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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2005
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File No. 000-30901
SUPPORTSOFT, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
94-3282005
(State or Other Jurisdiction of
Incor
p
oration or Or
g
anization)
(I.R.S. Employer
Identification No.)
575 Broadwa
y
, Redwood Cit
y
, CA
94063
(Address of Re
g
istrant’s Princi
p
al Executive Offices) (Zi
p
Code)
Registrant’s telephone number including area code: (650) 556-9440
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
(Title of Class)
Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). (Check one):
Large accelerated filer Accelerated filer Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The aggregate market value of the registrants common stock, $.0001 par value, held by non-affiliates of the registrant was
approximately $210,327,257 based upon the closing price of $5.19 per share as of June 30, 2005. Shares of common stock held by
each executive officer, director, and stockholders known by the registrant to own 10% or more of the outstanding stock based on
Schedule 13G filings and other information known to us, have been excluded since such persons may be deemed affiliates. This
determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of March 1, 2006, there were 44,133,567 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10 (as to directors, section 16(a) beneficial ownership and audit committee and audit committee financial expert), 11, 12 (as
to beneficial ownership), 13 and 14 incorporate by reference information from the registrant’s definitive proxy statement (the “Proxy

Table of contents

  • Page 1
    ... of Incorporation or Organization) 94-3282005 (I.R.S. Employer Identification No.) 575 Broadway, Redwood City, CA (Address of Registrant's Principal Executive Offices) 94063 (Zip Code) Registrant's telephone number including area code: (650) 556-9440 Securities registered pursuant to Section...

  • Page 2
    Statement") to be mailed to stockholders in connection with the solicitations of proxies for its 2006 annual meeting of stockholders scheduled to be held on May 23, 2006. Except as expressly incorporated by reference, the registrant's Proxy Statement shall not be deemed to be part of this report.

  • Page 3
    SUPPORTSOFT, INC. FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 2005 TABLE OF CONTENTS Page ...Reporting ITEM 9B. PART III ITEM 10. ITEM 11. ITEM 12. ITEM 13. ITEM 14. PART IV ITEM 15. Signatures Exhibit Index Other Information Directors and Executive Officers of the Registrant Executive Compensation...

  • Page 4
    ... devices they rely on whether they are an employee of a corporate enterprise or a subscriber to a digital service, or both. Digital service providers, corporate enterprises and managed service providers can benefit from our software solutions through faster time-to-market for new or enhanced...

  • Page 5
    ... and integrated service automation capabilities for interactive chat, remote assistance and problem diagnosis and resolution. Managed service providers that provide IT support to their corporate enterprise customers can also realize similar benefits from our software solutions. Industry Background...

  • Page 6
    ... provider of real-time service management software solutions designed to facilitate the identification, diagnosis and resolution of technology-related problems associated with the initiation and on-going support of services and products which are delivered across broadband or corporate computing...

  • Page 7
    ... solutions, incorporating self-healing, self-service and assisted service technologies. As managed service providers and corporate enterprises face the ever increasing complexities of supporting remote and mobile workforces, incorporating off-shored support organizations, supporting distributed home...

  • Page 8
    ...Built upon our Real-Time Service Management software platform, our solutions provide a unified, proactive approach for installation and service automation for triple play services for subscribers, field technicians and CSRs that can lower activation and ongoing service costs. SupportSoft SmartAccess...

  • Page 9
    ...desktop application that can make both self- and assisted service a more rewarding experience by providing the correct answer faster, or by connecting subscribers to the most appropriate assisted service resource. The SupportSoft Client can address many common complaints-such as "Email isn't working...

  • Page 10
    ..., real-time chat solution enhanced by easy-to-use Web-push capabilities, and user friendly access to relevant content. AnalystAssist provides CSRs with a comprehensive set of tools to work with end-users to diagnose and resolve technical problems. Technology-Real-Time Service Management Software...

  • Page 11
    ... Sciences Corporation, EDS, and IBM Global Services to address growing customer demand for outsourced IT management services and support automation solutions. Managed service providers seek ways to provide new value and increase service levels to current and prospective customers. Our software can...

  • Page 12
    ... technology and our software vault technology. We also hold patents in China, Singapore and Israel and have a number of patent applications pending in other ... Our trademarks and service marks include SupportSoft and related designs, Support.com and related designs, the "support man" logo, DNA, DNA ...

  • Page 13
    ... Real-Time service Management solutions for both the enterprise and digital service provider markets, we do compete with a number of vendors who may offer products or services with features that compete with specific elements of our suite solutions or with our component products. Software companies...

  • Page 14
    ... for Portal Software, Inc., a billing solutions company. From February 2001 to June 2002, Mr. Grejtak served as Chief Marketing Officer of Broadvision, an enterprise portal software company. From December 1999 to December 2000, Mr. Grejtak served as the Chief Executive Officer of Viquity Corporation...

  • Page 15
    ...that file electronically with the SEC at the website address located at http://www.sec.gov. Our telephone number is 650-556-9440 and our website address is http://www.supportsoft.com. The information contained in our website does not form any part of this Annual Report on Form 10-K. However, we make...

  • Page 16
    ... 2004 and 2005 fell short of our guidance. As a result, we then needed to reduce our annual guidance for those years. Future negative adjustments of our guidance or the failure to meet our guidance or those expectations of research analysts could likely cause the market price of our common stock to...

  • Page 17
    ... versions of packaged applications. We have limited control over factors that affect market acceptance of our product and services, including: • • the willingness of enterprises, including management service providers, to transition to real-time service management solutions; and acceptance of...

  • Page 18
    ... the contract structure prevents us from billing additional amounts, the profitably of our professional services business would suffer. Our failure to establish and expand third-party alliances would harm our ability to sell our real-time service management software. We have several alliances with...

  • Page 19
    ... have not recognized in our statement of income any compensation expense related to stock option grants we issue under our stock option plans or the discounts we provide under our employee stock purchase plans. Under the new rules, we will be required to adopt a fair value-based method for measuring...

  • Page 20
    ...review, assessment of competitive products and approval at a number...cause our operating results to suffer. We must achieve broad adoption and acceptance of our real-time service management products and services... 31, 2005, we concluded that our internal control over financial reporting were effective...

  • Page 21
    ...ultimately purchase these products. If our customers do not renew maintenance services or do not purchase additional products, our revenue levels and operating results could suffer. Our software may not operate with the hardware and software... financial or strategic benefits of the acquisition;...

  • Page 22
    ... or may develop internally real-time service management software systems. We expect that internally developed applications will continue to be ... our ability to hire, train or retain employees, fund our expansion, take advantage of business opportunities, develop or enhance services or products or ...

  • Page 23
    ... stock price or litigation against us. Securities class action lawsuits were filed against us in November 2001 and again in December 2004. In addition, a derivative shareholder lawsuit was filed against us in December 2005. Should these lawsuits linger for a long period of time, whether ultimately...

  • Page 24
    ...degree upon the protection of our software and other proprietary technology. It is possible that our pending patent applications may not be issued; competitors...time-consuming and could divert management's attention from our business. If there is a successful claim of infringement, we may be required...

  • Page 25
    ...stock, the price of our stock could decline. The trading market for our common stock relies in part on the research and reports...in turn could cause our stock price to decline....services, including real-time service management solutions... distribution of software. Also, ... a bill that... The applicability to ...

  • Page 26
    .... Not applicable. ITEM 2. PROPERTIES. Our corporate headquarters are located in Redwood City, California, where we lease approximately 23,600 square feet under a lease that expires in May 2007. We believe the facilities we are now using are adequate and suitable for our business requirements. ITEM...

  • Page 27
    ...of our common stock contained material misrepresentations and/or omissions, related to alleged inflated commissions received by the underwriters of the offering. The defendants named in the lawsuit are SupportSoft, Radha Basu, Brian Beattie, Credit Suisse First Boston Corporation, Bear, Stearns & Co...

  • Page 28
    ...symbol "SPRT" since July 19, 2000. Before July 19, 2000, there was no public market for our common stock. The following table sets forth the highest and lowest sale price of SupportSoft's common stock...operating results, financial condition and capital requirements, the terms of then-existing ...

  • Page 29
    ...Report. Year Ended December 31, 2005 2004 2003 2002 2001 (in thousands, except per share data) Consolidated Statements of Income Data: Revenue: License fees Services... 2005 2004 2003 (in thousands) 2002 2001 Consolidated Balance Sheet Data: Cash, cash equivalents and short-term investments Working ...

  • Page 30
    Long-term obligations Accumulated deficit Total stockholders' equity 28 1,111 (60,955) 134,394 2,210 (65,380) 127,857 1,478 (75,534) 114,006 67 (84,954) 23,147 1,590 (81,312) 24,297

  • Page 31
    ... risks and uncertainties. These risks and uncertainties may cause actual results to differ materially from those discussed in the forward-looking statements. Overview We develop, market and distribute real-time service management software designed to facilitate the identification, diagnosis and...

  • Page 32
    ... issue under our stock option plans or the discounts we provide under our employee stock purchase plans and we expect this to have a material adverse effect on our reported results of operations. In order to reduce the compensation expense associated with options, on December 21, 2005, the Board of...

  • Page 33
    ...the software industry. Revenue recognition requirements in the software ... we must include a tax expense or benefit within the tax provision in the statement of...2005, goodwill was $9.8 million, and net identifiable intangible assets were $4.0 million. We assess the impairment of goodwill annually...

  • Page 34
    ...discount rate determined by our management. Our estimates of discounted... 2005, management concluded its annual ...services Amortization of intangible assets Research and development Sales and marketing General and administrative In-process research and development Amortization of deferred compensation...

  • Page 35
    ... as maintenance, consulting and training. Consulting and training revenue is generally recognized as the services are performed. Maintenance revenue is recognized over the term of the maintenance period, which is generally one year. Services revenue was $29.2 million in 2005, $22.7 million in 2004...

  • Page 36
    ...service revenue in 2005 from 2004 and in 2004 from 2003 was due primarily to an increase in salary and related employees costs and travel expenses as a result of an increase in the number of services...and development expense consists primarily of compensation costs, consulting expenses and related ...

  • Page 37
    ... fees related to the defense of the class action lawsuit. The increase in general and administrative expense in 2004 from 2003 resulted primarily from the cost of Sarbanes Oxley section 404 compliance and to a lesser extent from additional headcount required to support our organization. In-process...

  • Page 38
    ... credit carryforwards. The 2005 and 2004 tax provisions vary from the expected tax provision at the U.S. federal statutory rate primarily due to benefits from stock option deductions for which stock based compensation was not previously benefited and the net reversal of timing differences, offset by...

  • Page 39
    ... Opinion No. 25, as permitted by SFAS 123, and, as such, generally recognized no compensation cost for employee stock options during 2005. Accordingly, the adoption of SFAS 123R will cause our reported stock compensation cost to materially increase beginning in our first quarter of 2006 and will 37

  • Page 40
    ... was approximately 4.10% at December 31, 2005. A decline in interest rates over time would reduce our interest income from our short-term investments. A decrease in interest rates of 100 basis points would cause a corresponding decrease in our annual interest income of approximately $973,000. Due...

  • Page 41
    ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. SUPPORTSOFT, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Stockholders' Equity Consolidated ...

  • Page 42
    ...). Those standards require that we plan...2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 14, 2006 expressed an unqualified opinion thereon. /s/ San Jose, California...

  • Page 43
    ... AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable Accrued compensation Other accrued liabilities Deferred revenue, less long-term portion... 31, 2005 and 2004 Common stock; par value $0.0001, 150,000,000 shares authorized, 43,627,075 issued and outstanding at December 31, 2005 and 42...

  • Page 44
    SUPPORTSOFT, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands except per share data) Years Ended December 31, 2005 2004 2003 Revenue: License fees Services Total revenue Costs and expenses: Cost of license fees Cost of services Amortization of intangible assets Research and development Sales ...

  • Page 45
    ... loss on investments Foreign currency translation adjustment Comprehensive income Compensation expense related to stock options Issuance of common stock upon exercise of stock options for cash Issuance of common stock under employee stock purchase plan Balances at December 31, 2004 Components of...

  • Page 46
    SUPPORTSOFT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2005 2004 2003 Operating activities: Net income Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization Stock compensation and ...

  • Page 47
    ..., corporate enterprises and managed service providers who can benefit from our software solutions through faster time to market for new or enhanced services and products, reduced operational costs, improved productivity and customer satisfaction. Our headquarters are in Redwood City, California and...

  • Page 48
    ...condition and generally do not require collateral. We make judgments as...based upon a specific review of all significant ...2005, cash equivalents and short-term investments consist primarily of money market funds, commercial paper, auction-backed securities, corporate bonds and notes and treasury bills...

  • Page 49
    ...2005 and 2004, SupportSoft reported its securities at fair market value. Material unrealized gains and losses, if any, are reported... length of time an investment's...decline in fair value, caused by factors other than ... agencies Market auction municipal bonds Corporate bonds Market auction preferred $ ...

  • Page 50
    ... of the security: December 31, 2005 2004 Due within one year Due ... and software and ...reviews look for the existence of facts or circumstances, either internal or external, which indicate that the carrying value of the asset cannot be recovered. If and when indicators of impairment exist, SupportSoft...

  • Page 51
    ... results for any period presented. At September 30, 2005, we concluded our annual evaluation for impairment of goodwill and identifiable intangible assets ... from customers. VSOE for consulting or training is based upon separate sales of these services to customers. Assuming all other revenue ...

  • Page 52
    ... or Otherwise Marketed," requires the capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on SupportSoft's product development process, technological feasibility is established upon the completion of a working model. Costs incurred...

  • Page 53
    ...months. The sales commissions, which are paid in the month following the time an order is ...expense was $29,000 for the year ended December 31, 2005, $81,000 for the year ended December 31, 2004...computed using the weighted-average number of shares of common stock outstanding during the period, ...

  • Page 54
    ..., 2005 and 2004. Stock-Based Compensation SupportSoft's stock plans are described in Note 7. SupportSoft accounts for stock-based compensation using... the optionee is actually an employee at that time). The purpose of the acceleration was to reduce compensation expense associated with options in ...

  • Page 55
    ... weighted average assumptions are used in estimating the fair value related to shares issued under the employee stock purchase plan: Year Ended December 31, Employee Stock Purchase Plan 2005 2004 2003 Expected life (in years) Risk-free interest rates Volatility Dividend yield Weighted average fair...

  • Page 56
    ...straight-line basis over the requisite service period. The adoption of SFAS 123R will cause our reported stock compensation cost to materially increase beginning in... SupportSoft operates in one segment, the development and marketing of real-time management software and related services. SupportSoft's...

  • Page 57
    ...overseas resellers. Operating losses generated by the foreign operations of SupportSoft and their corresponding identifiable assets were not material in any period presented. Revenue from customers located outside the United States was approximately $12.9 million for the year ended December 31, 2005...

  • Page 58
    ...software products for network monitoring, management and activation of advanced digital services..., and discounting the net cash flows back to their present value. The discount rate included...$288,000 was recorded as of December 31, 2005 to reflect this taxable temporary difference that will result ...

  • Page 59
    ... intangible assets was $1.1 million, $363,000 and zero for fiscal 2005, 2004 and 2003, respectively. Amortization expense for the next five years...1,089 1,089 727 0 3,994 $ Commitments and Contingencies SupportSoft leases its facilities under noncancelable operating lease agreements, which expire ...

  • Page 60
    ... on March 22, 2005 as In re SupportSoft, Inc. Securities Litigation, Civil Action No.: c 045222 SI. The consolidated complaint generally alleges violations of certain federal securities laws and seeks unspecified damages on behalf of a class of purchasers of our common stock between January 20...

  • Page 61
    ...2005, the court set a further schedule for submission of documents concerning the form and substance of class... in mailing the required notice to class members). On October 27, 2005, the court issued ...our business. The ultimate outcome of any litigation...2005, SupportSoft's management performed a review...

  • Page 62
    ... an average cost of $4.76 per share, excluding commissions. As of December 31, 2005, the maximum number of shares remaining that can be repurchased under this program was 1,807,402. Stock Option Plans During fiscal 1998, SupportSoft adopted the 1998 Stock Option Plan (the "Plan"). Under the Plan, up...

  • Page 63
    ...SupportSoft's stock option activity under all Stock Plans and related information follows: Options Outstanding Options Available for Grant Number... authorized Options granted Options exercised Options canceled Balance at December 31, 2005 Options exercisable are shown in the table below: 3,533,173 1,...

  • Page 64
    ...eligible employees to acquire shares of SupportSoft's common stock through periodic payroll deductions of up to 15% of total compensation. ...SupportSoft's common stock on each employee's applicable enrollment date or on the last day of the respective participation period. As of December 31, 2005...

  • Page 65
    ... 2005 2004 2003 Expected provision, at federal statutory rate State taxes, net of federal benefit Permanent differences Stock based compensation ...weight of available evidence, which includes SupportSoft's historical operating performance, reported cumulative net losses since inception and difficulty...

  • Page 66
    ... would result in an approximate 5.25% federal tax rate on the repatriated earnings. SupportSoft did not elect this provision in fiscal 2005 or 2004. 9. Other-Than-Temporary Impairment and Its Application to Certain Investments The gross unrealized losses related to the Company's portfolio of...

  • Page 67
    ...) Summarized quarterly financial information for 2005 and 2004 is as follows: Fiscal Year 2005 Quarter Ended Mar. 31, 2005 June 30, 2005 Sept. 30, 2005 Dec. 31, 2005 (in thousands, except per share data) Statement of Income Data: Total revenue Cost of services Research and development Sales and...

  • Page 68
    ... Company's Annual Report on Form 10-K, as of December 31, 2004, we noted two material weaknesses in our internal control over financial reporting. One of these material weaknesses related to the review and approval of potential stock option modifications in connection with terminated employees had...

  • Page 69
    ... 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. The...

  • Page 70
    ...require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting... timely ...2005 of SupportSoft, Inc. and our report dated March 14, 2006 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP San Jose, California...

  • Page 71
    ITEM 9B. None. OTHER INFORMATION. 69

  • Page 72
    ... it by writing to the address or telephoning the number indicated under "SEC Filings and other Available Information" on page 13. We will disclose on our web site amendments to or waivers from its Code of Ethics and Business Conduct applicable to our directors or executive officers, including our...

  • Page 73
    ... Plan, we shall at all times reserve and keep available sufficient shares of common stock to satisfy the requirements of the 2000 Incentive Plan. (3) (4) None. The amount does not include 2,060,842 shares available for purchase pursuant to our 2000 Employee Stock Purchase Plan. Shares of common...

  • Page 74
    ...report. Financial Statement Schedules-No schedules have been filed because the information required to be set forth therein is not applicable...2000). Registrant's 2000 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.3 of Amendment No. 7 to SupportSoft's registration statement on ...

  • Page 75
    ... annual report on Form 10-K for the year ended December 31, 2003). Employment Agreement dated November 15, 2004, by and between registrant and Ken Owyang, as amended on December 28, 2005 (incorporated by reference to Exhibit 10.1 of SupportSoft's current report on Form 8-K filed on December 28, 2005...

  • Page 76
    SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 15th day of March, 2006. SUPPORTSOFT, INC. By: RADHA R. BASU Radha ...

  • Page 77
    ... and Restated Bylaws (incorporated by reference to Exhibit 3.2 of SupportSoft's annual report on Form 10-K for the year ended December 31, 2001). Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 of SupportSoft's quarterly report on Form 10-Q for the quarter ended June 30...

  • Page 78
    ...of SupportSoft's annual report ...SupportSoft's current report on Form 8-K filed on December 22, 2005). Consent of Independent Registered Public Accounting Firm Power of Attorney (see page 74 of this Form 10-K) Chief Executive... * 1 Denotes an executive or director compensation plan or arrangement. The...

  • Page 79
    ... of internal control over financial reporting as of December 31, 2005, and the effectiveness of internal control over financial reporting of SupportSoft, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 2005. /s/ San Jose, California March 14, 2006 ERNST & Y OUNG...

  • Page 80
    EXHIBIT 31.1 CHIEF EXECUTIVE OFFICER SECTION 302 CERTIFICATION I, Radha R. Basu, certify that: 1. I have reviewed this annual report on Form 10-K of SupportSoft, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact ...

  • Page 81
    ...certify that: 1. I have reviewed this annual report on Form 10-K of SupportSoft, Inc.; 2. Based on my knowledge, this report does not contain any untrue ...report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting...

  • Page 82
    ... chief executive officer of SupportSoft, Inc. (the "Company"), certify for the purposes of section 1350 of chapter 63 of title 18 of the United States Code that, to the best of my knowledge, (i) the Annual Report of the Company on Form 10-K for the year ended December 31, 2005 (the "Report"), fully...

  • Page 83
    ... 18 of the United States Code that, to the best of my knowledge, (i) the Annual Report of the Company on Form 10-K for the year ended December 31, 2005 (the "Report"), fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, and (ii) the information contained...