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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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AMENDMENT No. 1 to FORM 8-K/A

 

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CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

(Date of earliest event reported)

 

(Exact name of registrant as specified in its charter)

 

 

512-437-2700
(Registrant’s telephone number, including area code)

 

Not Applicable
(Former Name or Former Address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1934 (§240.12b-2 of this chapter)

Emerging growth company ☐.

  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

On May 26, 2017 we filed a Current Report on Form 8-K (“Original Form 8-K”) to report the completion of the acquisition of iSystems Holdings, LLC, pursuant to an Equity Purchase Agreement, and the acquisition of Compass HRM, Inc., pursuant to a Stock Purchase Agreement.

 

Item 9.01.  Financial Statements and Exhibits.

 

(a)  Financial Statements of Business Acquired.

 

The audited financial statements of Compass HRM, Inc.  as of December 31, 2016 and for the year then ended and the unaudited financial statements of Compass HRM, Inc. as of March 31, 2017 and for each of the three months ended March 31, 2017 and 2016 are filed as Exhibits 99.1 and 99.2, respectively, hereto and incorporated herein by reference.

 

(b)  Pro Forma Financial Information.

 

Our unaudited pro forma condensed combined financial information of Asure Software, Inc., after giving effect to the iSystems and Compass acquisitions and the borrowings under the Restated Credit Agreement, is filed as Exhibit 99.3 hereto and is incorporated herein by reference.

 

(d)   Exhibits

 

 

Cautionary Statement Regarding Forward-Looking Statements

 

This Report contains forward-looking statements that involve risks and uncertainties. These statements relate to future periods, future events or our future operating or financial performance. All statements other than statements of historical fact, including statements identified by words such as “may,” “will,” “could,” “expect,” “anticipate,” “continue,” “plan,” “intend,” “estimate,” “project,” “believe” and similar expressions or variations, are forward-looking statements. Forward-looking statements include but are not limited to statements regarding our strategy, future operations, financial condition, results of operations, projected costs, and plans and objectives of management. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the risks and uncertainties described in our reports and filings with the Securities and Exchange Commission. We undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances that occur after the date on which the statement is made or to reflect the occurrence of unanticipated events.

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

EXHIBIT INDEX

 

Exhibit 23.1

INDEPENDENT AUDITORS’ CONSENT

We consent to the incorporation by reference in the Registration Statements of Asure Software, Inc. on Form S-3 (File Nos. 333-182828, 333-212317 and 333-216075) and Form S-8 (File Nos. 333-175186 and 333-215097) of our report dated August 8, 2017, with respect to our audits of the financial statements of Compass HRM, Inc. as of December 31, 2016 and for the year then ended, which report is included in this Current Report on Form 8-K/A of Asure Software, Inc. as of August 8, 2017.

/s/ Marcum LLP

Irvine, California

August 8, 2017

 

Exhibit 99.1

 

 

 

 

 

 

 

 

Independent Auditors’ Report	1-2
Financial Statements
Balance Sheet	3
Statement of Operations	4
Statement of Stockholders’ Equity	5
Statement of Cash Flows	6
Notes to Financial Statements	7-12

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Stockholders of

Compass HRM, Inc.

Report on the Financial Statements

We have audited the accompanying financial statements of Compass HRM, Inc. (the “Company”), which comprise the balance sheet as of December 31, 2016, and the related statements of operations, stockholders’ equity and cash flows for the year then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit.  We conducted our audit in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.  The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.  In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.  Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Compass HRM, Inc. as of December 31, 2016, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Irvine, CA

August 8, 2017

COMPASS HRM, INC.
BALANCE SHEET
DECEMBER 31, 2016

 

 

Assets
Current Assets
Cash		$	393,287
Accounts receivable and unbilled revenue			271,010
Prepaid expenses and other current assets			107,574
Total Current Assets						$	771,871
Property, Equipment and Improvements, Net							115,269
Capitalized Software, Net							327,403
Total Assets						$	1,214,543
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses		$	214,232
Other current liabilities			157,304
Current portion of term loan			191,664
Total Current Liabilities						$	563,200
Term Loan, Net of Current Portion							606,129
Total Liabilities							1,169,329
Commitments and Contingencies (See Note 6)
Stockholders' Equity
Common stock, no par value; 100 shares authorized,
issued and outstanding			--
Additional paid-in capital			89,800
Accumulated deficit			(44,586	)
Total Stockholders' Equity							45,214
Total Liabilities and Stockholders' Equity						$	1,214,543

 

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

COMPASS HRM, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2016

 

Revenues						$	3,538,269
Cost of Revenues							699,204
Gross Profit							2,839,065
Operating Expenses
Employee compensation and benefits		$	1,895,618
General and administrative			1,156,033
Sales and marketing			44,769
Total Operating Expenses							3,096,420
Operating Loss							(257,355	)
Other Expenses
Interest expense			43,751
Other expense			822
Total Other Expenses							44,573
Net Loss						$	(301,928	)

 

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

COMPASS HRM, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2016

 

																		Total
		Common Stock								Additional				Retained				Stockholders'
		Shares				Amount				Paid-in Capital				Earnings				Equity
Balance - January 1, 2016			100			$	--			$	52,116			$	270,842			$	322,958
Distributions			--				--				--				(13,500	)			(13,500	)
Contributions			--				--				37,684				--				37,684
Net loss			--				--				--				(301,928	)			(301,928	)
Balance - December 31, 2016			100			$	--			$	89,800			$	(44,586	)		$	45,214

 

 

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

 

 

COMPASS HRM, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2016

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Note 2 - Summary of Significant Accounting Policies (continued)

Revenue Recognition

The Company recognizes revenue for services provided under two type of contracts: monthly subscription fees and per payroll processing services.

Monthly subscription - The Company enters into fixed fee arrangements for SaaS customers.  Fees associated for each services are recognized ratably in the period services are rendered and earned under service agreements with clients where fees are fixed or determinable and collectability is reasonably assured.

Per payroll processing service - The Company negotiates per employee per month fees for the payroll processing customers.  Revenue is recognized as services are rendered.

CASH CONCENTRATION

The Company maintains its cash balances in bank accounts with major financial institutions that from time to time, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes cash balances are not exposed to significant credit risk.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The carrying values of financial instruments, which include cash, accounts receivable, and accounts payable, approximate fair value due to their short-term maturities.  The carrying value of debt approximates fair value due to the relative stable interest rate environment and the Company’s credit-worthiness.

Accounts Receivable and Unbilled Revenue

Accounts receivable consist primarily of amounts due from customers under normal trade terms as of December 31, 2016.  Allowances for uncollected accounts are provided for based upon a variety of factors, including historical amounts written off, an evaluation of current economic conditions and quarterly assessment of customer collectability.  As of December 31, 2016, no allowance for doubtful accounts was recorded by the Company as all amounts were considered collectible.

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COMPASS HRM, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2016

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Note 2 - Summary of Significant Accounting Policies (continued)

Accounts Receivable and Unbilled Revenue (continued)

The amounts due from customers under normal trade terms that were not yet billed as of December 31, 2016 amounting to $64,401 are reflected as unbilled revenue and included within accounts receivable balances.

Property, Equipment and Improvements

Property, equipment and improvements are recorded at cost, less accumulated depreciation and amortization. Depreciation and amortization expense is computed using the straight-line method over the estimated useful lives of the respective assets, which range from three to seven years.  Leasehold improvements are amortized over the shorter of the lease term or economic life of the asset. Expenditures that materially increase the asset’s life are capitalized, while ordinary maintenance and repairs are charged to operations as incurred. Upon disposition of property and equipment, the related cost and accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in the statement of operations.

Capitalized Software

The Company capitalized software development costs associated with payroll and time tracking modules.  Capitalized cost include fees paid to consultants, based on their participation in the project during the capitalization period.  The capitalization period includes costs incurred subsequent to management’s determination of project feasibility until the date the project is available for release to customers. Development costs that do not meet the above criteria are charged to expense as incurred.  Capitalized software development costs are amortized over the estimated life of four years.

Income Taxes

The Company and its stockholders have elected since inception to be taxed as an S Corporation.  Under this election, the stockholders of the corporation are personally liable for federal and state income taxes arising from income, if any.

The Company evaluates any uncertain tax provisions in accordance with GAAP. The Company has elected to classify interest and penalties related to uncertain tax positions as a component of income tax expense. To date, the Company has not identified any uncertain tax positions and there have been no interest or penalties assessed or paid.

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COMPASS HRM, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2016

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Note 3 - Property, Equipment and Improvements, Net

Property, equipment and improvements consist of the following:

Depreciation expense amounted to $37,708 for the year ended December 31, 2016.

Note 4 - Capitalized Software

Capitalized software consist of the following:

 

For the year ended December 31, 2016, amortization expense for capital software amounted to $149,579.

The following table summarizes the future estimated amortization expense relating to capitalized software as of December 31, 2016:

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COMPASS HRM, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2016

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Note 5 - Term Loan

The Company had a term loan outstanding with Citizens First Bank whereby the Company was able to borrow up to $1,000,000.  The term loan bears interest at a rate of 4.5% per annum computed on a 365/360 basis. The loan termination date is November 11, 2020.  The Company has approximately $200,000 available on the loan at December 31, 2016.  The term loan is collateralized by a first lien on all assets of the Company and an assignment of the personal life insurance policies of two stockholders.

The following table summarizes the future principal payments related to the outstanding term loan:

 

In May 2017, the term loan was fully paid off in connection with the stock purchase agreement with Asure.

Note 6 - Leases

The Company leases office space as well as office equipment, under various operating lease agreements. The lease terms expire on various dates through 2019.

At December 31, 2016, future minimum lease agreements under these leases are as follows:

Rent expense, including the Company’s share of operating expenses, amounted to $174,422 during the year ended December 31, 2016.

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COMPASS HRM, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2016

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Exhibit 99.2

 

 

 

Exhibit 99.3

ASURE SOFTWARE, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

On May 25 2017, we closed the acquisition of iSystems Holdings, LLC, a Delaware limited liability company (“Seller”), and iSystems Intermediate Holdco, Inc., a Delaware corporation (“iSystems”), pursuant to which we acquired 100% of the outstanding equity interests of iSystems for an aggregate purchase price of $55,000,000, subject to adjustment as provided in the Equity Purchase Agreement. The aggregate purchase price consists of (i) $32,000,000 in cash, subject to adjustment, (ii) a secured subordinated promissory note (“iSystems Note”) in the principal amount of $5,000,000, subject to adjustment, and 1,526,332 shares of unregistered common stock valued at $18,000,000 based on a volume-weighted average of the closing prices of our common stock during a 90-day period. The iSystems Note bears interest at an annual rate of 3.5% and matures on May 25, 2019. The unpaid principal and all accrued interest under the promissory note is payable in two installments of $2.5 million on May 25, 2018 and May 25, 2019, subject to adjustment. The Equity Purchase Agreement contains certain customary representations, warranties, indemnities and covenants. To finance the iSystems acquisition, we amended and restated our existing credit agreement to add an additional term loan in the amount of approximately $40,000,000, of which we borrowed $32,000,000 to complete the acquisition.

On May 25, 2017 we entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Compass HRM, Inc. (“Compass”) and the sellers and seller representative named therein, pursuant to which the sellers sold 100% of the outstanding shares of capital stock of Compass to us for an aggregate purchase price of $6,000,000, subject to adjustment as provided in the Stock Purchase Agreement. The aggregate purchase price consists of $4,500,000 in cash and a subordinated promissory note (“Compass Note”) in the principal amount of $1,500,000, subject to adjustment. The Compass Note bears interest at an annual rate of 3.5% and matures on May 25, 2022. The Compass Note is payable in five annual installments of $300,000 on the anniversary of the closing date, subject to adjustment. Compass is headquartered in Tampa, Florida, and provides cloud-based human resource management software, including payroll, benefits, time and attendance, and performance management. To finance the Compass acquisition, we incurred approximately $4,500,000 of additional indebtedness pursuant to an additional term loan under our Restated Credit Agreement.

 

Following is the purchase price allocation for the iSystems and Compass acquisitions. 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 these acquisitions 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 $18,540,000 of intangible assets subject to amortization consist of $480,000 allocated to noncompete agreements, $15,860,000 in customer relationships, $1,190,000 for trade names, and $1,010,000 for developed technology.

We believe meaningful synergies are expected to arise from this 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, we recorded goodwill. A portion of acquired goodwill will be deductible for tax purposes.

We based the allocations on fair values at the date of acquisition (amounts in thousands):

 

The following unaudited pro forma condensed combined financial statements (and notes thereto) of Asure Software, Inc. assumes that the acquisitions of iSystems and Compass (and, in the case of the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2016, the acquisition of Personnel Management Systems, Inc. (“PMSI”), Corporate Payroll, Inc. (Payroll Division) (“CPI”) and Payroll Specialties NW, Inc. (“PSNW”) occurred at the beginning of the periods presented.  The unaudited pro forma condensed combined financial information is derived from, and should be read in conjunction with, the consolidated financial statements of Asure Software, Inc. for the year ended December 31, 2016 filed on Form 10-K, the unaudited condensed consolidated financial statements of Asure Software, Inc. for the three months ended March 31, 2017 filed on Form 10-Q, the audited financial statements of PMSI as of and for the two years ended December 31, 2016 and 2015, the audited financial statements of CPI as of and for the two years ended December 31, 2016 and 2015, the audited financial statements of PSNW as of and for the two years ended December 31, 2016 and 2015 filed on Form 8-K/A, the audited and unaudited consolidated statements of iSystems Holdings, LLC as of and for the years ended December 31, 2016 and 2015 and three months ended March 31, 2017 and 2016 filed on Form 8-K, and the audited and unaudited financial statements of Compass HRM, Inc. as of and for the year ended December 31, 2016 and three months ended March 31, 2017 and 2016, respectively. The unaudited pro forma condensed combined financial information includes unaudited pro forma adjustments that are factually supportable and directly attributable to the iSystems and Compass acquisitions. In addition, with respect to the unaudited pro forma condensed combined financial information, the unaudited pro forma adjustments are expected to have a continuing impact on the results of Asure. The unaudited pro forma condensed combined financial information was prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805 — Business Combinations. Certain amounts in the iSystems and Compass historical financial statements have been reclassified to conform to classifications used by Asure Software, Inc.

 

The unaudited pro forma condensed combined statement of operations does not include non-recurring transaction costs associated with the iSystems and Compass acquisition that are no longer capitalized as part of that acquisition.

The following pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of (i) the results of operations and financial position that would have been achieved had the applicable acquisition taken place on the dates indicated or (ii) the future operations of the combined companies. The following information should be relied on only for the limited purpose of presenting what the results of operations and financial position of the combined businesses of Asure Software and iSystems and Compass might have looked like had the acquisitions taken place at an earlier date.

 

Asure Software, Inc.

Unaudited Pro Forma Condensed Combined Balance Sheet

As of March 31, 2017 (Amounts in thousands)

		Asure Software				iSystems				Compass				Pro Forma Adjustments				Pro Forma Combined
Cash & cash equivalents			2,288				2,190				245				(3,414	)	(a)		1,309
Accounts  receivable-net			8,953				1,195				275				—				10,423
Inventory			530				—				—				—				530
Funds held for clients			30,544				—				—				—				30,544
Prepaid expense and other			2,012				253				93				—				2,358
Total Current Assets			44,327				3,638				613				(3,414	)			45,164
Restricted cash			—				200				—				—				200
Property and equipment-net			1,809				4,688				125				—				6,622
Goodwill			31,455				16,593				—				27,432		(b)		75,480
Intangible assets-net			17,184				9,639				291				8,610		(c)		35,724
Other assets			322				64				—				—				386
Total Assets			95,097				34,822				1,029				32,628				163,576
Notes payable-current portion			2,971				61				194				3,245		(d)		6,471
Accounts payable			2,276				268				257				—				2,801
Accrued compensation and benefits			1,523				601				—				—				2,124
Other accrued liabilities			1,433				967				—				—				2,400
Client fund obligations			30,544				—				—				—				30,544
Deferred revenue- current portion			9,265				254				—				—				9,519
Total Current Liabilities			48,012				2,151				451				3,245				53,859
Deferred revenue			611				793				—				—				1,404
Deferred tax liability			—				1,029				—								1,029
Notes payable			28,165				19,280				542				22,886		(d)		70,873
Other liabilities			157				102				—				—				259
Total Liabilities			76,945				23,355				993				26,131				127,424
Common stock			90				—				—				15		(e)		105
Treasury stock			(5,017	)			—				—				—				(5,017	)
Additional paid-in capital			296,042				—				90				17,895		(e)		314,027
Retained earnings (deficit)			(272,934	)			11,467				(54	)			(11,413	)			(272,934	)
Other comprehensive loss			(29	)			—				—				—				(29	)
Total Stockholders’ Equity			18,152				11,467				36				6,497				36,152
Total Liabilities and Stockholders’ Equity			95,097				34,822				1,029				32,628				163,576

 

		Asure Software				iSystems				Compass				Pro Forma Adjustments				Pro Forma Combined
Total Revenues		$	10,727			$	3,502			$	974			$	(213	)	(a)	$	14,990
Total Cost of Sales			2,438				1,437				272				(916	)	(a)		3,231
Gross Margin			8,289				2,065				702				703				11,759
Total Operating Expenses			8,659				2,137				700				(44	)	(b)		11,452
Income (Loss) from Operations			(370	)			(72	)			2				747				307
Total Other Income (Loss)			(547	)			(389	)			(11	)			(447	)	(c)		(1,394	)
Pre-Tax Income (Loss)			(917	)			(461	)			(9	)			300				(1,087	)
Income Tax Provision			(142	)			(91	)			-				-				(233	)
Net Income (Loss)		$	(1,059	)		$	(552	)		$	(9	)		$	300			$	(1,320	)
Basic and Diluted Net Loss per Share:
Basic		$	(0.12	)														$	(0.13	)
Diluted		$	(0.12	)														$	(0.13	)
Weighted Average Basic and Diluted Shares:
Basic			8,627																10,265
Diluted			8,627																10,265