Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS
ASURE SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
June 30, 2020 (unaudited)
December 31, 2019
Assets
Current assets:
Cash and cash equivalents
$
29,259
$
28,826
Accounts receivable, net of allowance for doubtful accounts of $ 885 and $ 904 at June 30, 2020 and December 31, 2019, respectively
5,541
4,808
Inventory
550
656
Prepaid expenses and other current assets
6,080
12,218
Total current assets before funds held for clients
41,430
46,508
Funds held for clients
112,581
137,935
Total current assets
154,011
184,443
Property and equipment, net
8,505
7,867
Goodwill
68,697
68,697
Intangible assets, net
60,477
63,850
Operating lease assets, net
7,215
6,963
Other assets, net
3,693
3,224
Total assets
$
302,598
$
335,044
Liabilities and stockholders’ equity
Current liabilities:
Current portion of notes payable
$
15,695
$
2,571
Accounts payable
2,128
1,736
Accrued compensation and benefits
3,205
3,424
Operating lease liabilities, current
1,703
1,575
Other accrued liabilities
4,144
6,556
Deferred revenue
3,766
5,500
Total current liabilities before client fund obligations
30,641
21,362
Client fund obligations
112,857
145,227
Total current liabilities
143,498
166,589
Long-term liabilities:
Deferred revenue
214
322
Deferred tax liability
407
336
Notes payable, net of current portion
17,860
24,142
Operating lease liabilities, noncurrent
6,310
5,937
Other liabilities
223
139
Total long-term liabilities
25,014
30,876
Total liabilities
168,512
197,465
Commitments
Stockholders’ equity:
Preferred stock, $ .01 par value; 1,500 shares authorized; none issued or outstanding
-
-
Common stock, $ .01 par value; 44,000 and 22,000 shares authorized; 16,225 and 16,098 shares issued, 15,841 and 15,714 shares outstanding at June 30, 2020 and December 31, 2019, respectively
162
161
Treasury stock at cost, 384 shares at June 30, 2020 and December 31, 2019
( 5,017
)
( 5,017
)
Additional paid-in capital
397,692
396,102
Accumulated deficit
( 259,353
)
( 253,642
)
Accumulated other comprehensive income (loss)
602
( 25
)
Total stockholders’ equity
134,086
137,579
Total liabilities and stockholders’ equity
$
302,598
$
335,044
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ASURE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Amounts in thousands, except share and per share data)
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2020
2019
2020
2019
Revenue:
Recurring
$
13,733
$
16,624
$
32,168
$
36,415
Professional services, hardware and other
382
650
893
1,269
Total revenue
14,115
17,274
33,061
37,684
Cost of Sales
6,008
7,059
13,848
13,313
Gross profit
8,107
10,215
19,213
24,371
Operating expenses:
Sales and marketing
2,769
3,058
6,344
5,763
General and administrative
5,193
6,618
11,646
14,807
Research and development
1,377
969
2,551
2,290
Amortization of intangible assets
2,349
2,403
4,698
4,821
Total operating expenses
11,688
13,048
25,239
27,681
Loss from operations
( 3,581
)
( 2,833
)
( 6,026
)
( 3,310
)
Interest (expense) and other, net
14
( 3,069
)
710
( 5,783
)
Loss from continuing operations before income taxes
( 3,567
)
( 5,902
)
( 5,316
)
( 9,093
)
Income tax expense
377
396
395
642
Loss from continuing operations
( 3,944
)
( 6,298
)
( 5,711
)
( 9,735
)
Discontinued operations
Income from operations of discontinued operations
-
1,303
-
1,904
Income tax (benefit) expense
-
( 28
)
-
30
Gain on discontinued operations, net of taxes
-
1,331
-
1,874
Net loss
( 3,944
)
( 4,967
)
( 5,711
)
( 7,861
)
Other comprehensive income:
Unrealized gain on marketable securities
562
78
627
26
Foreign currency translation loss
-
( 365
)
-
( 46
)
Comprehensive loss
$
( 3,382
)
$
( 5,254
)
$
( 5,084
)
$
( 7,881
)
Basic and diluted loss per share from continuing operations
Basic
$
( 0.25
)
$
( 0.41
)
$
( 0.36
)
$
( 0.63
)
Diluted
$
( 0.25
)
$
( 0.41
)
$
( 0.36
)
$
( 0.63
)
Basic and diluted loss per share
Basic
$
( 0.25
)
$
( 0.32
)
$
( 0.36
)
$
( 0.51
)
Diluted
$
( 0.25
)
$
( 0.32
)
$
( 0.36
)
$
( 0.51
)
Weighted average basic and diluted shares
Basic
15,779,000
15,444,000
15,753,000
15,425,000
Diluted
15,779,000
15,444,000
15,753,000
15,425,000
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ASURE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Amounts in thousands)
(Unaudited)
Common Stock Outstanding
Common Stock Amount
Treasury Stock
Additional Paid-in Capital
Accumulated Deficit
Other Comprehensive Income (Loss)
Total Stockholders' Equity
Balance at December 31, 2019
15,714
$
161
$
( 5,017
)
$
396,102
$
( 253,642
)
$
( 25
)
$
137,579
Stock issued upon option exercise and vesting of restricted stock units
29
-
-
106
-
-
106
Share based compensation
-
-
-
438
-
-
438
Net loss
-
-
-
-
( 1,767
)
-
( 1,767
)
Other comprehensive income
-
-
-
-
-
65
65
Balance at March 31, 2020
15,743
$
161
$
( 5,017
)
$
396,646
$
( 255,409
)
$
40
$
136,421
Stock issued upon option exercise and vesting of restricted stock units
66
1
-
301
-
-
302
Stock issued, ESPP
32
-
-
157
-
-
157
Share based compensation
-
-
-
588
-
-
588
Net loss
-
-
-
-
( 3,944
)
-
( 3,944
)
Other comprehensive income
-
-
-
-
-
562
562
Balance at June 30, 2020
15,841
$
162
$
( 5,017
)
$
397,692
$
( 259,353
)
$
602
$
134,086
Common Stock Outstanding
Common Stock Amount
Treasury Stock
Additional Paid-in Capital
Accumulated Deficit
Other Comprehensive Income (Loss)
Total Stockholders' Equity
Balance at December 31, 2018
15,282
$
157
$
( 5,017
)
$
391,927
$
( 283,643
)
$
( 906
)
$
102,518
Stock issued upon acquisition
123
1
-
554
-
-
555
Share based compensation
-
-
-
611
-
-
611
Net loss
-
-
-
-
( 2,894
)
-
( 2,894
)
Other comprehensive income
-
-
-
-
-
267
267
Balance at March 31, 2019
15,405
$
158
$
( 5,017
)
$
393,092
$
( 286,537
)
$
( 639
)
$
101,057
Stock issued, ESPP
53
-
-
255
-
-
255
Stock issued upon option exercise and vesting of restricted stock units
93
1
-
466
-
-
467
Share based compensation
-
-
-
392
-
-
392
Net loss
-
-
-
-
( 4,967
)
-
( 4,967
)
Other comprehensive loss
-
-
-
-
-
( 287
)
( 287
)
Balance at June 30, 2019
15,551
$
159
$
( 5,017
)
$
394,205
$
( 291,504
)
$
( 926
)
$
96,917
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ASURE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Six Months Ended June 30,
2020
2019
Cash flows from operating activities:
Net loss
$
( 5,711
)
$
( 7,861
)
Adjustments to reconcile net loss to net cash (used in) provided by operations:
Depreciation and amortization
7,804
7,935
Amortization of debt financing costs and discount
159
800
Provision for (recovery of) doubtful accounts
142
( 350
)
Provision for deferred income taxes
71
621
Gain on modification of debt
( 123
)
-
Share-based compensation
1,026
1,003
Loss on disposals of fixed assets
53
3
Changes in operating assets and liabilities:
Accounts receivable
( 2,353
)
1,812
Inventory
11
( 2,082
)
Prepaid expenses and other assets
( 485
)
678
Accounts payable
425
1,259
Accrued expenses and other long-term obligations
( 2,517
)
( 720
)
Operating lease liabilities
( 777
)
-
Deferred revenue
( 1,856
)
( 256
)
Net cash (used in) provided by operating activities
( 4,131
)
2,842
Cash flows from investing activities:
Acquisitions, net of cash acquired
-
( 7,443
)
Acquisition of intangible asset
( 1,823
)
-
Purchases of property and equipment
( 547
)
( 993
)
Software capitalization costs
( 1,342
)
( 2,111
)
Net change in funds held for clients
33,603
31,943
Net cash provided by investing activities
29,891
21,396
Cash flows from financing activities:
Proceeds from notes payable
8,856
8,000
Payments of notes payable
( 2,359
)
( 4,356
)
Proceeds from revolving line of credit
-
4,000
Debt financing fees
( 20
)
( 1,102
)
Payments of finance leases
-
( 68
)
Net proceeds from issuance of common stock
566
722
Net change in client fund obligations
( 32,370
)
( 32,238
)
Net cash used in financing activities
( 25,327
)
( 25,042
)
Effect of foreign exchange rates
-
16
Net increase (decrease) in cash and cash equivalents
433
( 788
)
Cash and cash equivalents at beginning of period
28,826
15,444
Cash and cash equivalents at end of period
$
29,259
$
14,656
Supplemental information:
Cash paid for:
Interest
$
589
$
4,804
Income taxes
381
31
Non-cash Investing and Financing Activities:
Subordinated notes payable –acquisitions
$
-
$
2,000
Equity issued in connection with acquisitions
-
555
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ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION
Asure Software, Inc., (“Asure”, the “Company”, “we” and “our”), a Delaware Corporation, is a leading provider of Human Capital Management (“HCM”). Asure facilitates the growth of small and mid-sized companies by helping them (i) build better teams with skills that get them to the next level, (ii) stay compliant with ever changing federal, state, and local tax jurisdictions and labor laws, and (iii) allocate more resources to support growth rather than back-office overhead that suffocates growth. Asure’s HCM suite, named AsureHCM, includes cloud-based Payroll & Tax, Human Resources ("HR"), and Time & Attendance software as well as HR Services ranging from HR projects to completely outsourcing payroll and HR staff. We develop, market, sell and support our offerings across North America through our principal office in Austin, Texas and from our processing hubs in California, Tennessee, Nebraska, New York, Florida, Vermont, and Washington.
In December 2019, we completed the sale of the assets of our Workspace Management business for an aggregate purchase price of approximately $ 121,500 in cash. We used the proceeds to pay down debt. In July 2020 we finalized our working capital adjustment and received escrow funds of $ 1,687 . For further information regarding the transaction, see Note 10 to the accompanying consolidated financial statements.
We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with the rules and regulations of the Securities and Exchange Commission and accordingly, they do not include all information and footnotes required under U.S. generally accepted accounting principles ("U.S. GAAP") for complete financial statements. Certain reclassifications were made to conform to the current period presentation in the condensed consolidated statements of comprehensive loss. These reclassifications include a change in the presentation of revenues.
In the opinion of management, these interim financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary for a fair presentation of our financial position as of June 30, 2020 and the results of operations, statements of changes in stockholders' equity for the three and six months ended June 30, 2020 and June 30, 2019, and our statements of cash flows for the six months ended June 30, 2020 and June 30, 2019.
These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto filed with the Securities and Exchange Commission in our annual report on Form 10-K for the fiscal year ended December 31, 2019. The results for the interim periods are not necessarily indicative of results for a full fiscal year.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
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 the assets and liabilities, the 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. These estimates are subjective in nature and involve judgments. The more significant estimates made by management include the valuation allowance for the gross deferred tax assets, useful lives of fixed assets, the determination of the fair value of its long-lived assets, and the fair value of assets acquired and liabilities assumed during acquisitions. We base our estimates on historical experience and on various other assumptions management believes reasonable under the given circumstances. These estimates could be materially different under different conditions and assumptions. Additionally, the actual amounts could differ from the estimates made. Management periodically evaluates estimates used in the preparation of the consolidated financial statements for continued reasonableness. We make appropriate adjustments, if any, to the estimates used prospectively based upon such periodic evaluation .
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ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
SIGNIFICANT RISKS AND UNCERTAINTIES
The COVID-19 pandemic has resulted in a global economic slowdown and disruptions that have and could continue to negatively impact our business. The pandemic and numerous measures implemented to contain the virus such as business shutdowns, shelter-in-place orders and travel bans and restrictions have caused businesses, especially small and medium sized businesses some of whom are our customers, to reduce headcount or cease operations as customer demand decreased. Given the economic slowdown and other risks and uncertainties associated with the pandemic, we expect that our business, financial condition, results of operations and growth prospects will be adversely affected in the future. Our business is impacted by employment levels as we have contracts that charge clients on a per-employee basis. In addition, the conditions caused by the COVID-19 pandemic could adversely affect our customers’ ability or willingness to purchase our offerings, delay prospective customers’ purchasing decisions, delay the provisioning of our offerings, lengthen payment terms, reduce the value or duration of customer subscription contracts, or affect attrition rates, all of which could adversely affect our future sales, operating results and overall financial performance.
The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions and the impact of these and other factors on our employees, customers, partners and vendors. If we are not able to respond to and manage the impact of such events effectively, our business will be harmed.
RECENT ACCOUNTING PRONOUNCEMENTS
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820). The new guidance modifies disclosure requirements related to fair value measurement. We adopted the standard on January 1, 2020. The adoption of this standard did not have an impact on our financial statements and disclosures.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40). The new guidance reduces complexity for the accounting for costs of implementing a cloud computing service arrangement and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). We adopted the standard on January 1, 2020 prospectively to all implementation costs incurred after the date of adoption. The effects of this standard on our financial position, results of operations and cash flows were not material.
Standards Yet to Be Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses. ASU 2016-13 requires organizations to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. As we are a smaller reporting company, ASU 2016-13 is effective for us beginning January 1, 2023. We are currently evaluating the impact, if any, the adoption will have on our financial position and results of operations.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes . ASU 2019-12 eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. We are currently evaluating the impact, if any, the adoption will have on our financial position and results of operations.
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ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
CONTINGENCIES
Although we have been, and in the future may be, the defendant or plaintiff in various actions arising in the normal course of business, as of June 30, 2020, we were not a party to any pending legal proceedings that are material to our business.
NOTE 3 – INVESTMENTS AND FAIR VALUE MEASUREMENTS
As of June 30, 2020 and December 31, 2019, funds held for clients invested in available-for-sale securities consisting of government and commercial bonds, including mortgage-backed securities, amounted to $ 27,591 and $ 24,136 , respectively. As of June 30, 2020 and December 31, 2019, funds held for clients invested in money market funds and other cash equivalents amounted to $ 47,694 and $ 48,500 , respectively. Additionally, as of June 30, 2020, we had $ 16,505 in money market funds, classified as cash equivalents. Cash equivalents as of December 31, 2019 were not material.
Investments classified as available-for-sale consisted of the following:
June 30, 2020
Amortized
Cost
Gross
Unrealized
Gains (1)
Gross
Unrealized
Losses (1)
Aggregate
Estimated
Fair Value
Funds Held for Clients (2)
Certificates of deposit
$
10,046
$
226
$
-
$
10,272
Corporate debt securities
8,960
289
-
9,249
Municipal bonds
6,987
83
-
7,070
US Government agency securities
500
1
-
501
Asset-backed securities
496
3
-
499
Total
$
26,989
$
602
$
-
$
27,591
December 31, 2019
Amortized
Cost
Gross
Unrealized
Gains (1)
Gross
Unrealized
Losses (1)
Aggregate
Estimated
Fair Value
December 31, 2019
Funds Held for Clients (2)
Certificates of deposit
$
8,828
$
11
$
-
$
8,839
Corporate debt securities
6,883
6
( 9
)
6,880
Municipal bonds
6,383
6
( 7
)
6,382
US Government agency securities
1,000
-
-
1,000
Asset-backed securities
1,067
-
( 32
)
1,035
Total
$
24,161
$
23
$
( 48
)
$
24,136
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ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
(1)
Unrealized gains and losses on available-for-sale securities are included as a component of comprehensive loss. As of June 30, 2020 and December 31, 2019, there were 79 and 53 securities, respectively, in an unrealized gain position and there were 0 and 18 securities, respectively, in an unrealized loss position. As of June 30, 2020, we had zero unrealized losses. As of December 31, 2019, these unrealized losses were less than $ 35 individually and $ 50 in the aggregate. These securities have not been in a continuous unrealized gain or loss position for more than 12 months. We do not intend to sell these investments and we do not expect to sell these investments before recovery of their amortized cost basis, which may be at maturity. We review our investments to identify and evaluate investments that indicate possible other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.
(2)
At June 30, 2020 and December 31, 2019, none of these securities were classified as cash and cash equivalents on the accompanying condensed consolidated balance sheets.
Expected maturities of available-for-sale securities as of June 30, 2020 are as follows:
Expected Maturities
Amount
One year or less
$
4,823
After one year through five years
22,768
After five years through 10 years
-
After 10 years
-
$
27,591
Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures defines fair value, establishes a framework for measuring fair value in U.S. generally accepted accounting principles and expands disclosures about fair value measurements.
ASC 820 establishes a three-tier fair value hierarchy, which is based on the reliability of the inputs used in measuring fair values. These tiers include:
Level 1:
Quoted prices in active markets for identical assets or liabilities;
Level 2:
Quoted prices in active markets for similar assets or liabilities; quoted prices in markets that are not active for identical or similar assets or liabilities; and model-driven valuations whose significant inputs are observable; and
Level 3:
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
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ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
The following table presents the fair value hierarchy for our financial assets measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019, respectively:
June 30, 2020
Total Carrying Value
Quoted Prices in Active Market
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Assets:
Cash equivalents
Money market funds
$
16,505
$
16,505
$
-
$
-
Funds held for clients
Money market funds
47,694
47,694
-
-
Available-for-sale securities
27,591
-
27,591
-
Total
$
91,790
$
64,199
$
27,591
$
-
December 31, 2019
Total Carrying Value
Quoted Prices in Active Market
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Assets:
Funds held for clients
Money market funds
$
48,500
$
48,500
$
-
$
-
Available-for-sale securities
24,136
-
24,136
-
Total
$
72,636
$
48,500
$
24,136
$
-
NOTE 4 – GOODWILL AND OTHER INTANGIBLE ASSETS
As of June 30, 2020 and December 31, 2019, goodwill was $ 68,697 , which is net of the $ 35,060 impairment loss recognized in the fourth quarter of 2019. The Company evaluates the recoverability of goodwill annually and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. As of June 30, 2020, there has been no impairment of goodwill based on the quantitative assessments performed by the Company.
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ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
The gross carrying amount and accumulated amortization of our intangible assets as of June 30, 2020 and December 31, 2019 are as follows:
June 30, 2020
Intangible Assets
Weighted Average
Amortization
Period (in Years)
Gross
Accumulated
Amortization
Net
Customer relationships
8.9
$
80,710
$
( 24,252
)
$
56,458
Developed technology
6.0
10,001
( 6,833
)
3,168
Reseller relationships
7.0
853
( 853
)
-
Trade names
3.0
780
( 195
)
585
Noncompete agreements
5.2
1,032
( 766
)
266
8.5
$
93,376
$
( 32,899
)
$
60,477
December 31, 2019
Intangible Assets
Weighted Average
Amortization
Period (in Years)
Gross
Accumulated
Amortization
Net
Customer relationships
8.9
$
78,558
$
( 19,757
)
$
58,801
Developed technology
6.0
10,001
( 6,004
)
3,997
Reseller relationships
7.0
853
( 853
)
-
Trade names
3.0
780
( 78
)
702
Noncompete agreements
5.2
1,032
( 682
)
350
8.5
$
91,224
$
( 27,374
)
$
63,850
We record amortization expenses using the straight-line method over the estimated useful lives of the intangible assets, as noted above. Amortization expenses recorded in Operating Expenses were $ 2,349 and $ 2,403 , for the three months ended June 30, 2020 and 2019, respectively. Amortization expenses recorded in Cost of Sales were $ 397 and $ 360 for the three months ended June 30, 2020 and 2019, respectively.
Amortization expenses recorded in Operating Expenses were $ 4,698 and $ 4,821 , for the six months ended June 30, 2020 and 2019, respectively. Amortization expenses recorded in Cost of Sales were $ 828 and $ 720 for the six months ended June 30, 2020 and 2019, respectively. There is no impairment of intangibles during the six months ended June 30, 2020 based on the qualitative assessment performed by the Company.
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ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
The following table summarizes the future estimated amortization expense relating to our intangible assets as of June 30, 2020:
Calendar Years
Amount
2020 (June to December)
$
5,374
2021
10,548
2022
10,015
2023
8,889
2024
8,662
Thereafter
16,989
$
60,477
NOTE 5 – NOTES PAYABLE
The following table summarizes our outstanding debt as of the dates indicated:
Maturity
Stated Interest Rate
June 30,
2020
December 31,
2019
Subordinated Notes Payable – acquisitions
1/1/2021 – 7/1/2021
2.00 % - 3.00
%
$
5,276
$
7,185
Term Loan – Pinnacle
4/15/2022
1.00
%
8,856
-
Term Loan – Wells Fargo Syndicate Partner
12/31/2024
4.42
%
19,750
20,000
Total Notes Payable
$
33,882
$
27,185
Short-term Notes Payable
15,894
2,696
Long-term Notes Payable
$
17,988
$
24,489
The following table summarizes the debt issuance costs as of the dates indicated based:
June 30, 2020
Gross Notes Payable
Debt Issuance Costs and Debt Discount
Net Notes Payable
Notes payable, current portion
$
15,894
$
( 199
)
$
15,695
Notes payable, net of current portion
17,988
( 128
)
17,860
Total
$
33,882
$
( 327
)
$
33,555
December 31, 2019
Gross Notes Payable
Debt Issuance Costs and Debt Discount
Net Notes Payable
Notes payable, current portion
$
2,696
$
( 125
)
$
2,571
Notes payable, net of current portion
24,489
( 347
)
24,142
Total
$
27,185
$
( 472
)
$
26,713
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ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
The following table summarizes the future principal payments related to our outstanding debt as of June 30, 2020:
Year Ending
Amount
2020
$
10,813
2021
11,455
2022
2,489
2023
500
2024
8,625
Total
$
33,882
Term Loan - Wells Fargo
In March 2014, we entered into a credit agreement (the “Credit Agreement”) with Wells Fargo, as administrative agent, and the lenders that are party thereto. The Credit Agreement contains customary events of default, including, among others, payment defaults, covenant defaults, judgment defaults, bankruptcy and insolvency events, cross defaults to certain indebtedness, incorrect representations or warranties, and change of control. In some cases, the defaults are subject to customary notice and grace period provisions. In March 2014 and in connection with the Credit Agreement, we and our wholly owned active subsidiaries entered into a Guaranty and Security Agreement with Wells Fargo Bank. Under the Guaranty and Security Agreement, we and each of our wholly owned active subsidiaries have guaranteed all obligations under the Credit Agreement and granted a security interest in substantially all of our and our subsidiaries’ assets.
In December 2019, we entered into a third amended and restated credit agreement (the “Third Restated Credit Agreement”) with Wells Fargo Bank, as agent and lender, amending and restating the terms of the Second Amended and Restated Credit Agreement dated as of March 2018. The Third Restated Credit Agreement provided for $ 20,000 in term loans and a $ 10,000 revolver. It also amended the applicable margin rates for determining the interest payable on loans and amended certain of our financial covenants, including adding a covenant based on achieving EBITDA of at least $ 3,750 for the three months ended March 31, 2020, $ 4,850 for the six months ended June 30, 2020 and $ 5,950 for the nine months ended September 30, 2020, which covenant was in lieu of a leverage covenant calculated at March 31, 2020, June 30, 2020 and September 30, 2020 See Note 12 - Subsequent Events for information regarding amendments that Wells Fargo Bank and we have made to the Third Restated Credit Agreement after June 30, 2020.
PPP Loan
In April 2020, Asure entered into a Promissory Note (the “PPP Note”) with Pinnacle Bank as the lender (the “Lender”), pursuant to which the Lender agreed to give us a loan under the Paycheck Protection Program (the "PPP Loan") offered by the U.S. Small Business Administration (the “SBA”) in a principal amount of $ 8,856 pursuant to Title 1 of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).
The PPP Loan proceeds are available to be used to pay for payroll costs, including salaries, commissions, and similar compensation, group health care benefits, and paid leaves. Under the Cares Act, the PPP loan may be forgiven if certain criteria are satisfied. The amount that will be forgiven will be calculated in part with reference to the Company’s full time headcount during the twenty-four week period following the funding of the PPP Loan. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loans granted under the Cares Act. The PPP Loan is subject to forgiveness to the extent proceeds are used for payroll costs, including payments required to continue group health benefits, and certain rent, utility, and mortgage interest expenses (collectively, “Qualifying Expenses”), pursuant to the terms and limitations of the Cares Act. The Company intends to use a significant majority of the PPP Loan amount for Qualifying Expenses. However, no assurances is provided that the Company will obtain forgiveness of the PPP Loan in whole or in part.
The interest rate on the PPP Note is a fixed rate of 1 % per annum. To the extent that the amounts owed under the PPP Loan, or a portion of them, are not forgiven, the Company will be required to make principal and interest payments in monthly installments beginning seven months from April 2020 . The PPP Note matures in two years .
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ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
The PPP Note includes events of default. Upon the occurrence of an event of default, the Lender will have the right to exercise remedies against the Company, including the right to require immediate payment of all amounts due under the PPP Note.
Revolving Credit Facility
As of June 30, 2020 and December 31, 2019, no amount was outstanding and $ 9,500 and $ 10,000 , respectively, was available for borrowing under the revolver.
Due to the effects of Covid-19 on our business, we were not in compliance with our minimum EBITDA financial covenant as of March 31, 2020 and June 30, 2020 and do not expect to be in compliance with the minimum EBITDA financial covenants as set forth in the Third Restated Credit Agreement in future quarters. These covenants were set in December 31, 2019, before the Covid-19 pandemic and its possible effects on our business were known to our senior lender or us. See Note 12 – Subsequent Events for information about the amendment we entered with our senior lender resetting these financial covenants and expectations regarding cash available for future business needs and our ability to comply with our financial covenants in future quarters.
NOTE 6 – STOCKHOLDERS’ EQUITY
Authorized Shares
On May 28, 2020, the Company amended its Restated Certificate of Incorporation to increase the total number of authorized shares of capital stock from 23,500,000 to 45,500,000 and the number of authorized shares of common stock from 22,000,000 to 44,000,000 .
Share Repurchase Program
On March 10, 2020, our Board of Directors authorized a new stock repurchase program, under which we may repurchase up to $ 5,000 of our outstanding common stock. This new stock repurchase program is in addition to the approximately 66,000 shares available under our existing stock repurchase plan.
Under this new stock repurchase program, we may repurchase shares in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The extent to which we repurchase our shares, and the timing of such repurchases, will depend upon a variety of factors, including market conditions, regulatory requirements and other corporate considerations, as determined by our management. The repurchase program may be extended, suspended or discontinued at any time. We expect to finance the program from existing cash resources.
While the program remains in place, there have been no repurchases in 2020 and 2019.
Employee Stock Purchase Plan
Our Employee Stock Purchase Plan (“Purchase Plan”) was approved by the shareholders in June 2017. The Purchase Plan allows all eligible employees to purchase a limited number of shares of our common stock during pre-specified offering periods at a discount established by the Board of Directors, not to exceed 15 % of the fair market value of the common stock, at the beginning or end of the offering period (whichever is lower). Under the ESPP, 225,000 shares were originally reserved for issuance. On May 27, 2020, our shareholders increased the number of shares reserved for issuance under the Purchase Plan by an additional 250,000 shares.
Accumulated Other Comprehensive Income (Loss)
As of June 30, 2020 and December 31, 2019, accumulated other comprehensive income (loss) consisted of net unrealized gains and losses on available-for-sale securities.
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ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
NOTE 7 – CONTRACTS WITH CUSTOMERS AND REVENUE CONCENTRATION
Receivables
Receivables from contracts with customers, net of allowance for doubtful accounts of $ 885 were $ 5,541 at June 30, 2020. Receivables from contracts with customers, net of allowance for doubtful accounts of $ 904 were $ 4,808 at December 31, 2019. As of June 30, 2020, one customer represented 13 % of our net accounts receivable balance. No customers represented more than 10% of our net accounts receivable balance as of December 31, 2019.
Deferred Commissions
Deferred commission costs from contracts with customers were $ 3,148 and $ 2,697 at June 30, 2020 and December 31, 2019, respectively. The amount of amortization recognized for the three and six months ended June 30, 2020 was $ 190 and $ 440 , respectively and for the three and six months ended June 30, 2019 was $ 471 and $ 591 , respectively.
Deferred Revenue
During the three and six months ended June 30, 2020, revenue of $ 689 and $ 3,393 , respectively, and the three and six months ended June 30, 2019, revenue of $ 631 and $ 2,214 , respectively, was recognized from the deferred revenue balance at the beginning of each period.
Transaction Price Allocated to the Remaining Performance Obligations
As of June 30, 2020, approximately $ 27,272 of revenue is expected to be recognized from remaining performance obligations. We expect to recognize revenue on approximately 65 % of these remaining performance obligations over the next 12 months, with the balance recognized thereafter.
Revenue Concentration
During the three and six months ended June 30, 2020 and 2019, there were no customers that individually represented 10% or more of consolidated revenue.
NOTE 8 – LEASES
We have entered into office space lease agreements, which qualify as operating leases under Topic 842. Under such leases, the lessors receive annual minimum (base) rent. The leases have original terms (excluding extension options) ranging from one to ten years . Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
We record base rent expense under the straight-line method over the term of the lease. In the accompanying condensed consolidated statements of comprehensive loss, rent expense is included in operating expenses under selling, general and administrative expenses. The components of the rent expense for the three and six months ended June 30, 2020 and 2019 were as follows:
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
2020
2019
Operating lease cost
$
521
$
563
$
1,073
$
1,142
Sublease income
( 48
)
( 37
)
( 96
)
( 74
)
Net rent expense
$
473
$
526
$
977
$
1,068
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ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
For purposes of calculating the operating lease assets and lease liabilities, extension options are not included in the lease term unless it is reasonably certain we will exercise the option, or the lessor has the sole ability to exercise the option. The weighted average discount rate of our operating leases is 10 % and 9 % as of June 30, 2020 and December 31, 2019, respectively. The weighted average remaining lease term is five and six years as of June 30, 2020 and December 31, 2019, respectively.
Supplemental cash flow information related to operating leases for the six months ended June 30, 2020 and 2019 follow:
Six Months Ended June 30,
2020
2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases
$
1,117
$
1,164
Non-cash operating activities:
Operating lease assets obtained in exchange for new operating lease liabilities
$
1,052
$
8,093
Future minimum commitments over the life of all operating leases, which exclude variable rent payments, are as follows:
Year Ending December 31
Operating Leases
2020 (remainder)
$
1,129
2021
2,354
2022
1,837
2023
1,142
2024
1,022
Thereafter
2,630
Total minimum lease payments
10,114
Less imputed interest
( 2,102
)
Total lease liabilities
$
8,012
NOTE 9 – SHARE-BASED COMPENSATION
We have one active equity plan, the 2018 Incentive Award Plan (the “2018 Plan”). The 2018 Plan, approved by our shareholders, replaced our 2009 Equity Incentive Plan, as amended (the “2009 Plan”), however, the terms and conditions of the 2009 Plan continues to govern any outstanding awards previously granted under the 2009 Plan.
The number of shares available for issuance under the 2018 Plan is equal to the sum of (i) 2,350,000 shares, and (ii) any shares subject to issued and outstanding awards under the 2009 Plan as of the effective date of the 2018 Plan that expire, are canceled or otherwise terminate following the effective date of the 2018 Plan. We have outstanding options to purchase 1,366,692 shares at a weighted average exercise price of $ 7.77 . During the three and six months ending June 30, 2020 we issued 481,500 and 544,500 of employee stock options, respectively. The weighted average exercise price of these awards was $ 6.42 and $ 6.36 for the three and six months ended June 30, 2020, respectively, these awards will vest over a three-year period. We also had 585,050 outstanding restricted stock units as of June 30, 2020.
In December 2019, we offered to exchange certain outstanding options to purchase shares of our common stock previously granted under the 2009 Plan and the 2018 Plan that have an exercise price per share higher than the greater of $ 8.50 or the closing trading price of our common stock on the offer expiration date (“eligible options”) for new RSUs to be granted under the 2018 Plan. The offer exchange program was approved by our board of directors and by our shareholders earlier in 2019. Under the offer exchange program, every 2.5 shares underlying an eligible option would be exchanged for one new RSU. Upon expiration of the exchange offer in January 2020, we granted 187,000 RSUs in exchange for the cancellation of options to purchase 467,500 shares that were tendered by employees who participated in the offer exchange program.
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ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
As of June 30, 2020, we had 1,096,104 shares available for grant pursuant to the 2018 Plan.
Share based compensation for our stock option plans for the three months ended June 30, 2020 and June 30, 2019 was $ 588 and $ 392 , respectively and for the six months ended June 30, 2020 and June 30, 2019 was $ 1,026 and $ 1,003 , respectively. We issued 58,479 and 85,000 shares of common stock related to exercises of stock options for the three months ended June 30, 2020 and 2019, respectively. We issued 7,213 and 8,000 shares of common stock related to the issuance of vested restricted stock units for the three months ended June 30, 2020 and 2019, respectively.
NOTE 10 – DISCONTINUED OPERATIONS
In December 2019, we sold our Workspace Management business to FM:Systems for approximately $ 121,500 in cash, of which $ 1,685 is held in escrow and is included in prepaid expenses and other current assets in the condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019. The purchase price is subject to a working capital adjustment. This transaction enables us to focus on and continue to deliver our HCM solutions to small and mid-size businesses.
The table below reflects the operating results of the Workspace Management business reported as discontinued operations during the three and six months ended June 30, 2019.
Three Months Ended
Six Months Ended
June 30, 2019
June 30, 2019
Revenue
$
7,567
$
13,917
Income from discontinued operations
$
1,303
$
1,904
Income tax (benefit) expense
( 28
)
30
Income from discontinued operations, net of taxes
$
1,331
$
1,874
The table below reflects the depreciation, amortization, capital expenditures, and significant operating and investing non-cash items of the Workspace Management business reported as discontinued operations during the three and six months ended June 30, 2019:
Three Months Ended
Six Months Ended
June 30, 2019
June 30, 2019
Depreciation and amortization
$
604
$
1,233
Provision for doubtful accounts
8
( 134
)
Share based compensation
70
177
Capital expenditures
( 42
)
( 339
)
Software capitalization
( 214
)
( 416
)
NOTE 11 – NET LOSS PER SHARE
We compute net loss per share based on the weighted average number of common shares outstanding for the period. Diluted net loss per share reflects the maximum dilution that would have resulted from incremental common shares issuable upon the exercise of stock options. We compute the number of common share equivalents, which includes stock options, using the treasury stock method. We have excluded stock options and restricted stock units of approximately 1,951,000 and 1,502,000 shares for the three and six months ended June 30, 2020 and 2019, respectively, from the computation of the diluted shares because the effect of including the stock options and restricted stock units would have been anti-dilutive.
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ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
The following table sets forth the computation of basic and diluted net loss per common share for the three and six months ended June 30, 2020 and June 30, 2019:
Three Months Ended
Three Months Ended
Six Months Ended
Six Months Ended
June 30, 2020
June 30, 2019
June 30, 2020
June 30, 2019
Numerator:
Loss from continuing operations
$
( 3,944
)
$
( 6,298
)
$
( 5,711
)
$
( 9,735
)
Income from discontinued operations
-
1,331
-
1,874
Net loss
$
( 3,944
)
$
( 4,967
)
$
( 5,711
)
$
( 7,861
)
Denominator:
Weighted-average shares of common stock outstanding, basic and diluted
15,779,000
15,444,000
15,753,000
15,425,000
Basic and diluted income (loss) per share
Loss per share from continuing operations
$
( 0.25
)
$
( 0.41
)
$
( 0.36
)
$
( 0.63
)
Income per share from discontinued operations
-
0.09
-
0.12
Basic and diluted loss per share
$
( 0.25
)
$
( 0.32
)
$
( 0.36
)
$
( 0.51
)
NOTE 12 – SUBSEQUENT EVENTS
The Company evaluated subsequent events through the date of the filing of this Quarterly Report on Form 10-Q with the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the condensed consolidated financial statements as of June 30, 2020, and events which occurred subsequent to June 30, 2020 but were not recognized in the condensed consolidated financial statements.
On July 7, 2020, our senior lender identified certain events of default under our Third Restated Credit Agreement and reserved their rights to pursue their remedies under the Credit Agreement as a result of the events of default. Then, on July 10, 2020, our senior lender issued a reservation of rights letter related to these events of default. The primary event of default that triggered the reservation of rights letter was our failure to achieve Minimum EBITDA of $ 3,750 for the first quarter ending March 31, 2020, as required under Section 7 of the Credit Agreement, which failure was a result of impacts to our business driven primarily by COVID-19. The other events of default were technical defaults resulting from the fact that we were either unaware that our senior lender was considering the failure to achieve Minimum EBITDA an event of default as of May 11, 2020 or because we were unaware that the senior lender was still requiring that we provide certain requested documents in connection with our banking relationship. Under the reservation of rights letter, the senior lender began accruing default interest from May 11, 2020, which we would have been required to pay on July 31, 2020. Our senior lender extended the date by which we would be required to pay the accrued default interest to August 10, 2020 as we were negotiating an amendment to the Third Restated Credit Agreement.
On August 10, 2020, we entered into a waiver and amendment to our Third Restated Credit Agreement and our Amended and Restated Guaranty and Security Agreement (the “Fourth Amendment”).
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ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
As amended by the Fourth Amendment, the Third Restated Credit Agreement now provides for $ 10,000 in term loans and a $ 5,000 revolver, requiring that we make a principal payment of $ 9,750 on our outstanding term loans and reducing future availability on our revolver by $5,000. The Fourth Amendment also re-amortized the outstanding principal amount of the term loan, which is now payable as follows:
•
$62.5 beginning on September 30, 2020 and the last day of each fiscal quarter thereafter through and including December 31, 2021; and
•
$125 beginning on March 31, 2022 and the last day of each fiscal quarter thereafter.
In addition, the Fourth Amendment requires a LIBOR floor of 1.00 % and sets the Applicable Margin at the highest level through September 30, 2021. The Applicable Margin is currently at 4.25 %.
The outstanding principal balance and all accrued and unpaid interest on the term loans is due on December 31, 2024 . The Fourth Amendment provides for an accordion feature to our term loan that would allow us to borrow up to an additional $15,000 in term loans subject to certain conditions following the Covenant Conversion Date, which is described below.
The Fourth Amendment also reset our financial covenants as follows:
●
Adjusts our minimum EBITDA covenant requiring us to achieve EBITDA of at least $750 for the nine months ended September 30, 2020, instead of $5,950, and further extends this covenant to June 30, 2022 as it was previously going to sunset as of September 30, 2020.
●
Adds a new financial covenant for minimum recurring revenue of $40,000 for the three quarter period ending September 30, 2020 and increasing on a quarterly basis through June 30, 2022 as further set forth in the Fourth Amendment.
●
Adjusts the applicable fixed charge coverage ratio for periods after June 30, 2022 as set forth in the Fourth Amendment.
The Fourth Amendment does not require that we meet our fixed charge ratio or leverage ratio covenant until the Covenant Conversion Date. For this purpose, the Coverage Conversion Date is the earlier of August 10, 2022 or the date in which we have satisfied the fixed charge coverage ratio and leverage ratio for two consecutive reporting periods. Until such time, we are only obligated to comply with our minimum EBITDA and minimum recurring revenue covenants.
In addition to the requirement that we pay $9,750 on our outstanding term loans, we were also required to pay our senior lender an amendment fee of $ 225 . Our senior lender waived the payment of default interest that had accrued since May 11, 2020 and stopped assessing default interest as of August 10, 2020. Our senior lender further waived any prepayment penalty that would have otherwise been due on the $9,750 payment toward our term loan and agreed that we would not owe a prepayment penalty if we were to refinance our facility before December 31, 2021. Finally, as a condition to the amendment, our senior lender required that we agree to obtain lender consent for any acquisitions until the later of August 10, 2021 or the Covenant Conversion Date. Previously certain types of acquisitions were deemed permitted acquisitions, which did not require our lender’s consent. We do not anticipate an issue with obtaining consent from our lender for accretive acquisitions.
We had sufficient cash on hand to make the required payment of $9,750 in connection with the Fourth Amendment and expect to have enough cash on hand to meet our future business needs. Further, we expect to comply with our financial covenants in future quarters under the Third Restated Credit Agreement, as amended by the Fourth Amendment.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.