SECURITIES & EXCHANGE COMMISSION EDGAR FILING
Support.com, Inc.
Form: 10-K
Date Filed: 2009-03-11
Corporate Issuer CIK: 1104855
Symbol:
Fiscal Year End:
SPRT
12/31
© Copyright 2014, Issuer Direct Corporation. All Right Reserved. Distribution of this document is strictly prohibited, subject to the
terms of use.
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Fiscal Year Ended December 31, 2008
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
SUPPORTSOFT, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
1900 Seaport Boulevard, 3rd Floor, Redwood City, CA
(Address of Registrant’s Principal Executive Offices)
94-3282005
(I.R.S. Employer
Identification No.)
94063
(Zip Code)
Registrant’s telephone number including area code: (650) 556-9440
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $.0001 par value
Name of each exchange on which
registered
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ❑ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ❑ No x
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 x No ❑
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. x
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,” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ❑
Accelerated filer x
Non-accelerated filer ❑
(Do not check if a smaller
reporting company)
Smaller reporting company ❑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ❑ No x
The aggregate market value of the registrant’s common stock, $.0001 par value, held by non-affiliates of the registrant was
approximately $150,099,586 based upon the closing price of $3.25 per share as of June 30, 2008. Shares of common stock held by
each executive officer, director, and stockholders known by the registrant to own 10% or more of the outstanding stock based on
Schedule 13G filings and other information known to us, have been excluded since such persons may be deemed affiliates. This
determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of February 28, 2009, there were 46,219,614 shares of the registrant’s common stock outstanding.
Part III, Items 10 (as to directors, section 16(a) beneficial ownership and audit committee and audit committee financial expert),
11, 12 (as to beneficial ownership), 13 and 14 incorporate by reference information from the registrant’s definitive proxy statement
DOCUMENTS INCORPORATED BY REFERENCE
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(the “Proxy Statement”) to be mailed to stockholders in connection with the solicitations of proxies for its 2009 annual meeting of
stockholders. Except as expressly incorporated by reference, the registrant’s Proxy Statement shall not be deemed to be part of this
report.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
SUPPORTSOFT, INC.
FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2008
TABLE OF CONTENTS
PART I
ITEM 1.
Business
ITEM 1A.
Risk Factors
ITEM 1B.
Unresolved Staff Comments
ITEM 2.
ITEM 3.
ITEM 4.
PART II
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
ITEM 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
ITEM 6.
ITEM 7.
Equity Securities
Selected Consolidated Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk
ITEM 8.
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
ITEM 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosures
ITEM 9A.
Controls and Procedures
Report of Management on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
ITEM 9B.
Other Information
PART III
ITEM 10.
Directors and Executive Officers of the Registrant
ITEM 11.
Executive Compensation
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
ITEM 13.
Certain Relationships and Related Transactions
ITEM 14.
Principal Accountant Fees and Services
PART IV
ITEM 15.
Exhibits and Financial Statement Schedules
Signatures
Exhibit Index
2
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Page
3
3
12
25
26
26
26
27
27
29
30
43
46
47
80
80
80
82
83
84
84
84
84
85
85
86
86
88
Table of Contents
FORWARD LOOKING STATEMENTS AND PRESENTATION OF FINANCIAL AND OTHER INFORMATION
This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. Please see the
section entitled “Forward-Looking Statements and Risk Factors” in Item 1A of this Report for important information to consider when
evaluating these statements.
In this Annual Report on Form 10-K (the “Form 10-K”), unless the context indicates otherwise, as used herein, the terms “we,”
“us,” “SupportSoft,” the “Company” and “our” refer to SupportSoft, Inc., a Delaware corporation, and its subsidiaries. References to
“$” are to United States dollars.
We have compiled the market share, market size and competitive ranking data in this Form 10-K using statistics and other
information obtained from several third-party sources.
Various amounts and percentages used in this Form 10-K have been rounded and, accordingly, they may not total 100%.
We own or otherwise have rights to the trademarks and trade names, including those mentioned in this Form 10-K, used in
conjunction with the marketing and sale of our products.
ITEM 1.
BUSINESS.
Overview
PART I
SupportSoft provides software and services designed to make technology work.
Advances in computer processing power, data transmission speeds, wireless communications and other areas of technology
have the potential to enable and enrich daily life. Too often, however, technology proves frustrating to all but the most expert users.
SupportSoft’s mission is to bridge this gap, and to enable technology to fulfill its promise.
In January 2008, we reorganized the Company and began operating our business in two segments, Consumer and Enterprise.
We began tracking profitability by segment and providing this information to our Board of Directors and our Chief Executive Officer.
Accordingly, beginning in 2008, we are providing information for each business segment. Our Consumer segment is a technology-
enabled services business that was launched in 2007 to provide consumers with assistance in resolving technology problems. Our
Enterprise segment consists of our traditional business in which we license technical support software to digital service providers
(telecommunications and cable companies) and corporate IT departments and IT outsourcers.
In our Consumer segment, we provide premium technology support to consumers over the internet and the phone for a fee. We
offer incident-based and subscription-based services to consumers through retailers, anti-virus providers and other companies who
provide technology products and services to consumers. We also provide our services directly to consumers through our website,
www.support.com. The content on this or any other website referred to in this Form 10-K is not incorporated by reference into this
Form 10-K unless expressly noted.
Our Enterprise customers use our software to resolve technical problems for their customers and employees. Digital service
providers use our products to automate the installation, activation and verification of broadband services, to reduce the cost and
improve the quality of technical support, and to enable the remote management of devices located at their customers’ premises.
Corporate IT departments and IT outsourcing firms use our
3
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
software to improve the cost-effectiveness and efficiency of technical support for employees through our integrated portfolio of
proactive service, self-service and assisted service products.
Industry Background
Technology has become a fundamental part of everyday life. Devices such as personal computers, mobile phones, personal
digital assistants, digital cameras and wireless routers, and digital services such as high speed data, video over DSL (IPTV) and
voice over Internet Protocol (VoIP), are becoming increasingly common. As technology has become more prevalent, technology
problems, whether with individual devices or systems incorporating multiple devices, have proliferated. As a result, the need for
efficient and effective technology support has become pressing.
Consumer
As the home becomes a complicated array of computers, software, media and other devices, people increasingly have time-
consuming problems in using technology. The increased integration of devices and the growth of home networks increase the
frequency and severity of technology support problems that consumers are unable to solve on their own, or that suppliers of individual
products are unable to solve for consumers. As a result, demand for technology support services is growing. According to industry
analysis firm IDC, revenue from providing support services to broadband-connected US households will grow from $2.0 billion in 2007
to $3.6 billion in 2012, including both third-party services and extended warranties.
Traditionally, support services providers have delivered services on-site at a customer’s house, or at a local physical storefront
to which the customer must bring their device. More recently, a new generation of companies has begun to provide remote services,
where the technician diagnoses common software problems over a high-speed Internet connection, and uses software to take control
of and repair the customer’s devices.
Enterprise
For digital service providers, the availability of high speed data, IPTV and VoIP services, often referred to as “triple play,” have
changed the competitive dynamics worldwide. The advent of triple play has spurred digital service providers to offer a broader and
more complex range of services. With these services have come a growing number of technology problems for subscribers, which we
believe digital service providers must address efficiently and effectively to succeed in the marketplace.
Inside businesses, IT departments are tasked with managing, supporting and servicing an expanding array of technologies used
by their employees. This challenge, combined with a redefinition of the workplace to include the office, the home and any point in
between, has made keeping the enterprise secure from virus attacks, maintaining business critical applications and responding to
end-user requests for assistance an increasingly difficult and expensive task.
The traditional approach to addressing these challenges relies upon call centers and help desks resolving problems in a largely
manual fashion. This approach has often proven inadequate for technology users, who require an increasing amount of assistance to
help them manage the technology that now pervades their lives. This approach to meeting technical support needs has also been
ineffective for many organizations, given its costly and time-intensive nature.
Strategy
Consumer
The key goals of our strategy in the Consumer segment are to grow and diversify revenue and to improve service delivery
efficiency. To achieve growth, our plan is to enhance our channel partners and expand our
4
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
service offerings. With respect to channels, we are seeking to expand existing programs, convert our most promising pilots into full
programs, add new partners and grow our direct support.com business. We aim to diversify revenue by expanding smaller programs,
developing partnerships with additional companies through which our offerings can reach consumers and growing our direct
business. With respect to service offerings, we recently introduced subscription-based offerings at support.com and began offering
them through channel partners in early 2009. We have also introduced new services such as online backup and data migration, and
plan to continue to expand our offerings to include educational services and support for additional devices.
We aim to improve service delivery efficiency in the Consumer segment by optimizing our service delivery operations through
increased automation, process improvement, performance management, improved forecasting, revenue scale and labor cost
optimization. We are focusing a substantial part of our research and development activities on technology that increases the
efficiency and improves the effectiveness of our technical support agents. To date, these activities have been focused on our
Solutions Toolkit, an integrated set of tools for delivery of premium technology services, and we have an extensive roadmap for these
technologies. In addition, we have introduced significant process improvements into our service delivery operations and augmented
our call center management team to drive efficiency gains and productivity increases, and we expect to continue these efforts. We
also expect improved forecasting and revenue scale to enable resource optimization. To further enhance service delivery efficiency,
we are exploring a number of means of optimizing labor costs.
Enterprise
The key goals of our strategy in the Enterprise segment are to continue operating profitability in this segment in the current
macroeconomic climate and to introduce new products to sustain and grow revenue. For these purposes, we measure segment
operating profitability on a non-GAAP basis; excluding common corporate expenses, stock-based compensation expenses,
restructuring charges and amortization/write off of intangible assets (“Segment Operating Profitability”). See Note 2 of Notes to
Consolidated Financial Statements for further information about segment reporting.
In order to continue Segment Operating Profitability in the Enterprise segment, we are carefully managing costs given the
current macroeconomic environment. As a result, we completed reductions in force in the fourth quarter of 2008 and in the first
quarter of 2009. In addition to reducing headcount, we have also reduced facilities expenses by closing certain of our physical offices
and moving to a work-from-home model in certain geographies.
In expanding our product offerings, our new Dynamic Agent will build on the desktop software agent our customers have
deployed to more than 50 million end-users worldwide, and will allow customers to offer content that is targeted and personalized for
specific end-users based on diagnostic information gleaned from their computers. When combined with new capabilities for
presenting marketing offers and downloading digital goods, the Dynamic Agent will allow customers to use our platform for revenue
generation as well as support services. Our RemoteTango product, expected to be released in late 2009, will be remote control
software delivered in a hosted, Software-as-a-Service (“SaaS”) model. Remote control software enables one computer user to control
another’s machine; it is used heavily in technical support and remote infrastructure management. We have had remote control in our
product portfolio for some time, but our new product has been redesigned for SaaS delivery and will be offered on a standalone basis
rather than as part of a larger suite of products and services. While we have invested significant resources in the new Dynamic Agent
and RemoteTango offerings, no assurance can be given that they will be introduced successfully, gain market acceptance or
generate material revenue for us.
Consumer Services
We currently offer premium technology services through channel relationships with retailers, anti-virus providers and other
companies, and directly through support.com. Our services are provided by home-based
5
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
technical support employees in North America and through a European call center. Key features of our services are the following:
(1) our services are provided remotely, with technical support agents available over the phone and the internet; (2) our services
leverage our proprietary technology; and (3) our services leverage our extensive knowledge base of solving technology problems for
digital service providers and corporate IT departments.
We offer both incident-based and subscription-based services. Incident-based services allow our customers to purchase any of
our services on a one-time basis with no future commitments. Subscription-based services allow customers to access our service
offerings over an extended period of time. With each subscription, customers download and install our proprietary client application
that monitors the status of the consumer’s security software.
We offer several types of services including the following:
Diagnose and Fix. Our Diagnose and Fix services are designed to assist consumers with a wide range of computer related
problems. We use our technology to remotely identify, diagnose and resolve technical problems, including the removal of viruses and
spyware. We also offer services designed to enhance the performance of computers. We use our technology to optimize computer
settings, removing unnecessary programs and content, and re-organizing and compacting computer files and folders, which can
improve computer performance through faster start-up and shut-down, loading of programs and internet browsing as well as
increased available disk space.
Connect and Secure. Our Connect and Secure service is designed to help consumers set up a wireless network in their home.
We help consumers to configure, connect and establish secure connections between their PC and home wireless networks and
certain “attached” devices. In addition, we diagnose and solve problems consumers have with an existing wireless home network.
Install & Setup. Our Install & Setup service is designed to help consumers install, set up and use digital devices connected to
their PC. For example, we assist consumers to install and set up their printer, share it across a home network and keep it updated
with the latest drivers. We also assist consumers with installing and configuring digital camera, photo management and photo editing
software. In addition, we help consumers install and configure software to connect an MP3 player to a computer, copy music to a
computer, and organize music files on their computer.
New Services. We have also introduced new services such as online backup and data migration and plan to continue to
expand our offerings to include educational services and support for additional devices.
In addition to the preceding services, we offer a number of services through our channel partners including the following:
New PC Setup and Configure: Our New PC Setup and Configure service is designed to complete the basic setup and
configuration steps for new PCs. We help consumers to create new user accounts, configure automatic system updates and remove
unnecessary trial software that clutters any new computer. An advanced version of this service also optimizes operating system and
internet browsing settings.
Protection and Performance. Our Protection and Performance service is designed to install, update, and configure consumers’
virus software and operating system to enhance data security. Additionally, the service helps improve performance of consumers’
computers by removing unnecessary applications and running a system tune-up. An advanced version of this service also installs and
configures parental controls and creates a user profile that restricts internet and application access, as specified by the consumers.
6
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
Enterprise Products
For Enterprise customers, we offer a number of products suitable for both digital service providers and corporate IT
departments. We also offer certain products targeted specifically at digital service providers’ needs. Products that are suitable for both
digital service providers and corporate IT departments include the following:
Desktop Agent. The SupportSoft agent is a desktop application that identifies, diagnoses and corrects potential problems prior
to their impact on an end-user. Additionally, should an end-user need to call a customer service representative or help desk analyst,
the SupportSoft technical support agent provides permission-based tools for speeding the call by transferring system level
information to our customer’s representative or analyst electronically. For digital service providers, this product can diagnose and
resolve connectivity and email issues as well as other common problems that are faced by high-speed data subscribers. For
corporate IT departments, this product also supports the proactive resolution of problems through the delivery of updates to desktops.
Dynamic Agent. In expanding our product offerings, our new Dynamic Agent will build on the desktop software agent our
customers have deployed to more than 50 million end-users worldwide, and will allow customers to offer content that is targeted and
personalized for specific end-users based on diagnostic information gleaned from their computers. When combined with new
capabilities for presenting marketing offers and downloading digital goods, the Dynamic Agent will allow customers to use our
platform for revenue generation as well as support services.
Self-Service Suite. Self-Service Suite is an integrated set of products designed to bring together knowledge automation
capabilities and service request management capabilities to support users who require web-based answers to technology-related
issues, automated fixes to technology problems, or the ability to submit requests for assistance. The Self-Service Suite includes the
SupportSoft Knowledge Center and RequestAssist products described below.
Knowledge Center. Knowledge Center is designed to automate the real-time creation, publication and management of
knowledge-based content for technology problem resolution. End-users can benefit from Knowledge Center solutions through their
ability to quickly access personalized, self-service answers online, including access to automated “one-click-fixes.” Customer service
representatives and help desk analysts can benefit from Knowledge Center software through functionality that allows them to access
a rich repository of knowledge to speed problem resolution, including both structured and unstructured data. Knowledge Center
content can be used to create consumer or employee facing self-service portals and/or call center or help desk facing content.
RequestAssist. RequestAssist is designed to manage the complete lifecycle of request management, from identification
through resolution. A web-based interface lets end-users quickly create, submit or check the status of typical requests and incidents.
RequestAssist incorporates capabilities to support rules-based escalation of requests to the appropriate help desk analysts, as well
as automated notification of such escalations via the Web or email.
Intelligent Assistance Suite. Intelligent Assistance Suite is an integrated set of products designed to provide technical support
representatives with a full set of capabilities to speed problem resolution. The Intelligent Assistance Suite includes the RemoteAssist,
LiveAssist, EmailAssist, AnalystAssist and Knowledge Center products described herein.
RemoteAssist. RemoteAssist is designed to enable help desk analysts to remotely take control of an end-user’s computer to
speed problem resolution. By remotely managing and controlling a device, a help desk analyst can diagnose problems in detail. This
may include identifying whether the problem is at the application, hardware or operating system level, determining the necessary
action to resolve the problem and implementing the resolution. No complex software installation or re-boot of the computer is typically
required and a complete audit trail of all remote sessions is retained to expedite resolution should the problem be encountered again.
7
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
LiveAssist. LiveAssist is designed to provide call center organizations and IT help desks with a full set of chat capabilities.
LiveAssist allows users and analysts to communicate directly with each other with a scalable, real-time chat solution enhanced by
web-push capabilities and access to relevant content.
AnalystAssist. AnalystAssist is designed to provide call center organizations and IT help desks with a comprehensive set of
diagnostic and problem resolution tools to solve technical problems remotely, without requiring on-site support. AnalystAssist also
provides analysts with full visibility into the diagnostic tests performed, the tools used and the solutions provided to resolve the
problem. AnalystAssist can be used by analysts during chat sessions using our LiveAssist product and during telephone sessions as
well as in combination with our RemoteAssist product.
RemoteTango. RemoteTango, expected to be released in late 2009, will be remote control software delivered in a hosted,
SaaS model. Remote control software enables one computer user to control another’s machine; it is used heavily in technical support
and remote infrastructure management. We have had remote control in our product portfolio for some time, but our new product has
been redesigned for SaaS delivery and will be offered on a standalone basis rather than as part of a larger suite of products and
services.
Products targeted specifically at digital service providers include:
SmartAccess. SmartAccess is designed to enable broadband providers to add new subscribers quickly and activate additional
services in a seamless and automated manner, through self-installation or technician-directed installation. SmartAccess qualifies the
subscriber’s computer for broadband services, integrates with back-end billing and provisioning systems to activate services,
automatically configures modems and residential gateway devices in the subscriber’s home, and installs and configures all necessary
software on the subscriber’s computer.
ServiceGateway. ServiceGateway is designed to leverage recent DSL industry standards to enable “zero-touch” provisioning
of DSL devices and services without the need for manual steps. ServiceGateway also provides DSL providers with the capability to
conduct mass configuration changes and firmware updates to existing devices, as needed to activate and support new triple play
services.
ServiceVerify. ServiceVerify is designed to enable digital service providers to automatically verify the successful installation,
activation and ongoing operations of high-speed data, IPTV and VoIP services. ServiceVerify provides tools and service information
to the service technician and dispatcher as well as the help desk analyst. ServiceVerify can help technicians determine that the work
has been performed correctly and that their customer has access to all the services ordered before the technician leaves the job.
ServiceVerify also provides analyst tools designed to rapidly diagnose and resolve problems when a customer calls with a service-
related problem.
Service Automation Suite for Video. Developed in conjunction with Scientific-Atlanta (a Cisco company), Service Automation
Suite for Video is designed to improve the way broadband cable service providers deliver high quality video services to their
customers and enhance the consumer experience for digital cable delivery, while enabling customer-facing personnel such as
installers, dispatchers and help desk analysts to more effectively and efficiently uncover and resolve customer issues and problems.
Enterprise Implementation Services
In our Enterprise segment, our Global Services organization provides best practice solutions tailored to help maximize the value
our customers derive from our products. Our services capabilities are divided into five core areas with the goal of guiding the
customer through a successful experience with our products:
•
Project Planning and Management. Builds comprehensive project plans in coordination with customers and partners with
a goal of ensuring that budget, timeline and quality objectives are achieved.
8
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
•
•
•
Design and Implementation. Provides architectural solution design, product integration and deployment services.
Education. Trains customers and alliance partners in the design, implementation and support of our products.
Customer Support. Responds to design, feature and deployment questions. We use our own software to provide an
Internet support portal, called ExpertExchange, to provide support to our customers. Under our standard maintenance
contracts, our customers also receive generally available patches, enhancements and updates to the products they have
purchased.
•
Strategic Services. Educates customers on “best practices” for supporting and servicing their end-users and moving from
traditional support processes to more automated approaches.
Sales and Marketing
For our Consumer offerings, we have a business development organization that establishes and manages relationships with
channel partners through whom we make our Consumer offerings available. Our direct customer acquisition program is currently
focused on online marketing, as well as public relations activities.
For our Enterprise offerings, we maintain a sales organization to reach digital service providers and corporate IT departments.
Our Enterprise sales organization is managed geographically in two regions: the Americas and International. Within regions, sales
representatives sell specifically to digital service providers or to corporate IT departments and IT outsourcers. Our Enterprise
marketing organization works closely with our sales organization to create programs which build awareness of our solutions. Our
marketing organization uses a range of programs to build market awareness, including relationships with industry analysts, online
marketing programs, and participation in industry-specific trade shows.
Sales Channels
We have formed relationships with consumer-facing companies in order to expand the reach of our Consumer offerings. These
relationships include retailers, anti-virus providers and other companies in the U.S. and Europe. Generally, these relationships are of
two types: white label alliances, where we offer our services under another brand, and referral alliances, where we offer services
under our support.com brand.
Representative channel partners in our Consumer segment include Office Depot and DSG Retail Limited (Tech Guys).
In our Enterprise segment, we work closely with Customer-Premises Equipment (CPE) manufacturers and maintain an
interoperability laboratory to test their hardware products against standards developed by the DSL Forum. Certain of these firms
resell our products to digital service providers. We have also formed relationships with IT outsourcers that represent a customer base
as well as a delivery option for our products.
Customers
In our Consumer segment, our customers are individual consumer and small business who purchase our services from us or
one of our channel partners.
In our Enterprise business, representative digital service providers who have purchased our products and services include:
Belgacom, Bharti, Carphone Warehouse (Talk Talk), Comcast, FastWeb, KPN, Qwest, TDC Solutions, TeliaSonera, Time Warner
Cable, UPC Broadband, Verizon, and other service providers worldwide. Representative companies that have licensed SupportSoft
software for corporate IT operations and customer support requirements include: ADP, Bank of America, BT, Dell, Fidelity, Hilton and
Trend Micro. Representative IT outsourcers that have purchased our products to provide outsourced services to enterprises include:
CGI, CSC, CompuCom, EDS, Lockheed Martin and Northrup Grumman.
9
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
Technology, Research and Development
Our Consumer technology include a platform infrastructure for delivering services, technical support agent tools and consumer-
resident client applications. Through our Service Delivery Management System, we provide a hosted platform for multi-channel sale
and delivery of premium technology services. Through our Solutions Toolkit, we offer an integrated set of tools for delivery of
premium technology services. In addition, our PC Health Check application aids in the sale of premium technology services by
offering recommendations to the consumer based on a quick automated diagnostic of their computer. Our Easy Support resident
client enables subscribers to our premium services to access our technical support agents and facilitates service delivery. We believe
our continuing investments in technology, research and development create competitive advantages for our Consumer offerings.
Our Enterprise software provides self-healing capabilities designed to identify, diagnose and correct potential problems prior to
their impact on the end-user. If an end-user does require assistance, our products are designed to provide an integrated approach to
escalating the problem to either self-service web-based portals or to help desk analysts who use our products to deliver the
appropriate resolution to the problem. Many of our products have been designed to function on a common software platform which is
based on a set of patented technologies.
Our Enterprise technology is designed to enable our products to be extended and easily adapt to, and integrate with, varying
software environments. Our solutions support a high degree of scalability using industry standard web server infrastructure and data
center practices such as load balancing, clustering and data partitioning. Many of our products are web-based and provide similar
functionality on a variety of web servers, application servers, operating systems and databases. The product architecture has been
used in implementations that scale to several million endpoints. Common services such as user and group management, user-based
security, user interface navigation, database access, extensible markup language handling, reporting and integration are shared by
many of our products, allowing for faster product development.
We devote substantial resources to research and development. Research and development expense was $8.9 million in 2008,
$9.4 million in 2007 and $9.2 million in 2006.
Intellectual Property
As of December 31, 2008, we had eight issued patents in the United States. We also hold patents in Canada, Korea, Singapore
and Israel and have patent applications pending in the U.S. and other jurisdictions. We may or may not seek additional patents in the
future. We do not know if our current patent applications or any future patent application will result in a patent being issued with the
scope of the claims we seek, if at all. Also, we do not know whether any patents we have or may receive will be challenged or
invalidated. It is difficult to monitor unauthorized use of technology, particularly in foreign countries where the laws may not protect
our proprietary rights as fully as in the United States, and our competitors may develop technology that competes with ours but
nevertheless does not infringe our intellectual property rights.
We maintain a number of trademarks and service marks associated with our business, including registered trademarks in the
U.S. and certain other jurisdictions.
We own the domain name www.support.com and have rights to the phone number 1-800-PCSUPPORT.
We rely on a combination of copyright, trade secret, trademark and contractual protection to establish and protect our
proprietary rights that are not protected by patent. We also enter into confidentiality agreements with our employees and consultants
involved in product development. We generally require our employees, customers and potential business partners to enter into
confidentiality agreements before we will disclose any sensitive aspects of our business. Also, we generally require employees and
contractors to agree to assign and surrender to
10
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
us any proprietary information, inventions or other intellectual property they generate or come to possess while working for us. These
precautions may not prevent misappropriation or infringement of our intellectual property.
Competition
We compete in markets that are highly competitive, subject to rapid change and significantly affected by new product
introductions and other market activities of industry participants. Although we do not believe there is one principal competitor for all
aspects of our offerings, we do compete with a number of other vendors.
In our Consumer segment, competitors include electronics retailers such as Best Buy (Geek Squad) that offer premium
technology support, digital service providers, anti-virus providers, PC manufacturers, warranty providers, companies that offer online
technology support and local computer repair shops. Principal competitive factors in this market include breadth and depth of service
offerings; quality of the consumer experience; pricing; brand recognition; and relationships with industry participants. Certain of our
competitors in this market have longer operating histories, significantly greater financial, technical and other resources, stronger
strategic alliances or greater name recognition than we have. We expect new competitors to enter the market given its relatively early
stage.
Companies we encounter in competing for Enterprise customers include a broad range of publicly traded and privately held
companies. Principal competitive factors for our Enterprise offerings include breadth and depth of product functionality; demonstrated
customer success and return on investment; scalability of platform and integrated architecture; quality, performance and reputation of
solutions; pricing; ease of deployment; and product innovation. In our digital service provider business, we compete with companies
such as 2Wire, Alcatel, Fine Point Technologies, Motorola and Siemens. In our corporate IT business, our principal competition
comes from companies such as ATG, CA, Consona, eGain, Kana, RightNow and Talisma.
As we release new products, such as Dynamic Agent and RemoteTango, we anticipate new competition from hosted offerings
marketed by companies such as Citrix, Bomgar, Radial Point and LogMeIn. We also expect that internally developed applications will
continue to be a significant source of competition in the foreseeable future.
The markets for our products are still rapidly evolving, and we may not be able to compete successfully against current and
potential competitors. Our ability to expand our business will depend on our ability to maintain our technological competitiveness,
introduce timely enhanced products to meet growing support needs, and deliver on-going value to our customers. Our potential
competitors may have longer operating histories, significantly greater financial, technical and other resources, stronger strategic
alliances or greater name recognition than we have. Competition in our markets could reduce our market share or require us to
reduce the price of products and services, which could harm our business, financial condition and operating results.
Employees
As of December 31, 2008, we had 272 full-time employees, 336 technical support agents and 21 contractors for a total full-time
equivalent headcount of 629. None of our employees or contractors are covered by collective bargaining agreements. We believe our
relations with our employees and contractors are good.
SEC Filings and Other Available Information
We were incorporated in Delaware in December, 1997. We file reports with the Securities and Exchange Commission (SEC),
including without limitation annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (which we refer to herein as the Exchange Act).
The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E.,
Washington, DC 20549. The public
11
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
may obtain information on the operation of the Public Reference Room by calling the SEC at (202) 551-8090. In addition, we are an
electronic filer. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information
regarding issuers, including us, that file electronically with the SEC at the website address located at www.sec.gov.
Our telephone number is 650-556-9440 and our website address is www.supportsoft.com. The information contained in our
website does not form any part of this Annual Report on Form 10-K. However, we make available free of charge through our website
our Annual Report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file this
material with, or furnish it to, the SEC. In addition, we also make available on
http:www.supportsoft.com/Company/ir_corporate_governance our Code of Ethics and Business Conduct for Employees, Officers and
Directors. This Code is also available in print without charge to any person who requests it by writing to:
SupportSoft, Inc.
Investor Relations
1900 Seaport Boulevard, 3rd Floor
Redwood City, CA 94063
ITEM 1A.
RISK FACTORS.
Forward-Looking Statements and 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 Act of 1934. We are subject to many risks
and uncertainties that may materially affect our business and future performance and cause those forward-looking statements to be
inaccurate. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “forecasts,” “estimates,” “seeks,” “may result in,”
“focused on,” “continue to,” and similar expressions often identify forward-looking statements. In this report, forward-looking
statements include, without limitation, the following:
•
•
•
•
•
•
•
•
•
•
•
Our expectations and beliefs regarding future conduct and growth of our business;
Our beliefs regarding the impact of global economic instability on our business;
Our expectations regarding the costs and other effects of acquisition and disposition transactions;
Our expectations regarding channel partners and the anticipated timing and magnitude of revenue from these partners;
Our expectations regarding our ability to deliver premium technology services efficiently;
Our assessments and expectations surrounding revenue levels and Segment Operating Profitability of our Enterprise
business;
Our ability to hire, train and retain technical support agents;
Our beliefs and expectations regarding the introduction of new products and related services and features;
Our expectations regarding cash flows and expenses, including sales and marketing, research and development efforts,
and administrative expenses;
Our assessment of seasonality, mix of revenue, and other trends for our business;
Our assessments and beliefs regarding the future outcome of pending legal proceedings and the liability, if any, that we
may incur as a result of those proceedings;
12
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
•
•
The assumptions underlying our Critical Accounting Policies and Estimates, including our assumptions regarding revenue
recognition; assumptions used to estimate the fair value of share-based compensation; assumptions regarding the
impairment of goodwill and intangible assets; and expected accounting for income taxes; and
The expected effects of the adoption of new accounting standards.
An investment in our stock involves risk, and we caution investors that forward-looking statements are only predictions based on
our current expectations about future events and are not guarantees of future performance. We encourage you to read carefully all
information provided in this report and in our other filings with the SEC before deciding to invest in our stock or to maintain or change
your investment. Forward-looking statements are based on information as of the filing date of this report, and we undertake no
obligation to publicly revise or update any forward-looking statement for any reason.
Because forward-looking statements involve risks and uncertainties, there are important factors that may cause actual results to
differ materially from our stated expectations. These factors are described below. This list does not include all risks that could affect
our business, and if these or any other risks or uncertainties materialize, or if our underlying assumptions prove to be inaccurate,
actual results could differ materially from past results and from our expected future results.
We have not been profitable and may not achieve profitability in future periods.
We were not profitable in 2008 and as of December 31, 2008, we had an accumulated deficit of $109.7 million. In addition, we
intend to make significant investments in support of our business in 2009 and we expect to continue to sustain losses in 2009 and
subsequent periods. If we fail to achieve revenue growth as a result of these additional investments or if such revenue growth does
not result in our achieving profitability, the market price of our common stock will likely decline further. A sustained period of losses
would also result in an increased usage of cash to fund our operating activities and a corresponding reduction in our cash balance.
Our quarterly results have in the past, and may in the future, fluctuate significantly.
Our quarterly revenue and operating results have in the past and may in the future fluctuate from quarter to quarter. As a result,
we believe that quarter-to-quarter and year-to-year comparisons of our revenue and operating results may not be accurate indicators
of future performance.
Several factors that have contributed or may in the future contribute to fluctuations in our operating results include:
•
•
•
•
•
•
•
•
•
Demand for our software and services;
Instability in the global macroeconomic climate and its effect on our, our customers’ and our channel partners’ operations;
The performance of our channel partners for our Consumer services including retailers;
Size and timing of customer orders and our ability to recognize revenue in a given quarter;
The rate of expansion of our Consumer offerings and our investments therein;
Our ability to increase the efficiency and capacity of our technical support agents;
Our ability to achieve Segment Operating Profitability in our Enterprise segment;
Our reliance on a small number of customers and channel partners for a substantial portion of our revenue;
The price and mix of products and services we or our competitors offer;
13
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
•
•
•
•
•
•
•
The mix of products and services that generate up-front revenue as opposed to revenue over a period of time;
Our ability to attract and retain customers;
Our ability to adapt to our customers’ needs in a market space defined by frequent technological change;
The amount and timing of operating costs and capital expenditures in our business;
Seasonal trends resulting from corporate spending patterns;
The exercise of judgment by our management in making accounting decisions in accordance with our accounting policies;
and
Potential losses on investments, foreign exchange exposures on contracts, or other losses from financial instruments we
may hold that are exposed to market risk.
Over the last three years, we have licensed our Enterprise software predominately on a perpetual basis in which we recognize
the license revenue up front, assuming all criteria for revenue recognition have been met. As a result of our current perpetual
licensing model for the Enterprise business, we have become dependent on a few customer contracts with up-front license revenue
for a substantial portion of our license revenue in any one quarter. In addition, a significant portion of our total revenue each quarter
comes from a number of orders received in the last month of a quarter. In certain previous quarters, we failed to obtain or close
expected perpetual licenses with up-front revenue resulting in a revenue shortfall. If in future quarters we fail to obtain or close orders
expected to be completed by the end of a quarter, particularly if these orders are for perpetual licenses with up-front revenue, our
quarterly results would suffer and the market price of our common stock would likely decline. While revenues in our Consumer
business are generally recognized over the course of a quarter based on the number of services delivered, this revenue may not be
significant enough to offset a shortfall in our Enterprise perpetual license revenue.
Economic instability may harm our operating results and the financial condition of both our Enterprise and Consumer
segments.
As has been widely reported, the economies of the United States and foreign countries have been experiencing extreme
disruption, including, among other things, higher mortgage delinquencies, increased unemployment, decreased consumer spending,
highly volatile securities markets, diminished liquidity and credit availability, currency fluctuation, and downgrades and declining
valuations of certain investments. These economic developments potentially affect our business in several ways. Our customers and
prospects may be unable to obtain financing for major purchases and operations, they may reduce their spending or delay or cancel
programs that include our offerings and they may be unable to pay us in a timely fashion. Our channel partners, such as retailers,
may be unable to invest in bringing our Consumer services to market. While we monitor these situations carefully and attempt to take
appropriate measures to protect ourselves by recognizing revenue upon collection of accounts from customers we deem to have
credit risks and upon sell-through by resellers, it is possible that we may have to write down or write off doubtful accounts. Such write-
downs or write-offs would negatively affect our operating results for the period in which they occur and, if large enough, could have a
material adverse effect on our operating results and financial condition. Our global business, including our investment portfolio, may
be harmed by general decreases in economic activity, including decreases in business and consumer spending and uncertainty due
to economic disruptions and government intervention in the financial markets. We cannot predict the duration and severity of the
current disruption in the macroeconomic climate and market conditions, and these conditions may harm our operating results.
Our Consumer segment will increase our operating expenses without any assurance of yielding increased revenue, and our
Consumer offerings may not achieve market acceptance.
We are executing a plan to extend our Consumer business by providing premium technology services to consumers both
through channel partners and directly. We may not be able to continue to offer these services
14
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
successfully. We have limited experience in reaching or serving consumers and in managing technical support agents. All of our
North American technical support agents are now home-based, which will require a high degree of coordination and quality control of
employees working from diverse and remote locations. As a result, we expect to continue to use significant cash and incur increased
operating expenses to support this initiative, including costs associated with recruiting, training and managing our technical support
agents, costs to develop and acquire technology and infrastructure to support our Consumer business, promotional costs associated
with reaching consumers, and costs of obtaining personnel with the necessary consumer expertise. These investments, which
typically are made in advance of revenue, may not yield increased revenue to offset these expenses. Furthermore, this new business
initiative, if not favorably received by consumers, could damage the reputation of our Enterprise business as well as strain our
management, financial and operational resources necessary to maintain our Enterprise business. The lack of market acceptance of
our Consumer efforts or our inability to generate satisfactory revenue from our expanded consumer services would have a material
adverse effect on our business, prospects, financial condition and operating results.
Our failure to establish and expand successful third-party alliances to sell our products and services would harm our
operating results.
Our Consumer offerings require us to establish and maintain relationships with third parties, including retailers such as Office
Depot, who market and sell our premium technology services. Failure to establish or maintain third-party relationships in our
Consumer business, particularly with firms that sell our services, on acceptable terms or at all, could materially and adversely affect
the success of our business. We sell to numerous consumers through each of these channel partners, and therefore a delay in the
launch or rollout of our Consumer services program with even one of these channel partners could cause us to miss revenue targets.
The process of establishing a relationship with a channel partner can be complex and time consuming, and we must pass multiple
levels of review and test marketing in order to be selected. If we are unable to establish a sufficient number of new channel partners
on a timely basis our sales will suffer. There is also the risk that, once established, our programs with these channel partners may
take longer than we expect to produce revenue or may not produce revenue at all. One or more of our key channel partners may also
discontinue selling our services, offer them only on a limited basis or devote insufficient time and attention to promoting them to their
customers. If any of these key channel partners merge with a competitor, particularly one that offers a service competitive with ours,
all of these risks could be exacerbated. Each of these risks could reduce our sales and significantly harm our operating results.
We also have alliances with third parties that are important to our Enterprise offerings. Our existing relationships include those
with hardware vendors and managed service providers who provide outsourced support to corporate customers. If these relationships
fail, we may need to devote more resources to the sales and marketing of our products and services than we would otherwise, and
our efforts may not be as effective. In addition, we may establish relationships with third-party resellers and other sales channel
partners as we expand internationally. Our failure to maintain existing relationships, or to establish new relationships with key third
parties, could significantly harm our ability to sell our products and services. In addition, our competitors may have strong alliances
with other companies, including hardware providers, which could impact our ability to obtain greater market share, participate in deals
where hardware and software are sold together, or require us to reduce the price of products and services, which could harm our
business, prospects, financial condition and operating results.
Our inability to meet future financial performance targets that we announce or that are published by research analysts could
cause the market price of our common stock to decline.
From time to time, we provide guidance related to our future financial performance. In addition, financial analysts publish their
own expectations of our future financial performance. Because our quarterly revenue and our operating results fluctuate, future
financial performance is difficult to predict. In the past, we have failed to meet our guidance. As it did following the announcement of
our third quarter results in 2007, future downward
15
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
adjustments of our guidance or the failure to meet our guidance or the expectations of research analysts would likely cause the
market price of our common stock to decline.
Our guidance is based in part upon the expectation of sales of services offerings in our Consumer business, with which we have
a limited history. A significant portion of our Consumer business is dependent upon third-party alliances, including an alliance with
Office Depot. We sell to numerous consumers through these channel partners, and these programs often require a significant initial
investment of resources, strategic focus, and time before generating revenue. Accordingly, the timing of the rollout of our services by
each channel partner, and therefore the timing of our revenue associated with that channel partner, is difficult to predict. Delay in the
launch or rollout of our support services program in even one of these alliances could cause us to miss revenue targets, particularly in
the near term, since we depend on only a few alliances for most of our Consumer revenue. In addition, in the event we fail to achieve
projected revenue levels in any quarter, we will be unable to reduce our expenses for that quarter in a corresponding fashion, and our
results will not meet our guidance or the expectations of securities analysts or investors, which would likely cause the market price of
our common stock to decline.
Management’s ability to accurately predict performance is also affected in large part by a significant portion of our total revenue
being dependent upon the closing of new large license orders in our Enterprise business.
The trading market for our common stock relies in part on the research and reports that industry or financial analysts publish
about us or our business. We do not control these analysts. If one or more of the analysts who currently cover us downgrade our
stock, our stock price would likely decline rapidly. Furthermore, if one or more of these analysts cease coverage of us, we could lose
visibility in the market, which in turn could cause the market price of our stock to decline.
Finally, the market prices of software companies have been extremely volatile. Stock prices of many software companies have
often fluctuated in a manner unrelated or disproportionate to the operating performance of such companies. In the past, following
periods of market volatility, stockholders have often instituted securities class action litigation relating to the stock trading and price
volatility of the software company in question, including the litigation that SupportSoft is a party to referred to under Item 3—Legal
Proceedings. Any securities litigation we are involved in could result in our incurring substantial defense costs and diverting
resources and the attention of management from our business.
If we fail to hire, train and manage our Consumer technical support agents efficiently and in a manner that provides an
adequate level of support for our customers, our reputation and revenues could be harmed.
Our plans for our Consumer business depend in part on our ability to attract, manage and retain our consumer technical support
agents in North America in order to satisfy the demand for our Consumer services. We may be unable to hire, train and manage
adequate numbers of competent technical support agents, which is essential in creating a favorable interactive customer experience,
including reducing customer wait times, reducing the time it takes our technical support agents to deliver our services, and meeting
customer demand for our services at peak time. We have limited experience in hiring, training, and managing these technical support
agents. Although our service delivery and communications infrastructure enables us to monitor and manage these technical support
agents remotely, because they are home-based and geographically dispersed, it is more difficult to directly supervise their work. Any
problems we encounter retaining technical support agents could seriously jeopardize our service delivery operations and our
Consumer revenue. If we are unable to continually provide adequate staffing for our service delivery operations, our revenue and
reputation could be seriously harmed.
From time to time, we enter into relationships with outsourcers to provide technical support services to customers located
outside North America and to provide on-site services for certain North American customers. We may be less able to manage the
quality of services provided by outsourced technical support agents or
16
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
third-party onsite service providers as directly as we would our own employees. In addition, outsourced services may be more
costly. We also face the risk that disruptions or delays in outsourcers’ communications and information technology infrastructure could
cause lengthy interruptions in the availability of our services. Any of these risks could harm our operating results.
We may engage in investments, dispositions, acquisitions or other strategic transactions that could reduce our cash
balance, divert management attention and prove difficult to integrate with our business.
We may engage in acquisitions or divestitures of certain assets, businesses, products or technologies, or in other strategic
initiatives. For example, in 2008 we completed the acquisition of YourTechOnline.com. Acquisitions, divestitures and other strategic
transactions are inherently risky. Certain transactions may be subject to closing conditions, which may not be satisfied, and
transactions may not be completed, even after public announcement. Acquisitions may require further use of our cash resources, the
issuance of equity or debt securities, or the incurrence of other forms of debt, any of which could harm our financial condition, results
of operations, or our interest expense and leverage. If we issue equity securities, current stockholders’ percentage ownership and
earnings per share may be diluted. The process of integrating employees, businesses, technologies, services or products may result
in unforeseen operating difficulties and expenditures. Dispositions could significantly alter the revenue, costs and nature of our
business. Acquisitions and divestitures could involve a number of other potential risks to our business, including the following, any of
which could harm our business results:
•
•
•
•
•
•
•
•
•
•
•
•
•
Unanticipated costs and liabilities and unforeseen accounting charges or fluctuations;
Delays and difficulties in delivery of products and services;
Failure to effectively integrate or separate management information systems, personnel, research and development,
marketing, sales and support operations;
Loss of key employees;
Economic dilution to gross and operating profit;
Diversion of management’s attention from other business concerns and disruption of our ongoing business;
Difficulty in maintaining controls and procedures;
Uncertainty on the part of our existing customers about our ability to operate after a transaction;
Loss of customers;
Loss of alliances;
Declines in revenue and increases in losses following divestitures;
Failure to realize the potential financial or strategic benefits of the acquisition or divestiture; and
Failure to successfully further develop the combined or remaining technology, resulting in the impairment of amounts
recorded as goodwill or other intangible assets.
Disruptions in our information technology and service delivery infrastructure and operations, including interruptions or
delays in service from our third-party web hosting provider, could impair the delivery of our services and harm our
business.
Our operations, and in particular our hosted products and Consumer services, depend on the continuing operation of our
information technology and communication systems and those of our external service providers. Any damage to or failure of those
systems could result in interruptions in our service, which could reduce our revenues and profits and damage our reputation. We
serve certain of our customers through a third-party hosting facility located in the United States. We do not control the operation of
this facility. It may experience unplanned
17
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
outages and other technical difficulties, and it is vulnerable to damage or interruption from fires, floods, earthquakes,
telecommunications and connectivity failures, power failures, and similar events. This facility is also subject to risks from vandalism,
break-ins, intrusion, and other malicious attacks. Despite precautions taken, such as disaster recovery planning and back-up
procedures, a natural disaster, act of terrorism or other unanticipated problem could cause a loss of information and data and lengthy
interruptions in the availability of our services and hosted software offerings because we do not operate or maintain fully redundant
systems. We rely on hosted systems maintained by third-party providers to deliver technical support services to consumers, including
taking customer orders, handling telecommunications for customer calls, and tracking sales and service delivery. Any interruption or
failure of our internal or external systems could prevent us or our service providers from accepting orders and delivering services, or
cause company and customer data to be unintentionally disclosed. Our continuing efforts to upgrade and enhance the security and
reliability of our information technology and communications infrastructure could be very costly, and we may have to expend
significant resources to remedy problems such as a security breach or service interruption. Interruptions in our services resulting from
labor disputes, telephone or Internet failures, power or service outages, natural disasters or other events, or a security breach could
reduce our revenue, increase our costs, cause customers and channel partners to fail to renew or to terminate their use of our
offerings, and harm our reputation and our ability to attract new customers.
Because a small number of customers and channel partners have historically accounted for and may in future periods
account for substantial portions of our revenue, delays of specific programs or losses of certain customers could decrease
our revenue.
A small number of customers and channel partners have historically accounted for, and may in future periods account for,
substantial portions of our revenue. For the fourth quarter of 2008, two companies, Customer A and Customer B accounted for 22%
and 12% of total revenue, respectively. For the year ended December 31, 2008, two companies, Customer A and Customer C
accounted for 11% and 13% of our total revenue, respectively. In 2009, we are likely to continue to derive a significant portion of our
revenue from transactions with a limited number of customers and channel partners. Therefore, our revenue could decline because of
the loss of a single customer or delay of a significant program by a consumer partner. Additionally, we may not obtain new
customers. The failure to obtain significant new customers or alliances, the loss or delay of significant customer orders, the failure to
establish and grow additional channel partners and the failure to receive fees for products or services delivered would harm our
operating results.
If existing customers in our Enterprise business do not renew maintenance contracts or purchase additional products and
services, our operating results could suffer.
Historically, we have derived, and expect to continue to derive, a significant portion of our total revenue from existing Enterprise
customers who purchase additional products and services and renew maintenance contracts. Our customers may not renew
maintenance contracts, they may renew on less favorable terms or at a reduced level of support, or they may not purchase additional
products and services. Also, instability in the current macroeconomic climate may cause certain customers to spend less on services
or on maintenance renewals. In addition, as we introduce new products, our current customers may not require or desire the
functionality of our new products and may not ultimately purchase these products. Fewer new license customers or renewals in one
period may lead to a decrease in the amount of maintenance revenue in subsequent periods. If our customers do not renew
maintenance contracts or do not purchase additional products and services, our revenue would decline and our operating results
would suffer.
Our sales cycle in our Enterprise business is lengthy and if revenue forecasted for a particular quarter is not realized in that
quarter, significant expenses incurred may not be offset by corresponding revenue.
Our sales cycle for our software in our Enterprise business typically ranges from three to nine months or more and may vary
substantially from customer to customer. The purchase of our products and services for
18
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
corporate customers generally involves a significant commitment of capital and other resources by a customer. This commitment
often requires significant technical review, assessment of competitive products and approval at a number of management levels
within a customer’s organization. While our Enterprise customers are evaluating our products and services, we may incur substantial
sales and marketing expenses and spend significant management effort to complete these sales. Any delay in completing sales in a
particular quarter or the failure to complete a sale after expending resources during the sales cycle could cause our operating results
to suffer.
We may be unable to sustain Segment Operating Profitability in our Enterprise segment if we do not manage costs
effectively.
One of our goals for 2009 is to deliver Segment Operating Profitability in our Enterprise segment. Our ability to do so is heavily
dependent on our ability to manage costs, including costs of professional services, licenses and maintenance. Our ability to maintain
Segment Operating Profitability will also be hampered to the extent that our Enterprise revenue decreases, including due to
macroeconomic factors. The cost of delivering our professional services is expensive and if unanticipated factors in a project are
encountered, we may be subject to monetary and other significant penalties, and the operating results from our Enterprise business
would suffer. While substantially smaller than the cost of professional services, our costs of license and costs of maintenance
nevertheless represent an important portion of the Enterprise segment’s costs. If we do not manage these costs in line with our
revenue, the Enterprise segment’s operating performance would deteriorate. In addition, if we are unable to manage costs in our
Enterprise segment for research and development or sales and marketing, our Enterprise segment may not be able to sustain
Segment Operating Profitability.
If our revenue from our international operations does not exceed the expense of establishing and maintaining international
operations, our business would suffer.
For the years ended December 31, 2008, 2007 and 2006, international revenue was 23%, 24% and 23% of our total revenue,
respectively. We may not be able to compete effectively in international markets or effectively manage our operations in various
countries, including our relatively new Consumer operations. We must make significant investments ahead of revenue in order to
launch new programs, and these costs may be higher outside North America. If we do not generate enough revenue from
international operations to offset the expense of these operations in either segment, our operating results would suffer. Risks we face
in conducting business internationally include:
•
•
•
•
•
•
•
•
•
•
•
Expenses related to and difficulties in staffing and managing international operations, including managing a geographically
dispersed workforce in compliance with diverse local laws and customs;
Changes in currency exchange rates and controls;
Localization of our products, services, and end user terms;
Competition from local providers who may have lower costs and more familiarity with local markets;
Compliance with a variety of complex laws and treaties, including unexpected changes in (or new) legislative or regulatory
requirements;
Differing technology standards, intellectual property protections, consumer protection and data privacy standards, and
other legal considerations;
Lower prices for software and services;
Difficulty in reaching geographically dispersed customers;
Loss of proprietary information due to piracy, misappropriation or weaker laws regarding intellectual property;
Longer sales cycles;
Seasonal trends unique to international markets;
19
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
•
•
•
•
•
•
Dependence on local vendors, consultants and business partners;
Potential adverse tax consequences;
Licenses, tariffs and other trade barriers;
Difficulties in maintaining effective internal control over financial reporting and compliance as a result of a geographically-
dispersed workforce and customers;
Longer collection cycles for accounts receivable; and
The effects of external events such as terrorist acts and any related conflicts or similar events worldwide.
Each of these risks could materially increase our costs, and unless the revenue from our international operations offsets the
costs of establishing and operating our business outside the U.S., our operating results could be significantly harmed.
Our investments in marketable securities are subject to market risks which may cause losses and affect the liquidity of
these investments.
We have historically invested our portfolio in government debt securities, municipal debt securities with an auction reset feature
(“auction-rate securities”), corporate notes and bonds, commercial paper and money market funds meeting certain criteria. At
December 31, 2008, we had $64.3 million in cash and cash equivalents and $23.6 million in short-term and long-term investments.
Certain of these investments are subject to general credit, liquidity, market and interest rate risks, which may be exacerbated by the
global macroeconomic downturn that, among other things, has caused credit and liquidity issues.
Commencing in February 2008, illiquidity conditions in the global credit markets resulted in failed auctions for all of our auction-
rate securities held. In the near term, our ability to liquidate our investments or fully recover the carrying values may be limited or not
exist. In addition, adverse market events could cause us to lose part or all of our investment in our portfolio. The market risks
associated with our investment portfolio may have a negative adverse effect on our results of operations, liquidity and financial
condition. Financing arrangements that are available to us include the right to a loan from UBS at no net cost for up to the amount of
the par value of our eligible auction-rate securities. This loan option is part of the rights offer we signed with UBS in November, 2008,
and is available until June 30, 2010. As of December 31, 2008, we had not exercised our right to obtain this loan.
We may realize losses on our investments in auction rate securities or be unable to liquidate these investments at desired
times in desired amounts.
At December 31, 2008, we held $24.5 million, par value, of auction rate securities (ARS). Historically, our ARS were highly
liquid, and used a Dutch auction process that resets the applicable interest rate at predetermined intervals, typically every 28 to 35
days, to provide liquidity at par. However, as a result of disruption in the global credit and capital markets, the auctions for all of our
ARS failed beginning in February 2008 when sell orders exceeded buy orders. Accordingly, we were unable to sell any of our ARS.
Of the $24.5 million of ARS as of December 31, 2008, approximately $20.9 million is held by UBS AG (UBS) and have been classified
as trading securities because of the put option described below. Accordingly, the decline in fair value of these ARS during the year
ended December 31, 2008 of approximately $7.1 million has been recorded as a charge to earnings and has been off-set by the
value of the ARS Put Option as described below.
In November 2008, we accepted an offer from UBS, entitling UBS, at any time during a two-year period from June 30, 2010
through July 2, 2012, to buy our auction-rate securities originally purchased from UBS at par value. In accepting the offer, we granted
UBS the authority to sell or auction the ARS at par at any time up until
20
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
the expiration date of the offer and released UBS from any claims relating to the marketing and sale of ARS. Prior to any sale of our
ARS, ARS will continue to accrue and pay interest as determined by the auction process or the terms specified in the prospectus of
the ARS if the auction process fails. UBS’s obligations under the offer are not secured by its assets and do not require UBS to obtain
any financing to support its performance obligations under the offer. UBS has disclaimed any assurance that it will have sufficient
financial resources to satisfy its obligations under the offer. If UBS has insufficient funding to buy back the ARS and the auction
process continues to fail, then we may incur further losses on the carrying value of the ARS.
The remaining ARS was issued by another investment advisor who has not made an offer similar to UBS. Accordingly, we have
continued to classify the ARS issued by this adviser as available-for-sale securities. Changes in their market value during the year
ended December 31, 2008 have been recorded through other comprehensive income as a $1.6 million loss. If market conditions
deteriorate further, we may be required to record additional unrealized losses in other comprehensive income or as impairment
charges. We will not be able to liquidate these investments unless the issuer calls the security, a successful auction occurs, a buyer is
found outside of the auction process, or the security matures.
We have recorded long-lived assets, and our results of operations would be adversely affected if their value becomes
impaired.
Goodwill and identifiable intangible assets were recorded in part due to our acquisition of substantially all of the assets of Core
Networks Incorporated in September 2004 and our acquisition of YourTechOnline.com in May 2008. We also have certain intangible
assets with indefinite lives. We assess the impairment of goodwill and indefinite lived intangible assets annually or more often if
events or changes in circumstances indicate that the carrying value may not be recoverable. We assess the impairment of acquired
product rights and other finite lived intangible assets whenever events or changes in circumstances indicate that its carrying amount
may not be recoverable. As a result of our discontinuance of active marketing and selling of one of the products we acquired from
Core Networks, and a reevaluation of the fair value of the Core Network’s technology intangible assets, we recognized a non-cash
write-down of approximately $1.7 million during the fourth quarter of 2007. An impairment loss was recognized because the sum of
the discounted future net cash flows expected to result from the use of the assets and their eventual disposition was less than the
carrying amounts. Such impairment loss was measured as the difference between the carrying amounts of the assets and their fair
value. Furthermore, we evaluate cash flows at the lowest operating level. If the number of reporting segments increases in the future,
as it has in 2008, this may make impairment more probable than it would be with fewer reporting segments. As was the case in the
fourth quarter of 2007, future write-downs of goodwill or net long-lived and intangible assets, would cause our operating results to
suffer.
Management changes and reorganization efforts may strain our administrative, technical, operational and financial
infrastructure and disrupt our business.
Our success depends on the skills, experience, performance, and focus of our senior management, engineering, sales,
marketing and other key personnel. In January 2008, we reorganized the company and began operating our business in two
segments, Consumer and Enterprise. We also appointed senior management personnel to lead each of the business segments. We
made this change in an effort to ensure that each part of our business is focused, accountable and transparent at the segment level.
In connection with this change we made several management and organizational changes. Our success will depend to a significant
extent on the ability of our executives and key employees to function effectively in their new roles and to work together successfully. If
these executives and key employees do not function and work together successfully, or if we lose the services of one or more of our
executives or key employees, our business could be harmed.
We are also focused on increasing our operating margins and improving our operating efficiencies. To this end, we reduced our
workforce in the fourth quarter of 2008 and again in the first quarter of 2009. All of these changes place a strain on our management,
and our administrative, technical, operational and financial
21
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
infrastructure. In addition, reductions in our workforce could make it difficult to motivate and retain remaining employees or attract
needed new employees, and could also affect our ability to deliver products and services in a timely fashion.
We must compete successfully in the markets in which we operate or our business will suffer.
We compete in markets that are highly competitive, subject to rapid change and significantly affected by new product
introductions and other market activities of industry participants. We compete with a number of companies in the market for support
automation. In addition, our customers and potential customers have developed or may develop similar offerings internally.
The markets for our products and services are still rapidly evolving, and we may not be able to compete successfully against
current and potential competitors. Our ability to expand our business will depend on our ability to maintain our technological
advantage, introduce timely enhanced products to meet growing support needs, deliver on-going value to our customers and scale
our business. Our potential competitors may have longer operating histories, significantly greater financial, technical and other
resources, stronger strategic alliances or greater name recognition than we have. Competition in our markets could reduce our
market share or require us to reduce the price of products and services, which could harm our business, financial condition and
operating results.
In our Consumer business, we compete with electronics retailers that offer premium technology services, digital service
provides, anti-virus providers, PC manufacturers, warranty providers, companies that offer online technology support and local
computer repair shops. Certain of these competitors have longer operating histories, significantly greater financial, technical and other
resources, greater access to large numbers of consumers, stronger strategic alliances or greater name recognition than we have.
Our future product and service offerings may not achieve market acceptance.
If we fail to develop enhanced versions of our software and services offerings in a timely manner or to provide products and
services that achieve rapid and broad market acceptance, we may not maintain or expand our market share. We may fail to identify
new product and service opportunities for our current market or new markets that we enter in the future. In addition, our existing
products and services may become obsolete if we fail to introduce new products and services that meet new customer demands,
support new standards or integrate with new or upgraded versions of packaged applications or operating systems. While we are
developing new products and services, such as our new Dynamic Agent technology and RemoteTango product, there can be no
assurance that these new products will gain market acceptance or generate material revenue for us. We have limited control over
factors that affect market acceptance of our product and services, including the willingness of companies to transition to automated
solutions and customer preferences for competitors’ products, services and delivery models.
Our products depend on, and work with, products containing complex software; if our products fail to perform properly due
to errors in the software, we may need to devote resources to correct the errors or compensate for losses from these errors
and our reputation could be harmed.
Our products depend on complex software, both internally developed and licensed from third parties. Also, our customers may
use our products with other companies’ products, which may also contain complex software. Complex software often contains errors
and may not perform properly. These errors could result in:
•
•
•
Delays in product shipments;
Unexpected expenses and diversion of resources to identify the source of errors or to correct errors, whether or not the
error is later determined to be related to our software;
Damage to our reputation;
22
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
•
•
•
•
•
•
Loss of or delay in revenue and loss of market share;
Loss of customers;
Failure to achieve market acceptance;
Contractual penalties, demands, claims and litigation and related defense costs;
Increased service and warranty costs; and
Increased insurance costs.
In our Consumer offerings, we generally use our own products to diagnose and resolve consumer technology problems. If our
products fail to perform well in this environment, our Consumer offerings would suffer and may not be successful.
Our software may not operate with the hardware and software platforms that are used by our customers now or in the
future, and, as a result, our business and operating results may suffer.
We currently serve a customer base with a wide variety of constantly changing hardware, software and networking platforms. If
we fail to release versions of our software that are compatible with operating systems, software applications or hardware devices
used by our customers or their end-users, our business and operating results would suffer. Our future success also depends on the
continuing ability of our products to inter-operate with multiple platforms and packaged applications used by our customer base and
on our management of software being developed by third parties for our customers or for use with our products.
We rely on third-party technologies and our inability to use or integrate third-party technologies could delay product or
service development.
We intend to continue to license technologies from third parties, including applications used in our research and development
activities and technologies, which are integrated into our products and services. Our use of technologies licensed from third parties
poses certain risks. Some of the third-party technologies we license may be provided under “open source” licenses, which may have
terms that require us to make generally available our modifications or derivative works based on such open source code. Our inability
to obtain or integrate third-party technologies with our own products could delay product and service development until equivalent
compatible technology can be identified, licensed and integrated. These third-party technologies may not continue to be available to
us on commercially reasonable terms or at all. We may fail to successfully integrate any licensed technology into our products or
services, which would harm our business and operating results. Third-party licenses also expose us to increased risks that include:
•
•
•
•
Risks of product malfunction after new technology is integrated;
Risks that we may be unable to obtain or continue to obtain support, maintenance and updates from the technology
supplier;
The diversion of resources from the development of our own proprietary technology; and
Our inability to generate revenue from new technology sufficient to offset associated acquisition and maintenance costs.
Our systems collect, access, use, and store personal customer information and enable customer transactions, which poses
security risks, requires us to invest significant resources to prevent or correct problems caused by security breaches, and
may harm our business.
A fundamental requirement for online communications, transactions and support is the secure collection, storage and
transmission of confidential information. Our systems collect and store confidential and/or personal
23
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
information of our customers and their end-users, including credit card information, and our employees and contractors may access
and use that information in the course of providing services for our customers. In addition, we collect and retain personal information
of our employees in the ordinary course of our business. We and our third-party contractors use commercially available technologies
to secure this information. Despite these measures, third parties may attempt to breach the security of our data or that of our
customers. In addition, errors in the storage or transmission of data could breach the security of that information. We may be liable to
our customers for any breach in security and any breach could subject us to governmental or administrative proceedings or monetary
penalties, and harm our business and reputation. Also, computers are vulnerable to computer viruses, physical or electronic break-ins
and similar disruptions, which could lead to interruptions, delays or loss of data. We may be required to expend significant capital and
other resources to comply with mandatory privacy and security standards required by law, industry standard, or contract, and to
further protect against security breaches or to correct problems caused by any breach.
Privacy concerns and laws or other domestic or foreign regulations may require us to incur significant costs and may
reduce the effectiveness of our solutions, and our failure to comply with those laws or regulations may harm our business
and cause us to lose customers.
Our software contains features that allow our customers and our technical support agents to access, control, monitor or collect
information from computers running the software. Federal, state and foreign government bodies and agencies, however, have
adopted or are considering adopting laws and regulations restricting or otherwise regulating the collection, use and disclosure of
personal information obtained from consumers and individuals. Those regulations could require costly compliance measures, could
reduce the efficiency of our operations, and could require us to modify our products, systems or services. Liability for violation of,
costs of compliance with, and other burdens imposed by such laws and regulations may limit the use and adoption of our solutions
and reduce overall demand for them. Even the perception of privacy concerns, whether or not valid, may harm our reputation and
inhibit adoption of our solutions. In addition, we may face claims about invasion of privacy or inappropriate disclosure, use, storage, or
loss of information obtained from our customers. Any imposition of liability could harm our reputation, cause us to lose customers and
cause our operating results to suffer.
We are exposed to risks associated with credit card and payment fraud and with credit card processing.
Certain of our customers use credit cards to pay for our Consumer technology support offerings. We may suffer losses as a
result of orders placed with fraudulent credit cards or other payment data. Our failure to detect or control payment fraud could have
an adverse effect on our results of operations. We are also subject to payment card association operating standards and
requirements, as in effect from time to time. Compliance with those standards requires us to invest in network and systems
infrastructure and processes. Failure to comply with these rules or requirements may subject us to fines, potential contractual
liabilities, and other costs, resulting in harm to our business and results of operations.
We may not obtain sufficient patent protection, which could harm our competitive position, increase our expenses and
harm our business.
Our success and ability to compete depend to a significant degree upon the protection of our software and other proprietary
technology. It is possible that:
•
•
•
•
We may not be issued patents we may seek to protect our technology;
Competitors may independently develop similar technologies or design around any of our patents;
Patents issued to us may not be broad enough to protect our proprietary rights; and
Our issued patents could be successfully challenged.
24
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
We rely upon intellectual property laws to protect our proprietary rights, and if these rights are not sufficiently protected, it
could harm our ability to compete and to generate revenue.
We rely on a combination of laws, such as those applicable to patents, copyrights, trademarks and trade secrets, and
contractual restrictions, such as confidentiality agreements and licenses, to establish and protect our proprietary rights. Our ability to
compete and grow our business could suffer if these rights are not adequately protected. Our proprietary rights may not be
adequately protected because:
•
•
Laws and contractual restrictions may not adequately prevent infringement of our proprietary rights and misappropriation of
our technologies or deter others from developing similar technologies; and
Policing infringement of our patents, trademarks and copyrights, misappropriation of our trade secrets, and unauthorized
use of our products is difficult, expensive and time-consuming, and we may be unable to determine the existence or extent
of this infringement or unauthorized use.
Intellectual property litigation is expensive and time-consuming and could divert management’s attention from our business. The
outcome of any litigation is uncertain and could significantly impact our financial results. Also, the laws of other countries in which we
market our products may offer little or no protection of our proprietary technologies. Reverse engineering, unauthorized copying or
other misappropriation of our proprietary technologies could enable third parties to benefit from our technologies without paying us for
them, which would harm our competitive position and market share.
We may face intellectual property infringement claims that could be costly to defend and result in our loss of significant
rights.
Our business relies upon the use and licensing of technology and software. Other parties may assert intellectual property
infringement claims against us or our customers, and our products may infringe the intellectual property rights of third parties. For
example, our products may infringe patents issued to third parties. In addition, as is increasingly common in the software industry, we
may be confronted with the aggressive enforcement of patents by companies whose primary business activity is to acquire patents
for the purpose of offensively asserting them against other companies. From time to time, we have received allegations of intellectual
property infringement, and we may receive more claims in the future. Intellectual property litigation is expensive and time-consuming
and could divert management’s attention from our business. The outcome of any litigation is uncertain and could significantly impact
our financial results. If there is a successful claim of infringement, we may be required to develop non-infringing technology or enter
into royalty or license agreements, which may not be available on acceptable terms, if at all. Our failure to develop non-infringing
technologies or license proprietary rights on a timely basis would harm our business.
Compliance with public company rules and regulations is costly and requires significant resources in proportion to our
revenue.
The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the Securities and Exchange Commission and
the Nasdaq Global Select Market, has required changes in corporate governance practices of public companies. These rules and
regulations require significant internal and external compliance resources that are disproportionately costly for publicly traded
companies of our size. Additionally, such compliance has made some activities more time-consuming. These rules and regulations
make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept
reduced coverage or incur substantially higher costs to obtain coverage. Also, these rules and regulations could also make it more
difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and
qualified executive officers.
ITEM 1B.
UNRESOLVED STAFF COMMENTS.
Not applicable.
25
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
ITEM 2.
PROPERTIES.
Our corporate headquarters lease covers approximately 37,400 square feet at 1900 Seaport Boulevard, 3rd Floor, Redwood City,
California. This lease expires in July, 2012. In addition, we have an office in India with 20,339 square feet and an office in Belgium
with 3,692 square feet, as well as small sales offices in various geographies. In 2008, we also had offices in Halifax, Canada and
Uxbridge, United Kingdom. We closed the Halifax facility in December 2008 and the Uxbridge facility in January 2009. We believe our
remaining facilities are adequate to meet our current business requirements.
ITEM 3.
LEGAL PROCEEDINGS.
In November 2001, a class action lawsuit was filed against us, two of our former officers, and certain underwriters in the United
States District Court for the Southern District of New York. The lawsuit was consolidated with similar complaints filed against 55
underwriters and more than 300 other companies and other individual officers and directors of those companies; the consolidated
case is In re Initial Public Offering Securities Litigation, No. 21 MC 92 (SAS) (S.D.N.Y.). The lawsuit alleged that our registration
statement and prospectus for the issuance and initial public offering of 4,250,000 shares of our common stock contained material
misrepresentations and/or omissions related to alleged inflated commissions received by the underwriters of the offering. The lawsuit
seeks unspecified damages as well as interest, fees and costs. Plaintiffs have commenced discovery as to underwriters and issuers,
although principally with respect to focus or test cases that do not name us as a defendant. While we cannot predict with certainty the
outcome of the litigation, we believe we and our officers have meritorious defenses to the claims in the litigation.
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, and either unfavorable or favorable 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.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2008.
26
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
PART II
ITEM 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
Market of Common Stock
Our common stock has been traded publicly on the Nasdaq Global Select Market under the symbol “SPRT” since July 19, 2000.
Before July 19, 2000, there was no public market for our common stock. The following table sets forth the highest and lowest sale
price of our common stock for the quarters indicated:
Fiscal Year 2007:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year 2008:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Holders of Record
Low
High
$5.17
$4.95
$4.54
$3.83
$3.09
$2.93
$2.87
$1.73
$7.01
$6.10
$5.90
$6.43
$4.60
$4.11
$3.90
$3.44
As of February 28, 2009, there were approximately 164 holders of record of our common stock (not including beneficial holders
of stock held in street name).
Dividend Policy
We have not declared or paid any cash dividends on our capital stock since our inception and do not expect to do so in the
foreseeable future. We currently anticipate that all future earnings, if any, generated from operations will be retained by us to develop
and expand our business. Any future determination with respect to the payment of dividends will be at the discretion of the Board of
Directors and will depend upon, among other things, our operating results, financial condition and capital requirements, the terms of
then-existing indebtedness, general business conditions and such other factors as the Board of Directors deems relevant.
Securities Authorized for Issuance Under Equity Compensation Plans
Information regarding the securities authorized for issuance under our equity compensation plans can be found under Item 12 of
Part III of this Report.
Stock Price Performance Graph
The following graph illustrates a comparison of the cumulative total stockholder return (change in stock price plus reinvested
dividends) of the Company’s Common Stock and the CRSP Total Return Index for the Nasdaq U.S. Stocks (the “Nasdaq Composite
Index”) and Nasdaq Computer and Data Processing Services Index from December 31, 2003 through December 31, 2008. The graph
assumes that $100 was invested on December 31, 2003 in us, the Nasdaq Composite Index and the Nasdaq Computer and Data
Processing Services Index and that all dividends were reinvested. No cash dividends have been declared or paid on our common
stock. Our common stock has been traded on the Nasdaq Global Select Market since July 19, 2000. The comparisons in the table are
required by the Securities and Exchange Commission and are not intended to forecast or be indicative of possible future performance
of our common stock.
27
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
SUPPORTSOFT, INC.,
THE NASDAQ COMPOSITE INDEX, AND
THE NASDAQ COMPUTER INDEX
CUMULATIVE TOTAL RETURN AT PERIOD END
SupportSoft, Inc.
Nasdaq Composite Index
Nasdaq Computer Index
12/31/03
12/31/05
12/31/04
12/31/08
$100.00 $ 50.61 $ 32.07 $ 41.64 $ 33.81 $16.95
$100.00 $108.59 $110.08 $120.56 $132.39 $78.72
$100.00 $103.25 $106.09 $112.61 $137.22 $73.15
12/30/07
12/31/06
The information presented above in the stock performance graph shall not be deemed to be “soliciting material” or to be “filed”
with the Securities and Exchange Commission or subject to Regulation 14A or 14C, except to the extent that we subsequently
specifically request that such information be treated as soliciting material or specifically incorporate it by reference into a filing under
the Securities Act of 1933 or Exchange Act.
28
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
ITEM 6.
SELECTED CONSOLIDATED FINANCIAL DATA.
The information set forth below is not necessarily indicative of results of future operations and should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial
Statements and related notes included in Items 7 and 8 of Part II of this Report.
Consolidated Statements of Operations Data:
Revenue:
License
Maintenance
Services
Consumer
Total revenue
Costs and expenses:
Cost of license
Cost of maintenance.
Cost of services
Cost of consumer
Amortization/write-down of intangible assets
Research and development
Sales and marketing
General and administrative
In-process research and development
Total costs and expenses
Income (loss) from operations
Interest income and other, net
Income (loss) before income taxes
Provision for income taxes
Net income (loss)
2008
Years Ended December 31,
2007
2006
(in thousands, except per share data)
2005
2004
$ 11,813
15,881
14,365
6,811
$ 15,780
16,084
14,888
1,050
$ 16,415
15,672
12,941
—
$ 32,737
14,317
14,877
—
$ 37,923
11,002
11,692
—
48,870
47,802
45,028
61,931
60,617
337
1,930
13,652
9,615
202
8,896
24,305
11,006
—
218
2,586
15,652
4,608
2,815
9,441
30,410
9,296
—
499
1,225
13,599
—
1,090
9,247
23,336
10,163
—
555
988
13,128
—
1,090
11,185
25,159
8,618
—
295
418
9,592
—
363
9,746
23,965
6,454
1,618
69,943
75,026
59,159
60,723
52,451
(21,073)
2,506
(18,567)
(539)
(27,224)
6,526
(20,698)
(671)
(19,106)
(21,369)
(14,131)
6,383
(7,748)
(487)
(8,235)
1,208
3,619
4,827
(402)
8,166
2,298
10,464
(310)
4,425
10,154
Basic net income (loss) per share
$
(0.41)
$
(0.47)
$
(0.19)
$
0.10
$
0.24
Shares used in computing basic net income (loss) per share
46,098
45,610
44,113
43,032
42,355
Diluted net income (loss) per share
$
(0.41)
$
(0.47)
$
(0.19)
$
0.10
$
0.22
Shares used in computing diluted net income (loss) per share
46,098
45,610
44,113
44,519
45,590
Consolidated Balance Sheet Data:
Cash, cash equivalents and investments
Working capital
Total assets
Long-term obligations
Accumulated deficit
Total stockholders’ equity
2008
2007
December 31,
2006
(in thousands)
2005
2004
$ 87,856
68,429
123,586
2,453
(109,665)
105,446
$112,940
109,280
138,458
1,318
(90,559)
120,862
$119,891
118,238
152,605
411
(69,190)
132,503
$120,663
119,807
156,249
1,111
(60,955)
134,394
$120,341
113,320
150,205
2,210
(65,380)
127,857
29
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
ITEM 7.
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
Consolidated Financial Statements and the related notes included elsewhere in this Form 10-K. The following discussion
includes forward-looking statements. Please see the section entitled “Forward-Looking Statements and Risk Factors” in
Item 1A of this Report for important information to consider when evaluating these statements.
Overview
Consumer
In 2008, Consumer revenue increased to $6.8 million from $1.1 million in 2007, an increase of 549%. This growth was driven
primarily by the national rollout of our services to all North American stores of our largest channel partner, Office Depot. We
experienced increases in the rate at which services such as software installation are attached to sales of new technology products by
our channel partners, as well as an increase in sales of diagnosis and repair services for customers’ existing computers. Throughout
the year, we increased our number of technical support agents to meet the increased demand for our services.
During the year, we also launched a number of additional programs. In our direct business at support.com, we expanded our
service offerings to include subscription services. We also expanded our service portfolio with a number of new product offerings,
including data backup and data migration.
Our goals in the Consumer segment are to grow and diversify revenue and to improve service delivery efficiency. We aim to
diversify and grow revenue by enhancing our programs and expanding our service offerings. With respect to programs, we plan to
expand existing programs, convert our most promising pilots into full programs, add new channel partners and grow our direct
support.com business. With respect to service offerings, we recently introduced subscription-based offerings at support.com and
began offering them through channel partners in early 2009. We have also introduced new services such as online backup and data
migration, and plan to continue to expand our offerings to include educational services and support for additional devices.
We aim to improve service delivery efficiency in the Consumer segment by optimizing our service delivery operations through
increased automation, process improvement, performance management, improved forecasting, revenue scale and labor cost
optimization. We are focusing a substantial part of our research and development activities on technology that increases the
efficiency and improves the effectiveness of our technical support agents. We have introduced significant process improvements into
our service delivery operations; augmented our enhanced call center management team to drive efficiency gains and productivity
increases; and we expect improved forecasting and revenue scale to enable resource optimization. To further enhance service
delivery efficiency, we are exploring a number of means for optimizing labor costs.
In 2009, we expect to continue to invest in our Consumer business. While we expect our investments to ultimately provide
revenue growth and operating efficiencies, we currently expect to incur a net loss in the Consumer segment in 2009.
Enterprise
Total revenue in the Enterprise segment was $42.1 million, $46.8 million and $45.0 million for the years ending December 31,
2008, 2007 and 2006, respectively. The decrease in total revenue in 2008 over 2007 was due primarily to lower license revenue and,
in the fourth quarter of 2008, lower service revenue. We have experienced a trend of decreasing annual license revenue over the last
four years. License revenue has decreased due to closing fewer large licensing transactions with customers. The increase in total
revenue in 2007 over 2006 was due primarily to higher maintenance and services revenue. In 2009, we expect significantly lower
revenue as
30
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
a result of the global slowdown affecting businesses generally and due to the completion of payments under a large customer
contract that contributed substantially to revenue in 2008. In order to maintain Segment Operating Profitability on the Enterprise
segment, we have sought to align our cost structure with this environment by reducing costs through a restructuring in the fourth
quarter of 2008, as well as in the first quarter of 2009.
Our goals in the Enterprise segment include achieving Segment Operating Profitability and introducing new products to sustain
and grow revenue. In order to achieve Segment Operating Profitability, we are carefully managing the costs in our Enterprise
business to make sure our spending is appropriate for the macroeconomic environment in 2009. As a result, we completed
reductions in force in the fourth quarter of 2008 and in the first quarter of 2009. In addition to reducing headcount, we have reduced
facilities expenses by closing certain of our physical offices and moving to a work-from-home model in certain geographies.
In expanding our product offerings, our new Dynamic Agent will build on the desktop software agent our customers have
deployed to more than 50 million users worldwide, and will allow customers to offer content that is targeted and personalized for
specific users based on diagnostic information gleaned from their computers. When combined with new capabilities for presenting
marketing offers and downloading digital goods, the Dynamic Agent will allow customers to use our platform for revenue generation
as well as support services. Our RemoteTango product, scheduled for release in late 2009, will be remote control software delivered
in a hosted, SaaS model. Remote control software enables one computer user to control another’s machine; it is used heavily in
technical support and remote infrastructure management. We have had remote control in our product portfolio for some time, but our
new product has been redesigned for SaaS delivery and will be offered on a standalone basis rather than as part of a larger suite of
product and service offerings. While we have invested significant resources in the new Dynamic Agent and RemoteTango offerings,
no assurance can be given that they will be introduced successfully, gain market acceptance or generate material revenue for us.
We intend the following discussion of our financial condition and results of operations to provide information that will assist in
understanding our financial statements, the changes in certain key items in those financial statements from year to year, and the
primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our
financial statements.
Critical Accounting Policies and Estimates
In preparing our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United
States, we make assumptions, judgments and estimates that can have a significant impact on our net 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, allowance for doubtful accounts, business combinations—purchase accounting,
fair value estimates, accounting for income taxes, accounting for goodwill and other intangible assets, and stock-based compensation
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
In our Consumer segment, revenue is derived primarily from fees for technology support services. These services include those
that are delivered on a one-time basis (“incident-based” services) as well as those that delivered over time (“subscription” services).
We provide these services through channel partners and directly to consumers. Firms that serve as channel partners for us are
generally invoiced monthly for services delivered
31
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
during that period (i.e., a sale is made through to their end-user). Fees from transactions directly with consumers are generally paid
with a credit card at the time of delivery. For incident-based services, revenue is recognized during the period in which the services
are delivered. For subscription-based services, revenue is recognized ratably over the subscription period. Our direct-to-consumer
channel generally provides a five-day warranty period during which refunds may be granted with partners. The warranty period varies
across channels, and in some channels our partner bears the cost of refunds. We recognize revenue net of refunds at the end of the
warranty period. Refunds have not been material to date. We also license certain of our Consumer software products to channel
partners who use our software to provide services to their customers. Channel partners are charged a per-use fee for the software
and revenue is recognized in the period usage occurs.
In our Enterprise segment, we recognize revenue in accordance with generally accepted accounting principles that have been
prescribed for the software industry. Our revenue recognition policy is one of our critical accounting policies because revenue is a key
component of our results of operations and is based on complex rules which require us to make judgments. In applying our revenue
recognition policy we must determine which portions of our revenue are recognized currently and which portions must be deferred
and recognized later. In order to determine current and deferred revenue, we make estimates with regard to the expected amount of
future services to be performed and the appropriate fair value for those services. We also make judgments as to whether future
services are essential to the functionality of other elements of the software arrangement. We do not record revenue on sales
transactions when the collection of cash is in doubt at the time of sale. Rather, revenue is recognized from these transactions as cash
is collected. The determination of collectability requires significant judgment.
Allowances for Doubtful Accounts
We make judgments as to our ability to collect outstanding receivables and provide allowances for the portion of receivables
when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices. For those
invoices not specifically provided for, provisions are recorded at differing rates, based upon the age of the receivable. In determining
these percentages, we analyze our historical collection experience and current payment trends. If the historical data we use to
calculate the allowance for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions
for doubtful accounts may be needed and the future results of operations could be materially affected. If the historical data we use to
calculate the allowance for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions
for doubtful accounts may be needed and the future results of operations could be materially affected.
Business Combinations—Purchase Accounting
Under the purchase method of accounting, we allocate the purchase price of acquired companies to the tangible and intangible
assets acquired and liabilities assumed based on their estimated fair values. We record the excess of purchase price over the
aggregate fair values as goodwill. We engage third-party appraisal firms to assist us in determining the fair values of assets acquired
and liabilities assumed. These valuations require us to make significant estimates and assumptions, especially with respect to
intangible assets. We have estimated the economic lives of certain acquired assets and these live are used to calculate depreciation
and amortization expenses. We have estimated the future cash flows to be derived from such assets, and these estimates are used
to determine the fair value of the assets. If our estimates of the economic lives or the future cash flows change, depreciation or
amortization expenses could be accelerated or slowed and the value of our intangible assets could be impaired.
Fair Value Measurements
Effective January 1, 2008, SupportSoft adopted SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value,
establishes a framework for measuring fair value under generally accepted accounting
32
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
principles and enhances disclosures about fair value measurements. Fair value is defined under SFAS No. 157 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 under SFAS No. 157 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. Therefore, determining fair value for Level 1
instruments generally does not require significant management judgment, and the estimation is not difficult.
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 determination of fair value for Level 3 instruments requires the most management judgment
and subjectivity.
Level 3 assets consist of auction-rate debt securities with various state student loan authorities and the auction-rate securities
put option. Beginning in February 2008 and through March 2009, all auctions for these securities have failed. Based on the continued
failure of these auctions and the underlying maturities of the securities, we have classified auction-rate securities as long-term assets
on our 2008 balance sheet. The fair value of the auction-rate securities and the related put option as of December 31, 2008 was
estimated by management.
Fair Value Estimates
In November, 2008, we signed a Rights Agreement with UBS concerning the disposition of its Auction Rate Securities (ARS).
The UBS agreement gives us the right to sell our ARS holdings back to UBS, at par value, beginning June 30, 2010 through July 2,
2012. Prior to June 30, 2010, UBS and we have the right to sell our ARS holdings at any time; should UBS sell the holdings, UBS
must return par value to us. The rights represent a freestanding financial instrument for accounting purposes. As noted above, we
elected to value this “put” option at fair value as allowed under SFAS No. 159. We recognized the value of the repurchase right as an
asset with the corresponding gain recorded in earnings. Fair value was determined using a “with and without” approach, based on a
discounted cash flow valuation comparing the value of the auction-rate securities with the put option and without it. We took into
account the same factors as those used to value the auction rate securities noted above. The value of the rights offer was recorded in
interest income and expense, net. As of December 31, 2008, the value of the rights offer was $7.1 million, which off-set the realized
loss recorded on the related auction-rate securities in our Statement of Operations.
Our auction-rate securities continue to be presented as long-term investment on our Balance Sheet, while the value of the rights
agreement is presented separately as auction-rate securities put option. At December 31, 2008, the value of the auction-rate
securities and the auction-rate securities put option was 18.5% of our total assets. This ARS Put Option is not a traditional put option
in that it is non-transferable, non-assignable, and not available for trade in any financial market.
We have made certain estimates in calculating the fair value of the ARS Put Option for our UBS securities, including estimates
for the weighted average remaining term (WART) of the underlying securities in which actual WART from servicing reports was
unavailable, the expected return, and the discount rate. If our estimates for these assumptions change, the fair value estimate of our
ARS holdings as well as the fair value estimate of our ARS Put Option would change, which would impact our operating results.
33
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
Accounting for Income Taxes
We are required to estimate our income taxes in each of the tax jurisdictions in which we operate. This process involves
management’s estimation of our actual current tax exposures together with an assessment of temporary differences determined
based on the difference between the financial statement and tax basis of certain items. These differences result in net deferred tax
assets and liabilities, which are included within our Consolidated Balance Sheet. We must assess the likelihood that we will be able to
recover our deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance
against the deferred tax assets that we estimate will not ultimately be recoverable. We currently have provided a full valuation
allowance on our U.S deferred tax assets and a full or partial valuation allowance on certain foreign deferred tax assets. At
December 31, 2008, our net deferred tax asset was $44.3 million and our valuation allowance was $(43.8) million.
Accounting for Goodwill and Other Intangible Assets
At December 31, 2008, our recorded goodwill was $12.6 million. We assess the impairment of goodwill annually or more often if
events or changes in circumstances indicate that the carrying value may not be recoverable. An impairment loss would be
recognized if the fair value of the reporting unit is less than the carrying value of the reporting unit’s net assets on the date of the
evaluation. The estimate of cash flow is based upon, among other things, certain assumptions about expected future operating
performance and an appropriate discount rate determined by our management. Our estimates of discounted cash flows may differ
from actual cash flows due to, among other things, economic conditions, changes to the business model or changes in operating
performance. If we made different estimates, material differences may result in write-downs of net long-lived and intangible assets,
which would be reflected by charges to our operating results for any period presented. Furthermore, we evaluate cash flows at the
lowest operating segment level. If the number of reporting segments increases in the future, as it has in 2008, this may make
impairment more probable than it would be with fewer reporting segments. As of September 30, 2008, we concluded our annual
evaluation for impairment of goodwill and no impairment was recognized. We evaluate our goodwill for impairment during the third
quarter of each year, or more frequently if indicators of impairment exist.
At December 31, 2008, our recorded net identifiable intangible assets were $417,000. We assess the impairment of finite lived
identifiable intangible assets whenever events or changes in circumstances indicate that the carrying amount 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. Such impairment loss would be measured as the difference
between the carrying amount of the asset and its fair value.
Stock-based compensation
We account for stock-based compensation in accordance with the provisions of SFAS 123R. Under the fair value recognition
provisions of SFAS 123R, stock-based compensation cost is estimated at the grant date based on the fair value of the award and is
recognized as expense ratably over the requisite service period of the award. We estimate the fair value of stock-based awards on
the grant date using the Black-Scholes-Merton option-pricing model. Determining the appropriate fair value model and calculating the
fair value of stock-based awards requires judgment, including estimating stock price volatility, forfeiture rates and expected life. If any
of these assumptions used in the option-pricing models changes significantly, stock-based compensation may differ materially in the
future from that record.
34
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
Results of Operations
The following table presents certain Consolidated Statements of Operations data for the periods indicated as a percentage of
total revenue:
Revenue:
License fees
Maintenance
Services
Consumer
Total revenue
Costs and expenses:
Cost of license fees
Cost of maintenance
Cost of services
Cost of consumer
Amortization/write-down of intangible assets
Research and development
Sales and marketing
General and administrative
Total costs and expenses
Loss from operations
Interest income and other, net
Loss before income taxes
Provision for income taxes
Net Loss
Years Ended December 31, 2008, 2007, and 2006
Revenue
2008
Years Ended December 31,
2007
2006
24%
33
29
14
100
1
4
28
20
0
18
50
22
143
(43)
5
(38)
(1)
33%
34
31
2
100
0
5
32
10
6
20
64
20
157
(57)
14
(43)
(2)
36%
35
29
—
100
1
3
30
—
2
20
52
23
131
(31)
14
(17)
(1)
(39)%
(45)%
(18)%
Our total revenue for the year ended December 31, 2008 was $48.9 million. Our total revenue increased in 2008 by $1.1 million,
or 2% from 2007. For the year ended December 31, 2007 our total revenue was $47.8 million, which was an increase of $2.8 million,
or 6% from the year ended December 31, 2006.
($ in thousands)
License fees
Maintenance
Services
Consumer
Total revenue
Consumer Segment
2008
$11,813
15,881
14,365
6,811
$48,870
% Change
2007 to 2008
(25)%
(1)%
(4)%
549%
2007
$15,780
16,084
14,888
1,050
2%
$47,802
% Change
2006 to 2007
(4)%
3%
15%
100%
6%
2006
$16,415
15,672
12,941
—
$45,028
Consumer revenue was comprised primarily of fees for technology support services provided through channel partners and, to a
lesser extent, directly to consumers through support.com. Our Consumer business was
35
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
launched in the first quarter of 2007. Consumer revenue was $6.8 million for the year ended December 31, 2008 and $1.1 million for
the year ended December 31, 2007, respectively. Revenue from our Consumer offerings have been derived predominantly from
technology support services that are paid for on a per-incident basis. We also license certain of our Consumer software products to
consumer partners on a per-use basis. In early 2007, we had just begun to offer our Consumer solutions so revenues in 2007 were
significantly smaller than revenues in 2008. The increase in Consumer revenue from 2007 to 2008 was due to increased services
demand from consumer partners, primarily from one channel partner that accounted for 11% of our total company revenue. It is
difficult to predict the timing of revenue from the Consumer segment because the timing of such revenue is dependent on the
successful completion of pilot programs and their conversion to full-scale programs. Such timing will vary from consumer partner to
consumer partner. Accordingly, Consumer revenue will likely fluctuate from period to period. Notwithstanding the foregoing, we
expect Consumer revenue to grow in 2009 as a result of expansion of existing programs, developing consumer partnerships with
additional companies through which our offerings can reach end-consumers and growing our direct business.
Enterprise Segment
Revenue related to our Enterprise business was $42.1 million for the year ended December 31, 2008, $46.8 million for the year
ended December 31, 2007 and $45.0 million in 2006. Our Enterprise revenue has been derived from our traditional Enterprise
customers and has consisted of software license fees and fees for maintenance, consulting, hosting and training services. Over the
last three years, we have licensed our software to Enterprise customers predominately on a perpetual basis in which we recognize
the license revenue up front, assuming all criteria for revenue recognition under the applicable accounting rules have been met.
Maintenance fees related to perpetual software licenses result in ratable revenue over the period of the maintenance term, which is
generally one year. Multi-year maintenance agreements are divided into annual periods over which revenue is recognized ratably.
Consulting and training revenues are recognized as the services are performed or in accordance with predefined project milestones.
Hosting fees are recognized ratably over the term of the hosting arrangement.
License revenue. License revenue is comprised of fees for perpetual and term licenses of our software. Revenue from
perpetual licensing, which represents a substantial majority of our license revenue, is recognized upon contract signing assuming all
other criteria for revenue recognition have been met. Revenue from license fees was $11.8 million for the year ended December 31,
2008, $15.8 million for the year ended December 31, 2007, and $16.4 million for the year ended December 31, 2006. We have
experienced a trend of decreasing annual license revenue over the last four years. License revenues have decreased primarily due to
closing fewer large licensing transactions with our Enterprise customers. In 2008, we had six customers that each accounted for more
than $500,000 of our aggregate license revenue. This compares to seven such customers in 2007 and 12 such customers in 2006.
Additionally, the decrease in license revenue in 2008 from 2007 was due in part to one customer whose aggregate purchases
decreased to $2.2 million in 2008 from $4.8 million in 2007. Customers in recent periods have often elected to license our software in
smaller initial quantities and may elect to acquire additional licenses as their growth requires. Moreover, the majority of our license
revenue has been derived from existing customers who require fewer licenses in current periods since their initial purchases have
already been made. Historically, a relatively small number of customers have accounted for a substantial portion of our license
revenue. Given the current global macroeconomic environment and the completion of payment under a large customer contract that
contributed substantially to revenue in 2008, we expect license revenue to decline further in 2009.
Maintenance revenue. Maintenance revenue is comprised primarily of revenue from post-contract technical support services
which includes software product updates. Maintenance revenue is recognized ratably over the term of the maintenance period, which
is generally one year. Maintenance revenue was $15.9 million for the year ended December 31, 2008, $16.1 million for the year
ended December 31, 2007 and $15.7 million for the year ended December 31, 2006. Maintenance revenue declined slightly in 2008
compared with 2007 as maintenance revenue from new licenses did not exceed the reduction in revenue from maintenance
renewals. We
36
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
expect maintenance revenue to decline further in 2009 as a result of the global macroeconomic environment, possible reductions by
customers in the level of support and products under maintenance, decreasing sales of new licenses, and certain customer losses.
Services revenue. Services revenue is primarily comprised of revenue from professional services, such as consulting, training
and fees for hosting services. Services revenue is generally recognized as the services are performed. Revenue from service fees
was $14.4 million for the year ended December 31, 2008, $14.9 million for the year ended December 31, 2007 and $12.9 million for
the year ended December 31, 2006. Our services revenue may fluctuate from period to period depending on the overall demand for
our consulting services and level of consulting activity with major customers. In the fourth quarter of 2008, services revenue
decreased $1.2 million from $3.8 million in the third quarter of 2008. We believe this decrease is related to the macroeconomic
climate and is likely to continue in 2009. In 2008, we had three customers that each accounted for more than $1.0 million of our
aggregate service revenue. This compares to five such customers in 2007 and two such customers in 2006. Services revenue
declined slightly in 2008 compared with 2007 due to lower services revenue from a customer whose revenue decreased to $1.1
million in 2008 from $1.4 million in 2007. The increase in services revenue in 2007 from 2006 was due primarily to increased services
demand, particularly from one customer whose revenue increased to $3.0 million in 2007 from $0.6 million in 2006. Given the current
global macroeconomic environment, we expect services revenue to decline further in 2009.
Revenue Mix
The components of revenue by type, expressed as a percentage of total revenue were:
Perpetual license revenue
Term license revenue
Maintenance revenue
Services revenue
Consumer revenue
Total revenue
Year Ended
December 31,
2007
29%
4
34
31
2
2008
21%
3
32
30
14
2006
32%
4
35
29
—
100%
100%
100%
We expect that revenue from perpetual licensing arrangements will continue to comprise almost all of our license revenue and
term license revenue will represent a small percentage of our license revenue over the next 12 months. Therefore, our future license
revenue will depend upon sales of perpetual licenses, generally with up-front license revenue recognition, resulting in less
predictability of future operating results.
For the year ended December 31, 2008, two customers accounted for more than 10% of our total revenue; one customer in our
Consumer Segment, Customer A, accounted for 11% and one customer in our Enterprise Segment, Customer C, accounted for 13%
of total revenue. One customer in our Enterprise segment, Customer C, represented 18% of total revenue for the year ended
December 31, 2007. For the year ended December 31, 2006, no customers accounted for 10% or more of our total revenue.
Revenue from customers outside the United States accounted for approximately 23%, 24% and 23% of our total revenue in 2008,
2007 and 2006, respectively.
37
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
Cost of license fees, maintenance, services and the amortization/write-down of intangible assets
($ in thousands)
Cost of license fees
Cost of maintenance
Cost of services
Cost of consumer
Amortization/write down of
intangible assets
Total cost of revenues
Consumer Segment
2008
$
337
1,930
13,652
9,615
202
$25,736
% Change
2007 to 2008
55%
(25)%
(13)%
109%
2007
$
218
2,586
15,652
4,608
(93)%
(1)%
2,815
$25,879
% Change
2006 to 2007
(56)%
111%
15%
100%
158%
58%
2006
$
499
1,225
13,599
—
1,090
$16,413
Cost of Consumer. Cost of Consumer revenue consists primarily of salary and related expenses for the Consumer operations
and technical support agents, technology and telecommunication expenses related to the delivery of services and other employee-
related expenses. The increases for 2008 as compared to 2007 were due primarily to salary and related overhead expenses for our
technical support agents. We increased the number of technical support agents in order to meet volume increases. We expect cost of
Consumer revenue to continue to increase as we add technical support agents to support higher anticipated call volumes. We are
implementing improvements in efficiency in our service delivery operations that we expect to cause our gross margin in our
Consumer segment to be positive exiting 2009.
Enterprise Segment
Cost of license fees. Cost of license fees consists primarily of third-party royalty fees under license arrangements for
technology embedded into or sold with our products and represented approximately 1% or less of total revenue in each year. Cost of
license fees for 2008 was higher than 2007 because of the remote control software we licensed to enhance our remote support
capabilities. Cost of license fees for 2006 was higher than 2007 because of certain revenue arrangements that included third parties
fees. There were no such arrangements with third party fees in 2007.
Cost of maintenance. Cost of maintenance consists primarily of compensation costs and related overhead expenses for
customer support personnel. Cost of maintenance was $1.9 million for the year ended December 31, 2008, $2.6 million for the year
ended December 31, 2007, and $1.2 million for the year ended December 31, 2006. Cost of maintenance for 2008 was lower than
2007 due primarily to decreases in salary and related employee costs as a result of a decrease in the number of customer support
personnel. Cost of maintenance for 2007 was higher than 2006, which was due primarily to increases in salary and related employee
costs as a result of a year-over-year headcount increase.
Cost of services. Cost of services consists primarily of the cost of our professional services organization such as
compensation, travel, related overhead expenses for professional services personnel, technical support agents, and costs of third
parties for subcontracted consulting services. Cost of services revenue was $13.7 million for the year ended December 31, 2008,
$15.7 million for the year ended December 31, 2007, and $13.6 million for the year ended December 31, 2006. The decrease in cost
of services for 2008 compared with 2007 was due primarily to a transition from higher per person cost third-party contractors to lower
per person cost employees. The increase for 2007 as compared to 2006 was due to an increase in salary and related employees
costs as a result of an increase in the number of professional services personnel.
38
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
Amortization/write-down of intangible assets. Amortization expenses of intangible assets in 2008 and 2007 were $202,000 and
$2.8 million, respectively. The decrease in 2008 compared to 2007 is due to a write-down of the carrying value of the intangible
assets during the fourth quarter of 2007. Amortization expense in 2008 was based on the reduced carrying value of the intangible
assets and therefore decreased for the year ended December 31, 2008. The increase of $1.7 million in amortization expense of
intangible assets in 2007 to $2.8 million from $1.1 million in 2006 was due to the write down of intangible assets. Effective
December 31, 2007, we ceased actively selling one of the products we had previously acquired from Core Networks in 2004. In
connection with this action and a reevaluation of all of the Core Network intangible assets, we recognized a non-cash impairment loss
of approximately $1.7 million in the fourth quarter of 2007. An impairment loss was recorded because the sum of the discounted
future net cash flows expected to result from the use of the assets and their eventual disposition was less than the carrying amounts
of such assets. Such impairment loss was measured as the difference between the carrying amounts of the assets and their then-
current fair value.
Operating expenses
($ in thousands)
Research and development
Sales and marketing
General and administrative
Total operating expenses
2008
$ 8,896
24,305
11,006
$44,207
% Change
2007 to 2008
(6)%
(20)%
18%
(10)%
2007
$ 9,441
30,410
9,296
$49,147
% Change
2006 to 2007
2%
30%
(9)%
15%
2006
$ 9,247
23,336
10,163
$42,746
Research and development. Research and development costs are expensed as incurred. Research and development
expense consists primarily of compensation costs, third-party consulting expenses and related overhead costs for research and
development personnel. Research and development costs were $8.9 million for the year ended December 31, 2008, as compared to
$9.4 million for the year ended December 31, 2007 and $9.2 million for the year ended December 31, 2006. The decrease in
research and development expense in 2008 from 2007 was primarily due to lower salary and related expenses due to fewer research
and development personnel. Research and development expense was relatively consistent between 2007 and 2006.
Sales and marketing. Sales and marketing expense consists primarily of compensation costs, including salaries, sales
commissions and related overhead costs for sales, business development and marketing personnel; expenses for lead generation
activities; and promotional expenses, including public relations, advertising and marketing events, in both the Enterprise and
Consumer businesses. Sales and marketing expense was $24.3 million for the year ended December 31, 2008, as compared to
$30.4 million for the year ended December 31, 2007 and $23.3 million for the year ended December 31, 2006. The decrease in sales
and marketing expense in 2008 from 2007 was primarily due to lower salary and related employees costs and lower commission as a
result of reduced personnel and decreased consumer media expense and direct marketing expenses. Sales and marketing expense
increased in 2007 from 2006 due primarily to increases in salary and related employees costs as a result of added personnel and
increased advertising 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. General and
administrative expense was $11.0 million for the year ended December 31, 2008, $9.3 million for the year ended December 31,
2007, and $10.2 million for the year ended December 31, 2006. The increase in general and administrative expenses in 2008,
compared to 2007 was primarily due to increase in salaries and related employee costs and professional services fees associated
with increasing our general and administrative functions to support and grow our current business. General and administrative
expense decreased in 2007 from 2006 due to a decrease in personnel.
39
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
Restructuring and impairment charges. For the years ended December 31, 2008, 2007 and 2006, we recorded restructuring
charges of $1.9 million, $1.2 million and $817,000, respectively. Such charges related to reductions in our work force and related
facilities costs. Restructuring charges are reflected in the applicable cost of revenue or operating expense line items in the
Consolidated Statement of Operations, the detail of which is presented in Note 7 to the Consolidated Financial Statements. We
recorded approximately $900,000 of such charges in the first quarter of 2009. We expect to pay approximately $1.5 million of our
accrued restructuring liabilities in the first quarter of 2009.
Interest income and other, net
($ in thousands)
Interest income and other, net
2008
$2,506
% Change
2007 to 2008
(62)%
2007
$6,526
% Change
2006 to 2005
2%
2006
$6,383
Interest income and other, net. Interest and other income consist primarily of interest income. Interest income and other, net
was $2.5 million for the year ended December 31, 2008, $6.5 million for the year ended December 31, 2007, and $6.4 million for the
year ended December 31, 2006. The decrease in interest earned during fiscal 2008, compared to fiscal 2007, was due primarily to
lower interest rates on our cash invested in money market funds and our lower cash and investment balances. Higher interest rates
and higher cash and investment balances resulted higher interest income on our invested cash and marketable securities in fiscal
2007 and fiscal 2006.
Provision for income taxes
($ in thousands)
Loss before income taxes
Provision for income taxes
Net Loss
2008
$(18,567)
(539)
2007
$(20,698)
(671)
2006
$(7,748)
(487)
$(19,106)
$(21,369)
$(8,235)
Provision for income taxes. The provisions for income taxes are comprised of estimates of current and deferred taxes due in
foreign jurisdictions and payments of foreign withholding taxes. The 2008, 2007 and 2006 tax provisions varied from our expected tax
provision at the U.S. federal statutory rate primarily due to our inability to use certain net operating losses. The decrease in the
provision for income taxes in 2008 from 2007 is due to decreased foreign income in certain jurisdictions resulting in a reduced tax
provision in these locations as well as certain benefits from refundable credits in the US.
Liquidity and Capital Resources
Total cash, cash equivalents, investments and the auction-rate security put option at December 31, 2008 was $95.0 million. This
was a $17.9 million reduction from the balance of $112.9 million at December 31, 2007. As of December 31, 2008, the aggregate
value of the auction-rate securities and auction-rate security put option was $22.9 million, which was approximately 19% of total
assets.
Operating Activities
Net cash used in operating activities was $12.3 million for the year ended December 31, 2008, $10.4 million for the year ended
December 31, 2007, and $3.1 million for the year ended December 31, 2006. Amounts included in net loss, which do not require the
use of cash, primarily include the depreciation of fixed assets,
40
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
amortization of premiums and discounts on marketable securities, stock-based compensation expense, realized loss on our auction-
rate securities and corresponding realized gain on the auction rate security put option. The sum of these items totaled $6.2 million,
$7.8 million, and $5.5 million in 2008, 2007 and 2006, respectively. Net cash used in operating activities during 2008 was primarily
the result of the net loss of $19.1 million, an increase in accounts receivable of $252,000, gain on the auction-rate security put option
of $7.1 million and offset by a corresponding loss on our auction-rate securities of $7.2 million and a decrease in deferred revenue of
$454,000. Net cash used in operating activities during 2007 was primarily the result of the net loss of $21.4 million and a decrease in
deferred revenue of $3.1 million, offset by a decrease in accounts receivable of $5.1 million. Net cash used in operating activities
during 2006 was the result of the net loss of $8.2 million and a decrease in deferred revenue of $1.4 million, offset by a decrease in
accounts receivable of $2.3 million.
Our accounts receivable and deferred revenue balances fluctuate from period to period and are primarily dependent on (i) the
timing of the closure of our license arrangements, especially larger contracts concluded late in the period, (ii) the related invoicing
and payment provisions under those contracts, (iii) the timing of maintenance renewals and consulting billings, and (iv) collections.
Accounts receivable were $10.4 million, $10.1 million and $15.1 million at December 31 2008, 2007 and 2006, respectively.
Accounts receivable from 2007 to 2008 remained fairly consistent. The decrease in accounts receivable from 2006 to 2007 was
primarily due to fewer large customer balances in accounts receivable as we have sold fewer large license transactions (and related
maintenance renewals) in recent years. There were four customers who each had accounts receivable balances greater than
$500,000 and who together accounted for approximately $4.2 million of our aggregate accounts receivable as of December 31, 2007.
By comparison, at December 31, 2006 there were ten customers who each had accounts receivable balances greater than $500,000
and who together accounted for approximately $9.7 million of our aggregate accounts receivable.
Total deferred revenue was $10.1 million, $10.5 million and $13.6 million at December 31, 2008, 2007 and 2006 respectively.
Deferred revenue decreased in each of the last three years. Customers typically purchase maintenance contracts when they license
our products. The decrease in deferred maintenance revenue is consistent with the lower level of license revenue over the same
three year period. Additionally, deferred revenue has decreased due to the ongoing amortization of term-based licenses originally
recorded in deferred revenue at the outset of those arrangements.
Investing Activities
Net cash provided by (used in) investing activities was $63.4 million for the year ended December 31, 2008, $3.2 million for the
year ended December 31, 2007, and $(8.0) million for the year ended December 31, 2006. Net cash provided by investing activities
in 2008 was primarily due to sales and maturities of $109.4 million of marketable securities largely offset by the purchase of
$41.3 million of marketable securities, the purchase of $1.4 million of technology, $2.8 million used for the acquisition of YTO and
expenditures of $566,000 for property and equipment. Net cash provided by investing activities in 2007 was primarily due to sales and
maturities of $112.5 million in marketable securities offset by the purchase of $106.9 million in marketable securities and $2.4 million
in property and equipment purchases, primarily related to the build out of our new headquarters office. The amount of net cash used
in investing activities for the year ended December 31, 2006 was primarily to the result of the purchase of $92.4 million in marketable
securities and to a lesser extent the purchase of $964,000 in property and equipment, offset by the sale and maturity of $85.3 million
in marketable securities.
Financing Activities
Net cash generated by financing activities was $381,000 for the year ended December 31, 2008, $4.8 million for the year ended
December 31, 2007, and $3.1 million for the year ended December 31, 2006. In 2008, 2007 and 2006, cash generated by financing
activities was primarily attributable to the exercise of employee stock options and the purchase of common stock under the employee
stock purchase plan.
41
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
Working Capital and Capital Expenditure Requirements
At December 31, 2008, we had stockholders’ equity of $105.4 million and working capital of $68.4 million. Included as a
reduction to working capital is short-term deferred revenue of $9.1 million, which will not require settlement in cash, but will be
recognized as revenue in the future. We believe that our existing cash balances will be sufficient to meet our working capital and
capital expenditure requirements 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 sale of additional equity could result
in more dilution to our stockholders. Financing arrangements that are available to us include the right to a loan from UBS at no net
cost for up to the amount of the par value of our eligible auction-rate securities. This loan option is part of the rights offer we signed
with UBS in November, 2008, and is available until June 30, 2010. As of December 31, 2008, we had not exercised our right to obtain
this loan.
As noted above, we plan to make substantial investments in our business during 2009, including in our Consumer segment. We
believe these investments and others are essential to create sustainable growth in our business in the future. Because these
investments will likely precede any associated revenues, we expect our working capital balance to decrease in the near term.
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.
Acquisition
On May 2, 2008, we acquired all of the stock of YourTechOnline.com (YTO). In connection with the acquisition, we used
approximately $2.8 million in cash, including purchase consideration of approximately $2.7 million and direct transaction costs of
approximately $0.1 million. Accordingly, the operations of YTO are included in our accompanying Consolidated Statements of
Operations from May 2, 2008, the acquisition date. YTO’s service delivery methodology involves technical support agents who view
and control a computer screen remotely. We acquired YTO to bolster our remote consumer service delivery capabilities utilizing
home-based technical support agents.
Contractual Obligations
The following summarizes our contractual obligations at December 31, 2008 and the effect these contractual obligations are
expected to have on our liquidity and cash flows in future periods (in thousands).
Operating leases
Payments Due By Period
1 Year
or Less
$1,624
1–3
Years
$2,606
After
3 Years
$ 496
Total
$4,726
These obligations are for noncancelable operating leases including our headquarters office and offices to carry out sales,
marketing, research and development, and services operations globally. These obligations also include the Company’s outstanding
liabilities for payment of leases for facilities that have been impaired.
Due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits at
December 31, 2008, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing
authority. Therefore, $456,000 of unrecognized tax benefits have been excluded from the contractual obligations table. See Note 9 to
the Consolidated Financial Statements for a discussion on income taxes.
42
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
Off-Balance Sheet Arrangements
At December 31, 2008, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of
Regulation S-K.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations.” SFAS No. 141R will significantly
change the accounting for business combinations in a number of areas, including the measurement of assets and liabilities acquired
and the treatment of contingent consideration, contingencies, acquisition costs, in-process research and development and
restructuring costs. In addition, under SFAS No. 141R, changes in deferred tax asset valuation allowances and acquired income tax
uncertainties in a business combination after the measurement period will affect the income tax provision. SFAS No. 141R is
effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period
beginning after December 15, 2008, which means that it will be effective for our fiscal year beginning January 1, 2009. Early adoption
is prohibited. SFAS 141R will impact the accounting for any acquisitions completed subsequent to December 31, 2008.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” which
establishes accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of
a subsidiary. SFAS No. 160 is effective for business arrangements entered into in fiscal years beginning on or after December 15,
2008, which means that it will be effective for our fiscal year beginning January 1, 2009. Early adoption is prohibited. While we are
currently evaluating the impact of adopting SFAS No. 160 on our Consolidated Financial Statements, we do not expect the adoption
of SFAS No. 160 to have a significant impact on our financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures About Derivative Instruments and Hedging Activities.” SFAS
No. 161 is intended to enhance the current disclosure framework in FASB Statement 133, “Accounting for Derivative Instrument and
Hedging Activities.” SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities. SFAB No. 161 is
effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application
encouraged. While we are currently evaluating the impact of adopting SFAS No. 161 on our Consolidated Financial Statements, we
do not expect the adoption of SFAS No. 161 to have a significant impact on our financial statements.
In October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for
That Asset Is Not Active.” This FSP clarifies the application of SFAS 157 in a market that is not active and provides an example to
illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. In
particular, it provides additional guidance on (a) how the reporting entity’s own assumptions (that is, expected cash flows and
appropriately risk-adjusted discount rates) should be considered when measuring fair value when relevant observable inputs do not
exist, (b) how available observable inputs in a market that is not active should be considered when measuring fair value, and (c) how
the use of market quotes (for example, broker quotes or pricing services for the same or similar financial assets) should be
considered when assessing the relevance of observable and unobservable inputs available to measure fair value. This FSP is
effective upon issuance, including prior periods for which financial statements have not been issued. The Company evaluated the
impact of this FSP and concluded that its considerations in determining the fair value of its financial assets when the market for them
is not active are consistent with the FSP’s guidance.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate and Market Risk
There has been significant deterioration and instability in the financial markets during 2008 and into 2009. This period of
extraordinary disruption and readjustment in the financial markets exposes us to additional
43
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
investment risk. The value and liquidity of the securities in which we invest could deteriorate rapidly and the issuers of such securities
could be subject to credit rating downgrades. In light of the current market conditions and these additional risks, we actively monitor
market conditions and developments specific to the securities and security classes in which we invest. We believe that we take a
conservative approach to investing our funds. While we believe we take prudent measures to mitigate investment related risks, such
risks cannot be fully eliminated, as there are circumstances outside of our control.
The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we
receive from our investments without significantly increasing risk. To achieve this objective, we invest our excess cash in a variety of
securities, including government debt securities, auction-rate securities, corporate notes and bonds, commercial paper and money
market funds meeting certain criteria. These securities are classified as available-for-sale, except for our UBS ARS holdings, which
are classified as trading, as described below. Consequently, our available-for-sale securities are recorded on the balance sheet at fair
value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income (loss). Our
holdings of the securities of any one issuer, except government agencies, do not exceed 10% of our portfolio. We do not utilize
derivative financial instruments to manage our interest rate risks.
As of December 31, 2008, we held $23.6 million in investments (excluding cash and cash equivalents), which consisted
primarily of government debt securities, auction-rate securities, corporate notes and bonds, and commercial paper. The weighted
average interest rate of our portfolio was approximately 2.33% at December 31, 2008. A decline in interest rates over time would
reduce our interest income from our investments. A decrease in interest rates of 100 basis points would cause a corresponding
decrease in our annual interest income of approximately $236,000.
At December 31, 2008 and 2007 we had investments in AAA-rated auction-rate debt securities with various state student loan
authorities with estimated fair values aggregating $15.8 million and $38.9 million, respectively. The student loans made by these
authorities are substantially guaranteed by the federal government through the Federal Family Education Loan Program (FFELP).
Auction-rate securities are long-term floating rate bonds tied to short-term interest rates. After the initial issuance of the securities, the
interest rate on the securities is reset periodically, at intervals established at the time of issuance (e.g., every seven days, twenty-
eight days, thirty-five days, or every six months), based on market demand, if the auctions are successful. Auction-rate securities are
bought and sold in the marketplace through a competitive bidding process often referred to as a “Dutch auction.” If there is insufficient
interest in the securities at the time of an auction, the auction may not be completed and the auction-rate security then pays a default
interest rate. Following such a failed auction, we cannot access our funds that are invested in the corresponding auction-rate
securities until a future auction of these investments is successful, new buyers express interest in purchasing these securities in
between reset dates, issuers establish a different form of financing to replace these securities, or final payments become due
according to contractual maturities. Commencing in February 2008, illiquidity conditions in the global credit markets resulted in failed
auctions for all of our auction-rate securities held. In the near term, our ability to liquidate our investments or fully recover the carrying
values may be limited or not exist.
In August 2008, UBS, the broker-dealer for 85% of our auction-rate securities, announced a settlement under which it has
offered to provide liquidity solutions for, or purchase, the auction-rate securities held by its institutional clients. In October 2008, UBS
extended an offer of rights to us to sell our eligible auction-rate securities at par value back to UBS during the time period from
June 30, 2010 through July 2, 2012. All of the auction-rate securities we hold with UBS qualify as “eligible” for purposes of the rights
offer. Under the offer, UBS will have sole discretion without prior notice to us, to sell eligible securities and return par value to us
through July 2, 2012. In November 2008, we elected to accept the offer of rights from UBS that gives us the option to sell UBS a total
of $20.9 million at par value at any time beginning June 30, 2010 through July 2, 2012. Upon acceptance of the UBS rights offer, we
elected to value the put option at fair value as allowed under SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities.” Refer to the Auction Rate Security Put Option section in Note 1 to the Consolidated Financial Statements for
more information. Given the
44
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
unprecedented failure of the entire auction-rate securities market and the various legal settlements taking place to return principal to
investors, including the UBS rights offer, we have elected a one-time transfer of our UBS auction-rate securities from available-for-
sale to trading securities in accordance with FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity
Securities” (SFAS 115). The transfer to trading securities reflects management’s intent to exercise its put option during the period
June 30, 2010 to July 3, 2012. We recorded a realized loss of $7.1 million, in interest income and other, net, in our consolidated
statement of operations upon electing this one-time transfer of our $20.9 million of auction-rate securities to trading. The impact to our
Statement of Operations was offset by the value of the rights offer as of December 31, 2008 of $7.1 million. We will continue to mark
the UBS auction-rate securities to market each reporting period, with changes in value being recorded in interest income and other,
net.
The fair value of our auction-rate securities at December 31, 2008 reflects an unrealized loss of $1.6 million, entirely related to
securities classified as available-for-sale. Fair value for all auction-rate securities was based on a discounted cash flow valuation that
takes into account a number of factors including the weighted average remaining term (WART) of the underlying securities, the
expected return, and the discount rate. The actual WART from servicing reports was used where available. For securities where the
actual WART was not available an estimate based on other securities held was used. The expected return was calculated based on
the last twelve months average for the 91 day T-bill plus a spread. This rate is the typical default rate for auction rate securities. The
discount rate was calculated using the 3-month LIBOR rate plus adjustments for the security type and the current lack of liquidity.
Changes in any of the above estimates, especially the weighted average remaining term or the discount rate, could result in a
material change to the fair value. At December 31, 2008, all auction-rate securities were classified as Level 3 assets in accordance
with the Statement of Financial Accounting Standards (SFAS) No. 157 hierarchy. Presently we have determined the decline in value
for the available-for-sale auction-rate securities to be temporary because i) we have the intent and ability to hold these securities in
the near term in order to recoup their par values; ii) through December 31, 2008 all of the securities have maintained their AAA credit
ratings; iii) loans made by the issuers are backed by the federal government; and iv) we have noted no deterioration in the credit
quality of the issuers.
However if circumstances change, we may be required to record an other-than-temporary impairment charge on the available-
for-sale auction-rate securities. We may similarly be required to record other-than-temporary impairment charges if the ratings on any
of these securities are reduced or if any of the issuers default on their obligations. In addition to impairment charges, any of these
events could cause us to lose part or all of our investment in these securities. Any of these events could materially affect our results
of operations and our financial condition. We currently believe these securities are not significantly impaired for the reasons described
above; however, it could take until the final maturity of the underlying notes (up to 30 years) to realize our investments’ recorded
value.
Impact of Foreign Currency Rate Changes
The functional currencies of our international operating subsidiaries are the local currencies. We translate the assets and
liabilities of our foreign subsidiaries at the exchange rates in effect on the balance sheet date. We translate their cost–plus income
and expenses at the average rates of exchange in effect during the period. We include translation gains and losses in the
stockholders’ equity section of our balance sheet. We include net gains and losses resulting from foreign exchange transactions in
interest income and other in our statements of operations. Since we translate foreign currencies (primarily Canadian dollars, British
pounds, European Union euros and Indian rupees) into U.S dollars for financial reporting purposes, currency fluctuations can have an
impact on our financial results. We have both revenues and expenses that are denominated in foreign currencies. Historically, foreign
currency expenses have been larger than foreign currency revenues. A weaker US dollar environment would have a negative impact
to our Income Statement, while a stronger US dollar environment would have a positive impact on our Income Statement. The
historical impact of currency fluctuations has generally been immaterial. Although the impact of currency fluctuations on our financial
results has generally been immaterial, there can be no guarantee that the impact of currency fluctuations will not be material in the
future. As of December 31, 2008 we did not engage in foreign currency hedging activities.
45
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
SUPPORTSOFT, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
46
Page
47
48
49
50
51
52
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
SupportSoft, Inc.
We have audited the accompanying consolidated balance sheets of SupportSoft, Inc. as of December 31, 2008 and 2007, and
the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of SupportSoft, Inc. at December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 9 to the consolidated financial statements, effective January 1, 2007, SupportSoft, Inc. adopted Financial
Accounting Standards Board Interpretations No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB
Statement No. 109.”
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
SupportSoft, Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control
—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
March 10, 2009 expressed an unqualified opinion thereon.
San Jose, California
March 10, 2009
/s/ ERNST & YOUNG LLP
47
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
ASSETS
Current assets:
SUPPORTSOFT, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share data)
Cash and cash equivalents
Short-term investments
Accounts receivable, less allowance of $197 and $310 at December 31, 2008 and 2007,
respectively
Prepaid expenses and other current assets
Total current assets
Long-term investments
Auction rate securities put option
Property and equipment, net
Goodwill
Purchased technology, net
Intangible assets, net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued compensation
Other accrued liabilities
Deferred revenue, less long-term portion
Total current liabilities
Deferred revenue—long-term portion
Other long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock; par value $0.0001, 5,000,000 shares authorized; no shares issued or
outstanding
Common stock; par value $0.0001, 150,000,000 shares authorized; 46,141,743 issued and
outstanding at December 31, 2008 and 46,012,109 issued and outstanding at December 31,
2007
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes.
48
December 31,
2008
2007
$ 64,306
7,784
$ 12,926
100,014
10,384
1,642
84,116
15,766
7,148
1,275
12,646
1,318
417
900
10,087
2,531
125,558
—
—
2,086
9,792
—
340
682
$ 123,586
$138,458
$
890
2,129
3,534
9,134
15,687
985
1,468
18,140
$
461
2,320
3,421
10,076
16,278
426
892
17,596
—
—
5
217,647
(2,541)
(109,665)
5
212,188
(772)
(90,559)
105,446
120,862
$ 123,586
$138,458
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SUPPORTSOFT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
Table of Contents
Revenue:
License
Maintenance
Services
Consumer
Total revenue
Costs and expenses:
Cost of license
Cost of maintenance
Cost of services
Cost of consumer
Amortization/write down of intangible assets
Research and development
Sales and marketing
General and administrative
Total costs and expenses
Loss from operations
Interest income and other, net
Loss before income taxes
Provision for income taxes
Net loss
Basic net loss per share
Shares used in computing basic net loss per share
Diluted net loss per share
Shares used in computing diluted net loss per share
Year Ended December 31,
2007
2008
2006
$ 11,813
15,881
14,365
6,811
$ 15,780
16,084
14,888
1,050
$ 16,415
15,672
12,941
—
48,870
47,802
45,028
337
1,930
13,652
9,615
202
8,896
24,305
11,006
218
2,586
15,652
4,608
2,815
9,441
30,410
9,296
499
1,225
13,599
—
1,090
9,247
23,336
10,163
69,943
75,026
59,159
(21,073)
2,506
(18,567)
(539)
(27,224)
6,526
(20,698)
(671)
(14,131)
6,383
(7,748)
(487)
$(19,106)
$(21,369)
$ (8,235)
$
(0.41)
$
(0.47)
$
(0.19)
46,098
45,610
44,113
$
(0.41)
$
(0.47)
$
(0.19)
46,098
45,610
44,113
See accompanying notes.
49
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
SUPPORTSOFT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
Common Stock
Accumulated
Shares
43,627,075 $
Amount
Additional
Paid-In
Capital
4 $195,990 $
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
(645) $ (60,955) $ 134,394
— —
— —
— —
—
—
—
—
63
(169)
(8,235)
—
—
(8,235)
63
(169)
(8,341)
3,338
2,600
512
(19,106)
(1,600)
(169)
(20,875)
5,078
1
380
Balances at December 31, 2005
Components of comprehensive income:
Net loss
Unrealized gain on investments
Foreign currency translation adjustment
Comprehensive loss
purchase plan
Repurchase of common stock
Balances at December 31, 2006
Components of comprehensive income:
Net loss
Unrealized gain on investments
Foreign currency translation adjustment
Comprehensive loss
Issuance of common stock upon exercise of stock options
for cash
Issuance of common stock under employee stock
3,338
807,967 —
152,678 —
2,600
512
—
—
—
—
44,587,720 $
4 $202,440 $
(751) $ (69,190) $ 132,503
Stock-based compensation expense
Issuance of common stock upon exercise of stock options
for cash
1,292,953
1
4,298
Issuance of common stock under employee stock
purchase plan
131,436 —
507
—
— —
— —
—
—
—
— —
4,943
(21,369)
—
—
—
—
—
75
(96)
—
—
—
(21,369)
75
(96)
(21,390)
4,943
4,299
507
Balances at December 31, 2007
Components of comprehensive income:
Net loss
Unrealized gain on investments
Foreign currency translation adjustment
Comprehensive loss
46,012,109 $
5 $212,188 $
(772) $ (90,559) $ 120,862
—
— —
— —
—
—
—
(1,600)
(169)
(19,106)
—
—
Stock-based compensation expense
Issuance of common stock upon exercise of stock options
for cash
Issuance of common stock under employee stock
— —
5,078
2,333 —
1
purchase plan
127,301 —
380
—
—
—
—
—
—
Balances at December 31, 2008
46,141,743 $
5 $217,647 $
(2,541) $ (109,665) $ 105,446
See accompanying notes.
50
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
SUPPORTSOFT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Operating activities:
Net loss
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation
Write-off of fixed assets
Stock-based compensation expense
Amortization of premiums and discounts on marketable securities
Amortization/write-down of intangible assets
Amortization of purchased technology
Realized loss on investments
Gain on auction rate security put option
Changes in assets and liabilities:
Accounts receivable, net
Prepaid expenses and other current assets
Other assets
Accounts payable
Accrued compensation
Other accrued liabilities
Other long-term liabilities
Deferred revenue
Net cash used in operating activities
Investing activities:
Purchases of property and equipment
Purchase of developed technology
Acquisition of business, net of cash acquired
Purchases of investments
Sales of investments
Maturities of investments
Net cash provided by (used in) investing activities
Financing activities:
Proceeds from issuances of common stock
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental schedule of cash flow information:
Income taxes paid
See accompanying notes.
51
Year Ended December 31,
2007
2008
2006
$(19,106)
$ (21,369)
$ (8,235)
1,194
105
5,078
(509)
202
57
7,221
(7,148)
(252)
892
(213)
431
(186)
(203)
569
(454)
1,149
—
4,943
(1,062)
2,815
—
—
—
5,057
386
131
145
237
(348)
631
(3,111)
(12,322)
(10,396)
982
—
3,338
51
1,090
—
—
—
2,293
(501)
(137)
(725)
(609)
720
63
(1,416)
(3,086)
(566)
(1,375)
(2,778)
(41,256)
39,941
69,467
63,433
381
381
51,492
(112)
12,926
(2,422)
—
—
(106,850)
40,549
71,938
(964)
—
—
(92,351)
58,500
26,766
3,215
(8,049)
4,806
4,806
(2,375)
(68)
15,369
3,112
3,112
(8,023)
50
23,342
$ 64,306
$ 12,926
$ 15,369
$
402
$
274
$
294
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
SUPPORTSOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Summary of Significant Accounting Policies
Nature of Operations
SupportSoft, Inc. (“SupportSoft,” “the Company,” “We” or “Our”), was incorporated in the state of Delaware on December 3,
1997. SupportSoft provides software and services designed to make technology work. Our Consumer segment is a technology-
enabled services business that was launched in 2007 to provide consumers with assistance in resolving technology problems. Our
Enterprise segment consists of our traditional business in which we license technical support software to digital service providers
(telecommunications and cable companies) and corporate IT departments and IT outsourcers.
Our headquarters is located in Redwood City, California We have international operations in several countries.
Basis of Presentation
The Consolidated Financial Statements include the accounts of SupportSoft and its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated.
Foreign Currency Translation
The functional currency of the Company’s foreign subsidiaries is generally the local currency. Assets and liabilities of
SupportSoft’s 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 or loss. Realized foreign currency transaction gains and losses were not material during the years ending
December 31, 2008, 2007, and 2006.
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 the valuation and recognition of investments, the valuations of the revenue and accounts receivable, 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.
Reclassifications
Certain amounts in the Consolidated Financial Statements and Notes to Consolidated Financial Statements for prior years have
been reclassified to conform to current year’s presentation. Specifically, Consumer revenue has been reclassified from services
revenue along with the corresponding costs of Consumer revenue. Net operating results have not been affected by these
reclassifications.
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
52
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
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 also limit the amount of credit risk exposure to any
one country except the United States. We are exposed to credit risks in the event of default by the issuers to the extent of the amount
recorded on the balance sheet. The credit risk in our trade accounts receivable is substantially mitigated by our credit evaluation
process and reasonably short payment terms.
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. Provisions are made based upon a specific review of all
significant outstanding invoices. For those invoices not specifically provided for, provisions are recorded at differing rates, based upon
the age of the receivable. In determining these percentages, we analyze our historical collection experience and current payment
trends.
The following table summarizes the allowance for doubtful accounts as of December 31, 2008, 2007 and 2006 (in thousands):
Allowance for doubtful accounts:
Year ended December 31, 2006
Year ended December 31, 2007
Year ended December 31, 2008
Balance at
Beginning
of Period
$
296
373
310
Charged/
(Recovery) to
Costs and
Expenses
$
138
(57)
(107)
Write-
offs
$ (61)
(6)
(6)
Balance at
End
of Period
$
373
310
197
The following table lists customers representing greater than 10% of total account receivable, net as of December 31, 2008 and
2007:
Customer A
Customer B
Customer C
Customer D
Customer E
% of Total
Accounts Receivable,
Net Years Ended
December 31,
2008
19%
—
—
12%
—
2007
—
—
12%
11%
11%
Included in accounts receivable and deferred revenue at December 31, 2008 is approximately $1.2 million related to
maintenance billings for customers who have elected to renew their maintenance contracts, but for which the maintenance period has
not yet commenced.
Cash, Cash Equivalents and Investments
All liquid instruments with an original maturity at the date of purchase of ninety days or less are classified as cash equivalents.
Cash equivalents and short-term investments consist primarily of money market funds,
53
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
commercial paper, corporate and municipal bonds and notes and securities issued by the United States government. Long-term
investments consist of auction-rate debt securities. Our cash equivalents and short-term investments are classified as available-for-
sale, and are reported at fair value with unrealized gains and losses, when deemed to be temporary, included in accumulated other
comprehensive income within stockholders’ equity on the Consolidated Balance Sheets. We designated all long-term investments,
except for auction-rate securities held by UBS, as available-for-sale which are therefore reported at fair value, with unrealized gains
and losses recorded in accumulated other comprehensive income. During the fourth quarter of fiscal 2008, we reclassified auction-
rate securities held by UBS from available-for-sale to trading securities. Investments that we designate as trading assets are reported
at fair value, with gains or losses resulting from changes in fair value recognized in earnings. Realized gains and losses and declines
in value judged to be other-than-temporary on available-for-sale securities are included in interest income and other, net in the
Consolidated Statements of Operations. We recorded net unrealized losses on available-for-sale securities of $1.6 million as of
December 31, 2008 and net unrealized gains of $21,000 as of December 31, 2007, in accumulated other comprehensive income.
Realized gains and losses are recorded using the specific identification method. The net realized loss, excluding auction-rate
securities as discussed below, was $73,000 in 2008 and immaterial in 2007 and 2006.
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, and our ability and intent to hold investments to maturity. 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.
The following is a summary of cash, cash equivalents and investments (in thousands):
Cash
Money market fund
Commercial paper
Corporate bonds
Auction rate securities (1)
Classified as:
Cash and cash equivalents
Short-term investments
Long-term investments
For the Year Ended December 31, 2008
Gross
Unrealized
Gains
$
$
$
$
—
—
7
—
—
7
—
7
—
7
Gross
Unrealized
$
Losses
—
—
—
(1)
(1,586)
$ (1,587)
$
—
(1)
(1,586)
$ (1,587)
Amortized
Cost
$ 6,252
55,058
7,774
3,000
17,352
$89,436
$64,306
7,778
17,352
$89,436
Fair Value
$ 6,252
55,058
7,781
2,999
15,766(1)
$87,856(1)
$64,306
7,784
15,766(1)
$87,856(1)
(1)
In addition to the fair value of our auction-rate securities holdings, we hold the auction-rate security put option, which is
classified as a long-term asset valued at $7.1 million as of December 31, 2008. At December 31, 2008, the fair value of cash,
cash equivalents, investments and the auction-rate security put option was $95.0 million.
54
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
Cash
Money market fund
Commercial paper
Federal agencies
Corporate bonds
Auction rate securities
Classified as:
Cash and cash equivalents
Short-term investments
Long-term investments
For the Year Ended December 31, 2007
Gross
Unrealized
Gains
$
$
$
$
—
—
18
3
16
—
37
—
37
—
37
Gross
Unrealized
Losses
—
—
(1)
—
(15)
—
Fair Value
3,298
$
5,651
28,317
7,002
29,822
38,850
(16)
$112,940
—
(16)
—
(16)
$ 12,926
61,164
38,850
$112,940
$
$
$
$
$
Amortized
Cost
3,298
5,651
28,300
6,999
29,821
38,850
$112,919
$ 12,926
61,143
38,850
$112,919
The following table summarizes the estimated fair value of our available-for-sale and trading debt securities classified by the
stated maturity date of the security (in thousands):
Due within one year
Due within two years
Due after three years
December 31,
2008
$ 7,784
—
15,766
2007
$ 58,165
2,999
38,850
$23,550
$100,014
The Company has determined that the gross unrealized losses on its available-for-sale investments as of December 31, 2008
are temporary in nature. The Company has reviewed its investment portfolio to identify and evaluate investments that have indications
of possible impairment. Factors considered in determining whether a loss is temporary include the magnitude of the decline in market
value, the length of time the market value has been below cost (or adjusted cost), credit quality, and the Company’s ability and intent
to hold the securities for a period of time sufficient to allow for any anticipated recovery in market value.
At December 31, 2008 and 2007 we had investments in AAA-rated auction-rate debt securities with various state student loan
authorities with estimated fair values aggregating $15.8 million and $38.9 million, respectively. The student loans made by these
authorities are substantially guaranteed by the federal government through the Federal Family Education Loan Program (FFELP).
Auction-rate securities are long-term floating rate bonds tied to short-term interest rates. After the initial issuance of the securities, the
interest rate on the securities is reset periodically, at intervals established at the time of issuance (e.g., every seven days, twenty-
eight days, thirty-five days, or every six months), based on market demand, if the auctions are successful. Auction-rate securities are
bought and sold in the marketplace through a competitive bidding process often referred to as a “Dutch auction.” If there is insufficient
interest in the securities at the time of an auction, the auction may not be completed and the auction-rate security then pays a default
interest rate. Following such a failed auction, we cannot access our funds that are invested in the corresponding auction-rate
securities until a future auction of these investments is successful, new buyers express interest in purchasing these securities in
between reset dates, issuers establish a different form of financing to replace these securities, or final payments become due
according to contractual
55
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
maturities. Commencing in February 2008, illiquidity conditions in the global credit markets resulted in failed auctions for all of our
auction-rate securities held. In the near term, our ability to liquidate our investments or fully recover the carrying values may be
limited or not exist.
In August 2008, UBS, the broker-dealer for 85% of our auction-rate securities, announced a settlement under which it has
offered to provide liquidity solutions for, or purchase, the auction-rate securities held by its institutional clients. In October 2008, UBS
extended an offer of rights to us to sell our eligible auction-rate securities at par value back to UBS during the time period from
June 30, 2010 through July 2, 2012. All of the auction-rate securities we hold with UBS qualify as “eligible” for purposes of the rights
offer. Under the offer, UBS will have sole discretion without prior notice to the Company, to sell our eligible securities and return par
value to the Company up through July 2, 2012. In November 2008, we elected to accept the offer of rights from UBS that gives us the
option to sell UBS a total of $20.9 million at par value at any time beginning June 30, 2010 through July 2, 2012. Upon acceptance of
the UBS rights offer, we elected to value the put option at fair value as allowed under SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” Refer to the Auction Rate Security Put Option section below for further discussion. Given
the unprecedented failure of the entire auction-rate securities market and the various legal settlements taking place to return principal
to investors, including the UBS rights offer, we have elected a one-time transfer of our UBS auction-rate securities from available-for-
sale to trading securities in accordance with FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity
Securities” (SFAS 115). The transfer to trading securities reflects management’s intent to exercise its put option during the period
June 30, 2010 to July 3, 2012. We recorded a realized loss of $7.1 million, in interest income and other, net, in our consolidated
statement of operations upon electing this one-time transfer of our $20.9 million par value of auction-rate securities to trading. This
was offset by the value of the rights offer as of December 31, 2008 of $7.1 million. We will continue to mark the UBS auction-rate
securities to market each reporting period, with changes in value being recorded in interest income and other, net.
The fair value of our auction-rate securities at December 31, 2008 reflects an unrealized loss of $1.6 million, entirely related to
securities classified as available-for-sale. Fair value for all auction-rate securities was based on a discounted cash flow valuation that
takes into account a number of factors including the weighted average remaining term (WART) of the underlying securities, the
expected return, and the discount rate. The actual WART from servicing reports was used where available. For securities where the
actual WART was not available an estimate based on other securities held was used. The expected return was calculated based on
the last twelve months average for the 91 day T-bill plus a spread. This rate is the typical default rate for auction rate securities held
by us. The discount rate was calculated using the 3-month LIBOR rate plus adjustments for the security type and the current lack of
liquidity. Changes in any of the above estimates, especially the weighted average remaining term or the discount rate, could result in
a material change to the fair value. At December 31, 2008, all auction-rate securities were classified as Level 3 assets in accordance
with the Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements” hierarchy. Presently we have
determined the decline in value for the available-for-sale auction-rate securities to be temporary because i) we have the intent and
ability to hold these securities in the near term in order to recoup their par values; ii) through December 31, 2008 all of the securities
have maintained their AAA credit ratings; iii) loans made by the issuers are backed by the federal government; and iv) we have noted
no deterioration in the credit quality of the issuers.
However if circumstances change, we may be required to record an other-than-temporary impairment charge on the available-
for-sale auction-rate securities. We may similarly be required to record other-than-temporary impairment charges if the ratings on any
of these securities are reduced or if any of the issuers default on their obligations. In addition to impairment charges, any of these
events could cause us to lose part or all of our investment in these securities. Any of these events could materially affect our results
of operations and our financial condition. We currently believe these securities are not significantly impaired for the reasons described
above; however, it could take until the final maturity of the underlying notes (up to 30 years) to realize our investments’ recorded
value.
56
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
The following table sets forth the unrealized losses for the Company’s available-for-sale investments as of December 31, 2008
(in thousands):
Description
Corporate bonds
Auction rate securities
Total
In Loss Position
In Loss Position
Unrealized
Less Than 12 Months
Fair
Value
$ 2,999
—
Losses
(1)
—
$
More Than 12 Months
Fair Value
$
—
15,766
Unrealized
Losses
$
—
(1,586)
Total In Loss Position
Unrealized
Losses
$
(1)
(1,586)
Fair Value
$ 2,999
15,766
$ 2,999
$
(1)
$15,766
$ (1,586)
$18,765
$ (1,587)
Auction Rate Security Put Option
In November, 2008, SupportSoft signed a Rights Agreement with UBS concerning the disposition of its Auction Rate Securities
(ARS). The UBS agreement gives SupportSoft the right to sell its ARS holdings back to UBS, at par value, beginning June 30, 2010
through July 2, 2012. Prior to June 30, 2010, UBS has the right to sell SupportSoft’s ARS holdings at any time, and return par value to
the Company. The rights represent a freestanding financial instrument for accounting purposes. As noted above, we elected to value
this “put” option at fair value as allowed under SFAS No. 159. As such, we recognized the value of the repurchase right as an asset
with the corresponding gain recorded in earnings. Fair value was determined using a “with and without” approach, based on a
discounted cash flow valuation comparing the value of the auction rate securities with the put option and without it. We took into
account the same factors as those used to value the auction rate securities noted above. The value of the rights offer was recorded in
interest income and expense, net. As of December 31, 2008, the value of the ARS Put Option was $7.1 million, which off-set the
realized loss recorded on the related auction rate securities in our Statement of Operations.
Our auction-rate securities continue to be presented as long-term investments on the Company’s balance sheet, while the value
of the rights agreement is presented separately as auction-rate securities put option. This ARS Put Option is not a traditional put
option in that it is non-transferable, non-assignable, and not available for trade in any financial market. If UBS has insufficient funding
to fulfill their obligation to buy back the ARS per the Rights Agreement, then we may incur further losses in our Statement of
Operations.
The offer of rights includes the right to a loan from UBS at no net cost, for up to the amount of the par value of our eligible
auction-rate securities. The loan option is available until June 30, 2010. As of December 31, 2008, we had not exercised our right to
obtain a loan.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation which is determined using the straight-line method over
the estimated useful lives of 2 years for computer equipment and software, 3 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 incurred.
Purchased Technology
Purchased technology consists of software that we licensed and incorporated into our product and service offerings. Purchased
technology is accounted for in accordance with SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed.” Upon general release of the product that
57
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
includes the licensed software, the costs will be amortized using the straight line method over an estimated useful life in a range of 3-
5 years. We acquired the purchased technology in 2008 and recorded amortization expense of $57,000 during the year ended
December 31, 2008.
Goodwill
We have recorded goodwill related to two transactions. The first recording of goodwill resulted from the Company’s acquisition of
Core Networks on September 2, 2004. This Core Networks goodwill, $9.7 million, is entirely attributable to the Enterprise segment.
The other goodwill resulted from our acquisition of YourTechOnline.com (YTO) on May 2, 2008. This YTO goodwill, $2.9 million, is
attributable entirely to the Consumer segment. We apply the provisions of SFAS No. 142, “Goodwill and Other Intangibles Assets,”
which prohibits the amortization of goodwill.
We assess the impairment of goodwill annually or more often if events or changes in circumstances indicate that the carrying
value may not be recoverable. A potential impairment is assessed at the segment level. An impairment loss would be recognized if
the fair value of the reporting unit is less than the carry value of the reporting unit’s net assets on the date of the evaluation.
Furthermore, we evaluate cash flows at the lowest operating segment level. The estimate of cash flows is based upon, among other
things, certain assumptions about expected future operating performance and an appropriate discount rate determined by our
management. Our estimates of discounted cash flows may differ from actual cash flows due to, among other things, economic
conditions, changes to the business model or changes in operating performance.
We conduct our annual evaluation for impairment of goodwill on September 30 of each year. No goodwill impairment charges
have been recorded through December 31, 2008.
Intangible Assets
The Company records purchased intangible assets at fair value. The original cost is amortized on a straight-line basis over the
estimated useful life of each asset. We assess the impairment of intangible assets whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. We perform an annual review to determine if the carrying value of the
intangible asset is impaired, unless events or circumstances indicate a potential impairment exists in which case a review is
performed more often. The review considers facts and circumstances, either internal or external, which indicate that the carrying
value of the asset cannot be recovered. If and when indicators of impairment exist, SupportSoft assesses the need to record an
impairment loss, by comparing the undiscounted net cash flows associated with related assets or group of assets over their
remaining lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the
fair value of those assets.
In December 2007, we recognized a write-down of the intangible assets originally acquired from Core Networks in 2004, in
accordance with SFAS No. 142. See Note 5 to the Consolidated Financial Statements.
Revenue Recognition
Consumer Revenue
Consumer revenue is derived primarily from fees for technology support services. These services include those that are
delivered on a one-time basis (“incident-based” services) as well as those that delivered over time (“subscription” services). We
provide these services through channel partners and directly to consumers.
58
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
Firms that serve as channel partners for us are generally invoiced monthly for services delivered during that period (i.e., a sale is
made through to their end-user). Fees from transactions directly with consumers are generally paid with a credit card at the time of
delivery. For incident-based services, revenue is recognized during the period in which the services are delivered. For subscription-
based services, revenue is recognized ratably over the subscription period. Our direct-to-consumer channel generally provides a five-
day warranty period during which refunds may be granted. With partners, the warranty period varies across channels, and in some
channels our partner bears the cost of refunds. We recognize revenue net of refunds at the end of the warranty period. Refunds have
not been material to date.
We also license certain of our Consumer software products to channel partners who use our software to provide services to their
customers. Such channel partners are charged a per-use fee for the software and revenue is recognized in the period usage occurs.
Enterprise Revenue
We recognize revenue in accordance with the American Institute of Certified Public Accountants’ (AICPA) Statement of Position
(“SOP”) 97-2, Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9. License revenue is recognized when all of
the following criteria are met:
•
•
•
•
Persuasive evidence of an arrangement exists;
Delivery has occurred;
Collection is considered probable; and
The fees are fixed or determinable.
SupportSoft considers all arrangements with payment terms longer than 90 days, not to be fixed or determinable. If the fee is
determined not to be fixed or determinable, revenue is recognized as payments become due from the customer. Revenue is
recognized net of any applicable sales tax.
License revenue is comprised of fees for perpetual and term licenses of our software. Perpetual license revenue is recognized
using the residual method, in compliance with SOP 98-9 for arrangements in which licenses are sold with multiple elements. We
allocate revenues on these licenses based upon the fair value of each undelivered element including undelivered maintenance,
consulting and training. The determination of fair value is based upon vendor specific objective evidence (VSOE). VSOE for
maintenance is based upon separate renewals of maintenance licenses from customers. VSOE for consulting or training is based
upon separate sales of these services to customers. Assuming all other revenue recognition criteria are met, the difference between
the total arrangement fee and the amount deferred for each undelivered element is recognized as license revenue.
Term licenses are sold with maintenance for which SupportSoft does not have VSOE to determine fair value for maintenance
fees. As a result, license revenue for term licenses is recognized ratably over the duration of the agreement. License revenue in the
accompanying financial statements includes maintenance for term licenses. We do not allocate maintenance revenue from term
licenses to maintenance revenue, as we do not believe there is an allocation methodology that provides a meaningful and
supportable allocation between license and maintenance revenues. Services revenue associated with the term licenses are
recognized ratably over the period associated with the initial payment, generally one year.
We provide resellers with the right to distribute our software to end user customers. Generally, we recognize revenue from our
arrangements with resellers when we receive persuasive evidence that the reseller has actually
59
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
contracted to license the software to a named end user (sell-through), assuming all other criteria for revenue recognition have been
met. The forms of sell-through acceptable to us include one or more of the following: i) a copy of the agreement or license between
the reseller and the end user, ii) a purchase order from the end user to the reseller, iii) a written communication from the reseller
specifically identifying the end user, or iv) delivery made directly by SupportSoft to the end user. Whether the license revenue is then
recognized immediately or ratably depends upon the terms of the arrangements with the reseller regarding the sublicense
(i.e. perpetual license or term license). If a reseller is not deemed creditworthy, revenue otherwise recognizable is deferred until cash
is received.
Maintenance revenue is primarily comprised of revenue from post-contract technical support services, which includes software
product updates. Maintenance revenue is recognized ratably over the term of the maintenance period, which is generally one year.
Multi-year maintenance agreements are divided into annual periods over which revenue is recognized ratably. We invoice customers
who elect to renew their maintenance agreements. An equal amount is recorded as accounts receivable and deferred revenue.
Services revenue is primarily comprised of revenue from professional services such as consulting, training and hosting fees.
Arrangements are evaluated to determine whether those services are essential to the functionality of other elements of the
arrangement. In the event services are considered essential to the functionality of other elements of the arrangement, revenue under
the arrangement is recognized using contract accounting. Non-essential consulting and training revenues are generally recognized as
the services are performed or project milestones are accepted by the customer. When non-essential services are bundled in a term
licensing arrangement, revenue from the services is recognized ratably over the period associated with the initial payment, generally
one year.
In connection with licensing arrangements we may also provide hosting of our own software, a service for which SupportSoft
does not have VSOE. If hosting services are sold with perpetual licenses, license revenue is recognized ratably over the term of the
hosting contract. Hosting revenue is also recognized ratably over the duration of the hosting contract. Consulting services sold in
conjunction with arrangements that include licenses and hosting services are recognized ratably over the duration of the hosting term.
Research and Development
Research and development expenditures are charged to operations as incurred. Statement of Financial Accounting Standards
No. 86, “Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed,” requires the capitalization of
certain software development costs subsequent to the establishment of technological feasibility. Based on SupportSoft’s product
development process, technological feasibility is established upon the completion of a working model. Costs incurred by SupportSoft
between the completion of the working model and the point at which the product is ready for general release have been insignificant.
Accordingly, SupportSoft has charged all such costs to research and development expense in the accompanying statements of
operations. SupportSoft did not incur any cost related to software developed or for software obtained for internal use as defined in
SOP 98-1.
Sales Commissions
Sales commissions are the incremental costs that are directly associated with non-cancelable contracts with customers and
consist of commissions paid to the Company’s sales personnel. If the customer contract is a perpetual license, the commission
expense attributable to the license fees are recorded in the month license revenue is recognized. For term licenses and other ratable
license arrangements, sales commissions are deferred and amortized over the non-cancelable terms of the related customer
contracts, which are typically 12 to
60
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
36 months. The sales commissions are paid in the month following the time an order is consummated or when customer payment is
received. The deferred commission amounts are recoverable through the future revenue streams under the non-cancelable customer
contracts. Commissions payments made to sales personnel are non-refundable unless amounts due from a customer are determined
to be uncollectible in which case commissions paid are generally recoverable by the Company.
Advertising Costs
Advertising costs are recorded as sales and marketing expense in the period in which they are incurred. Advertising expense
was $2.0 million, $3.4 million, and $725,000 for the years ended December 31, 2008, 2007, and 2006, respectively.
Net Loss Per Share
Basic net loss per share is computed using the Company’s net loss and the weighted average number of common shares
outstanding during the reporting period. Diluted net loss per share is computed using the Company’s net loss and the weighted
average number of common shares outstanding, including the effect from the potential issuance of common stock such as stock
issuable pursuant to the exercise of stock options using the treasury stock method when dilutive.
The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share amounts):
Net loss
Basic:
Weighted-average shares of common stock outstanding
Shares used in computing basic net income per share
Basic net loss per share
Diluted:
Weighted-average shares of common stock outstanding
Add: Common equivalent shares outstanding
Shares used in computing diluted net income per share
Diluted net loss per share
Year Ended December 31,
2007
$(21,369)
2008
$(19,106)
2006
$ (8,235)
46,098
45,610
44,113
46,098
45,610
44,113
$
(0.41)
$
(0.47)
$ (0.19)
46,098
—
45,610
—
44,113
—
46,098
45,610
44,113
$
(0.41)
$
(0.47)
$ (0.19)
For the years ended December 31, 2008, 2007 and 2006, 12.7 million, 7.7 million and 9.3 million outstanding options were
excluded from the computation of diluted net loss per share since their effect would have been anti-dilutive.
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss relate entirely to accumulated foreign currency translation losses
and unrealized losses on investments. Accumulated currency translation losses, net of tax effects, were $962,000 and $793,000 as of
December 31, 2008 and 2007, respectively, and accumulated unrealized gains (losses) on investments, net of tax effect, were ($1.6)
million and $21,000 as of December 31, 2008 and 2007, respectively.
61
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
Stock-Based Compensation
On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based Payment,” which requires the
measurement and recognition of compensation expense for all stock-based awards, including employee stock options and employee
stock purchases, made to employees and directors based on estimated fair values. Prior to January 1, 2006, the Company accounted
for stock-based payments to employees using the intrinsic value method under APB Opinion No. 25, as permitted by SFAS 123R,
and, as such, generally recognized no compensation cost for employee stock options or employee stock purchases in its financial
statements.
SupportSoft elected the modified prospective transition method for adopting SFAS 123R which required the application of the
accounting standard as of January 1, 2006, the first day of the Company’s 2006 fiscal year. Under this transition method,
compensation cost includes the applicable amounts of: (a) compensation cost for all stock-based payments granted prior to, but not
yet vested, as of December 31, 2005 based on the grant-date fair value estimated in accordance with the original provisions of
SFAS 123 and previously presented in the pro-forma footnote disclosures, and (b) compensation cost of all stock-based payments
granted subsequent to January 1, 2006 based on the grant-date fair value estimated in accordance with the new provisions of
SFAS 123R. Prior periods have not been restated to reflect the impact of SFAS 123R.
Determining Fair Value
Valuation and Attribution Method: SupportSoft estimates the fair value of stock options granted using the Black-Scholes-
Merton option pricing model. Stock options vest on a graded schedule; however the Company recognizes the expense on a straight-
line basis over the requisite service period of the entire award, net of estimated forfeitures and subject to the minimum expense
requirements of SFAS 123R. These limitations require that on any date the compensation cost recognized is at least equal to the
portion of the grant-date fair value of the award that is vested at that date.
Risk-free Interest Rate: The Company bases its risk-free interest rate upon the yield currently available on US Treasury zero
coupon issues for the expected term of the employee stock options.
Expected Term: The Company’s expected term represents the period that the Company’s stock options are expected to be
outstanding and is determined based on historical experience of similar stock options considering the contractual terms of the stock
options, vesting schedules and expectations of future employee behavior.
Expected Volatility: The Company’s expected volatility represents the amount by which the stock price is expected to fluctuate
throughout the period that the stock option is outstanding. The Company bases its expected volatility on historical data.
Estimated Forfeitures: SFAS 123R requires that the stock option expense recognized be based on awards that are ultimately
expected to vest, and therefore a forfeiture rate should be applied at the time of grant and revised, if necessary, in subsequent
periods when actual forfeitures differ from those estimates. Prior to January 1, 2006, the Company accounted for forfeitures only as
they occurred. Commencing in 2006, the Company has estimated its forfeitures based on historical experience.
Expected Dividend: The Company uses a dividend yield of zero, as it has never paid cash dividends and does not expect to
pay dividends in the future.
62
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
The fair value of the Company’s stock-based awards was estimated using the following assumptions for the years ended
December 31, 2008, 2007 and 2006:
2008
Stock Option Plan
2007
2006
2008
2007
2006
Employee Stock Purchase Plan
Risk-free interest rate
Expected term (in years)
Volatility
Estimated forfeitures
Expected dividend
Weighted average fair value
2.0%
4.3
53.2%
14.0%
0%
4.1%
4.0
51.3%
8.4%
0%
4.8%
3.9
53.5%
8.0%
0%
1.5%
0.5
53.1%
8.0%
0%
$ 1.33
$ 2.14
$ 2.01
$ 1.08
$
4.7%
4.7%
0.5 to 2.0
0.5 to 2.0
54.1%
8.0%
0%
1.66
$
54.1%
8.0%
0%
1.66
The Company recorded the following stock-based compensation expense for the fiscal years ended December 31, 2008, 2007
and 2006, (in thousands).
Stock option compensation expense recognized in:
Cost of services
Cost of maintenance
Cost of consumer
Research and development
Sales and marketing
General and administrative
ESPP compensation expense recognized in:
Cost of services
Cost of maintenance
Cost of consumer
Research and development
Sales and marketing
General and administrative
For the Year Ended
December 31,
2008
2007
2006
$ 646
77
92
559
1,812
1,772
$ 717
76
—
484
1,838
1,688
$ 256
36
—
316
774
1,572
4,958
4,803
2,954
19
5
25
25
28
18
40
4
—
25
48
23
80
7
—
106
125
66
120
140
384
Stock-based compensation expense included in total costs and expenses
$5,078
$4,943
$3,338
Net cash proceeds from the exercise of stock options were $0.1 million, $4.3 million and $2.6 million for the years ended
December 31, 2008, 2007 and 2006, respectively. No income tax benefit was realized from stock option exercises during the year
ended December 31, 2008. In accordance with SFAS 123R, we present excess tax benefits from the exercise of stock options, if any,
as net cash generated in financing activities.
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
63
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
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.
Warranties and Indemnifications
In the Company’s Consumer segment, the direct-to-consumer channel generally provides a five-day warranty period during
which refunds may be granted. With partner, the warranty period may vary across channels, and in some channels the Company’s
partner bears the cost of refunds. Refunds in this segment have not been material to date.
In the Company’s Enterprise segment, the Company generally provides a warranty for its software products and services to its
customers and accounts for its warranties under the FASB’s SFAS No. 5, “Accounting for Contingencies.” Our standard warranty
period is 90 days, but warranty periods can sometimes be longer and vary from customer to customer. In the event there is a breach
of such warranties, SupportSoft generally is obligated to correct the product or service to conform to the warranty provision or, if
SupportSoft is unable to do so, the customer is entitled to seek a refund of the purchase price of the product or service. In certain
contracts a material breach of warranty may involve penalties payable to the customer. SupportSoft did not provide for a warranty
accrual as of December 31, 2008 and 2007. To date, SupportSoft’s product warranty expense has not been significant.
The Company generally agrees to indemnify its customers against legal claims that its software products infringe certain third-
party intellectual property rights and accounts for its indemnification obligations under SFAS No. 5. To date, SupportSoft has not been
required to make any payment resulting from infringement claims asserted against our customers and has not recorded any related
accruals.
Fair Value Measurements
Effective January 1, 2008, SupportSoft adopted SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 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 SFAS No. 157 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 under SFAS No. 157 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.
64
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
In accordance with SFAS No. 157, the following table represents our fair value hierarchy for our financial assets (cash
equivalents and investments) and the UBS put contract measured at fair value on a recurring basis as of December 31, 2008 (in
thousands):
Money market funds
Commercial paper
Corporate bonds
Auction-rate securities
Auction-rate securities put option
Level 1
$55,058
—
—
—
—
Level 2
$ —
7,781
2,999
—
—
$
Level 3
—
—
—
15,766
7,148
Total
$55,058
7,781
2,999
15,766
7,148
Level 3 assets consist of auction-rate debt securities with various state student loan authorities and the auction-rate securities
put option. Beginning in February 2008 and through March 2009, all auctions for these securities have failed. Based on the continued
failure of these auctions and the underlying maturities of the securities, we have classified auction-rate securities as long-term assets
on our 2008 balance sheet. The fair value of the auction-rate securities and the related put option as of December 31, 2008 was
estimated by management. The following table provides a summary of changes in fair value of our Level 3 financial assets as of
December 31, 2008 (in thousands):
Beginning balance
Transfer into Level 3
Sales
Auction rate securities put option
Total gains/(losses):
Included in earnings
Included in other comprehensive income
Ending balance
Recent Accounting Pronouncements
Twelve Months Ended
December 31, 2008
Auction-Rate
Securities
—
$
25,300
(800)
—
(7,148)
(1,586)
Auction Rate Security
Put Option
$
—
—
—
7,148
—
$ 15,766
$
7,148
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations.” SFAS No. 141R will significantly
change the accounting for business combinations in a number of areas, including the measurement of assets and liabilities acquired
and the treatment of contingent consideration, contingencies, acquisition costs, in-process research and development and
restructuring costs. In addition, under SFAS No. 141R, changes in deferred tax asset valuation allowances and acquired income tax
uncertainties in a business combination after the measurement period will affect the income tax provision. SFAS No. 141R is
effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period
beginning after December 15, 2008, which means that it will be effective for our fiscal year beginning January 1, 2009. Early adoption
is prohibited. SFAS 141R will impact the accounting for any acquisitions completed subsequent to December 31, 2008.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” which
establishes accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of
a subsidiary. SFAS No. 160 is effective for business arrangements entered into in fiscal years beginning on or after December 15,
2008, which means that it will be effective for our
65
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
fiscal year beginning January 1, 2009. Early adoption is prohibited. While the Company is currently evaluating the impact of adopting
SFAS No. 160 on its Consolidated Financial Statements, it does not expect the adoption of SFAS No. 160 to have a significant impact
on its financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures About Derivative Instruments and Hedging Activities.” SFAS
No. 161 is intended to enhance the current disclosure framework in FASB Statement 133, “Accounting for Derivative Instrument and
Hedging Activities.” SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities. SFAB No. 161 is
effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application
encouraged. While the Company is currently evaluating the impact of adopting SFAS No. 161 on its Consolidated Financial
Statements, it does not expect the adoption of SFAS No. 161 to have a significant impact on its financial statements.
In October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for
That Asset Is Not Active.” This FSP clarifies the application of SFAS 157 in a market that is not active and provides an example to
illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. In
particular, it provides additional guidance on (a) how the reporting entity’s own assumptions (that is, expected cash flows and
appropriately risk-adjusted discount rates) should be considered when measuring fair value when relevant observable inputs do not
exist, (b) how available observable inputs in a market that is not active should be considered when measuring fair value, and (c) how
the use of market quotes (for example, broker quotes or pricing services for the same or similar financial assets) should be
considered when assessing the relevance of observable and unobservable inputs available to measure fair value. This FSP is
effective upon issuance, including prior periods for which financial statements have not been issued. The Company evaluated the
impact of this FSP and concluded that its considerations in determining the fair value of its financial assets when the market for them
is not active are consistent with the FSP’s guidance.
Note 2. Segment Reporting
SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” establishes standards for the way in
which public companies disclose certain information about operating segments in their financial reports.
Prior to January 2008, we conducted our business in one segment. As such, segment results for fiscal years 2006 and 2007
would be impracticable to reconstruct because we were not organized by business unit nor were costs and expenses tracked by
business unit. In January 2008, we reorganized our Company and created two business segments, Enterprise and Consumer.
We began tracking profitability by segment and providing this information to our Board of Directors and our Chief Executive Officer.
Consistent with SFAS No. 131, we have defined two reportable segments, distinguished by: i) market characteristics; ii) the nature of
our products and services; iii) how we manage our operations; and iv) how our chief operating decision maker views results. We
define the chief operating decision maker as our Chief Executive Officer.
Revenue, cost of revenue and directly attributable expenses are provided on a segment basis, all other operating expenses are
incorporated under corporate costs.
Consumer Segment. In our Consumer segment, we provide premium technology support to consumers over the internet and
the phone for a fee. We offer incident-based and subscription services to consumers through retailers, anti-virus providers and other
companies who provide technology products and services to consumers. We also provide our services directly to consumers through
our website, www.support.com.
66
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
Enterprise Segment. Our Enterprise customers use our software to resolve technical problems for their customers and
employees. Digital service providers use our products to automate the installation, activation and verification of broadband services,
to reduce the cost and improve the quality of technical support, and to enable the remote management of devices located at their
customers’ premises. Corporate IT departments and IT outsourcing firms use our software to improve the cost-effectiveness and
efficiency of technical support for employees through our integrated portfolio of proactive service, self-service and assisted service
products.
Corporate. This category consists of common corporate expenses such as general and administrative expenses, interest
income, and other income or expenses, which are items that we do not allocate to our business segments.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies in
Note 1. We do not track assets and liabilities by reportable segment and therefore do not disclose total assets and liabilities by
reporting segment. There are no intersegment sales.
The following table shows our financial results by reportable segment for the year of 2008 (in thousands):
Revenue:
License
Maintenance
Services
Consumer
Total revenue
Segment operating costs and expenses
Amortization of intangible assets
Common corporate expenses
Restructuring and impairment charges
Stock-based compensation
Interest income & other, net
Income (loss) before income taxes
Enterprise
Consumer
Corporate
Consolidated
$ 11,813
15,881
14,365
—
42,059
(29,758)
(90)
—
(690)
(1,789)
—
$
—
—
—
6,811
6,811
(24,329)
(112)
—
(670)
(1,499)
—
$
$
—
—
—
—
—
—
—
(8,691)
(525)
(1,790)
2,506
11,813
15,881
14,365
6,811
48,870
(54,087)
(202)
(8,691)
(1,885)
(5,078)
2,506
$ 9,732
$(19,799)
$ (8,500)
$ (18,567)
Revenue from customers located outside the United States was approximately $11.2 million, $11.4 million, and $10.3 million for
the years ended December 31, 2008, 2007, and 2006, respectively.
Sales by the Company to customers in different geographic areas, expressed as a percentage of revenue, for the periods
ended were as follows:
Americas
Asia Pacific
Europe
Total
67
Year Ended
December 31,
2007
78%
3
19
2008
78%
2
20
2006
78%
1
21
100%
100%
100%
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
Sales by the Company to customers that exceeded by 10% of our total revenue, expressed as a percentage of total revenue, in
each of the years ended December 31, 2008 and 2007 were:
Customer A (Consumer segment)
Customer C (Enterprise segment)
Year Ended
December 31,
2008
11%
13%
2007
—
18%
No single customer represented greater than 10% of total revenue for the year ended December 31, 2006.
Note 3. Business Combination
On May 2, 2008, we acquired all of the stock of YourTechOnline.com (YTO) (the “Acquisition”), a provider of remote technology
services based in Kelowna, British Columbia. YTO’s service delivery methodology involves technical support agents who view and
control a computer screen remotely. We acquired YTO to bolster our remote service delivery capabilities utilizing work-from-home
agents.
When we acquired the business, we engaged an independent third-party appraisal firm to assist in determining the fair values of
assets acquired and liabilities assumed. Such a valuation requires management to make significant estimates, especially with respect
to intangible assets. These estimates are based on historical experience and information obtained from the management of the
acquired company. The total purchase price was approximately $2.8 million, including cash consideration of $2.7 million and direct
transaction costs of $0.1 million. Of the cash paid at closing, approximately $0.5 million was held in an escrow account for specified
indemnity obligations. The purchase price for YTO exceeded the fair value of YTO net tangible and intangible assets acquired. As a
result, we have recorded goodwill in connection with this transaction in accordance with SFAS No. 142.
The operating results of YTO are included in our accompanying consolidated statements of operations from May 2, 2008, the
date of the Acquisition.
To get the full benefits of YTO’s service delivery methodology, we deemed it important to retain certain key YTO employees in
our Consumer business segment. These key employees signed non-compete agreements restricting their ability to attain competing
employment outside SupportSoft for two years after the Acquisition. In addition, we placed value on YTO’s referral partner
relationships and existing customer relationships.
The tangible and identifiable intangible assets and liabilities acquired is summarized as follows. The financial information
presented includes purchase accounting adjustments to the tangible and intangible assets:
Cash
Accounts receivable, net
Accrued liabilities
Net liabilities assumed
Identifiable intangible assets:
Non-compete agreements
Referral partner relationships
Customer relationships
Goodwill
Total estimated purchase price
68
Amortization
Period
18 months
3 years
3 years
Amount
(in thousands)
48
$
45
(401)
(308)
224
25
31
2,854
2,826
$
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
Note 4. Property and Equipment
Property and equipment are stated at cost and consist of the following (in thousands):
Computer equipment and software
Furniture and office equipment
Leasehold improvements
Accumulated depreciation
December 31,
2008
$ 4,310
946
1,112
6,368
(5,093)
$ 1,275
2007
$ 4,110
897
1,172
6,179
(4,093)
$ 2,086
Depreciation expense was $1.2 million, $1.3 million, and $988,000, for the years ended December 31, 2008, 2007, and 2006,
respectively.
Note 5. Intangible assets
Amortization expense related to intangible assets was $202,000 in 2008, including amortization from the Core Networks
acquisition of $90,000 and expenses from the YTO acquisition of $112,000 and $1.1 million in each of the years ended December 31,
2007, and 2006. Effective December 31, 2007, we ceased actively selling certain products we had previously acquired from Core
Networks in 2004. In connection with this action and a re-evaluation of all of the Core Network intangible assets, we recognized an
impairment loss of approximately $1.7 million in the fourth quarter of 2007. An impairment loss was recognized because the sum of
the discounted future net cash flows expected to result from the use of the assets was less than the carrying amounts. Such
impairment loss was measured as the difference between the carrying amounts of the assets and their fair value. After recognition of
the impairment loss, the intangible asset at December 31, 2007 was $90,000 and had a remaining useful life of 9 months.
In December 2006, the Company acquired the use of a toll-free telephone number for cash consideration of $250,000. This
asset has 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.
The following table summarizes the components of intangible assets (in thousands):
Amortizable intangible assets
Accumulated amortization
Indefinite-life intangible assets
Total intangible assets, net
69
As of
December 31,
2008
$ 369
(202)
250
$ 417
2007
$ 90
—
250
$340
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
The estimated future amortization expense of intangible assets, with the exception of the indefinite-life intangible assets as of
December 31, 2008 is as follows (in thousands):
Fiscal Year
2009
2010
2011
Total
Amount
$ 143
18
6
$ 167
The following table summarizes the components of purchased technology as of December 31, 2008 The Company did not
acquire any purchased technology in 2007. (in thousands):
Purchased technology
Accumulated amortization
Total purchased technology, net
Note 6. Commitments and Contingencies
As of
December 31,
2008
$
$
1,375
(57)
1,318
Headquarters office lease. In November 2006, the Company entered into a noncancelable lease agreement for its new
headquarters office facility located in Redwood City, California. The lease commenced on January 1, 2007 and ends on July 31,
2012. The annual fixed rents are $783,000, $783,000, $805,000 and $483,000 for the years ended 2009, 2010, 2011 and 2012,
respectively, as long as the Company is not in default under the term of the lease. In addition to base rent, commencing on the first
anniversary of the lease and for each year thereafter, the Company will pay as additional rent, with an amount equal to its
proportionate share, or 27% initially, of the amount exceeding the landlord’s operating expenses incurred in calendar 2007. The
Company issued an unsecured irrevocable standby letter of credit of $400,000 to the landlord as a security deposit under the lease. If
the Company is not then in default under the lease, the deposit amount may be reduced to $300,000 on February 1, 2009, $200,000
on February 1, 2010, and $100,000 on February 1, 2011.
Other facility leases. The Company leases its facilities under noncancelable operating lease agreements, which expire at
various dates through 2012.
Total facility rent expense pursuant to all operating lease agreements was approximately $1.8 million, $2.1 million, and
$1.5 million for the years ended December 31, 2008, 2007, and 2006, respectively.
As of December 31, 2008, minimum payments due under all noncancelable lease agreements (including for offices that have
been impaired) were as follows (in thousands):
Years ending December 31,
2009
2010
2011
2012
Total minimum lease and principal payments
70
Operating
Leases
$ 1,624
1,564
1,042
496
$ 4,726
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
Tax contingencies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
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. During the fourth quarter of 2008, our India entity
was issued a notice of income tax assessment pertaining to the 2005-2006 fiscal year. The Notice claimed that the transfer price used
in our inter-company agreements with our India entity was too low, and that the rate should be increased. After benchmarking our
transfer pricing level against 16 comparable companies, we believe our current transfer pricing position is more likely than not of
being sustained. We believe that this will be resolved through the normal judicial appeal process used in India, and have submitted
our case to the court.
We may be subject to other income tax assessments in the future. We evaluate estimated losses that could arise from those
assessments in accordance with Financial Accounting Standards Interpretation, FIN No. 48, “Accounting for Uncertainty in Income
Taxes—an Interpretation of FASB Statement No. 109.” We consider such factors as the degree of probability of an unfavorable
outcome and the ability to make a reasonable estimate of the amount of loss. We record the estimated liability amount for those
assessments that we consider to be more likely than not in our balance sheet.
Legal contingencies
In November 2001, a class action lawsuit was filed against us, two of our former officers, and certain underwriters in the United
States District Court for the Southern District of New York. Similar complaints have been filed against 55 underwriters and more than
300 other companies and other individual officers and directors of those companies; the consolidated case is In re Initial Public
Offering Securities Litigation, No. 21 MC 92 (SAS) (S.D.N.Y.). The lawsuit alleged that our registration statement and prospectus
dated July 18, 2000 for the issuance and initial public offering of 4,250,000 shares of our common stock contained material
misrepresentations and/or omissions related to alleged inflated commissions received by the underwriters of the offering. The lawsuit
seeks unspecified damages as well as interest, fees and costs. Plaintiffs have commenced with discovery as to underwriters and
issuers, although principally with respect to focus or test cases that do not name us as a defendant. While we cannot predict with
certainty the outcome of the litigation, we believe we and our officers have meritorious defenses to the claims in the litigation.
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, and either unfavorable or favorable 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 7. Restructuring Obligations and Other Charges
In 2008, the Company reduced its workforce by 33 employees, or approximately 10% of its non-technical support agent
workforce at that time, and closed certain facilities worldwide. As a result, the Company recorded a restructuring and impairment
charge of $1.9 million in 2008. All of the affected employees were terminated as of December 31, 2008. Restructuring and impairment
expenses included in the Consolidated Statements of Operations were $212,000 for cost of services, $5,000 for cost of Consumer,
$137,000 for research and development, $1.0 million for sales and marketing and $525,000 for general and administration. Cash
payments
71
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
of $600,000 were made against those obligations in 2008. We expect to pay $1.0 million of the remaining balance in the first quarter
of 2009, and to pay the remaining balance of $0.3 million through the second quarter of 2010.
In 2007, the Company reduced its workforce by 41 employees, or approximately 12% of its workforce at that time. As a result,
the Company recorded a restructuring charge of $1.2 million in 2007. The restructuring charge was primarily comprised of severance
costs and other personnel-related termination costs. Restructuring expenses included in the Consolidated Statements of Operations
were $82,000 for cost of maintenance, $240,000 for cost of services, $160,000 for research and development, $679,000 for sales and
marketing and $28,000 for general and administrative. Cash payments of $741,000 were made against those obligations in 2007. The
remaining balance of $577,000 was paid in 2008.
In 2006, the Company reduced its workforce by 25 employees, or approximately 10% of its workforce at that time. As a result,
the Company recorded a restructuring charge of $817,000 in 2006. The restructuring charge was comprised of severance costs and
other personnel-related termination costs. Restructuring expenses included in the Consolidated Statements of Operations were
$33,000 for cost of maintenance, $163,000 for cost of services, $40,000 for research and development, $386,000 for sales and
marketing and $195,000 for general and administrative. Cash payments of $689,000 were made against those obligations in 2006.
The remaining balance of $128,000 was paid in 2007.
The following table summarizes activity associated with the restructuring and related expenses incurred for the years ended
December 31, 2008, 2007 and 2006 (in thousands):
Restructuring costs incurred in 2005
Cash payments
Restructuring obligations, December 31, 2005
Restructuring costs incurred in 2006
Cash payments
Restructuring obligations, December 31, 2006
Restructuring costs incurred in 2007
Cash payments
Restructuring obligations, December 31, 2007
Restructuring costs incurred in 2008
Cash payments
Non-cash charges
Severance (1)
456
$
(346)
Facilities (2)
189
$
(34)
Impairment (3)
—
$
—
$
$
$
$
110
817
(799)
128
1,179
(731)
576
1,432
(1,043)
—
155
—
(155)
—
11
(10)
1
360
(29)
—
332
—
—
—
—
—
—
—
105
—
(105)
—
$
$
$
Total
645
(380)
265
817
(954)
$
128
1,190
(741)
577
1,897
(1,072)
(105)
$ 1,297
Restructuring obligations, December 31, 2008
$
965
$
(1) Severance costs include those expenses related to severance pay and related employee benefit obligations.
(2) Facilities costs include obligations under non-cancelable leases for facilities that we will no longer occupy, as well as penalties
associated with early terminations of leases and disposal of fixed assets. The related leases are short term in nature expiring in
less than one year. No sublease income has been included.
(3) As part of the 2008 restructuring costs included in the table above, the Company wrote-off $0.1 million in leasehold
improvements related to the facilities that it will no longer occupy. This is a non-cash charge.
72
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
Note 8. Stockholders’ Equity
Common Stock
On April 27, 2005, the Company’s board of directors authorized the repurchase of up to 2,000,000 outstanding shares of the
Company’s common stock. As of December 31, 2008, the maximum number of shares remaining that can be repurchased under this
program was 1,807,402.
Stock Option Plans
SupportSoft has adopted the 1998 Stock Option Plan (the “Plan”). Under this Plan, up to 9,424,434 shares of SupportSoft’s
common stock may be granted as options or sold to eligible participants. Under the Plan, options to purchase common stock may be
granted at no less than 85% of the fair value on the date of the grant (110% of fair value in certain instances), as determined by the
Board of Directors. Options under the Plan can be immediately exercisable at the Board of Directors’ discretion; however, shares
issued are subject to SupportSoft’s right to repurchase such shares at the original issuance price, which lapses in a series of
installments measured from the vesting commencement date of the option.
SupportSoft has also adopted the 2000 Omnibus Equity Incentive Plan (the “2000 Incentive Plan”). A total of 4,000,000 shares
of common stock were initially reserved for issuance to eligible participants under the 2000 Incentive Plan. On January 1 of each year,
the number of shares reserved may be increased by the lesser of 2,000,000 shares, 5% of outstanding shares, or an amount
determined by the board of directors. On January 1, 2008, the shares reserved under the 2000 Incentive Plan were increased by
2,000,000 shares.
Under both of SupportSoft’s option plans, options generally vest over a 48-month period from the date of grant and have a
maximum term of 10 years. In the fourth quarter of 2005, SupportSoft began issuing only non-statutory options with a contractual term
of 7 years.
As of December 31, 2008, options to purchase approximately 13.6 million shares were outstanding and an aggregate of
3,992,103 million shares remain available for grant under both of these stock option plans.
73
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
The following table represents stock option activity for the years ended December 31, 2006, 2007, and 2008:
Outstanding options at December 31, 2005
Granted
Exercised
Forfeited
Outstanding options at December 31, 2006
Granted
Exercised
Forfeited
Outstanding options at December 31, 2007
Granted
Exercised
Forfeited
Outstanding options at December 31, 2008
Options vested and expected to vest
Exercisable at December 31, 2008
Number of
Shares
10,124,138
7,102,965
(807,967)
(2,838,262)
13,580,874
3,291,254
(1,292,953)
(2,840,410)
12,738,765
4,100,988
(2,333)
(3,201,840)
13,635,580
13,562,822
7,114,863
Weighted
Average
Exercise
Price
$ 6.46
$ 4.44
$ 4.71
$ 7.64
$ 5.33
$ 4.89
$ 3.33
$ 7.36
$ 4.98
$ 3.02
$ 0.10
$ 4.88
$ 4.41
$ 4.42
$ 5.07
Weighted
Average
Remaining
Contractual
Term
7.37
Aggregate
Intrinsic
Value
(in ‘000’s)
$ 3,573
6.44
$13,048
5.82
$ 3,377
4.54
4.51
3.66
$
$
$
243
242
207
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 December 31, 2008, 2007, and 2006. This amount will change based on the fair
market value of the Company’s stock. The total aggregate intrinsic value of options exercised under the Company’s stock options
plans was $8,000 for the year ended December 31, 2008. The total fair value of options vested is $4.9 million as of December 31,
2008.
At December 31, 2008, there was $14.4 million of unrecognized compensation cost related to existing options outstanding which
is expected to be recognized over a weighted average period of 2.8 years.
Employee Stock Purchase Plan
SupportSoft has approved the 2000 Employee Stock Purchase Plan (the “2000 Purchase Plan”). A total of 2,000,000 shares of
common stock were initially reserved for issuance under the 2000 Purchase Plan. On January 1 of each year, the number of shares
reserved may be increased by the lesser of 2,000,000 shares, 3% of the outstanding shares, or an amount determined by the Board
of Directors. In 2008, the Board of Directors elected to have zero shares added to the 2000 Purchase Plan. The 2000 Purchase Plan
permits eligible employees to acquire shares of SupportSoft’s common stock through periodic payroll deductions of up to 15% of total
compensation. Purchases occur on the last day of each January and July following the end of each six-month purchase period. The
price at which the common stock may be purchased is 85% of the lesser of the fair market value of SupportSoft’s common stock at the
beginning of the applicable offering period or the end of the applicable purchase period. Beginning August 1, 2006, the offering period
for all new participants in the 2000 Purchase Plan was reduced to six months. Prior to August 1, 2006, all participants were enrolled
in offering periods which could last up to 24 months and contained up to four separate purchase periods.
74
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
For the years ended December 31, 2008, 2007 and 2006, there were 127,301, 131,436 and 152,678 shares, respectively,
issued through the Purchase Plan. As of December 31, 2008, we had 1,649,427 shares of common stock reserved for future
issuance under the 2000 Purchase Plan should employees purchase them.
Note 9. Income Taxes
The components of our income (loss) before income taxes are as follows (in thousands):
United States
Foreign
Total
The provision for income taxes consisted of the following (in thousands):
Current:
Federal
State
Foreign
Total current
Deferred:
Foreign
2008
$(19,324)
757
Years Ended December 31,
2007
$(22,143)
1,445
2006
$(9,514)
1,766
$(18,567)
$(20,698)
$(7,748)
2008
Years Ended December 31,
2007
2006
$
(19)
174
574
729
$ —
15
592
607
(190)
64
$ —
—
395
395
92
Total provision for income taxes
$
539
$
671
$
487
The reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate is as follows (in
thousands):
2008
$(6,498)
113
50
192
6,566
116
Years Ended December 31,
2007
$(7,243)
10
46
46
7,662
150
2006
$(2,712)
—
35
(4)
3,089
79
$
539
$
671
$
487
75
Provision at federal statutory rate
State taxes
Permanent differences/other
Stock-based compensation
Federal valuation allowance (utilized)/provided
Foreign rate differential
Provision for income taxes
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
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 the Company’s deferred
tax assets and liabilities are as follows (in thousands):
Deferred tax assets:
Accruals and reserves
Capitalized research and development
Deferred revenue
Net operating loss carryforwards
Research and development tax credits
Capitalized research and development
Intangible assets
Fixed assets
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Intangible assets
Total deferred tax liabilities
Net deferred tax liabilities
December 31,
2008
2007
$ 5,313
3
625
31,057
4,270
24
2,860
258
44,410
(43,923)
487
(595)
(595)
(108)
$
$ 3,369
4
232
24,904
4,147
37
3,225
338
36,256
(36,005)
251
(501)
(501)
(250)
$
The Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 109, “Accounting for Income
Taxes,” provides for the recognition of deferred tax assets if realization of such assets is more likely than not to occur. Based upon
the weight of available evidence, which includes its historical operating performance, reported cumulative net losses since inception
and difficulty in accurately forecasting its results, the Company provided a full valuation allowance against its net deferred tax assets.
The Company reassesses the need for its valuation allowance on a quarterly basis.
The net valuation allowance increased by approximately $7.8 million, and $8.6 million, during the years ended December 31,
2008, and 2007, respectively.
As of December 31, 2008, the Company had federal and state net operating loss carryforwards of approximately $81.1 million
and $57.7 million, respectively. The Company also had federal and state research and development credit carryforwards of
approximately $2.4 million and $2.5 million, respectively. The federal net operating loss and credit carryforwards will expire at various
dates beginning in 2018 through 2028, if not utilized. The state net operating loss carryforwards will expire at various dates beginning
in 2009 through 2028, if not utilized. 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 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.
The Company’s India-based subsidiary was granted a tax holiday related to its research and development activities. The tax
holiday has been extended and it expires in March 2010. The tax holiday had an immaterial impact on our 2008 results of operations.
76
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
Cumulative unremitted foreign earnings that are considered to be indefinitely reinvested outside the United States, and on which
no U.S. taxes have been accrued, were approximately $4.3 million at December 31, 2008. If such earnings were distributed, the
Company would not accrue any additional taxes due to the full valuation allowance against its deferred tax assets.
In fiscal year 2007, we adopted Financial Accounting Standards Interpretation, or FIN No.48, “Accounting for Uncertainty in
Income Taxes—an Interpretation of FASB Statement No.109,” which prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in our income tax
return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure,
and transition. FIN No. 48 utilizes a two-step approach for evaluating uncertain tax positions accounted for in accordance with SFAS
No. 109, “Accounting for Income Taxes. Step one, Recognition, requires us to determine if the weight of available evidence indicates
that a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if
any. Step two, Measurement, is based on the largest amount of benefit, which is more likely than not to be realized on ultimate
settlement. The cumulative effect of adopting FIN No. 48 on January 1, 2007 is recognized as a change in accounting principle,
recorded as an adjustment to the opening balance of retained earnings on the adoption date.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Balance at December 31, 2007
Additions based on tax positions related to the current year
Reductions resulting from lapse of a statue of limitations
Settlements
Balance at December 31, 2007
$2,005
369
(13)
—
$2,361
The Company’s total amounts of unrecognized tax benefits that, if recognized, would affect its effective tax rate is $422,000 and
$744000 as of December 31, 2007 and December 31, 2008, respectively.
Upon adoption of FIN 48, the Company’s policy to include interest and penalties related to unrecognized tax benefits within the
Company’s provision for (benefit from) income taxes did not change. The Company had $40,000 and $58,000 accrued for payment of
interest and penalties related to unrecognized tax benefit as of December 1, 2007 and December 31, 2008, respectively. The
Company recognized $18,000 of interest and penalties related to unrecognized tax benefits income taxes during the year ended
December 31, 2008.
As of December 31, 2008, the amount of recognized tax benefit where it is reasonably possible that a significant change may
occur in the next 12 months is approximately $59,000. The change would result from expiration of a statute of limitations in a foreign
jurisdiction.
The tax years 1997 to 2008 remain open in several jurisdictions, none of which has individual significance.
77
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
Note 10. Quarterly Financial Information (Unaudited)
Selected quarterly financial information for 2008 and 2007 is as follows:
Statements of Operations Data:
License
Maintenance
Services
Consumer
Total revenue
Cost of license
Cost of maintenance
Cost of services
Cost of consumer
Amortization/write-down of intangible assets
Research and development
Sales and marketing
General and administrative
Loss from operations
Net loss
Basic net loss per share
Diluted net loss per share
Statements of Operations Data:
License
Maintenance
Services
Consumer
Total revenue
Cost of license
Cost of maintenance
Cost of services
Cost of consumer
Amortization of intangible assets
Research and development
Sales and marketing
General and administrative
Loss from operations
Net loss
Basic net loss per share
Diluted net loss per share
Mar. 31,
2008
Fiscal Year 2008 Quarter Ended
June 30,
2008
Sept. 30,
2008
(in thousands, except per share data)
$ 2,974
4,002
3,949
703
11,628
51
549
3,753
1,240
30
2,235
6,386
2,356
(4,972)
(3,631)
$ (0.08)
$ (0.08)
Mar. 31,
2007
$ 3,248
3,923
3,094
161
10,426
38
638
3,660
859
272
2,271
7,406
2,542
(7,260)
(5,622)
$ (0.13)
$ (0.13)
$ 2,897
3,895
3,934
891
11,617
92
465
3,496
1,871
58
2,184
5,710
2,725
(4,984)
(4,347)
$ (0.09)
$ (0.09)
$ 2,861
3,987
3,822
2,110
12,780
60
473
3,424
2,582
71
2,231
5,639
2,614
(4,314)
(4,340)
$ (0.09)
$ (0.09)
Fiscal Year 2007 Quarter Ended
June 30,
2007
Sept. 30,
2007
(in thousands, except per share data)
$ 5,891
3,910
3,370
262
13,433
52
661
4,174
1,017
272
2,434
8,623
2,519
(6,319)
(4,919)
$ (0.11)
$ (0.11)
$ 2,586
4,201
4,258
278
11,323
52
630
3,891
1,420
272
2,366
6,909
2,229
(6,446)
(5,022)
$ (0.11)
$ (0.11)
Dec. 31,
2008
$ 3,081
3,997
2,660
3,107
12,845
134
443
2,979
3,922
43
2,246
6,570
3,311
(6,803)
(6,788)
$ (0.15)
$ (0.15)
Dec. 31,
2007
$ 4,055
4,050
4,166
349
12,620
76
657
4,052
1,312
1,999
2,370
7,275
2,078
(7,199)
(5,806)
$ (0.13)
$ (0.13)
78
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
Note 11. Subsequent Event
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SUPPORTSOFT, INC.
In addition to the restructuring and impairment costs described in Note 7, as a result of the challenging global economic
environment, we announced a restructuring and impairment plan in February 2009. We expect the incremental restructuring and
impairment-related costs for the first quarter of 2009 to be approximately $900,000, including charges for both reductions in workforce
and impairment of facilities. As part of this restructuring we reduced our workforce by approximately 6% of our non-technical support
agent headcount, and closed additional facilities. All the related charges will be recorded in the first quarter of 2009. We expect to pay
out approximately $500,000 of these charges in the first quarter of 2009, and to pay the remaining balance through 2011.
79
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.
None.
ITEM 9A.
CONTROLS AND PROCEDURES.
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 are 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 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. Based upon an
evaluation of the effectiveness of disclosure controls and procedures, our Chief Executive Officer (CEO) and Chief Financial Officer
(CFO) have concluded that as of the end of the period covered by this Annual Report on Form 10-K our disclosure controls and
procedures as defined under Exchange Act Rules 13a-15(e) and 15d-15(e) were effective to provide reasonable assurance that
information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time
periods specified by the Securities and Exchange Commission and is accumulated and communicated to management, including the
CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the fourth quarter of 2008 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Report of Management on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Exchange Act Rules 13a-15(f). Our internal control system is designed to provide reasonable assurance to our
management and Board of Directors regarding the preparation and fair presentation of published financial statements. All internal
control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement preparation and presentation.
Under the supervision and with the participation of our management, including our chief executive officer and chief financial
officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As part
of this evaluation, management established an internal control project team, engaged outside consultants and adopted a project work
plan to document and assess the adequacy of our internal control over financial reporting, address any control deficiencies that were
identified, and to validate through testing that the controls are functioning as documented. Based on the results of
80
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
this evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31,
2008 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external reporting purposes in accordance with generally accepted accounting principles. We reviewed the results of management’s
assessment with the Audit Committee of SupportSoft’s Board of Directors.
The effectiveness of our internal control over financial report as of December 31, 2008 has been audited by Ernst & Young LLP,
an independent registered public accounting firm, as stated in their report, which is included herein.
/s/ JOSHUA PICKUS
Joshua Pickus
Chief Executive Officer and President
/s/ SHELLY SCHAFFER
Shelly Schaffer
Chief Financial Officer and
Senior Vice President of Finance and Administration
81
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
Report of Independent Registered Public Accounting Firm
on Internal Control over Financial Reporting
The Board of Directors and Stockholders of
SupportSoft, Inc.
We have audited SupportSoft Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). SupportSoft Inc.’s management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, SupportSoft, Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of SupportSoft, Inc. as of December 31, 2008 and 2007, and the related consolidated statements of
operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008, and our report
dated March 10, 2009, expressed an unqualified opinion thereon.
San Jose, California
March 10, 2009
/s/ Ernst & Young LLP
82
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
ITEM 9B.
OTHER INFORMATION.
None.
83
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by Item 10 of Form 10-K with respect to Item 401 of Regulation S-K regarding our directors is
incorporated herein by reference from the information contained in the section entitled “Directors and Nominees” in our definitive
Proxy Statement for the 2009 Annual Meeting of Stockholders (the “Proxy Statement”), a copy of which will be filed with the
Securities and Exchange Commission.
The information required by Item 10 of Form 10-K with respect to Item 405 of Regulation S-K regarding section 16(a) beneficial
ownership compliance is incorporated by reference from the information contained in the section entitled “Section 16(a) Beneficial
Ownership Compliance” in our Proxy Statement.
For information with respect to our executive officers, see “Executive Officers of the Registrant” at the end of Part I of this report.
We have adopted a Code of Ethics and Business Conduct for Employees, Officers and Directors which is applicable to all of our
directors, executive officers and employees, including our Chief Executive Officer and Chief Financial Officer (our principal executive
officer and principal financial and accounting officer, respectively). The Code of Ethics and Business Conduct for Employees, Officers
and Directors is available on our web site athttp://www.supportsoft.com/Company/ir_corporate_governance.html. A copy of the Code
of Ethics and Business Conduct for Employees, Officers and Directors will be provided without charge to any person who requests it
by writing to the address or telephoning the number indicated under “SEC Filings and other Available Information” on page 13. We
will disclose on our web site amendments to or waivers from our Code of Ethics and Business Conduct applicable to our directors or
executive officers, including our Chairman and Chief Executive Officer and our Chief Financial Officer, in accordance with all
applicable laws and regulations.
The information required by Item 10 of Form 10-K with respect to Items 407(c)(3), 407(d)(4) and 407(d)(5) of Regulation S-K is
incorporated by reference from the information contained in the sections entitled “Director Nominations,” “Corporate Governance” and
“Committees of the Board of Directors” in our Proxy Statement.
ITEM 11.
EXECUTIVE COMPENSATION.
The information required by Item 11 of Form 10-K is incorporated herein by reference from the information contained in the
sections entitled “Executive Compensation and Related Information,” “Director Compensation,” “Compensation Committee Report”
and “Compensation Committee Interlocks and Insider Participation” in our Proxy Statement.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
The information required by Item 12 of Form 10-K with respect to Item 403 of Regulation S-K regarding security ownership of
certain beneficial owners and management is incorporated herein by reference from the information contained in the section entitled
“Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement.
84
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
Securities Authorized for Issuance Under Equity Compensation Plans
Equity Compensation Plan Information
As of December 31, 2008
Number of securities
to be issued upon
exercise of
outstanding options,
warrants, and rights
(a)
13,635,580
—
13,635,580
Weighted-
average
exercise
price of
outstanding
options,
warrants,
and rights
(b)
$
$
4.41
—
4.41
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a))
(c)
3,992,103(2)
—
3,992,103(4)
Plan Category
Equity Compensation Plans approved by
security holders (1)
Equity Compensation Plans not approved
by security holders (3)
Total
(1)
Includes 1998 Stock Option Plan and 2000 Omnibus Equity Incentive Plan. Stock options, restricted stock, restricted stock units
or stock appreciation rights may be awarded under the 2000 Omnibus Equity Incentive Plan and 1998 Stock Option Plan.
(2) The number of shares reserved for issuance under the 2000 Omnibus Equity Incentive Plan (the “2000 Incentive Plan”) is
subject to an annual increase as follows:
The aggregate number of options, stock appreciate rights, stock units and restricted shares of common stock that may be
awarded under the 2000 Incentive Plan shall automatically increase each year by a number equal to the lesser of (i) 2,000,000
shares of common stock, (ii) 5% of the outstanding shares of common stock on December 31 of such year or (iii) a lesser
amount determined by our board of directors. The aggregate number of shares of common stock which may be issued under the
2000 Incentive Plan shall at all times be subject to adjustment as a result of stock splits, dividends payable in shares,
combinations or consolidations of outstanding stock, recapitalizations, mergers or reorganizations. The number of shares of
common stock which are subject to options or other rights outstanding at any time under the 2000 Incentive Plan shall not
exceed the number of shares which then remain available for issuance under the 2000 Incentive Plan. During the term of the
2000 Incentive Plan, we shall at all times reserve and keep available sufficient shares of common stock to satisfy the
requirements of the 2000 Incentive Plan.
(3) None.
(4) The amount does not include 1,649,427 shares available for purchase pursuant to our 2000 Employee Stock Purchase Plan.
Shares of common stock will be purchased at a price equal to 85% of the fair market value per share of common stock on either
the first day preceding the six-month offering period or the last date of the offering period, whichever is less. The number of
shares reserved for issuance shall automatically increase each year by a number equal to the lesser of (i) 2,000,000 shares,
(ii) 3% of the outstanding common stock on that date, or (iii) a lesser amount determined by our board of directors.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
The information required by Item 13 of Form 10-K is incorporated herein by reference from the information contained in the
sections entitled “Certain Relationships and Related Transactions,” “Compensation Committee Interlocks and Insider Participation”
and “Director Independence” in our Proxy Statement.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by Item 14 of Form 10-K is incorporated herein by reference from the information contained in the
sections entitled “Principal Accountant Fees and Services” and “Audit Committee Pre-Approval Policies and Procedures” in our Proxy
Statement.
85
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are filed as part of this report:
PART IV
(1)
Financial Statements—See Index to the Consolidated Financial Statements and Supplementary Data in Item 8 of
this report.
(2)
Financial Statement Schedules.
Schedule II—Valuation and qualifying accounts was omitted as the required disclosures are included in Note 1 to
the Consolidated Financial Statements.
All other schedules are omitted since the information required is not applicable or is shown in the Consolidated
Financial Statements or notes thereto.
(3)
Exhibits—See in Item 15(b) of this report.
(b) Exhibits.
Exhibit
Description of
Document
3.1
Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.1 of SupportSoft’s annual
report on Form 10-K for the year ended December 31, 2001).
3.2
Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 of SupportSoft’s annual report on Form 10-K
for the year ended December 31, 2001).
4.1
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 of SupportSoft’s quarterly report on
Form 10-Q for the quarter ended June 30, 2002).
4.2
Registration Rights Agreement, dated June 22, 1998, by and among the registrant and the parties who are signatories
thereto (incorporated by reference to Exhibit 4.2 of SupportSoft’s registration statement on Form S-1 (File No.
333-30674) filed on February 18, 2000).
10.1*
Registrant’s Amended and Restated 1998 Stock Option Plan (incorporated by reference to Exhibit 10.1 of Amendment
No. 1 to SupportSoft’s registration statement on Form S-1 (File No. 333-30674) filed on March 9, 2000).
10.2*
Registrant’s 2000 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.2 of Amendment No. 8 to
SupportSoft’s registration statement on Form S-1 (File No. 333-30674) filed on July 13, 2000).
10.3*
Registrant’s 2000 Amended and Restated Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 of
SupportSoft’s quarterly report on Form 10-Q filed on August 4, 2006.
10.4*
Form of Directors’ and Officers’ Indemnification Agreement (incorporated by reference to Exhibit 10.4 registration
statement on Form S-1 (File No. 333-30674) filed on February 18, 2000).
10.5*
Amended and Restated Employment Agreement, dated December 23, 2008, by and between the registrant and Josh
Pickus.
10.6*
10.7*
Amended and Restated Employment Agreement dated October 27, 2008, by and between registrant and Michael Sayer
(incorporated by reference to Exhibit 10.1 of SupportSoft’s current report on Form 8-K filed on October 29, 2008).
Employment Offer Letter dated as of January 29, 2008, as amended February 1, 2008, by and between the Registrant
and Shelly Schaffer (incorporated by reference to Exhibit 10.1 of SupportSoft’s current report on Form 8-K filed on
February 4, 2008).
86
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
Exhibit
Description of
Document
10.8*
Amended and Restated Employment Offer Letter dated as of October 6, 2008, by and between the Registrant and
Anthony Rodio.
10.9*
Amended and Restated Employment Offer Letter dated as of September 23, 2008, by and between the Registrant and
Richard Mandeberg.
10.10*
SupportSoft, Inc. Executive Incentive Compensation Incentive Plan (incorporated by reference to Exhibit 10.2 of
SupportSoft’s current report on Form 8-K filed on February 4, 2008).
10.11*
SupportSoft, Inc. Amended and Restated Executive Incentive Compensation Incentive Plan (incorporated by reference
to Exhibit 10.2 of SupportSoft’s current report on Form 8-K filed on August 1, 2008).
10.12*
SupportSoft, Inc. Amended and Restated Executive Incentive Compensation Incentive Plan (incorporated by reference
to Exhibit 10.2 of SupportSoft’s current report on Form 8-K filed on February 11, 2009).
10.13
Sublease Agreement with Nuance Communications, Inc. dated November 9, 2006 (incorporated by reference to
Exhibit 10.1 of SupportSoft’s current report on form 8-K filed on November 15, 2006).
21.1
Subsidiaries of SupportSoft, Inc.
23.1
Consent of Independent Registered Public Accounting Firm
24.1
Power of Attorney (see the signature page of this Form 10-K)
31.1
Chief Executive Officer Section 302 Certification.
31.2
Chief Financial Officer Section 302 Certification.
32.1
32.2
Statement of the Chief Executive Officer under 18 U.S.C. § 1350(1)
Statement of the Chief Financial Officer under 18 U.S.C. § 1350(1)
*
Denotes an executive or director compensation plan or arrangement.
(1) The material contained in Exhibit 32.1 and 32.2 shall not be deemed “filed” with the SEC and is not to be incorporated by
reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made
before or after the date hereof irrespective of any general incorporation language contained in such filing, except to the extent
that the registrant specifically incorporates it by reference.
(c) Financial Statement Schedules.
No schedules have been filed because the information required to be set forth therein is not applicable or is shown in the
financial statements or related notes included as part of this report.
87
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 10th day of March, 2009.
SUPPORTSOFT, INC.
By:
/s/ JOSHUA PICKUS
Joshua Pickus
Chief Executive Officer and President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
Joshua Pickus and Shelly Schaffer, and each of them individually, as his or her attorney-in-fact, each with full power of substitution,
for him or her in any and all capacities, to sign any and all amendments to this Report on Form 10-K, and to file the same, with
exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact, or his or her substitute, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant in the capacities and on the dates indicated:
Signature
Title
Date
/s/ JOSHUA PICKUS
Joshua Pickus
/s/ SHELLY SCHAFFER
Shelly Schaffer
/s/ KEVIN C. EICHLER
Kevin C. Eichler
/s/ SHAWN FARSHCHI
Shawn Farshchi
/s/ J. MARTIN O’MALLEY
J. Martin O’Malley
/s/ JIM STEPHENS
Jim Stephens
/s/ JAMES THANOS
James Thanos
Chief Executive Officer and President (Principal
Executive Officer)
March 10, 2009
Chief Financial Officer and Senior Vice President of
Finance and Administration
(Principal Financial and Accounting Officer)
March 10, 2009
Chairman of the Board of Directors
March 10, 2009
Director
Director
Director
Director
88
March 10, 2009
March 10, 2009
March 10, 2009
March 10, 2009
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
EXHIBIT INDEX
Description of
Document
Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.1 of SupportSoft’s annual
report on Form 10-K for the year ended December 31, 2001).
Exhibit
3.1
3.2
Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 of SupportSoft’s annual report on Form 10-K for
the year ended December 31, 2001).
4.1
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 of SupportSoft’s quarterly report on
Form 10-Q for the quarter ended June 30, 2002).
4.2
Registration Rights Agreement, dated June 22, 1998, by and among the registrant and the parties who are signatories
thereto (incorporated by reference to Exhibit 4.2 of SupportSoft’s registration statement on Form S-1 (File No.
333-30674) filed on February 18, 2000).
10.1*
Registrant’s Amended and Restated 1998 Stock Option Plan (incorporated by reference to Exhibit 10.1 of Amendment
No. 1 to SupportSoft’s registration statement on Form S-1 (File No. 333-30674) filed on March 9, 2000).
10.2*
Registrant’s 2000 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.2 of Amendment No. 8 to
SupportSoft’s registration statement on Form S-1 (File No. 333-30674) filed on July 13, 2000).
10.3*
Registrant’s 2000 Amended and Restated Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 of
SupportSoft’s quarterly report on Form 10-Q filed on August 4, 2006.
10.4*
Form of Directors’ and Officers’ Indemnification Agreement (incorporated by reference to Exhibit 10.4 registration
statement on Form S-1 (File No. 333-30674) filed on February 18, 2000).
10.5*
Amended and Restated Employment Agreement, dated December 23, 2008, by and between the registrant and Josh
Pickus.
10.6*
10.7*
Amended and Restated Employment Agreement dated October 27, 2008, by and between registrant and Michael Sayer
(incorporated by reference to Exhibit 10.1 of SupportSoft’s current report on Form 8-K filed on October 29, 2008).
Employment Offer Letter dated as of January 29, 2008, as amended February 1, 2008, by and between the Registrant
and Shelly Schaffer (incorporated by reference to Exhibit 10.1 of SupportSoft’s current report on Form 8-K filed on
February 4, 2008).
10.8*
Amended and Restated Employment Offer Letter dated as of October 6, 2008, by and between the Registrant and
Anthony Rodio.
10.9*
Amended and Restated Employment Offer Letter dated as of September 23, 2008, by and between the Registrant and
Richard Mandeberg.
10.10*
SupportSoft, Inc. Executive Incentive Compensation Incentive Plan (incorporated by reference to Exhibit 10.2 of
SupportSoft’s current report on Form 8-K filed on February 4, 2008).
10.11*
SupportSoft, Inc. Amended and Restated Executive Incentive Compensation Incentive Plan (incorporated by reference
to Exhibit 10.2 of SupportSoft’s current report on Form 8-K filed on August 1, 2008).
10.12*
SupportSoft, Inc. Amended and Restated Executive Incentive Compensation Incentive Plan (incorporated by reference
to Exhibit 10.2 of SupportSoft’s current report on Form 8-K filed on February 11, 2009).
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
Exhibit
10.13
Sublease Agreement with Nuance Communications, Inc. dated November 9, 2006 (incorporated by reference to
Exhibit 10.1 of SupportSoft’s current report on form 8-K filed on November 15, 2006).
Description of
Document
21.1
Subsidiaries of SupportSoft, Inc.
23.1
24.1
31.1
31.2
32.1
32.2
Consent of Independent Registered Public Accounting Firm
Power of Attorney (see the signature page of this Form 10-K)
Chief Executive Officer Section 302 Certification.
Chief Financial Officer Section 302 Certification.
Statement of the Chief Executive Officer under 18 U.S.C. § 1350(1)
Statement of the Chief Financial Officer under 18 U.S.C. § 1350(1)
*
Denotes an executive or director compensation plan or arrangement.
(1) The material contained in Exhibit 32.1 and 32.2 shall not be deemed “filed” with the SEC and is not to be incorporated by
reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made
before or after the date hereof irrespective of any general incorporation language contained in such filing, except to the extent
that the registrant specifically incorporates it by reference.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 10.5
December 23, 2008
Mr. Josh Pickus
[address]
Dear Josh:
The purpose of this letter is to amend and restate the provisions of your offer letter with Support Soft, Inc., a Delaware
Corporation (the “Company”) dated July 21, 2006 (the “Offer Letter”) in order to comply with the requirements of Section 409A
(“Section 409A”) of the Internal Revenue Code of 1986, as amended (the “Code”).
SupportSoft, Inc. (the “Company”) is pleased to offer to continue your employment with the Company, effective as of
December 23, 2008 on the following terms:
1. Position. You will continue to be employed by the Company as President and Chief Executive Officer, reporting only to the
Board of Directors (the “Board”). You will be employed at the Company’s headquarters in Redwood City, California. By signing this
letter, you confirm to the Company that you have no contractual commitments or other legal obligations that would prohibit you from
continuing to perform your duties for the Company.
2. Board Membership. You will continue to serve as a member of the Board. All board members are subject to election and
removal by the shareholders of the Company in accordance with the Company’s by-laws and Delaware law.
3. Cash Compensation. The Company will pay you a base salary at the rate of $350,000 per year, subject to annual reviews for
potential increases at the discretion of the Board of Directors. In addition, you will be eligible to be considered for an incentive bonus
for each fiscal year of the Company under the Company’s Executive Incentive Compensation Plan. Your target incentive is presently
$300,000. Bonuses will be earned based on satisfaction of criteria established by the Company’s Board of Directors. Such criteria
shall be based 100% on “management by objective” criteria established and agreed to by you and the Compensation Committee of
the Board (the “Compensation Committee”). You may be awarded an incentive bonus in excess of the amount of the target bonus
established for you by the Compensation Committee for a particular year based on your performance, as determined in the sole
discretion of the Compensation Committee. Any such bonus shall be paid to you within thirty (30) days following the end of the period
to which the bonus relates in accordance with the terms of the applicable bonus program; provided that in no event shall any bonus
be paid to you earlier than the first day following the end of the period to which the bonus relates or later than March 15 of the year
following the year to which the bonus relates. The determinations of the Compensation Committee with respect to your bonus will be
final and binding. Your base salary and target bonus shall be reviewed annually by the Compensation Committee.
4. Employee Benefits. As a regular employee of the Company, you shall be eligible to receive all employee benefits, including
health care (medical, vision, dental, hospital) and welfare insurance (life, long term disability, short term disability), eligibility to
participate in the company’s employee stock purchase plan and 401k plan, and vacation (paid time off) of 20 days per annum. You
should note that the Company reserves the right to modify compensation and benefits from time to time, as it deems necessary.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
5. Reimbursements. You shall be entitled, in accordance with the Company’s reimbursement policies in effect from time to
time, to receive reimbursement from the Company for all business expenses incurred by you in the performance of your duties
hereunder, provided you furnish the Company with vouchers, receipts and other details of such expenses in the form required by the
Company (“Supporting Documentation”). You must submit the Supporting Documentation for each such expense within sixty
(60) days after the later of (i) your incurrence of such expense and (ii) your receipt of the invoice for such expense. If such expense
qualifies hereunder for reimbursement, then the Corporation shall reimburse you for that expense within thirty (30) days thereafter. In
no event shall any such expense be reimbursed after the close of the calendar year following the calendar year in which that expense
is incurred.
The following provisions shall be in effect for any reimbursements to which you become entitled under this Agreement, in order
to assure that such reimbursements do not create a deferred compensation arrangement subject to Section 409A of the Code:
(i) The amount of reimbursements to which you may become entitled in any one calendar year shall not affect the amount
of expenses eligible for reimbursement hereunder in any other calendar year.
(ii) Your right to reimbursement cannot be liquidated or exchanged for any other benefit or payment.
6. Stock Options.
(a) You were previously granted an option to purchase 1,300,000 shares of the Company’s common stock (the “Standard
Grant”) pursuant to the Company’s 2000 Omnibus Equity Incentive Plan (the “Plan”) on April 6, 2006. In addition, on such date
you were granted two additional stock options, each for 200,000 shares of the Company’s common stock (the “First Additional
Grant” and the “Second Additional Grant,” respectively. The terms of those grants are set forth in the applicable stock option
agreements evidencing those grants; for the avoidance of doubt, as of the date of this letter, the price threshold for exercisability
of the First Additional Grant has been met. You have received subsequent equity compensation awards (“Follow-On Grants”),
and shall be eligible in the future to receive additional equity compensation awards from time to time in the Compensation
Committee’s sole discretion, taking into account performance, overall compensation and such other considerations as the
Compensation Committee may deem relevant.
(b) Notwithstanding anything in this agreement, the Plan or the applicable stock option agreements to the contrary, if the
Company is subject to a “Change of Control” (for purposes of this Section 6, the term “Change of Control” shall have the
meaning assigned to such term in the Plan) before your employment with the Company terminates and you are subject to an
Involuntary Termination (as defined in this Offer Letter) within 12 months
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
on or after that Change of Control, then your Standard Grant, First Additional Grant, Second Additional Grant, and all Follow-On
Grants will each become 100% vested and exercisable as to all of the shares subject to such options upon such Involuntary
Termination (as defined in this Offer Letter). Such consideration shall be in addition to any cash payments to which you may be
entitled under the section entitled Severance Pay below.
7. Severance Pay.
(a) If your employment with the Company terminates as a result of an Involuntary Termination prior to a “change in control
event” (within the meaning of Treasury Regulation 1.409A-3(i)(5), then, provided you execute and deliver to the Company the
Company’s standard General Release and Waiver of Claims Agreement (the “Release”) and that Release becomes effective
within thirty (30) days following your termination date in accordance with applicable law, you shall become entitled to receive the
following payments as severance pay:
(i) Continued payment of your base salary for a total period of twelve (12) months at the annualized rate in effect for
you under Section 3 at the time of your Involuntary Termination. The salary continuation payments shall be made at
periodic intervals in accordance with the Company’s payroll practices for salaried employees, beginning on the first pay
date within the sixty (60) day period measured from the date you incur a Separation from Service by reason of such
termination of employment, that is coincident with or next following the date on which your Release first becomes effective
following the expiration of any applicable revocation period. The salary continuation payments to which you become
entitled in accordance with this paragraph shall be treated as a right to a series of separate payments for purposes of
Section 409A of the Code, and each such payment that becomes due and payable during the period commencing with the
date of your Separation from Service and ending on March 15 of the succeeding calendar year is hereby designated a
“Short-Term Deferral Payment” and shall be paid during that period.
(ii) A lump sum cash payment in an amount equal to 50% of your target bonus in effect for the fiscal year in which the
Involuntary Termination occurs. Such payment shall be made on the Company’s first pay date within the sixty (60) day
period measured from the date you incur a Separation from Service by reason of such termination of employment, that is
coincident with or next following the date on which your Release first becomes effective following the expiration of any
applicable revocation period.
(iii) Should you timely elect under Code Section 4980B to continue health care coverage under the Company’s group
health plan for yourself, and/or your eligible dependents following your Involuntary Termination, then the Company shall
provide such continued health care coverage for you and your eligible dependents at its sole cost and expense. Such
health care coverage at the Company’s expense shall continue until the earliest of (i) the expiration of the twelve (12)-
month period measured from the date of your Involuntary Termination, (ii) the first date you are covered under another
employer’s heath benefit program which provides substantially the same level of benefits without exclusion for pre-existing
medical conditions and (iii) the date you no longer constitute a “Qualified Beneficiary” (as such term is defined in
Section 4980B(g) of the Code).
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(b) If your employment with the Company terminates as a result of an Involuntary Termination on or within twelve
(12) months after a “change in control event” (within the meaning of Treasury Regulation 1.409A-3(i)(5), then, provided you
execute and deliver to the Company the Release and that Release becomes effective within thirty (30) days following your
termination date in accordance with applicable law, you shall become entitled to receive the following benefits and payments:
(i) The Company shall pay you a lump sum cash severance payment in an amount equal to your then current annual
rate of base salary plus 100% of your target bonus for the fiscal year in which you terminate employment. Such severance
payment shall be payable in a single lump sum on the first pay date within the sixty (60) day period measured from the
date you incur a Separation from Service by reason of such termination of employment, that is coincident with or next
following the date on which your Release first becomes effective following the expiration of any applicable revocation
period. In no event, however, shall such lump sum payment be made later than the last day of such sixty (60)-day period
on which the Release is so effective, unless a further deferral is required pursuant to Section 9.
(ii) Should you timely elect under Code Section 4980B to continue health care coverage under the Company’s group
health plan for yourself, and/or your eligible dependents following your Involuntary Termination, then the Company shall
provide such continued health care coverage for you and your eligible dependents at its sole cost and expense. Such
health care coverage at the Company’s expense shall continue until the earliest of (i) the expiration of the twelve (12)-
month period measured from the date of your Involuntary Termination, (ii) the first date you are covered under another
employer’s heath benefit program which provides substantially the same level of benefits without exclusion for pre-existing
medical conditions and (iii) the date you no longer constitute a “Qualified Beneficiary” (as such term is defined in
Section 4980B(g) of the Code).
(c) The term “Involuntary Termination” means either (a) that your employment is terminated by the Company without
Cause (as defined below) or (b) that you resign for Good Reason (as defined below). You may terminate your employment
hereunder for Good Reason upon satisfaction of the following requirements: (A) notifying the Company within ninety (90) days
after the occurrence of the act or omission constituting grounds for the Good Reason termination, (B) providing the Company at
least thirty (30) days to correct such act or omission and (C) upon the Company’s failure to take such corrective action within
such thirty (30)-day period, giving the Company written notice of such Good Reason termination within five (5) business days
thereafter, with such Good Reason termination to be effective immediately upon delivery of such notice to the Company. (An
Involuntary Termination does not include your termination by reason of death or Permanent Disability.)
(d) The term “Good Reason” means: (1) a material reduction in the annual rate of your base salary or target bonus by the
Company, without your written consent, (2) your employment duties or responsibilities are materially diminished by the
Company without your written consent, with a change in your duties or responsibilities such that (A) you are no longer serving
as the Company’s Chief Executive Officer or, following a “change in control event” (within the meaning of Treasury Regulation
1.409A-3(i)(5), you are not serving as the Chief Executive Officer of the parent or successor entity or (B) the failure of the
Company to
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
re-nominate you to serve on the Board to be deemed material for such purpose, or (3) a material change in the geographic
location of your place of employment without your written consent, with a relocation of more than fifty (50) miles to be deemed
material for purposes of this letter agreement.
(e) The term “Permanent Disability” means your inability to perform the essential functions of your position with or without
reasonable accommodation for a period of 120 consecutive days because of your physical or mental impairment.
(f) The term “Cause” means (a) any intentional unauthorized use or disclosure of any confidential information or trade
secrets of the Company that is materially detrimental to the Company; (b) conviction of, or a plea of “guilty” or “no contest” to, a
felony under the laws of the United States or any State; (c) willful refusal to follow the lawful written instructions of the Board of
Directors; (d) any intentional or willful material misconduct or breach of material Company policy by you that is materially
detrimental to the Company; (e) a material breach of your fiduciary duties as an officer of the Company; or (f) in connection with
your hire by the Company, a material misrepresentation by you regarding your background or credentials. In any situation in
which a termination for “Cause” is asserted by the Company, the Company’s Board of Directors shall provide to you in writing its
grounds for the belief that a termination for “Cause” exists, and, in the case of (c) above, you shall have not less than 15
business days to cure such breach.
(g) The term “Separation from Service” means your cessation of Employee status and shall be deemed to occur at such
time as the level of the bona fide services you are to perform in Employee status (or as a consultant or other independent
contractor) permanently decreases to a level that is not more than twenty percent (20%) of the average level of services you
rendered in Employee status during the immediately preceding thirty-six (36) months (or such shorter period for which you may
have rendered such service). Any such determination as to Separation from Service, however, shall be made in accordance
with the applicable standards of the Treasury Regulations issued under Code Section 409A. For purposes of determining
whether you have incurred a Separation from Service, you shall be deemed to continue in “Employee” status for so long as you
remain in the employ of one or more members of the Employer Group, subject to the control and direction of the employer entity
as to both the work to be performed and the manner and method of performance. “Employer Group” means the Company and
any other corporation or business controlled by, controlling or under common control with, the Company as determined in
accordance with Sections 414(b) and (c) of the Code and the Treasury Regulations thereunder, except that in applying Sections
1563(a)(1), (2) and (3) for purposes of determining the controlled group of corporations under Section 414(b), the phrase “at
least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in such sections and in
applying Section 1.414(c)-2 of the Treasury Regulations for purposes of determining trades or businesses that are under
common control for purposes of Section 414(c), the phrase “at least 50 percent” shall be used instead of “at least 80 percent”
each place the latter phrase appears in Section 1.414(c)-2 of the Treasury Regulations. In addition to the foregoing, a
Separation from Service shall not be deemed to have occurred while you are on a sick leave or other bona fide leave of
absence if the period of such leave does not exceed six (6) months or any longer period for which you are provided with a right
to reemployment with the Company by either statute or contract; provided, however, that in the event of a leave of
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
absence due to any medically determinable physical or mental impairment that can be expected to result in death or to last for a
continuous period of not less than six (6) months and that causes you to be unable to perform your duties as an Employee, no
Separation from Service shall be deemed to occur during the first twenty-nine (29) months of such leave. If the period of leave
exceeds six (6) months (or twenty-nine (29) months in the event of disability as indicated above) and you are not provided with a
right to reemployment by either statute or contract, then you shall be deemed to have Separated from Service on the first day
immediately following the expiration of the applicable six (6)-month or twenty-nine (29)-month period.
8. Excise Taxes.
(a) In the event it is determined that any payment or distribution of any type to or for your benefit pursuant to this
agreement (the “Total Payments”) would be subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are collectively referred
to as the “Excise Tax”), then you shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such
that after payment by you of all taxes (including any interest or penalties imposed with respect to such taxes), including any
Excise Tax imposed upon the Gross-Up Payment, you retain an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Total Payments.
(b) All determinations as to whether any of the Total Payments are “parachute payments” (within the meaning of
Section 280G of the Code), whether a Gross-Up Payment is required, the amount of such Gross-Up Payment, and any amounts
relevant to the last sentence of the paragraph above, shall be made by an independent registered public accounting firm
mutually agreed upon by you and the Company (the “Accounting Firm”) and retained at the Company’s expense. The
Accounting Firm shall not have an ongoing audit or consulting relationship with the Company at the time it is selected. The
Accounting Firm shall provide all applicable determinations with respect to any of the Total Payments that become due and
payable at the time of the change in control event (the “Change in Control Determination”), together with detailed supporting
calculations regarding the amount of the Excise Tax, any required Gross-Up Payment and any other relevant matter, both to the
Company and you within ten (10) business days after the effective date of the change in control event or such earlier time as is
requested by the Company or you (if you reasonably believe that any of the Total Payments may be subject to the Excise Tax).
In addition, the Accounting Firm shall provide all applicable determinations with respect to any of the Total Payments that
become due and payable at the time of your Separation from Service (the “Separation from Service Determination”), together
with detailed supporting calculations regarding the amount of the Excise Tax, any required Gross-Up Payment and any other
relevant matter, both to the Company and you within ten (10) business days after the date of your Separation from Service. The
Change in Control and Separation from Service Determinations made by the Accounting Firm shall be binding upon the
Company and you. The Gross-Up Payment (if any) determined on the basis of the Change in Control Determination shall be
paid to you or on your behalf within five (5) business days after the completion of such Determination or (if later) at the time the
related Excise Tax is remitted to the appropriate tax authorities.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(c) Notwithstanding anything to the contrary in the foregoing, any Gross-Up Payments due you under this section shall be
subject to the hold-back provisions of Section 9, to the extent those payments relate to any amounts and benefits provided to
you that constitute parachute payments attributable to your Separation from Service. In addition, no Gross-Up Payment shall be
made later than the end of the calendar year following the calendar year in which the related taxes are remitted to the
appropriate tax authorities, or such other specified time or schedule that may be permitted under Section 409A of the Code. To
the extent you may become entitled to any reimbursement of expenses incurred at the direction of the Company in connection
with any tax audit or litigation addressing the existence or amount of the Excise Tax, such reimbursement shall be paid to you
no later than the later of (i) the close of the calendar year in which the Excise Tax that is the subject of such audit or litigation is
paid by or on behalf of you or (ii) the end of the sixty (60)-day period measured from such payment date. If no Excise Tax
liability is found to be due as a result of such audit or litigation, the reimbursement shall be paid to you no later than the later of
(i) the close of the calendar year in which the audit is completed or there is a final and non-appealable settlement or other
resolution of the litigation or (ii) the end of the sixty (60)-day period measured from the date the audit is completed or the date
the litigation is so settled or resolved.
(d) Notwithstanding the foregoing, the payments to be made by the Company to you or on your behalf pursuant to this
Section shall be capped at, and may in no event exceed, $1,500,000.
9. Section 409A.
(a) Notwithstanding any provision to the contrary in this agreement (other than Section 9(b) below), no payments, benefits
or reimbursements to which you become entitled under this agreement (other than continued health care coverage during the
applicable period of COBRA coverage) shall be made or paid to the you prior to the earlier of (i) the first business day of the
seventh month following the date of your Separation from Service or (ii) the date of your death, if (a) you are deemed at the time
of such Separation from Service a “specified employee” within the meaning of that term under Section 409A of the Code, (b) the
stock of the Corporation or any successor entity is publicly traded on an established market and (c) such delayed
commencement is otherwise required in order to avoid a prohibited distribution under Code Section 409A(a)(2). Upon the
expiration of the applicable deferral period, all payments deferred pursuant to this Section 9(a) shall be paid in a lump sum to
you, and any remaining payments, benefits or reimbursements due under this agreement shall be paid or provided in
accordance with the normal payment dates specified for them herein.
If you are at any time during the twelve-month period ending on the last day of any calendar year, deemed to be a “key
employee” within the meaning of that term under Code Section 416(i), then you shall be deemed to be a specified employee
subject to the delayed payment provisions of this Section 9(a) for the period beginning on the April 1 of the following calendar
year and ending on the March 31 of the next year thereafter.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(b) The six month holdback set forth in Section 9(a) shall not be applicable to (i) any salary continuation or severance
payments that qualify as Short-Term Deferral Payments and (ii) any remaining portion of such payments paid after your
Separation from Service to the extent (A) that the dollar amount of those payments does not exceed two (2) times the lesser of
(x) your annualized compensation (based on your annual rate of pay for the calendar year preceding the calendar year of your
Separation from Service, adjusted to reflect any increase during that calendar year which was expected to continue indefinitely
had your Separation from Service not occurred or (y) the maximum amount of compensation that may be taken into account
under a qualified plan pursuant to Section 401(a)(17) of the Code for the year in which your Separation from Service occurs, and
(B) such payments are to be made to you no later than the last day of the second calendar year following the calendar year in
which the Separation from Service occurs.
(c) To the extent there is any ambiguity as to whether any provision of this agreement would otherwise contravene one or
more requirements or limitations of Code Section 409A, such provisions shall be interpreted and applied in a manner that does
not result in a violation of the applicable requirements or limitations of Code Section 409A and the Treasury Regulations
thereunder.
10. Employment, Confidential Information and Invention Assignment Agreement. As a Company employee, you are
expected to abide by the Company’s rules and regulations. You previously signed and are expected to comply with an Employment,
Confidential Information and Invention Assignment Agreement (the “Employee NDA”), dated April 6, 2006. The Employee NDA
requires, among other provisions, the assignment of patent rights to any invention made during your employment at the Company
and non-disclosure of proprietary information.
11. Employment Relationship. Employment with the Company is for no specific period of time. Your employment with the
Company is “at will,” meaning that either you or the Company may terminate your employment at any time and for any reason, with or
without cause, subject to the acceleration of vesting and severance pay and benefits in the case of an Involuntary Termination subject
to the terms and conditions set forth in this agreement. Any contrary representations that may have been made to you are
superseded by this offer. This is the full and complete agreement between you and the Company on this term regarding your at-will
employment relationship. Although your job duties, title, compensation and benefits, as well as the Company’s personnel policies and
procedures, may change from time to time, the “at will” nature of your employment may only be changed in an express written
agreement signed by you and a member (other than you) of the Board of Directors of the Company.
12. Outside Activities. While you render services to the Company, you agree that you will not engage in any other
employment, consulting or other business activity without the prior written consent of the Company. While you render services to the
Company, you also will not assist any person or entity in competing with the Company, in preparing to compete with the Company or
in hiring any employees or consultants of the Company.
13. Withholding Taxes. All forms of compensation referred to in this letter are subject to reduction to reflect applicable
withholding and payroll taxes and other deductions required by law.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
14. Entire Agreement. This letter agreement supersedes and replaces any prior representations, understandings or
agreements, whether oral, written or implied, between you and the Company regarding your employment with the Company,
including the Offer Letter, but does not supersede any other agreements between you and the Company, including but not limited to,
the Employee NDA, any restricted stock purchase agreement, restricted stock unit agreement, stock option agreement or other
equity award agreement entered into pursuant to the Company’s stock plans, except as expressly provided herein. In case of conflict
between any of the terms and conditions of this Agreement and the documents herein referred to, the terms and conditions of this
Agreement will control.
15. Arbitration. As provided in the Employee NDA, in the event of any dispute or claim relating to or arising out of our
employment relationship, you and the Company agree that all such disputes will be fully and finally resolved by binding arbitration
conducted by the American Arbitration Association in San Mateo County, California. However, as also provided in the Employee
NDA, we agree that this arbitration provision shall not apply to any disputes or claims relating to or arising out of the misuse or
misappropriation of the Company’s trade secrets or proprietary information.
* * * * *
You may indicate your agreement with these terms by signing and dating the enclosed duplicate original of this letter agreement
and returning it to me. If you have any questions, please call me.
Very truly yours,
SUPPORTSOFT, INC.
By: /s/ Anne-Marie Eileraas
Anne-Marie Eileraas
VP, General Counsel and Secretary
I have read and accept this employment offer:
/s/ Josh Pickus
Signature of Josh Pickus
Dated: December 23, 2008
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 10.8
October 6, 2008
Anthony Rodio
[address]
Dear Anthony,
The purpose of this letter is to amend and restate the provisions of your offer letter with Support Soft, Inc., a Delaware Corporation
(the “Company”) dated August 22, 2006 (the “Offer Letter”) in order to comply with the requirements of new Section 409A (“Section
409A”) of the Internal Revenue Code of 1986, as amended (the “Code”)
On behalf of the Company, we are pleased to offer to continue your employment with the Company in the position of Chief Operating
Officer, CSG reporting to the Chief Executive Officer. In this position your annual rate of base salary shall continue to be $240,000.
The base salary will be paid semi-monthly in accordance with the Company’s normal payroll procedures. You will also be eligible for
bonus compensation under the Company’s Management by Objectives (“MBO”) Program. Under the MBO Program, you may receive
up to 25% of your actual salary earnings paid to you during the calendar year, for an annual equivalent On Target Earnings (OTE) of
$300,000. Any such bonus shall be paid to you within thirty (30) days following the end of the period to which the bonus relates in
accordance with the terms of the MBO Program; provided that in no event will any such bonus be paid to you earlier than the first
day following the end of the period to which the bonus relates or later than March 15 of the year following the year to which the bonus
relates.
As a Company employee, you are eligible to receive all employee benefits, which include health care (medical, vision, prescription
drug, dental, hospital) and life and disability insurance (life, accidental death and dismemberment, long term disability, short term
disability), vacation (paid time off) of twenty (20) days per annum and twelve (12) public holidays in accordance with the company’s
published schedule, etc. You should note that the Company reserves the right to modify compensation and benefits from time to time,
as it deems prudent.
If your employment with the Company terminates as a result of an Involuntary Termination and you execute and deliver to the
Company the Company’s standard General Release and Waiver of Claims Agreement (the “Release”) and that Release becomes
effective within thirty (30) days following your termination date in accordance with applicable law, then you will become entitled to
receive the following benefits:
(a) On the first payroll date within the sixty (60) day period following the date of your Involuntary Termination on which the
Release is effective, the Company shall pay to you a lump sum cash payment in an amount equal to six (6) months of your base
salary (at the rate in effect at the time of your termination) and 50% of the bonus target in effect for the year in which you are
terminated, less applicable withholdings; and
(b) Should you timely elect under Code Section 4980B to continue health care coverage under the Company’s group health
plan for yourself, and/or your spouse and your eligible dependents following your Involuntary Termination, then the Company shall
provide such continued health care coverage for you and your spouse and other eligible dependents at its sole cost and expense.
Such health care coverage at the Company’s expense shall continue until the earlier of (i) the expiration of the six (6)-month period
measured from the date of your Involuntary Termination and (ii) the first date you are covered under another employer’s heath benefit
program which provides substantially the same level of benefits without exclusion for pre-existing medical conditions.
Notwithstanding anything in this letter agreement, the Plan or the applicable stock option agreements to the contrary, if the Company
is subject to a Change of Control (as defined in the Stock Option Agreement) before your employment with the Company terminates
and you are subject to an
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
09/23/2008
Involuntary Termination within twelve (12) months on or after the effective date of that Change of Control, then 50% of the then-
unvested shares subject to your new hire stock option grant will become vested and exercisable at the time of such Involuntary
Termination (as defined below). Notwithstanding anything to the contrary in the Stock Option Agreement, a “going private” transaction
shall not constitute a Change of Control.
Notwithstanding any provision in this letter agreement to the contrary, the following special provisions shall govern the payment date
of your cash severance payment in the event that payment is deemed to constitute an item of deferred compensation under
Section 409A:
(i) The severance payment will not be made at any time prior to the date of your Separation from Service, and
(ii) No payments or benefits to which you become entitled under this letter agreement shall be made or paid to you prior to the
earlier of (i) the expiration of the six (6)-month period measured from the date of your Separation from Service with the Company or
(ii) the date of your death, if you are deemed at the time of such Separation from Service to be a “key employee” within the meaning
of that term under Code Section 416(i) and such delayed commencement is otherwise required in order to avoid a prohibited
distribution under Section 409A(a)(2). Upon the expiration of the applicable deferral period, all payments deferred pursuant to this
paragraph shall be paid to you in a lump sum.
For purposes of this letter agreement, the following definitions shall be in effect:
“Involuntary Termination” means either: (a) that your employment is terminated by the Company without Cause or (b) that you
resign for Good Reason (as defined below). You may terminate your employment hereunder for Good Reason upon satisfaction of
the following requirements: (A) notifying the Company within ninety (90) days after the occurrence of the act or omission constituting
grounds for the Good Reason termination, (B) providing the Company at least thirty (30) days to correct such act or omission and
(C) upon the Company’s failure to take such corrective action within such thirty (30)-day period, giving the Company written notice of
such Good Reason termination within five (5) business days thereafter, with such Good Reason termination to be effective
immediately upon delivery of such notice to the Company. In order to receive any benefits upon termination, (i) the Release must be
signed by you and must become effective within thirty (30) days following your termination date in accordance with applicable law,
and (ii) you must return all Company property. An involuntary termination does not include a termination by reason of your death or
Permanent Disability.
“Permanent Disability” means your inability to perform the essential functions of your position with or without reasonable
accommodation for a period of one hundred twenty (120) consecutive days because of your physical or mental impairment.
“Cause” means a determination in the reasonable good faith of the Company that you have: (a) engaged in any act of fraud,
embezzlement or dishonesty or any other act in violation of the law, including but not limited to, the conviction of, or pleading no lo
contender to, a felony (except for ordinary traffic violations); (b) materially breached your fiduciary duty to the Company;
(c) unreasonably refused to perform the good faith and lawful instructions of the Chief Executive Officer (d) engaged in willful
misconduct or gross negligence (e) willfully breached the Employment, Confidential Information and Invention Assignment
Agreement; or (f) made any willful unauthorized use or disclosure of confidential information or trade secrets of the Company (or any
parent or subsidiary).
“Good Reason” means (a) your employment duties or responsibilities are materially diminished by the Company without your
prior written consent; (b) a material change in the geographic location of your place of employment without your approval, with a
relocation of more than fifty (50) miles to be deemed material for purposes of this letter agreement; (c) a material breach by the
Company of its obligations under the terms of this offer letter; or (d) in connection
2
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
09/23/2008
with a Change of Control there is a material diminution in the authorities, duties or responsibilities of the supervisor to whom you are
required to report, with a requirement that you report to an executive officer other than the Chief Executive Officer of the parent or
successor entity to be deemed material for such purpose.
“Separation from Service” means your cessation of employee status and shall be deemed to occur at such time as the level of
the bona fide services you are to perform in employee status (or as a consultant or other independent contractor) permanently
decreases to a level that is not more than 20% of the average level of services you rendered in employee status during the
immediately preceding thirty-six (36) months (or such shorter period for which you may have rendered such service). Any such
determination as to Separation from Service, however, shall be made in accordance with the applicable standards of the Treasury
Regulations issued under Section 409A.
You should be aware that your employment with the Company is for no specified period and constitutes at-will employment. As a
result, you are free to resign at any time, for any reason or for no reason. Similarly, the Company is free to conclude its employment
relationship with you at any time, with or without cause, and with or without notice.
You agree that, during the term of your employment with the Company, you will not actively engage in any other employment,
occupation, consulting or other business directly or indirectly related to the business in which the Company is now involved or
becomes involved during the term of your employment, nor will you engage in any other activities that conflict with your obligations to
the Company.
As a Company employee, you are expected to abide by the Company’s rules and regulations. You are expected to comply with the
Employment, Confidential Information and Invention Assignment Agreement (the “Employee NDA”) you previously executed that
requires, among other provisions, the assignment of patent rights to any invention made during your employment at the Company
and non-disclosure of proprietary information.
As provided in the Employee NDA, in the event of any dispute or claim relating to or arising out of our employment relationship, you
and the Company agree that all such disputes shall be fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in San Mateo County, California (or some other mutually agreed upon location) under the National Rules for
the Resolution of Employment Disputes. The Company agrees to pay the fees and costs of the arbitrator. However, as also provided
in the Employee NDA, we agree that this arbitration provision shall not apply to any disputes or claims relating to or arising out of the
misuse or misappropriation of the other party’s trade secrets or proprietary information.
This letter agreement is intended to comply with the requirements of section 409A of the Code, and, specifically, with the separation
pay exemption and short term deferral exemption of section 409A, and shall in all respects be administered in accordance with
section 409A. Notwithstanding anything in the letter agreement to the contrary, distributions may only be made under the agreement
upon an event and in a manner permitted by section 409A of the Code or an applicable exemption.
3
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
To indicate your acceptance of the terms of this letter, please sign and date this letter before, October 8, 2008 and return it to Lucy
Gopinath. A duplicate original is enclosed for your records. This letter, along with the agreement relating to proprietary rights between
you and the Company, sets forth the terms of your employment with the Company and supersedes any prior representations or
agreements, whether written or oral, including your Offer Letter. This letter may not be modified or amended except by a written
agreement, signed by an authorized representative of the Company and you.
09/23/2008
Sincerely,
SupportSoft
/s/ Wendy Brauchler
Wendy Brauchler
VP, Human Resources
By signing this Letter, I hereby accept, acknowledge and agree to the terms and conditions as stated above.
On this day of October 6, 2008
/s/ Anthony Rodio
Anthony Rodio
Enclosures: Duplicate Original Letter
4
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 10.9
October 6, 2008
Richard Mandeberg
[address]
Dear Richard,
The purpose of this letter is to amend and restate the provisions of your offer letter with Support Soft, Inc., a Delaware Corporation
(the “Company”) dated November 22, 2006 (the “Offer Letter”) in order to comply with the requirements of new Section 409A
(“Section 409A”) of the Internal Revenue Code of 1986, as amended (the “Code”)
On behalf of the Company, we are pleased to offer to continue your employment with the Company in the position of Chief Revenue
Officer CSG reporting to the Chief Executive Officer of the Company. In this position your annual rate of base salary shall continue to
be $240,000. The base salary will be paid semi-monthly in accordance with the Company’s normal payroll procedures. You will also
be eligible for bonus compensation under the Company’s Management by Objectives (“MBO”) Program. Under the MBO Program,
you may receive up to 25% of your actual salary earnings paid to you during the calendar year, for an annual equivalent On Target
Earnings (OTE) of $300,000. Any such bonus shall be paid within 30 days following the end of the period to which the bonus relates
in accordance with the terms of the MBO Program; provided that in no event will any such bonus be paid earlier than the first day
following the end of the period to which the bonus relates or later than March 15 of the year following the year to which the bonus
relates.
As a Company employee, you are eligible to receive all employee benefits, which include health care (medical, vision, prescription
drug, dental, hospital) and life and disability insurance (life, accidental death and dismemberment, long term disability, short term
disability), vacation (paid time off) of 20 days per annum and 12 public holidays in accordance with the company’s published
schedule, etc. You should note that the Company reserves the right to modify compensation and benefits from time to time, as it
deems prudent.
If your employment with the Company terminates as a result of an Involuntary Termination and you execute and deliver on a timely
basis to the Company the Company’s standard General Release and Waiver of Claims Agreement and that release becomes
effective in accordance with its terms following the expiration of any applicable revocation period, then you will become entitled to
receive the following benefits:
(a) On the first payroll date following the earlier of (i) the effective date of the General Release and Waiver of Claims Agreement
and (ii) the sixtieth (60th) day following the date of your Involuntary Termination, the Company shall pay to you a lump sum payment
in an amount equal to six months of your base salary (at the rate in effect at the time of your termination) and 50% of the bonus target
in effect for the year in which you are terminated, less applicable withholdings; and
(b) Should you timely elect under Code Section 4980B to continue health care coverage under the Company’s group health
plan for yourself, and/or your spouse and your eligible dependents following your Involuntary Termination, then the Company shall
provide such continued health care coverage for you and your spouse and other eligible dependents at its sole cost and expense.
Such health care coverage at the Company’s expense shall continue until the earlier of (i) the expiration of the six (6)-month period
measured from the date of your Involuntary Termination and (ii) the first date you are covered under another employer’s heath benefit
program which provides substantially the same level of benefits without exclusion for pre-existing medical conditions.
Notwithstanding anything in this letter agreement, the Plan or the applicable stock option agreements to the contrary, if the Company
is subject to a Change of Control (as defined in the Stock Option Agreement) before your employment with the Company terminates
and you are subject to an Involuntary Termination within 12 months on or after that Change of Control, then 50% of the then-
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
09/23/2008
unvested shares subject to your new hire stock option grant will become vested and exercisable at the time of such Involuntary
Termination (as defined below). Notwithstanding anything to the contrary in the Stock Option Agreement, a “going private” transaction
shall not constitute a Change of Control.
Notwithstanding any provision in this letter agreement to the contrary, the following special provisions shall govern the payment date
of your severance payment in the event that payment is deemed to constitute an item of deferred compensation under Section 409A:
(i) The severance payment will not be made at any time prior to the date of your Separation from Service, and
(ii) No payments or benefits to which you become entitled under this letter agreement shall be made or paid to you prior to the
earlier of (i) the expiration of the six (6)-month period measured from the date of your Separation from Service with the Company or
(ii) the date of your death, if you are deemed at the time of such Separation from Service a “key employee” within the meaning of that
term under Code Section 416(i) and such delayed commencement is otherwise required in order to avoid a prohibited distribution
under Section 409A(a)(2). Upon the expiration of the applicable deferral period, all payments deferred pursuant to this paragraph shall
be paid to you in a lump sum.
For purposes of this letter agreement, the following definitions shall be in effect:
“Involuntary Termination” means either: (a) that your employment is terminated by the Company without Cause or (b) that you
resign for Good Reason (as defined below). You may terminate your employment hereunder for Good Reason upon satisfaction of
the following requirements: (A) notifying the Company within 90 days after the occurrence of the act or omission constituting grounds
for the Good Reason termination, (B) providing the Company at least 30 days to correct such act or omission and (C) upon the
Company’s failure to take such corrective action within such 30-day period, giving the Company written notice of such Good Reason
termination within 5 business days thereafter, with such Good Reason termination to be effective immediately upon delivery of such
notice to the Company. In order to receive any benefits upon termination, you will be required (i) to sign the Company’s standard
General Release and Waiver of Claims Agreement and (ii) to return all Company property. Involuntary termination does not include a
termination by reason of your death or Permanent Disability.
“Permanent Disability” means your inability to perform the essential functions of your position with or without reasonable
accommodation for a period of 120 consecutive days because of your physical or mental impairment.
“Cause” means a determination in the reasonable good faith of the Company that you have: (a) engaged in any act of fraud,
embezzlement or dishonesty or any other act in violation of the law, including but not limited to, the conviction of, or pleading no lo
contender to, a felony (except for ordinary traffic violations); (b) materially breached your fiduciary duty to the Company;
(c) unreasonably refused to perform the good faith and lawful instructions of the Chief Executive Officer (d) engaged in willful
misconduct or gross negligence (e) willfully breached the Employment, Confidential Information and Invention Assignment
Agreement; or (f) made any willful unauthorized use or disclosure of confidential information or trade secrets of the Company (or any
parent or subsidiary).
“Good Reason” means (a) your employment duties or responsibilities are materially diminished by the Company without your
prior written consent; (b) a material change in the geographic location of your place of employment without your approval, with a
relocation of more than fifty (50) miles to be deemed material for purposes of this letter agreement; (c) a material breach by the
Company of its obligations under the terms of this offer letter; or (d) in connection with a Change of Control, you report to someone
other than the Chief Executive Officer of the parent or successor entity.
2
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
09/23/2008
“Separation from Service” means your cessation of employee status and shall be deemed to occur at such time as the level of
the bona fide services you are to perform in employee status (or as a consultant or other independent contractor) permanently
decreases to a level that is not more than twenty percent (20%) of the average level of services you rendered in employee status
during the immediately preceding thirty-six (36) months (or such shorter period for which you may have rendered such service). Any
such determination as to Separation from Service, however, shall be made in accordance with the applicable standards of the
Treasury Regulations issued under Section 409A.
You should be aware that your employment with the Company is for no specified period and constitutes at-will employment. As a
result, you are free to resign at any time, for any reason or for no reason. Similarly, the Company is free to conclude its employment
relationship with you at any time, with or without cause, and with or without notice.
You agree that, during the term of your employment with the Company, you will not actively engage in any other employment,
occupation, consulting or other business directly or indirectly related to the business in which the Company is now involved or
becomes involved during the term of your employment, nor will you engage in any other activities that conflict with your obligations to
the Company.
As a Company employee, you are expected to abide by the Company’s rules and regulations. You are expected to comply with the
Employment, Confidential Information and Invention Assignment Agreement (the “Employee NDA”) you previously executed that
requires, among other provisions, the assignment of patent rights to any invention made during your employment at the Company
and non-disclosure of proprietary information.
As provided in the Employee NDA, in the event of any dispute or claim relating to or arising out of our employment relationship, you
and the Company agree that all such disputes shall be fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in San Mateo County, California (or some other mutually agreed upon location) under the National Rules for
the Resolution of Employment Disputes. The Company agrees to pay the fees and costs of the arbitrator. However, as also provided
in the Employee NDA, we agree that this arbitration provision shall not apply to any disputes or claims relating to or arising out of the
misuse or misappropriation of the other party’s trade secrets or proprietary information.
3
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
To indicate your acceptance of the terms of this letter, please sign and date this letter before, October 8, 2008 and return it to Lucy
Gopinath. A duplicate original is enclosed for your records. This letter, along with the agreement relating to proprietary rights between
you and the Company, sets forth the terms of your employment with the Company and supersedes any prior representations or
agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by an
authorized representative of the Company and you.
09/23/2008
Sincerely,
SupportSoft
/s/ Wendy Brauchler
Wendy Brauchler
VP, Human Resources
By signing this Offer Letter, I hereby accept, acknowledge and agree to the terms and conditions as stated above.
On this day of October 6, 2008
/s/ Richard Mandeberg
Richard Mandeberg
Enclosures: Duplicate Original Letter
4
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Subsidiaries of SupportSoft, Inc.
Exhibit 21.1
Name of Subsidiary
Domestic Subsidiaries
Support.com Gift Cards, Inc.
Support.com International, Inc.
Foreign Subsidiaries
SupportSoft Australia Pty Ltd
SupportSoft Belgium BVBA
SupportSoft Canada Inc.
YourTechOnline.com Inc.
SupportSoft Greater China Limited
SupportSoft GmbH
SupportSoft India Pvt Ltd
Support.com Mexico S. de R.L. de C. V.
Support.com Servicios S. de R.L. de C. V.
SupportSoft Asia Pacific Pte Ltd
SupportSoft España SL
SupportSoft (UK) Pty Ltd
State or Jurisdiction in which
Incorporated or Organized
California
Delaware
Australia
Belgium
Canada
Canada
China (Hong Kong)
Germany
India
Mexico
Mexico
Singapore
Spain
UK
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements (Form S-8 No.’s 333-106276, 333-116602, 333-
48726, 333-96623, 333-65964, 333-127299, 333-136408, and 333-141383) pertaining to the SupportSoft, Inc. Amended and
Restated 1998 Stock Option Plan, the SupportSoft, Inc. 2000 Omnibus Equity Incentive Plan and the SupportSoft, Inc. 2000
Employee Stock Purchase Plan of our reports dated March 10, 2009, with respect to the consolidated financial statements of
SupportSoft, Inc., and the effectiveness of internal control over financial reporting of SupportSoft, Inc. included in this Annual Report
(Form 10-K) for the year ended December 31, 2008.
/s/ ERNST & YOUNG LLP
EXHIBIT 23.1
San Jose, California
March 10, 2009
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EXHIBIT 31.1
CHIEF EXECUTIVE OFFICER SECTION 302 CERTIFICATION
I, Joshua Pickus, certify that:
1. I have reviewed this annual report on Form 10-K of SupportSoft, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 10, 2009
By:
/s/ JOSHUA PICKUS
Joshua Pickus
Chief Executive Officer and President
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EXHIBIT 31.2
CHIEF FINANCIAL OFFICER SECTION 302 CERTIFICATION
I, Shelly Schaffer, certify that:
1. I have reviewed this annual report on Form 10-K of SupportSoft, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 10, 2009
By:
/s/ SHELLY SCHAFFER
Shelly Schaffer
Chief Financial Officer and Senior Vice President of Finance
and Administration
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
STATEMENT OF CHIEF EXECUTIVE OFFICER UNDER 18 U.S.C. § 1350
I, Joshua Pickus, the Chief Executive Officer of SupportSoft, Inc. (the “Company”), certify for the purposes of section 1350 of chapter
63 of title 18 of the United States Code that, to the best of my knowledge,
(i) the Annual Report of the Company on Form 10-K for the year ended December 31, 2008 (the “Report”), fully complies
with the requirements of section 13(a) of the Securities Exchange Act of 1934, and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
EXHIBIT 32.1(1)
Date: March 10, 2009
/s/ JOSHUA PICKUS
Joshua Pickus
Chief Executive Officer and President
A signed original of this written statement required by 18 U.S.C. § 1350 has been provided to SupportSoft, Inc. and will be retained by SupportSoft, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.
(1) The material contained in this Exhibit 32.1 is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities
Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language contained in such
filing, except to the extent that the registrant specifically incorporates it by reference.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
STATEMENT OF CHIEF FINANCIAL OFFICER UNDER 18 U.S.C. § 1350
I, Shelly Schaffer, the Chief Financial Officer of SupportSoft, Inc. (the “Company”), certify for the purposes of section 1350 of chapter
63 of title 18 of the United States Code that, to the best of my knowledge,
(i) the Annual Report of the Company on Form 10-K for the year ended December 31, 2008 (the “Report”), fully complies
with the requirements of section 13(a) of the Securities Exchange Act of 1934, and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
EXHIBIT 32.2(1)
Date: March 10, 2009
/s/ SHELLY SCHAFFER
Shelly Schaffer
Chief Financial Officer and Senior Vice President of
Finance and Administration
A signed original of this written statement required by 18 U.S.C. § 1350 has been provided to SupportSoft, Inc. and will be retained by SupportSoft, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.
(1) The material contained in this Exhibit 32.1 is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities
Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language contained in such
filing, except to the extent that the registrant specifically incorporates it by reference.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.