Disposition

9 Months Ended

Sep. 30, 2017

Business Combinations [Abstract]

Disposition

Note 5: Disposition

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 was held in escrow until the one-year anniversary and recorded in Other current assets at December 31, 2016. The Company received the $1.0 million escrow payment in June 2017. 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, which was subsequently extended for an additional three 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 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 three and nine months ended September 30, 2017 and 2016, are presented in the following table:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Revenue	$	-	$	-	$	-	$	2,746,378
Cost of services		-		-		-		642,013
Gross profit		-		-		-		2,104,365
Operating expenses:
Sales and marketing		-		-		-		177,265
Research and development		-		-		-		152,898
General and administrative		-		-		-		474,048
Total operating expenses		-		-		-		804,211
Operating income		-		-		-		1,300,154
Other income (expense), net, before gain on sale		-		-		-		-
Income before income taxes, before gain on sale		-		-		-		1,300,154
Income tax expense		-		-		-		485,998
Net income, before gain on sale	$	-	$	-	$	-	$	814,156
Gain on sale of discontinued operations		-		-		-		9,373,295
Income from discontinued operations, net of income taxes	$	-	$	-	$	-	$	10,187,451

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.