SharpSpring, Inc.
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(Exact
name of registrant as specified in its charter)
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Delaware
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05-0502529
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(State
or other jurisdiction of incorporationor organization)
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(I.R.S.
Employer Identification No.)
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550 Southwest 2nd Avenue
Gainesville, FL
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32601
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(Address
of principal executive offices)
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(Zip
Code)
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888-428-9605
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(Registrant’s
telephone number, including area code)
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(Former
name, former address and former fiscal year, if changed since last
report)
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Large
accelerated filer ☐
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Accelerated
filer ☐
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Non-accelerated
filer ☐
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Smaller
reporting company ☑
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(Do not check if a smaller reporting company)
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Emerging
growth company ☐
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Page
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31
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32
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33
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June 30,
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December 31,
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2018
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2017
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(unaudited)
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(audited)
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Assets
|
|
|
Cash
and cash equivalents
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$12,536,507
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$5,399,747
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Accounts
receivable, net of allowance for doubtful accounts of $149,283 and
$526,127 at June 30, 2018 and December 31, 2017,
respectively
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689,271
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639,959
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Income
taxes receivable
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207,678
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2,132,616
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Other
current assets
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991,814
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899,127
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Total
current assets
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14,425,270
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9,071,449
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Property
and equipment, net
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825,547
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799,145
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Goodwill
|
8,864,710
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8,872,898
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Intangibles,
net
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2,096,000
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2,326,000
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Deferred
income taxes
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2,148
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-
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Other
long-term assets
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607,777
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612,631
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Total
assets
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$26,821,452
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$21,682,123
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Liabilities and Shareholders' Equity
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Accounts
payable
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$1,094,284
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$504,901
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Accrued
expenses and other current liabilities
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595,197
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625,680
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Deferred
revenue
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318,586
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279,818
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Income
taxes payable
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81,045
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171,384
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Total
current liabilities
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2,089,112
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1,581,783
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|
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Deferred
income taxes
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62,016
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168,132
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Convertible
notes, including accrued interest
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8,155,146
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-
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Convertible
notes embedded derivative
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267,579
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-
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Total
liabilities
|
10,573,853
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1,749,915
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Commitments
and contingencies (Note 12)
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Shareholders'
equity:
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|
Preferred
stock, $0.001 par value, 5,000,000 shares authorized, no shares
issued or outstanding at June 30, 2018 and December 31,
2017
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-
|
-
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Common
stock, $0.001 par value, Authorized shares-50,000,000; issued
shares-8,527,823 at June 30, 2018 and 8,456,061 at December 31,
2017; outstanding shares-8,507,823 at June 30, 2018 and 8,436,061
at December 31, 2017
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8,528
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8,456
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Additional
paid in capital
|
29,080,351
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28,362,397
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Accumulated
other comprehensive loss
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(365,220)
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(480,762)
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Accumulated
deficit
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(12,392,060)
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(7,873,883)
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Treasury
stock
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(84,000)
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(84,000)
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Total
shareholders' equity
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16,247,599
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19,932,208
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Total
liabilities and shareholders' equity
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$26,821,452
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$21,682,123
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Three Months Ended
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Six Months Ended
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||
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June 30,
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June 30,
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||
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2018
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2017
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2018
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2017
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Revenue
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$4,442,289
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$3,246,420
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$8,626,952
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$6,269,853
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Cost
of services
|
1,507,362
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1,294,944
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2,907,659
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2,566,265
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Gross
profit
|
2,934,927
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1,951,476
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5,719,293
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3,703,588
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Operating
expenses:
|
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Sales
and marketing
|
2,356,400
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1,536,289
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4,727,431
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3,085,811
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Research
and development
|
1,008,019
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731,187
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1,958,694
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1,390,918
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General
and administrative
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1,424,404
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1,231,708
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2,850,638
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2,587,906
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Intangible
asset amortization
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115,000
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131,869
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230,000
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263,392
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Total
operating expenses
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4,903,823
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3,631,053
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9,766,763
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7,328,027
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Operating
loss
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(1,968,896)
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(1,679,577)
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(4,047,470)
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(3,624,439)
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Other
income (expense), net
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(338,431)
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11,761
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(269,803)
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78,605
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Change
in fair value of embedded derivative features
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(453,449)
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-
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(453,449)
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-
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Loss
before income taxes
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(2,760,776)
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(1,667,816)
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(4,770,722)
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(3,545,834)
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Benefit
from income taxes
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(294,543)
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(395,094)
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(252,546)
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(893,840)
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Net
loss
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$(2,466,233)
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$(1,272,722)
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$(4,518,176)
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$(2,651,994)
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Basic
net loss per share
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$(0.29)
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$(0.15)
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$(0.53)
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$(0.32)
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Diluted
net loss per share
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$(0.29)
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$(0.15)
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$(0.53)
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$(0.32)
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Shares
used in computing basic net (loss) income per share
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8,474,616
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8,381,748
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8,459,036
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8,375,499
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Shares
used in computing diluted net (loss) income per share
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8,474,616
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8,381,748
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8,459,036
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8,375,499
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Other
comprehensive income (loss):
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Foreign
currency translation adjustment
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(30,526)
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(9,393)
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115,542
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(154,735)
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Comprehensive
loss
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$(2,496,759)
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$(1,282,115)
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$(4,402,634)
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$(2,806,729)
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Six Months Ended
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June 30,
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2018
|
2017
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Cash
flows from operating activities:
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Net
loss
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$(4,518,176)
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$(2,651,994)
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Adjustments
to reconcile loss from operations:
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Depreciation
and amortization
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391,716
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398,582
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Non-cash
stock compensation
|
476,221
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359,752
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Deferred
income taxes
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(108,265)
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(1,185)
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Non-cash
interest
|
104,301
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-
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Change
in fair value of embedded derivative features
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453,449
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-
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Amortization
of debt issuance costs
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6,632
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-
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Unearned
foreign currency gain/loss
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167,912
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(19,745)
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Changes
in assets and liabilities:
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Accounts
receivable
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(52,793)
|
505,384
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Other
assets
|
(89,343)
|
33,430
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Income
taxes, net
|
1,838,379
|
(497,814)
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Accounts
payable
|
564,696
|
77,185
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Accrued
expenses and other current liabilities
|
(31,587)
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(453,488)
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Deferred
revenue
|
40,910
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(37,987)
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Net
cash used in operating activities
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(755,948)
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(2,287,880)
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Cash
flows from investing activities
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Purchases
of property and equipment
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(188,118)
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(133,331)
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Acquisitions
of customer assets from resellers
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-
|
(64,268)
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Proceeds
from the sale of discontinued operations
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-
|
1,000,000
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Net
cash provided by (used in) investing activities
|
(188,118)
|
802,401
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|
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|
Cash
flows used in financing activities:
|
|
|
Proceeds
from issance of convertible note
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8,000,000
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-
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Debt
issuance costs
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(141,657)
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-
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Proceeds
from exercise of stock options
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241,805
|
1,359
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Net
cash provided by financing activities
|
8,100,148
|
1,359
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|
|
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Effect
of exchange rate on cash
|
(19,322)
|
35,641
|
|
|
|
Change
in cash and cash equivalents
|
7,136,760
|
(1,448,479)
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|
|
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Cash
and cash equivalents, beginning of period
|
5,399,747
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8,651,374
|
|
|
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Cash
and cash equivalents, end of period
|
$12,536,507
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$7,202,895
|
|
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|
Supplemental
information on consolidated statements of cash flows:
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|
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Cash
paid (received) for income taxes
|
$(1,982,957)
|
$54,582
|
|
June 30,
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December 31,
|
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2018
|
2017
|
Accounts
receivable
|
$192,102
|
$611,293
|
Unbilled
receivables
|
646,452
|
554,793
|
Gross
receivables
|
$838,554
|
$1,166,086
|
Allowance
for doubtful accounts
|
(149,283)
|
(526,127)
|
Accounts
receivable and unbilled receivables, net
|
$689,271
|
$639,959
|
Remainder
of 2018
|
$12,718
|
2019
|
26,455
|
2020
|
27,855
|
2021
|
29,322
|
2022
|
30,862
|
2023
|
7,813
|
Total
|
$135,025
|
|
June 30,
|
December 31,
|
|
2018
|
2017
|
Property
and equipment, net:
|
|
|
Leasehold
improvements
|
$128,122
|
$128,122
|
Furniture
and fixtures
|
397,409
|
355,033
|
Computer
equipment and software
|
895,674
|
776,201
|
Total
|
1,421,205
|
1,259,356
|
Less:
Accumulated depreciation and amortization
|
(595,658)
|
(460,211)
|
|
$825,547
|
$799,145
|
Leasehold
improvements
|
3-5
years
|
Furniture
and fixtures
|
3-5
years
|
Computing
equipment
|
3
years
|
Software
|
3-5
years
|
|
Historical Accounting Method
|
Effect of Adoption of New ASU
|
As Adjusted
|
Three Months Ended June 30, 2018
|
|
|
|
Sales
and Marketing Expense
|
2,396,227
|
(39,827)
|
2,356,400
|
Total
operating expense
|
4,943,650
|
(39,827)
|
4,903,823
|
Operating
loss
|
(2,008,723)
|
39,827
|
(1,968,896)
|
Loss
before income taxes
|
(2,800,603)
|
39,827
|
(2,760,776)
|
Benefit
for income tax
|
(294,543)
|
-
|
(294,543)
|
Net
loss
|
(2,506,060)
|
39,827
|
(2,466,233)
|
Basic
net loss per share
|
(0.29)
|
-
|
(0.29)
|
Diluted
net loss per share
|
(0.29)
|
-
|
(0.29)
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
|
|
Sales
and Marketing Expense
|
4,757,181
|
(29,750)
|
4,727,431
|
Total
operating expense
|
9,796,513
|
(29,750)
|
9,766,763
|
Operating
loss
|
(4,077,220)
|
29,750
|
(4,047,470)
|
Loss
before income taxes
|
(4,800,472)
|
29,750
|
(4,770,722)
|
Benefit
for income tax
|
(252,546)
|
-
|
(252,546)
|
Net
loss
|
(4,547,926)
|
29,750
|
(4,518,176)
|
Basic
net loss per share
|
(0.53)
|
-
|
(0.53)
|
Diluted
net loss per share
|
(0.53)
|
-
|
(0.53)
|
|
|
|
|
Balance as of June 30, 2018
|
|
|
|
Other
current assets
|
326,007
|
665,807
|
991,814
|
Other
long-term assets
|
25,000
|
582,777
|
607,777
|
Total
assets
|
25,572,868
|
1,248,584
|
26,821,452
|
Accumulated
deficit
|
(13,640,644)
|
1,248,584
|
(12,392,060)
|
|
Historical Accounting Method
|
Effect of Adoption of New ASU
|
As Adjusted
|
Three Months Ended June 30, 2017
|
|
|
|
Sales
and Marketing Expense
|
1,577,968
|
(41,679)
|
1,536,289
|
Total
operating expense
|
3,672,732
|
(41,679)
|
3,631,053
|
Operating
loss
|
(1,721,256)
|
41,679
|
(1,679,577)
|
Loss
before income taxes
|
(1,709,495)
|
41,679
|
(1,667,816)
|
Benefit
for income tax
|
(394,147)
|
(947)
|
(395,094)
|
Net
loss
|
(1,315,348)
|
42,626
|
(1,272,722)
|
Basic
net loss per share
|
(0.18)
|
0.03
|
(0.15)
|
Diluted
net loss per share
|
(0.18)
|
0.03
|
(0.15)
|
|
|
|
|
Six Months Ended June 30, 2017
|
|
|
|
Sales
and Marketing Expense
|
3,223,838
|
(138,027)
|
3,085,811
|
Total
operating expense
|
7,466,054
|
(138,027)
|
7,328,027
|
Operating
loss
|
(3,762,466)
|
138,027
|
(3,624,439)
|
Loss
before income taxes
|
(3,683,861)
|
138,027
|
(3,545,834)
|
Benefit
for income tax
|
(893,840)
|
-
|
(893,840)
|
Net
loss
|
(2,790,021)
|
138,027
|
(2,651,994)
|
Basic
net loss per share
|
(0.34)
|
0.02
|
(0.32)
|
Diluted
net loss per share
|
(0.34)
|
0.02
|
(0.32)
|
|
|
|
|
Balance as of December 31, 2017
|
|
|
|
Other
current assets
|
267,924
|
631,203
|
899,127
|
Other
long-term assets
|
25,000
|
587,631
|
612,631
|
Total
assets
|
20,463,289
|
1,218,834
|
21,682,123
|
Accumulated
deficit
|
(9,092,717)
|
1,218,834
|
(7,873,883)
|
|
As of June 30, 2018
|
||
|
Gross
|
|
Net
|
|
Carrying
|
Accumulated
|
Carrying
|
|
Amount
|
Amortization
|
Value
|
Amortized
intangible assets:
|
|
|
|
Trade
names
|
$120,000
|
$(101,496)
|
$18,504
|
Technology
|
2,130,000
|
(827,000)
|
1,303,000
|
Customer
relationships
|
4,095,758
|
(3,321,262)
|
774,496
|
Unamortized
intangible assets:
|
6,345,758
|
(4,249,758)
|
2,096,000
|
Goodwill
|
|
|
8,864,710
|
Total
intangible assets
|
|
|
$10,960,710
|
Remainder
of 2018
|
$229,998
|
2019
|
381,000
|
2020
|
332,000
|
2021
|
280,000
|
2022
|
228,000
|
2023
|
180,000
|
Thereafter
|
465,002
|
Total
|
$2,096,000
|
|
Six Months Ended
|
|
|
June 30,
|
|
|
2018
|
2017
|
Principal
amount
|
$8,000,000
|
-
|
Accrued
interest paid-in-kind
|
104,301
|
-
|
Unamortized
debt issuance costs
|
(135,025)
|
-
|
Original
embedded derivative conversion feature
|
185,870
|
|
Net
carrying value
|
$8,155,146
|
$-
|
|
Three Months Ended
|
Six Months Ended
|
||
|
June 30,
|
June 30,
|
||
|
2018
|
2017
|
2018
|
2017
|
Contractual
interest paid-in-kind expense (non-cash)
|
100,000
|
-
|
104,301
|
-
|
Amortization
of debt issuance costs (non-cash)
|
6,359
|
-
|
6,632
|
-
|
Total
interest expense
|
106,359
|
-
|
110,933
|
-
|
Effective
interest rate
|
5.3%
|
0.0%
|
5.3%
|
0.0%
|
|
Foreign Currency
|
|
Translation
|
|
Adjustment
|
Balance
as of December 31, 2017
|
$(480,762)
|
Other
comprehensive income (loss) prior to reclassifications
|
-
|
Amounts
reclassified from accumulated other comprehensive
income
|
-
|
Tax
effect
|
-
|
Net
current period other comprehensive loss
|
115,542
|
Balance
as of June 30, 2018
|
$(365,220)
|
|
Three Months Ended
|
Six Months Ended
|
||
|
June 30,
|
June 30,
|
||
|
2018
|
2017
|
2018
|
2017
|
Net
loss
|
$(2,466,233)
|
$(1,272,722)
|
$(4,518,176)
|
$(2,651,994)
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
8,474,616
|
8,381,748
|
8,459,036
|
8,375,499
|
Add
incremental shares for:
|
|
|
|
|
Warrants
|
-
|
-
|
-
|
-
|
Stock
options
|
-
|
-
|
-
|
-
|
Convertible
notes
|
-
|
-
|
-
|
-
|
Diluted
weighted average common shares outstanding
|
8,474,616
|
8,381,748
|
8,459,036
|
8,375,499
|
|
|
|
|
|
Net
loss per share:
|
|
|
|
|
Basic
|
$(0.29)
|
$(0.15)
|
$(0.53)
|
$(0.32)
|
Diluted
|
$(0.29)
|
$(0.15)
|
$(0.53)
|
$(0.32)
|
|
Three and Six Months Ended
|
|
|
June 30,
|
|
|
2018
|
2017
|
Warrants
|
44,000
|
170,973
|
Stock
options
|
1,483,566
|
1,323,726
|
Convertible
notes
|
1,080,573
|
-
|
|
Six Months Ended
June 30,
|
||
|
2018
|
|
2017
|
|
|
|
|
Volatility
|
48 – 49%
|
|
48-49%
|
Risk-free interest rate
|
2.34% - 2.84%
|
|
1.90% - 2.26%
|
Expected term
|
6.25 years
|
|
6.25 years
|
|
|
Weighted
|
Weighted
|
Aggregate
|
|
Number of
|
Average
|
Average Remaining
|
Intrinsic
|
|
Options
|
Exercise Price
|
Contractual Life
|
Value
|
Outstanding
at December 31, 2017
|
1,069,330
|
$5.11
|
7.0
|
$36,693
|
|
|
|
|
|
Granted
|
492,350
|
4.67
|
|
|
Exercised
|
(50,609)
|
4.93
|
|
|
Expired
|
(17,980)
|
7.49
|
|
|
Forfeited
|
(9,525)
|
4.72
|
|
|
Outstanding
at June 30, 2018
|
1,483,566
|
$4.95
|
8.2
|
$4,900,794
|
|
|
|
|
|
Exercisable
at June 30, 2018
|
565,113
|
$5.30
|
7.0
|
$1,945,382
|
|
|
Weighted
|
Weighted
|
|
|
Number of
|
Average
|
Average Remaining
|
Intrinsic
|
|
Units
|
Exercise Price
|
Contractual Term
|
Value
|
Outstanding
at December 31, 2017
|
80,000
|
$7.81
|
2.1
|
$33,660
|
|
|
|
|
|
Granted
|
-
|
-
|
|
|
Exercised
|
(36,000)
|
7.81
|
|
|
Cancelled
|
-
|
-
|
|
|
Outstanding
at June 30, 2018
|
44,000
|
$7.81
|
1.8
|
$-
|
|
|
|
|
|
Exercisable
at June 30, 2018
|
44,000
|
$7.81
|
1.8
|
$-
|
Remainder
of 2018
|
$326,177
|
2019
|
618,557
|
2020
|
623,009
|
2021
|
645,265
|
2022
|
649,717
|
2023
|
671,973
|
Thereafter
|
3,408,119
|
Total
|
$6,942,817
|
|
Three Months Ended
|
Six Months Ended
|
||
|
June 30,
|
June 30,
|
||
|
2018
|
2017
|
2018
|
2017
|
Revenue by Product:
|
|
|
|
|
Mail
+ Product Revenue
|
$123,131
|
$152,951
|
$244,295
|
$331,211
|
Marketing
Automation Revenue
|
4,319,158
|
3,093,469
|
8,382,657
|
5,938,642
|
Total
Revenue
|
$4,442,289
|
$3,246,420
|
$8,626,952
|
$6,269,853
|
|
|
|
|
|
Revenue by Type:
|
|
|
|
|
Upfront
Fees
|
$370,288
|
$266,080
|
$701,120
|
$494,128
|
Recurring
Revenue
|
4,072,001
|
2,980,340
|
7,925,832
|
5,775,725
|
Total
Revenue
|
$4,442,289
|
$3,246,420
|
$8,626,952
|
$6,269,853
|
|
|
|
|
Percent
|
|
Three Months Ended
|
Change
|
Change
|
|
|
June 30,
|
from
|
from
|
|
|
2018
|
2017
|
Prior Year
|
Prior Year
|
Revenues and Cost of Sales:
|
|
|
|
|
Revenues
|
$4,442,289
|
$3,246,420
|
$1,195,869
|
37%
|
Cost
of Sales
|
1,507,362
|
1,294,944
|
212,418
|
16%
|
Gross
Profit
|
$2,934,927
|
$1,951,476
|
$983,451
|
50%
|
|
|
|
|
Percent
|
|
Three Months Ended
|
Change
|
Change
|
|
|
June 30,
|
from
|
from
|
|
|
2018
|
2017
|
Prior Year
|
Prior Year
|
Operating expenses:
|
|
|
|
|
Sales
and marketing
|
$2,356,400
|
$1,536,289
|
$820,111
|
53%
|
Research
and development
|
1,008,019
|
731,187
|
276,832
|
38%
|
General
and administrative
|
1,424,404
|
1,231,708
|
192,696
|
16%
|
Intangible
asset amortization
|
115,000
|
131,869
|
(16,869)
|
-13%
|
|
$4,903,823
|
$3,631,053
|
$1,272,770
|
35%
|
|
|
|
|
Percent
|
|
Three Months Ended
|
Change
|
Change
|
|
|
June 30,
|
from
|
from
|
|
|
2018
|
2017
|
Prior Year
|
Prior Year
|
Other
|
|
|
|
|
Other
income (expense), net
|
$(338,431)
|
$11,761
|
$(350,192)
|
-2978%
|
Change
in fair value of embedded derivative features
|
$(453,449)
|
$-
|
$(453,449)
|
n/a
|
Benefit
from income taxes
|
$(294,543)
|
$(395,094)
|
$100,551
|
-25%
|
|
|
|
|
Percent
|
|
Six Months Ended
|
Change
|
Change
|
|
|
June 30,
|
from
|
from
|
|
|
2018
|
2017
|
Prior Year
|
Prior Year
|
Revenues and Cost of Sales:
|
|
|
|
|
Revenues
|
$8,626,952
|
$6,269,853
|
$2,357,099
|
38%
|
Cost
of Sales
|
2,907,659
|
2,566,265
|
341,394
|
13%
|
Gross
Profit
|
$5,719,293
|
$3,703,588
|
$2,015,705
|
54%
|
|
|
|
|
Percent
|
|
Six Months Ended
|
Change
|
Change
|
|
|
June 30,
|
from
|
from
|
|
|
2018
|
2017
|
Prior Year
|
Prior Year
|
Operating expenses:
|
|
|
|
|
Sales
and marketing
|
$4,727,431
|
$3,085,811
|
$1,641,620
|
53%
|
Research
and development
|
1,958,694
|
1,390,918
|
567,776
|
41%
|
General
and administrative
|
2,850,638
|
2,587,906
|
262,732
|
10%
|
Intangible
asset amortization
|
230,000
|
263,392
|
(33,392)
|
-13%
|
|
$9,766,763
|
$7,328,027
|
$2,438,736
|
33%
|
|
|
|
|
Percent
|
|
Six Months Ended
|
Change
|
Change
|
|
|
June 30,
|
from
|
from
|
|
|
2018
|
2017
|
Prior Year
|
Prior Year
|
Other
|
|
|
|
|
Other
income (expense), net
|
$(269,803)
|
$78,605
|
$(348,408)
|
-443%
|
Change
in fair value of embedded derivative features
|
$(453,449)
|
$-
|
$(453,449)
|
n/a
|
Benefit
from income taxes
|
$(252,546)
|
$(893,840)
|
$641,294
|
-72%
|
Remainder
of 2018
|
$326,177
|
2019
|
618,557
|
2020
|
623,009
|
2021
|
645,265
|
2022
|
649,717
|
2023
|
671,973
|
Thereafter
|
3,408,119
|
Total
|
$6,942,817
|
Date
|
|
Security/Value
|
June
2018
|
|
Common
Stock – 5,283 shares of common stock issued pursuant to
cashless warrant exercises with an exercise price of
$7.81.
|
SEC ReferenceNumber
|
|
Title of Document
|
|
Location
|
|
Office
Lease Agreement with Celebration Pointe Office Partners II, LLC
dated April 18, 2018
|
|
Incorporated by reference to our Form 8-K filed April 19,
2018
|
|
|
Assignment
of Tenant’s Interest and Assumption of Lease with Celebration
Pointe Office Partners II, LLC dated April 18, 2018
|
|
Incorporated by reference to our Form 8-K filed April 19,
2018
|
|
|
Amendment
to Office Lease Agreement with Celebration Pointe Office Partners
II, LLC dated June 28, 2018
|
|
Filed
herewith
|
|
|
Loan
Agreement dated March 21, 2016, by and among SharpSpring,
Inc., Quattro Hosting LLC, SharpSpring Technologies, Inc. and
Western Alliance Bank
|
|
Incorporated
by reference to the Company’s Form 8-K filed on March 22, 2016
|
|
|
Intellectual
Property Security Agreement dated March 21, 2016, by and
among SharpSpring, Inc., Quattro Hosting LLC, SharpSpring
Technologies, Inc. and Western Alliance Bank
|
|
Incorporated
by reference to the Company’s Form 8-K filed on March 22, 2016
|
|
|
Loan
and Security Modification Agreement dated October 25, 2017, by and
among SharpSpring, Inc., Quattro Hosting LLC, SharpSpring
Technologies, Inc. and Western Alliance Bank
|
|
Incorporated
by reference to the Company’s Form 8-K filed on October 30, 2017
|
|
|
Loan
and Security Modification Agreement dated April 30, 2018, by and
among SharpSpring, Inc., Quattro Hosting LLC, SharpSpring
Technologies, Inc. and Western Alliance Bank
|
|
Incorporated
by reference to the Company’s Form 8-K filed on May 1, 2018
|
|
|
SharpSpring, Inc. 2010 Restated Employee Stock Plan
|
|
Filed
herewith
|
|
|
Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
Filed
herewith
|
|
|
Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
Filed
herewith
|
|
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
Filed
herewith
|
|
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
Filed
herewith
|
|
101
|
|
XBRL
|
|
|
SharpSpring,
Inc.
|
|
|
|
By:
|
/s/Richard A. Carlson
|
|
Richard
A. Carlson
|
|
Chief
Executive Officer and President
(Principal
Executive Officer)
Date: August 13,
2018
|
SharpSpring,
Inc.
|
|
|
|
By:
|
/s/ Edward
Lawton
|
|
Edward
Lawton
Chief
Financial Officer
|
|
(Principal
Financial Officer)
Date: August 13,
2018
|
Date: August
13, 2018
|
Signature:
|
/s/
Richard A. Carlson
|
|
|
Richard
A. Carlson
Chief
Executive Officer and President
|
|
|
(Principal
Executive Officer)
|
Date:
August 13,
2018
|
Signature:
|
/s/
Edward Lawton
|
|
|
Edward
Lawton
Chief
Financial Officer
|
|
|
(Principal
Financial Officer)
|
Date: August
13, 2018
|
/s/
Richard A. Carlson
|
|
Richard
A. Carlson
Chief
Executive Officer and President
|
|
(Principal
Executive Officer)
|
Date: August
13, 2018
|
/s/
Edward Lawton
|
|
Edward
Lawton
Chief
Financial Officer
|
|
(Principal
Financial Officer)
|
Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Aug. 09, 2018 |
|
Document And Entity Information | ||
Entity Registrant Name | SharpSpring, Inc. | |
Entity Central Index Key | 0001506439 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 8,513,007 | |
Trading Symbol | SHSP | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2018 |
Consolidated Balance Sheets (Parenthetical) - USD ($) |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Allowance for doubtful accounts | $ 149,283 | $ 526,127 |
Preferred stock, par value per share | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common shares, par value per share | $ 0.001 | $ 0.001 |
Common shares, shares authorized | 50,000,000 | 50,000,000 |
Common shares, shares issued | 8,527,823 | 8,456,061 |
Common shares, shares outstanding | 8,507,823 | 8,436,061 |
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Income Statement [Abstract] | ||||
Revenue | $ 4,442,289 | $ 3,246,420 | $ 8,626,952 | $ 6,269,853 |
Cost of services | 1,507,362 | 1,294,944 | 2,907,659 | 2,566,265 |
Gross profit | 2,934,927 | 1,951,476 | 5,719,293 | 3,703,588 |
Operating expenses: | ||||
Sales and marketing | 2,356,400 | 1,536,289 | 4,727,431 | 3,085,811 |
Research and development | 1,008,019 | 731,187 | 1,958,694 | 1,390,918 |
General and administrative | 1,424,404 | 1,231,708 | 2,850,638 | 2,587,906 |
Intangible asset amortization | 115,000 | 131,869 | 230,000 | 263,392 |
Total operating expenses | 4,903,823 | 3,631,053 | 9,766,763 | 7,328,027 |
Operating loss | (1,968,896) | (1,679,577) | (4,047,470) | (3,624,439) |
Other income (expense), net | (338,431) | 11,761 | (269,803) | 78,605 |
Change in fair value of embedded derivative features | (453,449) | 0 | (453,449) | 0 |
Loss before income taxes | (2,760,776) | (1,667,816) | (4,770,722) | (3,545,834) |
Benefit from income taxes | (294,543) | (395,094) | (252,546) | (893,840) |
Net loss | $ (2,466,233) | $ (1,272,722) | $ (4,518,176) | $ (2,651,994) |
Basic net loss per share | $ (0.29) | $ (0.15) | $ (0.53) | $ (0.32) |
Diluted net loss per share | $ (0.29) | $ (0.15) | $ (0.53) | $ (0.32) |
Shares used in computing basic net (loss) income per share | 8,474,616 | 8,381,748 | 8,459,036 | 8,375,499 |
Shares used in computing diluted net (loss) income per share | 8,474,616 | 8,381,748 | 8,459,036 | 8,375,499 |
Other comprehensive income (loss): | ||||
Foreign currency translation adjustment | $ (30,526) | $ (9,393) | $ 115,542 | $ (154,735) |
Comprehensive loss | $ (2,496,759) | $ (1,282,115) | $ (4,402,634) | $ (2,806,729) |
Organization |
6 Months Ended |
---|---|
Jun. 30, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization | We were incorporated in Massachusetts in October 1998 as EMUmail, Inc. During 2010, we changed our name to SMTP.com, then later reincorporated in the State of Delaware and changed our name to SMTP, Inc. In December 2015, we changed our name to SharpSpring, Inc. and changed the name of our primary U.S. operating subsidiary from SharpSpring, Inc. to SharpSpring Technologies, Inc.
Our Company focuses on providing the SharpSpring cloud-based marketing automation solution. SharpSpring is designed to increase the rates at which businesses generate leads and convert leads to sales opportunities by improving the way businesses communicate with customers and prospects. Our products are marketed directly by us and through a small group of reseller partners to customers around the world.
|
Summary of Significant Accounting Policies |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies | Basis of Presentation and Consolidation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). Our Consolidated Financial Statements include the accounts of SharpSpring, Inc. and our subsidiaries (“the Company”). Our Consolidated Financial Statements reflect the elimination of all significant inter-company accounts and transactions. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, 2018.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Operating Segments
The Company operates as one operating segment. Operating segments are defined as components of an enterprise for which separate financial information is regularly evaluated by the chief operating decision maker (“CODM”), which is the Company’s chief executive officer, in deciding how to allocate resources and assess performance. The Company’s CODM evaluates the Company’s financial information and resources and assess the performance of these resources on a consolidated basis. The Company does not present geographical information about revenues because it is impractical to do so.
Foreign Currencies
The Company’s subsidiaries utilize the U.S. Dollar, Swiss Franc and South African Rand as their functional currencies. The assets and liabilities of these subsidiaries are translated at ending exchange rates for the respective periods, while revenues and expenses are translated at the average rates in effect for the period. The related translation gains and losses are included in other comprehensive income or loss within the Consolidated Statements of Comprehensive Loss.
Cash and Cash Equivalents
Cash equivalents are short-term, liquid investments with remaining maturities of three months or less when acquired. Cash and cash equivalents are deposited or managed by major financial institutions and at most times are in excess of Federal Deposit Insurance Corporation (FDIC) insurance limits.
Fair Value of Financial Instruments
U.S. GAAP establishes a fair value hierarchy which has three levels based on the reliability of the inputs to determine the fair value. These levels include: Level 1, defined as inputs such as unadjusted quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for use when little or no market data exists, therefore requiring an entity to develop its own assumptions.
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, deposits, embedded derivatives (associated with our convertible notes) and accounts payable. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the short-term nature of these items. The fair value of the embedded derivatives is calculated using Level 3 unobservable inputs, utilizing a probability-weighted expected value model to determine the liability. The fair value of the embedded derivatives at June 30, 2018 was a liability balance of $267,579.
Accounts 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. A portion of our accounts receivable balance is therefore unbilled at each balance sheet date. 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.
The following table presents the balances of accounts receivable as of June 30, 2018 and December 31, 2017:
Accounts Receivable and Unbilled Receivables
During the second quarter of 2018, the Company wrote off approximately $351,000 of accounts receivable against the allowance for doubtful accounts, with zero net loss recognized in the period as the accounts were already fully reserved.
Intangibles
Finite-lived intangible assets include trade names, developed technologies and customer relationships and are amortized based on the estimated economic benefit over their estimated useful lives, with original periods ranging from 5 to 11 years. We continually evaluate the reasonableness of the useful lives of these assets. Finite-lived intangibles are tested for recoverability whenever events or changes in circumstances indicate the carrying amounts may not be recoverable. Impairment losses are measured as the amount by which the carrying value of an asset group exceeds its fair value and are recognized in operating results. Judgment is used when applying these impairment rules to determine the timing of the impairment test, the undiscounted cash flows used to assess impairments and the fair value of an asset group. The dynamic economic environment in which the Company operates, and the resulting assumptions used to estimate future cash flows impact the outcome of these impairment tests.
Goodwill and Impairment
As of June 30, 2018, and December 31, 2017, we had recorded goodwill of $8,864,710 and $8,872,898, respectively. Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible net assets acquired in the SharpSpring and GraphicMail acquisitions. Under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350, “Intangibles - Goodwill and Other” deemed to have indefinite lives are no longer 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 350-10, and written down when impaired.
Debt Issuance Costs
We incurred certain third-party costs in connection with the issuance of the 5% Convertible Notes maturing March 27, 2023 (the “Notes”), as more fully described in Note 5: Convertible Notes, principally related to legal and financial advisory fees. These costs are included as a direct reduction to the carrying value of the debt as part of the Notes on our consolidated balance sheets and are being amortized to interest expense ratably over the five-year term of the Notes.
Estimated amortization expense of debt issuance costs for the remainder of 2018 and subsequent years is as follows:
Income Taxes
Provision for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in FASB ASC 740, Accounting for Income Taxes. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized.
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 2013 remain open to examination by U.S. federal and state tax jurisdictions.
In determining the provision for income taxes, the Company uses statutory tax rates and tax planning opportunities available to the Company in the jurisdictions in which it operates. This includes recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns to the extent pervasive evidence exists that they will be realized in future periods. The deferred tax balances are adjusted to reflect tax rates by tax jurisdiction, based on currently enacted tax laws, which are expected to be in effect in the years in which the temporary differences are expected to reverse. In accordance with the Company’s income tax policy, significant or unusual items are separately recognized in the period in which they occur. The Company is subject to routine examination by domestic and foreign tax authorities and frequently faces challenges regarding the amount of taxes due. These challenges include positions taken by the Company related to the timing, nature and amount of deductions and the allocation of income among various tax jurisdictions. As of June 30, 2018, the Company is not being examined by domestic or foreign tax authorities.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful life of the assets. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is credited or charged to operations. Repairs and maintenance costs are expensed as incurred. Depreciation expense related to property and equipment was $85,733 and $70,107 for the three months ended June 30, 2018 and 2017, respectively. Depreciation expense related to property and equipment was $161,716 and $135,190 for the six months ended June 30, 2018 and 2017, respectively. Repairs and maintenance costs are expensed as incurred.
Property and equipment as of June 30, 2018 and December 31, 2017 is as follows:
Useful lives are as follows:
Revenue Recognition
The Company recognizes revenue from its services when it is probable that the economic benefits associated with the transactions will flow to the Company and the amount of revenue can be measured reliably. All significant sources of revenue are the result of a contract with a customer, and as such meet all of the requirements of recognizing revenue in accordance with FASB ASC 606. For the three months ended June 30, 2018 and June 30, 2017 revenue from contracts with customers was $4.4 million and $3.2 million respectively. For the six months ended June 30, 2018 and June 30, 2017 revenue from contracts with customers was $8.6 million and $6.3 million respectively.
For the Company’s internet-based SharpSpring marketing automation solution, the services are typically offered on a month-to-month basis with a fixed fee charged in arrears each month depending on the size of the engagement with the customer. Monthly fees are recorded as revenue during the month they are earned. Some customers are charged annually in advance, for which revenues are deferred and recorded ratably over the subscription period. The Company also charges transactional-based fees if monthly volume limitations are reached or other chargeable activity occurs. Additionally, customers are typically charged an upfront implementation and training fee. The upfront implementation and training fees represent short-term “use it or lose it” services offered for a flat fee. Such flat fees are recognized over the service period, which is typically 60 days.
For the SharpSpring Mail+ product, the services are typically offered on a month-to-month basis. Customers are either charged in arrears based on the number of contacts in the system during the billing period or in advance if the customer selects a plan based on e-mail volume. The Company also charges transactional-based fees if monthly volume limitations are reached or other chargeable activity occurs.
Our products are billed in arrears or upfront, depending on the product, which creates contract assets (accrued revenue) and contract liabilities (deferred revenue). Contract assets occur due to unbilled charges that the Company has satisfied performance obligations for. Contract liabilities occur due to billing up front for charges that the Company has not yet fully satisfied performance obligations on. Both contract assets and liabilities are recognized and deferred ratably over their service periods.
The company makes judgements when determining revenue recognition. Because many of our contracts are billed in arrears, estimates are made for the transaction price and amounts allocated to each accounting period related to the performance obligations of each contract. There have been no changes to the methodology used in these judgements and estimates for determining revenues. Some of the estimates used when determining revenue recognition relate to variable customer consideration that changes from month to month. The Company uses the most likely amount method to determine the estimated variable consideration, relying on historical consideration received, customer status and projected usage to determine the most likely consideration amount. The amount of variable consideration recognized is constrained and is only included in the transaction price to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur.
The performance obligations are measured using the output method to recognize revenue based on direct measurements of the value to the customer of the services transferred to date. Most of the Company’s contracts are satisfied over time, and as each contract has a predefined service period. This allows for a reliable way to measure performance obligations remaining and completed. The Company does have some contracts that are satisfied at a point in time upon delivery of services. The criteria for the completion of these contracts is defined in each contract with a customer so that there is no judgment required in evaluating when the service is delivered to the customer. Any discount given is allocated to the performance obligation and is treated as reduction to the transaction price. Due to the month to month nature of the Company’s contracts with customers, no financing or time value of money component exists related to the contracts with customers. Due to the month to month nature of the Company’s contracts with customers, we have elected to utilize the optional practical expedient from ASC 606-10-50-14 through 50-14A for disclosing the remaining performance obligations. The remaining performance obligations as of the balance sheet date consist of trainings and availability and use of the SharpSpring platform over the remainder of the contract, which is typically less than 30 days.
From time to time, the Company offers refunds to customers and experiences credit card chargebacks relating to cardholder disputes that are commonly experienced by businesses that accept credit cards. The Company makes estimates for refunds and credit card chargebacks based on historical experience.
Deferred Revenue
Deferred revenue consists of payments received in advance of the Company’s providing the services. Deferred revenue is earned over the service period identified in each contract. The majority of our deferred revenue balances (contract liabilities) arise from upfront implementation and training fees for its SharpSpring marketing automation solution that are paid in advance. These services are typically performed over a 60-day period, and the revenue is recognized over that period. Additionally, some of the Company’s customers pay for services in advance on a periodic basis (such as monthly, quarterly, annually or bi-annually). In situations where a customer pays in advance for a one-year service period, the deferred revenue is recognized over that service period. The deferred revenue balances were $279,818 and $280,159 as of December 31, 2017 and 2016, respectively. Deferred revenue during the three months ended June 30, 2018 and 2017 increased by $378,190 and $268,247, respectively. These increases were offset by revenue recognized of $358,127 and $305,623 during the same periods. Deferred revenue during the six months ended June 30, 2018 and 2017 increased by $719,609 and $476,607, respectively. These increases were offset by revenue recognized of $679,012 and $506,913 during the same periods. The Company had deferred revenue contract liability balances of $318,586 and $279,818 as of June 30, 2018 and December 31, 2017, respectively. The company expects to recognize 100% of the revenue on of these remaining performance obligations within 12 months. Deferred revenue is subject to foreign currency fluctuations which is reflected in the foreign currency translation.
Accrued Revenue
In cases where our customers pay for services in arrears, we accrue for revenue in advance of billings as long as the criteria for revenue recognition is met, thus creating a contract asset. A portion of our accounts receivable balance is therefore unbilled at each balance sheet date. The accrued revenue contract asset balances were $554,603 and $439,559 as of December 31, 2017 and 2016, respectively. Revenue billed that was included in accrued revenue at the beginning of the period for the three months ending June 30, 2018 and 2017 was $628,497 and $466,610, respectively. Revenue billed that was included in accrued revenue at the beginning of the period for the six months ending June 30, 2018 and 2017 was $554,603 and $439,559, respectively. Accrued revenue not billed in the three and six months ending June 30, 2018 and 2017 was $646,452 and $554,603, respectively. The Company had accrued revenue contract asset balances of $646,452 and $554,603 as of June 30, 2018 and December 31, 2017, respectively. Accrued revenue is subject to foreign currency fluctuations which is reflected in the foreign currency translation.
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 June 30, 2018 and December 31, 2017, the Company had cash balances at financial institutions that exceed federally insured limits. The Company maintains its cash balances with accredited financial institutions. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
There were no customers that accounted for more than 10% of total revenue or 10% of total accounts receivable for any financial period presented.
Cost of Services
Cost of services consists primarily of direct labor costs associated with support and customer onboarding and technology hosting and license costs associated with the cloud-based platform.
Credit Card Processing Fees
Credit card processing fees are included as a component of general and administrative expenses and are expensed as incurred.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising and marketing expenses were $1,294,274 and $797,173 for the three months ended June 30, 2018 and 2017, respectively. Advertising and marketing expenses were $2,743,701 and $1,342,948 for the six months ended June 30, 2018 and 2017, respectively.
Research and Development Costs and Capitalized Software Costs
We capitalize certain costs associated with internal use software during the application development stage, mostly related to software that we use in providing our hosted solutions. We expense costs associated with preliminary project phase activities, training, maintenance and any post-implementation period costs as incurred. For the three months ended June 30, 2018 and 2017, we capitalized $39,210 and $17,392, respectively, in software development costs. For the six months ended June 30, 2018 and 2017, we capitalized $66,446 and $33,938, respectively, in software development costs. We amortize capitalized software costs over the estimated useful life of the software, which is typically estimated to be 3 years, once the related project has been completed and deployed for customer use. At June 30, 2018 and December 31, 2017, the net carrying value of capitalized software was $121,446 and $86,857, respectively.
All other software development costs are charged to expenses when incurred, and generally consist of salaries, software development tools and personnel-related costs for those engaged in research and development activities.
Capitalized Cost of Obtaining a Contract
The Company capitalizes sales commission costs which are incremental to obtaining a contract. We expense costs that are related to obtaining a contract, but are not incremental such as other sales and marketing costs and other costs that would be incurred regardless of if the contract was obtained. Capitalized costs are amortized using the straight-line amortization over the estimated weighted average life of the customer, which we have estimated to be 3 years. At June 30, 2018 the net carrying value of the capitalized cost of obtaining a contract was $1,248,584, of which $665,807 is included in other current assets and $582,777 is included in other long-term assets. At December 31, 2017, the net carrying value of the capitalized cost of obtaining a contract was $1,218,833, of which $631,203 is included in other current assets and $587,630 is included in other long-term assets. The Company amortized expenses for the costs of obtaining contracts of $185,701 and $130,226 for the three months ended June 30, 2018 and 2017, respectively. Such capitalized cost adjustments have been retroactively applied to prior periods. The Company amortized expenses for the costs of obtaining contracts of $363,239 and $242,151 for the six months ended June 30, 2018 and 2017, respectively. Such capitalized cost adjustments have been retroactively applied to prior periods.
Stock Compensation
We account for stock-based compensation in accordance with FASB ASC 718 “Compensation — Stock Compensation” which requires companies to measure the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted net loss per share is computed by giving effect to all potential dilutive common stock equivalents for the period. For purposes of this calculation, options to purchase common stock, warrants and the conversion option of the convertible Notes (Note 5) are considered to be potential common shares outstanding. Since the Company incurred net losses for each of the periods presented, diluted net loss per share is the same as basic net loss per share. The Company’s potential common shares outstanding were not included in the calculation of diluted net loss per share as the effect would be anti-dilutive.
Comprehensive Income (Loss)
Comprehensive income or loss includes all changes in equity during a period from non-owner sources, such as net income or loss and foreign currency translation adjustments.
Recently Issued Accounting Standards
Recent accounting standards not included below are not expected to have a material impact on our consolidated financial position and results of operations.
In February 2016, the FASB issued guidance that requires lessees to recognize most leases on their balance sheets but record expenses on their income statements in a manner similar to current accounting. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The guidance is effective in 2019 with early adoption permitted. The Company is currently evaluating the impact of this guidance on the consolidated financial statements.
In January 2017, the FASB issued guidance simplifying the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. Under current guidance, Step 2 of the goodwill impairment test requires entities to calculate the implied fair value of goodwill in the same manner as the amount of goodwill recognized in a business combination by assigning the fair value of a reporting unit to all of the assets and liabilities of the reporting unit. The carrying value in excess of the implied fair value is recognized as goodwill impairment. Under the new standard, goodwill impairment is recognized based on Step 1 of the current guidance, which calculates the carrying value in excess of the reporting unit’s fair value. The new standard is effective beginning in January 2020, with early adoption permitted. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.
In May 2014, the FASB issued updated guidance and disclosure requirements for recognizing revenue from contracts with customers. This new revenue recognition standard became effective for the Company on January 1, 2018. In addition to providing guidance on when and how revenue is recognized, the new standard also provides guidance on accounting for costs of obtaining contracts primarily related to aligning the expense with the period in which the value is recognized. As a result of this new standard, the Company was required to capitalize certain costs related to obtaining contracts associated with commissions expense paid to salespeople. The Company is using the retrospective transition method to adjust each prior reporting period presented for this new method of accounting for costs associated with obtaining contracts. The application of the retrospective transition was applied to all contracts at the date of initial application. The following tables present our results under our historical method and as adjusted to reflect these accounting changes.
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Goodwill and Other Intangible Assets | Intangible assets are as follows:
Estimated amortization expense for the remainder of 2018 and subsequent years is as follows:
Amortization expense for the three months ended June 30, 2018 and 2017 was $115,000 and $131,869, respectively. Amortization expense for the six months ended June 30, 2018 and 2017 was $230,000 and $263,392, respectively.
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Credit Facility |
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Debt Disclosure [Abstract] | |
Credit Facility | In March 2016, the Company entered into a $2.5 million revolving loan agreement (the “Credit Facility”) with Western Alliance Bank. The facility originally matured on March 21, 2018 and was amended to mature on March 31, 2020. There are no mandatory amortization provisions and the Credit Facility is payable in full at maturity. Loan proceeds accrue interest at the higher of Western Alliance Bank’s Prime interest rate (5.00% as of June 30, 2018) or 5.00%, plus 1.75%. 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 Quattro Hosting, LLC and a 65% pledge of the Company’s foreign subsidiaries’ stock. The Credit Facility subjects the Company to a number of restrictive covenants, including financial and non-financial covenants customarily found in loan agreements for similar transactions. The Credit Facility also restricts our ability to pay cash dividends on our common stock. There are no amounts outstanding under the Credit Facility and no events of default occurred.
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Convertible Notes |
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Convertible Notes | On March 28, 2018, we issued $8.0 million in aggregate principal amount of convertible notes (the “Notes”). Interest accrues at a rate of 5.0% per year and is “payable in kind” annually in the form of the issuance of additional notes (“PIK Notes”). The principal amount of the Note and the PIK Notes are due and payable in full on the fifth anniversary of the date of the Notes. The Company shall have the right to extend the maturity date for up to six months on up to three separate occasions, with interest accruing at a rate of 10% during any such extension periods. The Notes are convertible into shares of the Company’s common stock at any time by the holder at a fixed conversion price of $7.50 per share, subject to customary adjustments for specified corporate events. Additionally, if the Notes and PIK Notes are not converted into common stock by the holder, at the maturity date, the Company may elect to convert all outstanding Notes and PIK Notes into shares of the Company’s common stock at a conversion price equal to 80% of the volume weighted average closing price of the Company’s common stock for the 30 trading days prior to an including the maturity date. We received net proceeds from the offering of approximately $7.9 million after adjusting for debt issue costs, including financial advisory and legal fees.
The Notes are unsecured obligations and are subordinate in right of payment to the Credit Facility (Note 4). So long as any Notes are outstanding, except as the investor may otherwise agree in writing, the Company shall at no time (i) have outstanding senior indebtedness in an aggregate amount exceeding 18.6% of the Company’s trailing twelve-month revenue, (ii) incur any indebtedness that is both junior in right of payment to the obligations of the Company to its senior secured lender and senior to the Company’s obligations under the Notes or (iii) enter into any agreement with any lender or other third party that would (A) prohibit the Company from issuing PIK Notes at any time or under any circumstances or (B) prohibit the conversion of the Notes in accordance with their terms at any time or under any circumstances. Prior to this offering, the Company had no outstanding indebtedness for borrowed money. The holder of the Notes must notify the Company at least 120 days prior to the maturity of the Notes of its election to convert the Notes.
The convertible note agreement contains customary events of default with respect to the Notes and provides that upon certain events of default occurring and continuing, the investor, by written notice to the Company may declare the entire outstanding principal amount of this Note and all accrued but unpaid interest to be immediately due and payable. During the continuance of an event of default, the investor shall have recourse to any and all remedies available to under applicable law. The Notes were recorded upon issuance at amortized cost in accordance with applicable accounting guidance. As there is no difference in the amount recorded at inception and the face value of the Notes, interest expense will be accreted at the stated interest rate under the terms of the Notes. Total interest expense related to the Notes will be impacted by the amortization of the debt issuance cost using the effective interest method.
The Company would be required to accelerate and issue the PIK Notes through the maturity of the Notes if the Company elects to convert the Notes prior to maturity (which it can do upon certain conditions) or if there is a change in control. Pursuant to accounting guidance, for each of these situations, the Company determined that the economic characteristics of these “make whole” features were not considered clearly and closely related to the Company’s stock. Accordingly, these features were determined to be “embedded derivatives” and were bifurcated from the Notes and separately accounted for on a combined basis at fair value as a single derivative. The fair value of the derivatives as of June 30, 2018 was a liability of $267,579 which is included within the non-current liabilities on the balance sheet. The derivative is being accounted for at fair value, with subsequent changes in the fair value to be reported as part of Other income (expense), net in the Consolidated Statement of Operations.
Additionally, the investor’s conversion option was analyzed for embedded derivative treatment, but the conversion option qualifies for a scope exception as it is considered to be clearly and closely related to the Company’s stock. The net carrying amount of the Notes at June 30, 2018 was as follows:
We incurred certain third-party costs in connection with our issuance of the Notes, principally related to financial advisory and legal fees, which are being amortized to interest expense ratably over the five-year term of the Notes. The following table sets forth total interest expense related to the Notes for the period ended June 30, 2018:
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Changes in Accumulated Other Comprehensive Income (Loss) |
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Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Changes in Accumulated Other Comprehensive Income (Loss) |
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Net Loss Per Share |
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Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss Per Share | Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted net loss per share is computed by giving effect to all potential dilutive common stock equivalents for the period. For purposes of this calculation, options to purchase common stock, warrants and the conversion option of the convertible Notes (Note 5) are considered to be potential common shares outstanding.
Additionally, since the Company incurred net losses for each of the periods presented, diluted net loss per share is the same as basic net loss per share. The Company’s outstanding warrants, stock options, and convertible notes were not included in the calculation of diluted net loss per share as the effect would be anti-dilutive. The following table contains all potentially dilutive common stock equivalents:
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Income Taxes |
6 Months Ended |
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Jun. 30, 2018 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | The income tax expense we record in any interim period is based on our estimated effective tax rate for the year for each jurisdiction that we operate in. The calculation of our estimated effective tax rate requires an estimate of pre-tax income by tax jurisdiction, as well as total tax expense for the fiscal year. Accordingly, this tax rate is subject to adjustment if, in subsequent interim periods, there are changes to our initial estimates of total tax expense, pre-tax income, or pre-tax income by jurisdiction.
During the three months ended June 30, 2018 and 2017, the Company recorded income tax benefits of $294,543 and $395,094, respectively, from continuing operations. During the six months ended June 30, 2018 and 2017, the Company recorded income tax benefit of $252,546 and income tax benefit of $893,840, respectively, from continuing operations. The blended effective tax rate for the six months ending June 30, 2018 and 2017 was 5.3% and 25.2%, respectively. The blended effective tax rate varies from our statutory U.S. tax rate due to income generated in certain other jurisdictions at various tax rates.
The income tax benefits for the three and six months ended June 30, 2018 related to return to provision adjustments for the 2017 year and a benefit recorded for net operation losses that can be used to offset future deferred tax liabilities associated with goodwill. These benefits were partially offset by state income taxes for our consolidated U.S. entities as well as taxes related to income derived in foreign jurisdictions at the applicable statutory tax rates. During 2018, we have recorded a full valuation allowance against the majority of our U.S. net operating loss deferred tax assets, so there is no tax benefit recorded on the income statement for those losses. For the three and six months ended June 30, 2017, our income tax benefit related to losses incurred by our consolidated U.S. entities offset by a small amount of tax expense related to income derived in foreign jurisdictions at the applicable statutory tax rates.
In December 2017, the Company reasonably estimated that it will not have a transition tax related to the repatriation of foreign earnings for the impact of the U.S. Tax Cuts and Jobs Act (“Tax Act”). The Company has not yet finalized these calculations and no adjustments to the provisional amount have been made in the current period. We will finalize the provisional amounts within one year from the date of enactment.
Valuation Allowance
We record a deferred tax asset if we believe that it is more likely than not that we will realize a future tax benefit. Ultimate realization of any deferred tax asset is dependent on our ability to generate sufficient future taxable income in the appropriate tax jurisdiction before the expiration of carryforward periods, if any. Our assessment of deferred tax asset recoverability considers many different factors including historical and projected operating results, the reversal of existing deferred tax liabilities that provide a source of future taxable income, the impact of current tax planning strategies and the availability of future tax planning strategies. We establish a valuation allowance against any deferred tax asset for which we are unable to conclude that recoverability is more likely than not. This is inherently judgmental, since we are required to assess many different factors and evaluate as much objective evidence as we can in reaching an overall conclusion. The particularly sensitive component of our evaluation is our projection of future operating results since this relies heavily on our estimates of future revenue and expense levels by tax jurisdiction.
In making our assessment of deferred tax asset recoverability, we considered our historical financial results, our projected future financial results, the planned reversal of existing deferred tax liabilities and the impact of any tax planning actions. Based on our analysis we noted both positive and negative factors relative to our ability to support realization of certain deferred tax assets. However, based on the weighting of all the evidence, including the near- term effect on our income projections of investments we are making in our team, product and systems infrastructure, we concluded that it was more likely than not that the majority of our deferred tax assets related to temporary differences and net operating losses may not be recovered. The establishment of a valuation allowance has no effect on our ability to use the underlying deferred tax assets prior to expiration to reduce cash tax payments in the future to the extent that we generate taxable income.
At June 30, 2018 and December 31, 2017, we have established a valuation allowance of $3.1 million and $1.9 million, respectively, against certain deferred tax assets given the uncertainty of recoverability of these amounts.
On June 21, 2018, the U.S. Supreme Court issued its decision in South Dakota v. Wayfair, which overturned previous case law that precluded states from requiring retailers to collect and remit sales and use tax collection on sales made to in-state customers unless the retailer had physical presence in the state. Although this case is limited to sales tax collection obligations, we continue to monitor the potential impact of this decision on our state income tax footprint. |
Defined Contribution Retirement Plan |
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Jun. 30, 2018 | |
Retirement Benefits [Abstract] | |
Defined Contribution Retirement Plan | Starting in 2016, we offered our U.S. employees the ability to participate in a 401(k) plan. Eligible U.S. employees may contribute up to 100% of their eligible compensation, subject to limitations established by the Internal Revenue Code. The Company contributes a matching contribution equal to 100% of each such participant’s contribution up to the first 3% of their annual eligible compensation. We charged $61,586 and $54,579 to expense in the three months ended June 30, 2018 and 2017, respectively, associated with our matching contribution in those periods. We charged $121,924 and $91,074 to expense in the six months ended June 30, 2018 and 2017, respectively, associated with our matching contribution in those periods. |
Stock-Based Compensation |
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Stock-Based Compensation | The Company grants stock option awards to officers and employees and grants stock awards to directors as compensation for their service to the Company.
In November 2010, the Company adopted the 2010 Stock Incentive Plan (“the Plan”) which was amended in April 2011, August 2013, April 2014, February 2016, March 2017, and June 2018. The plan was restated in its entirety in August 2018. As amended, up to 2,600,000 shares of common stock are available for issuance under the Plan. The Plan provides for the issuance of stock options and other stock-based awards.
Stock Options
Stock option awards under the Plan have a 10-year maximum contractual term and must be issued at an exercise price of not less than 100% of the fair market value of the common stock at the date of grant. The Plan is administered by the Board of Directors, which has the authority to determine to whom options may be granted, the period of exercise and what other restrictions, if any, should apply. Vesting for awards granted to date under the Plan is principally over four years from the date of the grant, with 25% of the award vesting after one year and monthly vesting thereafter.
Option awards are valued based on the grant date fair value of the instruments, net of estimated forfeitures, using a Black-Scholes option pricing model with the following assumptions:
The weighted average grant date fair value of stock options granted during the six months ended June 30, 2018 and 2017 was $2.34 and $2.40, respectively.
For grants prior to January 1, 2015, the volatility assumption was based on historical volatility of similar sized companies due to lack of historical data of the Company’s stock price. For all grants subsequent to January 1, 2015, the volatility assumption reflects the Company’s historic stock volatility for the period of February 1, 2014 forward, which is the date the Company’s stock started actively trading. The risk-free interest rate was determined based on treasury securities with maturities equal to the expected term of the underlying award. The expected term was determined based on the simplified method outlined in Staff Accounting Bulletin No. 110.
Stock option awards are expensed on a straight-line basis over the requisite service period. During the three months ended June 30, 2018 and 2017, the Company recognized expense of $189,344 and $175,405, respectively, associated with stock option awards. During the six months ended June 30, 2018 and 2017, the Company recognized expense of $382,879 and $359,752, respectively, associated with stock option awards. At June 30, 2018, future stock compensation expense associated with stock options (net of estimated forfeitures) not yet recognized was $1,556,548 and will be recognized over a weighted average remaining vesting period of 2.9 years. The following summarizes stock option activity for the six months ended June 30, 2018:
The total intrinsic value of stock options exercised during the three months ended June 30, 2018 was $157,036. There were no stock options exercised during the three months ended June 30, 2017. The total intrinsic value of stock options exercised during the six months ended June 30, 2018 was $157,601. There were no stock options exercised during the six months ended June 30, 2017.
Stock Awards During the three months ended June 30, 2018 and 2017, the Company issued 6,915 and 12,786 shares, respectively, to non-employee directors as compensation for their service on the board. Such stock awards are immediately vested. During the six months ended June 30, 2018 and 2017, the Company issued 15,870 and 23,670 shares, respectively, to non-employee directors as compensation for their service on the board. Such stock awards are immediately vested.
Stock awards are valued based on the closing price of our common stock on the date of grant, and compensation cost is recorded on a straight-line basis over the share vesting period. The total fair value of stock awards granted, vested and expensed during the three months ended June 30, 2018 and 2017 was $49,462 and $56,271, respectively. The total fair value of stock awards granted, vested and expensed during the six months ended June 30, 2018 and 2017 was $93,341 and $112,650, respectively. As of June 30, 2018, there was no unrecognized compensation cost related to stock awards. As of June 30, 2018, there was no unrecognized compensation cost related to stock awards.
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Warrants |
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Warrants | During 2014, the Company issued warrants to certain service providers. The following table summarizes information about the Company’s warrants at June 30, 2018:
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Commitments and Contingencies |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies | Litigation
The Company may from time to time be involved in legal proceedings arising from the normal course of business. The Company is not currently a party to any litigation of a material nature.
Operating Leases and Service Contracts
The Company currently rents its primary office facility under a five-year lease which started in September 2016 (the “2016 Lease”). On April 18, 2018, the Company entered into a lease for the Company’s new principal office (the “2018 Lease”) to lease approximately 25,000 square feet of office space. The term of the 2018 Lease is ten years, beginning on the date on which the Company takes possession of and occupies all or any part of the premises for normal business activities, which is expected to be in the fourth quarter of 2018. The term may be extended for an additional 5 years in incremental one-year periods, subject to certain conditions described in the 2018 Lease. Base rent for the first year of the 2018 Lease is approximately $619,000, with increases in base rent occurring every two years. In conjunction with the signing of the 2018 Lease, the Company has agreed to assign the 2016 Lease to the landlord from the 2018 Lease (the “Assignment”). If the landlord shall fail to pay the 2016 Lease obligations under the Assignment, the Company will be obligated to pay the obligations, but has a contractual right to reduce its payments to the landlord related to the 2018 Lease by equal amounts. In the below table of future contractual payments, the Company has reflected the 2016 Lease through October 31, 2018 and the 2018 Lease thereafter reflecting the estimated commencement date 2018 Lease and Assignment of the 2016 Lease.
Most of the Company’s service contracts are on a month-to-month basis, however, some contracts and agreements extend out to longer periods. Future minimum lease payments and payments due under non-cancelable service contracts are as follows as of June 30, 2018:
Employment Agreements
The Company has employment agreements with several members of its leadership team and executive officers.
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Disaggregation of Revenue |
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Disaggregation of Revenue [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregation of Revenue |
The company operates as one reporting segment. Operating segments are defined as components of an enterprise for which separate financial information in regularly evaluated by the chief operating decision makers (“CODM”), which is the Company’s chief executive office, in deciding how to allocate resources and assess performance. The Company does not present geographical information about revenues because it is impractical to do so. Disaggregated revenue for the three and six months ended June 30, 2018 and 2017 are as follows:
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Summary of Significant Accounting Policies (Policies) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation and Consolidation | The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). Our Consolidated Financial Statements include the accounts of SharpSpring, Inc. and our subsidiaries (“the Company”). Our Consolidated Financial Statements reflect the elimination of all significant inter-company accounts and transactions. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, 2018. |
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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.
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Operating Segments | The Company operates as one operating segment. Operating segments are defined as components of an enterprise for which separate financial information is regularly evaluated by the chief operating decision maker (“CODM”), which is the Company’s chief executive officer, in deciding how to allocate resources and assess performance. The Company’s CODM evaluates the Company’s financial information and resources and assess the performance of these resources on a consolidated basis. The Company does not present geographical information about revenues because it is impractical to do so.
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Foreign Currencies | The Company’s subsidiaries utilize the U.S. Dollar, Swiss Franc and South African Rand as their functional currencies. The assets and liabilities of these subsidiaries are translated at ending exchange rates for the respective periods, while revenues and expenses are translated at the average rates in effect for the period. The related translation gains and losses are included in other comprehensive income or loss within the Consolidated Statements of Comprehensive Loss.
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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. |
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Fair Value of Financial Instruments | U.S. GAAP establishes a fair value hierarchy which has three levels based on the reliability of the inputs to determine the fair value. These levels include: Level 1, defined as inputs such as unadjusted quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for use when little or no market data exists, therefore requiring an entity to develop its own assumptions.
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, deposits, embedded derivatives (associated with our convertible notes) and accounts payable. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the short-term nature of these items. The fair value of the embedded derivatives is calculated using Level 3 unobservable inputs, utilizing a probability-weighted expected value model to determine the liability. The fair value of the embedded derivatives at June 30, 2018 was a liability balance of $267,579.
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Accounts 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. A portion of our accounts receivable balance is therefore unbilled at each balance sheet date. 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.
The following table presents the balances of accounts receivable as of June 30, 2018 and December 31, 2017:
Accounts Receivable and Unbilled Receivables
During the second quarter of 2018, the Company wrote off approximately $351,000 of accounts receivable against the allowance for doubtful accounts, with zero net loss recognized in the period as the accounts were already fully reserved.
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Intangibles | Finite-lived intangible assets include trade names, developed technologies and customer relationships and are amortized based on the estimated economic benefit over their estimated useful lives, with original periods ranging from 5 to 11 years. We continually evaluate the reasonableness of the useful lives of these assets. Finite-lived intangibles are tested for recoverability whenever events or changes in circumstances indicate the carrying amounts may not be recoverable. Impairment losses are measured as the amount by which the carrying value of an asset group exceeds its fair value and are recognized in operating results. Judgment is used when applying these impairment rules to determine the timing of the impairment test, the undiscounted cash flows used to assess impairments and the fair value of an asset group. The dynamic economic environment in which the Company operates, and the resulting assumptions used to estimate future cash flows impact the outcome of these impairment tests.
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Goodwill and Impairment | As of June 30, 2018, and December 31, 2017, we had recorded goodwill of $8,864,710 and $8,872,898, respectively. Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible net assets acquired in the SharpSpring and GraphicMail acquisitions. Under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350, “Intangibles - Goodwill and Other” deemed to have indefinite lives are no longer 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 350-10, and written down when impaired.
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Debt Issuance Costs | We incurred certain third-party costs in connection with the issuance of the 5% Convertible Notes maturing March 27, 2023 (the “Notes”), as more fully described in Note 5: Convertible Notes, principally related to legal and financial advisory fees. These costs are included as a direct reduction to the carrying value of the debt as part of the Notes on our consolidated balance sheets and are being amortized to interest expense ratably over the five-year term of the Notes.
Estimated amortization expense of debt issuance costs for the remainder of 2018 and subsequent years is as follows:
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Income Taxes | Provision for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in FASB ASC 740, Accounting for Income Taxes. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized.
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 2013 remain open to examination by U.S. federal and state tax jurisdictions.
In determining the provision for income taxes, the Company uses statutory tax rates and tax planning opportunities available to the Company in the jurisdictions in which it operates. This includes recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns to the extent pervasive evidence exists that they will be realized in future periods. The deferred tax balances are adjusted to reflect tax rates by tax jurisdiction, based on currently enacted tax laws, which are expected to be in effect in the years in which the temporary differences are expected to reverse. In accordance with the Company’s income tax policy, significant or unusual items are separately recognized in the period in which they occur. The Company is subject to routine examination by domestic and foreign tax authorities and frequently faces challenges regarding the amount of taxes due. These challenges include positions taken by the Company related to the timing, nature and amount of deductions and the allocation of income among various tax jurisdictions. As of June 30, 2018, the Company is not being examined by domestic or foreign tax authorities.
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Property and Equipment | Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful life of the assets. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is credited or charged to operations. Repairs and maintenance costs are expensed as incurred. Depreciation expense related to property and equipment was $85,733 and $70,107 for the three months ended June 30, 2018 and 2017, respectively. Depreciation expense related to property and equipment was $161,716 and $135,190 for the six months ended June 30, 2018 and 2017, respectively. Repairs and maintenance costs are expensed as incurred.
Property and equipment as of June 30, 2018 and December 31, 2017 is as follows:
Useful lives are as follows:
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Revenue Recognition | The Company recognizes revenue from its services when it is probable that the economic benefits associated with the transactions will flow to the Company and the amount of revenue can be measured reliably. All significant sources of revenue are the result of a contract with a customer, and as such meet all of the requirements of recognizing revenue in accordance with FASB ASC 606. For the three months ended June 30, 2018 and June 30, 2017 revenue from contracts with customers was $4.4 million and $3.2 million respectively. For the six months ended June 30, 2018 and June 30, 2017 revenue from contracts with customers was $8.6 million and $6.3 million respectively.
For the Company’s internet-based SharpSpring marketing automation solution, the services are typically offered on a month-to-month basis with a fixed fee charged in arrears each month depending on the size of the engagement with the customer. Monthly fees are recorded as revenue during the month they are earned. Some customers are charged annually in advance, for which revenues are deferred and recorded ratably over the subscription period. The Company also charges transactional-based fees if monthly volume limitations are reached or other chargeable activity occurs. Additionally, customers are typically charged an upfront implementation and training fee. The upfront implementation and training fees represent short-term “use it or lose it” services offered for a flat fee. Such flat fees are recognized over the service period, which is typically 60 days.
For the SharpSpring Mail+ product, the services are typically offered on a month-to-month basis. Customers are either charged in arrears based on the number of contacts in the system during the billing period or in advance if the customer selects a plan based on e-mail volume. The Company also charges transactional-based fees if monthly volume limitations are reached or other chargeable activity occurs.
Our products are billed in arrears or upfront, depending on the product, which creates contract assets (accrued revenue) and contract liabilities (deferred revenue). Contract assets occur due to unbilled charges that the Company has satisfied performance obligations for. Contract liabilities occur due to billing up front for charges that the Company has not yet fully satisfied performance obligations on. Both contract assets and liabilities are recognized and deferred ratably over their service periods.
The company makes judgements when determining revenue recognition. Because many of our contracts are billed in arrears, estimates are made for the transaction price and amounts allocated to each accounting period related to the performance obligations of each contract. There have been no changes to the methodology used in these judgements and estimates for determining revenues. Some of the estimates used when determining revenue recognition relate to variable customer consideration that changes from month to month. The Company uses the most likely amount method to determine the estimated variable consideration, relying on historical consideration received, customer status and projected usage to determine the most likely consideration amount. The amount of variable consideration recognized is constrained and is only included in the transaction price to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur.
The performance obligations are measured using the output method to recognize revenue based on direct measurements of the value to the customer of the services transferred to date. Most of the Company’s contracts are satisfied over time, and as each contract has a predefined service period. This allows for a reliable way to measure performance obligations remaining and completed. The Company does have some contracts that are satisfied at a point in time upon delivery of services. The criteria for the completion of these contracts is defined in each contract with a customer so that there is no judgment required in evaluating when the service is delivered to the customer. Any discount given is allocated to the performance obligation and is treated as reduction to the transaction price. Due to the month to month nature of the Company’s contracts with customers, no financing or time value of money component exists related to the contracts with customers. Due to the month to month nature of the Company’s contracts with customers, we have elected to utilize the optional practical expedient from ASC 606-10-50-14 through 50-14A for disclosing the remaining performance obligations. The remaining performance obligations as of the balance sheet date consist of trainings and availability and use of the SharpSpring platform over the remainder of the contract, which is typically less than 30 days.
From time to time, the Company offers refunds to customers and experiences credit card chargebacks relating to cardholder disputes that are commonly experienced by businesses that accept credit cards. The Company makes estimates for refunds and credit card chargebacks based on historical experience. |
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Deferred Revenue | Deferred revenue consists of payments received in advance of the Company’s providing the services. Deferred revenue is earned over the service period identified in each contract. The majority of our deferred revenue balances (contract liabilities) arise from upfront implementation and training fees for its SharpSpring marketing automation solution that are paid in advance. These services are typically performed over a 60-day period, and the revenue is recognized over that period. Additionally, some of the Company’s customers pay for services in advance on a periodic basis (such as monthly, quarterly, annually or bi-annually). In situations where a customer pays in advance for a one-year service period, the deferred revenue is recognized over that service period. The deferred revenue balances were $279,818 and $280,159 as of December 31, 2017 and 2016, respectively. Deferred revenue during the three months ended June 30, 2018 and 2017 increased by $378,190 and $268,247, respectively. These increases were offset by revenue recognized of $358,127 and $305,623 during the same periods. Deferred revenue during the six months ended June 30, 2018 and 2017 increased by $719,609 and $476,607, respectively. These increases were offset by revenue recognized of $679,012 and $506,913 during the same periods. The Company had deferred revenue contract liability balances of $318,586 and $279,818 as of June 30, 2018 and December 31, 2017, respectively. The company expects to recognize 100% of the revenue on of these remaining performance obligations within 12 months. Deferred revenue is subject to foreign currency fluctuations which is reflected in the foreign currency translation.
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Accrued Revenue | In cases where our customers pay for services in arrears, we accrue for revenue in advance of billings as long as the criteria for revenue recognition is met, thus creating a contract asset. A portion of our accounts receivable balance is therefore unbilled at each balance sheet date. The accrued revenue contract asset balances were $554,603 and $439,559 as of December 31, 2017 and 2016, respectively. Revenue billed that was included in accrued revenue at the beginning of the period for the three months ending June 30, 2018 and 2017 was $628,497 and $466,610, respectively. Revenue billed that was included in accrued revenue at the beginning of the period for the six months ending June 30, 2018 and 2017 was $554,603 and $439,559, respectively. Accrued revenue not billed in the three and six months ending June 30, 2018 and 2017 was $646,452 and $554,603, respectively. The Company had accrued revenue contract asset balances of $646,452 and $554,603 as of June 30, 2018 and December 31, 2017, respectively. Accrued revenue is subject to foreign currency fluctuations which is reflected in the foreign currency translation.
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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 June 30, 2018 and December 31, 2017, the Company had cash balances at financial institutions that exceed federally insured limits. The Company maintains its cash balances with accredited financial institutions. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
There were no customers that accounted for more than 10% of total revenue or 10% of total accounts receivable for any financial period presented.
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Cost of Services | Cost of services consists primarily of direct labor costs associated with support and customer onboarding and technology hosting and license costs associated with the cloud-based platform.
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Credit Card Processing Fees | Credit card processing fees are included as a component of general and administrative expenses and are expensed as incurred.
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Advertising Costs | The Company expenses advertising costs as incurred. Advertising and marketing expenses were $1,294,274 and $797,173 for the three months ended June 30, 2018 and 2017, respectively. Advertising and marketing expenses were $2,743,701 and $1,342,948 for the six months ended June 30, 2018 and 2017, respectively.
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Research and Development Costs and Capitalized Software Costs | We capitalize certain costs associated with internal use software during the application development stage, mostly related to software that we use in providing our hosted solutions. We expense costs associated with preliminary project phase activities, training, maintenance and any post-implementation period costs as incurred. For the three months ended June 30, 2018 and 2017, we capitalized $39,210 and $17,392, respectively, in software development costs. For the six months ended June 30, 2018 and 2017, we capitalized $66,446 and $33,938, respectively, in software development costs. We amortize capitalized software costs over the estimated useful life of the software, which is typically estimated to be 3 years, once the related project has been completed and deployed for customer use. At June 30, 2018 and December 31, 2017, the net carrying value of capitalized software was $121,446 and $86,857, respectively.
All other software development costs are charged to expenses when incurred, and generally consist of salaries, software development tools and personnel-related costs for those engaged in research and development activities.
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Capitalized Cost of Obtaining a Contract | The Company capitalizes sales commission costs which are incremental to obtaining a contract. We expense costs that are related to obtaining a contract, but are not incremental such as other sales and marketing costs and other costs that would be incurred regardless of if the contract was obtained. Capitalized costs are amortized using the straight-line amortization over the estimated weighted average life of the customer, which we have estimated to be 3 years. At June 30, 2018 the net carrying value of the capitalized cost of obtaining a contract was $1,248,584, of which $665,807 is included in other current assets and $582,777 is included in other long-term assets. At December 31, 2017, the net carrying value of the capitalized cost of obtaining a contract was $1,218,833, of which $631,203 is included in other current assets and $587,630 is included in other long-term assets. The Company amortized expenses for the costs of obtaining contracts of $185,701 and $130,226 for the three months ended June 30, 2018 and 2017, respectively. Such capitalized cost adjustments have been retroactively applied to prior periods. The Company amortized expenses for the costs of obtaining contracts of $363,239 and $242,151 for the six months ended June 30, 2018 and 2017, respectively. Such capitalized cost adjustments have been retroactively applied to prior periods.
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Stock Compensation | We account for stock-based compensation in accordance with FASB ASC 718 “Compensation — Stock Compensation” which requires companies to measure the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period.
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Net Loss Per Share | Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted net loss per share is computed by giving effect to all potential dilutive common stock equivalents for the period. For purposes of this calculation, options to purchase common stock, warrants and the conversion option of the convertible Notes (Note 5) are considered to be potential common shares outstanding. Since the Company incurred net losses for each of the periods presented, diluted net loss per share is the same as basic net loss per share. The Company’s potential common shares outstanding were not included in the calculation of diluted net loss per share as the effect would be anti-dilutive.
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Comprehensive Income (Loss) | Comprehensive income or loss includes all changes in equity during a period from non-owner sources, such as net income or loss and foreign currency translation adjustments.
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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 February 2016, the FASB issued guidance that requires lessees to recognize most leases on their balance sheets but record expenses on their income statements in a manner similar to current accounting. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The guidance is effective in 2019 with early adoption permitted. The Company is currently evaluating the impact of this guidance on the consolidated financial statements.
In January 2017, the FASB issued guidance simplifying the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. Under current guidance, Step 2 of the goodwill impairment test requires entities to calculate the implied fair value of goodwill in the same manner as the amount of goodwill recognized in a business combination by assigning the fair value of a reporting unit to all of the assets and liabilities of the reporting unit. The carrying value in excess of the implied fair value is recognized as goodwill impairment. Under the new standard, goodwill impairment is recognized based on Step 1 of the current guidance, which calculates the carrying value in excess of the reporting unit’s fair value. The new standard is effective beginning in January 2020, with early adoption permitted. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.
In May 2014, the FASB issued updated guidance and disclosure requirements for recognizing revenue from contracts with customers. This new revenue recognition standard became effective for the Company on January 1, 2018. In addition to providing guidance on when and how revenue is recognized, the new standard also provides guidance on accounting for costs of obtaining contracts primarily related to aligning the expense with the period in which the value is recognized. As a result of this new standard, the Company was required to capitalize certain costs related to obtaining contracts associated with commissions expense paid to salespeople. The Company is using the retrospective transition method to adjust each prior reporting period presented for this new method of accounting for costs associated with obtaining contracts. The application of the retrospective transition was applied to all contracts at the date of initial application. The following tables present our results under our historical method and as adjusted to reflect these accounting changes.
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Summary of Significant Accounting Policies (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accounts Receivable and Unbilled Receivables |
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Schedule of Debt Issuance Cost Amortization |
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Schedule of Property and Equipment |
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Schedule of Property and Equipment Useful Lives |
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Accounting Change Adjustments |
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Goodwill and Other Intangible Assets (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Intangible Assets |
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Schedule of Estimated Amortization Expense |
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Convertible Notes (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible Notes Tables Abstract | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Carrying Amount- Notes |
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Interest Expense |
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Changes in Accumulated Other Comprehensive Income (Loss) (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accumulated Other Comprehensive Income (Loss) |
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Net Loss Per Share (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Computation of Net Loss Per Share |
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Schedule of Potentially Dilutive Common Stock Equivalents |
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Stock-Based Compensation (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Fair Value Assumptions Used in Valuing Stock Options |
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Schedule of Stock Option Activity |
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Warrants (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrants and Rights Note Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Warrants Activity |
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Commitments and Contingencies (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Schedule of Future Minimum Lease Payments and Payments Due Under Non-cancelable Service Contracts |
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Disaggregation of Revenue (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregation Of Revenue | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregated Revenue |
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Summary of Significant Accounting Policies (Details) - USD ($) |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Summary Of Significant Accounting Policies | ||
Accounts receivable | $ 192,102 | $ 611,293 |
Unbilled receivables | 646,452 | 554,603 |
Gross receivables | 838,554 | 1,165,896 |
Allowance for doubtful accounts | (149,283) | (526,127) |
Accounts receivable and unbilled receivables, net | $ 689,271 | $ 639,959 |
Summary of Significant Accounting Policies (Details 1) - USD ($) |
Jun. 30, 2018 |
Jun. 30, 2017 |
---|---|---|
Summary Of Significant Accounting Policies | ||
Remainder of 2018 | $ 12,718 | |
2019 | 26,455 | |
2020 | 27,855 | |
2021 | 29,322 | |
2022 | 30,862 | |
2023 | 7,813 | |
Total | $ 135,025 | $ 0 |
Summary of Significant Accounting Policies (Details 2) - USD ($) |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Property and equipment, gross | $ 1,421,205 | $ 1,259,356 |
Less: Accumulated depreciation and amortization | (595,658) | (460,211) |
Property and equipment, net | 825,547 | 799,145 |
Leasehold Improvements [Member] | ||
Property and equipment, gross | 128,122 | 128,122 |
Furniture and Fixtures [Member] | ||
Property and equipment, gross | 397,409 | 355,033 |
Computer Equipment and Software [Member] | ||
Property and equipment, gross | $ 895,674 | $ 776,201 |
Summary of Significant Accounting Policies (Details 3) |
6 Months Ended |
---|---|
Jun. 30, 2018 | |
Leasehold Improvements [Member] | Minimum [Member] | |
Useful lives | 3 years |
Leasehold Improvements [Member] | Maximum [Member] | |
Useful lives | 5 years |
Furniture and Fixtures [Member] | Minimum [Member] | |
Useful lives | 3 years |
Furniture and Fixtures [Member] | Maximum [Member] | |
Useful lives | 5 years |
Computer Equipment [Member] | |
Useful lives | 3 years |
SoftwareMember | Minimum [Member] | |
Useful lives | 3 years |
SoftwareMember | Maximum [Member] | |
Useful lives | 5 years |
Summary of Significant Accounting Policies (Details 4) - USD ($) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
Dec. 31, 2017 |
|
Sales and marketing expense | $ 2,356,400 | $ 1,536,289 | $ 4,727,431 | $ 3,085,811 | |
Total operating expenses | 4,903,823 | 3,631,053 | 9,766,763 | 7,328,027 | |
Operating loss | (1,968,896) | (1,679,577) | (4,047,470) | (3,624,439) | |
Loss before income taxes | (2,760,776) | (1,667,816) | (4,770,722) | (3,545,834) | |
Benefit for income tax | (294,543) | (395,094) | (252,546) | (893,840) | |
Net loss | $ (2,466,233) | $ (1,272,722) | $ (4,518,176) | $ (2,651,994) | |
Basic net loss per share | $ (0.29) | $ (0.15) | $ (0.53) | $ (0.32) | |
Diluted net loss per share | $ (0.29) | $ (0.15) | $ (0.53) | $ (0.32) | |
Other current assets | $ 991,814 | $ 991,814 | $ 899,127 | ||
Other long-term assets | 607,777 | 607,777 | 612,631 | ||
Total assets | 26,821,452 | 26,821,452 | 21,682,123 | ||
Accumulated deficit | (12,392,060) | (12,392,060) | (7,873,883) | ||
Historic Accounting Method | |||||
Sales and marketing expense | 2,396,227 | $ 1,577,968 | 4,757,181 | $ 3,223,838 | |
Total operating expenses | 4,943,650 | 3,672,732 | 9,796,513 | 7,466,054 | |
Operating loss | (2,008,723) | (1,721,256) | (4,077,220) | (3,762,466) | |
Loss before income taxes | (2,800,603) | (1,709,495) | (4,800,472) | (3,683,861) | |
Benefit for income tax | (294,543) | (394,147) | (252,546) | (893,840) | |
Net loss | $ (2,506,060) | $ (1,315,348) | $ (4,547,926) | $ (2,790,021) | |
Basic net loss per share | $ (0.29) | $ (0.18) | $ (0.53) | $ (.34) | |
Diluted net loss per share | $ (0.29) | $ (0.18) | $ (0.53) | $ (.34) | |
Other current assets | $ 326,007 | $ 326,007 | 267,924 | ||
Other long-term assets | 25,000 | 25,000 | 25,000 | ||
Total assets | 25,572,868 | 25,572,868 | 20,463,289 | ||
Accumulated deficit | (13,640,644) | (13,640,644) | (9,092,717) | ||
Effect of Adoption of New ASU | |||||
Sales and marketing expense | (39,827) | $ (41,679) | (29,750) | $ (138,027) | |
Total operating expenses | (39,827) | (41,679) | (29,750) | (138,027) | |
Operating loss | 39,827 | 41,679 | 29,750 | 138,027 | |
Loss before income taxes | 39,827 | 41,679 | 29,750 | 138,027 | |
Benefit for income tax | 0 | (947) | 0 | 0 | |
Net loss | $ 39,827 | $ 42,626 | $ 29,750 | $ 138,027 | |
Basic net loss per share | $ .00 | $ 0.03 | $ .00 | $ .02 | |
Diluted net loss per share | $ .00 | $ 0.03 | $ .00 | $ .02 | |
Other current assets | $ 665,807 | $ 665,807 | 631,203 | ||
Other long-term assets | 582,777 | 582,777 | 587,631 | ||
Total assets | 1,248,584 | 1,248,584 | 1,218,834 | ||
Accumulated deficit | $ 1,248,584 | $ 1,248,584 | $ 1,218,834 |
Summary of Significant Accounting Policies (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
Dec. 31, 2017 |
|
Convertible notes embedded derivative | $ 267,579 | $ 267,579 | $ 0 | ||
Accounts receivable written off | 351,000 | 351,000 | |||
Goodwill | 8,864,710 | 8,864,710 | 8,872,898 | ||
Allowance for doubtful accounts receivable | 149,283 | 149,283 | 526,127 | ||
Depreciation expense | 85,733 | $ 70,107 | 161,716 | $ 135,190 | |
Revenue from contracts with customers | 4,400,000 | 3,200,000 | 8,600,000 | 6,300,000 | |
Deferred revenue | 318,586 | 318,586 | 279,818 | ||
Deferred revenue increase | 378,190 | 268,247 | 719,609 | 476,607 | |
Deferred revenue recognized | 358,127 | 305,623 | 679,012 | 506,913 | |
Accrued revenue billed | 628,497 | 466,610 | 554,603 | 439,559 | |
Accrued revenue balance | 646,452 | 646,452 | |||
Advertising and marketing expenses | 1,294,274 | 797,173 | 2,743,701 | 1,342,948 | |
Software development costs capitalized | 39,210 | 17,392 | 66,446 | 33,938 | |
Net carrying value of capitalized software | 121,446 | 121,446 | $ 86,857 | ||
Capitalized cost of obtaining a contract | 1,248,584 | 1,218,833 | 1,248,584 | 1,218,833 | |
Current portion of cost of obtaining a contract | 665,807 | 631,203 | 665,807 | 631,203 | |
Non-current portion of cost of obtaining a contract | 582,777 | 587,630 | 582,777 | 587,630 | |
Amortized cost of obtaining contract expense | $ 185,701 | $ 130,226 | $ 363,239 | $ 242,151 | |
Minimum [Member] | |||||
Finite-lived intangible assets useful lives | 5 years | ||||
Maximum [Member] | |||||
Finite-lived intangible assets useful lives | 11 years |
Goodwill and Other Intangible Assets (Details) - USD ($) |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | $ 6,345,758 | |
Accumulated amortization | (4,249,758) | |
Net Carrying Value | 2,096,000 | $ 2,326,000 |
Goodwill | 8,864,710 | $ 8,872,898 |
Total intangible assets | 10,960,710 | |
Trade Names [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 120,000 | |
Accumulated amortization | (101,496) | |
Net Carrying Value | 18,504 | |
Technology [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 2,130,000 | |
Accumulated amortization | (827,000) | |
Net Carrying Value | 1,303,000 | |
Customer Relationships [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 4,095,758 | |
Accumulated amortization | (3,321,262) | |
Net Carrying Value | $ 774,496 |
Goodwill and Other Intangible Assets (Details 1) - USD ($) |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Remainder of 2018 | $ 229,998 | |
2019 | 381,000 | |
2020 | 332,000 | |
2021 | 280,000 | |
2022 | 228,000 | |
2023 | 180,000 | |
Thereafter | 465,002 | |
Total | $ 2,096,000 | $ 2,326,000 |
Goodwill and Other Intangible Assets (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Goodwill and Intangible Assets Disclosure [Abstract] | ||||
Amortization expense | $ 115,000 | $ 131,869 | $ 230,000 | $ 263,392 |
Credit Facility (Details Narrative) - Revolving Loan Agreement [Member] |
6 Months Ended |
---|---|
Jun. 30, 2018
USD ($)
| |
Line of credit facility, expiration date | Mar. 31, 2020 |
Western Alliance Bank [Member] | Prime Rate [Member] | |
Line of credit | $ 2,500,000 |
Loan interest rate | 6.75% |
Percentage of secured pledge of capital stock | 100.00% |
Percentage of pledge of foreign subsidiaries stock | 65.00% |
Convertible Notes (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Convertible Notes Details 1Abstract | ||||
Principal amount | $ 8,000,000 | $ 0 | $ 8,000,000 | $ 0 |
Accrued interest paid-in-kind | 100,000 | 0 | 104,301 | 0 |
Unamortized debt issuance costs | (135,025) | 0 | (135,025) | 0 |
Embedded conversion feature derivative | 185,870 | 0 | 185,870 | 0 |
Net carrying value | $ 8,115,146 | $ 0 | $ 8,115,146 | $ 0 |
Convertible Notes (Details 1) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Convertible Notes Details 2Abstract | ||||
Contractual interest paid-in-kind expense (non-cash) | $ 100,000 | $ 0 | $ 104,301 | $ 0 |
Amortization of debt issuance costs (non-cash) | 6,359 | 0 | 6,632 | 0 |
Total interest expense | $ 106,359 | $ 0 | $ 110,933 | $ 0 |
Effective interest rate | 5.30% | 0.00% | 5.30% | 0.00% |
Changes in Accumulated Other Comprehensive Income (Loss) (Details) |
6 Months Ended |
---|---|
Jun. 30, 2018
USD ($)
| |
Equity [Abstract] | |
Balance beginning | $ (480,762) |
Other comprehensive income (loss) prior to reclassifications | 0 |
Amounts reclassified from accumulated other comprehensive income | 0 |
Tax effect | 0 |
Net current period other comprehensive loss | 115,542 |
Balance end | $ (365,220) |
Net Loss Per Share (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Earnings Per Share [Abstract] | ||||
Net loss | $ (2,466,233) | $ (1,272,722) | $ (4,518,176) | $ (2,651,994) |
Basic weighted average common shares outstanding | 8,474,616 | 8,381,748 | 8,459,036 | 8,375,499 |
Add incremental shares for warrants | 0 | 0 | 0 | 0 |
Add incremental shares for stock options | 0 | 0 | 0 | 0 |
Add incremental shares for convertible notes | 0 | 0 | 0 | 0 |
Diluted weighted average common shares outstanding | 8,474,616 | 8,381,748 | 8,459,036 | 8,375,499 |
Net loss per share basic | $ (0.29) | $ (0.15) | $ (0.53) | $ (0.32) |
Net loss per share diluted | $ (0.29) | $ (0.15) | $ (0.53) | $ (0.32) |
Net Loss Per Share (Details 1) - shares |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Warrants Member | ||||
Diluted net loss per share | 44,000 | 170,973 | 44,000 | 170,973 |
Stock Option [Member] | ||||
Diluted net loss per share | 1,483,566 | 1,323,726 | 1,483,566 | 1,323,726 |
Convertible Notes [Member] | ||||
Diluted net loss per share | 1,080,573 | 0 | 1,080,573 | 0 |
Income Taxes (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
Dec. 31, 2017 |
|
Income Tax Disclosure [Abstract] | |||||
Income tax benefits | $ (294,543) | $ (395,094) | $ (252,546) | $ (893,840) | |
Effective tax rate | 5.30% | 25.20% | |||
Deferred tax valuation allowance | $ 3,100,000 | $ 3,100,000 | $ 1,900,000 |
Defined Contribution Retirement Plan (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Retirement Benefits [Abstract] | ||||
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 | $ 61,586 | $ 54,579 | $ 121,924 | $ 91,074 |
Stock-Based Compensation (Details) - Stock Option [Member] |
6 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Volatility, minimum | 48.00% | 48.00% |
Volatility, maximum | 49.00% | 49.00% |
Risk-free interest rate, minimum | 2.34% | 1.90% |
Risk-free interest rate, maximum | 2.84% | 2.26% |
Expected term | 6 years 3 months | 6 years 3 months |
Stock-Based Compensation (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||
Weighted average grant date fair value of stock options granted | $ 2.34 | $ 2.40 | ||
Stock option expense | $ 189,344 | $ 175,405 | $ 382,879 | $ 359,752 |
Intrinsic value of stock options exercised | $ 157,036 | $ 157,601 | ||
Number of shares issued to non-employee directors | 6,915 | 12,786 | 15,870 | 23,670 |
Fair value of stock awards granted, vested and expensed | $ 49,462 | $ 56,271 | $ 93,341 | $ 112,650 |
Commitments and Contingencies (Details) |
Jun. 30, 2018
USD ($)
|
---|---|
Commitments and Contingencies Disclosure [Abstract] | |
Remainder of 2018 | $ 326,177 |
2019 | 618,557 |
2020 | 623,009 |
2021 | 645,265 |
2022 | 649,717 |
2023 | 671,973 |
Thereafter | 3,408,119 |
Total | $ 6,942,817 |
Disaggregation of Revenue (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Total Revenue | $ 4,442,289 | $ 3,246,420 | $ 8,626,952 | $ 6,269,853 |
Upfront fees | ||||
Total Revenue | 370,288 | 266,080 | 701,120 | 494,128 |
Recurring Revenue | ||||
Total Revenue | 4,072,001 | 2,980,340 | 7,925,832 | 5,775,725 |
Mail + Product Revenue | ||||
Total Revenue | 123,131 | 152,951 | 244,295 | 331,211 |
Marketing Automation Revenue | ||||
Total Revenue | $ 4,319,158 | $ 3,093,469 | $ 8,382,657 | $ 5,938,642 |
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