What changed in this filing

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Item 1. Financial Statements

2020-11-09 compared with 2020-08-10 · 181 added, 160 removed, 408 unchanged (46% of the section changed)

3 unchanged sentences

(Amounts in thousands)

June 30, 2020 (unaudited)

September 30, 2020

December 31, 2019

1 unchanged sentence

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts of $ 885 and $ 904 at June 30, 2020 and December 31, 2019, respectively

Accounts receivable, net of allowance for doubtful accounts of $ 885 and $ 904 at September 30, 2020 and December 31, 2019, respectively

Prepaid expenses and other current assets

21 unchanged sentences

Notes payable, net of current portion

Contingent purchase consideration

Operating lease liabilities, noncurrent

8 unchanged sentences

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

Treasury stock at cost, 384 shares at June 30, 2020 and December 31, 2019

16,225 and 16,098 shares issued, 15,900 and 15,714 shares outstanding at September 30, 2020 and December 31, 2019, respectively

Treasury stock at cost, 384 shares at September 30, 2020 and December 31, 2019

Additional paid-in capital

8 unchanged sentences

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Professional services, hardware and other

8 unchanged sentences

Loss from operations

Interest (expense) and other, net

Interest (expense) income and other, net

Loss from continuing operations before income taxes

Income tax expense

Income tax (benefit) expense

Loss from continuing operations

1 unchanged sentence

Income from operations of discontinued operations

Income tax (benefit) expense

Income tax benefit

Gain on discontinued operations, net of taxes

27 unchanged sentences

Balance at June 30, 2020

Stock issued upon option exercise and vesting of restricted stock units

Share based compensation

Other comprehensive income

Balance at September 30, 2020

The accompanying notes are an integral part of these condensed consolidated financial statements.

ASURE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Amounts in thousands)

Common Stock Outstanding

15 unchanged sentences

Balance at June 30, 2019

Stock issued, ESPP

Stock issued upon option exercise and vesting of restricted stock units

Share based compensation

Other comprehensive loss

Balance at September 30, 2019

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(Amounts in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash (used in) provided by operations:

Adjustments to reconcile loss to net cash (used in) provided by operations:

Depreciation and amortization

19 unchanged sentences

Net change in funds held for clients

Net cash provided by investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities:

2 unchanged sentences

Proceeds from revolving line of credit

Payments of revolving line of credit

Debt financing fees

2 unchanged sentences

Net change in client fund obligations

Net cash used in financing activities

Net cash provided by (used in) financing activities

Effect of foreign exchange rates

7 unchanged sentences

Equity issued in connection with acquisitions

The accompanying notes are an integral part of these condensed consolidated financial statements.

ASURE SOFTWARE, INC.

10 unchanged sentences

For further information regarding the transaction, see Note 10 to the accompanying consolidated financial statements.

In July 2020, we acquired certain assets of a payroll tax business.

The initial Purchase price for the assets was $ 4.25 million, which we paid cash at closing.

The seller will be paid additional consideration for the assets based on the trailing twelve-month revenue at each of April 30, 2021 and October 31, 2021.

Contingent purchase consideration, if any, will generally be made by May 30, 2021 and December 30, 2021.

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.

3 unchanged sentences

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.

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 September 30, 2020 and the results of operations, statements of changes in stockholders' equity for the three and nine months ended September 30, 2020 and September 30, 2019, and our statements of cash flows for the nine months ended September 30, 2020 and September 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.

45 unchanged sentences

We are currently evaluating the impact, if any, the adoption will have on our financial position and results of operations.

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 September 30, 2020, we were not a party to any pending legal proceedings that are material to our business.

ASURE SOFTWARE, INC.

1 unchanged sentence

(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.

As of September 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 $ 26,958 and $ 24,136 , respectively.

As of September 30, 2020, and December 31, 2019, funds held for clients invested in money market funds and other cash equivalents amounted to $ 37,265 and $ 48,500 , respectively.

Additionally, as of September 30, 2020, we had $ 8,248 of operating funds 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

September 30, 2020

Funds Held for Clients (2)

5 unchanged sentences

December 31, 2019

Funds Held for Clients (2)

4 unchanged sentences

Asset-backed securities

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data unless otherwise noted)

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 September 30, 2020 and December 31, 2019, there were 74 and 53 securities, respectively, in an unrealized gain position and there were 1 and 18 securities, respectively, in an unrealized loss position.

As of September 30, 2020, we had $ 7 in unrealized losses.

As of December 31, 2019, these unrealized losses were less than $ 35 individually and $ 50 in the aggregate.

3 unchanged sentences

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.

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:

At September 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 September 30, 2020 are as follows:

Expected Maturities

3 unchanged sentences

After 10 years

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data unless otherwise noted)

In July 2020, we acquired certain assets of a payroll tax business.

The initial Purchase price for the assets was $ 4.25 million, which we paid cash at closing.

The seller will be paid additional consideration for the assets based on the trailing twelve-month revenue at each of April 30, 2021 and October 31, 2021.

Contingent purchase consideration, if any, will generally be made by May 30, 2021 and December 30, 2021.

The payment of the contingent consideration paid will be contingent on certain thresholds set forth in the asset purchase agreement.

We utilized a Monte Carlo simulation to determine the fair value of the contingent consideration.

There was no adjustment to the fair value of the contingent consideration at September 30, 2020.

Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures defines fair value, establishes a framework for measuring fair value in U.S.

7 unchanged sentences

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(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

The following table presents the fair value hierarchy for our financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019, respectively:

September 30, 2020

Total Carrying Value

7 unchanged sentences

Available-for-sale securities

Contingent purchase consideration

December 31, 2019

6 unchanged sentences

Available-for-sale securities

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.

ASURE SOFTWARE, INC.

1 unchanged sentence

(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

NOTE 4 – GOODWILL AND OTHER INTANGIBLE ASSETS

As of September 30, 2020 and December 31, 2019, goodwill was $ 71,289 and $ 68,697 , respectively, 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 September 30, 2020, there has been no impairment of goodwill based on the quantitative assessments performed by the Company.

The following table summarizes the changes in our goodwill:

Balance at December 31, 2019

Balance at September 30, 2020

The gross carrying amount and accumulated amortization of our intangible assets as of September 30, 2020 and December 31, 2019 are as follows:

September 30, 2020

Intangible Assets

14 unchanged sentences

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.

Amortization expenses recorded in Operating Expenses were $ 2,424 and $ 2,322 , for the three months ended September 30, 2020 and 2019, respectively.

Amortization expenses recorded in Cost of Sales were $ 397 and $ 417 for the three months ended September 30, 2020 and 2019, respectively.

Amortization expenses recorded in Operating Expenses were $ 7,123 and $ 7,143 , for the nine months ended September 30, 2020 and 2019, respectively.

Amortization expenses recorded in Cost of Sales were $ 1,225 and $ 1,137 for the nine months ended September 30, 2020 and 2019, respectively.

There is no impairment of intangibles during the nine months ended September 30, 2020 based on the qualitative assessment performed by the Company.

ASURE SOFTWARE, INC.

1 unchanged sentence

(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:

The following table summarizes the future estimated amortization expense relating to our intangible assets as of September 30, 2020:

Calendar Years

2020 (June to December)

2020 (September to December)

NOTE 5 – NOTES PAYABLE

1 unchanged sentence

Stated Interest Rate

September 30, 2020

December 31, 2019

Subordinated Notes Payable – acquisitions

1 unchanged sentence

2.00 % - 3.00

Term Loan – Pinnacle

PPP Loan – Pinnacle Bank

Term Loan – Wells Fargo Syndicate Partner

2 unchanged sentences

Long-term Notes Payable

The following table summarizes the debt issuance costs as of the dates indicated based:

June 30, 2020

Information presented in this table, the table that immediately follows and the last table in this footnote includes principal and interest due under the terms of a promissory note with Pinnacle Bank.

This loan was issued to us in connection with the Paycheck Protection Program pursuant to Title I of the Coronavirus Aid, Relief and Economic Security Act.

Under the terms of the Paycheck Protection Program, the principal balance and interest due under the promissory note will be forgiven if we meet certain conditions related to the use of the loan proceeds.

Under the terms of our promissory note with Pinnacle Bank, we would begin making payments on this promissory note in November 2020;

however, the Small Business Administration has issued guidance that defers all payments that would be owed on this loan until after the Small Business Administration makes a decision on our loan forgiveness application.

While we expect that the entire loan will be forgiven, we cannot be certain that the Small Business Administration will grant forgiveness of our entire loan.

If we do not receive forgiveness of our entire loan, we will be obligated to start making payments on the portion of the principal and interest that is not forgiven so that it will be fully repaid no later than April 15, 2022, unless we are able to negotiate new payment terms with Pinnacle Bank.

The following table summarizes the debt issuance costs as of the dates indicated:

September 30, 2020

Gross Notes Payable

3 unchanged sentences

Notes payable, net of current portion 2

Net Notes Payable includes $ 5,379 of Gross Notes Payables and $ 0 Debt Issuance Cost and Debt Discount related to our PPP loan with Pinnacle Bank, all or a portion of which we expect will be forgiven and for which we are not obligated to make any payments until the Small Business Administration has made a decision regarding our application for loan forgiveness.

Net Notes Payable, includes $ 3,477 of Gross Notes Payables and $ 0 Debt Issuance Cost and Debt Discount related to our PPP loan with Pinnacle Bank, all or a portion of which we expect will be forgiven and for which we are not obligated to make payments until the Small Business Administration has made a decision regarding our application for loan forgiveness.

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data unless otherwise noted)

December 31, 2019

4 unchanged sentences

Notes payable, net of current portion

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(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:

Term Loan - Wells Fargo

The following table summarizes the future principal payments related to our outstanding debt as of September 30, 2020:

Includes $ 8,856 of principal payments related to our PPP loan with Pinnacle Bank, all or a portion of which we expect will be forgiven and for which we are not obligated to make any payments until the Small Business Administration has made a decision regarding our application for loan forgiveness.

We expect to make our forgiveness application in the fourth quarter of 2020.

Given this, we expect that payments we may owe, if any, would not start until second quarter of 2021.

Senior Credit Facility with Wells Fargo N.A.

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.

3 unchanged sentences

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.

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 .

The Credit Agreement has been amended and restated multiple times, with the most recent amendment and restatement effective December 31, 2019.

As described below, the Credit Agreement was also amended, but not restated, on August 10, 2020.

Following the amendment and restatement on December 31, 2019, the Credit Agreement provided for $ 20,000 in term loans and a $ 10,000 revolver and provided for new 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.

On July 7, 2020, our senior lender identified certain events of default under our Credit Agreement and reserved their rights to pursue their remedies 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.

This covenant was 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.

The other events of default our lender identified 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.

ASURE SOFTWARE, INC.

1 unchanged sentence

(Amounts in thousands, except share and per share data unless otherwise noted)

On August 10, 2020, we entered into a waiver and amendment to our Credit Agreement and our Amended and Restated Guaranty and Security Agreement (the “Amendment”).

The Credit Agreement now provides for $ 10,000 in term loans and a $ 5,000 revolver and required that we make a principal payment of $ 9,750 on our outstanding term loans and reduce future availability on our revolver by $ 5,000 .

The outstanding principal balance and all accrued and unpaid interest on the term loans is due on December 31, 2024.

The 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.

The Amendment also reset our financial covenants.

The Amendment does not require that we meet our fixed charge ratio or leverage ratio covenant until the Covenant Conversion Date.

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.

We expect to be in compliance with these amended financial covenants over the next twelve months.

As of September 30, 2020, and December 31, 2019, no amount was outstanding and $ 4,500 and $ 10,000 , respectively, was available for borrowing under the revolver.

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 interest rate on the PPP Note is a fixed rate of 1 % per annum.

Based on current guidance from the Small Business Administration and assuming we file our forgiveness application in the fourth quarter of 2020, we would not expect to have a decision on our loan forgiveness application from the Small Business Administration until second quarter of 2021.

To the extent any portion of the PPP Loan is not forgiven, the PPP Note matures on April 15, 2022.

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

9 unchanged sentences

While the program remains in place, there have been no repurchases in 2020 and 2019.

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data unless otherwise noted)

Employee Stock Purchase Plan

4 unchanged sentences

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.

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data unless otherwise noted)

As of September 30, 2020, and December 31, 2019, accumulated other comprehensive income (loss) consisted of net unrealized gains and losses on available-for-sale securities.

NOTE 7 – CONTRACTS WITH CUSTOMERS AND REVENUE CONCENTRATION

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 $ 885 were $ 5,220 at September 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.

As of September 30, 2020, one customer represented 3 % 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 commission costs from contracts with customers were $ 3,530 and $ 2,697 at September 30, 2020 and December 31, 2019, respectively.

The amount of amortization recognized for the three and nine months ended September 30, 2020 was $ 220 and $ 660 , respectively and for the three and nine months ended September 30, 2019 was $ 428 and $ 1,018 , 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.

During the three and nine months ended September 30, 2020, revenue of $ 259 and $ 3,652 , respectively, and the three and nine months ended September 30, 2019, revenue of $ 429 and $ 2,643 , 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.

As of September 30, 2020, approximately $ 24,537 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.

During the three and nine months ended September 30, 2020 and 2019, there were no customers that individually represented 10% or more of consolidated revenue.

NOTE 8 – LEASES

3 unchanged sentences

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data unless otherwise noted)

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,

The components of the rent expense for the three and nine months ended September 30, 2020 and 2019 were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Operating lease cost

1 unchanged sentence

Net rent expense

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(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,

The weighted average discount rate of our operating leases is 10 % and 9 % as of September 30, 2020 and December 31, 2019, respectively.

The weighted average remaining lease term is five and six years as of September 30, 2020 and December 31, 2019, respectively.

Supplemental cash flow information related to operating leases for the nine months ended September 30, 2020 and 2019 follow:

Nine Months Ended September 30,

Cash paid for amounts included in the measurement of lease liabilities:

9 unchanged sentences

Total lease liabilities

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data unless otherwise noted)

NOTE 9 – SHARE-BASED COMPENSATION

3 unchanged sentences

We have outstanding options to purchase 1,388,077 shares at a weighted average exercise price of $ 7.78 .

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.

During the three and nine months ending September 30, 2020 we issued 123,500 and 668,000 of employee stock options, respectively.

The weighted average exercise price of these awards was $ 6.86 and $ 6.46 for the three and nine months ended September 30, 2020, respectively, these awards will vest over a three-year period.

We also had 497,913 outstanding restricted stock units as of September 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.

2 unchanged sentences

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.

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(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.

As of September 30, 2020, we had 1,104,614 shares available for grant pursuant to the 2018 Plan.

Share based compensation for our stock option plans for the three months ended September 30, 2020 and September 30, 2019 was $ 707 and $ 577 , respectively and for the nine months ended September 30, 2020 and September 30, 2019 was $ 1,733 and $ 1,580 , respectively.

We issued 14,173 and 5,000 shares of common stock related to exercises of stock options for the three months ended September 30, 2020 and 2019, respectively.

We issued 43,901 and 30,000 shares of common stock related to the issuance of vested restricted stock units for the three months ended September 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.

In December 2019, we sold our Workspace Management business to FM:Systems for approximately $ 121,500 in cash.

We used the proceeds to pay down debt.

In July 2020, in connection with finalizing the working capital adjustment, we received the escrow funds.

This transaction enabled 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 nine months ended September 30, 2019.

Three Months Ended

Six Months Ended

June 30, 2019

Nine Months Ended

September 30, 2019

Income from discontinued operations

Income tax (benefit) expense

Income tax benefit

Income from discontinued operations, net of taxes

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:

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data unless otherwise noted)

Three Months Ended

Six Months Ended

June 30, 2019

Nine Months Ended

September 30, 2019

Depreciation and amortization

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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.

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(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:

We have excluded stock options and restricted stock units of approximately 1,859,000 and 2,063,000 shares for the three and nine months ended September 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.

The following table sets forth the computation of basic and diluted net loss per common share for the three and nine months ended September 30, 2020 and September 30, 2019:

Three Months Ended

Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Loss from continuing operations

Income from discontinued operations

Net income (loss)

Weighted-average shares of common stock outstanding, basic and diluted

2 unchanged sentences

Income per share from discontinued operations

Basic and diluted loss per share

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”).

Income (loss) per share

ASURE SOFTWARE, INC.

1 unchanged sentence

(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;

$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.

NOTE 12 – SUBSEQUENT EVENTS

We 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 September 30, 2020, and events which occurred subsequent to September 30, 2020 but were not recognized in the condensed consolidated financial statements.

Based on this evaluation, we have determined there were no subsequent events to report.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements