UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
 
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (date of earliest event reported):  May 9, 2019
 
SharpSpring, Inc.
(Exact name of registrant as specified in its charter)
 
           Delaware              
 
    001-36280    
 
      05-0502529     
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)
 
5001 Celebration Pointe Avenue
        Gainesville, FL 32608        
(Address of principal executive offices, including zip code)
 
Registrant’s telephone number, including area code: (888) 428-9605
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
☐
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [   ]
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.001 par value per share
SHSP
The NASDAQ Stock Market LLC
 

 
 
 
Item 1.01 Entry into a Material Definitive Agreement.
 
On May 9, 2019, SharpSpring, Inc. (the “Company”) entered into a Note Conversion Agreement (the “Conversion Agreement”) with SHSP Holdings, LLC (“SHSP Holdings”) and Evercel Holdings, LLC (“Evercel,” and together with SHSP Holdings, the “Investor”), pursuant to which the parties agreed to the conversion (the “Conversion”) of the Convertible Promissory Note in the principal amount of $8,000,000 (the “Note”), which was issued by the Company to SHSP Holdings as of March 28, 2018, into 1,241,635 shares (the “Conversion Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”). The Company’s entry into the Conversion Agreement was unanimously approved by the disinterested members of the Company’s Board of Directors based on the Board’s determination that the conversion would, among other things, decrease the potential dilutive effect of the conversion of the Note relative to conversion at the previously scheduled five-year maturity of the Note; provide a meaningful savings in the total interest paid by the Company in connection with the Note compared to the interest that the Company would have incurred had the Note converted at maturity; eliminate certain restrictions on the ability of the Company to incur indebtedness when and if the Company deems it in the best interest of the Company; and strengthen the Company’s balance sheet by eliminating indebtedness.
 
Under the Conversion Agreement, the Conversion is effective as of May 9, 2019. As of such date, (1) SHSP Holdings is deemed to be the holder of record of the Conversion Shares; (2) the Note is deemed to have been converted into the Conversion Shares, and any interest in any amount will cease to accrue or be payable with respect to the Note; and (3) SHSP Holdings ceases to be a holder of any Notes, and the Note ceases to be outstanding, for purposes of the Investors’ Rights Agreement dated as of March 28, 2018 among SHSP and the Investor, including the provisions of the Investors’ Rights Agreement (i) providing the Investor with the right to designate a member of the Company’s Board, (ii) prohibiting sales of Common Stock by the Company’s Chief Executive Officer and Chief Technology Officer and (iii) restricting the Company’s ability to incur certain indebtedness.
 
Concurrently with the execution and in accordance with the terms of the Conversion Agreement, Daniel C. Allen, a director of the Company and an affiliate of the Investor, tendered to the Company an undated letter of resignation, which resignation may be accepted by the Company’s Board at any such time as it may determine in its sole discretion and will be deemed effective immediately upon such acceptance. The Company’s Board has not as of yet determined to accept the tendered resignation.
 
The foregoing description of the Conversion Agreement is not intended to be complete and is qualified in its entirety by the full text of the Conversion Agreement, a copy of which is attached hereto as Exhibit 10.1, which is incorporated herein by reference.
 
Item 1.02 Termination of a Material Definitive Agreement.
 
Effective as of the issuance and delivery of the Conversion Shares to SHSP Holdings in accordance with the Conversion Agreement described under Item 1.01, above, the Note will be canceled and terminated in its entirety and of no further force and effect, and any and all indebtedness and other obligations of the Company under the Note will be fully performed and discharged, and any and all claims or rights of SHSP Holdings or its affiliates thereunder will be fully and finally extinguished and released.
 
Item 2.02 Results of Operations and Financial Condition.
 
On May 9, 2019, the Company issued a press release to report its financial results for the first quarter ended March 31, 2019. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K. The information in this Item 2.02 and Exhibit 99.1 in Item 9.01 of this Form 8-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.
 
Item 9.01 Financial Statements and Exhibits.
 
(d) Exhibits
 
Exhibit No.
 
Description
 
Note Conversion Agreement, dated May 9, 2019, by and among SharpSpring, Inc., SHSP Holdings, LLC, and Evercel Holdings, LLC.
 
 
 
 
Press Release dated May 9, 2019 – First Quarter 2019 Results
 
 
 
2
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
SHARPSPRING, INC.
 
 
 
 
 
Dated:  May 9, 2019
By:  
/s/ Bradley M. Stanczak
 
 
 
Bradley M. Stanczak,
 
 
 
Chief Financial Officer
 
 
 

 
 
 
 
3
 
Exhibit 10.1
 
NOTE CONVERSION AGREEMENT
 
THIS NOTE CONVERSION AGREEMENT (this “Agreement”) is entered into as of May 9, 2019, by and among SHARPSPRING, INC., a Delaware corporation (the “Company”), SHSP HOLDINGS, LLC, a Delaware limited liability company (“SHSP Holdings”) and EVERCEL HOLDINGS, LLC, a Delaware limited liability company and an affiliate of SHSP Holdings, LLC (“Evercel,” and together with SHSP Holdings, the “Investor”).
 
B A C K G R O U N D :
 
A.           On March 28, 2018, pursuant to a Convertible Note Purchase Agreement (the “Note Purchase Agreement”) between the Company and SHSP Holdings, the Company issued to SHSP Holdings a Convertible Promissory Note in the principal amount of $8,000,000 (the “Note”), which is convertible upon the terms and conditions set forth therein into shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”).
 
B.           On March 28, 2018, concurrently and in connection with the execution of the Note Purchase Agreement, the Company, SHSP Holdings and Evercel entered into an Investors’ Rights Agreement (the “Investors’ Rights Agreement”) setting forth certain rights and obligations of the parties thereto relating to the ownership by SHSP Holdings of the Note, the shares of Common Stock issued or issuable upon conversion of the Note, and certain other shares of Common Stock owned or beneficially owned by the Investor.
 
C.           SHSP Holdings desires to convert the Note into shares of Common Stock upon the terms of and subject to the conditions set forth in this Agreement.
 
D.           The Board of Directors of the Company (the “Board”) has determined that it is fair to and in the best interests of the Company and its stockholders to enter into this Agreement with respect to the conversion by SHSP Holdings of the Note into shares of Common Stock upon the terms of and subject to the conditions set forth in this Agreement.
 
A G R E E M E N T :
 
NOW THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:
 
1. Conversion of the Note.
 
(a) Subject to the terms and conditions of this Agreement, effective May 9, 2019 (the “Conversion Date”), the Note shall be converted (the “Conversion”) into 1,241,635 shares of Common Stock (the “Conversion Shares”).
 
(b) Promptly (and in any event, within ten (10) business days) after the Conversion Date, the Company shall cause its transfer agent to issue and promptly deliver to Investor, at no cost to Investor, one or more stock certificates registered in the name of SHSP Holdings evidencing the Conversion Shares.
 
 
1
 
 
2. Effect of Conversion and Delivery of Conversion Shares. The parties to this Agreement hereby acknowledge and agree as follows:
 
(a)           Effective as of the Conversion, SHSP Holdings shall be deemed to be the holder of record of the Conversion Shares, regardless of when the Conversion Shares are actually issued and delivered to SHSP Holdings in accordance with Section 1(b) of this Agreement.
 
(b)           Effective as of the Conversion, (i) the Note shall be deemed to have been converted into the Conversion Shares, and any interest in any amount shall cease to accrue or be payable with respect to the Note, and (ii) SHSP Holdings shall cease to be a holder of any Notes, and the Note shall cease to be outstanding, for purposes of Sections 2, 3 and 4 of the Investors’ Rights Agreement.
 
(c)           Effective as of the issuance and delivery of the Conversion Shares to SHSP Holdings in accordance with Section 1(b) of this Agreement, the Note shall be canceled and terminated in its entirety and of no further force and effect, and any and all indebtedness and other obligations of the Company under the Note shall be fully performed and discharged, and any and all claims or rights of SHSP Holdings or its affiliates thereunder shall be fully and finally extinguished and released.
 
(d)           The respective rights and obligations of the parties with respect to the Conversion Shares shall be governed under the Investors’ Rights Agreement. The parties acknowledge that the Conversion Shares shall be “Registrable Securities” as such term is defined in the Investors’ Rights Agreement.
 
3.            
Investor Board Representation. The parties acknowledge and agree that, effective as of the Conversion, the Investor shall cease to have any right to designate any person for election to the Board. Concurrently with the execution of this Agreement, the Investor shall cause Daniel C. Allen to submit to the Company an undated letter of resignation substantially in the form attached hereto as Exhibit A, which resignation may be accepted by the Board at any such time as it may determine in its sole discretion and will be effective immediately upon such acceptance. The Company will provide notice to Mr. Allen promptly after any acceptance of such resignation.
 
4.            
Request for Registration. The parties acknowledge and agree that, contemporaneous with the execution of this Agreement, Investor hereby requests pursuant to Section 1.2(a) of the Investors’ Rights Agreement that the Company register under the Securities Act of 1933, as amended (the “Securities Act”), for resale pursuant to Rule 415 under the Securities Act, all of the Conversion Shares, as well as all shares of Common Stock beneficially owned by the Investor as of the date of this Agreement, in accordance with the terms of the Investors’ Rights Agreement. 
 
 
2
 
 
5.            
Representations and Warranties.
 
(a)           
The Company represents and warrants to the Investor as follows:
 
(i)           The Company has the requisite corporate power and authority to execute this Agreement, to issue the Conversion Shares pursuant hereto, and to perform its obligations under this Agreement.
 
(ii)           The execution and delivery of this Agreement has been duly and validly authorized by the Company’s Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders in connection therewith.
 
(iii)           This Agreement has been duly and validly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies. The Conversion Shares, when issued in accordance with the terms of this Agreement, will be validly issued, fully-paid and non-assessable.
 
(iv)           The Board has taken all such actions as are necessary and appropriate to approve, for purposes of Section 16(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the disposition and cancellation or deemed disposition and cancellation of the Note and the acquisition by the Investor of the Conversion Shares pursuant to the terms of this Conversion Agreement and to cause such dispositions, cancellations and/or acquisitions to be exempt under Rule 16b-3 promulgated under the Exchange Act.
 
(b)           
The Investor represents to the Company that the Investor has the requisite power and authority to enter into this Agreement and to perform its obligations under this Agreement. The execution and delivery by Investor of this Agreement has been duly and validly authorized by Investor’s governing body and no further consent or authorization is required. This Agreement has been duly and validly executed and delivered by the Investor and constitutes a valid and binding obligation of Investor, enforceable against Investor in accordance with its terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies.
 
6.            
Restriction on Transfer. SHSP Holdings acknowledges that issuance of the Conversion Shares will not be registered under the Securities Act of 1933 or registered or qualified under any applicable state securities laws in reliance upon exemptions from such registration and qualification requirements. Accordingly, a legend in substantially the following form shall be affixed to the Conversion Shares:
 
 
3
 
 
THE ISSUANCE OF THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR REGISTERED OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS IN RELIANCE ON EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION REQUIREMENTS. THIS SECURITY MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH ALL APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
 
7.            
Miscellaneous.
 
 (a)           Return of Note. SHSP Holdings hereby covenants to return the original Note to the Company as promptly as possible, but in no event more than five (5) business days, following the date on which the Conversion Shares are issued and transmitted to SHSP Holdings by the Company in accordance with Section 1(b) hereof.
 
(b)           Governing Law. This Agreement shall be governed by and construed in accordance with laws of the State of Delaware, without giving effect to any choice of law or conflict of laws rules or provisions.
 
(c)           Amendment and Waiver. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), and this Agreement may be terminated, only with the written consent of all of the parties hereto.
 
 (d)           Entire Agreement. This Agreement, the Investors’ Rights Agreement, the Note and the Note Purchase Agreement constitute the entire agreement among the parties relative to the specific subject matter hereof and thereof and supersede any and all previous agreements among the parties or any of them relative to the specific subject matter hereof and thereof.
 
(e)           Notices. All notice or other communication required or permitted to be given under this Agreement shall be in writing and shall be given by (i) personal delivery, which notice shall be effective when actually delivered, (ii) private overnight courier, which notice shall be effective on the day of delivery, (iii) by facsimile or electronic mail, which notice shall be effective upon confirmation of transmission, or (iv) certified or registered mail, which notice shall be effective three business days after being deposited in the mail, postage prepaid. Any such notice, to be valid, must be addressed (x) if sent to the Company, to the Company’s principal executive offices, and (y) if sent to SHSP Holdings or to Evercel Holdings, at such party’s notice address, facsimile number or electronic mail address set forth on the signature page to this Agreement or to such other address as such Investor has specified by prior written notice to the other parties hereto after the date hereof.
 
(f)           Counterparts. This Agreement may be executed in two or more counterparts (including by means of facsimile or electronically scanned copies), each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
 
(g)           Successors and Assigns. This Agreement may not be assigned by any party hereto without the prior written consent of the other parties. Subject to the foregoing, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns.
 
 
4
 
 
 
 (h)           No Third Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any person or entity other than the parties hereto and their respective successors and permitted assigns.
 
(i)           Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed by them in accordance with the terms hereof and that each party shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity.
 
 
 
 
[Signature page follows]
 
 
 
5
 
 
 
IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Note Conversion Agreement as of the date first above written.
 
 
SHARPSPRING, INC.
 
By: /s/ Richard Carlson
Name: Richard Carlson
Title: CEO 
 
THE INVESTORS:
 
SHSP HOLDINGS, LLC
 
By: /s/ Daniel Allen
Name: Daniel Allen
Title: Manager
 
Notice address for SHSP Holdings, LLC:
 
228 Park Avenue South, Suite 90959
New York, New York 10003
 
E-mail: ___________________________________
 
Facsimile: 234-421-1020
 
EVERCEL HOLDINGS, LLC
 
By: /s/ Daniel Allen
Name: Daniel Allen
Title: Manager 
 
228 Park Avenue South, Suite 90959
New York, New York 10003
 
E-mail: ___________________________________
 
Facsimile: _________________________________
 
 
 
6
 
 
EXHIBIT A
 
FORM OF LETTER OF RESIGNATION
 
RESIGNATION
 
I, Daniel C. Allen, hereby resign from my position as a member of the Board of Directors of SharpSpring, Inc. (the “Company”) and any subsidiary of the Company, and from any other fiduciary or other positions with each of the Company and any subsidiary of the Company, which resignation shall be effective immediately upon acceptance by the Board of Directors at any such time as it may determine in its sole discretion.
 
Delivery of a facsimile or portable document format signature of the undersigned shall be effective to bind the undersigned to this instrument.
 
IN WITNESS WHEREOF, the undersigned has executed this Resignation as of the ______ day of ___________, 2019.
 
 
_________________________________________
Daniel C. Allen
 
 
 
 
7
 
 Exhibit 99.1
 
 
SharpSpring Reports First Quarter 2019 Results
 
Eighth Straight Quarter of Record Results Driven by Continued Sales and Marketing Execution and Introduction of Enhanced Customer Retention and Expansion Efforts
 
GAINESVILLE, FL – May 9, 2019 – SharpSpring, Inc. (NASDAQ: SHSP), a leading cloud-based marketing automation platform, reported financial results for the first quarter ended March 31, 2019.
 
First Quarter 2019 Operational Highlights
●
Added a Q1 record 327 new SharpSpring customers, who selected the platform to generate leads, convert more leads to sales and measure the ROI of their marketing campaigns.
 
●
Finished the quarter with 1,804 agency customers and over 7,700 businesses using the SharpSpring Marketing Automation platform.
 
●
Significantly increased available growth capital through successful equity offering in March, resulting in net proceeds of $10.7 million after full exercise of overallotment.
 
●
Recognized by TrustRadius as a “Top Rated Marketing Automation Software” for the second consecutive year
 
First Quarter 2019 Financial Results
●
SharpSpring Marketing Automation revenues grew 29% to a record $5.3 million from $4.1 million in the same year-ago period.
 
●
Total revenue (which includes legacy products) increased 27% to a record $5.3 million from $4.2 million in the same year-ago period.
 
●
Gross profit increased 36% to $3.8 million (71% of total revenue) from $2.8 million (67% of total revenue) in the same year-ago period.
 
●
Net loss was $2.9 million, or $0.33 per share, compared to net loss of $2.1 million, or $0.24 per share, in the first quarter of 2018.
 
●
Adjusted EBITDA loss (a non-GAAP metric reconciled below) totaled $1.8 million, compared to an adjusted EBITDA loss of $1.7 million in the same year-ago period.
 
●
Core net loss (a non-GAAP metric reconciled below) totaled $2.1 million, or $0.23 per share, compared to core net loss of $1.7 million, or $0.20 per share, in the same year-ago period.
 
●
At quarter-end, the company had $17.8 million in cash, compared to $9.3 million at December 31, 2018.
 
Management Commentary
“The first quarter was a record start to the year, and we’re in a great spot to continue our growth trajectory throughout 2019," said SharpSpring CEO Rick Carlson. “Considering our typical seasonality during this period, we still increased our new customer win rate by nearly 50% over the first quarter of 2018, bringing us to over 1,800 agency clients and well over 7,700 businesses now using SharpSpring to improve their sales and marketing efforts, drive new leads, and help their business thrive.”
 
 
1
 
  
“Operationally, we continue to improve how we manage the entire customer lifecycle, placing a greater level of importance on successful onboarding and providing high-touch account management to ensure that all customers maximize their success on our platform. In addition to the ongoing enhancements we’ve made to our product, we’re also working diligently to introduce certain paid features in the second half of the year that will make SharpSpring more powerful than ever. Going forward, we’re continuing to focus our efforts both on winning new customers at an increasing rate and reducing both logo and net revenue attrition. Put together, we believe this dual emphasis will ultimately support quicker return on investment in the near term and create expansion revenues down the road.”
 
Subsequent Event
On May 9, 2019, SharpSpring entered into an agreement with SHSP Holdings, LLC (“SHSP Holdings”), for the conversion and retirement of the $8 million unsecured convertible promissory note issued and announced by SharpSpring in March of 2018. Under the terms of the agreement, total shares to be issued to SHSP Holdings are 1,241,635. This amount is 119,732 shares less than the fully allotted amount, which was previously expected to be issued upon the optional early conversion of the note by the Company, or the previously scheduled maturity of the note in March 2023. Total settled principal and interest will equal $9,312,258.
 
Conference Call
SharpSpring management will hold a conference call today, May 9, 2019 at 4:30 p.m. Eastern time (1:30 p.m. Pacific time) to discuss these results.
 
Company CEO Rick Carlson and CFO Brad Stanczak will host the call, followed by a question and answer period.
 
U.S. dial-in number: 877-407-9124
International number: 201-689-8584
 
Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Gateway Investor Relations at 949-574-3860.
 
The conference call will be broadcast live and available for replay here and via the investor relations section of the company’s website at investors.sharpspring.com.
 
A replay of the conference call will be available after 7:30 p.m. Eastern time on the same day through May 23, 2019.
 
Toll-free replay number: 877-481-4010
International replay number: 919-882-2331
Replay ID: 46945
 
About SharpSpring, Inc.
SharpSpring, Inc. (NASDAQ: SHSP) is a rapidly growing, highly-rated global provider of affordable marketing automation delivered via a cloud-based Software-as-a Service (SaaS) platform. Thousands of businesses around the world rely on SharpSpring to generate leads, improve conversions to sales, and drive higher returns on marketing investments. Known for its innovation, open architecture and free customer support, SharpSpring offers flexible monthly contracts at a fraction of the price of competitors making it an easy choice for growing businesses and digital marketing agencies. Learn more at www.sharpspring.com.
 
 
2
 
 
Non-GAAP Financial Measures
Adjusted EBITDA, core net loss and core net loss per share are "non-GAAP financial measures" presented as supplemental measures of the company’s performance. These metrics are not presented in accordance with United States generally accepted accounting principles, or GAAP. The company believes these measures provide additional meaningful information in evaluating its performance over time. However, the measures have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of the company’s results as reported under GAAP. A reconciliation of net loss to these measures is included for your reference in the financial section of this earnings press release.
 
Important Cautions Regarding Forward-Looking Statements
The information posted in this release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these statements by use of the words “may,” “will,” “should,” “plans,” “explores,” “expects,” “anticipates,” “continues,” “estimates,” “projects,” “intends,” and similar expressions. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, but are not limited to, general economic and business conditions, effects of continued geopolitical unrest and regional conflicts, competition, changes in technology and methods of marketing, delays in completing new customer offerings, changes in customer order patterns, changes in customer offering mix, continued success in technological advances and delivering technological innovations, our ability to successfully utilize our cash to develop current and future products, delays due to issues with outsourced service providers, those events and factors described by us in Item 1. A “Risk Factors” in our most recent Form 10-K and other risks to which our company is subject, and various other factors beyond the company’s control. Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
 
Company Contact:
Brad Stanczak
Chief Financial Officer
352-448-0967
IR@sharpspring.com
 
Investor Relations:
Gateway Investor Relations
Matt Glover or Tom Colton
949-574-3860
SHSP@gatewayir.com
 
 
3
 
 
SharpSpring, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
 
Three Months Ended
 
 
 
March 31,  
 
 
 
2019
 
 
2018
 
Revenue
 $5,326,285 
 $4,184,663 
 
    
    
Cost of services
  1,548,381 
  1,400,297 
Gross profit
  3,777,904 
  2,784,366 
 
    
    
Operating expenses:
    
    
Sales and marketing
  3,008,203 
  2,371,030 
Research and development
  1,258,728 
  950,675 
General and administrative
  2,227,675 
  1,426,234 
Intangible asset amortization
  95,250 
  115,000 
 
    
    
Total operating expenses
  6,589,856 
  4,862,939 
 
    
    
Operating loss
  (2,811,952)
  (2,078,573)
 
    
    
Other (expense) income, net
  (104,126)
  68,628 
Gain on embedded derivative
  24,574 
  - 
 
    
    
Loss before income taxes
  (2,891,504)
  (2,009,945)
Provision for income taxes
  2,339 
  41,997 
 
    
    
Net loss
 $(2,893,843)
 $(2,051,942)
 
    
    
Basic net loss per share
 $(0.33)
 $(0.24)
Diluted net loss per share
 $(0.33)
 $(0.24)
 
    
    
 
Weighted average common shares outstanding
 
    
Basic
  8,840,281 
  8,443,455 
Diluted
  8,840,281 
  8,443,455 
 
 
4
 
 
SharpSpring, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
 
March 31,
 
 
December 31,
 
 
 
2019
 
 
2018
 
Assets
 
 
 
 
 
 
Cash and cash equivalents
 $17,752,758 
 $9,320,866 
Accounts receivable
  65,855 
  80,521 
Unbilled receivables
  832,593 
  740,425 
Income taxes receivable
  22,913 
  22,913 
Other current assets
  1,053,905 
  1,184,217 
Total current assets
  19,728,024 
  11,348,942 
 
    
    
Property and equipment, net
  1,475,969 
  1,260,798 
Goodwill
  8,861,565 
  8,866,413 
Intangibles, net
  1,770,750 
  1,866,000 
Right-of-use assets
  5,609,295 
  - 
Other long-term assets
  639,995 
  665,123 
Total assets
 $38,085,598 
 $24,007,276 
 
    
    
Liabilities and Shareholders' Equity
    
    
Accounts payable
 $1,338,791 
 $1,613,477 
Accrued expenses and other current liabilities
  696,842 
  774,944 
Deferred revenue
  289,285 
  250,656 
Income taxes payable
  25,854 
  23,705 
Lease liability
  350,518 
  - 
Total current liabilities
  2,701,290 
  2,662,782 
 
    
    
Convertible notes, including accrued interest
  8,440,426 
  8,342,426 
Convertible notes embedded derivative
  189,776 
  214,350 
Lease liability
  5,281,777 
  - 
Total liabilities
  16,613,269 
  11,219,558 
 
    
    
Shareholders' equity:
    
    
Preferred stock, $0.001 par value
  - 
  - 
Common stock, $0.001 par value
  9,647 
  8,639 
Additional paid in capital
  42,025,657 
  30,446,838 
Accumulated other comprehensive loss
  (232,425)
  (231,053)
Accumulated deficit
  (20,246,550)
  (17,352,706)
Treasury stock
  (84,000)
  (84,000)
Total shareholders' equity
  21,472,329 
  12,787,718 
 
    
    
Total liabilities and shareholders' equity
 $38,085,598 
 $24,007,276 
 
 
5
 
 
SharpSpring, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
 
Three Months Ended
 
 
 
March 31,  
 
 
 
2019
 
 
2018
 
Net loss
 $(2,893,843)
 $(2,051,942)
 
    
    
Adjustments to reconcile loss from operations:
 
    
Depreciation and amortization
  227,253 
  190,983 
Amortization of costs to acquire contracts
  202,945 
  177,538 
Non-cash stock compensation
  303,517 
  237,415 
Deferred income taxes
  - 
  20,796 
Non-cash interest
  100,000 
  4,301 
Change in fair value of embedded derivative features
  (24,574)
  - 
Amortization of debt issuance costs and embedded derivative
  (2,000)
  274 
Unrealized foreign currency gain/loss
  10,739 
  (49,397)
Changes in assets and liabilities:
    
    
Accounts receivable
  14,448 
  (11,002)
Unbilled receivables
  (93,772)
  (73,894)
Right-of-use assets
  106,215 
  - 
Other assets
  (42,855)
  (210,529)
Income taxes, net
  2,339 
  104,070 
Accounts payable
  (274,640)
  751,502 
Lease liabilities
  (92,035)
  - 
Other liabilities
  (69,280)
  (61,837)
Deferred revenue
  39,585 
  20,623 
Net cash used in operating activities
  (2,485,958)
  (951,099)
 
    
    
Cash flows from investing activities
    
    
Purchases of property and equipment
  (347,174)
  (72,820)
Net cash (used in) provided by investing activities
  (347,174)
  (72,820)
 
    
    
Cash flows used in financing activities:
    
    
Proceeds from issance of convertible note
  - 
  8,000,000 
Debt issuance costs
  - 
  (141,657)
Proceeds from exercise of stock options
  603,865 
  8,555 
Proceeds from issuance of common stock, net
  10,672,444 
  - 
Net cash provided by financing activities
  11,276,309 
  7,866,898 
 
    
    
Effect of exchange rate on cash
  (11,285)
  16,443 
 
    
    
Change in cash and cash equivalents
 $8,431,892 
 $6,859,422 
 
    
    
Cash and cash equivalents, beginning of period
 $9,320,866 
 $5,399,747 
 
    
    
Cash and cash equivalents, end of period
 $17,752,758 
 $12,259,169 
 
 
6
 
 
SharpSpring, Inc.
RECONCILIATION TO ADJUSTED EBITDA
(Unaudited, in Thousands)
 
 
 
Three Months Ended
 
 
 
March 31,  
 
 
 
2019
 
 
2018
 
Net loss
 $(2,894)
 $(2,052)
Provision for income taxes
  2 
  42 
Other (expense) income, net
  104 
  (69)
Gain on embedded derivative
  (25)
  191 
Depreciation & amortization
  227 
  237 
Non-cash stock compensation
  304 
  - 
Franchise tax settlement
  318 
  - 
Restructuring
  133 
  - 
Adjusted EBITDA
  (1,831)
  (1,651)
 
 
 
7
 
 
SharpSpring, Inc.
RECONCILIATION TO CORE NET LOSS AND CORE NET LOSS PER SHARE
(Unaudited, in Thousands)
 
 
 
Three Months Ended
 
 
 
March 31,  
 
 
 
2019
 
 
2018
 
Net loss
 $(2,894)
 $(2,052)
Amortization of intangible assets
  95 
  115 
Non-cash stock compensation
  304 
  237 
Gain on embedded derivative
  (25)
  - 
Franchise tax settlement
  318 
  - 
Restructuring
  133 
  - 
Tax adjustment
  1 
  7 
Core net loss
 $(2,068)
 $(1,693)
 
    
    
Core net loss per share
 $(0.23)
 $(0.20)
Weighted average common shares outstanding
  8,840 
  8,443 
 
 
 
 
 
 
8