Cover
Cover - shares | 9 Months Ended | |
Sep. 30, 2020 | Nov. 13, 2020 | |
Cover [Abstract] | ||
Entity Registrant Name | SharpSpring, Inc. | |
Entity Central Index Key | 0001506439 | |
Document Type | 10-Q | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Small Business | true | |
Entity Shell Company | false | |
Entity Emerging Growth Company | false | |
Entity Current Reporting Status | Yes | |
Document Period End Date | Sep. 30, 2020 | |
Entity Filer Category | Accelerated Filer | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2020 | |
Entity Common Stock Shares Outstanding | 11,596,441 | |
Document Quarterly Report | true | |
Document Transition Report | false | |
Entity Interactive Data Current | Yes | |
Entity File Number | 001-36280 | |
Entity Incorporation State Country Code | DE | |
Entity Tax Identification Number | 05-0502529 | |
Entity Address Address Line 1 | 5001 Celebration Pointe Avenue | |
Entity Address Address Line 2 | Suite 410 | |
Entity Address City Or Town | Gainesville | |
Entity Address State Or Province | FL | |
Entity Address Postal Zip Code | 32608 | |
City Area Code | 888 | |
Local Phone Number | 428-9605 | |
Security 12b Title | Common Stock, $0.001 par value per share | |
Trading Symbol | SHSP | |
Security Exchange Name | NASDAQ |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Sep. 30, 2020 | Dec. 31, 2019 |
Assets | ||
Cash and cash equivalents | $ 15,018,607 | $ 11,881,949 |
Accounts receivable, net of allowance for doubtful accounts of $49,865 and $12,455 at September 30, 2020 and December 31, 2019, respectively | 278,624 | 340,344 |
Unbilled receivables | 1,144,793 | 998,048 |
Income taxes receivable | 42,179 | 15,010 |
Other current assets | 1,421,690 | 1,363,366 |
Total current assets | 17,905,893 | 14,598,717 |
Property and equipment, net | 2,271,661 | 1,996,722 |
Goodwill | 10,938,143 | 10,922,814 |
Intangibles, net | 4,168,652 | 4,658,000 |
Deferred income taxes | 4,005 | 0 |
Right-of-use assets | 8,555,919 | 5,281,530 |
Other long-term assets | 615,994 | 549,022 |
Total assets | 44,460,267 | 38,006,805 |
Liabilities and Shareholders' Equity | ||
Accounts payable | 2,282,795 | 2,052,538 |
Accrued expenses and other current liabilities | 954,309 | 919,089 |
Line of credit | 1,900,000 | 0 |
Deferred revenue | 566,084 | 860,820 |
Income taxes payable | 75,643 | 13,944 |
Lease liability, current portion | 709,036 | 370,340 |
Notes payable, current portion | 2,061,263 | 0 |
Total current liabilities | 8,549,130 | 4,216,731 |
Lease liability, net of current portion | 7,973,813 | 4,976,727 |
Notes payable, net of current portion | 1,338,236 | 0 |
Total liabilities | 17,861,179 | 9,193,458 |
Shareholders' equity: | ||
Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued or outstanding at September 30, 2020 and December 31, 2019 | 0 | 0 |
Common stock, $0.001 par value, Authorized shares-50,000,000; issued shares- 11,611,191 at September 30, 2020 and 11,537,163 at December 31, 2019; outstanding shares- 11,591,191 at September 30, 2020 and 11,517,163 at December 31, 2019 | 11,611 | 11,537 |
Additional paid in capital | 60,139,290 | 58,851,285 |
Accumulated other comprehensive loss | (226,321) | (224,793) |
Accumulated deficit | (33,241,492) | (29,740,682) |
Treasury stock | (84,000) | (84,000) |
Total shareholders' equity | 26,599,088 | 28,813,347 |
Total liabilities and shareholders' equity | $ 44,460,267 | $ 38,006,805 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Sep. 30, 2020 | Dec. 31, 2019 |
Assets | ||
Common stock, shares issued | 11,611,191 | 11,537,163 |
Allowance for doubtful accounts receivble | $ 49,865 | $ 12,455 |
Shareholders' equity | ||
Preferred stock, shares par value | $ 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 stock, shares par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 50,000,000 | 50,000,000 |
Common stock, shares outstanding | 11,591,191 | 11,517,163 |
CONSOLIDATED STATEMENTS OF COMP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) | ||||
Revenue | $ 7,306,832 | $ 5,723,978 | $ 21,630,466 | $ 16,567,696 |
Cost of services | 1,869,278 | 1,840,764 | 6,109,949 | 5,014,964 |
Gross profit | 5,437,554 | 3,883,214 | 15,520,517 | 11,552,732 |
Operating expenses: | ||||
Sales and marketing | 2,705,141 | 3,102,653 | 8,134,363 | 8,976,466 |
Research and development | 1,380,926 | 1,207,605 | 4,443,956 | 3,684,314 |
General and administrative | 2,725,254 | 1,991,329 | 7,383,655 | 6,154,295 |
Intangible asset amortization | 152,801 | 95,250 | 489,348 | 285,750 |
Total operating expenses | 6,964,122 | 6,396,837 | 20,451,322 | 19,100,825 |
Operating loss | (1,526,568) | (2,513,623) | (4,930,805) | (7,548,093) |
Other expense, net | (14,075) | (15,781) | (73,630) | (161,873) |
Loss on induced conversion | 0 | 0 | 0 | (2,162,696) |
Gain on embedded derivative | 0 | 0 | 0 | 214,350 |
Loss before income taxes | (1,540,643) | (2,529,404) | (5,004,435) | (9,658,312) |
Provision (benefit) for income taxes | 1,706 | 2,291 | 1,503,625 | 835 |
Net loss | $ (1,542,349) | $ (2,527,113) | $ (3,500,810) | $ (9,659,147) |
Net loss per share, basic and diluted | $ (0.13) | $ (0.23) | $ (0.30) | $ (0.96) |
Shares used in computing net loss per share, basic and diluted | 11,564,856 | 10,948,416 | 11,538,457 | 10,028,246 |
Other comprehensive income (loss): | ||||
Foreign currency translation adjustment, net | $ 4,041 | $ (4,484) | $ (1,528) | $ (3,051) |
Comprehensive loss | $ (1,538,308) | $ (2,531,597) | $ (3,502,338) | $ (9,662,198) |
CONSOLIDATED STATEMENTS OF CHAN
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Unaudited) - USD ($) | Total | Common Stock | Treasury Stock | Additional Paid in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit |
Balance, shares at Dec. 31, 2018 | 8,639,139 | 20,000 | ||||
Balance, amount at Dec. 31, 2018 | $ 12,787,718 | $ 8,639 | $ (84,000) | $ 30,446,838 | $ (231,053) | $ (17,352,706) |
Stock based compensation | 746,498 | $ 0 | 0 | 746,498 | 0 | 0 |
Issuance of common stock for cash, shares | 1,070,184 | |||||
Issuance of common stock for cash, amount | 11,606,294 | $ 1,070 | 0 | 11,605,224 | 0 | 0 |
Issuance of common stock for director services, shares | 6,696 | |||||
Issuance of common stock for director services, amount | 95,902 | $ 7 | 0 | 95,895 | 0 | 0 |
Issuance of common stock for warrant conversions, shares | 14,772 | |||||
Issuance of common stock for warrant conversions, amount | 0 | $ 15 | 0 | (15) | 0 | 0 |
Issance of commons stock for settlement of notes, shares | 1,241,635 | |||||
Issance of commons stock for settlement of notes, amount | 10,622,716 | $ 1,242 | 0 | 10,621,474 | 0 | 0 |
Foreign currency translation adjustment | (3,051) | 0 | 0 | 0 | (3,051) | 0 |
Net Loss | (9,659,147) | $ 0 | $ 0 | 0 | 0 | (9,659,147) |
Balance, shares at Sep. 30, 2019 | 10,972,426 | 20,000 | ||||
Balance, amount at Sep. 30, 2019 | 26,196,931 | $ 10,972 | $ (84,000) | 53,515,915 | (234,103) | (27,011,853) |
Balance, shares at Jun. 30, 2019 | 10,965,794 | 20,000 | ||||
Balance, amount at Jun. 30, 2019 | 28,424,486 | $ 10,966 | $ (84,000) | 53,211,881 | (229,620) | (24,484,741) |
Stock based compensation | 252,799 | $ 0 | 0 | 252,799 | 0 | 0 |
Issuance of common stock for cash, shares | 4,292 | |||||
Issuance of common stock for cash, amount | 27,232 | $ 4 | 0 | 27,228 | 0 | 0 |
Issuance of common stock for director services, shares | 2,340 | |||||
Issuance of common stock for director services, amount | 24,008 | $ 2 | 0 | 24,006 | 0 | 0 |
Foreign currency translation adjustment | (4,484) | 0 | 0 | 0 | (4,484) | 0 |
Net Loss | (2,527,113) | $ 0 | $ 0 | 0 | 0 | (2,527,113) |
Balance, shares at Sep. 30, 2019 | 10,972,426 | 20,000 | ||||
Balance, amount at Sep. 30, 2019 | 26,196,931 | $ 10,972 | $ (84,000) | 53,515,915 | (234,103) | (27,011,853) |
Balance, shares at Dec. 31, 2019 | 11,537,163 | 20,000 | ||||
Balance, amount at Dec. 31, 2019 | 28,813,347 | $ 11,537 | $ (84,000) | 58,851,285 | (224,793) | (29,740,682) |
Stock based compensation | 1,020,971 | $ 0 | 0 | 1,020,971 | 0 | 0 |
Issuance of common stock for cash, shares | 39,320 | |||||
Issuance of common stock for cash, amount | 190,880 | $ 39 | 0 | 190,841 | 0 | 0 |
Foreign currency translation adjustment | (1,528) | 0 | 0 | 0 | (1,528) | 0 |
Net Loss | (3,500,810) | $ 0 | 0 | 0 | 0 | (3,500,810) |
Issuance of common stock for services, shares | 11,084 | |||||
Issuance of common stock for services, amount | 110,050 | $ 11 | 0 | 110,039 | 0 | 0 |
Issuance of common stock under stock plans, net of shares withheld for employee taxes, shares | 23,624 | |||||
Issuance of common stock under stock plans, net of shares withheld for employee taxes, amount | (33,822) | $ 24 | $ 0 | (33,846) | 0 | 0 |
Balance, shares at Sep. 30, 2020 | 11,611,191 | 20,000 | ||||
Balance, amount at Sep. 30, 2020 | 26,599,088 | $ 11,611 | $ (84,000) | 60,139,290 | (226,321) | (33,241,492) |
Balance, shares at Jun. 30, 2020 | 11,554,720 | 20,000 | ||||
Balance, amount at Jun. 30, 2020 | 27,585,427 | $ 11,555 | $ (84,000) | 59,587,378 | (230,362) | (31,699,144) |
Stock based compensation | 357,893 | $ 0 | 0 | 357,893 | 0 | 0 |
Issuance of common stock for cash, shares | 34,660 | |||||
Issuance of common stock for cash, amount | 167,419 | $ 35 | 0 | 167,384 | 0 | 0 |
Foreign currency translation adjustment | 4,041 | 0 | 0 | 0 | 4,041 | 0 |
Net Loss | (1,542,349) | $ 0 | 0 | 0 | 0 | (1,542,349) |
Issuance of common stock for services, shares | 3,580 | |||||
Issuance of common stock for services, amount | 32,078 | $ 4 | 0 | 32,074 | 0 | 0 |
Issuance of common stock under stock plans, net of shares withheld for employee taxes, shares | 18,231 | |||||
Issuance of common stock under stock plans, net of shares withheld for employee taxes, amount | (5,421) | $ 18 | $ 0 | (5,439) | 0 | 0 |
Balance, shares at Sep. 30, 2020 | 11,611,191 | 20,000 | ||||
Balance, amount at Sep. 30, 2020 | $ 26,599,088 | $ 11,611 | $ (84,000) | $ 60,139,290 | $ (226,321) | $ (33,241,492) |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
Cash flows from operating activities: | ||
Net loss | $ (3,500,810) | $ (9,659,147) |
Adjustments to reconcile loss from operations: | ||
Depreciation and amortization | 1,179,162 | 727,873 |
Amortization of costs to acquire contracts | 611,772 | 630,815 |
Non-cash stock compensation | 1,138,521 | 849,900 |
Deferred income taxes | (3,798) | 0 |
Gain on disposal of property and equipment | 0 | (617) |
Non-cash interest | 0 | 139,372 |
Amortization of debt issuance costs and embedded derivative | 0 | 2,903 |
Gain on embedded derivative | 0 | (214,350) |
Loss on induced conversion | 0 | 2,162,696 |
Unrealized foreign currency loss | 120,802 | 43,470 |
Changes in assets and liabilities: | ||
Accounts receivable | 64,969 | (15,014) |
Unbilled receivables | (137,518) | (189,008) |
Right-of-use assets | (3,274,388) | 323,180 |
Other assets | (740,686) | (746,774) |
Income taxes, net | 33,639 | (30,853) |
Accounts payable | 229,798 | 3,891 |
Lease liabilities | 3,335,783 | (280,643) |
Other liabilities | 27,772 | (36,639) |
Deferred revenue | (297,384) | 258,991 |
Net cash used in operating activities | (1,212,366) | (6,029,954) |
Cash flows from investing activities | ||
Purchases of property and equipment | (401,831) | (483,330) |
Proceeds from the sale of property and equipment | 0 | 617 |
Capitalization of software development costs | (562,922) | (578,922) |
Net cash used in investing activities | (964,753) | (1,061,635) |
Cash flows used in financing activities: | ||
Proceeds from line of credit | 1,900,000 | 0 |
Proceeds from note payable | 3,399,500 | 0 |
Proceeds from exercise of stock options, net | 190,880 | 926,350 |
Proceeds from issuance of common stock, net | 0 | 10,649,005 |
Payments for taxes related to net share settlement of equity awards | (33,822) | 0 |
Net cash provided by financing activities | 5,456,558 | 11,575,355 |
Effect of exchange rate on cash | (142,781) | (50,690) |
Change in cash and cash equivalents | 3,136,658 | 4,433,076 |
Cash and cash equivalents, beginning of period | 11,881,949 | 9,320,866 |
Cash and cash equivalents, end of period | 15,018,607 | 13,753,942 |
Cash paid (received) during the period for | ||
Interest, net | 2,836 | 0 |
Income taxes, net | (1,533,467) | 11,013 |
Non-cash activities | ||
Right-of-use asset obtained for lease liability | 3,758,014 | 5,715,510 |
Convertible notes liability relieved upon conversion | 0 | 8,484,701 |
Embedded derivative liability relieved upon conversion | $ 0 | $ 189,776 |
Organization
Organization | 9 Months Ended |
Sep. 30, 2020 | |
Organization | |
Note 1. Organization | Note 1: Organization SharpSpring, Inc. (the “Company”) provides a cloud-based marketing automation solution and a display retargeting platform through our SharpSpring and Perfect Audience products. 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. Perfect Audience empowers marketers to create, manage, and optimize their ad campaigns across thousands of websites. 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 | 9 Months Ended |
Sep. 30, 2020 | |
Summary of Significant Accounting Policies | |
Note 2. Summary of Significant Accounting Policies | Note 2: Summary of Significant Accounting Policies Basis of Presentation and Consolidation The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) applicable to interim periods, under the rules and regulations of the United States Securities and Exchange Commission (“SEC”). In the opinion of our management, the Company has prepared the accompanying unaudited consolidated financial statements on a basis substantially consistent with the audited consolidated financial statements of the Company as of and for the year ended December 31, 2019, and these consolidated financial statements include all adjustments consisting of only normal recurring adjustments, necessary for a fair statement of the results of the interim periods presented. The Company’s consolidated financial statements include the accounts of SharpSpring, Inc. and our subsidiaries (the “Company” or “SharpSpring”). The Company’s 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, 2020. The unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with SEC on March 16, 2020, as amended on April 30, 2020. 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 assesses 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 translation 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 approximate fair value because of the short-term nature of these items. The fair value of the embedded derivatives associated with our convertible notes are 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 September 30, 2020, and December 31, 2019, was a liability balance of $0 for each period. The change in fair value for the three months ended September 30, 2020, and 2019, was $0 for each period. The change in fair value for the nine months ended September 30, 2020, and 2019, was $0 and a gain of $0.21 million, 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 are 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. Business Combinations Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to tangible and intangible assets acquired and liabilities assumed and pre-acquisition contingencies. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets. Examples of critical estimates in valuing certain of the intangible assets and goodwill we have acquired include but are not limited to: · future expected cash flows from customer contracts and acquired developed technologies and patents; · the acquired company’s trade name, vendor relationships, and customer relationships, as well as assumptions about the period of time the acquired trade name will continue to be used in our offerings; and · discount rates. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. Intangibles Finite-lived intangible assets include trade names, developed technologies, customer relationships, and vendor 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 regularly 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 September 30, 2020, and December 31, 2019, we had recorded goodwill of $10.94 million and $10.92 million, 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, GraphicMail, and Perfect Audience acquisitions. Under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350, “Intangibles - Goodwill and Other” Debt Issuance Costs Third-party costs associated with the issuance of debt are included as a direct reduction to the carrying value of the debt and are amortized to interest expense ratably over the life of the debt. Income Taxes Provisions 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, Simplifying the Accounting for Income Taxes 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 2017 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 September 30, 2020, the Company’s Swiss subsidiary, InterInbox SA is under examination by the Switzerland Federal Tax Administration for withholding taxes for the years 2015 through 2018. The Company does not expect any material adjustments as a result of the audit. 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 record in the other expense section of our Consolidated Statement of Comprehensive Loss. Repairs and maintenance costs are expensed as incurred. Depreciation expense related to property and equipment was $0.25 million and $0.16 million for the three months ended September 30, 2020, and 2019, respectively. Depreciation expense related to property and equipment was $0.68 million and $0.44 million for the nine months ended September 30, 2020, and 2019, respectively. Property and equipment as of September 30, 2020 and December 31, 2019, is as follows: September 30, December 31, 2020 2019 Property and equipment, gross: Leasehold improvements $ 313,119 $ 290,977 Furniture and fixtures 913,370 678,774 Computer equipment and software 3,052,023 2,350,758 Total 4,278,512 3,320,509 Less: Accumulated depreciation (2,006,851 ) (1,323,787 ) $ 2,271,661 $ 1,996,722 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 generates revenue from contracts with multiple performance obligations, which typically include subscriptions to its cloud-based marketing automation software, professional services which include onboarding and training services, and access to our advertising retargeting platform. The Company’s customers do not have the right to take possession of any of the software. Substantially all of SharpSpring’s revenue is from contracts with customers. The Company recognizes revenue from contracts with customers using a five-step model as prescribed under ASC 606, which is described below: · Identify the customer contract; · Identify performance obligations that are distinct; · Determine the transaction price; · Allocate the transaction price to the distinct performance obligations; and · Recognize revenue as the performance obligations are satisfied. 1) Identify the customer contract A customer contract is generally identified when the Company and a customer have an executed arrangement that calls for the Company to provide access to its software or provide professional services in exchange for consideration from the customer. 2) Identify performance obligations that are distinct A performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services. A good or service that is promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and a company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. The Company has determined that subscriptions for its software is distinct because, once a customer has access to the software it purchased, the software is fully functional and does not require any additional development, modification, or customization. Professional services sold are distinct because the customer benefits from the on-boarding and training to make better use of the online software products it purchased. 3) Determine the transaction price The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer, excluding sales taxes that are collected on behalf of government agencies. The Company estimates any variable consideration to which it will be entitled at contract inception, when determining the transaction price. The Company does not include variable consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will occur when any uncertainty associated with the variable consideration is resolved. 4) Allocate the transaction price to the distinct performance obligations The transaction price is allocated to each performance obligation based on the relative standalone selling prices of the goods or services being provided to the customer. 5) Recognize revenue as the performance obligations are satisfied Revenues are recognized when or as control of the promised goods or services is transferred to customers. Revenue from the SharpSpring Marketing Automation and Mail+ software is recognized ratably over the subscription period, which typically ranges from one to twelve months. The Company recognizes revenue from on-boarding and training services as the services are provided, which is generally over 60 days. Revenue related to our other professional services is recognized as the services are provided. The Perfect Audience platform is utilized on an as needed basis, and the related revenue recognized as the service is provided. Cash payments received in advance of providing subscription or services are recorded to deferred revenue until the performance obligation is satisfied. Our products are billed in arrears or upfront, depending on the product, which creates contract assets (unbilled receivables) and contract liabilities (deferred revenue), respectively. Unbilled receivables occur due to unbilled charges for which the Company has satisfied performance obligations. Deferred revenues 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 as the performance obligations are satisfied. 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. Gross Versus Net Revenue ASC 606 provides guidance on proper recognition of principal versus agent considerations which is used to determine gross versus net revenue recognition. Under ASC 606, the core objective of the guidance on gross versus net revenue recognition is to help determine whether an entity is a principal or an agent in a transaction. In general, the primary difference between these two is the performance obligation being satisfied. The principal has a performance obligation to provide the desired goods or services to the end customer, whereas the agent arranges for the principal to provide the desired goods or services. Additionally, a fundamental characteristic of a principal in a transaction is control. A principal substantively controls the goods and services before they are transferred to the customer as well as controls the price of the good or service being provided. An agent normally receives a commission or fee for these activities. In addition to control, the level at which an entity controls the price of the good or service being transferred determines principal versus agent status. The more discretion over setting price a company has in providing the good or service, the more likely they are considered a principal rather than an agent. Under the guidance when another party is involved in providing a good or service to a customer, an entity is a principal if the entity obtains control of the asset or right to a service performed by the other party. SharpSpring never takes possession or control of the advertising space and acts an agent facilitating the customer with the desired advertisement inventory from the principal provider through our Perfect Audience retargeting platform. In addition to the lack of control of the advertising inventory, SharpSpring does not have control over the cost of the advertising inventory, but rather only receives a fee for services for providing the advertising inventory to the customer, further demonstrating SharpSpring’s role as the agent in the transaction. Therefore, as an agent in the retargeting transaction SharpSpring records revenue net of the cost of advertising inventory cost incurred for placing advertisements on websites. Deferred Revenue Deferred revenue consists of payments received in advance of the Company providing the services. Deferred revenue is earned over the service period identified in each contract. Most our deferred revenue balances (contract liabilities) arise from payments from customers in advance of service 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 the service period defined in the contract. Additionally, the Company has deferred revenue related to implementation fees for its SharpSpring Marketing Automation solution that are paid in advance. These implementation services are typically performed over a 60-day period, and the revenue is recognized over the corresponding period. As of June 30, 2020, and 2019, the Company had deferred revenue balances of $0.66 million and $0.32 million, respectively. Deferred revenue decreased by $0.09 million and increased by $0.19 million during the three months ended September 30, 2020, and 2019, respectively. Deferred revenue balances were $0.86 million and $0.25 million as of December 31, 2019, and 2018, respectively. Deferred revenue decreased by $0.29 million and increased by $0.26 million during the nine months ended September 30, 2020, and 2019, respectively. The Company had deferred revenue contract liability balances of $0.57 million and $0.51 million as of September 30, 2020, and September 30, 2019, respectively. Unbilled Receivables 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 are met, thus creating a contract asset (unbilled receivable). As of June 30, 2020, and 2019, the Company had unbilled receivables of $1.13 million and $0.88 million, respectively. Substantially all of these services were billed during the three months ended September 30, 2020 and 2019, respectively. Unbilled receivable balances increased by $0.01 million and $0.05 million during the three months ended September 30, 2020, and 2019, respectively. The unbilled receivable balances as of December 31, 2019, and 2018 were $1.0 million and $0.74 million, respectively. Unbilled receivable balances increased by $0.14 million and $0.19 million during the nine months ended September 30, 2020, and 2019, respectively. As of September 30, 2020, and 2019, the Company had unbilled receivables of $1.14 million and $0.93 million, respectively. These unbilled balances were the result of services provided in period, but not yet billed to the customer. Notes Payable - SBA Paycheck Protection Program Loan We account for loans obtained under the Paycheck Protection Program in Section 1102 of the CARES Act (Note 7) as debt pursuant to FASB ASC 470 - Debt Interest – Imputation of Interest 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 September 30, 2020, and December 31, 2019, 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 for any financial period presented. For the three months ending September 30, 2020, two customers had open accounts receivable balances above 10% of net accounts receivable. The combined balances for these two customers represented approximately 26.4% of net accounts receivable. As of September 30, 2020, no customer with accounts receivable in excess of 10% of the Company’s net accounts receivable had a balance older than 60 days. 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 $0.62 million and $1.53 million for the three months ended September 30, 2020, and 2019, respectively. Advertising and marketing expenses, excluding marketing team costs, were $2.29 million and $4.56 million for the nine months ended September 30, 2020, and 2019, respectively. Capitalized Cost of Obtaining a Contract The Company capitalizes certain sales commission costs which are incremental to obtaining a contract. The Company expenses 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 straight-line amortization over the estimated weighted average life of the customer, which for the 3 months ended September 30, 2020 and 2019 was approximately 3 years. At September 30, 2020, the net carrying value of the capitalized cost of obtaining a contract was $1.28 million, of which $0.70 million is included in other current assets and $0.58 million is included in other long-term assets. At December 31, 2019, the net carrying value of the capitalized cost of obtaining a contract was $1.20 million, of which $0.68 million is included in other current assets and $0.52 million is included in other long-term assets. The Company amortized expenses for the costs of obtaining contracts of $0.21 million and $0.20 million for the three months ended September 30, 2020, and 2019, respectively. The Company amortized expenses for the costs of obtaining contracts of $0.61 million and $0.63 million for the nine months ended September 30, 2020, and 2019, respectively. Stock Compensation We account for stock-based compensation in accordance with FASB ASC 718 Compensation — Stock Compensation 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 potentially dilutive common stock equivalents for the period. For purposes of this calculation, options to purchase common stock, unvested restricted stock units, warrants, and the conversion option of the Convertible Notes (Note 6) are 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 Loss Comprehensive 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 Financial Accounting Standards Board (“FASB”) issued guidance simplifying the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. Under previous guidance, Step 2 of the goodwill impairment test required 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 was recognized as goodwill impairment. Under the new guidance, 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 guidance was adopted effective January 1, 2020 and did not have a material impact on the consolidated financial statements. In December 2019, the FASB issued guidance simplifying the accounting for income taxes. The new accounting guidance removes (i) the exception to the incremental approach for intra-period tax allocations when there is a loss from continuing operations and income or gain from other items such as discontinued operation or other comprehensive income, (ii) the exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, (iii) the exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary, and (iv) the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The new accounting guidance also simplifies the accounting for income taxes by (i) requiring an entity to recognize franchise tax that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, (ii) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, (iii) specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements, (iv) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date, and (v) making minor Codification improvements for income taxes related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. |
Acquisitions
Acquisitions | 9 Months Ended |
Sep. 30, 2020 | |
Acquisitions | |
Note 3. Acquisitions | Note 3: Acquisitions On November 21, 2019, the Company acquired substantially all the assets and assumed certain liabilities of the Perfect Audience business unit from Marin Software Incorporated, a Delaware corporation for cash consideration of $4.6 million. The acquired assets and liabilities were assigned to SharpSpring’s wholly owned subsidiary, SharpSpring Reach, Inc. Perfect Audience is a cloud-based platform that provides display retargeting software services. The transaction was structured as an asset purchase, whereby SharpSpring acquired all of Perfect Audience’s assets used in connection with the business (excluding certain pre-acquisition receivables, cash, and cash equivalents) and only liabilities pertaining to the business such as deferred revenue, accrued publisher costs, accrued bonuses for to the acquired workforce, and any liabilities accruing on or after November 21, 2019. The allocation of the purchase price is based on management estimates and assumptions, and other information compiled by management, which utilized established valuation techniques appropriate for the industry. The valuation included a combination of the income approach and cost approach, depending upon which was the most appropriate based on the nature and reliability of the data available. The income approach is predicated upon the value of the future cash flows that an asset is expected to generate over its economic life. The cost approach considers the cost to replace (or reproduce) the asset and the effects on the assets value of physical, functional, and/or economic obsolescence that has occurred with respect to the asset. The following represents the final allocation of the purchase price to the acquired net tangible and intangible assets acquired and liabilities assumed by SharpSpring: Cash Consideration $ 4,566,402 Add: Net tangible liabilities acquired Deferred Revenue $ 186,500 Accrued expenses and other current liabilities $ 545,473 Total liabilities $ 731,973 Less: Net tangible assets acquired Accounts receivable $ (55,236 ) Other current assets $ (20,719 ) Total tangible assets $ (75,955 ) Intangible assets acquired: Trade names $ (381,000 ) Technology $ (979,000 ) Vendor relationships $ (1,813,000 ) Total intangible assets $ (3,173,000 ) Goodwill $ 2,049,420 Acquired intangible assets include developed technology and vendor relationships which are amortized over ten years. The acquired trade name assets have an indefinite life and will be tested for impairment at least annually. The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill of $2.05 million. Goodwill will not be amortized but instead tested for impairment at least annually (more frequently if certain indicators are present). Goodwill arose primarily as a result of the expected future growth of the Perfect Audience product and the assembled workforce. The transaction costs associated with the acquisition were approximately $0.18 million and were recorded in general and administrative expense. The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The Company’s estimates are inherently uncertain and subject to refinement. |
Goodwill and Other Intangible A
Goodwill and Other Intangible Assets | 9 Months Ended |
Sep. 30, 2020 | |
Goodwill and Other Intangible Assets | |
Note 4. Goodwill and Other Intangible Assets | Note 4: Goodwill and Other Intangible Assets Intangible assets are as follows: As of September 30, 2020 Gross Net Carrying Accumulated Carrying Amount Amortization Value Amortized intangible assets: Trade names $ 501,000 (120,000 ) $ 381,000 Technology 3,109,000 (1,436,026 ) 1,672,974 Customer relationships 1,320,000 (862,253 ) 457,747 Vendor relationships 1,813,000 (156,069 ) 1,656,931 Unamortized intangible assets: 6,743,000 (2,574,348 ) 4,168,652 Goodwill 10,938,143 Total goodwill and intangible assets $ 15,106,795 As of December 31, 2019 Gross Net Carrying Accumulated Carrying Amount Amortization Value Amortized intangible assets: Trade names $ 501,000 (120,000 ) $ 381,000 Technology 3,109,000 (1,192,000 ) 1,917,000 Customer relationships 1,320,000 (773,000 ) 547,000 Vendor relationships 1,813,000 - 1,813,000 Unamortized intangible assets: 6,743,000 (2,085,000 ) 4,658,000 Goodwill 10,922,814 Total goodwill and intangible assets $ 15,580,814 Estimated amortization expense for the remainder of 2020 and subsequent years is as follows: Remainder of 2020 152,799 2021 559,200 2022 507,200 2023 459,200 2024 420,200 Thereafter 1,689,053 Indefinite Lived 381,000 Total $ 4,168,652 Amortization expense for the three months ended September 30, 2020 and 2019 was $0.15 million and $0.10 million, respectively. Amortization expense for the nine months ended September 30, 2020 and 2019 was $0.49 million and $0.29 million, respectively. |
Credit Facility
Credit Facility | 9 Months Ended |
Sep. 30, 2020 | |
Credit Facility | |
Note 5. Credit Facility | Note 5: Credit Facility In March 2016, the Company entered into a $2.5 million revolving loan agreement (the “Credit Facility”) with Western Alliance Bank. The agreement originally matured on March 21, 2018 and was amended to mature on June 19, 2022. There are no mandatory amortization provisions, and the Credit Facility is payable in full at maturity. As of September 30, 2020, 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. As of September 30, 2020, the Credit Facility carried an interest rate of 5.0%. and there was $1.90 million Line of Credit outstanding under the Credit Facility. As December 31, 2019 there were no amounts outstanding. The interest expense relating to the Credit of Facility for three ended September 30, 2020 and 2019 was $0.03 million and $0, respectively. The interest expense relating to the Credit of Facility for nine months ended September 30, 2020 and 2019 was $0.06 million and $0, respectively. No events of default have occurred. |
Convertible Notes
Convertible Notes | 9 Months Ended |
Sep. 30, 2020 | |
Convertible Notes | |
Note 6. Convertible Notes | Note 6: Convertible Notes In March 2018, the Company issued $8.0 million five-year convertible notes (the “Notes”) with an interest rate of 5% “payable in kind”. SharpSpring 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 were unsecured obligations and were subordinate in right of payment to the Credit Facility (Note 5). The Notes were recorded upon issuance at amortized cost in accordance with applicable accounting guidance. As there was no difference in the amount recorded at inception and the face value of the Notes, interest expense was accreted at the stated interest rate under the terms of the Notes. Total interest expense related to the Notes was impacted by the amortization of the debt issuance cost using the effective interest method. In accordance with generally accepted accounting principles for convertible debt certain 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 was $0 at September 30, 2020 and December 31, 2019. The derivative was 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 Comprehensive Loss. We incurred certain third-party costs in connection with our issuance of the Notes, principally related to financial advisory and legal fees, which were 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 three and nine months ended September 30, 2020, and 2019: Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Contractual interest paid-in-kind expense (non-cash) $ - $ - $ - $ 139,372 Amortization of debt issuance costs (non-cash) - - - 15,108 Amortization of embedded derivative (non-cash) - - - (12,205 ) Total interest expense $ - $ - $ - $ 142,275 Effective interest rate 0.0 % 0.0 % 0.0 % 4.9 % On May 9, 2019, the Company entered into and made effective 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 Notes. The Company’s entry into the Conversion Agreement was unanimously approved by the disinterested members of the Company’s Board of Directors. Under the Conversion Agreement, the Notes were deemed to have been converted into the Conversion Shares, and any interest in any amount ceased to accrue or be payable with respect to the Notes, and SHSP Holdings ceases to be a holder of any Notes, and the Notes cease to be outstanding, for purposes of the Investors’ Rights Agreement dated as of March 28, 2018. Effective as of the issuance and delivery of the Conversion Shares to SHSP Holdings, the Notes were canceled and terminated in their entirety and of no further force and effect, and any and all indebtedness and other obligations of the Company under the Notes was fully performed and discharged, and any and all claims or rights of SHSP Holdings or its affiliates thereunder were fully and finally extinguished and released. Additionally, under the terms of the Conversion Agreement, the Company agreed to pay in shares 49% of the remaining future interest totaling 115,037 shares. As a result of accelerating the 49% of future interest along with the extinguishment of the convertible notes, the Company incurred a loss on induced conversion of debt of $2.2 million. The loss was measured as the excess fair value of the shares issued under the modified conversion, compared to the fair value of the shares that would have been issued under an unmodified conversion as of the measurement date. Level 1 inputs were used to determine the fair value of the shares paid to the Investor. The loss on conversion was partially offset by a gain of approximately $0.19 million from the write-off of the embedded derivative liability. The Convertible Notes had a net carrying value of $0 as of September 30, 2020 and December 31, 2019, respectively. |
SBA Paycheck Protection Program
SBA Paycheck Protection Program Loan | 9 Months Ended |
Sep. 30, 2020 | |
SBA Paycheck Protection Program Loan | |
Note 7. SBA Paycheck Protection Program Loan | Note 7: SBA Paycheck Protection Program Loan In April, 2020 SharpSpring entered into two loan agreements with United States Small Business Administration under the Paycheck Protection Program for a total loan amount of $3.40 million, (“SBA Loan”). The SBA Loan has a maturity date of 2 years from the initial disbursement and carries an interest rate of 1% per year. Principal and interest payments begin 7 months from the initial date of disbursement. The SBA Loan is eligible for forgiveness as part of the CARES Act approved by US Congress on March 19, 2020 if certain requirements are met. The Company continues to evaluate and monitor the requirements of the CARES Act that allow for forgiveness. The Company has not paid interest relating to the SBA loan as of September 30, 2020. The accrued interest expense relating to these loans for three months ended September 30, 2020 and 2019 was approximately $8,000 and $0, respectively. The accrued interest expense relating to these loans for nine months ended September 30, 2020 and 2019 was approximately $15,000 and $0, respectively. As of September 30, 2020, the SBA loan had an outstanding principle balance of $3.40 million included in notes payable. Debt Obligation 2020 $ 360,703 2021 2,270,259 2022 768,537 Total Commitments $ 3,399,499 |
Leases
Leases | 9 Months Ended |
Sep. 30, 2020 | |
Leases | |
Note 8. Leases | Note 8: 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. In September 2019, the Company entered into an addendum agreement to the 2018 Lease (the “2019 Addendum”) to lease an additional square feet of office space located on the same premises as the 2018 Lease. In May 2020, the Company took possession of the full space included in the 2019 addendum, accounting for approximately an additional 18,000 square feet. The rent expense and future payments associated with the additional square feet are included in the future minimum lease payments table below. The additional space resulted in an increased lease liability and right-of-use asset of approximately $3.8 million. The term of the addendum extends through the same period as 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. The Company continues to evaluate the likelihood of renewal of the 2018 Lease and 2019 Addendum. At the commencement of the 2018 Lease nor subsequently thereafter, renewal has not been 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. The Company has lease agreements with lease and non-lease components, which it has elected to combine for all leases. In addition, the Company does not recognize right-of-use assets or lease liabilities for leases with a term of 12 months or less (“Short-term” leases). Short-term lease payments are recognized in the consolidated statements of comprehensive loss on a straight-line basis over the lease term. The Company is not party to any financing lease. The weighted average remaining lease term as of September 30, is 8.0 years. The weighted average discount rate for our operating leases as of September 30, 2020 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 and nine month ended September 30, 2020, and 2019, were $0 for both periods. Operating Leases Remainder of 2020 326,436 2021 1,321,598 2022 1,329,525 2023 1,369,159 2024 1,377,086 Thereafter 5,525,881 Total undiscounted cash flows $ 11,249,685 Less imputed interest remaining (2,566,836 ) Present value of lease liability $ 8,682,849 |
Net Loss Per Share
Net Loss Per Share | 9 Months Ended |
Sep. 30, 2020 | |
Net Loss Per Share | |
Note 9. Net Loss Per Share | Note 9: 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, restricted stock units (“RSUs”) and the conversion option of the Convertible Notes (Note 6) are considered to be potential common shares outstanding. Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Net loss $ (1,542,349 ) $ (2,527,113 ) $ (3,500,810 ) $ (9,659,147 ) Weighted average common shares outstanding, basic and diluted 11,564,856 10,948,416 11,538,457 10,028,246 Net loss per share, basic and diluted $ (0.13 ) $ (0.23 ) $ (0.30 ) $ (0.96 ) 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, unvested RSUs, 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 and Nine Months Ended September 30, 2020 2019 Warrants - - Convertible notes - - Stock options 1,611,966 1,419,844 Restricted stock units (RSUs) 25,716 - Total 1,637,682 1,419,844 |
Income Taxes
Income Taxes | 9 Months Ended |
Sep. 30, 2020 | |
Income Taxes | |
Note 10. Income Taxes | Note 10: 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 (benefit) 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 (benefit), pre-tax income (loss), or pre-tax income (loss), by jurisdiction. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted into the law. The CARES Act contained many income tax relief provisions including allowing for a 5-year carryback of Federal net operating losses generated in tax years beginning in 2018, 2019, or 2020. As required under U.S. GAAP, the effects of tax law changes are recognized in the period of enactment. Accordingly, we have recorded incremental income tax benefit in the amount of $1.6 million associated with the CARES Act related to the carryback of the Company’s 2018 federal net operating loss. During the three months ended September 30, 2020, and 2019, the Company recorded income tax expense of $1,706 and income tax benefit of $2,291, respectively, from operations. During the nine months ended September 30, 2020, and 2019, the Company recorded income tax benefit of $1,503,625 and income tax expense of $835, respectively, from operations. The blended effective tax rate for the nine months ending September 30, 2020, and 2019, was 30.0% and 0.0%, respectively. The effective blended tax rate varies from our statutory U.S. tax rate due to the tax impact of the CARES Act, valuation allowances on losses and 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 to reduce cash tax payments in the future to the extent that we generate taxable income prior to expiration. At September 30, 2020 and December 31, 2019, we established a valuation allowance of $7.08 million and $6.96 million, respectively, against certain deferred tax assets given the uncertainty of recoverability of these amounts. |
Defined Contribution Retirement
Defined Contribution Retirement Plan | 9 Months Ended |
Sep. 30, 2020 | |
Defined Contribution Retirement Plan | |
Note 11. Defined Contribution Retirement Plan | Note 11: Defined Contribution Retirement Plan We offer our U.S. employees the ability to participate in a 401(k) plan. Eligible U.S. employees can contribute up to 100% of their eligible compensation, subject to limitations established by the Internal Revenue Code. Through April 30, 2020, the Company contributed a matching contribution equal to 100% of each such participant’s contribution up to the first 3% of their annual eligible compensation. We charged $0 and $0.08 million to expense in the three months ended September 30, 2020, and 2019, respectively, associated with our matching contribution in those periods. We charged $0.12 million and $0.23 million to expense in the nine months ended September 30, 2020, and 2019, respectively, associated with our matching contribution in those periods. |
StockBased Compensation
StockBased Compensation | 9 Months Ended |
Sep. 30, 2020 | |
StockBased Compensation | |
Note 12. Stock-Based Compensation | Note 12: Stock-Based Compensation From time to time, the Company grants stock option and restricted stock units 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 “2010 Plan”) which 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. The 2010 Plan expired on September 14, 2020 (except as to options outstanding as of this date). In April 2019, the Company adopted the 2019 Equity Incentive Plan (the “2019 Plan”). Upon adoption of the 2019 Plan no additional awards were granted under the 2010 Plan. No more than 697,039 shares of common stock, plus the number of shares of common stock underlying any award granted under the 2010 Plan that expires, terminates, is canceled, or is forfeited shall be available for grant under the 2019 Plan. The Plan was amended in July 2020 to include an additional 1,025,000 stock options or other stock-based awards to be available for issuance. The Plan provides for the issuance of stock options and other stock-based awards. The Plan provides for the issuance of stock options and other stock-based awards. During the terms of the Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Awards. Stock Options Stock option awards under the 2010 Plan and 2019 Plan (the “Plans”) have a 10-year maximum contractual term and, subject to the provisions regarding Ten Percent Shareholders, 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 Plans are 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 Plans 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: Nine Months Ended September 30, 2020 2019 Volatility 52%-56% 49% - 50% Risk Free Interest Rate 0.37% - 1.66% 1.45% - 2.59% Expected term 6.25 years 6.25 years The weighted average grant date fair value of stock options granted during the nine months ended September 30, 2020, and 2019, was $5.11 and $6.43, 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 began 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 September 30, 2020, and 2019, the Company recognized an expense of $0.34 million and $0.25 million, respectively, associated with stock option awards. During the nine months ended September 30, 2020, and 2019, the Company recognized an expense of $0.81 million and $0.75 million, respectively, associated with stock option awards. At September 30, 2020, future stock compensation expense associated with stock options (net of estimated forfeitures) not yet recognized was $2.40 million and will be recognized over a weighted average remaining vesting period of 2.63 years. The following summarizes stock option activity for the nine months ended September 30, 2020: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value Outstanding at December 31, 2019 1,470,406 $ 7.30 7.5 $ 6,604,461 Granted 475,605 9.90 Exercised (38,445 ) 4.77 Expired (27,500 ) 12.65 Forfeited (268,100 ) 11.79 Outstanding at September 30, 2020 1,611,966 $ 7.29 7.2 $ 6,590,764 Exercisable at September 30, 2020 932,180 $ 5.86 6.1 $ 5,085,646 The total intrinsic value of stock options exercised during the three months ended September 30, 2020, and 2019, were $0.23 million and $0 respectively. The total intrinsic value of stock options exercised during the nine months ended September 30, 2020, and 2019, were $0.25 million and $1.43 million, respectively. Restricted Stock Units The 2019 Plan allows for the granting of Restricted Stock Units (“RSUs”). Under the 2019 Plan the Board of Directors has the authority to determine whom RSUs may be granted, the period of exercise, and what other restrictions, if any, should apply. RSUs have a value equal to the fair market value of an identical number of shares of Common Stock, which may, but need not, provide that such restricted award may not be sold, assigned, transferred or otherwise disposed of, pledged or hypothecated as collateral for a loan or as security for the performance of any obligation or for any other purpose for a period determined by the Board of Directors. Vesting for awards granted to date under the 2019 Plan is generally over four years from the date of the grant, with 25% of the award vesting after one year and monthly vesting thereafter. RSUs are expensed on a straight-line basis over the requisite vesting period. During the three months ended September 30, 2020, and 2019, the Company recognized a net benefit of approximately $0.03 million related to forfeited RSU’s during the period and an expense of $0, respectively, associated with RSUs. During the nine months ended September 30, 2020, and 2019, the Company recognized expense of approximately $0.16 million and $0, respectively, associated with RSUs. At September 30, 2020, future stock compensation expense associated with RSUs (net of estimated forfeitures) not yet recognized was approximately $0.24 million and will be recognized over a weighted average remaining vesting period of 2.06 years. The following summarizes RSU activity for the nine month period ended September 30, 2020: Weighted Average Grant Date Number of Fair Value Units Per Share Unvested at December 31, 2019 50,494 $ 11.82 Granted 35,875 12.39 Vested (10,159 ) 12.39 Forfeited (50,494 ) 11.82 Unvested at September 30, 2020 25,716 $ 12.39 Stock Awards The 2019 Plan allows for the granting of Restricted Stock Awards (“RSAs”). Under the 2019 Plan the Board of Directors has the authority to determine whom RSAs may be granted and what other restrictions, if any, should apply. Non-employee Stock awards shares are generally immediately vested. Employee Stock award shares are vested principally over two years from the date of the grant, with 50% of the award vesting after one year and monthly vesting thereafter. Stock awards are valued based on the closing price of our common stock on the date of grant, and compensation cost is recorded immediately if there is no vesting period or on a straight-line basis over the vesting period. During the three months ended September 30, 2020, and 2019, the Company recognized expense of approximately $0.08 million and $0.03 million, respectively, associated with Stock Awards. During the nine months ended September 30, 2020, and 2019, the Company recognized expense of approximately $0.17 million and $0.10 million, respectively, associated with Stock Awards. At September 30, 2020, future stock compensation expense associated with stock awards (net of estimated forfeitures) not yet recognized was approximately $0.08 million and will be recognized over a weighted average remaining vesting period of 1.5 years. The following summarizes Stock Award activity for the nine month period ended September 30, 2020: Weighted Average Grant Date Number of Fair Value Units Per Share Unvested at December 31, 2019 - $ - Granted 27,419 9.72 Vested (14,619 ) 9.84 Forfeited (1,222 ) 9.57 Unvested at September 30, 2020 11,578 $ 9.57 |
Warrants
Warrants | 9 Months Ended |
Sep. 30, 2020 | |
Warrants | |
Note 13. Warrants | Note 13: Warrants On January 30, 2014, in connection with an $11.5 million financing transaction, the Company issued 80,000 warrants to purchase common stock at an exercise price of $7.81 per share with a term of 5 years. The fair value of the warrants was determined using the Black-Scholes option valuation model. These warrants became exercisable on January 30, 2015. The remaining 30,000 of the outstanding warrants were exercised in May and August 2019. No other warrants have been issued since January 30, 2014. As of September 30, 2020, and December 31, 2019 there were 0 outstanding warrants. |
Related Party Transactions
Related Party Transactions | 9 Months Ended |
Sep. 30, 2020 | |
SBA Paycheck Protection Program Loan | |
Note 14. Related Party Transactions | Note 14: Related Party Transactions Intercompany transactions have been eliminated in our consolidated financial statements. The convertible notes issued in March 2018 were held directly by SHSP Holdings, LLC (“SHSP Holdings”). Daniel C. Allen, a now former 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. In May 2019, the Company and SHSP Holdings entered into and made effective a Note Conversion Agreement as outlined in Note 6 above. There were no other material related party transactions for the periods presented. |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2020 | |
Commitments and Contingencies | |
Note 15. Commitments and Contingencies | Note 15: Commitments and Contingencies We record a liability for contingencies if an unfavorable outcome is probable and the amount of loss can be reasonably estimated, including expected insurance coverage. For contingencies where the reasonable estimate of loss is a range, we record a best estimate of loss within the range. Litigation From time to time the Company may become involved in legal proceedings or be subject to claims arising in the ordinary course of its business. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not have a material adverse effect on its business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. The Company is not currently a party to any litigation of a material nature. Commitments The Company is not party to any non-cancellable contracts that create a material future commitment other than its leases as described in Note 8. Sales and Franchise Taxes State, local and foreign jurisdictions have differing rules and regulations governing sales, franchise, use, value added and other taxes. These rules and regulations are subject to varying interpretations that may change over time. In particular, the applicability of such taxes to SaaS products in various jurisdictions is unclear. Further, these jurisdictions’ rules regarding tax nexus vary significantly and are complex. As such, we could face possible tax assessments and audits. A successful assertion, by any of these taxing authorities, that we should be collecting additional sales, use, value added or other taxes in jurisdictions where we have not historically done so and do not accrue for such taxes could result in tax liabilities and related penalties for past sales, discourage customers from purchasing our products or otherwise harm our business and operating results. We continue to evaluate the impact of various tax types which may require future sales, franchise, or other tax payments. During the three and nine months ended September 30, 2020, the Company recorded an accrual of $0.26 million to general and administrative expenses in the consolidated statements of comprehensive loss related to a contingent sales tax liability. The $0.26 million accrued is the amount SharpSpring was able to reasonably estimate and is probable in accordance with ASC 450 “Contingencies”. The Company estimates that the total range of exposure related to sales tax contingent liability is approximately $0.20 million to $0.53 million. SharpSpring is unable to estimate the exact amount of the liability due to the complex and varying nature of state by state nexus laws. Employment Agreements The Company has employment agreements with several members of its leadership team and executive officers. |
Disaggregation of Revenue
Disaggregation of Revenue | 9 Months Ended |
Sep. 30, 2020 | |
Disaggregation of Revenue | |
Note 16. Disaggregation of Revenue | Note 16: 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 maker (“CODM”), which is the Company’s chief executive officer, 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 and nine months ended September 30, 2020, and 2019, are as follows: Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Revenue by Product: Marketing Automation Revenue $ 6,688,733 $ 5,676,555 $ 19,615,065 $ 16,389,475 Retargeting Revenue 584,085 - 1,870,802 - Mail + Product Revenue 34,014 47,423 144,599 178,221 Total Revenue $ 7,306,832 $ 5,723,978 $ 21,630,466 $ 16,567,696 Revenue by Type: Recurring Revenue $ 6,376,386 $ 5,391,989 $ 18,825,946 $ 15,384,507 Retargeting Revenue 584,085 - 1,870,802 - Upfront Fees 346,361 331,989 933,718 1,183,189 Total Revenue $ 7,306,832 $ 5,723,978 $ 21,630,466 $ 16,567,696 |
Summary of Significant Accoun_2
Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2020 | |
Summary of Significant Accounting Policies | |
Basis of Presentation and Consolidation | The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) applicable to interim periods, under the rules and regulations of the United States Securities and Exchange Commission (“SEC”). In the opinion of our management, the Company has prepared the accompanying unaudited consolidated financial statements on a basis substantially consistent with the audited consolidated financial statements of the Company as of and for the year ended December 31, 2019, and these consolidated financial statements include all adjustments consisting of only normal recurring adjustments, necessary for a fair statement of the results of the interim periods presented. The Company’s consolidated financial statements include the accounts of SharpSpring, Inc. and our subsidiaries (the “Company” or “SharpSpring”). The Company’s 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, 2020. The unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with SEC on March 16, 2020, as amended on April 30, 2020. |
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 assesses 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 translation 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 approximate fair value because of the short-term nature of these items. The fair value of the embedded derivatives associated with our convertible notes are 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 September 30, 2020, and December 31, 2019, was a liability balance of $0 for each period. The change in fair value for the three months ended September 30, 2020, and 2019, was $0 for each period. The change in fair value for the nine months ended September 30, 2020, and 2019, was $0 and a gain of $0.21 million, 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 are 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. |
Business Combinations | Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to tangible and intangible assets acquired and liabilities assumed and pre-acquisition contingencies. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets. Examples of critical estimates in valuing certain of the intangible assets and goodwill we have acquired include but are not limited to: · future expected cash flows from customer contracts and acquired developed technologies and patents; · the acquired company’s trade name, vendor relationships, and customer relationships, as well as assumptions about the period of time the acquired trade name will continue to be used in our offerings; and · discount rates. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. |
Intangibles | Finite-lived intangible assets include trade names, developed technologies, customer relationships, and vendor 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 regularly 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 September 30, 2020, and December 31, 2019, we had recorded goodwill of $10.94 million and $10.92 million, 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, GraphicMail, and Perfect Audience acquisitions. Under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350, “Intangibles - Goodwill and Other” |
Debt Issuance Costs | Third-party costs associated with the issuance of debt are included as a direct reduction to the carrying value of the debt and are amortized to interest expense ratably over the life of the debt. |
Income Taxes | Provisions 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, Simplifying the Accounting for Income Taxes 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 2017 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 September 30, 2020, the Company’s Swiss subsidiary, InterInbox SA is under examination by the Switzerland Federal Tax Administration for withholding taxes for the years 2015 through 2018. The Company does not expect any material adjustments as a result of the audit. |
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 record in the other expense section of our Consolidated Statement of Comprehensive Loss. Repairs and maintenance costs are expensed as incurred. Depreciation expense related to property and equipment was $0.25 million and $0.16 million for the three months ended September 30, 2020, and 2019, respectively. Depreciation expense related to property and equipment was $0.68 million and $0.44 million for the nine months ended September 30, 2020, and 2019, respectively. Property and equipment as of September 30, 2020 and December 31, 2019, is as follows: September 30, December 31, 2020 2019 Property and equipment, gross: Leasehold improvements $ 313,119 $ 290,977 Furniture and fixtures 913,370 678,774 Computer equipment and software 3,052,023 2,350,758 Total 4,278,512 3,320,509 Less: Accumulated depreciation (2,006,851 ) (1,323,787 ) $ 2,271,661 $ 1,996,722 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 generates revenue from contracts with multiple performance obligations, which typically include subscriptions to its cloud-based marketing automation software, professional services which include onboarding and training services, and access to our advertising retargeting platform. The Company’s customers do not have the right to take possession of any of the software. Substantially all of SharpSpring’s revenue is from contracts with customers. The Company recognizes revenue from contracts with customers using a five-step model as prescribed under ASC 606, which is described below: · Identify the customer contract; · Identify performance obligations that are distinct; · Determine the transaction price; · Allocate the transaction price to the distinct performance obligations; and · Recognize revenue as the performance obligations are satisfied. 1) Identify the customer contract A customer contract is generally identified when the Company and a customer have an executed arrangement that calls for the Company to provide access to its software or provide professional services in exchange for consideration from the customer. 2) Identify performance obligations that are distinct A performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services. A good or service that is promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and a company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. The Company has determined that subscriptions for its software is distinct because, once a customer has access to the software it purchased, the software is fully functional and does not require any additional development, modification, or customization. Professional services sold are distinct because the customer benefits from the on-boarding and training to make better use of the online software products it purchased. 3) Determine the transaction price The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer, excluding sales taxes that are collected on behalf of government agencies. The Company estimates any variable consideration to which it will be entitled at contract inception, when determining the transaction price. The Company does not include variable consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will occur when any uncertainty associated with the variable consideration is resolved. 4) Allocate the transaction price to the distinct performance obligations The transaction price is allocated to each performance obligation based on the relative standalone selling prices of the goods or services being provided to the customer. 5) Recognize revenue as the performance obligations are satisfied Revenues are recognized when or as control of the promised goods or services is transferred to customers. Revenue from the SharpSpring Marketing Automation and Mail+ software is recognized ratably over the subscription period, which typically ranges from one to twelve months. The Company recognizes revenue from on-boarding and training services as the services are provided, which is generally over 60 days. Revenue related to our other professional services is recognized as the services are provided. The Perfect Audience platform is utilized on an as needed basis, and the related revenue recognized as the service is provided. Cash payments received in advance of providing subscription or services are recorded to deferred revenue until the performance obligation is satisfied. Our products are billed in arrears or upfront, depending on the product, which creates contract assets (unbilled receivables) and contract liabilities (deferred revenue), respectively. Unbilled receivables occur due to unbilled charges for which the Company has satisfied performance obligations. Deferred revenues 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 as the performance obligations are satisfied. 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. |
Gross Versus Net Revenue | ASC 606 provides guidance on proper recognition of principal versus agent considerations which is used to determine gross versus net revenue recognition. Under ASC 606, the core objective of the guidance on gross versus net revenue recognition is to help determine whether an entity is a principal or an agent in a transaction. In general, the primary difference between these two is the performance obligation being satisfied. The principal has a performance obligation to provide the desired goods or services to the end customer, whereas the agent arranges for the principal to provide the desired goods or services. Additionally, a fundamental characteristic of a principal in a transaction is control. A principal substantively controls the goods and services before they are transferred to the customer as well as controls the price of the good or service being provided. An agent normally receives a commission or fee for these activities. In addition to control, the level at which an entity controls the price of the good or service being transferred determines principal versus agent status. The more discretion over setting price a company has in providing the good or service, the more likely they are considered a principal rather than an agent. Under the guidance when another party is involved in providing a good or service to a customer, an entity is a principal if the entity obtains control of the asset or right to a service performed by the other party. SharpSpring never takes possession or control of the advertising space and acts an agent facilitating the customer with the desired advertisement inventory from the principal provider through our Perfect Audience retargeting platform. In addition to the lack of control of the advertising inventory, SharpSpring does not have control over the cost of the advertising inventory, but rather only receives a fee for services for providing the advertising inventory to the customer, further demonstrating SharpSpring’s role as the agent in the transaction. Therefore, as an agent in the retargeting transaction SharpSpring records revenue net of the cost of advertising inventory cost incurred for placing advertisements on websites. |
Deferred Revenue | Deferred revenue consists of payments received in advance of the Company providing the services. Deferred revenue is earned over the service period identified in each contract. Most our deferred revenue balances (contract liabilities) arise from payments from customers in advance of service 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 the service period defined in the contract. Additionally, the Company has deferred revenue related to implementation fees for its SharpSpring Marketing Automation solution that are paid in advance. These implementation services are typically performed over a 60-day period, and the revenue is recognized over the corresponding period. As of June 30, 2020, and 2019, the Company had deferred revenue balances of $0.66 million and $0.32 million, respectively. Deferred revenue decreased by $0.09 million and increased by $0.19 million during the three months ended September 30, 2020, and 2019, respectively. Deferred revenue balances were $0.86 million and $0.25 million as of December 31, 2019, and 2018, respectively. Deferred revenue decreased by $0.29 million and increased by $0.26 million during the nine months ended September 30, 2020, and 2019, respectively. The Company had deferred revenue contract liability balances of $0.57 million and $0.51 million as of September 30, 2020, and September 30, 2019, respectively. |
Unbilled Receivable | 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 are met, thus creating a contract asset (unbilled receivable). As of June 30, 2020, and 2019, the Company had unbilled receivables of $1.13 million and $0.88 million, respectively. Substantially all of these services were billed during the three months ended September 30, 2020 and 2019, respectively. Unbilled receivable balances increased by $0.01 million and $0.05 million during the three months ended September 30, 2020, and 2019, respectively. The unbilled receivable balances as of December 31, 2019, and 2018 were $1.0 million and $0.74 million, respectively. Unbilled receivable balances increased by $0.14 million and $0.19 million during the nine months ended September 30, 2020, and 2019, respectively. As of September 30, 2020, and 2019, the Company had unbilled receivables of $1.14 million and $0.93 million, respectively. These unbilled balances were the result of services provided in period, but not yet billed to the customer. |
Notes Payable - SBA Paycheck Protection Program Loan | We account for loans obtained under the Paycheck Protection Program in Section 1102 of the CARES Act (Note 7) as debt pursuant to FASB ASC 470 - Debt Interest – Imputation of Interest |
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 September 30, 2020, and December 31, 2019, 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 for any financial period presented. For the three months ending September 30, 2020, two customers had open accounts receivable balances above 10% of net accounts receivable. The combined balances for these two customers represented approximately 26.4% of net accounts receivable. As of September 30, 2020, no customer with accounts receivable in excess of 10% of the Company’s net accounts receivable had a balance older than 60 days. |
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 $0.62 million and $1.53 million for the three months ended September 30, 2020, and 2019, respectively. Advertising and marketing expenses, excluding marketing team costs, were $2.29 million and $4.56 million for the nine months ended September 30, 2020, and 2019, respectively. |
Capitalized Cost of Obtaining a Contract | The Company capitalizes certain sales commission costs which are incremental to obtaining a contract. The Company expenses 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 straight-line amortization over the estimated weighted average life of the customer, which for the 3 months ended September 30, 2020 and 2019 was approximately 3 years. At September 30, 2020, the net carrying value of the capitalized cost of obtaining a contract was $1.28 million, of which $0.70 million is included in other current assets and $0.58 million is included in other long-term assets. At December 31, 2019, the net carrying value of the capitalized cost of obtaining a contract was $1.20 million, of which $0.68 million is included in other current assets and $0.52 million is included in other long-term assets. The Company amortized expenses for the costs of obtaining contracts of $0.21 million and $0.20 million for the three months ended September 30, 2020, and 2019, respectively. The Company amortized expenses for the costs of obtaining contracts of $0.61 million and $0.63 million for the nine months ended September 30, 2020, and 2019, respectively. |
Stock Compensation | We account for stock-based compensation in accordance with FASB ASC 718 Compensation — Stock Compensation |
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 potentially dilutive common stock equivalents for the period. For purposes of this calculation, options to purchase common stock, unvested restricted stock units, warrants, and the conversion option of the Convertible Notes (Note 6) are 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 Loss | Comprehensive 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 Financial Accounting Standards Board (“FASB”) issued guidance simplifying the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. Under previous guidance, Step 2 of the goodwill impairment test required 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 was recognized as goodwill impairment. Under the new guidance, 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 guidance was adopted effective January 1, 2020 and did not have a material impact on the consolidated financial statements. In December 2019, the FASB issued guidance simplifying the accounting for income taxes. The new accounting guidance removes (i) the exception to the incremental approach for intra-period tax allocations when there is a loss from continuing operations and income or gain from other items such as discontinued operation or other comprehensive income, (ii) the exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, (iii) the exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary, and (iv) the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. |
Summary of Significant Accoun_3
Summary of Significant Accounting Policies (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Summary of Significant Accounting Policies | |
Schedule of property and equipment | September 30, December 31, 2020 2019 Property and equipment, gross: Leasehold improvements $ 313,119 $ 290,977 Furniture and fixtures 913,370 678,774 Computer equipment and software 3,052,023 2,350,758 Total 4,278,512 3,320,509 Less: Accumulated depreciation (2,006,851 ) (1,323,787 ) $ 2,271,661 $ 1,996,722 |
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 |
Acquisitions (Tables)
Acquisitions (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Acquisitions | |
Schedule of assets acquired and liabilities assumed | Cash Consideration $ 4,566,402 Add: Net tangible liabilities acquired Deferred Revenue $ 186,500 Accrued expenses and other current liabilities $ 545,473 Total liabilities $ 731,973 Less: Net tangible assets acquired Accounts receivable $ (55,236 ) Other current assets $ (20,719 ) Total tangible assets $ (75,955 ) Intangible assets acquired: Trade names $ (381,000 ) Technology $ (979,000 ) Vendor relationships $ (1,813,000 ) Total intangible assets $ (3,173,000 ) Goodwill $ 2,049,420 |
Goodwill and Other Intangible_2
Goodwill and Other Intangible Assets (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Goodwill and Other Intangible Assets | |
Schedule of intangible assets | As of September 30, 2020 Gross Net Carrying Accumulated Carrying Amount Amortization Value Amortized intangible assets: Trade names $ 501,000 (120,000 ) $ 381,000 Technology 3,109,000 (1,436,026 ) 1,672,974 Customer relationships 1,320,000 (862,253 ) 457,747 Vendor relationships 1,813,000 (156,069 ) 1,656,931 Unamortized intangible assets: 6,743,000 (2,574,348 ) 4,168,652 Goodwill 10,938,143 Total goodwill and intangible assets $ 15,106,795 As of December 31, 2019 Gross Net Carrying Accumulated Carrying Amount Amortization Value Amortized intangible assets: Trade names $ 501,000 (120,000 ) $ 381,000 Technology 3,109,000 (1,192,000 ) 1,917,000 Customer relationships 1,320,000 (773,000 ) 547,000 Vendor relationships 1,813,000 - 1,813,000 Unamortized intangible assets: 6,743,000 (2,085,000 ) 4,658,000 Goodwill 10,922,814 Total goodwill and intangible assets $ 15,580,814 |
Schedule of estimated amortization expense | Remainder of 2020 152,799 2021 559,200 2022 507,200 2023 459,200 2024 420,200 Thereafter 1,689,053 Indefinite Lived 381,000 Total $ 4,168,652 |
Convertible Notes (Tables)
Convertible Notes (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Convertible Notes | |
Schedule of interest expense | Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Contractual interest paid-in-kind expense (non-cash) $ - $ - $ - $ 139,372 Amortization of debt issuance costs (non-cash) - - - 15,108 Amortization of embedded derivative (non-cash) - - - (12,205 ) Total interest expense $ - $ - $ - $ 142,275 Effective interest rate 0.0 % 0.0 % 0.0 % 4.9 % |
SBA Paycheck Protection Progr_2
SBA Paycheck Protection Program Loan (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
SBA Paycheck Protection Program Loan | |
Schedule of outstanding SBA loan | Debt Obligation 2020 $ 360,703 2021 2,270,259 2022 768,537 Total Commitments $ 3,399,499 |
Leases (Tables)
Leases (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Leases | |
Schedule of future minimum lease payments | Operating Leases Remainder of 2020 326,436 2021 1,321,598 2022 1,329,525 2023 1,369,159 2024 1,377,086 Thereafter 5,525,881 Total undiscounted cash flows $ 11,249,685 Less imputed interest remaining (2,566,836 ) Present value of lease liability $ 8,682,849 |
Net Loss Per Share (Tables)
Net Loss Per Share (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Net Loss Per Share | |
Schedule of computation of net loss per share | Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Net loss $ (1,542,349 ) $ (2,527,113 ) $ (3,500,810 ) $ (9,659,147 ) Weighted average common shares outstanding, basic and diluted 11,564,856 10,948,416 11,538,457 10,028,246 Net loss per share, basic and diluted $ (0.13 ) $ (0.23 ) $ (0.30 ) $ (0.96 ) |
Schedule of potentially dilutive common stock equivalents | Three and Nine Months Ended September 30, 2020 2019 Warrants - - Convertible notes - - Stock options 1,611,966 1,419,844 Restricted stock units (RSUs) 25,716 - Total 1,637,682 1,419,844 |
StockBased Compensation (Tables
StockBased Compensation (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
StockBased Compensation | |
Schedule of fair value assumptions used in valuing stock options | Nine Months Ended September 30, 2020 2019 Volatility 52%-56% 49% - 50% Risk Free Interest Rate 0.37% - 1.66% 1.45% - 2.59% Expected term 6.25 years 6.25 years |
Schedule of stock option activity | Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value Outstanding at December 31, 2019 1,470,406 $ 7.30 7.5 $ 6,604,461 Granted 475,605 9.90 Exercised (38,445 ) 4.77 Expired (27,500 ) 12.65 Forfeited (268,100 ) 11.79 Outstanding at September 30, 2020 1,611,966 $ 7.29 7.2 $ 6,590,764 Exercisable at September 30, 2020 932,180 $ 5.86 6.1 $ 5,085,646 |
Schedule of restricted stock unit activity | Weighted Average Grant Date Number of Fair Value Units Per Share Unvested at December 31, 2019 50,494 $ 11.82 Granted 35,875 12.39 Vested (10,159 ) 12.39 Forfeited (50,494 ) 11.82 Unvested at September 30, 2020 25,716 $ 12.39 |
Schedule of restricted stock award activity | Weighted Average Grant Date Number of Fair Value Units Per Share Unvested at December 31, 2019 - $ - Granted 27,419 9.72 Vested (14,619 ) 9.84 Forfeited (1,222 ) 9.57 Unvested at September 30, 2020 11,578 $ 9.57 |
Disaggregation of Revenue (Tabl
Disaggregation of Revenue (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Disaggregation of Revenue (Tables) | |
Disaggregation of revenue | Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Revenue by Product: Marketing Automation Revenue $ 6,688,733 $ 5,676,555 $ 19,615,065 $ 16,389,475 Retargeting Revenue 584,085 - 1,870,802 - Mail + Product Revenue 34,014 47,423 144,599 178,221 Total Revenue $ 7,306,832 $ 5,723,978 $ 21,630,466 $ 16,567,696 Revenue by Type: Recurring Revenue $ 6,376,386 $ 5,391,989 $ 18,825,946 $ 15,384,507 Retargeting Revenue 584,085 - 1,870,802 - Upfront Fees 346,361 331,989 933,718 1,183,189 Total Revenue $ 7,306,832 $ 5,723,978 $ 21,630,466 $ 16,567,696 |
Summary of Significant Accoun_4
Summary of Significant Accounting Policies (Details) - USD ($) | Sep. 30, 2020 | Dec. 31, 2019 |
Less: accumulated depreciation and amortization | $ 2,006,851 | $ 1,323,787 |
Property and equipment, gross | 4,278,512 | 3,320,509 |
Property and equipment, net | 2,271,661 | 1,996,722 |
Leasehold Improvements [Member] | ||
Property and equipment, gross | 313,119 | 290,977 |
Furniture and Fixtures [Member] | ||
Property and equipment, gross | 913,370 | 678,774 |
Computer Equipment and Software [Member] | ||
Property and equipment, gross | $ 3,052,023 | $ 2,350,758 |
Summary of Significant Accoun_5
Summary of Significant Accounting Policies (Details 1) | 9 Months Ended |
Sep. 30, 2020 | |
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 |
Computing Equipment | |
Useful lives | 3 years |
Software [Member] | Minimum [Member] | |
Useful lives | 3 years |
Software [Member] | Maximum [Member] | |
Useful lives | 5 years |
Summary of Significant Accoun_6
Summary of Significant Accounting Policies (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | ||||||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Jun. 30, 2020 | Dec. 31, 2019 | Jun. 30, 2019 | Dec. 31, 2018 | |
Fair value of the embedded derivatives | $ 0 | $ 0 | $ 0 | |||||
Expected weighted average life of the customer | 3 years | 3 years | ||||||
Customer net account receivable description | There were no customers that accounted for more than 10% of total revenue for any financial period presented. For the three months ending September 30, 2020, two customers had open accounts receivable balances above 10% of net accounts receivable. The combined balances for these two customers represented approximately 26.4% of net accounts receivable. As of September 30, 2020, no customer with accounts receivable in excess of 10% of the Company’s net accounts receivable had a balance older than 60 days. | |||||||
Change in fair value of financial instrument | $ 0 | $ 0 | $ 0 | $ 210,000 | ||||
Depreciation expense | 250,000 | 160,000 | 680,000 | 440,000 | ||||
Unbilled receivables | 11,400 | 9,300 | 11,400 | 9,300 | $ 11,300 | 1,000,000 | $ 8,800 | $ 7,400 |
Increase in unbilled receivables | 100 | 500 | 1,400 | 1,900 | ||||
Deferred revenue | 8,600 | 8,600 | $ 660,000 | $ 320,000 | $ 250,000 | |||
Deferred revenue (decrease) increase | (90,000) | 1,900 | 290,000 | 2,600 | ||||
Deferred revenue contract liability | 5,700 | 5,100 | 5,700 | 5,100 | ||||
Advertising and marketing expenses | 620,000 | 15,300 | 22,900 | 45,600 | ||||
Capitalized cost of obtaining a contract | 1,280,000 | 1,280,000 | 12,000 | |||||
Capitalized cost of obtaining a contract, other current assets | 7,000 | 7,000 | 6,800 | |||||
Capitalized cost of obtaining a contract, Other long term assets | 5,800 | 5,800 | $ 5,200 | |||||
Amortized cost of obtaining contract expense | $ 2,100 | $ 2,000 | $ 6,100 | $ 6,300 | ||||
Minimum | ||||||||
Finite-lived intangible assets useful lives | 5 years | |||||||
Maximum | ||||||||
Finite-lived intangible assets useful lives | 11 years |
Acquisitions (Details)
Acquisitions (Details) | 9 Months Ended |
Sep. 30, 2020USD ($) | |
Cash consideration | $ 4,566,402 |
Net tangible liabilities acquired | |
Deferred revenue | 186,500 |
Accrued expenses and other current liabilities | 545,473 |
Total liabilities | 731,973 |
Net tangible assets acquired | |
Accounts receivable | (55,236) |
Other current assets | (20,719) |
Total intangible assets | (3,173,000) |
Total tangible assets | (75,955) |
Goodwill | 2,049,420 |
Vendor Relationships [Member] | |
Net tangible assets acquired | |
Total intangible assets | (1,813,000) |
Trade Names [Member] | |
Net tangible assets acquired | |
Total intangible assets | (381,000) |
Technology [Member] | |
Net tangible assets acquired | |
Total intangible assets | $ (979,000) |
Acquisitions (Details Narrative
Acquisitions (Details Narrative) - USD ($) | 1 Months Ended | 9 Months Ended | |
Nov. 21, 2019 | Sep. 30, 2020 | Dec. 31, 2019 | |
Cash consideration | $ 4,566,402 | ||
Goodwill | 10,938,143 | $ 10,922,814 | |
Perfect Audience [Member] | |||
Cash consideration | $ 4,600,000 | ||
Transaction costs | 180,000 | ||
Goodwill | $ 2.05 |
Goodwill and Other Intangible_3
Goodwill and Other Intangible Assets (Details) - USD ($) | Sep. 30, 2020 | Dec. 31, 2019 |
Intangible assets, gross | $ 6,743,000 | $ 6,743,000 |
Accumulated amortization | (2,574,348) | (2,085,000) |
Intangible assets, net | 4,168,652 | 4,658,000 |
Goodwill | 10,938,143 | 10,922,814 |
Total goodwill and intangible assets | 15,106,795 | 15,580,814 |
Vendor Relationships [Member] | ||
Intangible assets, gross | 1,813,000 | 1,813,000 |
Accumulated amortization | (156,069) | 0 |
Intangible assets, net | 1,656,931 | 1,813,000 |
Trade Names [Member] | ||
Intangible assets, gross | 501,000 | 501,000 |
Accumulated amortization | (120,000) | (120,000) |
Intangible assets, net | 381,000 | 381,000 |
Technology [Member] | ||
Intangible assets, gross | 3,109,000 | 3,109,000 |
Accumulated amortization | (1,436,026) | (1,192,000) |
Intangible assets, net | 1,672,974 | 1,917,000 |
Customer Relationships | ||
Intangible assets, gross | 1,320,000 | 1,320,000 |
Accumulated amortization | (862,253) | (773,000) |
Intangible assets, net | $ 457,747 | $ 547,000 |
Goodwill and Other Intangible_4
Goodwill and Other Intangible Assets (Details 1) | Sep. 30, 2020USD ($) |
Goodwill and Other Intangible Assets | |
Remainder of 2020 | $ 152,799 |
2021 | 559,200 |
2022 | 507,200 |
2023 | 459,200 |
2024 | 420,200 |
Thereafter | 1,689,053 |
Indefinite Lived | 381,000 |
Total | $ 4,168,652 |
Goodwill and Other Intangible_5
Goodwill and Other Intangible Assets (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Goodwill and Other Intangible Assets | ||||
Amortization expense | $ 150 | $ 100 | $ 490 | $ 290 |
Credit Facility (Details Narrat
Credit Facility (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | ||||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2019 | Mar. 31, 2016 | |
Line of credit outstanding | $ 1,900,000 | $ 1,900,000 | $ 0 | |||
Revolving Loan Agreement [Member] | ||||||
Line of credit facility, expiration date | Jun. 19, 2022 | |||||
Loan interest rate | 50.00% | 50.00% | ||||
Line of credit | $ 2,500,000 | |||||
Interest expense relating to the Credit of Facility | $ 30,000 | $ 0 | $ 60,000 | $ 0 | ||
Line of credit outstanding | $ 1,900,000 | $ 1,900,000 | ||||
Percentage of secured pledge of capital stock | 10000.00% | 10000.00% | ||||
Percentage of pledge of foreign subsidiaries stock | 6500.00% | 6500.00% |
Convertible Notes (Details)
Convertible Notes (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Convertible Notes | ||||
Contractual interest paid-in-kind expense (non-cash) | $ 0 | $ 0 | $ 0 | $ 139,372 |
Amortization of debt issuance costs (non-cash) | 0 | 0 | 0 | 15,108 |
Amortization of embedded derivative (non-cash) | 0 | 0 | 0 | (12,205) |
Total interest expense | $ 0 | $ 0 | $ 0 | $ 142,275 |
Effective interest rate | 0.00% | 0.00% | 0.00% | 49.00% |
Convertible Notes (Details Narr
Convertible Notes (Details Narrative) - USD ($) shares in Millions | May 09, 2019 | Mar. 31, 2018 | Sep. 30, 2020 | Dec. 31, 2019 |
Convertible debt | $ 49 | $ 0 | ||
Payable In Kind [Member] | ||||
Debt Instrument, Interest Rate | 500.00% | |||
Five-Year Convertible Notes [Member] | ||||
Debt Instrument, Face Amount | $ 8,000,000 | |||
Proceeds from convertible debt | $ 7,900,000 | |||
Fair value of derivative | $ 0 | |||
Loss on conversion of debt | $ 2,200,000 | |||
Common stock issued, conversion of debt | 115,037 | |||
Write-off of the embedded derivative liability | $ 190,000 |
SBA Paycheck Protection Progr_3
SBA Paycheck Protection Program Loan (Details) | Sep. 30, 2020USD ($) |
Convertible Notes | |
2020 | $ 360,703 |
2021 | 2,270,259 |
2022 | 768,537 |
Total Commitments | $ 3,399,499 |
SBA Paycheck Protection Progr_4
SBA Paycheck Protection Program Loan (Details Narrative) - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | ||
Apr. 30, 2020 | Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Debt obligation | $ 3,400,000 | ||||
SBA Loan [Member] | |||||
Proceeds from loan | $ 3,400,000 | ||||
Loan maturity date | 2 years | ||||
Loan Interest rate | 100.00% | ||||
Accrued interest expense, loan | $ 8,000 | $ 0 | $ 15,000 | $ 0 |
Leases (Details)
Leases (Details) $ in Millions | Sep. 30, 2020USD ($) |
Leases | |
Remainder of 2020 | $ 326,436 |
2021 | 1,321,598 |
2022 | 1,329,525 |
2023 | 1,369,159 |
2024 | 1,377,086 |
Thereafter | 5,525,881 |
Total undiscounted cash flows | 11,249,685 |
Less imputed interest remaining | (2,566,836) |
Present value of lease liability | $ 8,682,849 |
Leases (Details Narrative)
Leases (Details Narrative) $ in Millions | 9 Months Ended |
Sep. 30, 2020USD ($)ft² | |
Weighted average discount rate | 65.00% |
2018 Lease [Member] | 2019 Addendum [Member] | |
Lease amendment, Description | 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. |
Additional area acquired with revised agreement | ft² | 18,000 |
Lease liability increase | $ 3.8 |
Weighted average remaining lease term | 8 years |
Short term lease | $ 0 |
Net Loss Per Share (Details)
Net Loss Per Share (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Net Loss Per Share | ||||
Net loss | $ (1,542,349) | $ (2,527,113) | $ (3,500,810) | $ (9,659,147) |
Basic weighted average common shares outstanding | 11,564,856 | 10,948,416 | 11,538,457 | 10,028,246 |
Net loss per share: basic | $ (0.13) | $ (0.23) | $ (0.30) | $ (0.96) |
Net Loss Per Share (Details 1)
Net Loss Per Share (Details 1) - shares | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Antidilutive securities | 1,637,682 | 1,419,844 | 1,637,682 | 1,419,844 |
Stock Option [Member] | ||||
Antidilutive securities | 1,611,966 | 1,419,844 | 1,611,966 | 1,419,844 |
Warrants [Member] | ||||
Antidilutive securities | 0 | |||
Convertible Notes [Member] | ||||
Antidilutive securities | 0 | 0 | ||
Restricted Stock Units (RSUs) [Member] | ||||
Antidilutive securities | 25,716 | 25,716 | 0 |
Income Taxes (Details Narrative
Income Taxes (Details Narrative) - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | |||
Mar. 27, 2020 | Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2019 | |
Income Taxes | ||||||
Operating loss carry forward, maximum term | 5 years | |||||
Deferred tax valuation allowance | $ 1,600,000 | $ 7,080,000 | $ 7,080,000 | $ 6,960,000 | ||
Income tax expense (benefit) | $ 1,706 | $ 2,291 | $ 1,503,625 | $ 835 | ||
Effective tax rate | 300.00% | 0.00% |
Defined Contribution Retireme_2
Defined Contribution Retirement Plan (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Defined Contribution Retirement Plan | ||||
Defined contribution plan, maximum annual contributions employee, percent | 10000.00% | |||
Defined contribution plan, employer matching contribution, percent of match | 10000.00% | |||
Defined contribution plan, employer matching contribution, percent of employees' gross pay | 300.00% | |||
Defined contribution retirement plan, expenses | $ 0 | $ 80 | $ 120 | $ 230 |
StockBased Compensation (Detail
StockBased Compensation (Details) | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
StockBased Compensation | ||
Volatility, minimum | 5200.00% | 4900.00% |
Volatility, maximum | 5600.00% | 5000.00% |
Risk-free interest rate, minimum | 0.37% | 1.45% |
Risk-free interest rate, maximum | 1.66% | 2.59% |
Expected term | 6 years 3 months | 6 years 3 months |
StockBased Compensation (Deta_2
StockBased Compensation (Details 1) | 9 Months Ended |
Sep. 30, 2020USD ($)shares | |
StockBased Compensation | |
Number of options outstanding, beginning | 1,470,406 |
Number of options granted | 475,605 |
Number of options exercised | (38,445) |
Number of options expired | (27,500) |
Number of options forfeited | (268,100) |
Number of options exercisable | 932,180 |
Number of options outstanding, ending | 1,611,966 |
Weighted average exercise price outstanding, beginning | 7.30 |
Weighted average exercise price granted | 9.90 |
Weighted average exercise price exercised | 4.77 |
Weighted average exercise price expired | 12.65 |
Weighted average exercise price forfeited | 11.79 |
Weighted average exercise price outstanding, ending | 7.29 |
Weighted average exercise price exercisable | 5.86 |
Weighted average remaining contractual life outstanding, beginning | 7 years 6 months |
Weighted average remaining contractual life outstanding, ending | 7 years 2 months 12 days |
Weighted average remaining contractual life exercisable | 6 years 1 month 6 days |
Aggregate intrinsic value, beginning | $ | $ 6,604,461 |
Aggregate intrinsic value, ending | $ | 6,590,764 |
Aggregate intrinsic value, exercisable | $ | $ 5,085,646 |
StockBased Compensation (Deta_3
StockBased Compensation (Details 2) - Restricted Stock Units [Member] | 9 Months Ended |
Sep. 30, 2020$ / sharesshares | |
Number of unvested units, beginning | shares | 50,494 |
Number of unvested units granted | shares | 35,875 |
Number of unvested units vested | shares | (10,159) |
Number of unvested units cancelled | shares | (50,494) |
Number of unvested units, ending | shares | 25,716 |
Weighted average grant date fair value, beginning | $ / shares | $ 11.82 |
Weighted average grant date fair value granted | $ / shares | 12.39 |
Weighted average grant date fair value vested | $ / shares | 12.39 |
Weighted average grant date fair value cancelled | $ / shares | 11.82 |
Weighted average grant date fair value, ending | $ / shares | $ 12.39 |
StockBased Compensation (Deta_4
StockBased Compensation (Details 3) - Stock Option [Member] | 9 Months Ended |
Sep. 30, 2020$ / sharesshares | |
Number of unvested units granted | shares | 27,419 |
Number of unvested units vested | shares | (14,619) |
Number of unvested units cancelled | shares | (1,222) |
Number of unvested units, ending | shares | 11,578 |
Weighted average grant date fair value, beginning | $ 0 |
Weighted average grant date fair value granted | 9.72 |
Weighted average grant date fair value vested | 9.84 |
Weighted average grant date fair value cancelled | 9.57 |
Weighted average grant date fair value, ending | $ 9.57 |
StockBased Compensation (Deta_5
StockBased Compensation (Details Narrative) - USD ($) $ in Thousands | 1 Months Ended | 3 Months Ended | 9 Months Ended | |||
Apr. 30, 2019 | Nov. 30, 2010 | Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Restricted stock unit expense | $ 30 | $ 0 | $ 160 | $ 0 | ||
Weighted average remaining vesting period | 2 years 21 days | |||||
Unrecognized stock expense | 240 | |||||
Stock option expense | 230 | 0 | 250 | $ 1,430 | ||
Stock based compensation | 340 | 250 | $ 810 | $ 750 | ||
Stock options awars, maximum contractual term | 6 years 1 month 6 days | |||||
2010 Stock Incentive Plan [Member] | ||||||
Common stock shares reserved for future issuance | 2,600,000 | |||||
Expiration date | Sep. 14, 2020 | |||||
Restricted stock units granted | 697,039 | |||||
Stock options awars, maximum contractual term | 10 years | |||||
Vesting award percentage | 2500.00% | |||||
Weighted average grant date fair value of stock options granted | 5.11 | 6.43 | ||||
Stock Option [Member] | ||||||
Stock based compensation | $ 2,400 | |||||
Weighted average remaining vesting period | 2.63 years | |||||
Restricted stock units granted | 27,419 | |||||
Stock Awards [Member] | ||||||
Restricted stock unit expense | $ 80 | $ 30 | $ 170 | $ 100 | ||
Weighted average remaining vesting period | 1 year 6 months | |||||
Unrecognized stock expense | $ 80 |
Warrants (Details Narrative)
Warrants (Details Narrative) - USD ($) $ in Millions | 1 Months Ended | 9 Months Ended | |
Jan. 30, 2014 | Sep. 30, 2020 | Sep. 30, 2019 | |
Warrants outstanding | 0 | ||
Exercise of warrants, term | 6 years 3 months | 6 years 3 months | |
Financing Transaction [Member] | |||
Exercise price | 7.81 | ||
Exercise of warrants, term | 5 years | ||
Exercise of warrants, maturity date | Jan. 30, 2015 | ||
Remaining warrants exercied | 30,000 | ||
Warrants issued to purchase common stock | 80,000,000,000 | ||
Warrants issued to purchase common stock, value | $ 11.5 |
Commitments and Contingencies (
Commitments and Contingencies (Details Narrative) | 3 Months Ended | 9 Months Ended |
Sep. 30, 2020USD ($) | Sep. 30, 2020USD ($) | |
Accrued expense | $ 260,000 | $ 260,000 |
General and administrative expenses | $ 0.26 | 260,000 |
Minimum | ||
Sales tax contingent liability | 200,000 | |
Maximum | ||
Sales tax contingent liability | $ 530,000 |
Disaggregation of Revenue (Deta
Disaggregation of Revenue (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Revenue | $ 7,306,832 | $ 5,723,978 | $ 21,630,466 | $ 16,567,696 |
Recurring Revenue [Member] | ||||
Revenue | 6,376,386 | 5,391,989 | 18,825,946 | 15,384,507 |
Upfront Fees [Member] | ||||
Revenue | 346,361 | 331,989 | 933,718 | 1,183,189 |
Marketing Automation Revenue [Member] | ||||
Revenue | 6,688,733 | 5,676,555 | 19,615,065 | 16,389,475 |
Retargeting Revenue [Member] | ||||
Revenue | 584,085 | 0 | 1,870,802 | 0 |
Mail + Product Revenue [Member] | ||||
Revenue | $ 34,014 | $ 47,423 | $ 144,599 | $ 178,221 |