Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2019 | May 13, 2019 | |
Document And Entity Information | ||
Entity Registrant Name | SharpSpring, Inc. | |
Entity Central Index Key | 0001506439 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2019 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Non-accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Small Business | true | |
Entity Common Stock, Shares Outstanding | 10,876,850 | |
Trading Symbol | SHSP | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2019 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 |
Assets | ||
Cash and cash equivalents | $ 17,752,758 | $ 9,320,866 |
Accounts receivable, net of allowance for doubtful accounts of $159,791 and $127,516 at March 31, 2019 and December 31, 2018, respectively | 65,855 | 80,521 |
Unbilled receivables | 832,593 | 740,425 |
Income taxes receivable | 22,913 | 22,913 |
Other current assets | 1,053,905 | 1,184,217 |
Total current assets | 19,728,024 | 11,348,942 |
Property and equipment, net | 1,475,969 | 1,260,798 |
Goodwill | 8,861,565 | 8,866,413 |
Intangible assets, net | 1,770,750 | 1,866,000 |
Right-of-use assets | 5,609,295 | 0 |
Other long-term assets | 639,995 | 665,123 |
Total assets | 38,085,598 | 24,007,276 |
Liabilities and Shareholders' Equity | ||
Accounts payable | 1,338,791 | 1,613,477 |
Accrued expenses and other current liabilities | 696,842 | 774,944 |
Deferred revenue | 289,285 | 250,656 |
Income taxes payable | 25,854 | 23,705 |
Lease liability | 350,518 | 0 |
Total current liabilities | 2,701,290 | 2,662,782 |
Deferred income taxes | 0 | 0 |
Convertible notes, including accrued interest | 8,440,426 | 8,342,426 |
Convertible notes embedded derivative | 189,776 | 214,350 |
Lease liability | 5,281,777 | 0 |
Total liabilities | 16,613,269 | 11,219,558 |
Commitments and contingencies (Note 11) | ||
Shareholder's equity: | ||
Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued or outstanding at March 31, 2019 and December 31, 2018 | 0 | 0 |
Common stock, $0.001 par value, Authorized shares-50,000,000; issued shares-9,646,787 at March 31, 2019 and 8,639,139 at December 31, 2018; outstanding shares-9,626,787 at March 31, 2019 and 8,619,139 at December 31, 2018 | 9,647 | 8,639 |
Additional paid in capital | 42,025,657 | 30,446,838 |
Accumulated other comprehensive loss | (232,425) | (231,053) |
Accumulated deficit | (20,246,550) | (17,352,706) |
Treasury stock | (84,000) | (84,000) |
Total shareholders' equity | 21,472,329 | 12,787,718 |
Total liabilities and shareholders' equity | $ 38,085,598 | $ 24,007,276 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - $ / shares | Mar. 31, 2019 | Dec. 31, 2018 |
Statement of Financial Position [Abstract] | ||
Preferred stock, par value per share | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common shares, par value per share | $ 0.001 | $ 0.001 |
Common shares, shares authorized | 50,000,000 | 50,000,000 |
Common shares, shares issued | 9,646,787 | 8,639,139 |
Common shares, shares outstanding | 9,626,787 | 8,619,139 |
Consolidated Statements of Comp
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Income Statement [Abstract] | ||
Revenue | $ 5,326,285 | $ 4,184,663 |
Cost of services | 1,548,381 | 1,400,297 |
Gross profit | 3,777,904 | 2,784,366 |
Operating expenses: | ||
Sales and marketing | 3,008,203 | 2,371,030 |
Research and development | 1,258,728 | 950,675 |
General and administrative | 2,227,675 | 1,426,234 |
Intangible asset amortization | 95,250 | 115,000 |
Total operating expenses | 6,589,856 | 4,862,939 |
Operating loss | (2,811,952) | (2,078,573) |
Other (expense) income, net | (104,126) | 68,628 |
Gain on embedded derivative | 24,574 | 0 |
Loss before income taxes | (2,891,504) | (2,009,945) |
Provision for income taxes | 2,339 | 41,997 |
Net loss | $ (2,893,843) | $ (2,051,942) |
Basic net loss per share | $ (0.33) | $ (0.24) |
Diluted net loss per share | $ (0.33) | $ (0.24) |
Shares used in computing basic net loss per share | 8,840,281 | 8,443,455 |
Shares used in computing diluted net loss per share | 8,840,281 | 8,443,455 |
Other comprehensive income (loss): | ||
Foreign currency translation adjustment | $ (1,372) | $ (30,527) |
Comprehensive loss | $ (2,895,215) | $ (2,082,469) |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Cash flows from operating activities: | ||
Net loss | $ (2,893,843) | $ (2,051,942) |
Adjustments to reconcile loss from operations: | ||
Depreciation and amortization | 227,253 | 190,983 |
Amortization of costs to acquire contracts | 202,945 | 177,538 |
Non-cash stock compensation | 303,517 | 237,415 |
Non-employee stock issuance expense | 0 | 0 |
Deferred income taxes | 0 | 20,796 |
Loss/(gain) on disposal of property and equipment | 0 | 0 |
Non-cash interest | 100,000 | 4,301 |
Change in fair value of embedded derivative features | (24,574) | 0 |
Amortization of debt issuance costs | (2,000) | 274 |
Unearned foreign currency gain/loss | 10,739 | (49,397) |
Changes in assets and liabilities: | ||
Accounts receivable | 14,448 | (11,002) |
Unbilled receivables | (93,772) | (73,894) |
Right-of-use assets | 106,215 | 0 |
Other assets | (42,855) | (210,529) |
Income taxes, net | 2,339 | 104,070 |
Accounts payable | (274,640) | 751,502 |
Lease liabilities | (92,035) | 0 |
Other liabilities | (69,280) | (61,837) |
Deferred revenue | 39,585 | 20,623 |
Net cash used in operating activities | (2,485,958) | (951,099) |
Cash flows from investing activities: | ||
Purchases of property and equipment | (347,174) | (72,820) |
Net cash used in investing activities | (347,174) | (72,820) |
Cash flows from financing activities: | ||
Proceeds from issuance of convertible note | 0 | 8,000,000 |
Debt issuance costs | 0 | (141,657) |
Proceeds from exercise of stock options | 603,865 | 8,555 |
Proceeds from issuance of common stock, net | 10,672,444 | 0 |
Net cash provided by financing activities | 11,276,309 | 7,866,898 |
Effect of exchange rate on cash | (11,285) | 16,443 |
Change in cash and cash equivalents | 8,431,892 | 6,859,422 |
Cash and cash equivalents, beginning of period | 9,320,866 | 5,399,747 |
Cash and cash equivalents, end of period | 17,752,758 | 12,259,169 |
Supplemental information on consolidated statements of cash flows: | ||
Cash paid during the period for Income taxes, net | 0 | (82,869) |
Non-cash activities Right-of-use asset obtained for lease liability | $ 5,715,510 | $ 0 |
Consolidated Statment of Change
Consolidated Statment of Changes in Shareholders' Equity - USD ($) | Common Stock [Member] | Additional Paid-In Capital [Member] | Accumulated Other Comprehensive Loss[Member] | Treasury Stock [Member] | Accumulated Deficit [Member] | Total |
Balance at Dec. 31, 2017 | $ 8,456 | $ 28,362,397 | $ (480,762) | $ (84,000) | $ (7,873,883) | $ 19,932,208 |
Balance, shares at Dec. 31, 2017 | 8,456,061 | 20,000 | ||||
Stock based compensation - stock options | 193,535 | 193,535 | ||||
Issuance of common stock for cash | $ 2 | 8,554 | 8,555 | |||
Issuance of common stock for cash, shares | 1,724 | |||||
Issuance of common stock for director services | $ 9 | 43,871 | 43,880 | |||
Issuance of common stock for director services, shares | 8,955 | |||||
Foreign currency translation adjustment, net | (30,526) | (30,527) | ||||
Net loss | (2,051,942) | (2,051,942) | ||||
Balance at Mar. 31, 2018 | $ 8,466 | 28,608,357 | (511,289) | $ (84,000) | (9,925,825) | 18,095,709 |
Balance, shares at Mar. 31, 2018 | 8,466,740 | 20,000 | ||||
Balance at Dec. 31, 2018 | $ 8,639 | 30,446,838 | (231,053) | $ (84,000) | (17,352,706) | 12,787,718 |
Balance, shares at Dec. 31, 2018 | 8,639,139 | 20,000 | ||||
Stock based compensation - stock options | 269,044 | 269,044 | ||||
Issuance of common stock for cash | $ 1,005 | 11,275,304 | 11,276,309 | |||
Issuance of common stock for cash, shares | 1,005,244 | |||||
Issuance of common stock for director services | $ 2 | 34,471 | 34,473 | |||
Issuance of common stock for director services, shares | 2,404 | |||||
Foreign currency translation adjustment, net | (1,372) | (1,372) | ||||
Net loss | (2,893,843) | (2,893,843) | ||||
Balance at Mar. 31, 2019 | $ 9,647 | $ 42,025,657 | $ (232,425) | $ (84,000) | $ (20,246,550) | $ 21,472,329 |
Balance, shares at Mar. 31, 2019 | 9,646,787 | 20,000 |
Organization
Organization | 3 Months Ended |
Mar. 31, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization | SharpSpring, Inc. (the “Company”) provides a cloud-based marketing automation solution. SharpSpring is designed to increase the rates at which businesses generate leads and convert leads to sales opportunities by improving the way businesses communicate with customers and prospects. Our products are marketed directly by us and through a small group of reseller partners to customers around the world. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2019 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | Basis of Presentation and Consolidation The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). Our Consolidated Financial Statements include the accounts of SharpSpring, Inc. and our subsidiaries (the “Company”). Our Consolidated Financial Statements reflect the elimination of all significant inter-company accounts and transactions. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, 2019. Use of Estimates The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Operating Segments The Company operates as one operating segment. Operating segments are defined as components of an enterprise for which separate financial information is regularly evaluated by the chief operating decision maker (“CODM”), which is the Company’s chief executive officer, in deciding how to allocate resources and assess performance. The Company’s CODM evaluates the Company’s financial information and resources and assess the performance of these resources on a consolidated basis. The Company does not present geographical information about revenues because it is impractical to do so. Foreign Currencies The functional currency of the Company’s foreign subsidiaries is the local currency. Assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the exchange rates in effect at the balance sheet dates; with the resulting translation adjustments directly recorded to a separate component of accumulated other comprehensive loss. Income and expense accounts are translated at the average exchange rates during the period. Foreign currency transaction gains and losses are recorded in other comprehensive income (loss). Cash and Cash Equivalents Cash equivalents are short-term, liquid investments with remaining maturities of three months or less when acquired. Cash and cash equivalents are deposited or managed by major financial institutions and at most times are in excess of Federal Deposit Insurance Corporation (FDIC) insurance limits. Fair Value of Financial Instruments U.S. GAAP establishes a fair value hierarchy which has three levels based on the reliability of the inputs to determine the fair value. These levels include: Level 1, defined as inputs such as unadjusted quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for use when little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, deposits, embedded derivatives (associated with our convertible notes) and accounts payable. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the short-term nature of these items. The fair value of the embedded derivatives associated with our convertible notes is calculated using Level 3 unobservable inputs, utilizing a probability-weighted expected value model to determine the liability. The fair value of the embedded derivatives at March 31, 2019 and December 31, 2018 was a liability balance of $189,776 and $214,350, respectively. The change in fair value for the year three months ended March 31, 2019 and 2018 was a gain of $24,574 and zero, respectively. Accounts Receivable Accounts receivable are carried at the original invoiced amount less an allowance for doubtful accounts based on the probability of future collection. Management reviews accounts receivable on a periodic basis to determine if any receivables will potentially be uncollectible. The Company reserves for receivables that are determined to be uncollectible, if any, in its allowance for doubtful accounts. After the Company has exhausted all collection efforts, the outstanding receivable is written off against the allowance. In cases where our customers pay for services in arrears, we accrue for revenue in advance of billings as long as the criteria for revenue recognition is met, thus creating a contract asset. A portion of our accounts receivable balance is therefore unbilled at each balance sheet date and is reflected as such on the consolidated balance sheet. Intangibles Finite-lived intangible assets include trade names, developed technologies and customer relationships and are amortized based on the estimated economic benefit over their estimated useful lives, with original periods ranging from 5 to 11 years. We continually evaluate the reasonableness of the useful lives of these assets. Finite-lived intangibles are tested for recoverability whenever events or changes in circumstances indicate the carrying amounts may not be recoverable. Impairment losses are measured as the amount by which the carrying value of an asset group exceeds its fair value and are recognized in operating results. Judgment is used when applying these impairment rules to determine the timing of the impairment test, the undiscounted cash flows used to assess impairments and the fair value of an asset group. The dynamic economic environment in which the Company operates, and the resulting assumptions used to estimate future cash flows impact the outcome of these impairment tests. Goodwill and Impairment As of March 31, 2019, and December 31, 2018, we had recorded goodwill of $8,861,565 and $8,866,413, respectively. Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible net assets acquired in the SharpSpring and GraphicMail acquisitions. Under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350, “Intangibles - Goodwill and Other” Debt Issuance Costs We incurred certain third-party costs in connection with the issuance of the 5% Convertible Notes maturing March 27, 2023 (the “Notes”), as more fully described in Note 5: Convertible Notes, principally related to legal and financial advisory fees. These costs are included as a direct reduction to the carrying value of the debt as part of the Notes on our consolidated balance sheet and are being amortized to interest expense ratably over the five-year term of the Notes. Estimated amortization expense of debt issuance costs for the remainder of 2019 and subsequent years is as follows: Remainder of 2019 $ 20,175 2020 27,885 2021 29,247 2022 30,677 2023 7,759 Total $ 115,743 Income Taxes Provision for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in FASB ASC 740, Accounting for Income The Company applies the authoritative guidance in accounting for uncertainty in income taxes recognized in the consolidated financial statements. This guidance prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. There are no material uncertain tax positions taken by the Company on its tax returns. Tax years subsequent to 2015 remain open to examination by U.S. federal and state tax jurisdictions. In determining the provision for income taxes, the Company uses statutory tax rates and tax planning opportunities available to the Company in the jurisdictions in which it operates. This includes recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns to the extent pervasive evidence exists that they will be realized in future periods. The deferred tax balances are adjusted to reflect tax rates by tax jurisdiction, based on currently enacted tax laws, which are expected to be in effect in the years in which the temporary differences are expected to reverse. In accordance with the Company’s income tax policy, significant or unusual items are separately recognized in the period in which they occur. The Company is subject to routine examination by domestic and foreign tax authorities and frequently faces challenges regarding the amount of taxes due. These challenges include positions taken by the Company related to the timing, nature and amount of deductions and the allocation of income among various tax jurisdictions. As of March 31, 2019, the Company is being examined by the U.S. tax authorities related to the 2016 and 2017 tax years. The Company does not expect any material adjustments as a result of the audits. Property and Equipment Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful life of the assets. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is credited or charged to operations. Repairs and maintenance costs are expensed as incurred. Depreciation expense related to property and equipment was $132,003 and $75,983 for the three months ended March 31, 2019 and 2018, respectively. Repairs and maintenance costs are expensed as incurred. Property and equipment as of March 31, 2019 and December 31, 2018 is as follows: March 31, December 31, 2019 2018 Property and equipment, gross: Leasehold improvements $ 253,168 $ 197,268 Furniture and fixtures 671,324 611,171 Computer equipment and software 1,378,144 1,135,012 Total 2,302,636 1,943,451 Less: Accumulated depreciation and amortization (826,667 ) (682,653 ) $ 1,475,969 $ 1,260,798 Useful lives are as follows: Leasehold improvements 3-5 years Furniture and fixtures 3-5 years Computing equipment 3 years Software 3-5 years Revenue Recognition The Company recognizes revenue from its services when it is probable that the economic benefits associated with the transactions will flow to the Company and the amount of revenue can be reliably measured. All significant sources of revenue are the result of a contract with a customer, and as such meet all of the requirements of recognizing revenue in accordance with FASB ASC 606. For the three months ended March 31, 2019 and March 31, 2018 revenue from contracts with customers was $5.3 million and $4.2 million, respectively. For the Company’s internet-based SharpSpring marketing automation solution, the services are typically offered on a month-to-month basis with a fee charged each month depending on the size of the engagement with the customer. Monthly fees are recorded as revenue during the month they are earned. Some customers are charged annually in advance, for which revenues are deferred and recorded ratably over the subscription period. The Company also charges transactional-based fees if monthly volume limitations are reached or other chargeable activity occurs. Additionally, customers are typically charged an upfront onboarding and training fee. The upfront onboarding and training fees represent short-term “use it or lose it” services offered for a flat fee. Such flat fees are recognized over the service period, which is typically 60 days. For the SharpSpring Mail+ product, the services are typically offered on a month-to-month basis. Customers are either charged in arrears based on the number of contacts in the system during the billing period or in advance if the customer selects a plan based on e-mail volume. The Company also charges transactional-based fees if monthly volume limitations are reached or other chargeable activity occurs. Our products are billed in arrears or upfront, depending on the product, which creates contract assets (accrued revenue) and contract liabilities (deferred revenue). Contract assets occur due to unbilled charges for which the Company has satisfied performance obligations. Contract liabilities occur due to billing up front for charges that the Company has not yet fully satisfied all performance obligations. Both contract assets and liabilities are recognized and deferred ratably over their service periods. The Company makes judgements when determining revenue recognition. Because many of our contracts are billed in arrears, estimates are made for the transaction price and amounts allocated to each accounting period related to the performance obligations of each contract. There have been no changes to the methodology used in these judgements and estimates for determining revenues. Some of the estimates used when determining revenue recognition relate to variable customer consideration that changes from month to month. The Company uses the most likely amount method to determine the estimated variable consideration, relying on historical consideration received, customer status and projected usage to determine the most likely consideration amount. The amount of variable consideration recognized is constrained and is only included in the transaction price to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur. The performance obligations are measured using the output method to recognize revenue based on direct measurements of the value to the customer of the services transferred to date. Most of the Company’s contracts are satisfied over time, and as each contract has a predefined service period. This allows for a reliable way to measure performance obligations remaining and completed. The Company does have some contracts that are satisfied at a point in time upon delivery of services. The criteria for the completion of these contracts is defined in each contract with a customer so that there is no judgment required in evaluating when the service is delivered to the customer. Any discount given is allocated to the performance obligation and is treated as reduction to the transaction price. Due to the month to month nature of the Company’s contracts with customers, no financing or time value of money component exists related to the contracts with customers. Due to the month to month nature of the Company’s contracts with customers, we have elected to utilize the optional practical expedient from ASC 606-10-50-14 through 50-14A for disclosing the remaining performance obligations. The remaining performance obligations as of the balance sheet date consist of trainings and availability and use of the SharpSpring platform over the remainder of the contract, which is typically less than 30 days. From time to time, the Company offers refunds to customers and experiences credit card chargebacks relating to cardholder disputes that are commonly experienced by businesses that accept credit cards. The Company makes estimates for refunds and credit card chargebacks based on historical experience. Deferred Revenue Deferred revenue consists of payments received in advance of the Company’s providing the services. Deferred revenue is earned over the service period identified in each contract. The majority of our deferred revenue balances (contract liabilities) arise from upfront implementation fees for its SharpSpring marketing automation solution that are paid in advance. These services are typically performed over a 60-day period, and the revenue is recognized over that period. Additionally, some of the Company’s customers pay for services in advance on a periodic basis (such as monthly, quarterly, annually or bi-annually). In situations where a customer pays in advance, the deferred revenue is recognized over that service period. Deferred revenue balances were $250,656 and $279,818 as of December 31, 2018 and 2017, respectively. Deferred revenue during the three months ended March 31, 2019 and 2018 increased by $38,629 and $23,186, respectively. The Company had deferred revenue contract liability balances of $289,285 and $250,656 as of March 31, 2019 and December 31, 2018, respectively. The Company expects to recognize a majority of the revenue on of these remaining performance obligations within 12 months. Approximately 17% of the deferred revenue balance is related to prepaid credits. These credits are recognized as they are used. The Company expects to recognize approximately half of the remaining credits within 12 months. Accrued Revenue In cases where our customers pay for services in arrears, we accrue for revenue in advance of billings as long as the criteria for revenue recognition is met, thus creating a contract asset. A portion of our revenue is therefore unbilled at each period. The accrued revenue contract asset balances were $740,425 and $554,603 as of December 31, 2018 and 2017, respectively. Revenue billed that was included in accrued revenue at the beginning of the period for the three months ending March 31, 2019 and 2018 was $740,425 and $554,603, respectively. Accrued revenue not billed in the three months ending March 31, 2019 and 2018 was $832,593 and $628,497, respectively. The Company had accrued revenue contract asset balances of $832,593 and $740,425 as of March 31, 2019 and December 31, 2018, respectively. Concentration of Credit Risk and Significant Customers Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents. At March 31, 2019 and December 31, 2018, the Company had cash balances at financial institutions that exceed federally insured limits. The Company maintains its cash balances with accredited financial institutions. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. There were no customers that accounted for more than 10% of total revenue or 10% of total accounts receivable for any financial period presented. Cost of Services Cost of services consists primarily of direct labor costs associated with support, customer onboarding, account management, and technology hosting and license costs associated with the cloud-based platform. Credit Card Processing Fees Credit card processing fees are included as a component of general and administrative expenses and are expensed as incurred. Advertising Costs The Company expenses advertising costs as incurred. Advertising and marketing expenses, excluding marketing team costs, were $1,543,575 and $1,434,525 for the three months ended March 31, 2019 and 2018, respectively. Capitalized Cost of Obtaining a Contract The Company capitalizes sales commission costs which are incremental to obtaining a contract. We expense costs that are related to obtaining a contract but are not incremental such as other sales and marketing costs and other costs that would be incurred regardless of if the contract was obtained. Capitalized costs are amortized using the straight-line amortization over the estimated weighted average life of the customer, which we have estimated to be 3 years. At March 31, 2019 the net carrying value of the capitalized cost of obtaining a contract was $1,306,044, of which $707,373 is included in other current assets and $598,671 is included in other long-term assets. At December 31, 2018, the net carrying value of the capitalized cost of obtaining a contract was $1,309,329, of which $699,159 is included in other current assets and $610,170 is included in other long-term assets. The Company amortized expenses for the costs of obtaining contracts of $202,945 and $177,538 for the three months ended March 31, 2019 and 2018, respectively. Stock Compensation We account for stock-based compensation in accordance with FASB ASC 718 “Compensation — Stock Compensation” which requires companies to measure the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period. Net Loss Per Share Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted net loss per share is computed by giving effect to all potential dilutive common stock equivalents for the period. For purposes of this calculation, options to purchase common stock, warrants and the conversion option of the convertible Notes (Note 5) are considered to be potential common shares outstanding. Since the Company incurred net losses for each of the periods presented, diluted net loss per share is the same as basic net loss per share. The Company’s potential common shares outstanding were not included in the calculation of diluted net loss per share as the effect would be anti-dilutive. Comprehensive Income (Loss) Comprehensive income or loss includes all changes in equity during a period from non-owner sources, such as net income or loss and foreign currency translation adjustments. Recently Issued Accounting Standards Recent accounting standards not included below are not expected to have a material impact on our consolidated financial position and results of operations. In January 2017, the FASB issued guidance simplifying the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. Under current guidance, Step 2 of the goodwill impairment test requires entities to calculate the implied fair value of goodwill in the same manner as the amount of goodwill recognized in a business combination by assigning the fair value of a reporting unit to all of the assets and liabilities of the reporting unit. The carrying value in excess of the implied fair value is recognized as goodwill impairment. Under the new standard, goodwill impairment is recognized based on Step 1 of the current guidance, which calculates the carrying value in excess of the reporting unit’s fair value. The new standard is effective beginning in January 2020, with early adoption permitted. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements. In February 2016, the FASB issued guidance that requires lessees to recognize most leases on their balance sheets but record expenses on their income statements in a manner similar to current accounting. The guidance became effective for the Company on January 1, 2019. The Company is using the modified retrospective transition method which allows the Company to recognize and measure leases as of the adoption date, January 1, 2019, with the cumulative impact being reflected in the opening balance of retained earnings. The application of the modified retrospective transition was applied to all active leases at the date of initial application. There was no impact to the Company’s retained earnings for the implementation of this accounting standard. The following tables presents the cumulative impact to our financial statements upon adoption. Impact upon adoption of new ASU As of January 1, 2019 Right-of-use assets 5,715,510 Total Assets $ 5,715,510 Accrued expenses and other current liabilities $ (8,821 ) Lease liability (current) 344,883 Lease liability (non-current) 5,379,448 Total Liabilities $ 5,715,510 |
Goodwill and Other Intangible A
Goodwill and Other Intangible Assets | 3 Months Ended |
Mar. 31, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Goodwill and Other Intangible Assets | Intangible assets are as follows: As of March 31, 2019 Gross Net Carrying Accumulated Carrying Amount Amortization Value Amortized intangible assets: Trade names $ 120,000 (120,000 ) $ - Technology 2,130,000 (1,013,500 ) 1,116,500 Customer relationships 4,062,227 (3,407,977 ) 654,250 Unamortized intangible assets: 6,312,227 (4,541,477 ) 1,770,750 Goodwill 8,861,565 Total goodwill and intangible assets $ 10,632,315 As of December 31, 2018 Gross Net Carrying Accumulated Carrying Amount Amortization Value Amortized intangible assets: Trade names $ 120,000 (120,000 ) $ - Technology 2,130,000 (954,000 ) 1,176,000 Customer relationships 4,100,014 (3,410,014 ) 690,000 Unamortized intangible assets: 6,350,014 (4,484,014 ) 1,866,000 Goodwill 8,866,413 Total goodwill and intangible assets $ 10,732,413 Estimated amortization expense for the remainder of 2019 and subsequent years is as follows: Remainder of 2019 285,750 2020 332,000 2021 280,000 2022 228,000 2023 180,000 2024 141,000 Thereafter 324,000 Total $ 1,770,750 Amortization expense for the three months ended March 31, 2019 and 2018 was $95,250 and $115,000, respectively. |
Credit Facility
Credit Facility | 3 Months Ended |
Mar. 31, 2019 | |
Debt Disclosure [Abstract] | |
Credit Facility | In March 2016, the Company entered into a $2.5 million revolving loan agreement (the “Credit Facility”) with Western Alliance Bank. The facility originally matured on March 21, 2018 and was amended to mature on March 31, 2020. There are no mandatory amortization provisions and the Credit Facility is payable in full at maturity. Loan proceeds accrue interest at the higher of Western Alliance Bank’s Prime interest rate (5.25% as of March 31, 2019) or 5.25%, plus 2.00%. The Credit Facility is collateralized by a lien on substantially all of the existing and future assets of the Company and secured by a pledge of 100% of the capital stock of SharpSpring Technologies, Inc. and a 65% pledge of the Company’s foreign subsidiaries’ stock. The Credit Facility subjects the Company to a number of restrictive covenants, including financial and non-financial covenants customarily found in loan agreements for similar transactions. The Credit Facility also restricts our ability to pay cash dividends on our common stock. There are no amounts outstanding under the Credit Facility and no events of default have occurred. |
Convertible Notes
Convertible Notes | 3 Months Ended |
Mar. 31, 2019 | |
Convertible Notes | |
Convertible Notes | On March 28, 2018, we issued $8.0 million in aggregate principal amount of convertible notes (the “Notes”). Interest accrues at a rate of 5.0% per year and is “payable in kind” annually in the form of the issuance of additional notes (“PIK Notes”). The principal amount of the Note and the PIK Notes are due and payable in full on the fifth anniversary of the date of the Notes. The Company shall have the right to extend the maturity date for up to nine months on up to three separate occasions, with interest accruing at a rate of 10% during any such extension periods. The Notes are convertible into shares of the Company’s common stock at any time by the holder at a fixed conversion price of $7.50 per share, subject to customary adjustments for specified corporate events. Additionally, if the Notes and PIK Notes are not converted into common stock by the holder, at the maturity date, the Company may elect to convert all outstanding Notes and PIK Notes into shares of the Company’s common stock at a conversion price equal to 80% of the volume weighted average closing price of the Company’s common stock for the 30 trading days prior to an including the maturity date. We received net proceeds from the offering of approximately $7.9 million after adjusting for debt issue costs, including financial advisory and legal fees. The Notes are unsecured obligations and are subordinate in right of payment to the Credit Facility (Note 4). So long as any Notes are outstanding, except as the investor may otherwise agree in writing, the Company shall at no time (i) have outstanding senior indebtedness in an aggregate amount exceeding 18.6% of the Company’s trailing twelve-month revenue, (ii) incur any indebtedness that is both junior in right of payment to the obligations of the Company to its senior secured lender and senior to the Company’s obligations under the Notes or (iii) enter into any agreement with any lender or other third party that would (A) prohibit the Company from issuing PIK Notes at any time or under any circumstances or (B) prohibit the conversion of the Notes in accordance with their terms at any time or under any circumstances. Prior to the issuance of the Notes, the Company had no outstanding indebtedness for borrowed money. The holder of the Notes must notify the Company at least 120 days prior to the maturity of the Notes of its election to convert the Notes. The convertible note agreement contains customary events of default with respect to the Notes and provides that upon certain events of default occurring and continuing, the investor, by written notice to the Company may declare the entire outstanding principal amount of this Note and all accrued but unpaid interest to be immediately due and payable. During the continuance of an event of default, the investor shall have recourse to any and all remedies available to under applicable law. The Notes were recorded upon issuance at amortized cost in accordance with applicable accounting guidance. As there is no difference in the amount recorded at inception and the face value of the Notes, interest expense will be accreted at the stated interest rate under the terms of the Notes. Total interest expense related to the Notes will be impacted by the amortization of the debt issuance cost using the effective interest method. The Company would be required to accelerate and issue the PIK Notes through the maturity of the Notes if the Company elects to convert the Notes prior to maturity (which it can do upon certain conditions) or if there is a change in control. Pursuant to accounting guidance, for each of these situations, the Company determined that the economic characteristics of these “make whole” features were not considered clearly and closely related to the Company’s stock. Accordingly, these features were determined to be “embedded derivatives” and were bifurcated from the Notes and separately accounted for on a combined basis at fair value as a single derivative. The fair value of the derivatives as of March 31, 2019 was a liability of $189,776 which is included within the non-current liabilities on the balance sheet. The derivative is being accounted for at fair value, with subsequent changes in the fair value to be reported as part of Other income (expense), net in the Consolidated Statement of Operations. Additionally, the investor’s conversion option was analyzed for embedded derivative treatment, but the conversion option qualifies for a scope exception as it is considered to be clearly and closely related to the Company’s stock. The net carrying amount of the Notes at March 31, 2019 was as follows: March 31, December 31, 2019 2018 Principal amount $ 8,000,000 $ 8,000,000 Accrued interest paid-in-kind 404,301 304,301 Unamortized debt issuance costs (115,743 ) (122,153 ) Unamortized embedded derivative 151,868 160,278 Net carrying value $ 8,440,426 $ 8,342,426 We incurred certain third-party costs in connection with our issuance of the Notes, principally related to financial advisory and legal fees, which are being amortized to interest expense ratably over the five-year term of the Notes. The following table sets forth total interest expense related to the Notes for the period ended March 31, 2019: Three Months Ended March 31, 2019 2018 Contractual interest paid-in-kind expense (non-cash) $ 100,000 4,301 Amortization of debt issuance costs (non-cash) 6,410 274 Amortization of embedded derivative (non-cash) (8,410 ) - Total interest expense $ 98,000 $ 4,575 Effective interest rate 4.9 % 5.4 % |
Net Loss Per Share
Net Loss Per Share | 3 Months Ended |
Mar. 31, 2019 | |
Earnings Per Share [Abstract] | |
Net Loss Per Share | Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted net loss per share is computed by giving effect to all potential dilutive common stock equivalents for the period. For purposes of this calculation, options to purchase common stock, warrants and the conversion option of the Convertible Notes (Note 5) are considered to be potential common shares outstanding. Three Months Ended March 31, 2019 2018 Net loss $ (2,893,843 ) $ (2,051,942 ) Basic weighted average common shares outstanding 8,840,281 8,443,455 Add incremental shares for: Warrants - - Stock options - - Convertible notes - - Diluted weighted average common shares outstanding 8,840,281 8,443,455 Net loss per share: Basic $ (0.33 ) $ (0.24 ) Diluted $ (0.33 ) $ (0.24 ) Additionally, since the Company incurred net losses for each of the periods presented, diluted net loss per share is the same as basic net loss per share. The Company’s outstanding warrants, stock options, and convertible notes were not included in the calculation of diluted net loss per share as the effect would be anti-dilutive. The following table contains all potentially dilutive common stock equivalents: Three Months March 31, 2019 2018 Warrants 30,000 80,000 Stock options 1,391,487 1,525,450 Convertible notes 1,120,573 1,066,667 |
Income Taxes
Income Taxes | 3 Months Ended |
Mar. 31, 2019 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | The income tax expense we record in any interim period is based on our estimated effective tax rate for the year for each jurisdiction that we operate in. The calculation of our estimated effective tax rate requires an estimate of pre-tax income by tax jurisdiction, as well as total tax expense for the fiscal year. Accordingly, this tax rate is subject to adjustment if, in subsequent interim periods, there are changes to our initial estimates of total tax expense, pre-tax income, or pre-tax income by jurisdiction. During the three months ended March 31, 2019 and 2018, the Company recorded income tax expense of $2,339 and $41,997, respectively, from continuing operations. The blended effective tax rate for the three months ending March 31, 2019 and 2018 was -.1% and -2%, respectively. The effective blended tax rate varies from our statutory U.S. tax rate due to income generated in certain other jurisdictions at various tax rates. Valuation Allowance We record a deferred tax asset if we believe that it is more likely than not that we will realize a future tax benefit. Ultimate realization of any deferred tax asset is dependent on our ability to generate sufficient future taxable income in the appropriate tax jurisdiction before the expiration of carryforward periods, if any. Our assessment of deferred tax asset recoverability considers many different factors including historical and projected operating results, the reversal of existing deferred tax liabilities that provide a source of future taxable income, the impact of current tax planning strategies and the availability of future tax planning strategies. We establish a valuation allowance against any deferred tax asset for which we are unable to conclude that recoverability is more likely than not. This is inherently judgmental, since we are required to assess many different factors and evaluate as much objective evidence as we can in reaching an overall conclusion. The particularly sensitive component of our evaluation is our projection of future operating results since this relies heavily on our estimates of future revenue and expense levels by tax jurisdiction. In making our assessment of deferred tax asset recoverability, we considered our historical financial results, our projected future financial results, the planned reversal of existing deferred tax liabilities and the impact of any tax planning actions. Based on our analysis we noted both positive and negative factors relative to our ability to support realization of certain deferred tax assets. However, based on the weighting of all the evidence, including the near term effect on our income projections of investments we are making in our team, product and systems infrastructure, we concluded that it was more likely than not that the majority of our deferred tax assets related to temporary differences and net operating losses may not be recovered. The establishment of a valuation allowance has no effect on our ability to use the underlying deferred tax assets prior to expiration to reduce cash tax payments in the future to the extent that we generate taxable income. At March 31, 2019 and December 31, 2018, we have established a valuation allowance of $5.0 million and $4.3 million, respectively, against certain deferred tax assets given the uncertainty of recoverability of these amounts. |
Defined Contribution Retirement
Defined Contribution Retirement Plan | 3 Months Ended |
Mar. 31, 2019 | |
Retirement Benefits [Abstract] | |
Defined Contribution Retirement Plan | Starting in 2016, we offered our U.S. employees the ability to participate in a 401(k) plan. Eligible U.S. employees may contribute up to 99% of their eligible compensation, subject to limitations established by the Internal Revenue Code. The Company contributes a matching contribution equal to 100% of each such participant’s contribution up to the first 3% of their annual eligible compensation. We charged $69,162 and $60,339 to expense in the three months ended March 31, 2019 and 2018, respectively, associated with our matching contribution in those periods. |
Stock-Based Compensation
Stock-Based Compensation | 3 Months Ended |
Mar. 31, 2019 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Stock-Based Compensation | The Company grants stock option awards to officers and employees and grants stock awards to directors as compensation for their service to the Company. In November 2010, the Company adopted the 2010 Stock Incentive Plan (“the Plan”) which was amended in April 2011, August 2013, April 2014, February 2016, March 2017, and June 2018. The plan was restated in its entirety in August 2018. As amended, up to 2,600,000 shares of common stock are available for issuance under the Plan. The Plan provides for the issuance of stock options and other stock-based awards. Stock Options Stock option awards under the Plan have a 10-year maximum contractual term and must be issued at an exercise price of not less than 100% of the fair market value of the common stock at the date of grant. The Plan is administered by the Board of Directors, which has the authority to determine to whom options may be granted, the period of exercise and what other restrictions, if any, should apply. Vesting for awards granted to date under the Plan is principally over four years from the date of the grant, with 25% of the award vesting after one year and monthly vesting thereafter. Option awards are valued based on the grant date fair value of the instruments, net of estimated forfeitures, using a Black-Scholes option pricing model with the following assumptions: Three Months Ended March 31, 2019 2018 Volatility 49% - 50% 48% - 49% Risk-free interest rate 2.55% - 2.59% 2.34% -2.70% Expected term 6.25 years 6.25 years The weighted average grant date fair value of stock options granted during the three months ended March 31, 2019 and 2018 was $7.02 and $2.28, respectively. For grants prior to January 1, 2015, the volatility assumption was based on historical volatility of similar sized companies due to lack of historical data of the Company’s stock price. For all grants subsequent to January 1, 2015, the volatility assumption reflects the Company’s historic stock volatility for the period of February 1, 2014 forward, which is the date the Company’s stock started actively trading. The risk-free interest rate was determined based on treasury securities with maturities equal to the expected term of the underlying award. The expected term was determined based on the simplified method outlined in Staff Accounting Bulletin No. 110. Stock option awards are expensed on a straight-line basis over the requisite service period. During the three months ended March 31, 2019 and 2018, the Company recognized expense of $269,044 and $193,535, respectively, associated with stock option awards. At March 31, 2019, future stock compensation expense associated with stock options (net of estimated forfeitures) not yet recognized was $2,928,860 and will be recognized over a weighted average remaining vesting period of 3.2 years. The following summarizes stock option activity for the three months ended March 31, 2019: Weighted Weighted Aggregate Number of Average Average Remaining Intrinsic Options Exercise Price Contractual Life Value Outstanding at December 31, 2018 1,654,522 $ 6.07 8.2 $ 10,866,658 Granted 42,794 13.93 Exercised (119,744 ) 5.04 Expired - - Forfeited (186,085 ) 4.93 Outstanding at March 31, 2019 1,391,487 $ 6.56 7.9 $ 13,166,613 Exercisable at March 31, 2019 646,292 $ 5.02 6.9 $ 7,107,517 The total intrinsic value of stock options exercised during the three months ended March 31, 2019 and 2018 were $1,189,991 and $565, respectively. Stock Awards During the three months ended March 31, 2019 and 2018, the Company issued 2,404 and 8,955 shares, respectively, to non-employee directors as compensation for their service on the board. Such stock awards are immediately vested. Stock awards are valued based on the closing price of our common stock on the date of grant, and compensation cost is recorded on a straight-line basis over the share vesting period. The total fair value of stock awards granted, vested and expensed during the three months ended March 31, 2019 and 2018 was $34,473 and $43,880, respectively. As of March 31, 2019, there was no unrecognized compensation cost related to stock awards. |
Warrants
Warrants | 3 Months Ended |
Mar. 31, 2019 | |
Warrants and Rights Note Disclosure [Abstract] | |
Warrants | During 2014, the Company issued warrants to certain service providers. The following table summarizes information about the Company’s warrants at March 31, 2019: Weighted Weighted Number of Average Average Remaining Intrinsic Units Exercise Price Contractual Term Value Outstanding at December 31, 2018 30,000 $ 7.81 1.1 $ 144,525 Granted - - Exercised - - Cancelled - - Outstanding at March 31, 2019 30,000 $ 7.81 0.8 $ 246,225 Exercisable at March 31, 2019 30,000 $ 7.81 0.8 $ 246,225 |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Mar. 31, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | The Company may from time to time be involved in legal proceedings arising from the normal course of business. The Company is not currently a party to any litigation of a material nature. The Company has employment agreements with several members of its leadership team and executive officers. The Company is not party to any non-cancellable contracts that create a material future commitment other than its lease as described in Note 12. |
Leases
Leases | 3 Months Ended |
Mar. 31, 2019 | |
Leases [Abstract] | |
Leases | The Company currently rents its primary office facility under a ten-year lease which started in November 2018 (the “2018 Lease”). The term of the lease may be extended for an additional 5 years in incremental one-year periods, subject to certain conditions described in the 2018 Lease. We do not assume renewals in our determination of lease term unless the renewals are deemed to be reasonably assured at lease commencement. At the commencement of the 2018 lease, renewal was not reasonably assured. Determination of whether a contract contains a lease is determined at execution of the contract based on the facts of each contract. The Company elected the package of practical expedients permitted under ASC 842 which allows us to carryforward historical lease classification, assessment on whether a contract was or contains a lease, and initial direct costs for any leases that existed prior to adoption of the standard. We have also elected to utilize practical expedients to combine lease and non-lease components and to not include on the balance sheet leases with an initial term of 12 months or less (“short-term leases”). Short-term lease payments are recognized in the consolidated statements of income on a straight-line basis over the lease term. These practical expedients apply to all of SharpSpring’s operating leases. The Company is not party to any financing lease. The weighted average remaining lease term as of March 31, 2019 is 9.6 years. The weighted average discount rate for our operating leases as of March 31, 2019 is 6.5%. The discount rate of each lease is determined by the company’s incremental borrowing rate at the time of a lease contract. The lease cost associated with short-term leases for the three months ended March 31, 2019 and 2018 were zero and $18,651 respectively. Future minimum lease payments are as follows as of March 31, 2019: Operating Leases Remainder of 2019 $ 553,679 2020 742,956 2021 766,546 2022 771,278 2023 794,937 Thereafter 4,020,754 Total undiscounted cash flows $ 7,650,151 Less imputed interest (2,017,856 ) Present value of lease liability $ 5,632,295 |
Disaggregation of Revenue
Disaggregation of Revenue | 3 Months Ended |
Mar. 31, 2019 | |
Disaggregation of Revenue [Abstract] | |
Disaggregation of Revenue | The Company operates as one reporting segment. Operating segments are defined as components of an enterprise for which separate financial information in regularly evaluated by the chief operating decision makers (“CODM”), which is the Company’s chief executive office, in deciding how to allocate resources and assess performance. The Company does not present geographical information about revenues because it is impractical to do so. Disaggregated revenue for the three months ended March 31, 2019 and 2018 are as follows: Three Months Ended March 31, 2019 2018 Revenue by Product: Marketing Automation Revenue 5,261,939 4,063,500 Mail + Product Revenue $ 64,346 $ 121,163 Total Revenue $ 5,326,285 $ 4,184,663 Revenue by Type: Recurring Revenue 4,868,149 3,846,953 Upfront Fees $ 458,136 $ 337,710 Total Revenue $ 5,326,285 $ 4,184,663 |
Subsequent Events
Subsequent Events | 3 Months Ended |
Mar. 31, 2019 | |
Subsequent Events [Abstract] | |
Subsequent Events | The following events and transactions occurred subsequent to March 31, 2019: On May 9, 2019, the Company entered into a Note Conversion Agreement (the “Conversion Agreement”) with SHSP Holdings, LLC (“SHSP Holdings”) and Evercel Holdings, LLC (“Evercel,” and together with SHSP Holdings, the “Investor”), pursuant to which the parties agreed to the conversion (the “Conversion”) of the Convertible Promissory Note in the principal amount of $8,000,000 (the “Note”), which was issued by the Company to SHSP Holdings as of March 28, 2018, into 1,241,635 shares (the “Conversion Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”). The Company’s entry into the Conversion Agreement was unanimously approved by the disinterested members of the Company’s Board of Directors based on the Board’s determination that the conversion would, among other things, decrease the potential dilutive effect of the conversion of the Note relative to conversion at the previously scheduled five-year maturity of the Note; provide a meaningful savings in the total interest paid by the Company in connection with the Note compared to the interest that the Company would have incurred had the Note converted at maturity; eliminate certain restrictions on the ability of the Company to incur indebtedness when and if the Company deems it in the best interest of the Company; and strengthen the Company’s balance sheet by eliminating indebtedness. Daniel C. Allen, a director of SharpSpring Inc., is the founder and manager of Corona Park Investment Partners, LLC (“CPIP”). CPIP is a member of Evercel Holdings, LLC and is a member and sole manager of SHSP Holdings. Evercel, Inc. is a member and the manager of Evercel Holdings, LLC and is a member of SHSP Holdings. |
Summary of Significant Accoun_2
Summary of Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2019 | |
Accounting Policies [Abstract] | |
Basis of Presentation and Consolidation | The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). Our Consolidated Financial Statements include the accounts of SharpSpring, Inc. and our subsidiaries (the “Company”). Our Consolidated Financial Statements reflect the elimination of all significant inter-company accounts and transactions. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, 2019. |
Use of Estimates | The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
Operating Segments | The Company operates as one operating segment. Operating segments are defined as components of an enterprise for which separate financial information is regularly evaluated by the chief operating decision maker (“CODM”), which is the Company’s chief executive officer, in deciding how to allocate resources and assess performance. The Company’s CODM evaluates the Company’s financial information and resources and assess the performance of these resources on a consolidated basis. The Company does not present geographical information about revenues because it is impractical to do so. |
Foreign Currencies | The functional currency of the Company’s foreign subsidiaries is the local currency. Assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the exchange rates in effect at the balance sheet dates; with the resulting translation adjustments directly recorded to a separate component of accumulated other comprehensive loss. Income and expense accounts are translated at the average exchange rates during the period. Foreign currency transaction gains and losses are recorded in other comprehensive income (loss). |
Cash and Cash Equivalents | Cash equivalents are short-term, liquid investments with remaining maturities of three months or less when acquired. Cash and cash equivalents are deposited or managed by major financial institutions and at most times are in excess of Federal Deposit Insurance Corporation (FDIC) insurance limits. |
Fair Value of Financial Instruments | U.S. GAAP establishes a fair value hierarchy which has three levels based on the reliability of the inputs to determine the fair value. These levels include: Level 1, defined as inputs such as unadjusted quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for use when little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, deposits, embedded derivatives (associated with our convertible notes) and accounts payable. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the short-term nature of these items. The fair value of the embedded derivatives associated with our convertible notes is calculated using Level 3 unobservable inputs, utilizing a probability-weighted expected value model to determine the liability. The fair value of the embedded derivatives at March 31, 2019 and December 31, 2018 was a liability balance of $189,776 and $214,350, respectively. The change in fair value for the year three months ended March 31, 2019 and 2018 was a gain of $24,574 and zero, respectively. |
Accounts Receivable | Accounts receivable are carried at the original invoiced amount less an allowance for doubtful accounts based on the probability of future collection. Management reviews accounts receivable on a periodic basis to determine if any receivables will potentially be uncollectible. The Company reserves for receivables that are determined to be uncollectible, if any, in its allowance for doubtful accounts. After the Company has exhausted all collection efforts, the outstanding receivable is written off against the allowance. In cases where our customers pay for services in arrears, we accrue for revenue in advance of billings as long as the criteria for revenue recognition is met, thus creating a contract asset. A portion of our accounts receivable balance is therefore unbilled at each balance sheet date and is reflected as such on the consolidated balance sheet. |
Intangibles | Finite-lived intangible assets include trade names, developed technologies and customer relationships and are amortized based on the estimated economic benefit over their estimated useful lives, with original periods ranging from 5 to 11 years. We continually evaluate the reasonableness of the useful lives of these assets. Finite-lived intangibles are tested for recoverability whenever events or changes in circumstances indicate the carrying amounts may not be recoverable. Impairment losses are measured as the amount by which the carrying value of an asset group exceeds its fair value and are recognized in operating results. Judgment is used when applying these impairment rules to determine the timing of the impairment test, the undiscounted cash flows used to assess impairments and the fair value of an asset group. The dynamic economic environment in which the Company operates, and the resulting assumptions used to estimate future cash flows impact the outcome of these impairment tests. |
Goodwill and Impairment | As of March 31, 2019, and December 31, 2018, we had recorded goodwill of $8,861,565 and $8,866,413, respectively. Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible net assets acquired in the SharpSpring and GraphicMail acquisitions. Under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350, “Intangibles - Goodwill and Other” |
Debt Issuance Costs | We incurred certain third-party costs in connection with the issuance of the 5% Convertible Notes maturing March 27, 2023 (the “Notes”), as more fully described in Note 5: Convertible Notes, principally related to legal and financial advisory fees. These costs are included as a direct reduction to the carrying value of the debt as part of the Notes on our consolidated balance sheet and are being amortized to interest expense ratably over the five-year term of the Notes. Estimated amortization expense of debt issuance costs for the remainder of 2019 and subsequent years is as follows: Remainder of 2019 $ 20,175 2020 27,885 2021 29,247 2022 30,677 2023 7,759 Total $ 115,743 |
Income Taxes | Provision for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in FASB ASC 740, Accounting for Income The Company applies the authoritative guidance in accounting for uncertainty in income taxes recognized in the consolidated financial statements. This guidance prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. There are no material uncertain tax positions taken by the Company on its tax returns. Tax years subsequent to 2015 remain open to examination by U.S. federal and state tax jurisdictions. In determining the provision for income taxes, the Company uses statutory tax rates and tax planning opportunities available to the Company in the jurisdictions in which it operates. This includes recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns to the extent pervasive evidence exists that they will be realized in future periods. The deferred tax balances are adjusted to reflect tax rates by tax jurisdiction, based on currently enacted tax laws, which are expected to be in effect in the years in which the temporary differences are expected to reverse. In accordance with the Company’s income tax policy, significant or unusual items are separately recognized in the period in which they occur. The Company is subject to routine examination by domestic and foreign tax authorities and frequently faces challenges regarding the amount of taxes due. These challenges include positions taken by the Company related to the timing, nature and amount of deductions and the allocation of income among various tax jurisdictions. As of March 31, 2019, the Company is being examined by the U.S. tax authorities related to the 2016 and 2017 tax years. The Company does not expect any material adjustments as a result of the audits. |
Property and Equipment | Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful life of the assets. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is credited or charged to operations. Repairs and maintenance costs are expensed as incurred. Depreciation expense related to property and equipment was $132,003 and $75,983 for the three months ended March 31, 2019 and 2018, respectively. Repairs and maintenance costs are expensed as incurred. Property and equipment as of March 31, 2019 and December 31, 2018 is as follows: March 31, December 31, 2019 2018 Property and equipment, gross: Leasehold improvements $ 253,168 $ 197,268 Furniture and fixtures 671,324 611,171 Computer equipment and software 1,378,144 1,135,012 Total 2,302,636 1,943,451 Less: Accumulated depreciation and amortization (826,667 ) (682,653 ) $ 1,475,969 $ 1,260,798 Useful lives are as follows: Leasehold improvements 3-5 years Furniture and fixtures 3-5 years Computing equipment 3 years Software 3-5 years |
Revenue Recognition | The Company recognizes revenue from its services when it is probable that the economic benefits associated with the transactions will flow to the Company and the amount of revenue can be reliably measured. All significant sources of revenue are the result of a contract with a customer, and as such meet all of the requirements of recognizing revenue in accordance with FASB ASC 606. For the three months ended March 31, 2019 and March 31, 2018 revenue from contracts with customers was $5.3 million and $4.2 million, respectively. For the Company’s internet-based SharpSpring marketing automation solution, the services are typically offered on a month-to-month basis with a fee charged each month depending on the size of the engagement with the customer. Monthly fees are recorded as revenue during the month they are earned. Some customers are charged annually in advance, for which revenues are deferred and recorded ratably over the subscription period. The Company also charges transactional-based fees if monthly volume limitations are reached or other chargeable activity occurs. Additionally, customers are typically charged an upfront onboarding and training fee. The upfront onboarding and training fees represent short-term “use it or lose it” services offered for a flat fee. Such flat fees are recognized over the service period, which is typically 60 days. For the SharpSpring Mail+ product, the services are typically offered on a month-to-month basis. Customers are either charged in arrears based on the number of contacts in the system during the billing period or in advance if the customer selects a plan based on e-mail volume. The Company also charges transactional-based fees if monthly volume limitations are reached or other chargeable activity occurs. Our products are billed in arrears or upfront, depending on the product, which creates contract assets (accrued revenue) and contract liabilities (deferred revenue). Contract assets occur due to unbilled charges for which the Company has satisfied performance obligations. Contract liabilities occur due to billing up front for charges that the Company has not yet fully satisfied all performance obligations. Both contract assets and liabilities are recognized and deferred ratably over their service periods. The Company makes judgements when determining revenue recognition. Because many of our contracts are billed in arrears, estimates are made for the transaction price and amounts allocated to each accounting period related to the performance obligations of each contract. There have been no changes to the methodology used in these judgements and estimates for determining revenues. Some of the estimates used when determining revenue recognition relate to variable customer consideration that changes from month to month. The Company uses the most likely amount method to determine the estimated variable consideration, relying on historical consideration received, customer status and projected usage to determine the most likely consideration amount. The amount of variable consideration recognized is constrained and is only included in the transaction price to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur. The performance obligations are measured using the output method to recognize revenue based on direct measurements of the value to the customer of the services transferred to date. Most of the Company’s contracts are satisfied over time, and as each contract has a predefined service period. This allows for a reliable way to measure performance obligations remaining and completed. The Company does have some contracts that are satisfied at a point in time upon delivery of services. The criteria for the completion of these contracts is defined in each contract with a customer so that there is no judgment required in evaluating when the service is delivered to the customer. Any discount given is allocated to the performance obligation and is treated as reduction to the transaction price. Due to the month to month nature of the Company’s contracts with customers, no financing or time value of money component exists related to the contracts with customers. Due to the month to month nature of the Company’s contracts with customers, we have elected to utilize the optional practical expedient from ASC 606-10-50-14 through 50-14A for disclosing the remaining performance obligations. The remaining performance obligations as of the balance sheet date consist of trainings and availability and use of the SharpSpring platform over the remainder of the contract, which is typically less than 30 days. From time to time, the Company offers refunds to customers and experiences credit card chargebacks relating to cardholder disputes that are commonly experienced by businesses that accept credit cards. The Company makes estimates for refunds and credit card chargebacks based on historical experience. |
Deferred Revenue | Deferred revenue consists of payments received in advance of the Company’s providing the services. Deferred revenue is earned over the service period identified in each contract. The majority of our deferred revenue balances (contract liabilities) arise from upfront implementation fees for its SharpSpring marketing automation solution that are paid in advance. These services are typically performed over a 60-day period, and the revenue is recognized over that period. Additionally, some of the Company’s customers pay for services in advance on a periodic basis (such as monthly, quarterly, annually or bi-annually). In situations where a customer pays in advance, the deferred revenue is recognized over that service period. Deferred revenue balances were $250,656 and $279,818 as of December 31, 2018 and 2017, respectively. Deferred revenue during the three months ended March 31, 2019 and 2018 increased by $38,629 and $23,186, respectively. The Company had deferred revenue contract liability balances of $289,285 and $250,656 as of March 31, 2019 and December 31, 2018, respectively. The Company expects to recognize a majority of the revenue on of these remaining performance obligations within 12 months. Approximately 17% of the deferred revenue balance is related to prepaid credits. These credits are recognized as they are used. The Company expects to recognize approximately half of the remaining credits within 12 months. |
Accrued Revenue | In cases where our customers pay for services in arrears, we accrue for revenue in advance of billings as long as the criteria for revenue recognition is met, thus creating a contract asset. A portion of our revenue is therefore unbilled at each period. The accrued revenue contract asset balances were $740,425 and $554,603 as of December 31, 2018 and 2017, respectively. Revenue billed that was included in accrued revenue at the beginning of the period for the three months ending March 31, 2019 and 2018 was $740,425 and $554,603, respectively. Accrued revenue not billed in the three months ending March 31, 2019 and 2018 was $832,593 and $628,497, respectively. The Company had accrued revenue contract asset balances of $832,593 and $740,425 as of March 31, 2019 and December 31, 2018, respectively. |
Concentration of Credit Risks and Significant Customers | Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents. At March 31, 2019 and December 31, 2018, the Company had cash balances at financial institutions that exceed federally insured limits. The Company maintains its cash balances with accredited financial institutions. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. There were no customers that accounted for more than 10% of total revenue or 10% of total accounts receivable for any financial period presented. |
Cost of Services | Cost of services consists primarily of direct labor costs associated with support, customer onboarding, account management, and technology hosting and license costs associated with the cloud-based platform. |
Credit Card Processing Fees | Credit card processing fees are included as a component of general and administrative expenses and are expensed as incurred. |
Advertising Costs | The Company expenses advertising costs as incurred. Advertising and marketing expenses, excluding marketing team costs, were $1,543,575 and $1,434,525 for the three months ended March 31, 2019 and 2018, respectively. |
Capitalized Cost of Obtaining a Contract | The Company capitalizes sales commission costs which are incremental to obtaining a contract. We expense costs that are related to obtaining a contract but are not incremental such as other sales and marketing costs and other costs that would be incurred regardless of if the contract was obtained. Capitalized costs are amortized using the straight-line amortization over the estimated weighted average life of the customer, which we have estimated to be 3 years. At March 31, 2019 the net carrying value of the capitalized cost of obtaining a contract was $1,306,044, of which $707,373 is included in other current assets and $598,671 is included in other long-term assets. At December 31, 2018, the net carrying value of the capitalized cost of obtaining a contract was $1,309,329, of which $699,159 is included in other current assets and $610,170 is included in other long-term assets. The Company amortized expenses for the costs of obtaining contracts of $202,945 and $177,538 for the three months ended March 31, 2019 and 2018, respectively. |
Stock Compensation | We account for stock-based compensation in accordance with FASB ASC 718 “Compensation — Stock Compensation” which requires companies to measure the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period. |
Net Loss Per Share | Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted net loss per share is computed by giving effect to all potential dilutive common stock equivalents for the period. For purposes of this calculation, options to purchase common stock, warrants and the conversion option of the convertible Notes (Note 5) are considered to be potential common shares outstanding. Since the Company incurred net losses for each of the periods presented, diluted net loss per share is the same as basic net loss per share. The Company’s potential common shares outstanding were not included in the calculation of diluted net loss per share as the effect would be anti-dilutive. |
Comprehensive Income (Loss) | Comprehensive income or loss includes all changes in equity during a period from non-owner sources, such as net income or loss and foreign currency translation adjustments. |
Recently Issued Accounting Standards | Recent accounting standards not included below are not expected to have a material impact on our consolidated financial position and results of operations. In January 2017, the FASB issued guidance simplifying the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. Under current guidance, Step 2 of the goodwill impairment test requires entities to calculate the implied fair value of goodwill in the same manner as the amount of goodwill recognized in a business combination by assigning the fair value of a reporting unit to all of the assets and liabilities of the reporting unit. The carrying value in excess of the implied fair value is recognized as goodwill impairment. Under the new standard, goodwill impairment is recognized based on Step 1 of the current guidance, which calculates the carrying value in excess of the reporting unit’s fair value. The new standard is effective beginning in January 2020, with early adoption permitted. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements. In February 2016, the FASB issued guidance that requires lessees to recognize most leases on their balance sheets but record expenses on their income statements in a manner similar to current accounting. The guidance became effective for the Company on January 1, 2019. The Company is using the modified retrospective transition method which allows the Company to recognize and measure leases as of the adoption date, January 1, 2019, with the cumulative impact being reflected in the opening balance of retained earnings. The application of the modified retrospective transition was applied to all active leases at the date of initial application. There was no impact to the Company’s retained earnings for the implementation of this accounting standard. The following tables presents the cumulative impact to our financial statements upon adoption. Impact upon adoption of new ASU As of January 1, 2019 Right-of-use assets 5,715,510 Total Assets $ 5,715,510 Accrued expenses and other current liabilities $ (8,821 ) Lease liability (current) 344,883 Lease liability (non-current) 5,379,448 Total Liabilities $ 5,715,510 |
Summary of Significant Accoun_3
Summary of Significant Accounting Policies (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Accounting Policies [Abstract] | |
Schedule of Debt Issuance Cost Amortization | Remainder of 2019 $ 20,175 2020 27,885 2021 29,247 2022 30,677 2023 7,759 Total $ 115,743 |
Schedule of Property and Equipment | March 31, December 31, 2019 2018 Property and equipment, gross: Leasehold improvements $ 253,168 $ 197,268 Furniture and fixtures 671,324 611,171 Computer equipment and software 1,378,144 1,135,012 Total 2,302,636 1,943,451 Less: Accumulated depreciation and amortization (826,667 ) (682,653 ) $ 1,475,969 $ 1,260,798 |
Schedule of Property and Equipment Useful Lives | Leasehold improvements 3-5 years Furniture and fixtures 3-5 years Computing equipment 3 years Software 3-5 years |
Accounting Change Adjustments | Impact upon adoption of new ASU As of January 1, 2019 Right-of-use assets 5,715,510 Total Assets $ 5,715,510 Accrued expenses and other current liabilities $ (8,821 ) Lease liability (current) 344,883 Lease liability (non-current) 5,379,448 Total Liabilities $ 5,715,510 |
Goodwill and Other Intangible_2
Goodwill and Other Intangible Assets (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Schedule of Intangible Assets | As of March 31, 2019 Gross Net Carrying Accumulated Carrying Amount Amortization Value Amortized intangible assets: Trade names $ 120,000 (120,000 ) $ - Technology 2,130,000 (1,013,500 ) 1,116,500 Customer relationships 4,062,227 (3,407,977 ) 654,250 Unamortized intangible assets: 6,312,227 (4,541,477 ) 1,770,750 Goodwill 8,861,565 Total goodwill and intangible assets $ 10,632,315 As of December 31, 2018 Gross Net Carrying Accumulated Carrying Amount Amortization Value Amortized intangible assets: Trade names $ 120,000 (120,000 ) $ - Technology 2,130,000 (954,000 ) 1,176,000 Customer relationships 4,100,014 (3,410,014 ) 690,000 Unamortized intangible assets: 6,350,014 (4,484,014 ) 1,866,000 Goodwill 8,866,413 Total goodwill and intangible assets $ 10,732,413 |
Schedule of Estimated Amortization Expense | Remainder of 2019 285,750 2020 332,000 2021 280,000 2022 228,000 2023 180,000 2024 141,000 Thereafter 324,000 Total $ 1,770,750 |
Convertible Notes (Tables)
Convertible Notes (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Convertible Notes Tables Abstract | |
Net Carrying Amount- Notes | March 31, December 31, 2019 2018 Principal amount $ 8,000,000 $ 8,000,000 Accrued interest paid-in-kind 404,301 304,301 Unamortized debt issuance costs (115,743 ) (122,153 ) Unamortized embedded derivative 151,868 160,278 Net carrying value $ 8,440,426 $ 8,342,426 |
Interest Expense | Three Months Ended March 31, 2019 2018 Contractual interest paid-in-kind expense (non-cash) $ 100,000 4,301 Amortization of debt issuance costs (non-cash) 6,410 274 Amortization of embedded derivative (non-cash) (8,410 ) - Total interest expense $ 98,000 $ 4,575 Effective interest rate 4.9 % 5.4 % |
Net Loss Per Share (Tables)
Net Loss Per Share (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Earnings Per Share [Abstract] | |
Schedule of Computation of Net Loss Per Share | Three Months Ended March 31, 2019 2018 Net loss $ (2,893,843 ) $ (2,051,942 ) Basic weighted average common shares outstanding 8,840,281 8,443,455 Add incremental shares for: Warrants - - Stock options - - Convertible notes - - Diluted weighted average common shares outstanding 8,840,281 8,443,455 Net loss per share: Basic $ (0.33 ) $ (0.24 ) Diluted $ (0.33 ) $ (0.24 ) |
Schedule of Potentially Dilutive Common Stock Equivalents | Three Months March 31, 2019 2018 Warrants 30,000 80,000 Stock options 1,391,487 1,525,450 Convertible notes 1,120,573 1,066,667 |
Stock-Based Compensation (Table
Stock-Based Compensation (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Schedule of Fair Value Assumptions Used in Valuing Stock Options | Three Months Ended March 31, 2019 2018 Volatility 49% - 50% 48% - 49% Risk-free interest rate 2.55% - 2.59% 2.34% -2.70% Expected term 6.25 years 6.25 years |
Schedule of Stock Option Activity | Weighted Weighted Aggregate Number of Average Average Remaining Intrinsic Options Exercise Price Contractual Life Value Outstanding at December 31, 2018 1,654,522 $ 6.07 8.2 $ 10,866,658 Granted 42,794 13.93 Exercised (119,744 ) 5.04 Expired - - Forfeited (186,085 ) 4.93 Outstanding at March 31, 2019 1,391,487 $ 6.56 7.9 $ 13,166,613 Exercisable at March 31, 2019 646,292 $ 5.02 6.9 $ 7,107,517 |
Warrants (Tables)
Warrants (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Warrants and Rights Note Disclosure [Abstract] | |
Summary of Warrants Activity | Weighted Weighted Number of Average Average Remaining Intrinsic Units Exercise Price Contractual Term Value Outstanding at December 31, 2018 30,000 $ 7.81 1.1 $ 144,525 Granted - - Exercised - - Cancelled - - Outstanding at March 31, 2019 30,000 $ 7.81 0.8 $ 246,225 Exercisable at March 31, 2019 30,000 $ 7.81 0.8 $ 246,225 |
Leases (Tables)
Leases (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Leases Tables Abstract | |
Future minimum lease payments | Operating Leases Remainder of 2019 $ 553,679 2020 742,956 2021 766,546 2022 771,278 2023 794,937 Thereafter 4,020,754 Total undiscounted cash flows $ 7,650,151 Less imputed interest (2,017,856 ) Present value of lease liability $ 5,632,295 |
Disaggregation of Revenue (Tabl
Disaggregation of Revenue (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Disaggregation Of Revenue | |
Disaggregated Revenue | Three Months Ended March 31, 2019 2018 Revenue by Product: Marketing Automation Revenue 5,261,939 4,063,500 Mail + Product Revenue $ 64,346 $ 121,163 Total Revenue $ 5,326,285 $ 4,184,663 Revenue by Type: Recurring Revenue 4,868,149 3,846,953 Upfront Fees $ 458,136 $ 337,710 Total Revenue $ 5,326,285 $ 4,184,663 |
Summary of Significant Accoun_4
Summary of Significant Accounting Policies (Details) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 |
Summary Of Significant Accounting Policies | ||
Remainder of 2019 | $ 20,175 | |
2020 | 27,885 | |
2021 | 29,247 | |
2022 | 30,677 | |
2023 | 7,759 | |
Total | $ 115,743 | $ 122,153 |
Summary of Significant Accoun_5
Summary of Significant Accounting Policies (Details 1) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 |
Property and equipment, gross | $ 2,302,636 | $ 1,943,451 |
Less: Accumulated depreciation and amortization | (826,667) | (682,653) |
Property and equipment, net | 1,475,969 | 1,260,798 |
Leasehold Improvements [Member] | ||
Property and equipment, gross | 253,168 | 197,268 |
Furniture and Fixtures [Member] | ||
Property and equipment, gross | 671,324 | 611,171 |
Computer Equipment and Software [Member] | ||
Property and equipment, gross | $ 1,378,144 | $ 1,135,012 |
Summary of Significant Accoun_6
Summary of Significant Accounting Policies (Details 2) | 3 Months Ended |
Mar. 31, 2019 | |
Leasehold Improvements [Member] | Minimum [Member] | |
Useful lives | 3 years |
Leasehold Improvements [Member] | Maximum [Member] | |
Useful lives | 5 years |
Furniture and Fixtures [Member] | Minimum [Member] | |
Useful lives | 3 years |
Furniture and Fixtures [Member] | Maximum [Member] | |
Useful lives | 5 years |
Computer Equipment [Member] | |
Useful lives | 3 years |
SoftwareMember | Minimum [Member] | |
Useful lives | 3 years |
SoftwareMember | Maximum [Member] | |
Useful lives | 5 years |
Summary of Significant Accoun_7
Summary of Significant Accounting Policies (Details 3) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 |
Right-of-use assets | $ 5,609,295 | $ 0 |
Total Assets | 38,085,598 | 24,007,276 |
Lease liability (current) | 350,518 | 0 |
Lease liability (non-current) | 5,281,777 | 0 |
Total Liabilities | $ 16,613,269 | 11,219,558 |
Change In Accounting Principle [Member] | ||
Right-of-use assets | 5,715,510 | |
Total Assets | 5,715,510 | |
Accrued expenses and other current liabilities | (8,821) | |
Lease liability (current) | 344,883 | |
Lease liability (non-current) | 5,379,448 | |
Total Liabilities | $ 5,715,510 |
Summary of Significant Accoun_8
Summary of Significant Accounting Policies (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 | |
Convertible notes embedded derivative | $ 189,776 | $ 214,350 | |
Change in fair value of embedded derivative features | 24,574 | $ 0 | |
Goodwill | 8,861,565 | 8,866,413 | |
Depreciation expense | 132,003 | 75,983 | |
Revenue from contracts with customers | 5,300,000 | 4,200,000 | |
Deferred revenue | 289,285 | 250,656 | |
Deferred revenue increase | 38,629 | 23,186 | |
Deferred revenue recognized | 289,285 | 250,656 | |
Accrued revenue balance | 832,593 | 628,497 | 740,425 |
Accrued revenue billed | 740,425 | 554,603 | |
Revenue accrued but not billed | 832,593 | 628,497 | $ 740,425 |
Advertising and marketing expenses | 1,543,575 | 1,434,525 | |
Capitalized cost of obtaining a contract | 1,306,044 | 1,309,329 | |
Current portion of cost of obtaining a contract | 707,373 | 699,159 | |
Non-current portion of cost of obtaining a contract | 598,671 | 610,170 | |
Amortized cost of obtaining contract expense | $ 202,945 | $ 177,538 | |
Minimum [Member] | |||
Finite-lived intangible assets useful lives | 5 years | ||
Maximum [Member] | |||
Finite-lived intangible assets useful lives | 11 years |
Goodwill and Other Intangible_3
Goodwill and Other Intangible Assets (Details) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 |
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | $ 6,312,227 | $ 6,350,014 |
Accumulated amortization | (4,541,477) | (4,484,014) |
Net Carrying Value | 1,770,750 | 1,866,000 |
Goodwill | 8,861,565 | 8,866,413 |
Total goodwill and intangible assets | 10,632,315 | 10,732,413 |
Trade Names [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 120,000 | 120,000 |
Accumulated amortization | (120,000) | (120,000) |
Net Carrying Value | 0 | 0 |
Technology [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 2,130,000 | 2,130,000 |
Accumulated amortization | (1,013,500) | (954,000) |
Net Carrying Value | 1,116,500 | 1,176,000 |
Customer Relationships [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 4,062,227 | 4,100,014 |
Accumulated amortization | (3,407,977) | (3,410,014) |
Net Carrying Value | $ 654,250 | $ 690,000 |
Goodwill and Other Intangible_4
Goodwill and Other Intangible Assets (Details 1) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Remainder of 2019 | $ 285,750 | |
2020 | 332,000 | |
2021 | 280,000 | |
2022 | 228,000 | |
2023 | 180,000 | |
2024 | 141,000 | |
Thereafter | 324,000 | |
Total | $ 1,770,750 | $ 1,866,000 |
Goodwill and Other Intangible_5
Goodwill and Other Intangible Assets (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Amortization expense | $ 95,250 | $ 115,000 |
Credit Facility (Details Narrat
Credit Facility (Details Narrative) - Revolving Loan Agreement [Member] | 3 Months Ended |
Mar. 31, 2019USD ($) | |
Line of credit facility, expiration date | Mar. 31, 2020 |
Western Alliance Bank [Member] | Prime Rate [Member] | |
Line of credit | $ 2,500,000 |
Loan interest rate | 7.25% |
Percentage of secured pledge of capital stock | 100.00% |
Percentage of pledge of foreign subsidiaries stock | 65.00% |
Convertible Notes (Details)
Convertible Notes (Details) - USD ($) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2019 | Dec. 31, 2018 | |
Convertible Notes Details 1Abstract | ||
Principal amount | $ 8,000,000 | $ 8,000,000 |
Accrued interest paid-in-kind | 404,301 | 304,301 |
Unamortized debt issuance costs | (115,743) | (122,153) |
Embedded conversion feature derivative | 151,868 | 160,278 |
Net carrying value | $ 8,440,426 | $ 8,342,426 |
Convertible Notes (Details 1)
Convertible Notes (Details 1) - USD ($) | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Convertible Notes Details 2Abstract | ||
Contractual interest paid-in-kind expense (non-cash) | $ 100,000 | $ 4,301 |
Amortization of debt issuance costs (non-cash) | 6,410 | 274 |
Amortization of embedded derivative (non-cash) | (8,410) | 0 |
Total interest expense | $ 98,000 | $ 4,575 |
Effective interest rate | 4.90% | 5.40% |
Net Loss Per Share (Details)
Net Loss Per Share (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Earnings Per Share [Abstract] | ||
Net loss | $ (2,893,843) | $ (2,051,942) |
Basic weighted average common shares outstanding | 8,840,281 | 8,443,455 |
Add incremental shares for warrants | 0 | 0 |
Add incremental shares for stock options | 0 | 0 |
Add incremental shares for convertible notes | 0 | 0 |
Diluted weighted average common shares outstanding | 8,840,281 | 8,443,455 |
Net loss per share basic | $ (0.33) | $ (0.24) |
Net loss per share diluted | $ (0.33) | $ (0.24) |
Net Loss Per Share (Details 1)
Net Loss Per Share (Details 1) - shares | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Warrants Member | ||
Antidilutive securities | 30,000 | 80,000 |
Stock Option [Member] | ||
Antidilutive securities | 1,391,487 | 1,525,450 |
Convertible Notes [Member] | ||
Antidilutive securities | 1,120,573 | 1,066,667 |
Income Taxes (Details Narrative
Income Taxes (Details Narrative) - USD ($) | 3 Months Ended | ||
Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 | |
Income Tax Disclosure [Abstract] | |||
Income tax expense (benefit) | $ 2,339 | $ 41,997 | |
Effective tax rate | (0.10%) | (2.00%) | |
Deferred tax valuation allowance | $ 5,000,000 | $ 4,300,000 |
Defined Contribution Retireme_2
Defined Contribution Retirement Plan (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Retirement Benefits [Abstract] | ||
Defined contribution plan, maximum annual contributions employee, percent | 99.00% | 99.00% |
Defined contribution plan, employer matching contribution, percent of match | 100.00% | 100.00% |
Defined contribution plan, employer matching contribution, percent of employees' gross pay | 3.00% | 3.00% |
Defined contribution retirement plan, expenses | $ 69,162 | $ 60,339 |
Stock-Based Compensation (Detai
Stock-Based Compensation (Details) - Stock Option [Member] | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Volatility, minimum | 49.00% | 48.00% |
Volatility, maximum | 50.00% | 49.00% |
Risk-free interest rate, minimum | 2.55% | 2.34% |
Risk-free interest rate, maximum | 2.59% | 2.70% |
Expected term | 6 years 3 months | 6 years 3 months |
Stock-Based Compensation (Det_2
Stock-Based Compensation (Details 1) | 3 Months Ended |
Mar. 31, 2019USD ($)$ / sharesshares | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Number of shares outstanding, beginning | shares | 1,654,522 |
Number of shares granted | shares | 42,794 |
Number of shares exercised | shares | (119,744) |
Number of shares expired | shares | 0 |
Number of shares forfeited | shares | (186,085) |
Number of shares outstanding, ending | shares | 1,391,487 |
Number of shares exercisable | shares | 646,292 |
Weighted average exercise price outstanding, beginning | $ / shares | $ 6.07 |
Weighted average exercise price granted | $ / shares | 13.93 |
Weighted average exercise price exercised | $ / shares | 5.04 |
Weighted average exercise price expired | $ / shares | 0 |
Weighted average exercise price forfeited | $ / shares | 4.93 |
Weighted average exercise price outstanding, ending | $ / shares | 6.56 |
Weighted average exercise price exercisable | $ / shares | $ 5.02 |
Weighted average remaining contractual life outstanding, beginning | 8 years 2 months 12 days |
Weighted average remaining contractual life outstanding, ending | 7 years 10 months 24 days |
Weighted average remaining contractual life exercisable | 6 years 10 months 24 days |
Aggregate intrinsic value, beginning | $ | $ 10,866,658 |
Aggregate intrinsic value, ending | $ | 13,166,613 |
Aggregate intrinsic value, exercisable | $ | $ 7,107,517 |
Stock-Based Compensation (Det_3
Stock-Based Compensation (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||
Weighted average grant date fair value of stock options granted | $ 7.02 | $ 2.28 |
Stock option expense | $ 269,044 | $ 193,535 |
Intrinsic value of stock options exercised | $ 1,189,991 | $ 565 |
Number of shares issued to non-employee directors | 2,404 | 8,955 |
Fair value of stock awards granted, vested and expensed | $ 34,473 | $ 43,880 |
Warrants (Details)
Warrants (Details) - Warrants [Member] | 3 Months Ended |
Mar. 31, 2019USD ($)$ / sharesshares | |
Number of Units Outstanding, Beginning of period | shares | 30,000 |
Number of Units,Granted | shares | 0 |
Number of Units ,Exercised | shares | 0 |
Number of Units ,Cancelled | shares | 0 |
Number of Units Outstanding, End of period | shares | 30,000 |
Number of Units, Exercisable | shares | 30,000 |
Weighted Average Exercise Price Outstanding, Beginning of period | $ / shares | $ 7.81 |
Weighted Average Exercise Price Granted | $ / shares | 0 |
Weighted Average Exercise Price Exercised | $ / shares | 0 |
Weighted Average Exercise Price Cancelled | $ / shares | 0 |
Weighted Average Exercise Price Outstanding, End of period | $ / shares | 7.81 |
Weighted Average Exercise Price Exercisable | $ / shares | $ 7.81 |
Weighted Average Remaining Contractual Term Outstanding, Beginning | 1 year 1 month 6 days |
Weighted Average Remaining Contractual Term Outstanding, Ending | 9 months 18 days |
Weighted Average Remaining Contractual Term, Exercisable | 9 months 18 days |
Intrinsic Value, Outstanding, Beginning | $ | $ 144,525 |
Intrinsic Value, Outstanding, Ending | $ | 246,225 |
Intrinsic Value, Exercisable | $ | $ 246,225 |
Leases (Details)
Leases (Details) | Mar. 31, 2019USD ($) |
Leases Tables Abstract | |
Remainder of 2019 | $ 553,679 |
2020 | 742,956 |
2021 | 766,546 |
2022 | 771,278 |
2023 | 794,937 |
Thereafter | 4,020,754 |
Total undiscounted cash flows | 7,650,151 |
Less imputed interest | (2,017,856) |
Present value of lease liability | $ 5,632,295 |
Disaggregation of Revenue (Deta
Disaggregation of Revenue (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Total Revenue | $ 5,326,285 | $ 4,184,663 |
Recurring Revenue | ||
Total Revenue | 4,868,149 | 3,846,953 |
Upfront fees | ||
Total Revenue | 458,136 | 337,710 |
Marketing Automation Revenue | ||
Total Revenue | 5,261,939 | 4,063,500 |
Mail + Product Revenue | ||
Total Revenue | $ 64,346 | $ 121,163 |