Cover
Cover - USD ($) | 12 Months Ended | ||
Dec. 31, 2020 | Mar. 22, 2021 | Jun. 30, 2020 | |
Cover [Abstract] | |||
Entity Registrant Name | SharpSpring, Inc. | ||
Entity Central Index Key | 0001506439 | ||
Document Type | 10-K | ||
Amendment Flag | false | ||
Entity Voluntary Filers | No | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well Known Seasoned Issuer | No | ||
Entity Small Business | true | ||
Entity Shell Company | false | ||
Entity Emerging Growth Company | false | ||
Entity Current Reporting Status | Yes | ||
Document Period End Date | Dec. 31, 2020 | ||
Entity Filer Category | Non-accelerated Filer | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2020 | ||
Entity Common Stock Shares Outstanding | 12,819,201 | ||
Entity Public Float | $ 83,464,822 | ||
Document Annual 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, $0.001 par value per share | ||
Trading Symbol | SHSP | ||
Security Exchange Name | NASDAQ |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Dec. 31, 2020 | Dec. 31, 2019 |
Assets | ||
Cash and cash equivalents | $ 28,267,792 | $ 11,881,949 |
Accounts receivable, net of allowance for doubtful accounts of $56,135 and $12,455 at December 31, 2020 and December 31, 2019, respectively | 323,130 | 340,344 |
Unbilled receivables | 1,248,060 | 998,048 |
Income taxes receivable | 54,449 | 15,010 |
Other current assets | 1,433,543 | 1,363,366 |
Total current assets | 31,326,974 | 14,598,717 |
Property and equipment, net | 2,188,948 | 1,996,722 |
Goodwill | 10,250,088 | 10,922,814 |
Intangibles, net | 4,015,851 | 4,658,000 |
Right-of-use assets | 8,352,028 | 5,281,530 |
Other long-term assets | 611,857 | 549,022 |
Total assets | 56,745,746 | 38,006,805 |
Liabilities and Shareholders' Equity | ||
Accounts payable | 1,074,594 | 2,052,538 |
Accrued expenses and other current liabilities | 1,259,836 | 919,089 |
Line of credit | 1,900,000 | 0 |
Deferred revenue | 845,265 | 860,820 |
Income taxes payable | 81,221 | 13,944 |
Lease liability, current portion | 724,627 | 370,340 |
Notes payable, current portion | 2,630,962 | 0 |
Total current liabilities | 8,516,505 | 4,216,731 |
Lease liability, net of current portion | 7,771,898 | 4,976,727 |
Notes payable, net of current portion | 768,538 | 0 |
Total liabilities | 17,056,941 | 9,193,458 |
Shareholders' equity: | ||
Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued or outstanding at December 31, 2020 and December 31, 2019 | 0 | 0 |
Common stock, $0.001 par value, Authorized shares-50,000,000; issued shares- 12,818,797 at December 31, 2020 and 11,537,163 at December 31, 2019; outstanding shares- 12,798,797 at December 31, 2020 and 11,517,163 at December 31, 2019 | 12,819 | 11,537 |
Additional paid in capital | 75,544,966 | 58,851,285 |
Accumulated other comprehensive loss | (215,269) | (224,793) |
Accumulated deficit | (35,569,711) | (29,740,682) |
Treasury stock | (84,000) | (84,000) |
Total shareholders' equity | 39,688,805 | 28,813,347 |
Total liabilities and shareholders' equity | $ 56,745,746 | $ 38,006,805 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Dec. 31, 2020 | Dec. 31, 2019 |
Assets | ||
Allowance for doubtful accounts receivble | $ 56,135 | $ 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 | 12,798,797 | 11,517,163 |
Common stock, shares issued | 12,818,797 | 11,537,163 |
CONSOLIDATED STATEMENTS OF COMP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS | ||
Revenue, net | $ 29,287,882 | $ 22,699,386 |
Cost of services | 8,062,564 | 7,142,416 |
Gross profit | 21,225,318 | 15,556,970 |
Operating expenses: | ||
Sales and marketing | 10,888,944 | 11,785,227 |
Research and development | 6,072,103 | 5,036,613 |
General and administrative | 10,227,128 | 8,617,073 |
Intangible asset amortization | 642,149 | 381,000 |
Impairment of goodwill | 710,000 | 0 |
Total operating expenses | 28,540,324 | 25,819,913 |
Operating loss | (7,315,006) | (10,262,943) |
Other expense, net | (19,988) | (147,338) |
Loss on induced conversion | 0 | (2,162,696) |
Gain on embedded derivative | 0 | 214,350 |
Loss before income taxes | (7,334,994) | (12,358,627) |
(Benefit) provision for income taxes | (1,505,965) | 29,349 |
Net loss | $ (5,829,029) | $ (12,387,976) |
Net loss per share, basic and diluted | $ (0.50) | $ (1.20) |
Shares used in computing net loss per share, basic and diluted | 11,611,020 | 10,323,889 |
Other comprehensive income (loss): | ||
Foreign currency translation adjustment, net | $ 9,524 | $ 6,260 |
Comprehensive loss | $ (5,819,505) | $ (12,381,716) |
CONSOLIDATED STATEMENTS OF CHAN
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY - 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 - stock options | 1,076,324 | $ 0 | 0 | 1,076,324 | 0 | 0 |
Issuance of common stock for cash, shares | 1,631,331 | |||||
Issuance of common stock for cash, amount | $ 16,580,415 | $ 1,631 | 0 | 16,578,784 | 0 | 0 |
Issuance of common stock for director services, shares | 10,286 | 10,286 | ||||
Issuance of common stock for director services, amount | $ 127,888 | $ 10 | 0 | 127,878 | 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 |
Issuance of commons stock for settlement of notes, shares | 1,241,635 | |||||
Issuance of commons stock for settlement of notes, amount | 10,622,716 | $ 1,242 | 0 | 10,621,474 | 0 | 0 |
Foreign currency translation adjustment, net | 6,260 | 0 | 0 | 0 | 6,260 | 0 |
Net Loss | (12,387,976) | $ 0 | $ 0 | 0 | 0 | (12,387,976) |
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 - stock options | 1,378,907 | $ 0 | 0 | 1,378,907 | 0 | 0 |
Issuance of common stock for cash, shares | 1,242,718 | |||||
Issuance of common stock for cash, amount | $ 15,209,142 | $ 1,243 | 0 | 15,207,899 | 0 | 0 |
Issuance of common stock for director services, shares | 14,624 | |||||
Foreign currency translation adjustment, net | $ 9,524 | 0 | 0 | 0 | 9,524 | 0 |
Net Loss | (5,829,029) | $ 0 | 0 | 0 | 0 | (5,829,029) |
Issuance of common stock for services, shares | 14,624 | |||||
Issuance of common stock for services, amount | 147,787 | $ 15 | 0 | 147,772 | 0 | 0 |
Issuance of common stock under stock plans, net of shares withheld for employee taxes, shares | 24,292 | |||||
Issuance of common stock under stock plans, net of shares withheld for employee taxes, amount | (40,873) | $ 24 | $ 0 | (40,897) | 0 | 0 |
Balance, shares at Dec. 31, 2020 | 12,818,797 | 20,000 | ||||
Balance, amount at Dec. 31, 2020 | $ 39,688,805 | $ 12,819 | $ (84,000) | $ 75,544,966 | $ (215,269) | $ (35,569,711) |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Cash flows from operating activities: | ||
Net loss | $ (5,829,029) | $ (12,387,976) |
Adjustments to reconcile loss from operations: | ||
Depreciation and amortization | 1,596,146 | 1,010,123 |
Impairment of goodwill | 710,000 | 0 |
Amortization of costs to acquire contracts | 816,100 | 804,780 |
Non-cash stock compensation | 1,526,693 | 1,204,213 |
Deferred income taxes | 359 | 0 |
Loss (gain) on disposal of property and equipment | 262 | (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 | 48,069 | 25,425 |
Changes in assets and liabilities: | ||
Accounts receivable | 21,989 | (204,217) |
Unbilled receivables | (230,895) | (254,987) |
Right-of-use assets | (3,070,498) | 433,980 |
Other assets | (949,881) | (837,082) |
Income taxes, net | 22,941 | (2,094) |
Accounts payable | (978,825) | 439,028 |
Lease liabilities | 3,149,459 | (377,264) |
Other liabilities | 340,808 | (392,480) |
Deferred revenue | (21,048) | 421,405 |
Net cash used in operating activities | (2,847,350) | (8,027,142) |
Cash flows from investing activities | ||
Acquisition of business | 0 | (4,566,402) |
Purchases of property and equipment | (401,831) | (529,001) |
Proceeds from the sale of property and equipment | 0 | 617 |
Capitalization of software development costs | (744,654) | (836,047) |
Net cash used in investing activities | (1,146,485) | (5,930,833) |
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 | 1,266,695 | 968,986 |
Proceeds from issuance of common stock, net | 13,942,446 | 15,587,990 |
Payments for taxes related to net share settlement of equity awards | (40,872) | 0 |
Net cash provided by financing activities | 20,467,769 | 16,556,976 |
Effect of exchange rate on cash | (88,091) | (37,918) |
Change in cash and cash equivalents | 16,385,843 | 2,561,083 |
Cash and cash equivalents, beginning of period | 11,881,949 | 9,320,866 |
Cash and cash equivalents, end of period | 28,267,792 | 11,881,949 |
Cash paid (received) during the period for | ||
Interest, net | 26,850 | 0 |
Income taxes | (1,529,266) | 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 | 12 Months Ended |
Dec. 31, 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 | 12 Months Ended |
Dec. 31, 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 consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). The Company’s consolidated financial statements include the accounts of SharpSpring, Inc. and our subsidiaries (the “Company”). The Company’s consolidated financial statements reflect the elimination of all significant inter-company accounts and transactions. 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 reportable segment with two operating segments. Our operating segments consist of our SharpSpring Marketing Automation segment and Perfect Audience Ad Retargeting segment in accordance with ASC 280. Operating segments are defined as components of an enterprise for which separate financial information is regularly evaluated by the chief operating decision maker (“CODM”), which is the Company’s chief executive officer, in deciding how to allocate resources and assess performance. The Company’s CODM evaluates the Company’s financial information and resources and assess the performance of these resources between our two operating segments. We do not separately allocate operating expenses, nor do we fully allocate assets to these operating segments. In accordance with ASC 280, we aggregate our two operating segments as one operating segment for financial reporting purposes. The Company does not present geographical information about revenues because it is impractical to do so. See Note 16 of the Notes to the Consolidated Financial Statements for information on our disaggregated revenues. 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 was a liability balance of zero at December 31, 2019. The change in fair value for the year ended December 31, 2019 was a gain of $0.21 million. There was no embedded derivative liability during 2020. 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, undiscounted cash flows, 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 Indefinite-Lived Intangible Assets As of December 31, 2020 and 2019, we had recorded goodwill $10.25 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” The Company also has indefinite-lived intangible assets. As of December 31, 2020 and 2019, we had recorded indefinite-lived intangible assets of $0.38 million at each period (see Note 4). These assets are not amortized but are subject to annual impairment tests, and tests between annual tests in certain circumstances, based on estimated fair value in accordance with FASB ASC 350-30, and written down when impaired. 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 Provision for income taxes is 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 consolidated financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in FASB ASC 740, Accounting for Income The Company applies the authoritative guidance in accounting for uncertainty in income taxes recognized in the consolidated financial statements. This guidance prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. There are no material uncertain tax positions taken by the Company on its tax returns. Tax years subsequent to 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. The Company received notification January 14, 2020 that its Swiss subsidiary, InterInbox SA is under examination from the Switzerland Federal Tax Administration 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 Statements of Comprehensive Loss. Repairs and maintenance costs are expensed as incurred. Depreciation expense related to property and equipment was $0.95 million and $0.63 million for the years ended December 31, 2020 and 2019, respectively. Property and equipment as of December 31 is as follows: December 31, 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 3,231,366 2,350,758 Total 4,457,855 3,320,509 Less: Accumulated depreciation (2,268,907 ) (1,323,787 ) $ 2,188,948 $ 1,996,722 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. Most of 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), while the portion of our deferred revenue balances associated with Perfect Audience arises from prepaid deposits for future usage of the platform. Deferred revenue from our SharpSpring Marketing Automation customers is earned over the service period identified in each contract. Deferred revenue from our Perfect Audience retargeting customers is earned as the service is used. Additionally, the Company has deferred revenue related to implementation fees for its SharpSpring Marketing Automation solution that are paid in advance, which is recognized over the service period. These implementation services are typically performed over a 60-day period. As of December 31, 2019, and 2018, the Company had deferred revenue balances of $0.86 million and $0.25 million, respectively. Deferred revenue decreased by $0.01 million and increased by $0.61 million during the years ended December 31, 2020 and 2019, respectively. Deferred revenue balances were $0.85 million and $0.86 million as of December 31, 2020 and 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 is met, thus creating a contract asset. The accrued revenue contract asset balances were $1.0 million and $0.74 million as of December 31, 2019 and 2018, respectively. Revenue billed that was included in accrued revenue at the beginning of the year ended December 31, 2020 and 2019 was $1.0 million and $0.74million, respectively. The accrued revenue not billed and ending balance in years ended December 31, 2020 and 2019 was $1.25 million and $1.0 million respectively. Notes Payable - SBA Paycheck Protection Program Loans 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 December 31, 2020 and 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 it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. For the years ended December 31, 2020, and 2019, there were no customers that accounted for more than 10% of consolidated revenue. For the year ended December 31, 2020, one customer had an open accounts receivable balance in excess of 10% of net accounts receivable. The customer balance accounted for 12.4% of net accounts receivable and did not have a balance older than 30 days as of December 31, 2020. For the year ended December 31, 2019, two customers had open accounts receivable balances which were above 10% of net accounts receivable, accounting for approximately 43% of net accounts receivable. Cost of Services Cost of services consists primarily of direct labor costs associated with support and customer onboarding and technology hosting costs 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 $3.06 million and $5.77 million for the years ended December 31, 2020 and 2019, respectively. Capitalized Cost of Obtaining a Contract The Company capitalizes sales commission costs which are incremental to obtaining a contract. We expense costs that are related to obtaining a contract but are not incremental such as other sales and marketing costs and other costs that would be incurred regardless of if the contract was obtained. Capitalized costs are amortized using straight-line amortization over the estimated weighted average life of the customer, which we have estimated to be 3 years. At December 31, 2020, the net carrying value of the capitalized cost of obtaining a contract was $1.27 million, of which $0.69 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 costs directly attributable to obtaining contracts of $0.82 million and $0.80 million during the years ended December 31, 2020 and 2019, respectively. Stock Compensation We account for stock-based compensation in accordance with FASB ASC 718 Compensation — Stock Compensation, which requires companies to measure the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. The Company also provides stock-based compensation to non-employee directors which are treated as employees for the purpose of stock-based compensation in accordance with ASC 718. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period for stock options. Stock-based compensation expense for restricted stock units and restricted stock awards with service based graded vesting schedules are recorded on a straight-line basis over the requisite vesting period as if the award were, in substance, a single award. 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, warrants, and the conversion option of the Convertible Notes (Note 6) are considered to be potential common shares outstanding. Since the Company incurred net losses for each of the periods presented, diluted net loss per share is the same as basic net loss per share. The Company’s potential common shares outstanding were not included in the calculation of diluted net loss per share as the effect would be anti-dilutive. Comprehensive Income or Loss Comprehensive income or loss includes all changes in equity during a period from non-owner sources, such as net income or loss and foreign currency translation adjustments. Recently Issued Accounting Standards Recent accounting standards not included below are not expected to have a material impact on our consolidated financial position and results of operations. In January 2017, the FASB issued ASU 2017- 04 simplifying the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. Under current guidance, Step 2 of the goodwill impairment test requires entities to calculate the implied fair value of goodwill in the same manner as the amount of goodwill recognized in a business combination by assigning the fair value of a reporting unit to all of the assets and liabilities of the reporting unit. The carrying value in excess of the implied fair value is recognized as goodwill impairment. Under the new standard, goodwill impairment is recognized based on Step 1 of the current guidance, which calculates the carrying value in excess of the reporting unit’s fair value. The new standard is effective beginning in January 2021, with early adoption permitted. The Company adopted this ASU on January 1, 2020 and has applied the provisions to quantitative goodwill impairment assessments performed in 2020. (See Note 4). In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This new accounting guidance removes: 1. the exception to the incremental approach for intraperiod 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, 2. the exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, 3. 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 4. 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: 1. 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, 2. 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, 3. 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, 4. 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 5. 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. This standard is effective for fiscal and interim periods beginning after December 15, 2020. The Company anticipates that the adoption of this standard will not have a material impact on its financial statements. |
Acquisitions
Acquisitions | 12 Months Ended |
Dec. 31, 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 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. For additional information regarding goodwill and intangibles see Note 4. The transaction costs associated with the acquisition were approximately $0.18 million and were recorded in general and administrative expense during 2019. 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. Pro Forma Results of Operations (Unaudited) The following table summarizes selected unaudited pro forma consolidated statements of operations data for the years ended December 31, 2020 and 2019 as if the acquisition of Perfect Audience had been completed at the beginning of 2019. Year Ended December 31, 2020 2019 Net revenues $ 29,287,882 $ 25,408,526 Gross profit 21,225,318 17,201,321 Net loss (5,829,029 ) (12,043,201 ) Net (loss) per share, basic and diluted $ (0.50 ) $ (1.17 ) |
Goodwill and Other Intangible A
Goodwill and Other Intangible Assets | 12 Months Ended |
Dec. 31, 2020 | |
Goodwill and Other Intangible Assets | |
Note 4. Goodwill and Other Intangible Assets | Note 4: Goodwill and Other Intangible Assets Goodwill and acquired intangible assets are initially recorded at fair value and measured periodically for impairment. The Company also evaluates its reporting units at least annually. During our annual review of reporting units, we determined Perfect Audience met the requirements of a separate reporting unit under ASC 280. The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The fair value of each reporting unit is estimated using a weighting of income and market approaches which require the use of estimates and assumptions related to cash flow forecasts, comparable public companies, discount rates, and terminal values. In performing the Company’s annual impairment analysis during the fourth quarters of 2020 and 2019, the Company determined that the carrying amount of the Company’s goodwill was recoverable for the Company’s SharpSpring Marketing Automation reporting unit. However, during the Company’s annual impairment analysis during the fourth quarter of 2020, it was determined that carrying value of the Perfect Audience reporting unit exceeded its fair value by approximately $0.71 million. The goodwill acquired in the acquisition of the Perfect Audience Retargeting reporting unit of approximately $2.05 million was therefore impaired by $0.71 million, reducing its goodwill to approximately $1.34 million. Goodwill decreased from $10.92 million as of December 31, 2019 to $10.25 million as of December 31, 2020. The decrease in goodwill is largely attributable to the impairment of goodwill of Perfect Audience recorded in the fourth quarter of 2020. This decrease in the carrying value of goodwill was slightly offset by an increase in the carrying value due to changes in foreign currency exchange rates. During the year ended December 31, 2020 and 2019, changes in foreign currency exchange rates increased goodwill by approximately $40,000 and approximately $7,000, respectively. In addition to our annual goodwill impairment review, the Company also performs periodic reviews of the carrying value and amortization periods of other acquired intangible assets. If indicators of impairment are present, an estimate of the undiscounted cash flows that the specific asset is expected to generate must be made to ensure that the carrying value of the asset can be recovered. These estimates involve significant subjectivity. During the years ended December 31, 2020 and 2019, the Company determined that no indicators of impairment were present for other acquired intangible assets. The Company performed an annual fair value impairment analysis for our indefinite lived trade name asset. The fair value was determined to exceed the carrying value and therefore no impairment was recorded for this asset. The following tables set forth the information for intangible assets subject to amortization and for intangible assets not subject to amortization. As of December 31, 2020 Gross Net Carrying Accumulated Carrying Amount Amortization Value Amortized intangible assets: Trade names $ 501,000 (120,000 ) $ 381,000 Technology 3,109,000 (1,513,751 ) 1,595,249 Customer relationships 1,320,000 (892,004 ) 427,996 Vendor relationships 1,813,000 (201,394 ) 1,611,606 Unamortized intangible assets: 6,743,000 (2,727,149 ) 4,015,851 Goodwill 10,250,088 Total goodwill and intangible assets $ 14,265,939 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 |
Credit Facility
Credit Facility | 12 Months Ended |
Dec. 31, 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 December 31, 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 December 31, 2020, the Credit Facility carried an interest rate of 5.0% and there was $1.90 million outstanding on the Line of Credit. As of December 31, 2019, there was no amount outstanding on the Line of Credit. The Company has a $0.60 million available credit limit on its corporate credit cards which reduces the balance available on the Credit Facility. The interest expense relating to the Credit of Facility for the years ended December 31, 2020 and 2019 was $0.08 million and $0, respectively. No events of default have occurred. |
Convertible Notes
Convertible Notes | 12 Months Ended |
Dec. 31, 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 balance was zero as of December 31, 2020. 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 December 31, 2019. There was no embedded derivative liability during 2020. 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 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 years ended December 31, 2020 and 2019: Year Ended December 31, 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 % 4.9 % |
SBA Paycheck Protection Program
SBA Paycheck Protection Program Loans | 12 Months Ended |
Dec. 31, 2020 | |
SBA Paycheck Protection Program Loans | |
Note 7. SBA Paycheck Protection Program Loans | Note 7: SBA Paycheck Protection Program Loans 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 Loans”). The SBA Loans have a maturity date of 2 years from the initial disbursement and carries an interest rate of 1% per year. The SBA Loans are 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. As of December 31, 2020, the Company has filed the application for forgiveness with SBA but has not yet received a decision from the SBA as to whether the full or a part of the loans will be forgiven. The Company has not paid principal or interest relating to the SBA loans as of December 31, 2020. The accrued interest expense relating to these loans for years ended December 31, 2020 and 2019 was approximately $0.02 million and $0, respectively. As of December 31, 2020, the SBA loans had an outstanding principal balance of $3.40 million included in notes payable on the Consolidated Balance Sheet. Debt Obligation 2021 2,630,962 2022 768,538 2023 - 2024 - 2025 - Thereafter - Total Commitments $ 3,399,500 |
Leases
Leases | 12 Months Ended |
Dec. 31, 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 leases. The weighted average remaining lease term as of December 31, 2020 is 7.9 years. The weighted average discount rate for our operating leases as of December 31, 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 years ended December 31, 2020 and 2019, were $0 for both periods. Total operating lease costs for the years ended December 31, 2020 and 2019 was $1.21 million and $0.80 million, respectively. Operating Leases 2021 1,321,598 2022 1,329,525 2023 1,369,159 2024 1,377,086 2025 1,416,720 Thereafter 4,109,161 Total undiscounted cash flows $ 10,923,249 Less imputed interest remaining (2,426,724 ) Present value of lease liability $ 8,496,525 |
Net Loss Per Share
Net Loss Per Share | 12 Months Ended |
Dec. 31, 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. Computation of net loss per share is as follows: Year Ended December 31, 2020 2019 Net loss $ (5,829,029 ) $ (12,387,976 ) Basic weighted average common shares outstanding 11,611,020 10,323,889 Add incremental shares for: Stock options - - Restricted stock units (RSUs) - - Diluted weighted average common shares outstanding 11,611,020 10,323,889 Net loss per share: Basic and Diluted $ (0.50 ) $ (1.20 ) 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, stock options and unvested RSUs 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: Year Ended December 31, 2020 2019 Stock options 1,383,057 1,470,406 Restricted stock units (RSUs) 61,120 50,494 Total 1,444,177 1,520,900 |
Income Taxes
Income Taxes | 12 Months Ended |
Dec. 31, 2020 | |
Income Taxes | |
Note 10. Income Taxes | Note 10: Income Taxes Income taxes for years ended December 31, is summarized as follows: Year Ended December 31, 2020 2019 Current Provision Federal $ (1,557,344 ) $ - State (8,068 ) 25,236 Foreign 59,447 4,113 Current Income Tax Provision $ (1,505,965 ) $ 29,349 Deferred Provision Federal $ - $ - State - - Foreign - - Deferred Income Tax Provision - - Total Income Tax Provision $ (1,505,965 ) $ 29,349 The following is a summary of the components of the Company’s deferred tax assets: As of December 31, 2020 2019 Deferred tax assets: Stock-based compensation 347,865 274,364 Depreciation (36,470 ) (63,980 ) Intangibles 723,031 590,427 NOL 7,628,443 5,893,260 Accruals & Reserves 259,893 267,980 Net deferred tax Valuation allowance (8,922,762 ) (6,962,051 ) Net deferred tax assets (liabilities) - - In making our assessment of deferred tax asset recoverability, we considered our historical financial results, our projected future financial results, the planned reversal of existing deferred tax liabilities and the impact of any tax planning actions. Based on our analysis we noted both positive and negative factors relative to our ability to support realization of certain deferred tax assets. However, based on the weighting of all the evidence, including the near-term effect on our income projections of investments we are making in our team, product and systems infrastructure, we concluded that it was more likely than not that the majority of our deferred tax assets related to temporary differences and net operating losses may not be recovered. The establishment of a valuation allowance has no effect on our ability to use the underlying deferred tax assets prior to expiration to reduce cash tax payments in the future to the extent that we generate taxable income. The Company accrued $60,639 and $0 as of December 31, 2020 and December 31, 2019, respectively, for the liability for unrecognized tax benefits. The Company anticipates the unrecognized tax benefits will be recognized in the next twelve months. The following table summarizes the Company’s unrecognized tax benefits at December 31, 2020 and December 31, 2019, respectively: As of December 31, 2020 2019 Beginning of year $ - $ - Increase due to current year tax positions - - Increase due to prior year tax positions 60,639 - Settlements - - Decrease due to lapses - - End of year $ 60,639 $ - |
Defined Contribution Retirement
Defined Contribution Retirement Plan | 12 Months Ended |
Dec. 31, 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 approximately $0.12 million and $0.3 million, to expense in the years ended December 31, 2020 and 2019, respectively, associated with our matching contribution in those periods. |
Related Party Transactions
Related Party Transactions | 12 Months Ended |
Dec. 31, 2020 | |
SBA Paycheck Protection Program Loans | |
Note 12. Related Party Transactions | Note 12: 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. |
StockBased Compensation
StockBased Compensation | 12 Months Ended |
Dec. 31, 2020 | |
StockBased Compensation | |
Note 13. Stock-Based Compensation | Note 13: 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 up to 1,025,000 shares of commons 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 to be available for issuance under the 2019 Plan. The Plan provides for the issuance of stock options and other stock-based awards. The 2019 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: Year Ended December 31, 2020 2019 Volatility 52%-58% 49% - 52% 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 years ended December 31, 2020 and 2019 was $5.11 and $6.24, 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 years ended December 31, 2020 and 2019, the Company recognized expense of approximately $1.12 million and $1.08 million, respectively, associated with stock option awards. At December 31, 2020, future stock compensation expense associated with stock options (net of estimated forfeitures) not yet recognized was approximately $2.17 million and will be recognized over a weighted average remaining vesting period of 2.45 years. The following summarizes stock option activity for the year ended December 31, 2020: Weighted Weighted Aggregate Number of Average Average Remaining Intrinsic Options Exercise Price Contractual Life Value Outstanding at December 31, 2019 1,470,406 $ 7.30 7.5 $ 6,604,461 Granted 475,605 9.90 Exercised (241,843 ) 5.21 Expired (45,042 ) 9.60 Forfeited (276,069 ) 11.73 Outstanding at December 31, 2020 1,383,057 $ 7.60 7.13 $ 12,000,790 Exercisable at December 31, 2020 771,240 $ 6.20 5.94 $ 7,773,258 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 three years from the date of the grant, with 33% of the award vesting after one year and monthly vesting thereafter. RSUs are expensed using a graded vested schedule which are recorded on a straight-line basis over the requisite vesting period as if the award were, in substance, a single award. During the years ended December 31, 2020 and 2019, the Company recognized expense associated with RSUs of approximately $0.2 million and $9,000, respectively. At December 31, 2020, future stock compensation expense associated with stock awards (net of estimated forfeitures) not yet recognized was approximately $0.66 million and will be recognized over a weighted average remaining vesting period of 3.3 years. The following summarizes RSU activity for the year ended December 31, 2020: Weighted Average Grant Date Number of Fair Value Units Per Share Unvested at December 31, 2019 50,494 $ 11.82 Granted 73,775 14.60 Vested (12,655 ) 12.39 Forfeited (50,494 ) 11.82 Unvested at December 31, 2020 61,120 $ 15.06 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. For awards granted that contain a graded vesting schedule, and the only condition for vesting is a service condition, compensation cost is recognized on a straight-line basis over the requisite vesting period as if the award were, in substance, a single award. During the years ended December 31, 2020, and 2019, the Company recognized expense of approximately $0.21 million and $0.13 million, respectively, associated with Stock Awards. At December 31, 2020, future stock compensation expense associated with stock awards (net of estimated forfeitures) not yet recognized was approximately $0.07 million and will be recognized over a weighted average remaining vesting period of 1.25 years. The following summarizes Stock Award activity for the year ended December 31, 2020: Weighted Average Grant Date Number of Fair Value Units Per Share Unvested at December 31, 2019 - $ - Granted 30,959 9.82 Vested (18,159 ) 10.00 Forfeited (1,222 ) 9.57 Unvested at December 31, 2020 11,578 $ 9.57 |
Warrants
Warrants | 12 Months Ended |
Dec. 31, 2020 | |
Warrants | |
Note 14. Warrants | Note 14: 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 December 31, 2020, and 2019 there were no warrants outstanding. |
Commitments and Contingencies
Commitments and Contingencies | 12 Months Ended |
Dec. 31, 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 and SBA Loans as described in Note 7. 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 year ended December 31, 2020, the Company recorded an accrual of $0.28 million to general and administrative expenses in the consolidated statements of comprehensive loss related to a contingent sales tax liability. The $0.28 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 $0.55 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 | 12 Months Ended |
Dec. 31, 2020 | |
Disaggregation of Revenue | |
Note 16. Disaggregation of Revenue | Note 16: Disaggregation of Revenue The Company operates as one reportable segment with two operating segments. Our operating segments consist of our SharpSpring Marketing Automation segment and Perfect Audience Ad Retargeting segment in accordance with ASC 280. Operating segments are defined as components of an enterprise for which separate financial information is regularly evaluated by the chief operating decision maker (“CODM”), which is the Company’s chief executive officer, in deciding how to allocate resources and assess performance. The Company’s CODM evaluates the Company’s financial information and resources and assess the performance of these resources between our two operating segments. We do not separately allocate operating expenses, nor do we fully allocate assets to these operating segments. In accordance with ASC 280, we aggregate our two operating segments as one operating segment for financial reporting purposes. The Company does not present geographical information about revenues because it is impractical to do so. Disaggregated revenue for the years ended December 31, 2020 and 2019 are as follows: Year Ended December 31, 2020 2019 Revenue by Product: Marketing Automation Revenue $ 26,593,304 $ 22,204,479 Retargeting Revenue 2,517,149 271,008 Mail + Product Revenue 177,429 223,899 Total Revenue $ 29,287,882 $ 22,699,386 Revenue by Type: Recurring Revenue $ 25,506,170 $ 20,911,854 Retargeting Revenue 2,517,149 271,008 Upfront Fees 1,264,563 1,516,524 Total Revenue $ 29,287,882 $ 22,699,386 |
Subsequent Events
Subsequent Events | 12 Months Ended |
Dec. 31, 2020 | |
Subsequent Events | |
Note 17. Subsequent Events | Note 17: Subsequent Events On January 19, 2021, SharpSpring entered into an agreement with Marietta Davis to issue 8,479 shares of common stock in recognition of Ms. Davis’s previous service to the Company as a member of the Board of Directors. Ms. Davis served as a member of the Board of Directors of the Company from 2017 until her resignation as of August 17, 2020. In April 2020, SharpSpring entered into two loan agreements with United States Small Business Administration under the Paycheck Protection Program for a total loan principal amount of $3.40 million, (“SBA Loans”) (Note 7). On March 11, 2021, one of the loans was forgiven for $166,975. The forgiveness amount includes the $165,500 principal and accrued interest of $1,475.71 as of March 11, 2021, $1,149 of which was accrued as of December 31, 2020. The other SBA Loan of $3.2 million remains outstanding and under review for forgiveness by the SBA as of March 22, 2021. |
Summary of Significant Accoun_2
Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2020 | |
Summary of Significant Accounting Policies | |
Basis of Presentation and Consolidation | The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). The Company’s consolidated financial statements include the accounts of SharpSpring, Inc. and our subsidiaries (the “Company”). The Company’s consolidated financial statements reflect the elimination of all significant inter-company accounts and transactions. |
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 reportable segment with two operating segments. Our operating segments consist of our SharpSpring Marketing Automation segment and Perfect Audience Ad Retargeting segment in accordance with ASC 280. Operating segments are defined as components of an enterprise for which separate financial information is regularly evaluated by the chief operating decision maker (“CODM”), which is the Company’s chief executive officer, in deciding how to allocate resources and assess performance. The Company’s CODM evaluates the Company’s financial information and resources and assess the performance of these resources between our two operating segments. We do not separately allocate operating expenses, nor do we fully allocate assets to these operating segments. In accordance with ASC 280, we aggregate our two operating segments as one operating segment for financial reporting purposes. The Company does not present geographical information about revenues because it is impractical to do so. See Note 16 of the Notes to the Consolidated Financial Statements for information on our disaggregated revenues. |
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 was a liability balance of zero at December 31, 2019. The change in fair value for the year ended December 31, 2019 was a gain of $0.21 million. There was no embedded derivative liability during 2020. |
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, undiscounted cash flows, 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 Indefinite-Lived Intangible Assets | As of December 31, 2020 and 2019, we had recorded goodwill $10.25 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” The Company also has indefinite-lived intangible assets. As of December 31, 2020 and 2019, we had recorded indefinite-lived intangible assets of $0.38 million at each period (see Note 4). These assets are not amortized but are subject to annual impairment tests, and tests between annual tests in certain circumstances, based on estimated fair value in accordance with FASB ASC 350-30, and written down when impaired. |
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 | Provision for income taxes is 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 consolidated financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in FASB ASC 740, Accounting for Income The Company applies the authoritative guidance in accounting for uncertainty in income taxes recognized in the consolidated financial statements. This guidance prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. There are no material uncertain tax positions taken by the Company on its tax returns. Tax years subsequent to 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. The Company received notification January 14, 2020 that its Swiss subsidiary, InterInbox SA is under examination from the Switzerland Federal Tax Administration 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 Statements of Comprehensive Loss. Repairs and maintenance costs are expensed as incurred. Depreciation expense related to property and equipment was $0.95 million and $0.63 million for the years ended December 31, 2020 and 2019, respectively. Property and equipment as of December 31 is as follows: December 31, 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 3,231,366 2,350,758 Total 4,457,855 3,320,509 Less: Accumulated depreciation (2,268,907 ) (1,323,787 ) $ 2,188,948 $ 1,996,722 |
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. Most of 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), while the portion of our deferred revenue balances associated with Perfect Audience arises from prepaid deposits for future usage of the platform. Deferred revenue from our SharpSpring Marketing Automation customers is earned over the service period identified in each contract. Deferred revenue from our Perfect Audience retargeting customers is earned as the service is used. Additionally, the Company has deferred revenue related to implementation fees for its SharpSpring Marketing Automation solution that are paid in advance, which is recognized over the service period. These implementation services are typically performed over a 60-day period. As of December 31, 2019, and 2018, the Company had deferred revenue balances of $0.86 million and $0.25 million, respectively. Deferred revenue decreased by $0.01 million and increased by $0.61 million during the years ended December 31, 2020 and 2019, respectively. Deferred revenue balances were $0.85 million and $0.86 million as of December 31, 2020 and 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 is met, thus creating a contract asset. The accrued revenue contract asset balances were $1.0 million and $0.74 million as of December 31, 2019 and 2018, respectively. Revenue billed that was included in accrued revenue at the beginning of the year ended December 31, 2020 and 2019 was $1.0 million and $0.74million, respectively. The accrued revenue not billed and ending balance in years ended December 31, 2020 and 2019 was $1.25 million and $1.0 million respectively. |
Notes Payable - SBA Paycheck Protection Program Loans | 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 December 31, 2020 and 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 it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. For the years ended December 31, 2020, and 2019, there were no customers that accounted for more than 10% of consolidated revenue. For the year ended December 31, 2020, one customer had an open accounts receivable balance in excess of 10% of net accounts receivable. The customer balance accounted for 12.4% of net accounts receivable and did not have a balance older than 30 days as of December 31, 2020. For the year ended December 31, 2019, two customers had open accounts receivable balances which were above 10% of net accounts receivable, accounting for approximately 43% of net accounts receivable. |
Cost of Services | Cost of services consists primarily of direct labor costs associated with support and customer onboarding and technology hosting costs 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 $3.06 million and $5.77 million for the years ended December 31, 2020 and 2019, respectively. |
Capitalized Cost of Obtaining a Contract | The Company capitalizes sales commission costs which are incremental to obtaining a contract. We expense costs that are related to obtaining a contract but are not incremental such as other sales and marketing costs and other costs that would be incurred regardless of if the contract was obtained. Capitalized costs are amortized using straight-line amortization over the estimated weighted average life of the customer, which we have estimated to be 3 years. At December 31, 2020, the net carrying value of the capitalized cost of obtaining a contract was $1.27 million, of which $0.69 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 costs directly attributable to obtaining contracts of $0.82 million and $0.80 million during the years ended December 31, 2020 and 2019, respectively. |
Stock Compensation | We account for stock-based compensation in accordance with FASB ASC 718 Compensation — Stock Compensation, which requires companies to measure the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. The Company also provides stock-based compensation to non-employee directors which are treated as employees for the purpose of stock-based compensation in accordance with ASC 718. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period for stock options. Stock-based compensation expense for restricted stock units and restricted stock awards with service based graded vesting schedules are recorded on a straight-line basis over the requisite vesting period as if the award were, in substance, a single award. |
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, warrants, and the conversion option of the Convertible Notes (Note 6) are considered to be potential common shares outstanding. Since the Company incurred net losses for each of the periods presented, diluted net loss per share is the same as basic net loss per share. The Company’s potential common shares outstanding were not included in the calculation of diluted net loss per share as the effect would be anti-dilutive. |
Comprehensive Income or Loss | Comprehensive income or loss includes all changes in equity during a period from non-owner sources, such as net income or loss and foreign currency translation adjustments. |
Recently Issued Accounting Standards | Recent accounting standards not included below are not expected to have a material impact on our consolidated financial position and results of operations. In January 2017, the FASB issued ASU 2017- 04 simplifying the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. Under current guidance, Step 2 of the goodwill impairment test requires entities to calculate the implied fair value of goodwill in the same manner as the amount of goodwill recognized in a business combination by assigning the fair value of a reporting unit to all of the assets and liabilities of the reporting unit. The carrying value in excess of the implied fair value is recognized as goodwill impairment. Under the new standard, goodwill impairment is recognized based on Step 1 of the current guidance, which calculates the carrying value in excess of the reporting unit’s fair value. The new standard is effective beginning in January 2021, with early adoption permitted. The Company adopted this ASU on January 1, 2020 and has applied the provisions to quantitative goodwill impairment assessments performed in 2020. (See Note 4). In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This new accounting guidance removes: 1. the exception to the incremental approach for intraperiod 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, 2. the exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, 3. 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 4. 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: 1. 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, 2. 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, 3. 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, 4. 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 5. 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. This standard is effective for fiscal and interim periods beginning after December 15, 2020. The Company anticipates that the adoption of this standard will not have a material impact on its financial statements. |
Summary of Significant Accoun_3
Summary of Significant Accounting Policies (Tables) | 12 Months Ended |
Dec. 31, 2020 | |
Summary of Significant Accounting Policies | |
Schedule of property and equipment | December 31, 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 3,231,366 2,350,758 Total 4,457,855 3,320,509 Less: Accumulated depreciation (2,268,907 ) (1,323,787 ) $ 2,188,948 $ 1,996,722 |
Schedule of property and equipment useful lives | Leasehold improvements 5 years Furniture and fixtures 3-5 years Computing equipment 3 years Software 3-5 years |
Acquisitions (Tables)
Acquisitions (Tables) | 12 Months Ended |
Dec. 31, 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 |
Schedule of acquisitions | Year Ended December 31, 2020 2019 Net revenues $ 29,287,882 $ 25,408,526 Gross profit 21,225,318 17,201,321 Net loss (5,829,029 ) (12,043,201 ) Net (loss) per share, basic and diluted $ (0.50 ) $ (1.17 ) |
Goodwill and Other Intangible_2
Goodwill and Other Intangible Assets (Tables) | 12 Months Ended |
Dec. 31, 2020 | |
Goodwill and Other Intangible Assets | |
Schedule of intangible assets | As of December 31, 2020 Gross Net Carrying Accumulated Carrying Amount Amortization Value Amortized intangible assets: Trade names $ 501,000 (120,000 ) $ 381,000 Technology 3,109,000 (1,513,751 ) 1,595,249 Customer relationships 1,320,000 (892,004 ) 427,996 Vendor relationships 1,813,000 (201,394 ) 1,611,606 Unamortized intangible assets: 6,743,000 (2,727,149 ) 4,015,851 Goodwill 10,250,088 Total goodwill and intangible assets $ 14,265,939 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 | 2021 559,200 2022 507,200 2023 459,200 2024 420,200 2025 390,200 Thereafter 1,298,851 Indefinite Lived 381,000 Total $ 4,015,851 |
Convertible Notes (Tables)
Convertible Notes (Tables) | 12 Months Ended |
Dec. 31, 2020 | |
Convertible Notes | |
Schedule of interest expense | Year Ended December 31, 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 % 4.9 % |
SBA Paycheck Protection Progr_2
SBA Paycheck Protection Program Loans (Tables) | 12 Months Ended |
Dec. 31, 2020 | |
SBA Paycheck Protection Program Loans | |
Schedule of outstanding SBA loan | Debt Obligation 2021 2,630,962 2022 768,538 2023 - 2024 - 2025 - Thereafter - Total Commitments $ 3,399,500 |
Leases (Tables)
Leases (Tables) | 12 Months Ended |
Dec. 31, 2020 | |
Leases | |
Schedule of future minimum lease payments | Operating Leases 2021 1,321,598 2022 1,329,525 2023 1,369,159 2024 1,377,086 2025 1,416,720 Thereafter 4,109,161 Total undiscounted cash flows $ 10,923,249 Less imputed interest remaining (2,426,724 ) Present value of lease liability $ 8,496,525 |
Net Loss Per Share (Tables)
Net Loss Per Share (Tables) | 12 Months Ended |
Dec. 31, 2020 | |
Net Loss Per Share | |
Schedule of computation of net loss per share | Year Ended December 31, 2020 2019 Net loss $ (5,829,029 ) $ (12,387,976 ) Basic weighted average common shares outstanding 11,611,020 10,323,889 Add incremental shares for: Stock options - - Restricted stock units (RSUs) - - Diluted weighted average common shares outstanding 11,611,020 10,323,889 Net loss per share: Basic and Diluted $ (0.50 ) $ (1.20 ) |
Schedule of potentially dilutive common stock equivalents | Year Ended December 31, 2020 2019 Stock options 1,383,057 1,470,406 Restricted stock units (RSUs) 61,120 50,494 Total 1,444,177 1,520,900 |
Income taxes (Tables)
Income taxes (Tables) | 12 Months Ended |
Dec. 31, 2020 | |
Income taxes (Tables) | |
Schedue of income taxes | Year Ended December 31, 2020 2019 Current Provision Federal $ (1,557,344 ) $ - State (8,068 ) 25,236 Foreign 59,447 4,113 Current Income Tax Provision $ (1,505,965 ) $ 29,349 Deferred Provision Federal $ - $ - State - - Foreign - - Deferred Income Tax Provision - - Total Income Tax Provision $ (1,505,965 ) $ 29,349 |
Schedule of income tax rate | Year Ended Year Ended December 31, December 31, 2020 2019 Amount Percent Amount Percent Federal statutory rates $ (1,533,631 ) 21 % $ (2,594,415 ) 21 % State income taxes, net of federal benefit (556,596 ) 8 % (68,162 ) 1 % Permanent differences 16,977 0 % (46,592 ) 0 % Perm Differences - Debt Conversion - 0 % 454,166 -4 % Perm Differences - Stock Compensation (359,109 ) 5 % - 0 % NOL Carryback - CARES Act (406,530 ) 6 % - 0 % Other 62,222 -1 % (85,997 ) 1 % Credits (685,389 ) 9 % (227,213 ) 2 % Foreign (23,754 ) 0 % (22,820 ) 0 % Valuation Allowance 1,979,845 -27 % 2,620,382 -21 % Effective rate $ (1,505,965 ) 21 % $ 29,349 0 % |
Schedule of Deferred tax assets | As of December 31, 2020 2019 Deferred tax assets: Stock-based compensation 347,865 274,364 Depreciation (36,470 ) (63,980 ) Intangibles 723,031 590,427 NOL 7,628,443 5,893,260 Accruals & Reserves 259,893 267,980 Net deferred tax Valuation allowance (8,922,762 ) (6,962,051 ) Net deferred tax assets (liabilities) - - |
Schedule of unrecognized tax benefits | As of December 31, 2020 2019 Beginning of year $ - $ - Increase due to current year tax positions - - Increase due to prior year tax positions 60,639 - Settlements - - Decrease due to lapses - - End of year $ 60,639 $ - |
StockBased Compensation (Tables
StockBased Compensation (Tables) | 12 Months Ended |
Dec. 31, 2020 | |
StockBased Compensation | |
Schedule of fair value assumptions used in valuing stock options | Year Ended December 31, 2020 2019 Volatility 52%-58% 49% - 52% 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 | Weighted Weighted Aggregate Number of Average Average Remaining Intrinsic Options Exercise Price Contractual Life Value Outstanding at December 31, 2019 1,470,406 $ 7.30 7.5 $ 6,604,461 Granted 475,605 9.90 Exercised (241,843 ) 5.21 Expired (45,042 ) 9.60 Forfeited (276,069 ) 11.73 Outstanding at December 31, 2020 1,383,057 $ 7.60 7.13 $ 12,000,790 Exercisable at December 31, 2020 771,240 $ 6.20 5.94 $ 7,773,258 |
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 73,775 14.60 Vested (12,655 ) 12.39 Forfeited (50,494 ) 11.82 Unvested at December 31, 2020 61,120 $ 15.06 |
Schedule of restricted stock award activity | Weighted Average Grant Date Number of Fair Value Units Per Share Unvested at December 31, 2019 - $ - Granted 30,959 9.82 Vested (18,159 ) 10.00 Forfeited (1,222 ) 9.57 Unvested at December 31, 2020 11,578 $ 9.57 |
Disaggregation of Revenue (Tabl
Disaggregation of Revenue (Tables) | 12 Months Ended |
Dec. 31, 2020 | |
Income taxes (Tables) | |
Disaggregation of revenue | Year Ended December 31, 2020 2019 Revenue by Product: Marketing Automation Revenue $ 26,593,304 $ 22,204,479 Retargeting Revenue 2,517,149 271,008 Mail + Product Revenue 177,429 223,899 Total Revenue $ 29,287,882 $ 22,699,386 Revenue by Type: Recurring Revenue $ 25,506,170 $ 20,911,854 Retargeting Revenue 2,517,149 271,008 Upfront Fees 1,264,563 1,516,524 Total Revenue $ 29,287,882 $ 22,699,386 |
Summary of Significant Accoun_4
Summary of Significant Accounting Policies (Details) - USD ($) | Dec. 31, 2020 | Dec. 31, 2019 |
Less: accumulated depreciation and amortization | $ (2,268,907) | $ (1,323,787) |
Property and equipment, gross | 4,457,855 | 3,320,509 |
Property and equipment, net | 2,188,948 | 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 | $ 3,231,366 | $ 2,350,758 |
Summary of Significant Accoun_5
Summary of Significant Accounting Policies (Details 1) | 12 Months Ended |
Dec. 31, 2020 | |
Leasehold Improvements [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 ($) | 12 Months Ended | ||
Dec. 31, 2020 | Dec. 31, 2019 | Dec. 31, 2018 | |
Expected weighted average life of the customer | 3 years | ||
Customer net account receivable description | one customer had an open accounts receivable balance in excess of 10% of net accounts receivable. The customer balance accounted for 12.4% of net accounts receivable and did not have a balance older than 30 days as of December 31, 2020. For the year ended December 31, 2019, two customers had open accounts receivable balances which were above 10% of net accounts receivable, accounting for approximately 43% of net accounts receivable. | ||
Change in fair value of financial instrument | $ 210,000 | ||
Depreciation expense | $ 950,000 | 630,000 | |
Deferred revenue | 850,000 | 860,000 | $ 250,000 |
Deferred revenue (decrease) increase | 10,000 | 610,000 | |
Advertising and marketing expenses | 3,060,000 | 5,770,000 | |
Capitalized cost of obtaining a contract | 1,270,000 | 1,200,000 | |
Capitalized cost of obtaining a contract, other current assets | 690,000 | 680,000 | |
Accrued revenue contract asset | 1,000,000 | $ 740,000 | |
Capitalized cost of obtaining a contract, Other long term assets | 580,000 | 520,000 | |
Revenue billed | 1,000,000 | 740,000 | |
Revenue unbilled | 1,250,000 | 1,000,000 | |
Indefinite-Lived Intangible Assets | 380,000 | 380,000 | |
Deferred revenues | 860,000 | ||
Amortized cost of obtaining contract expense | 820,000 | 800,000 | |
Goodwill | $ 10,250,088 | 10,922,814 | |
Minimum [Member] | |||
Finite-lived intangible assets useful lives | 5 years | ||
Maximum [Member] | |||
Finite-lived intangible assets useful lives | 11 years | ||
Finite-Lived Intangible Assets [Member] | |||
Goodwill | $ 10,250,000 | $ 10,920,000 |
Acquisitions (Details)
Acquisitions (Details) | 12 Months Ended |
Dec. 31, 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 |
Technology [Member] | |
Net tangible assets acquired | |
Total intangible assets | (979,000) |
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) |
Acquisitions (Details 1)
Acquisitions (Details 1) - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Revenue | $ 29,287,882 | $ 22,699,386 |
Gross profit | 21,225,318 | 15,556,970 |
Net loss | $ (5,829,029) | $ (12,387,976) |
Net loss per share, basic and diluted | $ (0.50) | $ (1.20) |
Perfect Audience [Member] | ||
Revenue | $ 29,287,882 | $ 25,408,526 |
Gross profit | 21,225,318 | 17,201,321 |
Net loss | $ (5,829,029) | $ (12,043,201) |
Net loss per share, basic and diluted | $ (0.50) | $ (1.17) |
Acquisitions (Details Narrative
Acquisitions (Details Narrative) - USD ($) | 1 Months Ended | 12 Months Ended | |
Nov. 21, 2019 | Dec. 31, 2020 | Dec. 31, 2019 | |
Cash consideration | $ 4,566,402 | ||
Goodwill | 10,250,088 | $ 10,922,814 | |
Net loss | (5,829,029) | (12,387,976) | |
Perfect Audience [Member] | |||
Cash consideration | $ 4,600,000 | ||
Transaction costs | 180,000 | ||
Revenue | 270,000 | ||
Goodwill | $ 2,050,000 | ||
Net loss | $ 100,000 |
Goodwill and Other Intangible_3
Goodwill and Other Intangible Assets (Details) - USD ($) | Dec. 31, 2020 | Dec. 31, 2019 |
Intangible assets, net | $ 4,015,851 | $ 4,658,000 |
Goodwill | 10,250,088 | 10,922,814 |
Total goodwill and intangible assets | 14,265,939 | 15,580,814 |
Intangible assets, gross | 6,743,000 | 6,743,000 |
Accumulated amortization | (2,727,149) | (2,085,000) |
Technology [Member] | ||
Intangible assets, net | 1,595,249 | 1,917,000 |
Intangible assets, gross | 3,109,000 | 3,109,000 |
Accumulated amortization | (1,513,751) | (1,192,000) |
Vendor Relationships [Member] | ||
Intangible assets, net | 1,611,606 | 1,813,000 |
Intangible assets, gross | 1,813,000 | 1,813,000 |
Accumulated amortization | (201,394) | 0 |
Customer Relationships | ||
Intangible assets, net | 427,996 | 547,000 |
Intangible assets, gross | 1,320,000 | 1,320,000 |
Accumulated amortization | (892,004) | (773,000) |
Trade Names [Member] | ||
Intangible assets, net | 381,000 | 381,000 |
Intangible assets, gross | 501,000 | 501,000 |
Accumulated amortization | $ (120,000) | $ (120,000) |
Goodwill and Other Intangible_4
Goodwill and Other Intangible Assets (Details 1) | Dec. 31, 2020USD ($) |
Goodwill and Other Intangible Assets | |
2021 | $ 559,200 |
2022 | 507,200 |
2023 | 459,200 |
2024 | 420,200 |
2025 | 390,200 |
Thereafter | 1,298,851 |
Indefinite Lived | 381,000 |
Total | $ 4,015,851 |
Goodwill and Other Intangible_5
Goodwill and Other Intangible Assets (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Goodwill and Other Intangible Assets | ||
Annual impairment value | $ 710,000 | |
Changes in foreign exchange rate increase/reduction to goodwill | 40,000 | $ 7,000 |
Acquisition of goodwill acquired | 2,050,000 | 710,000 |
Amortization expense | 640,000 | 380,000 |
Decrease in goodwill | 10,250,000 | 10,920,000 |
Goodwill | 10,250,088 | 10,922,814 |
Impairment of goodwill | 710,000 | 0 |
Goodwill reduced | 1,340,000 | |
Intangible asset amortization | $ 642,149 | $ 381,000 |
Credit Facility (Details Narrat
Credit Facility (Details Narrative) - USD ($) | 12 Months Ended | ||
Dec. 31, 2020 | Dec. 31, 2019 | Mar. 31, 2016 | |
Line of credit, outstanding | $ 1,900,000 | ||
Line of credit | 1,900,000 | $ 0 | |
Revolving Loan Agreement [Member] | |||
Line of credit | $ 2,500,000 | ||
Credit card limit facility | $ 600,000 | ||
Percentage of pledge of foreign subsidiaries stock | 65.00% | ||
Interest expense relating to the Credit of Facility | $ 80,000 | $ 0 | |
Line of credit facility, expiration date | Jun. 19, 2022 | ||
Loan interest rate | 5.00% | ||
Percentage of secured pledge of capital stock | 100.00% |
Convertible Notes (Details )
Convertible Notes (Details ) - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Convertible Notes | ||
Contractual interest paid-in-kind expense (non-cash) | $ 0 | $ 139,372 |
Amortization of debt issuance costs (non-cash) | 0 | 15,108 |
Amortization of embedded derivative (non-cash) | 0 | (12,205) |
Total interest expense | $ 0 | $ 142,275 |
Effective interest rate | 0.00% | 4.90% |
Convertible Notes (Details Narr
Convertible Notes (Details Narrative) - March 2018 [Member] - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Fair value of the derivatives | $ 0 | |
Interest rate | 5.00% | |
Convertible notes | $ 8,000,000 | |
Net proceeds from convertible notes | $ 7,900,000 |
SBA Paycheck Protection Progr_3
SBA Paycheck Protection Program Loans (Details) | Dec. 31, 2020USD ($) |
Convertible Notes | |
2021 | $ 2,630,962 |
2022 | 768,538 |
2023 | 0 |
2024 | 0 |
2025 | 0 |
Thereafter | 0 |
Total Commitments | $ 3,399,500 |
SBA Paycheck Protection Progr_4
SBA Paycheck Protection Program Loans (Details Narrative) - USD ($) $ in Thousands | 1 Months Ended | 12 Months Ended | |
Apr. 30, 2020 | Dec. 31, 2020 | Dec. 31, 2019 | |
Debt obligation | $ 3,400 | ||
SBA Loan [Member] | |||
Proceeds from loan | $ 3,400 | ||
Loan maturity date | 2 years | ||
Loan Interest rate | 1.00% | ||
Accrued interest expense, loan | $ 20 | $ 0 |
Leases (Details)
Leases (Details) | Dec. 31, 2020USD ($) |
Leases | |
2021 | $ 1,321,598 |
2022 | 1,329,525 |
2023 | 1,369,159 |
2025 | 1,416,720 |
2024 | 1,377,086 |
Thereafter | 4,109,161 |
Total undiscounted cash flows | 10,923,249 |
Less imputed interest remaining | (2,426,724) |
Present value of lease liability | $ 8,496,525 |
Leases (Details Narrative)
Leases (Details Narrative) | 12 Months Ended | |
Dec. 31, 2020USD ($)ft² | Dec. 31, 2019USD ($) | |
Weighted average discount rate | 6.50% | |
2019 Addendum [Member] | 2018 Lease [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 | $ 3,800,000 | |
Operating lease costs | $ 1,210,000 | $ 800,000 |
Weighted average remaining lease term | 7 years 10 months 24 days | |
Short term lease | $ 0 | $ 0 |
Net Loss Per Share (Details)
Net Loss Per Share (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Net Loss Per Share | ||
Net loss | $ (5,829,029) | $ (12,387,976) |
Basic weighted average common shares outstanding | 11,611,020 | 10,323,889 |
Add incremental shares for: | ||
Diluted weighted average common shares outstanding | 11,611,020 | 10,323,889 |
Net loss per share: | ||
Basic and Diluted | $ (0.50) | $ (1.20) |
Net Loss Per Share (Details 1)
Net Loss Per Share (Details 1) - shares | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Antidilutive securities | 1,444,177 | 1,520,900 |
Stock Option [Member] | ||
Antidilutive securities | 1,383,057 | 1,470,406 |
Restricted Stock Units (RSUs) [Member] | ||
Antidilutive securities | 61,120 | 50,494 |
Income Taxes (Details)
Income Taxes (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Current Provision | ||
Federal | $ (1,557,344) | $ 0 |
State | (8,068) | 25,236 |
Foreign | 59,447 | 4,113 |
Current Income Tax Provision | (1,505,965) | 29,349 |
Deferred Provision | ||
Federal | 0 | 0 |
State | 0 | 0 |
Foreign | 0 | 0 |
Deferred Income Tax Provision | 0 | 0 |
Total Income Tax Provision | $ (1,505,965) | $ 29,349 |
Income Taxes (Details 1)
Income Taxes (Details 1) - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Income Taxes | ||
Federal statutory rates | $ (1,533,631) | $ (2,594,415) |
State income taxes, net of federal benefit | (556,596) | (68,162) |
Permanent differences | 16,977 | (46,592) |
Perm differences - debt conversion | 0 | 454,166 |
Perm Differences - Stock Compensation | (359,109) | 0 |
NOL Carryback - CARES Act | (406,530) | 0 |
Other | 62,222 | (85,997) |
Credits | (685,389) | (227,213) |
Foreign | (23,754) | (22,820) |
Valuation Allowance | 1,979,845 | 2,620,382 |
Effective rate from continuing operations | $ (1,505,965) | $ 29,349 |
Federal statutory rates on continuing operations | 21.00% | 21.00% |
State income taxes, net of federal benefit | 8.00% | 1.00% |
Permanent differences | 0.00% | 0.00% |
Perm differences - debt conversion | 0.00% | (4.00%) |
Perm Differences - Stock Compensation for continuing operations | 5.00% | 0.00% |
NOL Carryback - CARES Act for continuing operations | 6.00% | 0.00% |
Other | (1.00%) | 1.00% |
Credits | 9.00% | 2.00% |
Foreign | 0.00% | 0.00% |
Valuation Allowance | (27.00%) | (21.00%) |
Effective rate from continuing operations | 21.00% | 0.00% |
Income Taxes (Details 2)
Income Taxes (Details 2) - USD ($) | Dec. 31, 2020 | Dec. 31, 2019 |
Deferred Tax Assets: | ||
Stock-based compensation | $ 347,865 | $ 274,364 |
Depreciation | (36,470) | (63,980) |
Intangibles | 723,031 | 590,427 |
NOL | 7,628,443 | 5,893,260 |
Accruals & Reserves | 259,893 | 267,980 |
Net deferred tax Valuation allowance | (8,922,762) | (6,962,051) |
Net deferred tax assets (liabilities) | $ 0 | $ 0 |
Income Taxes (Details 3)
Income Taxes (Details 3) - CARES Act [Member] - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Increase due to current year tax positions | $ 0 | $ 0 |
Beginning of year | 0 | 0 |
End of year | 60,639 | 0 |
Settlements | 0 | 0 |
Decrease due to lapses | 0 | 0 |
Increase due to prior year tax positions | $ 60,639 | $ 0 |
Income Taxes (Details Narrative
Income Taxes (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Income Tax Examination, Liability (Refund) Adjustment from Settlement with Taxing Authority | $ 1,600,000 | |
Unrecognized tax benefits | 60,639 | $ 0 |
Income tax expense (benefit) | (1,505,965) | 29,349 |
Federal [Member] | ||
Net operating loss carryforwards | 20,690,000 | 18,390,000 |
Foreign [Member] | ||
Net operating loss carryforwards | 3,740,000 | 3,440,000 |
State [Member] | ||
Net operating loss carryforwards | $ 26,480,000 | 19,250,000 |
CARES Act [Member] | ||
Operating loss carry forward, maximum term | 7 years | |
Deferred tax valuation allowance | $ 8,900,000 | $ 7,000,000 |
Income tax expense (benefit) | $ 1,560,000 |
Defined Contribution Retireme_2
Defined Contribution Retirement Plan (Details Narrative) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Defined Contribution Retirement Plan | ||
Defined contribution plan, maximum annual contributions employee, percent | 100.00% | |
Defined contribution plan, employer matching contribution, percent of match | 100.00% | |
Defined contribution plan, employer matching contribution, percent of employees' gross pay | 3.00% | |
Defined contribution retirement plan, expenses | $ 120 | $ 300 |
StockBased Compensation (Detail
StockBased Compensation (Details) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Expected term | 6 years 3 months | 6 years 3 months |
Minimum [Member] | ||
Volatility | 52.00% | 49.00% |
Risk-free interest rate | 0.37% | 1.45% |
Maximum [Member] | ||
Volatility | 58.00% | 52.00% |
Risk-free interest rate | 1.66% | 2.59% |
StockBased Compensation (Deta_2
StockBased Compensation (Details 1) | 12 Months Ended |
Dec. 31, 2020USD ($)$ / sharesshares | |
StockBased Compensation | |
Number of options outstanding, beginning | shares | 1,470,406 |
Number of options granted | shares | 475,605 |
Number of options exercised | shares | (241,843) |
Number of options expired | shares | (45,042) |
Number of options forfeited | shares | (276,069) |
Number of options exercisable | shares | 771,240 |
Number of options outstanding, ending | shares | 1,383,057 |
Weighted average exercise price outstanding, beginning | $ / shares | $ 7.30 |
Weighted average exercise price granted | $ / shares | 9.90 |
Weighted average exercise price exercised | $ / shares | 5.21 |
Weighted average exercise price expired | $ / shares | 9.60 |
Weighted average exercise price forfeited | $ / shares | 11.73 |
Weighted average exercise price outstanding, ending | $ / shares | 7.60 |
Weighted average exercise price exercisable | $ / shares | $ 6.20 |
Weighted average remaining contractual life outstanding, beginning | 7 years 6 months |
Weighted average remaining contractual life outstanding, ending | 7 years 1 month 17 days |
Weighted average remaining contractual life exercisable | 5 years 11 months 8 days |
Aggregate intrinsic value, beginning | $ | $ 6,604,461 |
Aggregate intrinsic value, ending | $ | 12,000,790 |
Aggregate intrinsic value, exercisable | $ | $ 7,773,258 |
StockBased Compensation (Deta_3
StockBased Compensation (Details 2) - Restricted Stock Units [Member] | 12 Months Ended |
Dec. 31, 2020$ / sharesshares | |
Number of unvested units, beginning | shares | 50,494 |
Number of unvested units granted | shares | 73,775 |
Number of unvested units vested | shares | (12,655) |
Number of unvested units Foreited | shares | (50,494) |
Number of unvested units, ending | shares | 61,120 |
Weighted average grant date fair value, beginning | $ / shares | $ 11.82 |
Weighted average grant date fair value granted | $ / shares | 14.60 |
Weighted average grant date fair value vested | $ / shares | 12.39 |
Weighted average grant date fair value Foreited | $ / shares | 11.82 |
Weighted average grant date fair value, ending | $ / shares | $ 15.06 |
StockBased Compensation (Deta_4
StockBased Compensation (Details 3) - Stock Option [Member] | 9 Months Ended |
Sep. 30, 2020$ / sharesshares | |
Number of unvested units granted | shares | 30,959 |
Number of unvested units vested | shares | (18,159) |
Number of unvested units Forfeited | 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 | 9.82 |
Weighted average grant date fair value vested | 10 |
Weighted average grant date fair value Forfeited | 9.57 |
Weighted average grant date fair value, ending | $ 9.57 |
StockBased Compensation (Deta_5
StockBased Compensation (Details Narrative) - USD ($) | 1 Months Ended | 9 Months Ended | 12 Months Ended | ||
Apr. 30, 2019 | Nov. 30, 2010 | Sep. 30, 2020 | Dec. 31, 2020 | Dec. 31, 2019 | |
Restricted stock unit expense | $ 200,000 | $ 9,000 | |||
Dividend, Share-based Payment Arrangement, Shares | $ 1,120,000 | $ 1,080,000 | |||
Common stock shares issue for compensation | 14,624 | 10,286 | |||
Weighted average remaining vesting period | 3 years 3 months 18 days | ||||
Unrecognized stock expense | $ 660,000 | ||||
Stock option expense | $ 2,420,000 | $ 1,930,000 | |||
Stock options awars, maximum contractual term | 5 years 11 months 8 days | ||||
2010 Stock Incentive Plan [Member] | |||||
Common stock shares reserved for future issuance | 2,600,000 | ||||
Expiration date | Sep. 14, 2020 | ||||
Stock incentive plan, Description | The Plan was amended in July 2020 to include up to 1,025,000 shares of commons 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 to be available for issuance under the 2019 Plan. | ||||
Restricted stock units granted | 697,039 | ||||
Stock options awars, maximum contractual term | 10 years | ||||
Vesting award percentage | 25.00% | ||||
Weighted average grant date fair value of stock options granted | $ 5,110,000 | 6,240,000 | |||
Stock Option [Member] | |||||
Stock based compensation | $ 2,170,000 | ||||
Weighted average remaining vesting period | 2 years 5 months 12 days | ||||
Restricted stock units granted | 30,959 | ||||
Stock Awards [Member] | |||||
Restricted stock unit expense | $ 210,000 | $ 130,000 | |||
Weighted average remaining vesting period | 1 year 3 months | ||||
Unrecognized stock expense | $ 70,000 |
Warrants (Details Narrative)
Warrants (Details Narrative) - USD ($) $ / shares in Units, $ in Millions | 1 Months Ended | 12 Months Ended | |
Jan. 30, 2014 | Dec. 31, 2020 | Dec. 31, 2019 | |
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 | ||
Warrants issued to purchase common stock, value | $ 11.5 |
Commitments and Contingencies (
Commitments and Contingencies (Details Narrative) $ in Thousands | 12 Months Ended |
Dec. 31, 2020USD ($) | |
Accrued expense | $ 280 |
General and administrative expenses | 280 |
Minimum [Member] | |
Sales tax contingent liability | 200 |
Maximum [Member] | |
Sales tax contingent liability | $ 550 |
Disaggregation of Revenue (Deta
Disaggregation of Revenue (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Revenue | $ 29,287,882 | $ 22,699,386 |
Recurring Revenue [Member] | ||
Revenue | 25,506,170 | 20,911,854 |
Upfront Fees [Member] | ||
Revenue | 1,264,563 | 1,516,524 |
Marketing Automation Revenue [Member] | ||
Revenue | 26,593,304 | 22,204,479 |
Retargeting Revenue [Member] | ||
Revenue | 2,517,149 | 271,008 |
Mail + Product Revenue [Member] | ||
Revenue | 177,429 | 223,899 |
Retargeting Revenue 1 [Member] | ||
Revenue | 2,517,149 | 271,008 |
Total Revenue [Member] | ||
Revenue | $ 29,287,882 | $ 22,699,386 |
Subsequent Events (Details Narr
Subsequent Events (Details Narrative) - USD ($) | Mar. 11, 2021 | Mar. 22, 2021 | Dec. 31, 2020 | Jan. 19, 2021 | Dec. 31, 2019 |
Accrued interest | $ 1,149 | ||||
Common stock share issued | 12,818,797 | 11,537,163 | |||
Subsequent [Member] | |||||
Loan outstanding | $ 3,200,000 | ||||
Two Loan Agreement [Member] | April 2020 [Member] | |||||
Loan, principal amount | $ 3,400,000 | ||||
Agreement [Member] | Subsequent [Member] | Marietta Davis [Member] | |||||
Common stock share issued | 8,479 | ||||
One Loan Agreement [Member] | Subsequent Event [Member] | |||||
Accrued interest | $ 1,476 | ||||
Forgiveness loan amount | 166,975 | ||||
Forgiveness, principal amount of loan | $ 165,500 |