Support.com, Inc. (Form: 10-K, Received: 03/07/2017 06:03:58)

Long-Lived Assets

We record purchased identifiable intangible assets at fair value. Useful life is estimated as the period over which the identifiable intangible assets are expected to contribute directly or indirectly to the future cash flows of the Company. As we do not believe that we can reliably determine a pattern by which the economic benefits of these identifiable intangible assets will be consumed, management adopted straight-line amortization in accordance with ASC 350. The original cost is amortized on a straight-line basis over the estimated useful life of each identifiable intangible asset.

The Company assesses its long-lived assets, which includes property and equipment and identifiable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360, Property, Plant and Equipment - Impairment or Disposal of Long-Lived Assets . An impairment loss would be recognized when the sum of the future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. If our estimates regarding future cash flows derived from such assets were to change, we may record an impairment charge to the value of these assets. Such impairment loss would be measured as the difference between the carrying amount of the asset and its fair value.

Revenue Recognition

For all transactions, we recognize revenue only when all of the following criteria are met:

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Persuasive evidence of an arrangement exists;

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Delivery has occurred;

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Collection is considered probable; and

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The fees are fixed or determinable.

We consider all arrangements with payment terms longer than 90 days not to be fixed or determinable. If the fee is considered not to be fixed or determinable, revenue is recognized as payment becomes due from the customer provided all other revenue recognition criteria have been met.

Services Revenue

Services revenue is comprised primarily of fees for technology support services. Our service programs are designed for both the consumer and SMB markets, and include computer and mobile device set-up, security and support, virus and malware removal and wireless network set-up, and automation system onboarding and support.

We offer technology services to consumers and SMBs, primarily through our partners (which include communications providers, retailers, technology companies and others) and to a lesser degree directly through our website at www.support.com. We transact with customers via reseller programs, referral programs and direct transactions. In reseller programs, the partner generally executes the financial transactions with the customer and pays a fee to us which we recognize as revenue when the service is delivered. In referral programs, we transact with the customer directly and pay a referral fee to the referring party. Referral fees are generally expensed in the period in which revenues are recognized. In such referral programs, since we are the primary obligor and bear substantially all risks associated with the transaction, we record the gross amount of revenue. In direct transactions, we sell directly to the customer at the retail price.

The technology services described above include four types of offerings:

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Hourly-Based Services - In connection with the provisions of certain services programs, fees are calculated based on contracted hourly rates with partners. For these programs, we recognize revenue as services are performed, based on billable hours of work delivered by our technology specialists. These services programs also include performance standards, which may result in incentives or penalties, which are recognized as earned or incurred.

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Subscriptions - Customers purchase subscriptions or “service plans” under which certain services are provided over a fixed subscription period. Revenues for subscriptions are recognized ratably over the respective subscription periods.

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Incident-Based Services - Customers purchase a discrete, one-time service. Revenue recognition occurs at the time of service delivery. Fees paid for services sold but not yet delivered are recorded as deferred revenue and recognized at the time of service delivery.

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Service Cards / Gift Cards - Customers purchase a service card or a gift card, which entitles the cardholder to redeem a certain service at a time of their choosing. For these sales, revenue is deferred until the card has been redeemed and the service has been provided.

In certain cases, we are paid for services that are sold but not yet delivered. We initially record such balances as deferred revenue, and recognize revenue when the service has been provided or, on the non-subscription portion of these balances, when the likelihood of the service being redeemed by the customer is remote (“services breakage”). Based on our historical redemption patterns for these relationships, we believe that the likelihood of a service being delivered more than 90 days after sale is remote. We therefore recognize non-subscription deferred revenue balances older than 90 days as services revenue. For the years ended December 31, 2016, 2015 and 2014, services breakage revenue accounted for less than 1% of total services revenue.

Partners are generally invoiced monthly. Fees from customers via referral programs and direct transactions are generally paid with a credit card at the time of sale. Revenue is recognized net of any applicable sales tax.

We generally provide a refund period on services, during which refunds may be granted to customers under certain circumstances, including inability to resolve certain support issues. For our partnerships, the refund period varies by partner, but is generally between 5 and 14 days. For referral programs and direct transactions, the refund period is generally 5 days. For all channels, we recognize revenue net of refunds and cancellations during the period. Refunds and cancellations have not been material.

Services revenue also includes fees from licensing of our Support.com cloud-based software. In such arrangements, customers receive a right to use our Support.com Cloud in their own technology support organizations. We license our cloud-based software using a SaaS model under which customers cannot take possession of the technology and pay us on a per-user basis during the term of the arrangement. In addition, services revenue includes fees from implementation services of our cloud-based software. Currently, revenues from implementation services are recognized ratably over the customer life which is estimated as the term of the arrangement once the Support.com Cloud services are made available to customers. We generally charge for these services on a time and material basis.

Software and Other Revenue

Software and other revenue is comprised primarily of fees for end-user software products provided through direct customer downloads and through the sale of these end-user software products via partners. Our software is sold to customers as a perpetual license or as a fixed period subscription. We act as the primary obligor and generally control fulfillment, pricing, product requirements, and collection risk and therefore we record the gross amount of revenue. We provide a 30-day money back guarantee for the majority of our end-user software products.

For certain end-user software products, we sell perpetual licenses. We provide a limited amount of free technical support to customers. Since the cost of providing this free technical support is insignificant and free product enhancements are minimal and infrequent, we do not defer the recognition of revenue associated with sales of these products.

For certain of our end-user software products (principally SUPERAntiSpyware), we sell licenses for a fixed subscription period. We provide regular, significant updates over the subscription period and therefore recognize revenue for these products ratably over the subscription period.

Other revenue consists primarily of revenue generated through partners advertising to our customer base in various forms, including toolbar advertising, email marketing, and free trial offers. We recognize other revenue in the period in which our partners notify us that the revenue has been earned.

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Research and Development

Research and development expenditures are charged to operations as they are incurred.

Software Development Costs

Based on our product development process, technological feasibility is established on the completion of a working model. The Company determined that technological feasibility is reached shortly before the product is ready for general release and therefore development costs incurred have been insignificant. Accordingly, we have charged all such costs to research and development expense in the period in which they were incurred in the consolidated statements of operations.

Purchased Technology for Internal Use

We capitalize costs related to software that we license and incorporate into our product and service offerings or develop for internal use.

Advertising Costs

Advertising costs are recorded as sales and marketing expense in the period in which they are incurred. Advertising expense was $0.8 million, $1.2 million, and $2.2 million for the years ended December 31, 2016, 2015, and 2014, respectively.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed using our net income (loss) and the weighted average number of common shares outstanding during the reporting period. Diluted earnings (loss) per share is computed using our net income (loss) and the weighted average number of common shares outstanding, including the effect of the potential issuance of common stock such as stock issuable pursuant to the exercise of stock options and vesting of restricted stock units (“RSUs”) using the treasury stock method when dilutive. We excluded outstanding weighted average stock options of 1.4 million, 1.4 million and 1.3 million for the years ended December 31, 2016, 2015, and 2014 , respectively, from the calculation of diluted earnings per common share because the exercise prices of these stock options were greater than or equal to the average market value of the common stock. These stock options could be included in the calculation in the future if the average market value of the common stock increases and is greater than the exercise price of these stock options. Since we reported a net loss for the years ended December 31, 2016 and 2015, 23,000 and 29,000 outstanding options and RSUs were also excluded from the computation of diluted loss per share since their effect would have been anti-dilutive.

The following table sets forth the computation of basic and diluted net earnings (loss) per share (in thousands, except per share amounts):

	Year Ended December 31,
	2016			2015			2014
Net loss	$	(15,956	)	$	(27,041	)	$	(3,483	)
Basic:
Weighted-average shares of common stock outstanding		18,409			18,182			17,944
Shares used in computing basic net loss per share		18,409			18,182			17,944
Basic net loss per share	$	(0.87	)	$	(1.49	)	$	(0.19	)
Diluted:
Weighted-average shares of common stock outstanding		18,409			18,182			17,944
Add: Common equivalent shares outstanding		—			—			—
Shares used in computing diluted net loss per share		18,409			18,182			17,944
Diluted net loss per share	$	(0.87	)	$	(1.49	)	$	(0.19	)

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Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, which relate entirely to accumulated foreign currency translation losses associated with our foreign subsidiaries and unrealized losses on investments, consisted of the following (in thousands):

	Foreign Currency Translation Losses			Unrealized Gains (Losses) on Investments			Total
Balance as of December 31, 2014	$	(1,975	)	$	(53	)	$	(2,028	)
Current-period other comprehensive loss		(236	)		(38	)		(274	)
Balance as of December 31, 2015	$	(2,211	)	$	(91	)	$	(2,302	)
Current-period other comprehensive gain (loss)		(77	)		50			(27	)
Balance as of December 31, 2016	$	(2,288	)	$	(41	)	$	(2,329	)

Realized gains/losses on investments reclassified from accumulated other comprehensive loss are reported as interest income and other, net in our consolidated statements of operations.

The amounts noted in the consolidated statements of comprehensive loss are shown before taking into account the related income tax impact. The income tax effect allocated to each component of other comprehensive income for each of the periods presented is not significant.

Stock-Based Compensation

We apply the provisions of ASC 718, Compensation - Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based payment awards, including grants of stock and options to purchase stock, made to employees and directors based on estimated fair values.

Determining Fair Value of Share-Based Payments

Valuation and Attribution Method: Stock-based compensation expense for service-based stock options and employee stock purchase plan (“ESPP”) is estimated at the date of grant based on the fair value of awards using the Black-Scholes-Merton option pricing model. Stock-based compensation expense for market-based stock options is estimated at the date of grant based on the fair value of awards using the Monte-Carlo simulation model. Stock-based compensation expense for RSUs is estimated at the date of grant based on the number of shares granted and the quoted price of the Company’s common stock on the grant date. Stock options vest on a graded schedule; however, we recognize the expense over the requisite service period based on the straight-line method for service-based stock options and the accelerated method for market-based stock options, which is generally four years for stock options, three years or four years for RSUs and six months for ESPP, net of estimated forfeitures. 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. The Company estimates pre-vesting forfeitures at the time of grant by analyzing historical data and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The total expense recognized over the vesting period will only be for those awards that ultimately vest.

Risk-free Interest Rate: We base our risk-free interest rate on the yield currently available on U.S. Treasury zero coupon issues for the expected term of the stock options.

Expected Term: Our expected term represents the period that our 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: Our expected volatility represents the amount by which the stock price is expected to fluctuate throughout the period that the stock option is outstanding. The expected volatility is based on the historical volatility of the Company’s stock.

Expected Dividend: We use a dividend yield of zero, as we have never paid cash dividends and do not expect to pay dividends in the future.

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The fair value of our stock-based awards was estimated using the following weighted average assumptions for the years ended December 31, 2016, 2015, and 2014:

	Stock Option Plan									Employee Stock Purchase Plan
	2016			2015			2014			2016			2015			2014
Risk-free interest rate		0.9	%		1.2	%		1.6	%		0.5	%		0.2	%		0.1	%
Expected term (in years)		3.9			3.8			5.1			0.5			0.5			0.5
Volatility		48.3	%		53.9	%		57.3	%		46.7	%		41.2	%		49.1	%
Expected dividend		0	%		0	%		0	%		0	%		0	%		0	%
Weighted average grant-date fair value	$	0.32		$	0.68		$	1.17		$	0.24		$	0.34		$	0.64

We recorded the following stock-based compensation expense for the fiscal years ended December 31, 2016, 2015, and 2014 (in thousands):

	For the Year Ended December 31,
	2016		2015		2014
Stock-based compensation expense related to grants of:
Stock options	$	387	$	989	$	1,110
ESPP		40		65		110
RSU		1,560		1,860		1,654
	$	1,987	$	2,914	$	2,874
Stock-based compensation expense recognized in:
Cost of service	$	172	$	234	$	267
Cost of software and others		5		10		14
Research and development		400		589		479
Sales and marketing		172		381		413
General and administrative		1,238		1,700		1,701
	$	1,987	$	2,914	$	2,874

Cash (used in) proceeds from the issuance of common stock, net of repurchase of common stock, was $(42,000), $26,000, and $1.1 million for the years ended December 31, 2016, 2015, and 2014, respectively. No income tax benefit was realized from stock option exercises during the years ended December 31, 2016 and December 31, 2015. An income tax charge of $8,000 was incurred from stock option exercises during the year ended December 31, 2014. In accordance with ASC 718, 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 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

We generally provide a refund period on sales, during which refunds may be granted to consumers under certain circumstances, including our inability to resolve certain support issues. For our partnerships, the refund period varies by partner, but is generally between 5-14 days. For referral programs and direct transactions, the refund period is generally 5 days. For the majority of our end-user software products, we provide a 30-day money back guarantee. For all channels, we recognize revenue net of refunds and cancellations during the period. Refunds and cancellations have not been material to date.

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We generally agree to indemnify our customers against legal claims that our end-user software products infringe certain third-party intellectual property rights. As of December 31, 2016, we were not required to make any payment resulting from infringement claims asserted against our customers and have not recorded any related accruals.

Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

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Level 1 - Quoted prices in active markets for identical assets or liabilities.

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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.

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Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

In accordance with ASC 820, the following table represents our fair value hierarchy for our financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of December 31, 2016 and 2015 (in thousands):

As of December 31, 2016	Level 1		Level 2		Level 3		Total
Money market funds	$	9,297	$	—	$	—	$	9,297
Certificates of deposit		—		1,273		—		1,273
Commercial paper		—		4,989		—		4,989
Corporate notes and bonds		—		19,317		—		19,317
U.S. government agency securities		—		10,940		—		10,940
Total	$	9,297	$	36,519	$	—	$	45,816

As of December 31, 2015	Level 1		Level 2		Level 3		Total
Money market funds	$	19,112	$	—	$	—	$	19,112
Certificates of deposit		—		2,979		—		2,979
Commercial paper		—		996		—		996
Corporate notes and bonds		—		31,172		—		31,172
U.S. government agency securities		—		2,989		—		2,989
Total	$	19,112	$	38,136	$	—	$	57,248

For short-term investments, measured at fair value using Level 2 inputs, we review trading activity and pricing for these investments as of the measurement date. When sufficient quoted pricing for identical securities is not available, we use market pricing and other observable market inputs for similar securities obtained from various third party data providers. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data. Our policy is that the end of our quarterly reporting period determines when transfers of financial instruments between levels are recognized.

Segment Information

In accordance with ASC 280, Segment Reporting , the Company reports its operations as a single operating segment and has a single reporting unit. Our Chief Operating Decision Maker (“CODM”), our Chief Executive Officer, manages our operations on a consolidated basis for purposes of allocating resources. When evaluating performance and allocating resources, the CODM reviews financial information presented on a consolidated basis.

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Revenue from customers located outside the United States was less than 1% of total for the years ended December 31, 2016, 2015, and 2014.

For the year ended December 31, 2016, Comcast and Office Depot accounted for approximately 60% and 15%, respectively, of our total revenue. For the year ended December 31, 2015, Comcast and Office Depot accounted for approximately 68% and 15%, respectively, of our total revenue. For the year ended December 31, 2014, Comcast and Office Depot accounted for 64% and 16%, respectively, of our total revenue. There were no other customers that accounted for 10% or more of our total revenue in any of the periods presented.

Long-lived assets are attributed to the geographic location in which they are located. We include in long-lived assets all tangible assets. Long-lived assets by geographic areas are as follows (in thousands):

	December 31,
	2016		2015
United States	$	1,681	$	1,956
India		23		33
Philippines		2		—
Total	$	1,706	$	1,989

Financial Statement Reclassification

Certain expenses accrued at December 31, 2015 relating to employee commissions and bonuses were reclassified from Other accrued liabilities to Accrued compensation to conform to the presentation of those liabilities in the balance sheet for the year ended December 31, 2016. These reclassifications have no impact on previously reported total revenue, net income (loss), net assets, or total cash flows.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) , which provides guidance for revenue recognition and has been further clarified and amended in 2015 and 2016. ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to customers at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current U.S. GAAP. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective in the first quarter of 2018. Early adoption is permitted although the Company does not intend to early adopt the standard. In adopting ASU 2014-09, companies may use either a full retrospective approach or a modified retrospective approach. Under the modified retrospective approach, the Company would not restate the prior financial statements presented. This guidance requires a company to provide additional disclosures of the amount by which each financial statement line item is affected in the current reporting period during 2018 as compared to the guidance that was in effect before the change, and an explanation of the reasons for significant changes, if any. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.

In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. ASU 2014-15 explicitly requires management to evaluate, at each annual or interim reporting period, whether there are conditions or events that exist which raise substantial doubt about an entity's ability to continue as a going concern within one year after the date the financial statements are issued and to provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and earlier application is permitted. The Company is adopting the new standard on a prospective basis for the fiscal year ended December 31, 2016.

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In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740), which simplifies the presentation of deferred income taxes. Under ASU 2015-17, deferred tax assets and liabilities are required to be classified as noncurrent, eliminating the prior requirement to separate deferred tax assets and liabilities into current and noncurrent. While the guidance is effective for the Company beginning January 1, 2017, the Company early adopted the standard in Q1 2016. As the Company’s deferred tax assets are all noncurrent, no reclassification is necessary and the adoption of ASU 2015-17 has not had a material effect on our consolidated financial statements or disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which provides guidance for accounting for leases. Under ASU 2016-02, the Company will be required to recognize the assets and liabilities for the rights and obligations created by leased assets. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718) , Improvements to Employee Share-Based Payment Accounting which includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. Excess tax benefits for share-based payments will be recorded as a reduction of income taxes and reflected in operating cash flows upon the adoption of this ASU. Excess tax benefits are currently recorded in equity and as financing activity under the current rules. ASU 2016-09 is effective for annual and interim reporting periods beginning after December 15, 2016. The adoption of ASU 2016-09 is not expected to have a material effect on our consolidated financial statements or disclosures.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory (Topic 740) , which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transaction occurs as opposed to deferring tax consequences and amortizing them into future periods. This update is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. A modified retrospective approach with a cumulative-effect adjustment directly to retained earnings at the beginning of the period of adoption is required. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position or results of operations.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations – Clarifying the Definition of a Business (Topic 805) , with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The new guidance is effective for annual and interim periods beginning after December 15, 2017. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position and results of operations.

Note 2. Warrants

On October 25, 2010, we entered into a Support Services Agreement (the “Customer Agreement”) with Comcast Cable Communications Management, LLC (“Comcast”) under which Support.com provides technology support services to customers of Comcast in exchange for fees. In connection with the Customer Agreement, Support.com and Comcast entered into a Warrant Agreement, under which Support.com agreed to issue to Comcast warrants to purchase up to 325,000 shares of Support.com common stock in the future in the event that Comcast meets specified sales milestones under the Customer Agreement. Each warrant, if issued, would have an exercise price per share of $14.8494 and a term of three years from issuance. On September 27, 2011, the Company and Comcast amended the Warrant Agreement to extend the expiration date for the performance milestones while maintaining the previously agreed revenue thresholds. The warrants were valued as they were earned, and the resulting value was recorded as a charge against revenue in the period in which the performance milestone was met and the warrant was earned. During the third and fourth quarters of 2013, the performance milestones for the first and second tranche of warrants were met, respectively. Therefore, we issued to Comcast warrants to purchase a total of 163,333 shares of our common stock (warrants to purchase 55,333 shares were issued on September 30, 2013 and warrants to purchase 108,000 shares were issued on December 31, 2013) and recorded warrant-related charges of $777,000 against revenue for the year ended December 31, 2013. The first tranche, consisting of warrants to purchase 55,333 shares, and the second tranche, consisting of warrants to purchase 108,000 shares expired on September 30, 2016 and December 31, 2016, respectively. The right to receive the final tranche expired on March 31, 2014 due to the termination of the Customer Agreement on such date.

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Note 3. Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation, and consist of the following as of December 31, 2016 and 2015 (in thousands):

	December 31,
	2016			2015
Computer equipment and software	$	7,145		$	4,976
Furniture and office equipment		165			187
Leasehold improvements		359			359
Construction in progress		—			1,710
		7,669			7,232
Accumulated depreciation		(5,963	)		(5,243	)
	$	1,706		$	1,989

Depreciation expense was $720,000, $324,000, and $275,000 for the years ended December 31, 2016, 2015, and 2014, respectively.

Note 4. Intangible Assets

Amortization expense related to intangible assets was $1.0 million, $1.1 million, and $1.1 million for the years ended December 31, 2016, 2015, and 2014, respectively.

In December 2006, we acquired the use of a toll-free telephone number for cash consideration of $250,000. This asset has an indefinite useful life. 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):

	Non- compete			Partner Relationships			Customer Base			Technology Rights			Tradenames			Indefinite Life Intangibles		Total
As of December 31, 2016
Gross carrying value	$	593		$	145		$	641		$	5,330		$	760		$	250	$	7,719
Accumulated amortization		(581	)		(145	)		(637	)		(5,330	)		(760	)		—		(7,453	)
Net carrying value	$	12		$	—		$	4		$	—		$	—		$	250	$	266

As of December 31, 2015
Gross carrying value	$	593		$	145		$	641		$	5,330		$	760		$	250	$	7,719
Accumulated amortization		(555	)		(145	)		(545	)		(4,474	)		(706	)		—		(6,425	)
Net carrying value	$	38		$	—		$	96		$	856		$	54		$	250	$	1,294

The estimated future amortization expense of intangible assets, with the exception of the indefinite-life intangible assets as of December 31, 2016 is as follows (in thousands):

Fiscal Year	Amount
2017	$	16
Total	$	16

Weighted average remaining useful life	0.36 years

Note 5. Commitments and Contingencies

Lease commitments

Headquarters office lease. On June 7, 2012, we entered into a sublease and master landlord consent agreement for our headquarters office facility, covering approximately 21,620 square feet and located in Redwood City, California. This original lease, which was scheduled to expire on February 18, 2017, has been extended with another lessor through April 30, 2017. The original lease provides for escalating payments over the term and rent expense is recognized on a straight-line basis.

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Other facility leases. We lease our facilities under non-cancelable operating lease agreements, which expire at various dates through August 2021.

Total facility rent expense pursuant to all operating lease agreements was $620,000, $548,000, and $550,000 for the years ended December 31, 2016, 2015, and 2014, respectively.

As of December 31, 2016, minimum payments due under all non-cancelable lease agreements were as follows (in thousands):

Years ending December 31,	Operating Leases
2017	$	531
2018		150
2019		107
2020		107
Thereafter		71
Total minimum lease and principal payments	$	966

Legal contingencies

On October 11, 2016 the Wage and Hour Division of the U.S. Department of Labor (the “DOL”) notified the Company that it would be conducting an audit of the Company relating to compliance with the Fair Labor Standards Act (“FLSA”). The DOL has indicated that the focus of the audit is directed to compliance with overtime requirements related to our technology specialists who work from home providing technical support services. The audit commenced on October 20, 2016 and is ongoing as of the date of this report. While a loss may be reasonably possible, an estimate of loss, if any, cannot reasonably be determined as of the date of this report. On January 24, 2017 the DOL notified the Company that it would be conducting an audit of the Company relating to compliance with the Family and Medical Leave Act of 1993. As of the date of this report the audit has not yet commenced.

On December 20, 2016 the Federal Trade Commission (“FTC”) issued a Civil Investigative Demand to the Company requiring the Company to produce certain documents and materials and to answer certain interrogatories relating to PC Healthcheck, a software program provided by the Company to certain third parties. The FTC has not alleged a factual basis underlying the investigation. On January 17, 2017 the Consumer Protection Division of the Office of Attorney General, State of Washington (“Washington AG”), issued a Civil Investigative Demand to the Company requiring the Company to produce certain documents and materials and to answer certain interrogatories relating to PC Healthcheck. The Washington AG has not alleged a factual basis underlying the investigation. The Company is in the process of responding to both Civil Investigative Demands.

We are also subject to other routine legal proceedings, as well as demands, claims and threatened litigation, that arise in the normal course of our business, potentially including assertions that we may be infringing patents or other intellectual property rights of others. We currently do not believe that the ultimate amount of liability, if any, for any pending claims of any type (alone or combined) will materially affect our financial position, results of operations or cash flows. The ultimate outcome of any litigation is uncertain, however, any unfavorable outcomes could have a material negative impact on our financial condition and operating results. Regardless of outcome, litigation can have an adverse impact on us because of defense costs, negative publicity, diversion of management resources and other factors.

Guarantees

We have identified guarantees in accordance with ASC 450, Contingencies . This guidance stipulates that an entity must recognize an initial liability for the fair value, or market value, of the obligation it assumes under the guarantee at the time it issues such a guarantee, and must disclose that information in its interim and annual financial statements. We have entered into various service level agreements with our partners, in which we may guarantee the maintenance of certain service level thresholds. Under some circumstances, if we do not meet these thresholds, we may be liable for certain financial costs. We evaluate costs for such guarantees under the provisions of ASC 450. We consider such factors as the degree of probability that we would be required to satisfy the liability associated with the guarantee and the ability to make a reasonable estimate of the resulting cost. We incurred zero costs as a result of such obligations during the years ended December 31, 2016 and 2015, respectively. We have not accrued any liabilities related to such obligations in the consolidated financial statements as of December 31, 2016 and 2015.

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Note 6. Restructuring Obligations and Charges

Severance

For the year ended December 31, 2016, the Company recorded $1,033,000 of severance and benefit related costs, respectively, included in restructuring costs in the consolidated statement of operations, related to the termination of 78 employees worldwide as a result of cost reduction efforts. As of December 31, 2016, $983,000 of severance and benefit related costs have been paid. The Company expects the remaining $50,000 in severance to be paid by March 31, 2017.

Contract Terminations

For the year ended December 31, 2016, the Company recorded $113,000 of contract termination costs included in restructuring related costs in the consolidated statement of operations, related to the termination of contracts as a result of cost reduction efforts. As of December 31, 2016, approximately $31,000 of unpaid costs are included in accrued liabilities in the consolidated balance sheet. The Company expects all remaining obligations to be paid by March 31, 2017.

	Contract Terminations			Severance			Total
Restructuring obligations, December 31, 2015	$	-		$	-		$	-
Restructuring costs incurred		113			1,033			1,146
Cash payments		(82	)		(983	)		(1,065	)

Restructuring obligations, December 31, 2016	$	31		$	50		$	81

Note 7. Other Accrued Liabilities

Other accrued liabilities consist of the following (in thousands):

	As of December 31,
	2016		2015
Accrued expenses	$	842	$	1,978
Self-insurance accruals		911		953
Customer deposits		556		570
Restructuring obligations		81		—
Other accrued liabilities		106		122
Total other accrued liabilities	$	2,496	$	3,623

Note 8. Stockholders’ Equity

Equity Compensation Plan

We adopted the amended and restated 2010 Equity and Performance Incentive Plan (the “2010 Plan”), effective as of February 8, 2010. Under the 2010 Plan, the number of shares of Common Stock that may be issued will not exceed in the aggregate 1,666,666 shares of Common Stock plus the number of shares of Common Stock relating to prior awards under the 2000 Omnibus Equity Incentive Plan that expire, are forfeited or are cancelled after the adoption of the 2010 Plan, subject to adjustment as provided in the 2010 Plan. Pursuant to an approval from the Company’s shareholders, the number of shares of Common Stock that may be issued under the 2010 Plan was increased by 750,000 shares of Common Stock in May 2013 and 333,333 shares in June 2016. No grants will be made under the 2010 Plan after the tenth anniversary of its effective date. Under our 2010 Plan, as of December 31, 2016, there were approximately 1.1 million shares available for grant.

We adopted the 2014 Inducement Award Plan (the “Inducement Plan”), effective as of May 13, 2014. Under the Inducement Plan, the number of shares of Common Stock that may be issued will not exceed in the aggregate 666,666 shares of Common Stock. Under our Inducement Plan, as of December 31, 2016, there were approximately 100,000 shares available for grant.

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Stock Options

The following tables represent stock option activity for the years ended December 31, 2016, 2015, and 2014:

	Number of Shares			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding options at December 31, 2013		1,794,130		$	10.65		3.66	$	4,039
Granted		497,583		$	6.69
Exercised		(125,601	)	$	6.96
Forfeited		(994,100	)	$	10.50

Outstanding options at December 31, 2014		1,172,012		$	9.48		6.28	$	3
Granted		297,385		$	4.89
Exercised		—		$	—
Forfeited		(246,241	)	$	10.20

Outstanding options at December 31, 2015		1,223,156		$	8.22		6.66	$	0
Granted		663,431		$	2.51
Exercised		(185	)	$	2.51
Forfeited		(504,559	)	$	7.12

Outstanding options at December 31, 2016		1,381,843		$	14.85		4.95	$	50
Options vested and expected to vest		1,343,443		$	5.96		4.83	$	48
Exercisable at December 31, 2016		892,927		$	7.18		2.69	$	25

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, 2016, 2015, and 2014. This amount will change based on the fair market value of our stock. The total aggregate intrinsic value of options exercised under our stock option plans was $0, $0, and $71,000 for the years ended December 31, 2016, 2015, and 2014, respectively. The total fair value of options vested during 2016, 2015, and 2014 was $1.3 million, $1.0 million, and $845,000, respectively.

During the second quarter of 2014, the Company’s Compensation Committee approved the grant of (i) 250,000 market-based stock options to the Company’s new President and Chief Executive Officer (CEO), and (ii) 37,500 market-based stock options to certain key executives. The market-based stock options shall only be exercisable, to the extent vested, upon the Company’s achievement of specified stock price thresholds. In accordance with ASC 718, the Company estimated the grant-date fair values of its market-based stock options as $3.81 - $3.99 per share with derived service periods of 1.87 - 4.52 years using a Monte-Carlo simulation model. In November 2016 and January 2017, the Company’s President and CEO and the Company’s Chief Operating Officer and Chief Financial Officer, respectively, each submitted their resignations and accordingly forfeited all remaining unvested market-based options. As a result, approximately $0.5 million of previously recognized stock based compensation expense was reversed in November 2016 related to the Company President and CEO’s forfeited options.

On February 11, 2014, Joshua Pickus, the Company’s former President and Chief Executive Officer submitted his written resignation effective April 1, 2014. Also effective April 1, 2014, Mr. Pickus resigned as a member of the Company’s Board of Directors. In connection with Mr. Pickus’ resignation the Compensation Committee of the Board of Directors, considering all relevant factors and the best interest of the Company's stockholders, approved the extension of the post-termination exercise period for the vested portions of each of Mr. Pickus’ outstanding stock option grants from 90 days following his termination to December 31, 2014, in order to permit the orderly exercise and disposition of shares under his vested grants prior to their expiration. No other terms of the stock options were modified. As part of the modification of the stock options, the Company recorded an incremental stock-based compensation expense of approximately $193,000 in the three months ended March 31, 2014.

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At December 31, 2016, there was $592,000 of unrecognized compensation cost related to stock options which is expected to be recognized over a weighted average period of 2.49 years.

Employee Stock Purchase Plan

In the second quarter of 2011, to advance the interests of the Company and its stockholders by providing an incentive to attract, retain and reward eligible employees and by motivating such persons to contribute to the growth and profitability of the Company, the Company’s Board of Directors and stockholders approved a new Employee Stock Purchase Plan and reserved 333,333 shares of our common stock for issuance effective as of May 15, 2011. The ESPP continues in effect for ten (10) years from its effective date unless terminated earlier by the Company. The ESPP consists of six-month offering periods during which employees may enroll in the plan. The purchase price on each purchase date shall not be less than eighty-five percent (85%) of the lesser of (a) the fair market value of a share of stock on the offering date of the offering period, or (b) the fair market value of a share of stock on the purchase date.

A total of 42,268 shares, 47,250 shares, and 39,178 shares were issued under the ESPP during the years ended December 31, 2016, 2015, and 2014, respectively. As of December 31, 2016, approximately 138,252 shares remain available for grant under the ESPP.

Restricted Stock Units

The following table represents RSU activity for the years ended December 31, 2016, 2015, and 2014:

	Number of Shares			Weighted Average Grant-Date Fair Value per Share		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding RSUs at December 31, 2013		552,948		$	15.27		1.57	$	6,287
Awarded		321,363		$	7.08
Released		(162,716	)	$	14.16
Forfeited		(223,651	)	$	14.40
Outstanding RSUs at December 31, 2014		487,944		$	10.53		1.56	$	3,067
Awarded		373,687		$	4.62
Released		(184,828	)	$	10.71
Forfeited		(110,838	)	$	9.69
Outstanding RSUs at December 31, 2015		565,965		$	6.75		1.41	$	1,715
Awarded		203,449		$	2.65
Released		(270,132	)	$	7.14
Forfeited		(147,361	)	$	5.57
Outstanding RSUs at December 31, 2016		351,921		$	4.59		1.06	$	908

On May 16, 2014, pursuant to the employment offer letter as approved by the Company's Compensation Committee, and in addition to the market-based stock options, the Company issued 72,917 RSUs to the Company’s new President and Chief Executive Officer. These RSUs vest over four years from the grant date in equal annual vesting tranches with 25% becoming vested on each of the first four anniversaries of the grant date subject to continuous service.

On June 4, 2014, the Board of Directors of the Company approved, based on recommendations of the Compensation Committee, a grant of 36,075 RSUs to non-employee directors. These RSUs vest upon the first anniversary of the grant date.

At December 31, 2016, there was $1.1 million of unrecognized compensation cost related to RSUs which is expected to be recognized over a weighted average period of 1.64 years.

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Stock Repurchase Program

On April 27, 2005, our Board of Directors authorized the repurchase of up to 666,666 outstanding shares of our common stock. As of December 31, 2016, the maximum number of shares remaining that can be repurchased under this program was 602,467. The Company does not intend to repurchase shares without a pre-approval from its Board of Directors.

Treasury Stock

The Board of Directors has given the Company the general authorization to repurchase shares of its common stock to satisfy withholding tax obligations related to vested RSUs granted to certain key executives and non-employee directors. The Company repurchased 51,366 shares at aggregate costs of approximately $128,000 for the year ended December 31, 2016 to satisfy withholding taxes related to stock-based compensation.

Stockholder Rights Agreement and Tax Benefits Preservation Plan

On April 20, 2016, our Board approved an amendment to the Company’s Rights Agreement, dated as of October 13, 2015 (the “Original Rights Agreement”), by and between the Company and Computershare Trust Company, N.A., as rights agent (the “Rights Agent”). The amendment, which was subsequently executed on that date by the Company and the Rights Agent, changed the Final Expiration Date of the rights under the Original Rights Agreement (the “Original Rights”) from the close of business on October 10, 2016 to the close of business on April 20, 2016. As a result, the Original Rights have expired and the Original Rights Agreement has been terminated.

Also, on April 20, 2016, our Board approved and adopted a Section 382 Tax Benefits Preservation Plan, dated as of April 20, 2016, by and between the Company and Computershare Trust Company, N.A., as Rights Agent (the “Section 382 Tax Benefits Preservation Plan”). Pursuant to the Section 382 Tax Benefits Preservation Plan, the Board declared a dividend of one preferred share purchase right (each, a “Right”) for each outstanding share of common stock, par value $0.0001, of the Company (the “Common Stock”). The dividend is distributable on May 3, 2016 to stockholders of record as of the close of business on May 3, 2016. Subject to the terms, provisions and conditions of the Section 382 Tax Benefits Preservation Plan, if the Rights become exercisable, each Right would initially represent the right to purchase from the Company one one-thousandth of a share (a “Unit”) of a newly-designated series of preferred stock, Series B Junior Participating Preferred Stock, par value $0.0001 per share, of the Company (the “Series B Preferred Stock”) for a purchase price of $3.00 (the “Purchase Price”). If issued, each Unit of Series B Preferred Stock would give the stockholder approximately the same dividend, voting and liquidation rights as does one share of the Common Stock. However, prior to exercise, a Right does not give its holder any rights as a stockholder of the Company, including, without limitation, any dividend, voting or liquidation rights. Until the rights become exercisable, they will not be evidenced by separate certificates and will trade automatically with shares of the Common Stock.

Our Board adopted the Section 382 Tax Benefits Preservation Plan in an effort to diminish the risk that the Company’s ability to utilize its net operating loss carryovers (collectively, the “NOLs”) to reduce potential future federal income tax obligations may become substantially limited. Under the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated thereunder by the U.S. Treasury Department, these NOLs may be “carried forward” in certain circumstances to offset any current and future taxable income and thus reduce federal income tax liability, subject to certain requirements and restrictions. However, if the Company experiences an “ownership change,” within the meaning of Section 382 of the Code (“Section 382”), its ability to utilize the NOLs may be substantially limited, and the timing of the usage of the NOLs could be substantially delayed, which could therefore significantly impair the value of those assets. Section 382 and the Treasury regulations thereunder make the Company’s commercial risk from a Section 382 limitation triggering event particularly acute given the relative size of its current cash on hand to its market capitalization. As applied to the Company’s current cash position and current market capitalization, if the Company was to currently experience an ownership change, it would be subject to Section 382’s “non-business asset” limitation which would result in the Company permanently losing all $136.8 million of its NOLs.

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The Section 382 Tax Benefits Preservation Plan is intended to act as a deterrent to any person or group acquiring beneficial ownership of 4.99% or more of the outstanding Common Stock without the approval of the Board (such person, an “Acquiring Person”). A person who acquires, without the approval of the Board, beneficial ownership (other than as a result of repurchases of stock by the Company, dividends or distributions by the Company or certain inadvertent actions by stockholders) of 4.99% or more of the outstanding Common Stock (including any ownership interest held by that person's Affiliates and Associates as defined under the Section 382 Tax Benefits Preservation Plan) could be subject to significant dilution. Stockholders who beneficially own 4.99% or more of the outstanding Common Stock prior to the first public announcement by the Company of the Board’s adoption of the Section 382 Tax Benefits Preservation Plan will not trigger the Section 382 Tax Benefits Preservation Plan so long as they do not acquire beneficial ownership of additional shares of the Common Stock (other than pursuant to a dividend or distribution paid or made by the Company on the outstanding shares of Common Stock or pursuant to a split or subdivision of the outstanding shares of Common Stock) at a time when they still beneficially own 4.99% or more of such stock. In addition, the Board retains the sole discretion to exempt any person or group from the penalties imposed by the Section 382 Tax Benefits Preservation Plan.

In the event that a person becomes an Acquiring Person, each holder of a Right, other than Rights that are or, under certain circumstances, were beneficially owned by the Acquiring Person (which will thereupon become void), will thereafter have the right to receive upon exercise of a Right and payment of the Purchase Price, and subject to the terms, provisions and conditions of the Section 382 Tax Benefits Preservation Plan, a number of shares of the Common Stock having a market value of two times the Purchase Price.

Note 9. Income Taxes

The components of our loss before income taxes are as follows (in thousands):

	Year Ended December 31,
	2016			2015			2014
United States	$	(16,463	)	$	(25,754	)	$	(3,412	)
Foreign		530			(2,280	)		556
Total		(15,933	)		(28,034	)		(2,856	)
Income from discontinued operations, before income taxes		—			—			—
Loss from continuing operations, before income taxes	$	(15,933	)	$	(28,034	)	$	(2,856	)

The provision (benefit) for income taxes from continuing operations consisted of the following (in thousands):

	Year Ended December 31,
Current:	2016		2015			2014
Federal	$	—	$	—		$	—
State		3		23			34
Foreign		287		179			380
Total Current		290		202			414
Deferred
Federal		—		(1,119	)		265
State		—		(84	)		19
Foreign		17		36			42
Total Deferred		17		(1,167	)		326
Provision (benefit) for income taxes	$	307	$	(965	)	$	740

The provision (benefit) for income taxes is comprised of estimates of current taxes due in domestic and foreign jurisdictions.

The reconciliation of the Federal statutory income tax rate to our effective income tax rate is as follows (in thousands):

	Year Ended December 31,
	2016			2015			2014
Provision at Federal statutory rate	$	(5,517	)	$	(9,812	)	$	(1,000	)
State taxes		3			(60	)		53
Permanent differences/other		156			1,370			633
Stock-based compensation		1,157			762			2,311
Federal valuation allowance (used) provided		4,508			6,775			(1,257	)
Provision (benefit) for income taxes	$	307		$	(965	)	$	740

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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows (in thousands):

	December 31,
	2016			2015
Deferred Tax Assets
Fixed assets	$	133		$	163
Deferred revenue		39			28
Accruals and reserves		324			428
Stock options		945			1,706
Net operating loss carryforwards		48,852			44,863
Federal and state credits		3,320			3,323
Foreign credits		156			152
Intangible assets		4,167			4,259
Research and development expense		4,347			2,539
Gross deferred tax assets		62,283			57,461
Valuation allowance		(62,079	)		(57,245	)
Total deferred tax assets		204			216
Deferred Tax Liabilities		—			—
Net deferred tax asset/liabilities	$	204		$	216

ASC 740, Income Taxes , provides for the recognition of deferred tax assets if realization of such assets is more likely than not to occur. Based on management’s review of both the positive and negative evidence, which includes our historical operating performance, reported cumulative net losses since inception and difficulty in accurately forecasting its results, the Company has concluded that it is not more likely than not that the Company will be able to realize all of the Company’s U.S. deferred tax assets. Therefore, the Company has provided a full valuation allowance against its U.S. deferred tax assets.

Based on management’s review of both positive and negative evidence, which includes the historical operating performance of our Canadian subsidiary, the Company has concluded that it is more likely than not that the Company will be able to realize a portion of the Company’s Canadian deferred tax assets. Therefore, the Company has a partial valuation allowance on Canadian deferred tax assets. There is no valuation allowance against the Company’s Indian deferred tax assets. The Company reassesses the need for its valuation allowance on a quarterly basis.

Based on management’s review discussed above, the realization of deferred tax assets is dependent on improvements over present levels of consolidated pre-tax income. Until the Company is consistently profitable in the U.S., it will not realize its deferred tax assets. Deferred income taxes have not been provided on the cumulative undistributed earnings of foreign subsidiaries. The amount of such earnings at December 31, 2016 was $1.7 million. These earnings have been permanently reinvested and the Company does not plan to initiate any action that would precipitate the payment of income tax thereon. The US tax impact, if such amounts were remitted, would be zero due to the Company’s net operating losses. Foreign withholding taxes on amounts remitted would be $725,000.

The net valuation allowance increased by approximately $4.8 million and $7.6 million during the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016, $4.1 million of the valuation allowance against federal and state net operating loss carryforwards relates to the tax benefit of stock option exercises that, when realized, will be recorded as a credit to additional paid in capital rather than as a reduction of the provision for income taxes. As of December 31, 2016, the Company had Federal and state net operating loss carryforwards of approximately $136.8 million and $75.7 million, respectively. The Federal net operating loss and credit carryforwards will expire at various dates beginning in 2020 through 2036, if not utilized. The state net operating loss carryforwards will expire at various dates beginning in 2017 through 2036, if not utilized.

The Company also had Federal and state research and development credit carryforwards of approximately $2.8 million and $2.4 million, respectively. The federal credits expire in varying amounts between 2020 and 2031. The state research and development credit carryforwards do not have an expiration date.

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Utilization of net operating loss carryforwards and credits may be subject to substantial annual limitation or could be lost due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

ASC 740-10 clarifies the accounting for uncertainties in income taxes by prescribing guidance for the recognition, de-recognition and measurement in financial statements of income tax positions taken in previously filed tax returns or tax positions expected to be taken in tax returns, including a decision whether to file or not to file in a particular jurisdiction. ASC 740-10 requires the disclosure of any liability created for unrecognized tax benefits. The application of ASC 740-10 may also affect the tax bases of assets and liabilities and therefore may change or create deferred tax liabilities or assets.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Year Ended December 31,
	2016			2015
Balance at beginning of year	$	2,368		$	2,460
Increase related to prior year tax positions		8			—
Decrease related to prior year tax positions		(4	)		(78	)
Increase related to current year tax positions		82			12
Decrease related to lapse of statute of limitations		(169	)		(26	)
Balance at end of year	$	2,285		$	2,368

The Company’s total amounts of unrecognized tax benefits that, if recognized, that would affect its tax rate are $0.3 million and $0.4 million as of December 31, 2016 and 2015, respectively.

The Company’s policy is to include interest and penalties related to unrecognized tax benefits within its provision for (benefit from) income taxes. The Company had $176,000 accrued for payment of interest and penalties related to unrecognized tax benefits as of December 31, 2016. The Company had $136,000 and $176,000 accrued for payment of interest and penalties related to unrecognized tax benefit as of December 31, 2015 and 2014, respectively.

As of December 31, 2016, the amount of recognized tax benefit where it is reasonably possible that a significant change may occur in the next 12 months is approximately $235,000. The change would result from expiration of a statute of limitations in a foreign jurisdiction.

The Company files federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. Due to its net operating loss carryforwards, the Company’s income tax returns generally remain subject to examination by federal and most state authorities. In our foreign jurisdictions, the 2008 through 2015 tax years remain subject to examination by their respective tax authorities.

We are required to make periodic filings in the jurisdictions where we are deemed to have a presence for tax purposes. We have undergone audits in the past and have paid assessments arising from these audits. Our India entity was issued notices of income tax assessment pertaining to the 2004-2009 fiscal years. The notices claimed that the transfer price used in our inter-company agreements resulted in understated income in our Indian entity. During the fourth quarter of 2014, the Company re-evaluated the probability of its tax position and recorded an ASC 740-10 reserve of $269,000 related to India transfer pricing. The Company’s tax position related to India has not changed in 2016 aside from an additional $3,000 increase to the reserve representing accrued interest. Separately, the Company filed for an Advanced Pricing Agreement (APA) with the India tax authority in Q1 of 2015 and expects that the APA will be completed during 2017. The APA would cover the tax years from 2011-2019. As of December 31, 2016, based upon data available from the Company’s discussions with India Tax Authorities, the Company believes that it would be appropriate to record an ASC 740-10 reserve of $111,000 related to the APA.

We may be subject to other income tax assessments in the future. We evaluate estimated expenses that could arise from those assessments in accordance with ASC 740-10 . We consider such factors as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate on the amount of expenses. We record the estimated liability amount of those assessments that meet the definition of an uncertain tax position under ASC 740-10.

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Note 10. Related Party Transactions

During the second quarter of 2016, the Independent Committee of the Board of Directors approved the reimbursement of $425,000 of proxy contest costs to VIEX Capital Advisors, LLC (“VIEX Capital”), a beneficial owner holding approximately 5.9% of the Company’s voting stock. A member of the Company’s Board of Directors is also managing member of VIEX Capital. As of December 31, 2016, the full amount of the reimbursement has been paid.

Note 11. Quarterly Financial Information (Unaudited)

Selected quarterly financial information for 2016 and 2015 is as follows:

	Fiscal Year 2016 Quarter Ended
	Mar. 31, 2016			Jun. 30, 2016			Sept. 30, 2016			Dec. 31, 2016
	(in thousands, except per share data)
Statements of Operations Data:
Revenue:
Services	$	15,283		$	13,609		$	14,163		$	13,256
Software and other		1,314			1,320			1,364			1,351
Total revenue		16,597			14,929			15,527			14,607
Cost of revenue:
Cost of services		13,860			12,696			11,847			11,842
Cost of software and other		119			138			120			109
Total cost of revenue		13,979			12,834			11,967			11,951
Gross profit		2,618			2,095			3,560			2,656
Operating expenses:
Research and development		1,708			1,420			1,336			1,113
Sales and marketing		2,072			1,866			1,463			1,270
General and administrative		3,248			4,235			2,703			2,772
Amortization of intangible assets and other		267			267			267			227
Restructuring		—			423			—			723
Total operating expenses		7,295			8,211			5,769			6,105
Loss from operations		(4,677	)		(6,116	)		(2,209	)		(3,449	)
Interest income and other, net		133			126			124			135
Loss from continuing operations, before income taxes		(4,544	)		(5,990	)		(2,085	)		(3,314	)
Income tax provision		52			36			44			175
Loss from continuing operations, after income taxes		(4,596	)		(6,026	)		(2,129	)		(3,489	)
Income from discontinued operations, after income taxes		284			—			—			—
Net loss	$	(4,312	)	$	(6,026	)	$	(2,129	)	$	(3,489	)
Basic loss per share:
Loss from continuing operations, after income taxes	$	(0.24	)	$	(0.33	)	$	(0.12	)	$	(0.19	)
Income (loss) from discontinued operations, after income taxes		0.00			0.00			0.00			0.00
Basic net loss per share	$	(0.24	)	$	(0.33	)	$	(0.12	)	$	(0.19	)
Diluted loss per share:
Loss from continuing operations, after income taxes	$	(0.24	)	$	(0.33	)	$	(0.12	)	$	(0.19	)
Income (loss) from discontinued operations, after income taxes		0.00			0.00			0.00			0.00
Diluted net loss per share	$	(0.24	)	$	(0.33	)	$	(0.12	)	$	(0.19	)

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	Fiscal Year 2015 Quarter Ended
	Mar. 31, 2015			Jun. 30, 2015			Sept. 30, 2015			Dec. 31, 2015
	(in thousands, except per share data)
Statements of Operations Data:
Revenue:
Services	$	21,875		$	19,295		$	16,563		$	14,418
Software and other		1,282			1,305			1,302			1,293
Total revenue		23,157			20,600			17,865			15,711
Cost of revenue:
Cost of services		18,394			15,804			14,357			12,884
Cost of software and other		150			131			128			127
Total cost of revenue		18,544			15,935			14,485			13,011
Gross profit		4,613			4,665			3,380			2,700
Operating expenses:
Research and development		1,524			1,930			1,790			1,713
Sales and marketing		2,208			2,089			2,195			2,053
General and administrative		3,060			3,076			3,047			3,828
Amortization of intangible assets and other		268			267			267			267
Goodwill impairment		—			14,240			—			—
Total operating expenses		7,060			21,602			7,299			7,861
Loss from operations		(2,447	)		(16,937	)		(3,919	)		(5,161	)
Interest income and other, net		100			106			113			111
Loss from continuing operations, before income taxes		(2,347	)		(16,831	)		(3,806	)		(5,050	)
Income tax provision (benefit)		126			(1,227	)		60			76
Loss from continuing operations, after income taxes		(2,473	)		(15,604	)		(3,866	)		(5,126	)
Income (loss) from discontinued operations, after income taxes	$	42		$	(5	)	$	(5	)	$	(4	)
Net loss		(2,431	)		(15,609	)		(3,871	)		(5,130	)
Basic earnings (loss) per share:
Loss from continuing operations, after income taxes	$	(0.15	)	$	(0.87	)	$	(0.21	)	$	(0.27	)
Income (loss) from discontinued operations, after income taxes		.03			(0.00	)		(0.00	)		(0.00	)
Basic net loss per share	$	(0.12	)	$	(0.87	)	$	(0.21	)	$	(0.27	)
Diluted earnings (loss) per share:
Loss from continuing operations, after income taxes	$	(0.15	)	$	(0.87	)	$	(0.21	)	$	(0.27	)
Income (loss) from discontinued operations, after income taxes		0.03			(0.00	)		(0.00	)		(0.00	)
Diluted net loss per share	$	(0.12	)	$	(0.87	)	$	(0.21	)	$	(0.27	)

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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 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 (“CEO”) and Chief Financial Officer (“CFO”), 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 on 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 on an evaluation of the effectiveness of disclosure controls and procedures, our CEO and CFO have concluded that as of the end of the period covered by this 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 2016 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 CEO and CFO, 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 (2013 framework). 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 this evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2016 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 Support.com’s Board of Directors.

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ITEM 9B.

OTHER INFORMATION.

None.

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 2016 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 401 of Regulation S-K regarding our executive officers is incorporated herein by reference from the information contained in the section entitled “Executive Compensation and Related Information” in our definitive Proxy Statement.

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.

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 website at http://www.support.com/about/investor-relations/corporategovernance. 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 Support.com, Inc., Investor Relations, 900 Chesapeake Drive, 2nd Floor, Redwood City, CA 94063, or telephoning 1-415-445-3235. We will disclose on our website amendments to or waivers from our Code of Ethics and Business Conduct applicable to our directors or executive officers, including our Chairman, our 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 201 of Regulation S-K regarding securities authorized for issuance under equity compensation plans and 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.

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.

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PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)	The following documents are filed as part of this report:

	(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 Support.com’s annual report on Form 10-K for the year ended December 31, 2001)
3.2		Certificate of Amendment to Support.com’s Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of Support.com’s current report on Form 8-K filed with the SEC on June 23, 2009)
3.3		Certificate of Designation of Series A Junior Participating Preferred Stock of Support.com (incorporated by reference to Exhibit 3.1 of Support.com’s current report on Form 8-K filed with the SEC on October 14, 2015)
3.4		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 of Support.com’s current report on Form 8-K filed with the SEC on February 5, 2016)
3.5		Certificate of Designation of Series B Junior Participating Preferred Stock, as filed with the Secretary of State of Delaware on April 21, 2016 (incorporated by reference to Exhibit 3.1 of Support.com’s current report on Form 8-K filed with the SEC on April 21, 2016)
3.6		Certificate of Amendment to the Restated Certificate of Incorporation of the Company effective January 20, 2017, filed on January 13, 2017 (incorporated by reference to Exhibit 3.1 of Support.com’s Form 8-K filed with the SEC on January 13, 2017
4.1		Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 of Support.com’s quarterly report on Form 10-Q for the quarter ended June 30, 2002)
4.2		Rights Agreement with Computershare Trust Company, N.A., dated October 13, 2015 (incorporated by reference to Exhibit 4.1 of Support.com’s current report on Form 8-K filed with the SEC on October 14, 2015).
4.3		Section 382 Tax Benefits Preservation Plan, dated as of April 20, 2016, by and between Support.com, Inc. and Computershare Trust Company, N.A., as Rights Agent (incorporated by reference to Exhibit 4.1 of Support.com’s current report on Form 8-K filed with the SEC on April 21, 2016)
4.4		Amendment No. 1, dated as of April 20, 2016, to the Rights Agreement, dated as of October 13, 2015, by and between Support.com, Inc. and Computershare Trust Company, N.A., as Rights Agent (incorporated by reference to Exhibit 4.2 to Support.com’s Form 8-A/A filed with the SEC on April 21, 2016)
4.5		Certificate of Elimination of the Series A Preferred Stock filed with the Secretary of State of the State of Delaware on April 21, 2016 (incorporated by reference to Exhibit 4.3 to Support.com’s Form 8-A/A filed with the SEC on April 21, 2016)
4.6		Support.com, Inc. Second Amended and Restated 2010 Equity and Performance Incentive Plan (incorporated by reference to Support.com's proxy statement on Schedule 14a, filed with the SEC on May 12, 2016)
10.1*		Support.com’s amended and restated 2010 Equity and Incentive Compensation Plan (incorporated by reference to Exhibit 4.1 of Support.com’s current report on Form 8-K filed with the SEC on May 21, 2010)

Table of Contents

10.2*		Support.com’s 2010 Employee Stock Purchase Plan (incorporated by reference to Annex A of Support.com’s definitive proxy statement for Support.com’s 2011 annual meeting of stockholders)
10.3*		Support.com’s 2014 Inducement Award Plan (incorporated by reference to Exhibit 10.2 of Support.com’s current report on Form 8-K filed with the SEC on May 19, 2014)
10.4*		Form of Directors’ and Officers’ Indemnification Agreement (incorporated by reference to Exhibit 10.4 of Support.com’s registration statement on Form S-1 filed with the SEC on February 18, 2000)
10.5*		Employment Offer Letter between Support.com and Roop Lakkaraju, dated October 22, 2013 (incorporated by reference to Exhibit 10.1 of Support.com’s current report on Form 8-K filed with the SEC on October 30, 2013)
10.6*		Employment Offer Letter between Support.com and Elizabeth Cholawsky, dated May 8, 2014 (incorporated by reference to Exhibit 10.1 of Support.com’s current report on Form 8-K filed with the SEC on May 19, 2014)
10.7*		Form of Stock Option Grant Notification for Officers and Employees (incorporated by reference to Exhibit 10.1(a) of Support.com’s quarterly report on Form 10-Q filed on November 5, 2009).
10.8		Sublease Agreement with TYCO Healthcare Group LP dated June 7, 2012(incorporated by reference to Exhibit 10.1 of Support.com’s quarterly report on form 10-Q filed with the SEC on August 8, 2012).
10.9		Master Services Agreement Call Handling Services between Comcast and Support.com, effective as of October 1, 2013 (incorporated by reference to Exhibit 10.19 of Support.com’s annual report on Form 10-K filed with the SEC on, 2014) (1)
10.10		Statement of Work Number 1 to Master Services Agreement Call Handling Services between Comcast and Support.com, effective as of October 1, 2013 (incorporated by reference to Exhibit 10.20 of Support.com’s annual report on Form 10-K filed with the SEC on March 7, 2014) (1)
10.11		Change Management Form Number 1 under Statement of Work Number 1 to Master Services Agreement Call Handling Services between Comcast and Support.com, effective as of December 22, 2013 (incorporated by reference to Exhibit 10.24 of Support.com’s annual report on Form 10-K filed with the SEC on March 7, 2014 (1)
10.12		Amendment Number 1 to Statement of Work Number 1 to Master Services Agreement Call Handling Services between Comcast and Support.com, effective as of December 31, 2013 (incorporated by reference to Exhibit 10.21 of Support.com’s annual report on Form 10-K filed with the SEC on March 7, 2014)
10.13		Statement of Work Number 2 to Master Services Agreement Call Handling Services between Comcast and Support.com, effective as of December 31, 2013 (incorporated by reference to Exhibit 10.22 of Support.com’s annual report on Form 10-K filed with the SEC on March 7, 2014) (1)
10.14		Statement of Work Number 3 to Master Services Agreement Call Handling Services between Comcast and Support.com, effective as of March 21, 2014 (incorporated by reference to Exhibit 10.3 of Support.com’s quarterly report on Form 10-Q filed with the SEC on May 8, 2014) (1)
10.15		Change Management Form Number 2 under Statement of Work Number 1 to Master Services Agreement Call Handling Services between Comcast and Support.com, effective as of February 27, 2014 (incorporated by reference to Exhibit 10.1 of Support.com’s quarterly report on Form 10-Q filed with the SEC on May 8, 2014) (1)
10.16		Change Management Form Number 3 under Statement of Work Number 1 to Master Services Agreement Call Handling Services between Comcast and Support.com, effective as of March 4, 2014 (incorporated by reference to Exhibit 10.2 of Support.com’s quarterly report on Form 10-Q filed with the SEC on May 8, 2014) (1)
10.17		First Change Management Form to Statement of Work Number 3 to Master Services Agreement Call Handling Services between Comcast and Support.com, effective as of June 4, 2014 (incorporated by reference to Exhibit 10.1 of Support.com’s current report on Form 8-K filed with the SEC on June 11, 2014)
10.18		Reseller Agreement between Comcast and Support.com, effective as of June 6, 2014 (incorporated by reference to Exhibit 10.1 of Support.com’s current report on Form 8-K filed with the SEC on June 18, 2014) (1)
10.19		Change Management Form Number 4 under Statement of Work Number 1 to Master Services Agreement Call Handling Services between Comcast and Support.com, effective as of September 17, 2014 (incorporated by reference to Exhibit 10.1 of Support.com’s current report on Form 8-K filed with the SEC on October 6, 2014) (1)
10.20		Change Management Form Number 5 under Statement of Work Number 1 to Master Services Agreement Call Handling Services between Comcast and Support.com, effective as of September 18, 2014 (incorporated by reference to Exhibit 10.2 of Support.com’s current report on Form 8-K filed with the SEC on October 6, 2014) (1)

Delaware (State or Other Jurisdiction of Incorporation or Organization)		94-3282005 (I.R.S. Employer Identification No.)

900 Chesapeake Drive, 2nd Floor, Redwood City, CA (Address of Registrant’s Principal Executive Offices)		94063 (Zip Code)

Title of each class		Name of each exchange on which registered
Common Stock, $.0001 par value		The NASDAQ Capital Market
Preferred Stock Purchase Rights		The NASDAQ Capital Market

Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☐
		(Do not check if a smaller reporting company)

	Low		High
Fiscal Year 2016:
First Quarter	$	2.10	$	3.18
Second Quarter	$	2.16	$	3.00
Third Quarter	$	2.37	$	2.94
Fourth Quarter	$	1.98	$	2.61
Fiscal Year 2015:
First Quarter	$	4.68	$	6.24
Second Quarter	$	4.14	$	5.46
Third Quarter	$	3.27	$	4.23
Fourth Quarter	$	2.91	$	3.81

	12/31/11		12/31/12		12/31/13		12/31/14		12/31/15		12/31/16
Support.com, Inc.	$	100.00	$	185.33	$	168.44	$	93.78	$	44.89	$	38.22
Nasdaq Composite Index	$	100.00	$	115.91	$	160.32	$	181.80	$	192.21	$	206.63
Nasdaq Computer Index	$	100.00	$	112.48	$	148.41	$	177.91	$	189.02	$	212.21

			Page
PART I
	ITEM 1.	Business	3
	ITEM 1A.	Risk Factors	8
	ITEM 1B.	Unresolved Staff Comments	20
	ITEM 2.	Properties	20
	ITEM 3.	Legal Proceedings	20
	ITEM 4.	Mine Safety Disclosures	21
PART II			21
	ITEM 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
	ITEM 6.	Selected Consolidated Financial Data	22
	ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
	ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	34
	ITEM 8.	Financial Statements and Supplementary Data	35
		Report of Independent Registered Public Accounting Firm	36
	ITEM 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosures	65
	ITEM 9A.	Controls and Procedures	65
		Report of Management on Internal Control over Financial Reporting	65
	ITEM 9B.	Other Information	66
PART III			66
	ITEM 10.	Directors, Executive Officers and Corporate Governance	66
	ITEM 11.	Executive Compensation	66
	ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	66
	ITEM 13.	Certain Relationships and Related Transactions and Director Independence	66
	ITEM 14.	Principal Accountant Fees and Services	66
PART IV			67
	ITEM 15.	Exhibits and Financial Statement Schedules	67
	Signatures		71
	Exhibit Index		72

($ in thousands)	2016		% Change 2015 to 2016			2015		% Change 2014 to 2015			2014
Services	$	56,311		(22	)%	$	72,151		(7	)%	$	77,272
Software and other		5,349		3	%		5,182		(9	)%		5,719
Total revenue	$	61,660		(20	)%	$	77,333		(7	)%	$	82,991

	Year Ended December 31,
	2016			2015			2014
Services		91	%		93	%		93	%
Software and other		9	%		7	%		7	%
Total revenue		100	%		100	%		100	%

	Payments Due By Period
	Total		Less than 1 year		1 ‑ 3 Years		More than 3 Years
Operating leases	$	966	$	531	$	257	$	178
Uncertain tax positions, including interest and penalties		487		235		—		252
	$	1,453	$	766	$	257	$	430

	Page
Report of Independent Registered Public Accounting Firm	36

Consolidated Balance Sheets	37

Consolidated Statements of Operations	38

Consolidated Statements of Comprehensive Loss	39

Consolidated Statements of Stockholders’ Equity	40

Consolidated Statements of Cash Flows	41

Notes to Consolidated Financial Statements	42

	Common Stock					Additional Paid-In Capital (1)			Treasury Stock			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Equity (1)
	Shares (1)			Amount (1)		Additional Paid-In Capital (1)			Treasury Stock			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Equity (1)
Balances at December 31, 2013		17,760,665		$	2	$	258,294		$	(5,036	)	$	(1,874	)	$	(155,990	)	$	95,396
Net loss		—			—		—			—			—			(3,483	)		(3,483	)
Other comprehensive loss		—			—		—			—			(154	)		—			(154	)
Stock-based compensation expense		—			—		2,874			—			—			—			2,874
Issuance of common stock upon exercise of stock options for cash and releases of RSUs		288,318			—		874			—			—			—			874
Issuance of common stock under employee stock purchase plan		39,178			—		222			—			—			—			222
Utilized excess tax benefit		—			—		(8	)		—			—			—			(8	)
Balances at December 31, 2014		18,088,161			2		262,256			(5,036	)		(2,028	)		(159,473	)		95,721
Net loss		—			—		—			—			—			(27,041	)		(27,041	)
Other comprehensive loss		—			—		—			—			(274	)		—			(274	)
Stock-based compensation expense		—			—		2,914			—			—			—			2,914
Issuance of common stock upon exercise of stock options for cash and releases of RSUs		184,495			—		—			—			—			—			—
Issuance of common stock under employee stock purchase plan		47,250			—		157			—			—			—			157
Repurchase of common stock……		(32,945	)		—		—			(131	)		—			—			(131	)
Balances at December 31, 2015		18,286,961			2		265,327			(5,167	)		(2,302	)		(186,514	)		71,346
Net loss		—			—		—			—			—			(15,956	)		(15,956	)
Other comprehensive loss		—			—		—			—			(27	)		—			(27	)
Stock-based compensation expense		—			—		1,987			—			—			—			1,987
Issuance of common stock upon exercise of stock options for cash and releases of RSUs		270,317			—		1			—			—			—			1
Issuance of common stock under employee stock purchase plan		42,268			—		85			—			—			—			85
Repurchase of common stock……		(51,366	)		—		—			(128	)		—			—			(128	)
Balances at December 31, 2016		18,548,180		$	2	$	267,400		$	(5,295	)	$	(2,329	)	$	(202,470	)	$	57,308

	Balance at Beginning of Period		Adjustments to Costs and Expenses		Write- offs			Balance at End of Period
Allowance for doubtful accounts:

Year ended December 31, 2014	$	—	$	12	$	(10	)	$	2
Year ended December 31, 2015	$	2	$	29	$	(25	)	$	6
Year ended December 31, 2016	$	6	$	37	$	(24	)	$	19

	For the Year Ended December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash	$	7,593	$	—	$	—		$	7,593
Money market fund		9,297		—		—			9,297
Certificates of deposit		1,273		—		—			1,273
Commercial paper		4,989		—		—			4,989
Corporate notes and bonds		19,357		—		(40	)		19,317
U.S. government agency securities		10,941		1		(2	)		10,940
	$	53,450	$	1	$	(42	)	$	53,409
Classified as:
Cash and cash equivalents	$	16,890	$	—	$	—		$	16,890
Short-term investments		36,560		1		(42	)		36,519
	$	53,450	$	1	$	(42	)	$	53,409

	For the Year Ended December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash	$	8,486	$	—	$	—		$	8,486
Money market fund		19,112		—		—			19,112
Certificates of deposit		2,980		—		(1	)		2,979
Commercial paper		996		—		—			996
Corporate notes and bonds		31,255		—		(83	)		31,172
U.S. government agency securities		2,996		—		(7	)		2,989
	$	65,825	$	—	$	(91	)	$	65,734
Classified as:
Cash and cash equivalents	$	27,598	$	—	$	—		$	27,598
Short-term investments		38,227		—		(91	)		38,136
	$	65,825	$	—	$	(91	)	$	65,734

As of December 31, 2016	In Loss Position Less Than 12 Months					In Loss Position More Than 12 Months					Total In Loss Position
Description	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Certificates of deposit	$	480	$	—		$	—	$	—		$	480	$	—
Corporate notes and bonds		12,450		(15	)		5,767		(25	)		18,217		(40	)
U.S. government agency securities		3,422		(1	)		998		—			4,420		(1	)
Total	$	16,352	$	(16	)	$	6,765	$	(25	)	$	23,117	$	(41	)

10.21		Statement of Work Number 4 to Master Services Agreement Call Handling Services between Comcast and Support.com, effective as of February 6, 2015 (incorporated by reference to Exhibit 10.1 of Support.com’s current report on Form 8-K filed with the SEC on February 18, 2015) (1)
10.22		Compensatory Arrangement between Support.com and Jim Stephens for his term as Executive Chairman and Interim CEO commencing March 25, 2014
10.23		Change Management Form Number 6 under Statement of Work Number 3 to Master Services Agreement Call Handling Services between Comcast and Support.com, effective as of April 6, 2015 (incorporated by reference to Exhibit 10.2 of Support.com’s current report on Form 8-K filed with the SEC on April 9, 2015) (1)
10.24		Amendment Number 1 to Statement of Work Number 3 to Master Services Agreement Call Handling Services between Comcast and Support.com, effective as of June 2, 2015 (incorporated by reference to Exhibit 10.2 of Support.com’s current report on Form 8-K filed with the SEC on July 2, 2015)
10.25		Change Management Form Number 6 under Statement of Work Number 1 to Master Services Agreement Call Handling Services between Comcast and Support.com, effective as of November 18, 2015 (incorporated by reference to Exhibit 10.1 of Support.com’s current report on Form 8-K filed with the SEC on November 24, 2015) (1)
10.26		Change Management Form Number 7 under Statement of Work Number 3 to Master Services Agreement Call Handling Services between Comcast and Support.com, effective as of November 18, 2015 (incorporated by reference to Exhibit 10.2 of Support.com’s current report on Form 8-K filed with the SEC on November 24, 2015) (1)
10.27		Form of Directors’ and Officers’ Indemnification Agreement (incorporated by reference to Exhibit 10.1 of Support.com’s current report on Form 8-K filed with the SEC on December 10, 2015).
10.28		Change Management Form Number 1 to Master Services Agreement Call Handling Services between Comcast and Support.com, effective as of December 15, 2015 (incorporated by reference to Exhibit 10.1 of Support.com’s current report on Form 8-K filed with the SEC on December 16, 2015) (1)
10.29		Amendment to Master Services Agreement Call Handling Services between Comcast and Support.com, Inc. effective as of May 23, 2016 (incorporated by reference to Exhibit 10.1 of Support.com’s Form 8-K filed with the SEC on May 26, 2016)
10.30		Change Management Form #8 to Statement of Work #1, between Comcast and Company, signed June 2, 2016 (incorporated by reference to Exhibit 10.1 of Support.com’s Form 8-K filed with the SEC on June 7, 2016) (1)
10.31		Change Management Form #8 to Statement of Work #3, between Comcast and Company, signed June 2, 2016 (incorporated by reference to Exhibit 10.2 of Support.com’s Form 8-K filed with the SEC on June 7, 2016) (1)
10.32		Change Management Form #9 to Statement of Work #3, between Comcast and Support.com, signed July 13, 2016 (incorporated by reference to Exhibit 10.1 of Support.com’s Form 8-K filed with the SEC on July 29, 2016) (1)
10.33		Separation Agreement and General Release, dated October 31, 2016, by and between Support.com, Inc. and Elizabeth M. Cholawsky (incorporated by reference to Exhibit 10.1 of Support.com’s Form 8-K filed with the SEC on November 1, 2016)
10.34		Change Management Form #7 to Statement of Work #1, between Comcast and Company, signed December 9, 2016 (incorporated by reference to Exhibit 10.1 of Support.com’s Form 8-K filed with the SEC on December 20, 2016) (1)
10.35		Change Management Form #10 to Statement of Work #3, between Comcast and Support.com, signed December 9, 2016 (incorporated by reference to Exhibit 10.2 of Support.com’s Form 8-K filed with the SEC on December 20, 2016) (1)
10.36		Lease Agreement between HCP LS Redwood City, LLC and the Company dated December 20, 2016.
10.37*		Employment Offer Letter between Rick Bloom and Support.com, Inc., dated December 21, 2016 and effective as of October 28, 2016 ((incorporated by reference to Exhibit 10.1 of Support.com’s Form 8-K filed with the SEC on December 22, 2016)
10.38		Change Management Form #11 to Statement of Work #3, between Comcast and Company, signed February 6, 2017 (incorporated by reference to Exhibit 10.1 of Support.com’s Form 8-K filed with the SEC on February 10, 2017) (1)
21.1		Subsidiaries of Support.com, 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		Principal Financial Officer Section 302 Certification.
32.1		Statement of the Chief Executive Officer under 18 U.S.C. § 1350(2)

32.2		Statement of the Principal Financial Officer under 18 U.S.C. § 1350(2)
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

	SUPPORT.COM, INC.
	By:	/s/ Richard Bloom
		Richard Bloom
		Interim President and Chief Executive Officer

Signature	Title	Date

/s/ Richard Bloom	Interim President and Chief Executive Officer and Director (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)	March 6, 2017
Richard Bloom		March 6, 2017

/s/ Joshua E. Schechter	Chairman of the Board of Directors	March 6, 2017
Joshua E. Schechter	Chairman of the Board of Directors	March 6, 2017

/s/ Brian J. Kelley	Director	March 6, 2017
Brian J. Kelley	Director	March 6, 2017

/s/ Bradley L. Radoff	Director	March 6, 2017
Bradley L. Radoff	Director	March 6, 2017

/s/ Eric Singer	Director	March 6, 2017
Eric Singer	Director	March 6, 2017

/s/ Tim Stanley	Director	March 6, 2017
Tim Stanley	Director	March 6, 2017

To Landlord:	HCP LS Redwood City, LLC
	c/o HCP, Inc.
	1920 Main Street, Suite 1200
	Irvine, CA 92614
	Attention: Legal Department

	and:

	HCP Life Science Estates
	950 Tower Lane, Suite 1650
	Foster City, CA 94404
	Attention: Jonathan M. Bergschneider

	and

	Allen Matkins Leek Gamble Mallory & Natsis LLP
	1901 Avenue of the Stars
	Suite 1800
	Los Angeles, California 90067
	Attention: Anton N. Natsis, Esq.

To Tenant:	Support.com
	900 Chesapeake Drive
	Redwood City, California 94063

"LANDLORD”		"TENANT"

HCP LS REDWOOD CITY, LLC,		SLPPORT.COM, INC.,
a Delaware limited liability company		a Delaware corporation^

By:	/s/ Jonathan M. Bergschneider	By:	/s/ Rick Bloom
	Jonathan M. Bergschneider		Name:	Rick Bloom
	Executive Vice President		Its:	Interim CEO

		By:	/s/ Michelle Johnson
			Name:	Michelle Johnson
			Its:	VP, General Counsel

Time Period	Fixed Rent Per Square Foot of the Premises Per Month	Monthly Fixed Rent
August 1, 2012 - December 31, 2012	$1.09	$23,565.80
January 1, 2013 - June 30,2013	$1.55	$33,511.00
July 1,2013- June 30,2014	$1.60	$34,592.00
July 1,2014- June 30,2015	$1.65	$35,673.00
July 1,2015- June 30, 2016	$1.70	$36,754.00
July 1,2016- February 18, 2017	$1.75	$37,835.00

	SUBLANDLORD:

	TYCO HEALTHCARE GROUP LP

	By:	/s/ Charles Dockendorff
	Name:	Charles Dockendorff
	Title;	Vice President

	SUBTENANT:

	SUPPORT.COM

	By:	/s/ Josh Pickus
	Name:	Josh Pickus
	Title;	President & CEO

Name of Subsidiary		State or Jurisdiction in which Incorporated or Organized

Foreign Subsidiaries
SDC Services Canada Inc.		Canada
Support.com India Pvt Ltd		India
Support.com Philippines, Inc.		Philippines

	By:	/s/ Richard Bloom
		Principal Financial Officer

Date: March 6, 2017