asure20200630_10q.htm

UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2020

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                  to 

 

Commission file number: 1-34522

 

ASURE SOFTWARE, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

 

74-2415696

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

3700 N. Capital of Texas Hwy #350

 

 

Austin, Texas

 

78746

(Address of Principal Executive Offices)

 

(Zip Code)

 

(512) 437-2700

(Registrant’s Telephone Number, including Area Code)

 

 Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

ASUR

Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes ☒     No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

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. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No

 

As of August 7, 2020, 15,850,601 shares of the registrant’s Common Stock were outstanding.

 

 

 

 

TABLE OF CONTENTS

 

 

 

Page

 

 

Number

PART I - FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019

3

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2020 and June 30, 2019

4

 

Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Six Months Ended June 30, 2020 and June 30, 2019

5

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and June 30, 2019

6

 

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

28

 

 

 

PART II - OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

Item 3.

Defaults upon Senior Securities

30

Item 5.

Other Information

30

Item 6.

Exhibits

31

 

 

 

Signatures

32

 

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1.    FINANCIAL STATEMENTS

 

ASURE SOFTWARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

 

   

June 30, 2020 (unaudited)

   

December 31, 2019

 

Assets

               

Current assets:

               

Cash and cash equivalents

  $ 29,259     $ 28,826  

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

    5,541       4,808  

Inventory

    550       656  

Prepaid expenses and other current assets

    6,080       12,218  

Total current assets before funds held for clients

    41,430       46,508  

Funds held for clients

    112,581       137,935  

Total current assets

    154,011       184,443  

Property and equipment, net

    8,505       7,867  

Goodwill

    68,697       68,697  

Intangible assets, net

    60,477       63,850  

Operating lease assets, net

    7,215       6,963  

Other assets, net

    3,693       3,224  

Total assets

  $ 302,598     $ 335,044  

Liabilities and stockholders’ equity

               

Current liabilities:

               

Current portion of notes payable

  $ 15,695     $ 2,571  

Accounts payable

    2,128       1,736  

Accrued compensation and benefits

    3,205       3,424  

Operating lease liabilities, current

    1,703       1,575  

Other accrued liabilities

    4,144       6,556  

Deferred revenue

    3,766       5,500  

Total current liabilities before client fund obligations

    30,641       21,362  

Client fund obligations

    112,857       145,227  

Total current liabilities

    143,498       166,589  

Long-term liabilities:

               

Deferred revenue

    214       322  

Deferred tax liability

    407       336  

Notes payable, net of current portion

    17,860       24,142  

Operating lease liabilities, noncurrent

    6,310       5,937  

Other liabilities

    223       139  

Total long-term liabilities

    25,014       30,876  

Total liabilities

    168,512       197,465  

Commitments

               

Stockholders’ equity:

               

Preferred stock, $.01 par value; 1,500 shares authorized; none issued or outstanding

    -       -  

Common stock, $.01 par value; 44,000 and 22,000 shares authorized; 16,225 and 16,098 shares issued, 15,841 and 15,714 shares outstanding at June 30, 2020 and December 31, 2019, respectively

    162       161  

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

    (5,017 )     (5,017 )

Additional paid-in capital

    397,692       396,102  

Accumulated deficit

    (259,353 )     (253,642 )

Accumulated other comprehensive income (loss)

    602       (25 )

Total stockholders’ equity

    134,086       137,579  

Total liabilities and stockholders’ equity

  $ 302,598     $ 335,044  

 

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

 

 

ASURE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Amounts in thousands, except share and per share data)

(Unaudited)

 

   

Three Months Ended
June 30,

   

Six Months Ended
June 30,

 
   

2020

   

2019

   

2020

   

2019

 

Revenue:

                               

Recurring

  $ 13,733     $ 16,624     $ 32,168     $ 36,415  

Professional services, hardware and other

    382       650       893       1,269  

Total revenue

    14,115       17,274       33,061       37,684  

Cost of Sales

    6,008       7,059       13,848       13,313  

Gross profit

    8,107       10,215       19,213       24,371  

Operating expenses:

                               

Sales and marketing

    2,769       3,058       6,344       5,763  

General and administrative

    5,193       6,618       11,646       14,807  

Research and development

    1,377       969       2,551       2,290  

Amortization of intangible assets

    2,349       2,403       4,698       4,821  

Total operating expenses

    11,688       13,048       25,239       27,681  

Loss from operations

    (3,581 )     (2,833 )     (6,026 )     (3,310 )

Interest (expense) and other, net

    14       (3,069 )     710       (5,783 )

Loss from continuing operations before income taxes

    (3,567 )     (5,902 )     (5,316 )     (9,093 )

Income tax expense

    377       396       395       642  

Loss from continuing operations

    (3,944 )     (6,298 )     (5,711 )     (9,735 )

Discontinued operations

                               

Income from operations of discontinued operations

    -       1,303       -       1,904  

Income tax (benefit) expense

    -       (28 )     -       30  

Gain on discontinued operations, net of taxes

    -       1,331       -       1,874  

Net loss

    (3,944 )     (4,967 )     (5,711 )     (7,861 )

Other comprehensive income:

                               

Unrealized gain on marketable securities

    562       78       627       26  

Foreign currency translation loss

    -       (365 )     -       (46 )

Comprehensive loss

  $ (3,382 )   $ (5,254 )   $ (5,084 )   $ (7,881 )
                                 

Basic and diluted loss per share from continuing operations

                               

Basic

  $ (0.25 )   $ (0.41 )   $ (0.36 )   $ (0.63 )

Diluted

  $ (0.25 )   $ (0.41 )   $ (0.36 )   $ (0.63 )

Basic and diluted loss per share

                               

Basic

  $ (0.25 )   $ (0.32 )   $ (0.36 )   $ (0.51 )

Diluted

  $ (0.25 )   $ (0.32 )   $ (0.36 )   $ (0.51 )

Weighted average basic and diluted shares

                               

Basic

    15,779,000       15,444,000       15,753,000       15,425,000  

Diluted

    15,779,000       15,444,000       15,753,000       15,425,000  

 

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

 

 

ASURE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Amounts in thousands)

(Unaudited)

 

   

Common Stock Outstanding

   

Common Stock Amount

   

Treasury Stock

   

Additional Paid-in Capital

   

Accumulated Deficit

   

Other Comprehensive Income (Loss)

   

Total Stockholders' Equity

 

Balance at December 31, 2019

    15,714     $ 161     $ (5,017 )   $ 396,102     $ (253,642 )   $ (25 )   $ 137,579  

Stock issued upon option exercise and vesting of restricted stock units

    29       -       -       106       -       -       106  

Share based compensation

    -       -       -       438       -       -       438  

Net loss

    -       -       -       -       (1,767 )     -       (1,767 )

Other comprehensive income

    -       -       -       -       -       65       65  

Balance at March 31, 2020

    15,743     $ 161     $ (5,017 )   $ 396,646     $ (255,409 )   $ 40     $ 136,421  
                                                         

Stock issued upon option exercise and vesting of restricted stock units

    66       1       -       301       -       -       302  

Stock issued, ESPP

    32       -       -       157       -       -       157  

Share based compensation

    -       -       -       588       -       -       588  

Net loss

    -       -       -       -       (3,944 )     -       (3,944 )

Other comprehensive income

    -       -       -       -       -       562       562  

Balance at June 30, 2020

    15,841     $ 162     $ (5,017 )   $ 397,692     $ (259,353 )   $ 602     $ 134,086  

 

   

Common Stock Outstanding

   

Common Stock Amount

   

Treasury Stock

   

Additional Paid-in Capital

   

Accumulated Deficit

   

Other Comprehensive Income (Loss)

   

Total Stockholders' Equity

 

Balance at December 31, 2018

    15,282     $ 157     $ (5,017 )   $ 391,927     $ (283,643 )   $ (906 )   $ 102,518  

Stock issued upon acquisition

    123       1       -       554       -       -       555  

Share based compensation

    -       -       -       611       -       -       611  

Net loss

    -       -       -       -       (2,894 )     -       (2,894 )

Other comprehensive income

    -       -       -       -       -       267       267  

Balance at March 31, 2019

    15,405     $ 158     $ (5,017 )   $ 393,092     $ (286,537 )   $ (639 )   $ 101,057  
                                                         

Stock issued, ESPP

    53       -       -       255       -       -       255  

Stock issued upon option exercise and vesting of restricted stock units

    93       1       -       466       -       -       467  

Share based compensation

    -       -       -       392       -       -       392  

Net loss

    -       -       -       -       (4,967 )     -       (4,967 )

Other comprehensive loss

    -       -       -       -       -       (287 )     (287 )

Balance at June 30, 2019

    15,551     $ 159     $ (5,017 )   $ 394,205     $ (291,504 )   $ (926 )   $ 96,917  

 

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

 

 

ASURE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

 

   

Six Months Ended June 30,

 
   

2020

   

2019

 

Cash flows from operating activities:

               

Net loss

  $ (5,711 )   $ (7,861 )

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

               

Depreciation and amortization

    7,804       7,935  

Amortization of debt financing costs and discount

    159       800  

Provision for (recovery of) doubtful accounts

    142       (350 )

Provision for deferred income taxes

    71       621  

Gain on modification of debt

    (123 )     -  

Share-based compensation

    1,026       1,003  

Loss on disposals of fixed assets

    53       3  

Changes in operating assets and liabilities:

               

Accounts receivable

    (2,353 )     1,812  

Inventory

    11       (2,082 )

Prepaid expenses and other assets

    (485 )     678  

Accounts payable

    425       1,259  

Accrued expenses and other long-term obligations

    (2,517 )     (720 )

Operating lease liabilities

    (777 )     -  

Deferred revenue

    (1,856 )     (256 )

Net cash (used in) provided by operating activities

    (4,131 )     2,842  

Cash flows from investing activities:

               

Acquisitions, net of cash acquired

    -       (7,443 )

Acquisition of intangible asset

    (1,823 )     -  

Purchases of property and equipment

    (547 )     (993 )

Software capitalization costs

    (1,342 )     (2,111 )

Net change in funds held for clients

    33,603       31,943  

Net cash provided by investing activities

    29,891       21,396  

Cash flows from financing activities:

               

Proceeds from notes payable

    8,856       8,000  

Payments of notes payable

    (2,359 )     (4,356 )

Proceeds from revolving line of credit

    -       4,000  

Debt financing fees

    (20 )     (1,102 )

Payments of finance leases

    -       (68 )

Net proceeds from issuance of common stock

    566       722  

Net change in client fund obligations

    (32,370 )     (32,238 )

Net cash used in financing activities

    (25,327 )     (25,042 )

Effect of foreign exchange rates

    -       16  

Net increase (decrease) in cash and cash equivalents

    433       (788 )

Cash and cash equivalents at beginning of period

    28,826       15,444  

Cash and cash equivalents at end of period

  $ 29,259     $ 14,656  

Supplemental information:

               

Cash paid for:

               

Interest

  $ 589     $ 4,804  

Income taxes

    381       31  

Non-cash Investing and Financing Activities:

               

Subordinated notes payable –acquisitions

  $ -     $ 2,000  

Equity issued in connection with acquisitions

    -       555  

 

 

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION

 

Asure Software, Inc., (“Asure”, the “Company”, “we” and “our”), a Delaware Corporation, is a leading provider of Human Capital Management (“HCM”). Asure facilitates the growth of small and mid-sized companies by helping them (i) build better teams with skills that get them to the next level, (ii) stay compliant with ever changing federal, state, and local tax jurisdictions and labor laws, and (iii) allocate more resources to support growth rather than back-office overhead that suffocates growth. Asure’s HCM suite, named AsureHCM, includes cloud-based Payroll & Tax, Human Resources ("HR"), and Time & Attendance software as well as HR Services ranging from HR projects to completely outsourcing payroll and HR staff. We develop, market, sell and support our offerings across North America through our principal office in Austin, Texas and from our processing hubs in California, Tennessee, Nebraska, New York, Florida, Vermont, and Washington. 

 

In December 2019, we completed the sale of the assets of our Workspace Management business for an aggregate purchase price of approximately $121,500 in cash. We used the proceeds to pay down debt. In July 2020 we finalized our working capital adjustment and received escrow funds of $1,687. For further information regarding the transaction, see Note 10 to the accompanying consolidated financial statements.

 

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with the rules and regulations of the Securities and Exchange Commission and accordingly, they do not include all information and footnotes required under U.S. generally accepted accounting principles ("U.S. GAAP") for complete financial statements. Certain reclassifications were made to conform to the current period presentation in the condensed consolidated statements of comprehensive loss. These reclassifications include a change in the presentation of revenues.

 

In the opinion of management, these interim financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary for a fair presentation of our financial position as of June 30, 2020 and the results of operations, statements of changes in stockholders' equity for the three and six months ended June 30, 2020 and June 30, 2019, and our statements of cash flows for the six months ended June 30, 2020 and June 30, 2019.

 

These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto filed with the Securities and Exchange Commission in our annual report on Form 10-K for the fiscal year ended December 31, 2019. The results for the interim periods are not necessarily indicative of results for a full fiscal year.

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

 

USE OF ESTIMATES

 

Preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of the assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are subjective in nature and involve judgments. The more significant estimates made by management include the valuation allowance for the gross deferred tax assets, useful lives of fixed assets, the determination of the fair value of its long-lived assets, and the fair value of assets acquired and liabilities assumed during acquisitions. We base our estimates on historical experience and on various other assumptions management believes reasonable under the given circumstances.  These estimates could be materially different under different conditions and assumptions.  Additionally, the actual amounts could differ from the estimates made. Management periodically evaluates estimates used in the preparation of the consolidated financial statements for continued reasonableness. We make appropriate adjustments, if any, to the estimates used prospectively based upon such periodic evaluation.

 

 

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.

 

 

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

CONTINGENCIES

 

Although we have been, and in the future may be, the defendant or plaintiff in various actions arising in the normal course of business, as of June 30, 2020, we were not a party to any pending legal proceedings that are material to our business.

 

NOTE 3 – INVESTMENTS AND FAIR VALUE MEASUREMENTS

 

As of June 30, 2020 and December 31, 2019, funds held for clients invested in available-for-sale securities consisting of government and commercial bonds, including mortgage-backed securities, amounted to $27,591 and $24,136, respectively. As of June 30, 2020 and December 31, 2019, funds held for clients invested in money market funds and other cash equivalents amounted to $47,694 and $48,500, respectively. Additionally, as of June 30, 2020, we had $16,505 in money market funds, classified as cash equivalents. Cash equivalents as of December 31, 2019 were not material.

 

Investments classified as available-for-sale consisted of the following:

 

   

June 30, 2020

 
   

Amortized
Cost

   

Gross
Unrealized
Gains (1)

   

Gross
Unrealized
Losses (1)

   

Aggregate
Estimated
Fair Value

 

Funds Held for Clients (2)

                               

Certificates of deposit

  $ 10,046     $ 226     $
-
    $ 10,272  

Corporate debt securities

    8,960       289      
-
      9,249  

Municipal bonds

    6,987       83       -       7,070  

US Government agency securities

    500       1       -       501  

Asset-backed securities

    496       3       -       499  

Total

  $ 26,989     $ 602     $
-
    $ 27,591  

 

   

December 31, 2019

 
   

Amortized
Cost

   

Gross
Unrealized
Gains (1)

   

Gross
Unrealized
Losses (1)

   

Aggregate
Estimated
Fair Value

 

December 31, 2019

                               

Funds Held for Clients (2)

                               

Certificates of deposit

  $ 8,828     $ 11     $ -     $ 8,839  

Corporate debt securities

    6,883       6       (9

)

    6,880  

Municipal bonds

    6,383       6       (7

)

    6,382  

US Government agency securities

    1,000       -       -       1,000  

Asset-backed securities

    1,067       -       (32

)

    1,035  

Total

  $ 24,161     $ 23     $ (48

)

  $ 24,136  

 

 

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

 

(1)

Unrealized gains and losses on available-for-sale securities are included as a component of comprehensive loss. As of June 30, 2020 and December 31, 2019, there were 79 and 53 securities, respectively, in an unrealized gain position and there were 0 and 18 securities, respectively, in an unrealized loss position. As of June 30, 2020, we had zero unrealized losses. As of December 31, 2019, these unrealized losses were less than $35 individually and $50 in the aggregate. These securities have not been in a continuous unrealized gain or loss position for more than 12 months. We do not intend to sell these investments and we do not expect to sell these investments before recovery of their amortized cost basis, which may be at maturity. We review our investments to identify and evaluate investments that indicate possible other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

 

(2)

At June 30, 2020 and December 31, 2019, none of these securities were classified as cash and cash equivalents on the accompanying condensed consolidated balance sheets.

 

Expected maturities of available-for-sale securities as of June 30, 2020 are as follows:

 

Expected Maturities

 

Amount

 
         

One year or less

  $ 4,823  

After one year through five years

    22,768  

After five years through 10 years

    -  

After 10 years

    -  
    $ 27,591  

 

Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures defines fair value, establishes a framework for measuring fair value in U.S. generally accepted accounting principles and expands disclosures about fair value measurements.

 

ASC 820 establishes a three-tier fair value hierarchy, which is based on the reliability of the inputs used in measuring fair values. These tiers include:

 

 

Level 1:

Quoted prices in active markets for identical assets or liabilities;

 

 

Level 2:

Quoted prices in active markets for similar assets or liabilities; quoted prices in markets that are not active for identical or similar assets or liabilities; and model-driven valuations whose significant inputs are observable; and

 

 

Level 3:

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

 

 

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

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

 

   

June 30, 2020

 
   

Total Carrying Value

   

Quoted Prices in Active Market
(Level 1)

   

Significant Other Observable Inputs
(Level 2)

   

Significant Unobservable Inputs
(Level 3)

 

Assets:

                               

Cash equivalents

                               

Money market funds

  $ 16,505     $ 16,505     $ -     $ -  

Funds held for clients

                               

Money market funds

    47,694       47,694       -       -  

Available-for-sale securities

    27,591       -       27,591       -  

Total

  $ 91,790     $ 64,199     $ 27,591     $ -  

 

   

December 31, 2019

 
   

Total Carrying Value

   

Quoted Prices in Active Market
(Level 1)

   

Significant Other Observable Inputs
(Level 2)

   

Significant Unobservable Inputs
(Level 3)

 

Assets:

                               

Funds held for clients

                               

Money market funds

  $ 48,500     $ 48,500     $ -     $ -  

Available-for-sale securities

    24,136       -       24,136       -  

Total

  $ 72,636     $ 48,500     $ 24,136     $ -  

 

NOTE 4 – GOODWILL AND OTHER INTANGIBLE ASSETS

 

As of June 30, 2020 and December 31, 2019, goodwill was $68,697, which is net of the $35,060 impairment loss recognized in the fourth quarter of 2019. The Company evaluates the recoverability of goodwill annually and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. As of June 30, 2020, there has been no impairment of goodwill based on the quantitative assessments performed by the Company.

 

 

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

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

 

   

June 30, 2020

 

Intangible Assets

 

Weighted Average
Amortization
Period (in Years)

   

Gross

   

Accumulated
Amortization

   

Net

 

Customer relationships

    8.9     $ 80,710     $ (24,252

)

  $ 56,458  

Developed technology

    6.0       10,001       (6,833

)

    3,168  

Reseller relationships

    7.0       853       (853

)

    -  

Trade names

    3.0       780       (195

)

    585  

Noncompete agreements

    5.2       1,032       (766

)

    266  
      8.5     $ 93,376     $ (32,899

)

  $ 60,477  

 

   

December 31, 2019

 

Intangible Assets

 

Weighted Average
Amortization
Period (in Years)

   

Gross

   

Accumulated
Amortization

   

Net

 

Customer relationships

    8.9     $ 78,558     $ (19,757

)

  $ 58,801  

Developed technology

    6.0       10,001       (6,004

)

    3,997  

Reseller relationships

    7.0       853       (853

)

    -  

Trade names

    3.0       780       (78

)

    702  

Noncompete agreements

    5.2       1,032       (682

)

    350  
      8.5     $ 91,224     $ (27,374

)

  $ 63,850  

 

We record amortization expenses using the straight-line method over the estimated useful lives of the intangible assets, as noted above.  Amortization expenses recorded in Operating Expenses were $2,349 and $2,403, for the three months ended June  30,  2020 and 2019, respectively. Amortization expenses recorded in Cost of Sales were $397 and $360 for the three months ended June 30, 2020 and 2019, respectively.

 

Amortization expenses recorded in Operating Expenses were $4,698 and $4,821, for the six months ended June 30, 2020 and 2019, respectively. Amortization expenses recorded in Cost of Sales were $828 and $720 for the six months ended June 30, 2020 and 2019, respectively. There is no impairment of intangibles during the six months ended June 30, 2020 based on the qualitative assessment performed by the Company.

 

 

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

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

 

Calendar Years

 

Amount

 

2020 (June to December)

  $ 5,374  

2021

    10,548  

2022

    10,015  

2023

    8,889  

2024

    8,662  

Thereafter

    16,989  
    $ 60,477  

 

NOTE 5 – NOTES PAYABLE

 

The following table summarizes our outstanding debt as of the dates indicated:

 

 

Maturity

 

Stated Interest Rate

   

June 30,

2020

   

December 31,

2019

 

Subordinated Notes Payable – acquisitions

1/1/2021 – 7/1/2021     2.00% - 3.00

%

  $ 5,276     $ 7,185  

Term Loan – Pinnacle

4/15/2022

    1.00

%

    8,856       -  

Term Loan – Wells Fargo Syndicate Partner

12/31/2024

    4.42

%

    19,750       20,000  

Total Notes Payable

          $ 33,882     $ 27,185  

Short-term Notes Payable

            15,894       2,696  

Long-term Notes Payable

          $ 17,988     $ 24,489  

 

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

 

   

June 30, 2020

 
   

Gross Notes Payable

   

Debt Issuance Costs and Debt Discount

   

Net Notes Payable

 

Notes payable, current portion

  $ 15,894     $ (199 )   $ 15,695  

Notes payable, net of current portion

    17,988       (128

)

    17,860  

Total

  $ 33,882     $ (327

)

  $ 33,555  

 

   

December 31, 2019

 
   

Gross Notes Payable

   

Debt Issuance Costs and Debt Discount

   

Net Notes Payable

 

Notes payable, current portion

  $ 2,696     $ (125

)

  $ 2,571  

Notes payable, net of current portion

    24,489       (347

)

    24,142  

Total

  $ 27,185     $ (472

)

  $ 26,713  

 

 

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

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

 

Year Ending

 

Amount

 

2020

  $ 10,813  

2021

    11,455  

2022

    2,489  

2023

    500  

2024

    8,625  

Total

  $ 33,882  

 

Term Loan - Wells Fargo

 

In March 2014, we entered into a credit agreement (the “Credit Agreement”) with Wells Fargo, as administrative agent, and the lenders that are party thereto. The Credit Agreement contains customary events of default, including, among others, payment defaults, covenant defaults, judgment defaults, bankruptcy and insolvency events, cross defaults to certain indebtedness, incorrect representations or warranties, and change of control. In some cases, the defaults are subject to customary notice and grace period provisions. In March 2014 and in connection with the Credit Agreement, we and our wholly owned active subsidiaries entered into a Guaranty and Security Agreement with Wells Fargo Bank. Under the Guaranty and Security Agreement, we and each of our wholly owned active subsidiaries have guaranteed all obligations under the Credit Agreement and granted a security interest in substantially all of our and our subsidiaries’ assets.

 

In December 2019, we entered into a third amended and restated credit agreement (the “Third Restated Credit Agreement”) with Wells Fargo Bank, as agent and lender, amending and restating the terms of the Second Amended and Restated Credit Agreement dated as of March 2018. The Third Restated Credit Agreement provided for $20,000 in term loans and a $10,000 revolver. It also amended the applicable margin rates for determining the interest payable on loans and amended certain of our financial covenants, including adding a covenant based on achieving EBITDA of at least $3,750 for the three months ended March 31, 2020, $4,850 for the six months ended June 30, 2020 and $5,950 for the nine months ended September 30, 2020, which covenant was in lieu of a leverage covenant calculated at March 31, 2020, June 30, 2020 and September 30, 2020 See Note 12 - Subsequent Events for information regarding amendments that Wells Fargo Bank and we have made to the Third Restated Credit Agreement after June 30, 2020.

 

PPP Loan

 

In April 2020, Asure entered into a Promissory Note (the “PPP Note”) with Pinnacle Bank as the lender (the “Lender”), pursuant to which the Lender agreed to give us a loan under the Paycheck Protection Program (the "PPP Loan") offered by the U.S. Small Business Administration (the “SBA”) in a principal amount of $8,856 pursuant to Title 1 of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).

 

The PPP Loan proceeds are available to be used to pay for payroll costs, including salaries, commissions, and similar compensation, group health care benefits, and paid leaves. Under the Cares Act, the PPP loan may be forgiven if certain criteria are satisfied. The amount that will be forgiven will be calculated in part with reference to the Company’s full time headcount during the twenty-four week period following the funding of the PPP Loan. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loans granted under the Cares Act. The PPP Loan is subject to forgiveness to the extent proceeds are used for payroll costs, including payments required to continue group health benefits, and certain rent, utility, and mortgage interest expenses (collectively, “Qualifying Expenses”), pursuant to the terms and limitations of the Cares Act. The Company intends to use a significant majority of the PPP Loan amount for Qualifying Expenses. However, no assurances is provided that the Company will obtain forgiveness of the PPP Loan in whole or in part.

 

The interest rate on the PPP Note is a fixed rate of 1% per annum. To the extent that the amounts owed under the PPP Loan, or a portion of them, are not forgiven, the Company will be required to make principal and interest payments in monthly installments beginning seven months from April 2020. The PPP Note matures in two years.

 

 

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

The PPP Note includes events of default. Upon the occurrence of an event of default, the Lender will have the right to exercise remedies against the Company, including the right to require immediate payment of all amounts due under the PPP Note.  

 

Revolving Credit Facility

 

As of June 30, 2020 and December 31, 2019, no amount was outstanding and $9,500 and $10,000, respectively, was available for borrowing under the revolver.

 

   Due to the effects of Covid-19 on our business, we were not in compliance with our minimum EBITDA financial covenant as of March 31, 2020 and June 30, 2020 and do not expect to be in compliance with the minimum EBITDA financial covenants as set forth in the Third Restated Credit Agreement in future quarters. These covenants were set  in December 31, 2019, before the Covid-19 pandemic and its possible effects on our business were known to our senior lender or us. See Note 12 – Subsequent Events for information about the amendment we entered with our senior lender resetting these financial covenants and expectations regarding cash available for future business needs and our ability to comply with our financial covenants in future quarters.

 

NOTE 6 – STOCKHOLDERS’ EQUITY

 

Authorized Shares

 

On May 28, 2020, the Company amended its Restated Certificate of Incorporation to increase the total number of authorized shares of capital stock from 23,500,000 to 45,500,000 and the number of authorized shares of common stock from 22,000,000 to 44,000,000.

 

Share Repurchase Program

 

On March 10, 2020, our Board of Directors authorized a new stock repurchase program, under which we may repurchase up to $5,000 of our outstanding common stock. This new stock repurchase program is in addition to the approximately 66,000 shares available under our existing stock repurchase plan.

 

Under this new stock repurchase program, we may repurchase shares in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The extent to which we repurchase our shares, and the timing of such repurchases, will depend upon a variety of factors, including market conditions, regulatory requirements and other corporate considerations, as determined by our management. The repurchase program may be extended, suspended or discontinued at any time. We expect to finance the program from existing cash resources.

 

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

 

Employee Stock Purchase Plan

 

Our Employee Stock Purchase Plan (“Purchase Plan”) was approved by the shareholders in June 2017. The Purchase Plan allows all eligible employees to purchase a limited number of shares of our common stock during pre-specified offering periods at a discount established by the Board of Directors, not to exceed 15% of the fair market value of the common stock, at the beginning or end of the offering period (whichever is lower). Under the ESPP, 225,000 shares were originally reserved for issuance. On May 27, 2020, our shareholders increased the number of shares reserved for issuance under the Purchase Plan by an additional 250,000 shares.

 

Accumulated Other Comprehensive Income (Loss)

 

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

 

 

 

 

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

NOTE 7 – CONTRACTS WITH CUSTOMERS AND REVENUE CONCENTRATION

 

Receivables

 

Receivables from contracts with customers, net of allowance for doubtful accounts of $885 were $5,541 at June 30, 2020.  Receivables from contracts with customers, net of allowance for doubtful accounts of $904 were $4,808 at December 31, 2019. As of June 30, 2020, one customer represented 13% of our net accounts receivable balance. No customers represented more than 10% of our net accounts receivable balance as of December 31, 2019.

 

Deferred Commissions

 

Deferred commission costs from contracts with customers were $3,148 and $2,697 at June 30, 2020 and December 31, 2019, respectively. The amount of amortization recognized for the three and six months ended June 30, 2020 was $190 and $440, respectively and for the three and six months ended June 30, 2019 was $471 and $591, respectively.

 

Deferred Revenue

 

During the three and six months ended June 30, 2020, revenue of $689 and $3,393, respectively, and the three and six months ended June 30, 2019, revenue of $631 and $2,214, respectively, was recognized from the deferred revenue balance at the beginning of each period.

 

Transaction Price Allocated to the Remaining Performance Obligations

 

As of June 30, 2020, approximately $27,272 of revenue is expected to be recognized from remaining performance obligations. We expect to recognize revenue on approximately 65% of these remaining performance obligations over the next 12 months, with the balance recognized thereafter.

 

Revenue Concentration

 

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

 

 NOTE 8 – LEASES

 

We have entered into office space lease agreements, which qualify as operating leases under Topic 842. Under such leases, the lessors receive annual minimum (base) rent. The leases have original terms (excluding extension options) ranging from one to ten years. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

 

We record base rent expense under the straight-line method over the term of the lease. In the accompanying condensed consolidated statements of comprehensive loss, rent expense is included in operating expenses under selling, general and administrative expenses. The components of the rent expense for the three and six months ended June 30, 2020 and 2019 were as follows:

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2020

   

2019

   

2020

   

2019

 

Operating lease cost

  $ 521     $ 563     $ 1,073     $ 1,142  

Sublease income

    (48 )     (37 )     (96 )     (74 )

Net rent expense

  $ 473     $ 526     $ 977     $ 1,068  

 

 

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

For purposes of calculating the operating lease assets and lease liabilities, extension options are not included in the lease term unless it is reasonably certain we will exercise the option, or the lessor has the sole ability to exercise the option. The weighted average discount rate of our operating leases is 10% and 9% as of June 30, 2020 and December 31, 2019, respectively. The weighted average remaining lease term is five and six years as of June 30, 2020 and December 31, 2019, respectively.

 

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

 

   

Six Months Ended June 30,

 
   

2020

   

2019

 

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

               

Operating cash outflows from operating leases

  $ 1,117     $ 1,164  

Non-cash operating activities:

               

Operating lease assets obtained in exchange for new operating lease liabilities

  $ 1,052     $ 8,093  

 

Future minimum commitments over the life of all operating leases, which exclude variable rent payments, are as follows:

 

Year Ending December 31

 

Operating Leases

 

2020 (remainder)

  $ 1,129  

2021

    2,354  

2022

    1,837  

2023

    1,142  

2024

    1,022  

Thereafter

    2,630  

Total minimum lease payments

    10,114  

Less imputed interest

    (2,102

)

Total lease liabilities

  $ 8,012  

 

NOTE 9 – SHARE-BASED COMPENSATION

 

We have one active equity plan, the 2018 Incentive Award Plan (the “2018 Plan”). The 2018 Plan, approved by our shareholders, replaced our 2009 Equity Incentive Plan, as amended (the “2009 Plan”), however, the terms and conditions of the 2009 Plan continues to govern any outstanding awards previously granted under the 2009 Plan.

 

The number of shares available for issuance under the 2018 Plan is equal to the sum of (i) 2,350,000 shares, and (ii) any shares subject to issued and outstanding awards under the 2009 Plan as of the effective date of the 2018 Plan that expire, are canceled or otherwise terminate following the effective date of the 2018 Plan. We have outstanding options to purchase 1,366,692 shares at a weighted average exercise price of $7.77. During the three and six months ending June 30, 2020 we issued 481,500 and 544,500 of employee stock options, respectively. The weighted average exercise price of these awards was $6.42 and $6.36 for the three and six months ended June 30, 2020, respectively, these awards will vest over a three-year period. We also had 585,050 outstanding restricted stock units as of June 30, 2020.

 

In December 2019, we offered to exchange certain outstanding options to purchase shares of our common stock previously granted under the 2009 Plan and the 2018 Plan that have an exercise price per share higher than the greater of $8.50 or the closing trading price of our common stock on the offer expiration date (“eligible options”) for new RSUs to be granted under the 2018 Plan. The offer exchange program was approved by our board of directors and by our shareholders earlier in 2019. Under the offer exchange program, every 2.5 shares underlying an eligible option would be exchanged for one new RSU. Upon expiration of the exchange offer in January 2020, we granted 187,000 RSUs in exchange for the cancellation of options to purchase 467,500 shares that were tendered by employees who participated in the offer exchange program.

 

 

 

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

As of June 30, 2020, we had 1,096,104 shares available for grant pursuant to the 2018 Plan.

 

Share based compensation for our stock option plans for the three months ended June 30, 2020 and June 30, 2019 was $588 and $392, respectively and for the six months ended June 30, 2020 and June 30, 2019 was $1,026 and $1,003, respectively. We issued 58,479 and 85,000 shares of common stock related to exercises of stock options for the three months ended June 30, 2020 and 2019, respectively. We issued 7,213 and 8,000 shares of common stock related to the issuance of vested restricted stock units for the three months ended June 30, 2020 and 2019, respectively.

 

NOTE 10 – DISCONTINUED OPERATIONS

 

In December 2019, we sold our Workspace Management business to FM:Systems for approximately $121,500 in cash, of which $1,685 is held in escrow and is included in prepaid expenses and other current assets in the condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019. The purchase price is subject to a working capital adjustment. This transaction enables us to focus on and continue to deliver our HCM solutions to small and mid-size businesses.

 

The table below reflects the operating results of the Workspace Management business reported as discontinued operations during the three and six months ended June 30, 2019.

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30, 2019

   

June 30, 2019

 

Revenue

  $ 7,567     $ 13,917  
                 

Income from discontinued operations

  $ 1,303     $ 1,904  

Income tax (benefit) expense

    (28 )     30  

Income from discontinued operations, net of taxes

  $ 1,331     $ 1,874  

 

The table below reflects the depreciation, amortization, capital expenditures, and significant operating and investing non-cash items of the Workspace Management business reported as discontinued operations during the three and six months ended June 30, 2019:

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30, 2019

   

June 30, 2019

 
                 

Depreciation and amortization

  $ 604     $ 1,233  

Provision for doubtful accounts

    8       (134 )

Share based compensation

    70       177  

Capital expenditures

    (42 )     (339 )

Software capitalization

    (214 )     (416 )

 

NOTE 11 – NET LOSS PER SHARE

 

We compute net loss per share based on the weighted average number of common shares outstanding for the period.  Diluted net loss per share reflects the maximum dilution that would have resulted from incremental common shares issuable upon the exercise of stock options.  We compute the number of common share equivalents, which includes stock options, using the treasury stock method. We have excluded stock options and restricted stock units of approximately 1,951,000 and 1,502,000 shares for the three and six months ended June 30, 2020 and 2019, respectively, from the computation of the diluted shares because the effect of including the stock options and restricted stock units would have been anti-dilutive.

 

 

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

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

 

   

Three Months Ended

   

Three Months Ended

   

Six Months Ended

   

Six Months Ended

 
   

June 30, 2020

   

June 30, 2019

   

June 30, 2020

   

June 30, 2019

 

Numerator:

                               

Loss from continuing operations

  $ (3,944 )   $ (6,298 )   $ (5,711 )   $ (9,735 )

Income from discontinued operations

    -       1,331       -       1,874  

Net loss

  $ (3,944 )   $ (4,967 )   $ (5,711 )   $ (7,861 )
                                 

Denominator:

                               

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

    15,779,000       15,444,000       15,753,000       15,425,000  
                                 

Basic and diluted income (loss) per share

                               

Loss per share from continuing operations

  $ (0.25 )   $ (0.41 )   $ (0.36 )   $ (0.63 )

Income per share from discontinued operations

    -       0.09       -       0.12  

Basic and diluted loss per share

  $ (0.25 )   $ (0.32 )   $ (0.36 )   $ (0.51 )

 

NOTE 12 – SUBSEQUENT EVENTS

 

The Company evaluated subsequent events through the date of the filing of this Quarterly Report on Form 10-Q with the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the condensed consolidated financial statements as of June 30, 2020, and events which occurred subsequent to June 30, 2020 but were not recognized in the condensed consolidated financial statements.

 

On July 7, 2020, our senior lender identified certain events of default under our Third Restated Credit Agreement and reserved their rights to pursue their remedies under the Credit Agreement as a result of the events of default. Then, on July 10, 2020, our senior lender issued a reservation of rights letter related to these events of default. The primary event of default that triggered the reservation of rights letter was our failure to achieve Minimum EBITDA of $3,750 for the first quarter ending March 31, 2020, as required under Section 7 of the Credit Agreement, which failure was a result of impacts to our business driven primarily by COVID-19. The other events of default were technical defaults resulting from the fact that we were either unaware that our senior lender was considering the failure to achieve Minimum EBITDA an event of default as of May 11, 2020 or because we were unaware that the senior lender was still requiring that we provide certain requested documents in connection with our banking relationship. Under the reservation of rights letter, the senior lender began accruing default interest from May 11, 2020, which we would have been required to pay on July 31, 2020. Our senior lender extended the date by which we would be required to pay the accrued default interest to August 10, 2020 as we were negotiating an amendment to the Third Restated Credit Agreement.

 

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

 

 

ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

As amended by the Fourth Amendment, the Third Restated Credit Agreement now provides for $10,000 in term loans and a $5,000 revolver, requiring that we make a principal payment of $9,750 on our outstanding term loans and reducing future availability on our revolver by $5,000. The Fourth Amendment also re-amortized the outstanding principal amount of the term loan, which is now payable as follows:

 

 

$62.5 beginning on September 30, 2020 and the last day of each fiscal quarter thereafter through and including December  31,  2021; and

 

 

$125 beginning on March 31, 2022 and the last day of each fiscal quarter thereafter.

 

In addition, the Fourth Amendment requires a LIBOR floor of 1.00% and sets the Applicable Margin at the highest level through September 30, 2021. The Applicable Margin is currently at 4.25%.

 

The outstanding principal balance and all accrued and unpaid interest on the term loans is due on December 31, 2024. The Fourth Amendment provides for an accordion feature to our term loan that would allow us to borrow up to an additional $15,000 in term loans subject to certain conditions following the Covenant Conversion Date, which is described below.

 

The Fourth Amendment also reset our financial covenants as follows:

 

 

Adjusts our minimum EBITDA covenant requiring us to achieve EBITDA of at least $750 for the nine months ended September 30, 2020, instead of $5,950, and further extends this covenant to June 30, 2022 as it was previously going to sunset as of September 30, 2020.

 

 

Adds a new financial covenant for minimum recurring revenue of $40,000 for the three quarter period ending September 30, 2020 and increasing on a quarterly basis through June 30, 2022 as further set forth in the Fourth Amendment.

 

 

Adjusts the applicable fixed charge coverage ratio for periods after June 30, 2022 as set forth in the Fourth Amendment.

 

The Fourth Amendment does not require that we meet our fixed charge ratio or leverage ratio covenant until the Covenant Conversion Date. For this purpose, the Coverage Conversion Date is the earlier of August 10, 2022 or the date in which we have satisfied the fixed charge coverage ratio and leverage ratio for two consecutive reporting periods. Until such time, we are only obligated to comply with our minimum EBITDA and minimum recurring revenue covenants. 

 

In addition to the requirement that we pay $9,750 on our outstanding term loans, we were also required to pay our senior lender an amendment fee of $225. Our senior lender waived the payment of default interest that had accrued since May 11, 2020 and stopped assessing default interest as of August 10, 2020. Our senior lender further waived any prepayment penalty that would have otherwise been due on the $9,750 payment toward our term loan and agreed that we would not owe a prepayment penalty if we were to refinance our facility before December 31, 2021. Finally, as a condition to the amendment, our senior lender required that we agree to obtain lender consent for any acquisitions until the later of August 10, 2021 or the Covenant Conversion Date. Previously certain types of acquisitions were deemed permitted acquisitions, which did not require our lender’s consent. We do not anticipate an issue with obtaining consent from our lender for accretive acquisitions.

 

We had sufficient cash on hand to make the required payment of $9,750 in connection with the Fourth Amendment and expect to have enough cash on hand to meet our future business needs. Further, we expect to comply with our financial covenants in future quarters under the Third Restated Credit Agreement, as amended by the Fourth Amendment.

 

 

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements in this Report represent forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results of operations, levels of activity, economic performance, financial condition or achievements to be materially different from future results of operations, levels of activity, economic performance, financial condition or achievements as expressed or implied by such forward-looking statements. Asure has attempted to identify these forward-looking statements with the words “believe,” “estimate,” “continue," "seek," plan,” “expect,” "intend," “anticipate,” “may,” "will," “could” and other similar expressions. Although these forward-looking statements reflect management’s current plans and expectations, which we believe are reasonable as of the filing date of this report, they inherently are subject to certain risks and uncertainties. These risks and uncertainties include — but are not limited to — our ability to achieve or sustain profitability; the impact of COVID-19 on the US and global economy, including business disruptions, reductions in employment and a decrease in business failures, specifically among our clients; adverse changes in the economy, financial markets, and credit markets, including a continuing high unemployment rate and the impact of low interest rates on the interest we receive on our cash, cash equivalents and investments; delays or reductions in information technology spending;  the development of the market for cloud-based workplace applications; product development; market acceptance of new products and product improvements; changes in the forgiveness provisions for loans under the Paycheck Protection Program; our ability to retain or increase our customer base;  security breaches; errors, disruptions or delays in our services; privacy concerns and laws; changes in our sales cycle; competition, including pricing pressures, entry of new competitors, and new technologies; intellectual property enforcement and litigation; our ability to obtain additional capital; our ability to hire, retain and motivate employees; our ability to manage our growth; our ability to realize benefits from acquisitions; limited or single sources of supply of key components; the level of our indebtedness; changes in sales may not be immediately reflected in our operating results due to our subscription model; changes in U.S and foreign laws and regulations; changes in the Internet infrastructure; disruptions in computing and communication infrastructure; and changes in accounting standards. Please refer to Part II, Item IA, “Risk Factors” of this Form 10-Q and Part I, Item IA, “Risk Factors” of our most recently filed Annual Report on Form 10-K for a further description of these and other factors. Asure is under no obligation to update any of the forward-looking statements after the date of this Form 10-Q to conform such statements to actual results.

 

OVERVIEW

 

The following review of Asure’s financial position as of June 30, 2020 and December 31, 2019, and results of operations for the three and six months ended June 30, 2020 and 2019 should be read in conjunction with our 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission. Asure’s internet website address is http://www.asuresoftware.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available through the investor relations page of our internet website free of charge as soon as reasonably practicable after they are electronically filed, or furnished to, the Securities and Exchange Commission. Asure’s internet website and the information contained in our website or connected to our website is not incorporated into this Quarterly Report on Form 10-Q.

 

Asure is a leading provider of cloud-based Human Capital Management (“HCM”) software and services and, until its divestiture in December 2019, Workspace Management software solutions. Asure helps small and mid-sized companies grow by helping them build better teams with skills that get them to the next level, stay compliant with ever changing federal, state, and local tax jurisdictions and labor laws, and better allocation of cash so they can spend their financial capital on growing their business rather than back-office overhead that suffocates growth. Asure’s Human Capital Management suite, named AsureHCM, includes cloud-based Payroll & Tax, HR, and Time & Attendance software as well as HR Services ranging from HR projects to completely outsourcing payroll and HR staff. We also offer these products and services through our network of reseller partners.

 

Asure’s platform vision is to help clients grow their business and become the most trusted HCM resource to entrepreneurs everywhere. The Asure product strategy is driven by three primary challenges that prevent businesses from growing: HR complexity, allocation of both human and financial capital, and the ability to build great teams. The AsureHCM suite includes four product lines: AsurePayroll&Tax, AsureHR, AsureTime&Attendance, and AsureHRServices.

 

For all of Asure’s product lines, support and professional services are key elements of our value proposition and overall solution.  In addition to state-of-the-art hosting platforms and regular software upgrades and releases, Asure gives clients easy access to our skilled support team. Our services and support representatives are knowledgeable about Asure’s solutions and HR best practices as many staff have professional certifications in payroll (CPP) and human resources (PHR and SPHR).

 

 

Our sales and marketing strategy includes both direct and indirect channels to target small and mid-sized businesses (SMBs) throughout the United States. Our direct sales and marketing efforts include marketing directly to SMBs and their trusted advisors which include CPAs, banks, and benefits brokers who frequently refer their clients to HCM vendors. Our indirect model licenses our HCM software to resellers that provide value-add HCM services to their clients. These resellers include pure-play payroll providers focused on a geographic or industry niche as well as CPAs, banks, and benefits brokers that want to expand relationships with their clients directly without referring those clients outside their business.

 

Recent Developments

 

The COVID-19 outbreak has disrupted businesses on a global scale. The rapid spread has resulted in authorities around the world implementing numerous measures to contain the virus, such as business shutdowns, quarantines, shelter-in-place orders and travel bans and restrictions. The pandemic and these containment measures have had, and are expected to continue to have, a substantial negative impact on businesses, especially SMBs. We expect a COVID-19 related decrease in customer demand across all our markets to negatively and materially impact our revenues for the remainder of 2020, with the most significant impact currently expected in the second and third quarters. We implemented cost-saving initiatives in the first quarter of 2020. In April 2020, we entered into a loan under the Paycheck Protection Program (“PPP”) offered by the U.S. Small Business Administration in a principal amount of $8,856. We did not record any asset impairments or bad debt reserves related to COVID-19 during the first two quarters of 2020, but future events may require such charges. We will continue to evaluate the nature and extent of the COVID-19 outbreak’s impact on our financial condition, results of operations and cash flows.

 

RESULTS OF OPERATIONS

($ in thousands)

 

Three and Six Months Ended June 30, 2020 Compared to Three and Six Ended June 30, 2019

 

The following table sets forth, for the fiscal periods indicated, the percentage of total revenues represented by certain items in Asure’s Condensed Consolidated Statements of Comprehensive Loss:

 

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2020

   

2019

   

2020

   

2019

 

Revenues

    100 %     100 %     100 %     100 %

Gross margin

    57       59       58       65  

Sales and marketing

    20       18       19       15  

General and administrative

    37       38       35       39  

Research and development

    10       6       8       6  

Amortization of intangible assets

    17       14       14       13  

Total operating expenses

    83       76       76       73  

Interest expense and other, net

    -       (18 )     2       (15 )

Loss from continuing operations before income taxes

    (25 )     (34 )     (16 )     (24 )

Loss from continuing operations

    (28 )     (36 )     (17 )     (26 )

 

 

Revenue

 

Our revenue was derived from the following sources:

 

   

Three Months Ended June 30,

   

Increase (Decrease)  

         
   

2020

   

2019

       

%

 

Recurring

  $ 13,733     $ 16,624     $ (2,891

)

    (17.4

)

Professional services, hardware and other

    382       650       (268

)

    (41.2

)

Total

  $ 14,115     $ 17,274     $ (3,159

)

    (18.3

)

 

   

Six Months Ended June 30,

   

Increase (Decrease)  

         
   

2020

   

2019

       

%

 

Recurring

  $ 32,168     $ 36,415     $ (4,247

)

    (11.7

)

Professional services, hardware and other

    893       1,269       (376

)

    (29.6

)

Total

  $ 33,061     $ 37,684     $ (4,623

)

    (12.3

)

 

Total revenue represents our consolidated revenues, including sales of our payroll and tax services, time and attendance and human resource software, as well as complementary hardware devices to enhance our software products. Recurring revenue consists of cloud revenue, hardware as a service, maintenance and support revenue and interest earned on client funds. Professional services, hardware and other revenue consists of hardware revenue, on-premise software license revenue as well as installation services and other professional services revenue.  Revenue mix varies by product.

 

Revenue for the three months ended June 30, 2020 was $14,115, a decrease of $3,159, or 18.3%, from $17,274 for the three months ended June 30, 2019, which excludes revenue from discontinued operations. Recurring revenue decreased primarily due to the impact of COVID, the loss of one major client and lower interest rates.

 

Revenue for the six months ended June 30, 2020 was $33,061, a decrease of $4,623, or 12.3%, from $37,684 for the six months ended June 30, 2019, which excludes revenue from discontinued operations. Recurring revenue decreased primarily due to the impact of COVID, the loss of one major client, and lower interest rates.

 

Although our total customer base is widely spread across industries, our HCM sales are concentrated in small to mid-size businesses.  We continue to target small and medium-sized businesses across industries as prospective customers.  Geographically, we sell our HCM products primarily in the United States.

 

In addition to continuing to develop our workforce solutions and release of new software updates and enhancements, we continue to actively explore other opportunities to acquire additional products or technologies to complement our current software and services.

 

Gross Profit and Gross Margin

 

Consolidated gross profit for the three months ended June 30, 2020 was $8,107, a decrease of $2,108 or 20.6%, from $10,215 for the three months ended June 30, 2019. Gross margin as a percentage of revenue was 57.4% for the three months ended June 30, 2020 as compared to 59.1% for the three months ended June 30, 2019. Our decline in gross margin is primarily attributable to lower sales volumes, a growing investment in HCM service resources and personnel, a migration to secure cloud hosting services and an increase in the amortization of capitalized software costs.

 

Consolidated gross profit for the six months ended June 30, 2020 was $19,213, a decrease of $5,158 or 21.2%, from $24,371 for the six months ended June 30, 2019. Gross margin as a percentage of revenue was 58.1% for the six months ended June 30, 2020 as compared to 64.7% for the six months ended June 30, 2019. Our decline in gross margin is attributable to lower sales volumes, a growing investment in HCM service resources and personnel, increased amortization of capitalized software costs as well as migration to secure cloud hosting services.

 

 

Sales and Marketing Expenses

 

Sales and marketing expenses primarily consist of salaries and related expenses, including stock-based expenses, for sales and marketing staff, including commissions, as well as marketing programs, which include events, corporate communications and product marketing activities.

 

Selling and marketing expenses for the three months ended June 30, 2020 were $2,769, a decrease of $289 from $3,058 for the three months ended June 30, 2019. The decline in sales and marketing is primarily attributable to reduced travel expenses as a result of travel restrictions due to the COVID-19 virus.  Sales and marketing expenses as a percentage of revenue increased to 19.6% for the three months ended June 30, 2020 from 17.7% for the same period in 2019 primarily due to lower sales volumes.

 

Selling and marketing expenses for the six months ended June 30, 2020 were $6,344, an increase of $581 from $5,763 for the six months ended June 30, 2019, primarily due to increased personnel costs as we focus on hiring direct sales personnel, We continue to expand and increase selling costs as we focus on hiring direct sales personnel, expanding recognition of our brand, and lead generation.  Selling and marketing expenses as a percentage of revenue increased to 19.2% for the six months ended June 30, 2020 from 15.3% for the same period in 2019.

 

We continue to expand and increase selling costs as we focus on hiring direct sales personnel, expanding recognition of our brand, and lead generation.

 

General and Administrative Expenses

 

General and administrative expenses primarily consist of salaries and related expenses, including stock-based expenses for finance and accounting, legal, internal audit, human resources and management information systems personnel, legal costs, professional fees, and other corporate expenses such as transaction costs for acquisitions.

 

General and administrative expenses for the three months ended June 30, 2020 were $5,193, a decrease of $1,425 from $6,618 for the three months ended June 30, 2019, primarily attributable to reduced personnel costs and reduced rent expenses associated with closures of certain facilities we had acquired due to acquisition.   General and administrative expenses as a percentage of revenue decreased to 36.8% for the three months ended June 30, 2020 from 38.3% for the same period in 2019.

 

General and administrative expenses for the six months ended June 30, 2020 were $11,646, a decrease of $3,161 from $14,807 for the six months ended June 30, 2019. The decline in general and administrative expenses is primarily attributable to a reduction in professional fees that were incurred in the six months ended June 30, 2019, as well as reduced rent expenses associated with closures of certain facilities, we had acquired due to acquisition.  General and administrative expenses as a percentage of revenue decreased to 35.2% for the six months ended June 30, 2020 from 39.3% for the same period in 2019.

 

We continue to drive efficiencies within our payroll operations and execute vendor rationalization with the sale of the Workspace Management business in the fourth quarter of 2019.

 

Research and Development Expenses

 

Research and development (“R&D”) expenses consist primarily of salaries and related expenses, including stock-based expenses for employees supporting our R&D activities.

 

R&D expenses for the three months ended June 30, 2020 were $1,377, an increase of $408, or 42.1%, from $969 for the three months ended June 30, 2019. The increase in R&D expense is primarily attributable to increased personnel costs as well as COVID-19 related initiatives in order to comply with the CARES Act legislation. R&D expenses as a percentage of revenues increased to 9.8% for the three months ended June 30, 2020 from 5.6% for the same period in 2019.

 

R&D expenses for the six months ended June 30, 2020 were $2,551, an increase of $261, or 11.4%, from $2,290 for the six months ended June 30, 2019. The increase in R&D expense is primarily attributable to COVID-19 related initiatives in order to comply with the CARES Act. R&D expenses as a percentage of revenues increased to 7.7% for the six months ended June 30, 2020 from 6.1% for the same period in 2019.

 

 

We will continue to enhance our products and technologies through expansion of our technological resources by increasing headcount and development partnership, as well as through organic improvements and acquired intellectual property. We will continue to expand the breadth of integration between our solutions, allowing direct clients and resellers the ability to easily add and implement components across our entire solution set. We believe that our expanded investment in product, engineering, SaaS hosting, mobile and hardware technologies lays the groundwork for broader market opportunities and represents a key aspect of our competitive differentiation. Native mobile applications, QR Code integration, expanded web service integration and other technologies are all part of our initiatives.

 

Our development efforts for future releases and enhancements are driven by feedback received from our existing and potential customers and by gauging market trends. We believe we have the appropriate development team to design and enhance our solution suite and integrated platform. We have also made significant investments outside of core R&D dollars into compliance and certifications, including SOC I Type 2 and SOC II Type 2 certifications, GDPR, CCPA, and other initiatives.

 

In the second quarter of 2020, we launched the new Simple Payroll Entry cloud solution for providing clients self-service payroll entry capabilities, with a modern user experience appropriate for small companies. For Asure HR, we developed a new product tier for Advanced HR called Essential HR. Asure Time & Attendance launched our next major release 12.4. Mid-Market HCM released the Asure Mobile app in the Google and Apple stores. The app provides employees quick access to key payroll and benefit information.

 

Amortization of Intangible Assets

 

Amortization expense for the three months ended June 30, 2020 of $2,349 was consistent with amortization expense of $2,403 for the three months ended June 30, 2019. Amortization expense as a percentage of revenue was 16.6% and 13.9% for the three months ended June 30, 2020 and 2019, respectively.

 

Amortization expense for the six months ended June 30, 2020 of $4,698 was consistent with amortization expense of $4,821 for the six months ended June 30, 2019. Amortization expense as a percentage of revenue was 14.2% and 12.8% for the six months ended June 30, 2020 and 2019, respectively.

 

Interest Expense and Other, net

 

Interest expense and other, net for the three months ended June 30, 2020 was a gain of $14 compared to a loss of $3,069 for the three months ended June 30, 2019. Interest expense and other as a percentage of revenue was at 0.1% and (17.8%) for the three months ended June 30, 2020 and June 30, 2019, respectively.  Interest expense and other for the three months ended June 30, 2020 is composed of income from the transition services agreement with FM:Systems in relation to the sale of the Workspace business in 2019, offset by interest expense on notes payable. Interest expense and other for the three months ended June 30, 2019 is composed primarily of interest expense on notes payable.

 

Interest expense and other, net for the six months ended June 30, 2020 was a gain of $710 compared to a loss of $5,783 for the six months ended June 30, 2019. Interest expense and other as a percentage of revenue was at 2.1% and (15.3%) for the six months ended June 30, 2020 and June 30, 2019, respectively.  Interest expense and other for the six months ended June 30, 2020 is composed of income from the transition services agreement with FM:Systems in relation to the sale of the Workspace business in 2019, offset by interest expense on notes payable. Interest expense and other for the six months ended June 30, 2019 is composed primarily of interest expense on notes payable.

 

Income Taxes

 

For the three months ended June 30, 2020 and 2019, we recorded an income tax expense attributable to continuing operations of $377 and $396, respectively, a decrease of $19, or 4.8%. For the six months ended June 30, 2020 and 2019, we recorded an income tax expense attributable to continuing operations of $395 and $642, respectively, a decrease of $247, or 38.4%, primarily attributable to a reduction in our deferred tax liabilities.

 

 

Loss From Continuing Operations

 

We incurred a loss from continuing operations of $3,944, or $0.25 per share, during the three months ended June 30, 2020, compared to a loss from continuing operations of $6,298, or $0.41 per share, during the three months ended June 30, 2019. Loss from continuing operations as a percentage of total revenues was 27.9% and 36.5% for the three months ended June 30, 2020 and 2019, respectively.

 

We incurred a loss from continuing operations of $5,711, or $0.36 per share, during the six months ended June 30, 2020, compared to a loss from continuing operations of $9,735, or $0.63 per share, during the six months ended June 30, 2019. Loss from continuing operations as a percentage of total revenues was 17.3% and 25.8% for the six months ended June 30, 2020 and 2019, respectively.

 

We intend to continue to implement our corporate strategy for growing our software and services business by modestly investing in areas that directly generate revenue and positive cash flows for the Company.  However, uncertainties and challenges remain, including the effects of COVID-19, and there can be no assurance that we can successfully grow our revenues or achieve profitability during the remainder of fiscal year 2020.

 

LIQUIDITY AND CAPITAL RESOURCES (Amounts in thousands)

 

   

June 30, 2020

   

December 31, 2019

 

Working capital

  $ 10,513     $ 17,854  

Cash and cash equivalents

    29,259       28,826  

 

 

   

Six Months Ended June 30,

 
   

2020

   

2019

 

Net cash provided by (used in) operating activities

  $ (4,131 )   $ 2,842  

Net cash provided by investing activities

    29,891       21,396  

Net cash used in financing activities

    (25,327 )     (25,042 )

 

Working Capital.  We had working capital of $10,513 at June 30, 2020, a decrease of $7,341 from working capital of $17,854 at December 31, 2019. Working capital as of June 30, 2020 and December 31, 2019 includes $3,766 and $5,500 of short-term deferred revenue, respectively. Deferred revenue is an obligation to perform future services.  We expect that deferred revenue will convert to future revenue as we perform our services, but this does not represent future payments. Deferred revenue can vary based on seasonality, expiration of initial multi-year contracts and deals that are billed after implementation rather than in advance of service delivery. The decrease in working capital is primarily due to a $9,750 reclassification of outstanding principal on our credit facility from current to short term.

 

Operating Activities.  Net cash used in operating activities of $4,131 for the six months ended June 30, 2020 was primarily driven by a net loss of $5,711. Non-cash adjustments to our net loss by approximately $881 due to a reduction in the amortization of our deferred financing costs and adjustments made to our allowance for doubtful accounts. Changes in operating assets and liabilities resulted in an increased use of cash of $8,242.

 

Investing Activities.  Net cash provided by investing activities of $29,891 for the six months ended June 30, 2020 is primarily due to the net change in funds held for clients. Net cash provided by investing activities of $21,396 for the six months ended June 30, 2019 is primarily due to the net change in funds held for clients offset by the acquisition of Payroll Maxx in the first quarter of 2019.

 

Financing Activities.  Net cash used in financing activities was $25,327 for the six months ended June 30, 2020, which primarily consisted of a net decrease in client fund obligations of $32,370 and payments of notes payable of $2,359 offset by proceeds of notes payable of $8,856. Net cash used in financing activities was $25,042 for the six months ended June 30, 2019. We incurred $8,000 of indebtedness, resulting in a source of cash. This was offset by debt financing fees of $1,102 and the net change in client fund obligations of $32,238.