Acquisitions

12 Months Ended

Dec. 31, 2020

Acquisitions

Note 3. Acquisitions

Note 3: Acquisitions

On November 21, 2019, the Company acquired substantially all the assets and assumed certain liabilities of the Perfect Audience business unit from Marin Software Incorporated, a Delaware corporation for cash consideration of $4.6 million. The acquired assets and liabilities were assigned to SharpSpring’s wholly owned subsidiary, SharpSpring Reach, Inc. Perfect Audience is a cloud-based platform that provides display retargeting software services. The transaction was structured as an asset purchase, whereby SharpSpring acquired all of Perfect Audience’s assets used in connection with the business (excluding certain pre-acquisition receivables, cash, and cash equivalents) and only liabilities pertaining to the business such as deferred revenue, accrued publisher costs, accrued bonuses for to the acquired workforce, and any liabilities accruing on or after November 21, 2019.

The allocation of the purchase price is based on management estimates and assumptions, and other information compiled by management, which utilized established valuation techniques appropriate for the industry. The valuation included a combination of the income approach and cost approach, depending upon which was the most appropriate based on the nature and reliability of the data available. The income approach is predicated upon the value of the future cash flows that an asset is expected to generate over its economic life. The cost approach considers the cost to replace (or reproduce) the asset and the effects on the assets value of physical, functional, and/or economic obsolescence that has occurred with respect to the asset.

The following represents the final allocation of the purchase price to the acquired net tangible and intangible assets acquired and liabilities assumed by SharpSpring:

Cash Consideration	$	4,566,402
Add:
Net tangible liabilities acquired
Deferred Revenue	$	186,500
Accrued expenses and other current liabilities	$	545,473
Total liabilities	$	731,973
Less:
Net tangible assets acquired
Accounts receivable	$	(55,236	)
Other current assets	$	(20,719	)
Total tangible assets	$	(75,955	)
Intangible assets acquired:
Trade names	$	(381,000	)
Technology	$	(979,000	)
Vendor relationships	$	(1,813,000	)
Total intangible assets	$	(3,173,000	)
Goodwill	$	2,049,420

The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill of $2.05 million. Goodwill will not be amortized but instead tested for impairment at least annually (more frequently if certain indicators are present). Goodwill arose primarily as a result of the expected future growth of the Perfect Audience product and the assembled workforce. For additional information regarding goodwill and intangibles see Note 4. The transaction costs associated with the acquisition were approximately $0.18 million and were recorded in general and administrative expense during 2019.

The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The Company’s estimates are inherently uncertain and subject to refinement.

Pro Forma Results of Operations (Unaudited)

The following table summarizes selected unaudited pro forma consolidated statements of operations data for the years ended December 31, 2020 and 2019 as if the acquisition of Perfect Audience had been completed at the beginning of 2019.

	Year Ended
	December 31,
	2020			2019
Net revenues	$	29,287,882		$	25,408,526
Gross profit		21,225,318			17,201,321
Net loss		(5,829,029	)		(12,043,201	)
Net (loss) per share, basic and diluted	$	(0.50	)	$	(1.17	)