Dispositions

12 Months Ended

Dec. 31, 2016

Business Combinations [Abstract]

Dispositions

Note 5: Dispositions

On June 27, 2016, the Company completed the sale of the assets and deferred revenue liabilities of its SMTP email relay business (“SMTP”) to the Electric Mail Company for approximately $15.0 million. Of the total proceeds from the sale of SMTP, approximately $1.0 million in cash is held in escrow to be received in July 2017, and recorded in Other current assets at December 31, 2016. In conjunction with the sale, the Company also entered into a transition services agreement (the “TSA”) with the buyer to assist in the transition of operations over a six-month period, with an option to extend for an additional six months. Pursuant to the terms of the transition services agreement, in exchange for assisting in the transfer of operations, the Company may continue utilizing the SMTP email relay platform for its email sending needs at no cost. Although no cash was exchanged for the services performed by the parties to the TSA, the Company recorded the estimated cost to utilize the SMTP sending platform as a cost of sale and recorded a benefit to Other income (expense), net for the value of services provided to the Electric Mail Company. Also, in conjunction with the sale, the Company abandoned a software asset that was not acquired, but will not be utilized by the Company in the future. The Company recorded a gain on the sale of SMTP of approximately $9.8 million, net of tax of $5.2 million in the second quarter of 2016.

Pursuant to the reporting requirements of ASC 205-20, Presentation of Financial Statements – Discontinued Operations, the Company has determined that the SMTP business qualifies for presentation as a discontinued operation because it represents a component of our entity and the sale of SMTP represents a strategic shift in our business plans. Therefore, the Company has reclassified the assets and liabilities of the SMTP business as held for sale in the accompanying Consolidated Balance Sheets and presented the operating results of SMTP (for periods prior to the sale) as discontinued operations, net of tax, in the accompanying Consolidated Statements of Comprehensive Income (Loss) and Consolidated Statements of Cash Flows.

Financial information for the SMTP email relay business for the year ended December 31, 2016 and 2015, are presented in the following table:

	Three Months Ended				Year Ended
	December 31,				December 31,
	2016		2015		2016		2015
Revenue	$	-	$	1,367,252	$	2,746,378	$	5,404,870
Cost of services		-		276,465		642,013		1,169,175
Gross profit		-		1,090,787		2,104,365		4,235,695
Operating expenses:
Sales and marketing		-		43,013		177,265		789,308
Research and development		-		127,198		152,898		429,318
General and administrative		-		204,368		474,048		817,081
Total operating expenses		-		374,579		804,211		2,035,707
Operating income		-		716,208		1,300,154		2,199,988
Other income (expense), net, before gain on sale		-		-		-		-
Income before income taxes, before gain on sale		-		716,208		1,300,154		2,199,988
Income tax expense		-		267,719		447,675		822,356
Net income, before gain on sale	$	-	$	448,489	$	852,479	$	1,377,632
Gain on sale of discontinued operations, net of tax expense of $5,154,026		-		-		9,814,506		-
Income from discontinued operations, net of income taxes	$	-	$	448,489	$	10,666,985	$	1,377,632

The financial information above includes the financial results for the SMTP email relay business through June 27, 2016, plus any residual costs incurred after June 27, 2016 related to the transition of the business to the buyer. The results are comprised of revenue and costs directly attributable to the SMTP email relay business as well as allocated costs for resources that have historically had shared roles in our consolidated operations. For resources performing shared roles, cost allocations have been created based on estimated work performed and job activities. Although our SharpSpring and GraphicMail products had utilized the SMTP email relay sending platform prior to the disposition, no intercompany revenues have been reflected in the SMTP email relay business operating results related to the use of the email sending platform by our other product lines.

The assets and liabilities of discontinued operations are stated separately as of December 31, 2015, in the Consolidated Balance Sheets and are comprised of the following items:

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