Dispositions

6 Months Ended

Jun. 30, 2016

Business Combinations [Abstract]

Dispositions

Note 5: Dispositions

On June 27, 2016, the Company completed the sale of the assets and deferred revenue liabilities of its SMTP email relay business (“SMTP”) to the Electric Mail Company for approximately $15.0 million. Of the total proceeds from the sale of SMTP, approximately $1.0 million in cash is held in escrow to be received in July 2017. In conjunction with the sale, the Company also entered into a transition services agreement with the buyer to assist in the transition of operations over a six month period, with an option to extend for an additional six months. Pursuant to the terms of the transition services agreement, in exchange for assisting in the transfer of operations, the Company may continue utilizing the SMTP email relay platform for its email sending needs at no cost. Also, in conjunction with the sale, the company abandoned a software asset that was not acquired, but will not be utilized by the company in the future. The Company recorded a gain on the sale of SMTP of approximately $9.4 million, net of tax of $5.6 million in the second quarter of 2016.

Pursuant to the reporting requirements of ASC 205-20, Presentation of Financial Statements – Discontinued Operations, the Company has reclassified the assets and liabilities of the SMTP business as held for sale in the accompanying Consolidated Balance Sheets and the operating results of SMTP for periods prior to the sale, net of tax, as discontinued operations in the accompanying Consolidated Statements of Comprehensive Loss and Consolidated Statements of Cash Flows.

Financial information for the SMTP email relay business for the three and six months ended June 30, 2016 and 2015, are presented in the following table:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Revenue	$	1,339,102	$	1,323,062	$	2,746,378	$	2,683,956
Cost of services		335,166		276,898		642,013		610,688
Gross profit		1,003,936		1,046,164		2,104,365		2,073,268
Operating expenses:
Sales and marketing		103,516		240,038		177,265		543,056
Research and development		79,845		83,936		152,898		196,952
General and administrative		231,137		188,578		474,048		389,170
Total operating expenses		414,498		512,552		804,211		1,129,178
Operating income (loss)		589,438		533,612		1,300,154		944,090
Other income (expense), net, before gain on sale		-		-		-		-
Income (loss) before income taxes, before gain on sale		589,438		533,612		1,300,154		944,090
Income tax expense (benefit)		220,332		199,464		485,998		352,901
Net income (loss), before gain on sale	$	369,106	$	334,148	$	814,156	$	591,189
Gain on sale of discontinued operations, net of tax expense of $5,595,237		9,373,295		-		9,373,295		-
Income from discontinued operations, net of income taxes	$	9,742,401	$	334,148	$	10,187,451	$	591,189

The selected financial information above includes the financial results for the SMTP email relay business through June 27, 2016, plus any residual costs incurred after June 27, 2016 related to the transition of the business to the buyer. The results are comprised of revenue and costs directly attributable to the SMTP email relay business as well as allocated costs for resources that have historically had shared roles in our consolidated operations. For resources performing shared roles, cost allocations have been created based on estimated work performed and job activities. Although our SharpSpring and GraphicMail products have historically utilized the SMTP email relay sending platform, we have not reflected any revenues in the SMTP email relay business operating results related to the use of the email sending platform by our other product lines.

The assets and liabilities of discontinued operations are stated separately as of December 31, 2015, in the Condensed Consolidated Statements of Financial Position (Unaudited) and are comprised of the following items:

	December 31, 2015
Assets
Other current assets	$	45,697
Total current assets held for sale		45,697
Property and equipment, net		251,565
Total assets held for sale	$	297,262
Liabilities and Shareholders’ Equity
Deferred revenue		369,941
Total liabilities held for sale	$	369,941