Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS
ASURE SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
September 30, 2020
(unaudited)
December 31, 2019
Assets
Current assets:
Cash and cash equivalents
$
12,939
$
28,826
Accounts receivable, net of allowance for doubtful accounts of $ 885 and $ 904 at September 30, 2020 and December 31, 2019, respectively
5,220
4,808
Inventory
408
656
Prepaid expenses and other current assets
2,558
12,218
Total current assets before funds held for clients
21,125
46,508
Funds held for clients
199,306
137,935
Total current assets
220,431
184,443
Property and equipment, net
8,275
7,867
Goodwill
71,289
68,697
Intangible assets, net
62,055
63,850
Operating lease assets, net
6,837
6,963
Other assets, net
3,839
3,224
Total assets
$
372,726
$
335,044
Liabilities and stockholders’ equity
Current liabilities:
Current portion of notes payable
$
10,794
$
2,571
Accounts payable
1,009
1,736
Accrued compensation and benefits
3,305
3,424
Operating lease liabilities, current
1,779
1,575
Other accrued liabilities
791
6,556
Deferred revenue
3,585
5,500
Total current liabilities before client fund obligations
21,263
21,362
Client fund obligations
198,691
145,227
Total current liabilities
219,954
166,589
Long-term liabilities:
Deferred revenue
161
322
Deferred tax liability
362
336
Notes payable, net of current portion
12,908
24,142
Contingent purchase consideration
2,745
-
Operating lease liabilities, noncurrent
5,844
5,937
Other liabilities
656
139
Total long-term liabilities
22,676
30,876
Total liabilities
242,630
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, 15,900 and 15,714 shares outstanding at September 30, 2020 and December 31, 2019, respectively
163
161
Treasury stock at cost, 384 shares at September 30, 2020 and December 31, 2019
( 5,017
)
( 5,017
)
Additional paid-in capital
398,449
396,102
Accumulated deficit
( 264,112
)
( 253,642
)
Accumulated other comprehensive income (loss)
613
( 25
)
Total stockholders’ equity
130,096
137,579
Total liabilities and stockholders’ equity
$
372,726
$
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
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Revenue:
Recurring
$
15,273
$
17,014
$
47,442
$
53,429
Professional services, hardware and other
742
840
1,634
2,109
Total revenue
16,015
17,854
49,076
55,538
Cost of Sales
6,942
7,086
20,807
20,399
Gross profit
9,073
10,768
28,269
35,139
Operating expenses:
Sales and marketing
3,573
3,245
9,916
9,008
General and administrative
5,947
6,972
17,580
21,779
Research and development
1,805
1,271
4,356
3,561
Amortization of intangible assets
2,424
2,322
7,123
7,143
Total operating expenses
13,749
13,810
38,975
41,491
Loss from operations
( 4,676
)
( 3,042
)
( 10,706
)
( 6,352
)
Interest (expense) income and other, net
( 408
)
( 2,712
)
302
( 8,495
)
Loss from continuing operations before income taxes
( 5,084
)
( 5,754
)
( 10,404
)
( 14,847
)
Income tax (benefit) expense
( 325
)
( 130
)
71
512
Loss from continuing operations
( 4,759
)
( 5,624
)
( 10,475
)
( 15,359
)
Discontinued operations
Income from operations of discontinued operations
-
2,126
-
4,030
Income tax benefit
-
( 142
)
-
( 112
)
Gain on discontinued operations, net of taxes
-
2,268
-
4,142
Net loss
( 4,759
)
( 3,356
)
( 10,475
)
( 11,217
)
Other comprehensive income:
Unrealized gain on marketable securities
16
( 4
)
643
22
Foreign currency translation loss
-
( 514
)
-
( 560
)
Comprehensive loss
$
( 4,743
)
$
( 3,874
)
$
( 9,832
)
$
( 11,755
)
Basic and diluted loss per share from continuing operations
Basic
$
( 0.30
)
$
( 0.36
)
$
( 0.66
)
$
( 0.99
)
Diluted
$
( 0.30
)
$
( 0.36
)
$
( 0.66
)
$
( 0.99
)
Basic and diluted loss per share
Basic
$
( 0.30
)
$
( 0.22
)
$
( 0.66
)
$
( 0.72
)
Diluted
$
( 0.30
)
$
( 0.22
)
$
( 0.66
)
$
( 0.72
)
Weighted average basic and diluted shares
Basic
15,873,000
15,565,000
15,793,000
15,472,000
Diluted
15,873,000
15,565,000
15,793,000
15,472,000
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
Stock issued upon option exercise and vesting of restricted stock units
59
1
-
50
-
-
51
Share based compensation
-
-
-
707
-
-
707
Net loss
-
-
-
-
( 4,759
)
-
( 4,759
)
Other comprehensive income
-
-
-
-
-
11
11
Balance at September 30, 2020
15,900
$
163
$
( 5,017
)
$
398,449
$
( 264,112
)
$
613
$
130,096
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, 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
Stock issued, ESPP
-
-
-
-
-
-
-
Stock issued upon option exercise and vesting of restricted stock units
35
1
-
28
-
-
29
Share based compensation
-
-
-
577
-
-
577
Net loss
-
-
-
-
( 3,356
)
-
( 3,356
)
Other comprehensive loss
-
-
-
-
-
( 518
)
( 518
)
Balance at September 30, 2019
15,586
$
160
$
( 5,017
)
$
394,810
$
( 294,860
)
$
( 1,444
)
$
93,649
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)
Nine Months Ended September 30,
2020
2019
Cash flows from operating activities:
Net loss
$
( 10,475
)
$
( 11,217
)
Adjustments to reconcile loss to net cash (used in) provided by operations:
Depreciation and amortization
12,046
11,594
Amortization of debt financing costs and discount
348
1,178
Provision for (recovery of) doubtful accounts
317
( 414
)
Provision for deferred income taxes
26
468
Gain on modification of debt
( 123
)
-
Share-based compensation
1,733
1,580
Loss on disposals of fixed assets
55
83
Changes in operating assets and liabilities:
Accounts receivable
1,451
2,930
Inventory
137
( 2,062
)
Prepaid expenses and other assets
( 766
)
16
Accounts payable
( 726
)
( 598
)
Accrued expenses and other long-term obligations
( 2,482
)
217
Operating lease liabilities
( 1,182
)
-
Deferred revenue
( 2,076
)
148
Net cash (used in) provided by operating activities
( 1,717
)
3,923
Cash flows from investing activities:
Acquisitions, net of cash acquired
( 6,994
)
( 7,443
)
Acquisition of intangible asset
( 1,823
)
-
Purchases of property and equipment
( 859
)
( 1,159
)
Software capitalization costs
( 1,904
)
( 3,207
)
Net change in funds held for clients
( 53,107
)
48,361
Net cash (used in) provided by investing activities
( 64,687
)
36,552
Cash flows from financing activities:
Proceeds from notes payable
8,856
8,000
Payments of notes payable
( 12,171
)
( 4,638
)
Proceeds from revolving line of credit
-
8,000
Payments of revolving line of credit
-
( 4,000
)
Debt financing fees
( 249
)
( 1,102
)
Payments of finance leases
-
( 102
)
Net proceeds from issuance of common stock
616
496
Net change in client fund obligations
53,465
( 49,964
)
Net cash provided by (used in) financing activities
50,517
( 43,310
)
Effect of foreign exchange rates
-
( 33
)
Net increase (decrease) in cash and cash equivalents
( 15,887
)
( 2,868
)
Cash and cash equivalents at beginning of period
28,826
15,444
Cash and cash equivalents at end of period
$
12,939
$
12,576
Supplemental information:
Cash paid for:
Interest
$
967
$
6,581
Income taxes
3,469
31
Non-cash Investing and Financing Activities:
Subordinated notes payable –acquisitions
$
-
$
2,000
Equity issued in connection with acquisitions
-
555
The accompanying notes are an integral part of these condensed consolidated financial statements.
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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.
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. 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 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. 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.
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.
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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 3 – INVESTMENTS AND FAIR VALUE MEASUREMENTS
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:
September 30, 2020
Amortized
Cost
Gross
Unrealized
Gains (1)
Gross
Unrealized
Losses (1)
Aggregate
Estimated
Fair Value
Funds Held for Clients (2)
Certificates of deposit
$
8,844
$
233
$
-
$
9,077
Corporate debt securities
9,438
288
-
9,726
Municipal bonds
7,561
101
( 7
)
7,655
US Government agency securities
-
-
-
-
Asset-backed securities
498
2
-
500
Total
$
26,341
$
624
$
( 7
)
$
26,958
December 31, 2019
Amortized
Cost
Gross
Unrealized
Gains (1)
Gross
Unrealized
Losses (1)
Aggregate
Estimated
Fair Value
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
(1)
Unrealized gains and losses on available-for-sale securities are included as a component of comprehensive loss. 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. 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 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
Amount
One year or less
$
5,695
After one year through five years
21,263
After five years through 10 years
-
After 10 years
-
$
26,958
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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)
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. 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.
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
Quoted Prices in Active Market
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Assets:
Cash equivalents
Money market funds
$
8,248
$
8,248
$
-
$
-
Funds held for clients
Money market funds
37,265
37,265
-
-
Available-for-sale securities
26,958
-
26,958
-
Total
$
72,471
$
45,513
$
26,958
$
-
Liabilities:
Contingent purchase consideration
$
-
$
-
$
-
$
2,745
Total
$
-
$
-
$
-
$
2,745
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
$
-
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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 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
$
68,697
Acquisition
2,592
Balance at September 30, 2020
$
71,289
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
Weighted Average
Amortization
Period (in Years)
Gross
Accumulated
Amortization
Net
Customer relationships
8.9
$
83,111
$
( 26,575
)
$
56,536
Developed technology
6.6
12,001
( 7,230
)
4,771
Reseller relationships
7.0
853
( 853
)
-
Trade names
3.0
780
( 254
)
526
Noncompete agreements
5.2
1,032
( 810
)
222
8.5
$
97,777
$
( 35,722
)
$
62,055
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 $ 2,424 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.
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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 September 30, 2020:
Calendar Years
Amount
2020 (September to December)
$
2,803
2021
11,048
2022
10,514
2023
9,389
2024
9,162
Thereafter
19,139
$
62,055
NOTE 5 – NOTES PAYABLE
The following table summarizes our outstanding debt as of the dates indicated: 1
Maturity
Stated Interest Rate
September 30, 2020
December 31, 2019
Subordinated Notes Payable – acquisitions
1/1/2021 – 7/1/2021
2.00 % - 3.00
%
$
5,271
$
7,185
PPP Loan – Pinnacle Bank
4/15/2022
1.00
%
8,856
-
Term Loan – Wells Fargo Syndicate Partner
12/31/2024
5.25
%
9,938
20,000
Total Notes Payable
$
24,065
$
27,185
Short-term Notes Payable
10,901
2,696
Long-term Notes Payable
$
13,164
$
24,489
(1)
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
Debt Issuance Costs and Debt Discount
Net Notes Payable
Notes payable, current portion 1
$
10,901
$
( 107
)
$
10,794
Notes payable, net of current portion 2
13,164
( 256
)
12,908
Total
$
24,065
$
( 363
)
$
23,702
(1)
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.
(2)
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.
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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)
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
The following table summarizes the future principal payments related to our outstanding debt as of September 30, 2020:
Year Ending
Amount
2020 1
$
1,001
2021 1
11,450
2022 1
2,489
2023
500
2024
8,625
Total
$
24,065
(1)
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. 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. 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.
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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)
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.
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 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 after the Small Business Administration makes a decision on our forgiveness application . 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.
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.
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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)
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 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
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 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 $ 3,530 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 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 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 nine months ended September 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.
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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)
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 nine months ended September 30, 2020 and 2019 were as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2020
2019
2020
2019
Operating lease cost
$
540
$
552
$
1,613
$
1,694
Sublease income
( 11
)
( 37
)
( 107
)
( 112
)
Net rent expense
$
529
$
515
$
1,506
$
1,582
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 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,
2020
2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases
$
1,699
$
1,743
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)
$
578
2021
2,354
2022
1,837
2023
1,142
2024
1,022
Thereafter
2,630
Total minimum lease payments
9,563
Less imputed interest
( 1,940
)
Total lease liabilities
$
7,623
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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 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 1,388,077 shares at a weighted average exercise price of $ 7.78 . 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. 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.
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. 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
Nine Months Ended
September 30, 2019
September 30, 2019
Revenue
$
6,705
$
20,622
Income from discontinued operations
$
2,126
$
4,030
Income tax benefit
( 142
)
( 112
)
Income from discontinued operations, net of taxes
$
2,268
$
4,142
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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 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 nine months ended September 30, 2019:
Three Months Ended
Nine Months Ended
September 30, 2019
September 30, 2019
Depreciation and amortization
$
511
$
1,744
Provision for doubtful accounts
31
( 103
)
Share based compensation
3
112
Capital expenditures
( 62
)
( 401
)
Software capitalization
( 300
)
( 716
)
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 1,859,000 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
Three Months Ended
Nine Months Ended
Nine Months Ended
September 30, 2020
September 30, 2019
September 30, 2020
September 30, 2019
Numerator:
Loss from continuing operations
$
( 4,759
)
$
( 5,624
)
$
( 10,475
)
$
( 15,359
)
Income from discontinued operations
-
2,268
-
4,142
Net income (loss)
$
( 4,759
)
$
( 3,356
)
$
( 10,475
)
$
( 11,217
)
Denominator:
Weighted-average shares of common stock outstanding, basic and diluted
15,873,000
15,565,000
15,793,000
15,472,000
Basic and diluted income (loss) per share
Loss per share from continuing operations
$
( 0.30
)
$
( 0.36
)
$
( 0.66
)
$
( 0.99
)
Income per share from discontinued operations
-
0.14
-
0.27
Income (loss) per share
$
( 0.30
)
$
( 0.22
)
$
( 0.66
)
$
( 0.72
)
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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 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.
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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.