The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
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., a Delaware corporation, is a provider of cloud-based software-as-a-service (“SaaS”) time and labor management and Agile Workplace management solutions that enable organizations to manage their office environments as well as their human resource and payroll processes effectively and efficiently. Asure develops, markets, sells and supports its offerings worldwide through its principal office in Austin, Texas and through additional offices in Dedham, Massachusetts; Traverse City, Michigan and London, United Kingdom.
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 for complete financial statements. 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, 2016 and December 31, 2015, the results of operations for the three and nine months ended September 30, 2016 and 2015, and the cash flows for the nine months ended September 30, 2016 and 2015.
You should read these condensed consolidated financial statements 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, 2015. The results for the interim periods are not necessarily indicative of results for a full fiscal year.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash deposits and highly liquid investments with an original maturity of three months or less when purchased.
LIQUIDITY
As of September 30, 2016, Asure’s principal sources of liquidity consisted of approximately $289 of cash and cash equivalents, future cash generated from operations and $2,800 available for borrowing under our Wells Fargo revolver discussed in Note 6 – Notes Payable. We believe that we have and/or will generate sufficient cash for our short- and long-term needs, including meeting the requirements of our term loan, and related debt covenant requirements. We continue to seek reductions in our expenses as a percentage of revenue on an annual basis and thus may utilize our cash balances in the short-term to reduce long-term costs. Based on current internal projections, we believe that we have and/or will generate sufficient cash for our operational needs, including any required debt payments, for at least the next twelve months.
Management is focused on growing our existing product offering, as well as our customer base, to increase our recurring revenues. We are also exploring additional strategic acquisitions in the near future, although we have no agreements to make any acquisition at this time. We expect to fund any future acquisitions with equity, available cash, future cash from operations, or debt from outside sources.
We cannot assure that we can grow our cash balances or limit our cash consumption and thus maintain sufficient cash balances for our planned operations or future acquisitions. Future business demands may lead to cash utilization at levels greater than recently experienced. We may need to raise additional capital in the future. However, we cannot assure that we will be able to raise additional capital on acceptable terms, or at all. Subject to the foregoing, management believes that we have sufficient capital and liquidity to fund and cultivate the growth of our current and future operations for at least the next 12 months and to maintain compliance with the terms of our debt agreements and related covenants or to obtain compliance through debt repayments made with the available cash on hand or anticipated for receipt in the ordinary course of operations.
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued FASB ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition”. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a five-step process to achieve that core principle. ASU 2014-09 requires disclosures enabling users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. In August 2015, the FASB issued FASB ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”, which deferred the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, using one of two retrospective application methods. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. In March 2016, the FASB issued FASB ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”. ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing.” ASU 2016-10 clarifies the implementation guidance in Topic 606 for identifying performance obligations and determining when to recognize revenue on licensing agreements for intellectual property. In May 2016, the FASB issued ASU No. 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting.” ASU 2016-11 rescinds certain SEC staff comments previously made in regard to these ASU’s.
In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” that provide guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition.
We are currently evaluating the effect that the adoption of ASU 2014-09, ASU 2015-14, ASU 2016-08, ASU 2016- 10, ASU 2016-11 and ASU 2016-12 will have on our consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern,” which requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern (meet its obligations as they become due) within one year after the date that the financial statements are issued. If conditions or events raise substantial doubt about the entity’s ability to continue as a going concern, certain disclosures are required. This ASU is effective for annual reporting periods ending after December 15, 2016, and interim reporting periods thereafter. We adopted the provisions of ASU 2014-15 on January 1, 2016. This adoption did not have any impact on our consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03,” Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”. This ASU requires reporting entities to record costs paid to third parties that are directly related to issuing debt, and that otherwise would not be incurred, as a deduction to the corresponding debt for presentation purposes. In addition, in August 2015, FASB issued ASU 2015-15, “Interest — Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements-Amendments to SEC Paragraphs Pursuant to Staff Announcement at the June 18, 2015 Emerging Issues Task Force (“EITF”) Meeting”. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, ASU 2015-15 states the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The provisions of each ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity should apply each amendment retrospectively. We adopted ASU 2015-03 on January 1, 2016 for debt issuance costs on our term loan, on a retrospective basis. The impact of adopting ASU 2015-03 on our current period condensed consolidated financial statements was the classification of all deferred financing costs as a deduction to the corresponding debt in addition to the reclassification of deferred financing costs in other current and long term assets to short and long term notes payable as of December 31, 2015, within the condensed consolidated balance sheets to conform to the current period presentation. Other than these reclassifications and additional disclosures, the adoption of ASU 2015-03 did not have an impact on our consolidated financial statements.
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 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory”. Inventory within the scope of this update is required to be measured at the lower of its cost or net realizable value, with net realizable value being the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This ASU is effective prospectively for fiscal years and interim periods beginning after December 15, 2016, with early adoption permitted. We are currently evaluating the effect of adopting ASU 2015-11 on our consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16, “Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments,” which requires acquirers to recognize adjustments to provisional amounts identified during the reporting period in which the adjustment amounts are determined. Acquirers should record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. Application of the standard, which should be applied prospectively, is required for the annual and interim periods beginning after December 15, 2015. We adopted the provisions of ASU 2015-16 on January 1, 2016. The adoption did not have a material impact on our consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17,” Income Taxes: Balance Sheet Classification of Deferred Taxes”, to require that deferred tax liabilities and assets be classified entirely as non-current. This amended guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those years. Early adoption is permitted, and the
amended guidance may be applied prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. We are currently evaluating the effects and timing of the adoption of ASU 2015-17, which must be adopted by the first quarter of 2017.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. The core principle of the standard is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in its statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. We will be required to adopt the new standard in the first quarter of 2019. We are currently evaluating the impact ASU 2016-02 will have on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments”
which eliminates the diversity in practice related to eight cash flow classification issues. This ASU is effective for on January 1, 2018 with early adoption permitted. We believe its adoption will not significantly impact our consolidated financial statements.
CONTINGENCIES
Although Asure has 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, 2016, we were not party to any pending legal proceedings.
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 – FAIR VALUE MEASUREMENTS
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 measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2015, respectively:
|
|
|
Fair Value Measure at September 30, 2016
|
|
|
Total
|
|
Quoted
|
|
Significant
|
|
|
|
|
Carrying
|
|
Prices
|
|
Other
|
|
Significant
|
|
|
Value at
|
|
in Active
|
|
Observable
|
|
Unobservable
|
|
|
September 30,
|
|
Market
|
|
Inputs
|
|
Inputs
|
|
Description
|
2016
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
289
|
|
|
$
|
289
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
|
|
$
|
289
|
|
|
$
|
289
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
173
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
173
|
|
Total
|
|
$
|
173
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
173
|
|
|
|
|
Fair Value Measure at December 31, 2015
|
|
|
Total
|
|
Quoted
|
|
Significant
|
|
|
|
|
Carrying
|
|
Prices
|
|
Other
|
|
Significant
|
|
|
Value at
|
|
in Active
|
|
Observable
|
|
Unobservable
|
|
|
December 31,
|
|
Market
|
|
Inputs
|
|
Inputs
|
|
Description
|
2015
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,158
|
|
|
$
|
1,158
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
|
|
$
|
1,158
|
|
|
$
|
1,158
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
173
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
173
|
|
Total
|
|
$
|
173
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
173
|
|
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 summarizes quantitative information about Level 3 fair value measurements.
Contingent consideration
In connection with the acquisition of FotoPunch, Inc. (“FotoPunch”) in July 2014, we recorded contingent consideration based upon the expected achievement of certain milestone goals. We will record any changes to the fair value of contingent consideration due to changes in assumptions used in preparing the valuation model in selling, general and administrative expenses in the Condensed Consolidated Statements of Comprehensive Income (Loss).
Contingent consideration is valued using a multi-scenario discounted cash flow method. The assumptions used in preparing the discounted cash flow method include estimates for outcomes if milestone goals are achieved and the probability of achieving each outcome. Management estimates probabilities and then applies them to management’s conservative case forecast, most likely case forecast and optimistic case forecast with the various scenarios.
The Company retained a third party expert to assist in determining the value of the contingent consideration as of December 31, 2015.
The valuation of contingent consideration for the FotoPunch acquisition is based on a Monte Carlo simulation model
for fiscal 2016 to 2018, with fiscal 2016 being a partial year from January 1, 2016 to September 30, 2016. Management provided revenue projections (an unobservable input) of $650, $2,203 and $3,925 for fiscal 2016 (partial year), fiscal 2017 and fiscal 2018, respectively. The fair value of this valuation is estimated on a quarterly basis through a collaborative effort by the Company’s sales, marketing and finance departments. Significant
changes in any of the unobservable inputs used in the fair value measurement of contingent consideration in isolation could result in a significantly lower or higher fair value. A change in projected revenue growth rates would be accompanied by a directionally similar change in fair value. Management evaluates the fair value on a quarterly basis based upon updated projections.
The following table summarizes the changes in our contingent consideration:
Balance at December 31, 2015
|
|
$
|
173
|
|
Change in fair value of contingent consideration
|
|
|
-
|
|
Balance at September 30, 2016
|
|
$
|
173
|
|
Funds held for clients
Funds held for clients represent assets that, based upon the Company’s intent, are restricted for use solely for the purposes of satisfying the obligations to remit funds relating to the Company’s payroll and payroll tax filing services, which are classified as client fund obligations on our Condensed Consolidated Balance Sheets. Funds held for clients are held in demand deposit accounts at major financial institutions and are classified as a current asset on our Condensed Consolidated Balance Sheets since these funds are held solely for the purposes of satisfying the client fund obligations.
Client fund obligations represent the Company’s contractual obligations to remit funds to satisfy clients’ payroll and tax payment obligations and are recorded on the Condensed Consolidated Balance Sheets at the time that the Company impounds funds from clients. The client fund obligations represent liabilities that will be repaid within one year of the balance sheet date. The Company has reported client fund obligations as a current liability on the Condensed Consolidated Balance Sheets totaling $12,264 and $0 as of September 30, 2016 and December 31, 2015, respectively. The Company has classified funds held for clients as a current asset since these funds are held solely for the purposes of satisfying client funds obligations. The Company has reported cash flows related to purchases, sales and maturities of corporate and client funds marketable securities on a gross basis in the investing section of the Condensed Statements of Consolidated Cash Flows. The Company has reported cash flows related to client fund investments with original maturities of ninety days or less on a net basis within the net increase in restricted cash and cash equivalents and other restricted assets held to satisfy client fund obligations in the investing section of the Statements of Consolidated Cash Flows. The Company has reported cash flows related to cash received from and paid on behalf of clients on a net basis within the net increase in client fund obligations in the financing activities section of the Condensed Statements of Consolidated Cash Flows.
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 – ACQUISITIONS
2016 Acquisition
Through the stock and asset purchases described below, we have entered into the human resource management, payroll processing and benefits administration services businesses, which we intend to integrate into our existing AsureForce® product line.
Stock Purchase Agreement
In March 2016, we acquired all of the issued and outstanding shares of common stock (the “Shares”) of Mangrove Employer Services, Inc. of Tampa, Florida (“Mangrove”). Pursuant to this stock purchase, we acquired the payroll division of Mangrove, which is engaged in the human resource management and payroll processing businesses. The aggregate consideration for the Shares consisted of (i) $11,348 in cash, a portion of which was used to pay certain obligations of Mangrove and (ii) a secured subordinated promissory note (the “Note”) in the principal amount of $6,000, subject to adjustment as provided in the Stock Purchase Agreement. We funded the cash payment with proceeds from our credit agreement with Wells Fargo. The Note bears interest at an annual rate of 3.50% and matures in March 2018, with the first installment of principal due in March 2017 and the second installment of principal due in March 2018. The Stock Purchase Agreement contains certain customary representations, warranties, indemnities and covenants. Details regarding the financing of the acquisition are described in the below Notes Payable table. Transaction costs for this acquisition were $706 and we expensed them as incurred. The acquisition costs are included in other income (loss) in the Condensed Consolidated Statement of Comprehensive Income (Loss) for the nine months ended September 30, 2016.
Asset Purchase Agreement
In March 2016, we also acquired substantially all the assets of Mangrove COBRAsource Inc., a benefits administration services business which then was a wholly owned subsidiary of Mangrove. The aggregate consideration for the assets was $1,036, which Mangrove COBRAsource applied to pay off certain loan balances. The Asset Purchase Agreement contains certain customary representations, warranties, indemnities and covenants.
Following is the purchase price allocation for the acquisition of Mangrove.
We based the preliminary fair value estimate for the assets acquired and liabilities assumed for this acquisition upon preliminary calculations and valuations. Our estimates and assumptions for this acquisition are subject to change as we obtain additional information for our estimates during the respective measurement periods (up to one year from the acquisition date). The primary areas of those preliminary estimates that we have not yet finalized relate to certain tangible assets and liabilities acquired, certain legal matters and income and non-income based taxes.
We recorded the transaction using the acquisition method of accounting and recognized assets and liabilities assumed at their fair value as of the date of acquisition. The $8,700 of intangible assets subject to amortization consist of $1,200 allocated to Customer Relationships, $6,900 in Developed Technology and $600 for Trade Names. We estimated the fair value of the Customer Relationships and Developed Technology using the excess earnings method, a form of the income approach. We discounted cash flow projections using a rate of 18.1%, which reflects the risk associated with the intangible asset related to the other assets and the overall business operations to us. We estimated the fair value of the Trade Names using the relief from royalty method based upon a 1.2% royalty rate for the payroll division and 0.5% for the benefits administration services business.
The Company believes significant synergies are expected to arise
from this strategic acquisition. This factor contributed to a purchase price that was in excess of the fair value of the net assets acquired and, as a result, the Company recorded goodwill. A portion of acquired goodwill will be deductible for tax purposes.
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
We based the allocations on fair values at the date of acquisition:
|
|
Amount
|
|
Assets acquired
|
|
|
|
Accounts receivable
|
|
$
|
523
|
|
Funds held for clients
|
|
|
16,419
|
|
Fixed assets
|
|
|
258
|
|
Other assets
|
|
|
28
|
|
Goodwill
|
|
|
8,837
|
|
Intangibles
|
|
|
8,700
|
|
Total assets acquired
|
|
$
|
34,765
|
|
|
|
|
|
|
Liabilities assumed
|
|
|
|
|
Accounts payable
|
|
|
64
|
|
Accrued other liabilities
|
|
|
282
|
|
Client fund obligations
|
|
|
16,419
|
|
Total liabilities assumed
|
|
$
|
16,765
|
|
Net assets acquired
|
|
$
|
18,000
|
|
Unaudited Pro Forma Financial Information
The following unaudited summary of pro forma combined results of operation for the three and nine months ended September 30, 2016 and 2015 gives effect to the acquisition of Mangrove and the acquisition of assets of COBRAsource as if we had completed them on January 1, 2015. This pro forma summary does not reflect any operating efficiencies, cost savings or revenue enhancements that we may achieve by combining operations. In addition, we have not reflected certain non-recurring expenses, such as legal expenses and other transactions expenses for the first 12 months after the acquisition, in the pro forma summary. We present this pro forma summary for informational purposes only and it is not necessarily indicative of what our actual results of operations would have been had the acquisitions taken place as of January 1, 2015, nor is it indicative of future consolidated results of operations.
|
|
FOR THE THREE MONTHS
|
|
|
FOR THE THREE MONTHS
|
|
|
|
ENDED SEPTEMBER 30,
|
|
|
ENDED SEPTEMBER 30,
|
|
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
$
|
9,440
|
|
|
$
|
8,934
|
|
Net income (loss)
|
|
$
|
315
|
|
|
$
|
(665
|
)
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.05
|
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,534
|
|
|
|
6,290
|
|
Diluted
|
|
|
6,548
|
|
|
|
6,290
|
|
|
|
FOR THE NINE MONTHS
|
|
|
FOR THE NINE MONTHS
|
|
|
|
ENDED SEPTEMBER 30,
|
|
|
ENDED SEPTEMBER 30,
|
|
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
$
|
27,954
|
|
|
$
|
26,309
|
|
Net loss
|
|
$
|
(282
|
)
|
|
$
|
(1,865
|
)
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.17
|
|
|
$
|
(0.23
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
6,396
|
|
|
$
|
6,138
|
|
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS
Asure accounted for its historical acquisitions in accordance with ASC 805,
Business Combinations
. We recorded the amount exceeding the fair value of net assets acquired at the date of acquisition as goodwill. We recorded intangible assets apart from goodwill if the assets had contractual or other legal rights or if the assets could be separated and sold, transferred, licensed, rented or exchanged. Asure’s goodwill relates to the acquisitions of ADI and Legiant in 2011, the acquisition of PeopleCube in 2012, and the acquisitions of FotoPunch and Roomtag in 2014 and Mangrove in 2016.
In accordance with ASC 350,
Intangibles-Goodwill and Other,
we review and evaluate our long-lived assets, including intangible assets with finite lives, for impairment whenever events or changes in circumstances indicate that we may not recover their net book value. We test goodwill for impairment on an annual basis in the fourth fiscal quarter of each year, and between annual tests, if indicators of potential impairment exist, using a fair-value-based approach. There has been no impairment of goodwill for the periods presented. We amortize intangible assets not considered to have an indefinite useful life using the straight-line method over their estimated period of benefit, which generally ranges from one to nine years. Each reporting period, we evaluate the estimated remaining useful life of intangible assets and assess whether events or changes in circumstances warrant a revision to the remaining period of amortization or indicate that impairment exists. We have not identified any impairments of finite-lived intangible assets during any of the periods presented.
The following table summarizes the changes in our goodwill:
Balance at December 31, 2015
|
|
$
|
17,436
|
|
Goodwill recognized upon acquisition of Mangrove
|
|
|
8,837
|
|
Foreign exchange adjustments to goodwill
|
|
|
(10
|
)
|
Balance at September 30, 2016
|
|
$
|
26,263
|
|
The gross carrying amount and accumulated amortization of our intangible assets as of September 30, 2016 and December 31, 2015 are as follows:
|
|
|
|
|
September 30, 2016
|
|
Intangible Asset
|
|
Weighted Average
Amortization
Period (in Years)
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed Technology
|
|
|
12.7
|
|
|
$
|
10,915
|
|
|
$
|
(3,055
|
)
|
|
$
|
7,860
|
|
Customer Relationships
|
|
|
7.3
|
|
|
|
14,011
|
|
|
|
(9,934
|
)
|
|
|
4,077
|
|
Reseller Relationships
|
|
|
7
|
|
|
|
853
|
|
|
|
(609
|
)
|
|
|
244
|
|
Trade Names
|
|
|
14.5
|
|
|
|
1,294
|
|
|
|
(696
|
)
|
|
|
598
|
|
Covenant not-to-compete
|
|
|
-
|
|
|
|
229
|
|
|
|
(229
|
)
|
|
|
-
|
|
|
|
|
10.1
|
|
|
$
|
27,302
|
|
|
$
|
(14,523
|
)
|
|
$
|
12,779
|
|
|
|
|
|
|
December 31, 2015
|
|
Intangible Asset
|
|
Weighted Average
Amortization
Period (in Years)
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed Technology
|
|
|
7.6
|
|
|
$
|
4,015
|
|
|
$
|
(2,208
|
)
|
|
$
|
1,807
|
|
Customer Relationships
|
|
|
7.2
|
|
|
|
12,811
|
|
|
|
(8,959
|
)
|
|
|
3,852
|
|
Reseller Relationships
|
|
|
7
|
|
|
|
853
|
|
|
|
(518
|
)
|
|
|
335
|
|
Trade Names
|
|
|
5
|
|
|
|
694
|
|
|
|
(669
|
)
|
|
|
25
|
|
Covenant not-to-compete
|
|
|
2
|
|
|
|
229
|
|
|
|
(222
|
)
|
|
|
7
|
|
|
|
|
7.3
|
|
|
$
|
18,602
|
|
|
$
|
(12,576
|
)
|
|
$
|
6,026
|
|
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 amortization expense using the straight-line method over the estimated useful lives of the intangible assets, as noted above. Amortization expenses for the three months ended September 30, 2016 and 2015 were $625 and $505, respectively, included in Operating Expenses. Amortization expenses recorded in Cost of Sales were $106 and $106 for the three months ended September 30, 2016 and 2015, respectively. Amortization expenses for the nine months ended September 30, 2016 and 2015 were $1,628 and $1,514 included in Operating Expenses, and $319 and $236, respectively, included in Cost of Sales.
The following table summarizes the future estimated amortization expense relating to our intangible assets as of September 30, 2016:
Calendar Years
|
|
|
|
2016
|
|
$
|
564
|
|
2017
|
|
|
2,245
|
|
2018
|
|
|
1,897
|
|
2019
|
|
|
1,264
|
|
2020
|
|
|
698
|
|
Thereafter
|
|
|
6,111
|
|
|
|
$
|
12,779
|
|
NOTE 6 – NOTES PAYABLE
The following table summarizes our outstanding debt as of the dates indicated:
Notes Payable
|
|
Maturity
|
|
Stated Interest
Rate
|
|
|
Balance as of
September 30, 2016
|
|
|
Balance as of
December 31, 2015
|
|
Subordinated Notes Payable- Mangrove acquisition
|
|
3/18/2018
|
|
|
3.50
|
%
|
|
$
|
6,113
|
|
|
$
|
-
|
|
Term Loan - Wells Fargo
|
|
3/31/2019
|
|
|
5.00
|
%
|
|
|
25,205
|
|
|
|
13,687
|
|
Total Notes Payable
|
|
|
|
|
|
|
|
$
|
31,318
|
|
|
$
|
13,687
|
|
Short-term notes payable, gross
|
|
|
|
|
|
|
|
$
|
5,404
|
|
|
$
|
1,031
|
|
Long-term notes payable, gross
|
|
|
|
|
|
|
|
$
|
25,914
|
|
|
$
|
12,656
|
|
On January 1, 2016, we adopted ASU 2015-03 for debt issuance costs on our term loan, on a retrospective basis. The impact of adopting ASU 2015-03 on our current period condensed consolidated financial statements was the classification of all deferred financing costs as a deduction to corresponding debt in addition to the reclassification of deferred financing costs in other current and long term assets to short and long term notes payable as of December 31, 2015, within the Condensed Consolidated Balance Sheets to conform to the current period presentation. The following table summarizes the debt issuance costs as of the dates indicated:
Notes Payable
|
|
Gross Notes Payable at
September 30, 2016
|
|
|
Debt Issuance Costs
|
|
|
Net Notes Payable at
September 30, 2016
|
|
Short-term notes payable
|
|
$
|
5,404
|
|
|
$
|
(305
|
)
|
|
$
|
5,099
|
|
Long-term notes payable
|
|
|
25,914
|
|
|
|
(450
|
)
|
|
|
25,464
|
|
Total Notes Payable
|
|
$
|
31,318
|
|
|
$
|
(755
|
)
|
|
$
|
30,563
|
|
Notes Payable
|
|
Gross Notes Payable at
December 31, 2015
|
|
|
Debt Issuance Costs
|
|
|
Net Notes Payable at
December 31, 2015
|
|
Short-term notes payable
|
|
$
|
1,031
|
|
|
$
|
(122
|
)
|
|
$
|
909
|
|
Long-term notes payable
|
|
|
12,656
|
|
|
|
(272
|
)
|
|
|
12,384
|
|
Total Notes Payable
|
|
$
|
13,687
|
|
|
$
|
(394
|
)
|
|
$
|
13,293
|
|
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
The following table summarizes the future principal payments related to our outstanding debt:
Year Ended
|
|
Gross Amount
|
|
December 31, 2016
|
|
$
|
491
|
|
December 31, 2017
|
|
|
5,455
|
|
December 31, 2018
|
|
|
5,731
|
|
December 31, 2019
|
|
|
19,641
|
|
Gross Notes Payable
|
|
$
|
31,318
|
|
Term Loan - Wells Fargo
In March 2014, we entered into a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, N.A., 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 provided for a term loan in the amount of $15,000 maturing in March 2019. We used the proceeds of the term loan to finance the repayment of all amounts outstanding under our loan agreement with Deerpath and the payment of certain fees, cost and expenses related to the Credit Agreement.
The Credit Agreement also provided for a revolving loan commitment in the aggregate amount of up to $3,000. The outstanding principal amount of the revolving loan is due and payable in March 2019. As of September 30, 2016, $206 was outstanding and $2,800 was available for borrowing under the revolver.
Additionally, the Credit Agreement provided for a $10,000 uncommitted incremental term loan facility to support permitted acquisitions.
Under the Credit Agreement, we were required to maintain a fixed charge coverage ratio of not less than 1.5 to 1.0 beginning with the quarter ended June 30, 2014 and each calendar quarter thereafter, and a leverage ratio of not greater than 3.5 to 1.0 beginning with the quarter ended June 30, 2014 with the levels stepping down thereafter. We amended the Credit Agreement in August 2014, March 2015 and November 2015. The August 2014 amendment revised the leverage ratio beginning with the quarter ended September 30, 2014 to a leverage ratio of not greater than 3.6 to 1.0 with the levels stepping down thereafter. The March 2015 amendment authorized us to optionally prepay, subject to specified conditions, the Subordinated Note Payable to Roomtag and revised the leverage ratio beginning with the quarter ended March 31, 2015 to a leverage ratio of not greater than 3.5 to 1.0 with the levels stepping down thereafter. The November 2015 amendment increased the applicable margin relative to the LIBOR rate upon which we compute the interest payable. We agreed that if our leverage ratio is (a) less than or equal to 2.25:1, (b) greater than 2.25:1 but less than or equal to 2.75:1, (c) greater than 2.75:1 but less than or equal to 3.25:1 or (d) greater than 3.25:1, the applicable margin relative to the LIBOR rate would be 3.00, 3.50, 4.00 or 4.50 percentage points, respectively. We further agreed that until the leverage ratio testing period ending September 30, 2016, we will pay interest based on the 4.50 percentage point margin level.
In March 2016, we amended the Credit Agreement. Under this amendment, we expanded the Credit Agreement by $12,500 to $29,188. The amendment changes the applicable margin rates for determining the interest rate payable on the loan as follows:
Total Leverage Ratio
|
|
Base Rate Margin
|
|
|
LIBOR Rate Margin
|
|
≤ 2.75:1
|
|
|
3.50
|
%
|
|
|
4.50
|
%
|
> 2.75:1 but ≤ 3.25:1
|
|
|
4.00
|
%
|
|
|
5.00
|
%
|
≥ 3.25:1
|
|
|
4.50
|
%
|
|
|
5.50
|
%
|
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
The March 2016 amendment also amends our leverage ratio requirements under the Credit Agreement. We have now agreed to a leverage ratio not to exceed 5.00:1 at March 31, 2016, stepping down to 2.25:1 at December 31, 2018.
The Credit Agreement contains customary affirmative and negative covenants, including, among others, limitations with respect to debt, liens, fundamental changes, sale of assets, prepayment of debt, investments, dividends and transactions with affiliates.
The outstanding principal amount of the term loan is payable as follows:
· $491 on June 30, 2016 and the last day of each fiscal quarter thereafter up to March 31, 2017; and
· $655 on June 30, 2017 and the last day of each fiscal quarter thereafter, with a final payment of the remaining balance due on March 31, 2019
As of September 30, 2016, we were in compliance with all covenants and all payments remain current. We expect to be in compliance or be able to obtain compliance through debt repayments with available cash on hand or as we expect to generate from the ordinary course of operations over the next twelve months.
Subordinated Notes Payable: Mangrove Acquisition Note
In March 2016, we acquired all of the issued and outstanding shares of common stock (the “Shares”) of Mangrove. Pursuant to this stock purchase, we acquired the payroll division of Mangrove, which is engaged in the human resource management and payroll processing businesses. The aggregate consideration for the Shares consisted of (i) $11,348 in cash, a portion of which was used to pay certain obligations of Mangrove and (ii) a secured subordinated promissory note (the “Note”) in the principal amount of $6,000, subject to adjustment as provided in the Stock Purchase Agreement. We funded the cash payment with proceeds from the Credit Agreement with Wells Fargo. The Note bears interest at an annual rate of 3.50% and matures in March 2018, with the first installment of principal of $3,000 due in March 2017 and the second installment of principal of $3,000 due in March 2018.
NOTE 7 – SHARE BASED COMPENSATION
Share based compensation for our stock option plans for the three months ended September 30, 2016 and 2015 were $60 and $237, respectively, and $166 and $335 for the nine months ended September 30, 2016 and 2015, respectively. We issued 15,000 shares of common stock related to exercises of stock options granted from our Stock Option Plan for the three months ended September 30, 2016 and 0 shares for the three months ended September 30, 2015, respectively.
Asure has one active equity plan, the 2009 Equity Plan (the “2009 Plan”). The 2009 Plan provides for the issuance of non-qualified and incentive stock options to our employees and consultants. We generally grant stock options with exercise prices greater than or equal to the fair market value at the time of grant. The options generally vest over three to four years and are exercisable for a period of five to ten years beginning with date of grant. Our shareholders approved an amendment to the 2009 Plan in June 2014 to increase the number of shares reserved under the plan from 1,200,000 to 1,400,000. We have a total of 452,000 options granted and outstanding pursuant to the 2009 Plan as of September 30, 2016.
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
NOTE 8 – OTHER COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) represents a measure of all changes in equity that result from recognized transactions and other economic events other than those resulting from investments by and distributions to shareholders. Our other comprehensive income (loss) includes foreign currency translation adjustments.
The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax:
|
|
Foreign Currency Items
|
|
|
Accumulated Other
Comprehensive Income (Loss) Items
|
|
Beginning balance, December 31, 2015
|
|
$
|
(78
|
)
|
|
$
|
(78
|
)
|
Other comprehensive income before reclassifications
|
|
|
142
|
|
|
|
142
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
—
|
|
|
|
—
|
|
Net current-period other comprehensive income
|
|
|
142
|
|
|
|
142
|
|
Ending balance, September 30, 2016
|
|
$
|
64
|
|
|
$
|
64
|
|
NOTE 9 – NET INCOME (LOSS) PER SHARE
We compute net income (loss) per share based on the weighted average number of common shares outstanding for the period. Diluted net income (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 to acquire 114,000 shares for the three months ended September 30, 2015 and 452,000 shares for the nine months ended September 30, 2016 and 684,000 shares for the nine months ended September 30, 2015, respectively, from the computation of the dilutive stock options because the effect of including the stock options would have been anti-dilutive.
The following table sets forth the computation of basic and diluted net income (loss) per common share for the three and nine months ended September 30, 2016 and 2015:
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net income (loss)
|
|
$
|
315
|
|
|
$
|
(574
|
)
|
|
$
|
(1,103
|
)
|
|
$
|
(962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock outstanding
|
|
|
6,534,000
|
|
|
|
6,290,000
|
|
|
|
6,383,000
|
|
|
|
6,138,000
|
|
Dilutive effect of employee stock options
|
|
|
14,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Weighted average shares for diluted net income (loss) per share
|
|
|
6,548,000
|
|
|
|
6,290,000
|
|
|
|
6,383,000
|
|
|
|
6,138,000
|
|
Basic net income (loss) per share
|
|
$
|
0.05
|
|
|
$
|
(0.09
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.16
|
)
|
Diluted net income (loss) per share
|
|
$
|
0.05
|
|
|
$
|
(0.09
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.16
|
)
|