
Income from operations
  2 
  7 
Interest income and other, net
  1 
  1 
 
    
    
Income from operations, before income taxes
  3 
  8 
Income tax provision
  1 
  - 
Net income
  2%
  8%
 
 
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REVENUE
 
 
 
Three Months Ended
 
 
 
 
 
     
 
 
 
March 31, 
 
 
$
 
 
  %    
 
In thousands, except percentages
 
2020
 
 
2019
 
 
Change
 
 
Change    
 
Services
 $11,511 
 $16,864 
 $(5,353)
  (32)%
Software and other
  438 
  1,200 
  (762)
  (63)%
       Total revenue
 $11,949 
 $18,064 
 $(6,115)
  (34)%
 
Services. Services revenue consists primarily of fees for customer support services generated from our partners.  We provide these services remotely, generally using service delivery personnel who utilize our proprietary technology to deliver the services. Services revenue is also comprised of licensing of our Support.com Cloud applications. Services revenue for the three months ended March 31, 2020 decreased by $5.4 million, or 32% from the same period in 2019 mainly due to decrease in billable hours of Comcast offset by an increase in sales from Cox Communications. For the three months ended March 31, 2020, services revenue generated from our partnerships was $11.0 million compared to $16.2 million for the same period in 2019. Direct services revenue was $0.5 million for the three months ended March 31, 2020 compared to $0.7 million for the same period in 2019. As with any market that is undergoing shifts, timing of downward pressures and growth opportunities in our services programs are difficult to predict. We are experiencing downward pressure with some of our services programs as personal computer and certain retail markets are subject to seasonal or other sector specific softness. However, we still see opportunity in the market for growth with our service partners as a result of the evolving support market trends.
 
Software and other. Software and other revenue is comprised primarily of fees for end-user software products provided through direct customer downloads, and, to a lesser extent, through the sale of these software products via partners. Software and other revenue for the three months ended March 31, 2020 decreased by $0.8 million, or 64%, from the same period in 2019 due to new subscriptions being less than expirations of subscriptions. For the three-month period ended March 31, 2020 and 2019, revenue from software and other generated from our direct sales was $0.4 million and $0.5 million, respectively. Software and other revenue generated from our partnerships was $38,000 and $0.7 million for the three months ended March 31, 2020 and the three months ended March 31, 2019.
 
COST OF REVENUE
 
 
 
Three Months Ended
 
 
 
 
 
   
 
 
 
March 31,
 
 
$
 
 
%
 
In thousands, except percentages
 
2020
 
 
2019
 
 
Change
 
 
Change  
 
Cost of services
 $7,685 
 $13,798 
 $(6.113)
  (44)%
Cost of software and other
  29
  54 
  (25)
  (46)%
      Total cost of revenue
 $7,714 
 $13,852 
 $(6,138)
  (44)%
 
Cost of services. Cost of services consists primarily of compensation costs and contractor expenses for people providing services, technology and telecommunication expenses related to the delivery of services and other personnel-related expenses in service delivery. The decrease of $6.1 million in cost of services for the three months ended March 31, 2020 compared to the same period in 2019 was mainly driven by lower compensation expenses due to decrease in hiring and lower technology cost due to renegotiated software hosting costs.
 
Cost of software and other. Cost of software and other fees consists primarily of third-party royalty fees for our end-user software products. Certain of these products were developed using third-party research and development resources, and the third party receives royalty payments on sales of products it developed. The cost of software and other for the three months ended March 31, 2020 were flat as compared with the year-ago period.
 
 
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OPERATING EXPENSES
 
 
 
Three Months Ended
 
 
 
 
 
   
 
 
 
March 31,
 
 
$
 
 
%
 
In thousands, except percentages
 
2020
 
 
2019
 
 
Change
 
 
Change  
 
Engineering and IT
 $1,040 
 $749 
 $291 
  39%
Sales and marketing
 $813 
 $392 
 $421 
  107%
General and administrative
 $2,053 
 $1,896 
 $157 
  8%
Engineering and IT. Engineering and IT expense consists primarily of compensation costs, third-party consulting expenses and related overhead costs for engineering and IT personnel and are expensed as they are incurred. Engineering and IT costs for the three months ended March 31, 2020 increased $0.3 million primarily due to higher consulting fees.
 
Sales and marketing. Sales and marketing expense consists primarily of compensation costs of business development, program management and marketing personnel, as well as expenses for lead generation and promotional activities, including public relations, web site design, advertising and marketing. The increase of $0.4 million in sales and marketing expense for the three months ended March 31, 2020 compared to the same period in 2019 was primarily due to $0.2 million increase in advertising expense, $0.1 million increase in consulting fees and $0.1 million increase in salary and employee related expenses.
 
General and administrative. General and administrative expense consists primarily of compensation costs and related overhead costs for administrative personnel and professional fees for legal, accounting and other professional services. The general and administrative expense for three months ended March 31, 2020 compared to the same period in 2019 increased by $0.2 million is primarily due to $0.1 million increase in temporary help, $0.1 million increase in stock based compensation due to an additional 754,000 shares granted in March 2020, $0.1 million increase in legal fees and other increases in software and year-end related activities, offset by a $0.1 million decrease in consulting and recruiting charges.
 
INTEREST INCOME AND OTHER, NET
 
 
 
Three Months Ended
 
 
 
 
 
   
 
 
 
March 31,
 
 
$
 
 
%
 
In thousands, except percentages
 
2020
 
 
2019
 
 
Change
 
 
Change  
 
Interest and other, net
 $84 
 $296 
 $(212)
  (72)%
 
Interest income and other, net. Interest income and other, net consists primarily of interest income on our cash, cash equivalents and short-term investments. The decrease in interest income and other, net of $0.2 million for the three months ended March 31, 2020 and 2019 was primarily due to lower cash and cash equivalents and short-term investments in banks after the $10 million payment to the FTC in April 2019 and the $19.1 million cash dividend paid in December, 2019 coupled with lower yields on investments, and $0.1 million related to international VAT charges.
 
INCOME TAX PROVISION
 
 
 
Three Months Ended
 
 
 
 
 
 
 
 
 
March 31,
 
 
$
 
 
%
 
In thousands, except percentages
 
2020
 
 
2019
 
 
Change
 
 
Change
 
Income tax provision
 $49 
 $28 
 $21 
  75%
 
Income tax provision.  For the three months ended March 31, 2020, the income tax provision primarily consisted of foreign taxes. 
 
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted on March 27, 2020. It contains several provisions that may have financial statement effects. Key Aspects of the CARES Act include the following:
 
Repealed the 80% taxable income limitation for 2018, 2019 and 2020. Also allows those years to be carried back up to five years
Allows corporations to claim 100% of AMT credits in 2019.  It also provides for an election to take the entire refundable credit amount in 2018
Section 163(j) ATI limit raised from 30% to 50% for businesses
Technical corrections to TCJA for Qualified Improvement Property (“QIP”). Designates as 15-year property for depreciation purposes, which makes QIP a category eligible for 100% bonus depreciation
 
The CARES Act is not expected have a material impact to Income Taxes in the Company's financial statements.
 
 
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LIQUIDITY AND CAPITAL RESOURCES
 
Total cash, cash equivalents and investments at March 31, 2020 and December 31, 2019 were $28.4 million and $26.4 million, respectively. The increase in cash, cash equivalents and investments was primarily due to the use of cash in operating activities as we continue to invest in services and the Support.com Cloud product.
 
Operating Activities
 
Net cash provided by (used in) operating activities was $2.1 million and $(1.7) million for the three months ended March 31, 2020 and 2019, respectively. Net cash provided by (used in) operating activities primarily reflected the net income for the period, adjusted for non-cash items such as depreciation, amortization of premiums and discounts on investments, amortization of right-of-use assets, stock-based compensation expense and changes in operating assets and liabilities.
 
Net cash used in operating activities during the three months ended March 31, 2020 was the result of a net income of $0.4 million, non-cash items of $0.2 million, and changes in operating assets and liabilities of $1.4 million. Net cash used in operating activities during the three months ended March 31, 2019 was the result of a net income of $1.4 million, non-cash items of $0.2 million, and changes in operating assets and liabilities of $(3.3) million.
 
 Investing Activities
 
Net cash provided by investing activities was $3.0 million and $6.1 million for the three months ended March 31, 2020 and 2019, respectively. For the three months ended March 31, 2020, net cash provided by investing activities was primarily due to the maturities of investments of $3.0 million. For the three months ended March 31, 2019, net cash provided by investing activities was primarily due to maturities of investments of $9.6 million offset by the purchase of marketable securities of $3.5 million.
 
Financing Activities
 
Net cash used in financing activities was $0 for the three months ended March 31, 2020 and 2019.
 
Working Capital and Capital Expenditure Requirements
 
At March 31, 2020, we had stockholders’ equity of $33.4 million and working capital of $32.7 million. We believe that our existing cash balances will be sufficient to meet our working capital requirements, as well as our planned capital expenditures, for at least the next 12 months.
 
If we require additional capital resources to grow our business internally or to acquire complementary technologies and businesses at any time in the future, we may seek to sell additional equity or debt securities. The current economic environment, however, could limit our ability to raise capital by issuing new equity or debt securities on acceptable terms, and lenders may be unwilling to lend funds on acceptable terms that would be required to support operations. The sale of additional equity or convertible debt securities could result in dilution to our existing stockholders. The issuance of debt securities would result in increased interest expenses, and could impose new restrictive covenants that would limit our operating flexibility.
 
We plan to continue to make investments in our business during 2020. We believe these investments are essential to creating sustainable growth in our business in the future. Additionally, we may choose to acquire other businesses or complimentary technologies to enhance our product capabilities and such acquisitions would likely require the use of cash.
 
 
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information called for by this Item.
 
ITEM 4. CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet, and management believes they meet, reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
 
Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of our “disclosure controls and procedures” as of the end of the period covered by this quarterly report, have concluded that our disclosure controls and procedures are effective based on their evaluation of these controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.
 
Changes in Internal Control over Financial Reporting
 
  There were no changes that occurred during the three months ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
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PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
On December 20, 2016 the Federal Trade Commission (“FTC”) issued a confidential Civil Investigative Demand, or CID, to the Company requiring the Company to produce certain documents and materials and to answer certain interrogatories relating to PC Healthcheck, an obsolete software program that the Company developed on behalf of a third party for their use with their customers. The investigation relates to the Company providing software like PC Healthcheck to third parties for their use prior to December 31, 2016, when the Company was under management of the previous Board and executive team. Since issuing the CID, the FTC has sought additional written and testimonial evidence from the Company. We have cooperated fully with the FTC’s investigation and provided all requested information. In addition, the Company has not used PC Healthcheck nor provided it to any customers since December 2016.
 
On March 9, 2018, the FTC notified the Company that the FTC was willing to engage in settlement discussions. On November 6, 2018, the Company and the FTC entered into a proposed Stipulation to Entry of Order for Permanent Injunction and Monetary Judgment, or 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 has finally resolved the FTC’s multi-year investigation of this matter.
 
Pursuant to the Consent Order, under which the Company neither admitted nor denied the FTC’s allegations (except as to the Court having jurisdiction over the matter), the FTC has agreed to accept a payment of $10 million in settlement of the $35 million judgement, subject to the factual accuracy of the information the Company has provided as part of our financial representations. The $10 million payment was made on April 1, 2019 and was recognized in operating expenses within the Company’s consolidated statements of operations for the year ended December 31, 2018.
 
Additionally, pursuant to the Consent Order, the Company has agreed to implement certain new procedures and enhance certain existing procedures. For example, the Consent Order necessitates that the Company cooperate with representatives of the Commission on associated investigations if needed; imposes requirements on the Company regarding obtaining acknowledgements of the Consent Order and compliance certification, including record creation and maintenance; and prohibits the Company 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. The Company intends to monitor the impact of the Consent Order regularly and, while the Company currently does not expect the settlement to have a long-term and materially adverse impact on its business, the Company’s business may be negatively impacted as the Company adjusts to some of the changes. If the Company is unable to comply with the Consent Order, then this could result in a material and adverse impact to the Company’s results of operations and financial condition.
 
Other Proceedings
 
The Company has 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. The Company intends to cooperate with these information requests and is not aware of any other legal proceedings against the Company by governmental authorities at this time.
 
 
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ITEM 1A. RISK FACTORS.
This report contains forward-looking statements regarding our business and expected future performance as well as assumptions underlying or relating to such statements of expectation, all of which are “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange