EX-99.3 5 ex99-3.htm EX-99.3
 
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):
 
 
                 
Assets Acquired
 
iSystems
   
Compass
   
Total
 
 Cash & cash equivalents
 
$
211
     
207
     
418
 
Accounts receivable
   
951
     
241
     
1,192
 
Restricted cash
   
200
      -      
200
 
Fixed assets
   
681
     
38
     
719
 
Other assets
   
699
     
33
     
732
 
Goodwill
   
42,096
     
1,929
     
44,025
 
Intangibles
   
15,070
     
3,470
     
18,540
 
Total assets acquired
 
$
59,908
     
5,918
     
65,826
 
 
                       
Liabilities assumed
                       
Accounts payable
   
392
     
65
     
457
 
Accrued other liabilities
   
791
     
45
     
836
 
Deferred revenue
   
1,073
     
-
     
1,073
 
Total liabilities assumed
   
2,256
     
110
     
2,366
 
 
                       
Net assets acquired
 
$
57,652
     
5,808
     
63,460
 

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, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
 
For the Three Months Ended March 31, 2017 (Amounts in thousands, except per share data) Pro Forma
 
  
 
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
 
 

 
Asure Software, Inc.
Unaudited Pro Forma Condensed Statement of Operations
 
For the Twelve Months Ended December 31, 2016
(Amounts in thousands, except per share data)
 
 
 
Asure Software
   
PMSI
   
PSNW
   
CPI
   
iSystems
   
Compass
   
Pro Forma Adjustments
     
Pro Forma Combined
 
Total Revenues
 
$
35,542
   
$
4,585
     
1,682
   
$
1,623
   
$
12,801
   
$
3,538
   
$
(1,995
)
 (a)  
$
57,776
 
 
                                                                 
Total Cost of Sales
   
8,117
     
1,035
     
416
     
496
     
5,654
     
699
     
(2,615
)
 (a)    
13,802
 
Gross Margin
   
27,425
     
3,550
     
1,266
     
1,127
     
7,147
     
2,839
     
620
       
43,974
 
 
                                                                 
Total Operating Expenses
   
26,198
     
3,106
     
1,248
     
1,487
     
9,563
     
3,096
     
(1,666
)
 (b)    
43,032
 
 
                                                                 
Income (Loss) from Operations
   
1,227
     
444
     
18
     
(360
)
   
(2,416
)
   
(257
)
   
2,286
 
     
942
 
 
                                                                 
Total Other Income (Loss)
   
(2,010
)
   
(58
)
   
26
 
   
-
     
(1,493
)
   
(45
)
   
(2,516
)  (c)    
6,096
 
Pre-Tax Income (Loss)
   
(783
)
   
386
     
44
     
(360
)
   
(3,909
)
   
(302
)
   
(230
)
     
(5,154
)
    Income Tax Provision
   
(189
)
   
-
     
-
     
-
     
(367
)
   
-
     
-
       
(556
)
Net Income (Loss)
 
$
(972
)
 
$
386
     
44
   
$
(360
)
 
$
(4,276
)
   
(302
)
 
$
(230
)
   
$
(5,710
)
 
                                                                 
Basic and Diluted Net Loss per Share:
                                                                 
          Basic
 
$
(0.15
)
                                                   
$
(0.59
)
          Diluted
 
$
(0.15
)
                                                   
$
(0.59
)
 
                                                                 
Weighted Average Basic and Diluted Shares:
                                                                 
          Basic
   
6,533
                                                       
9,697
 
          Diluted
   
6,533
                                                       
9,697
 
 
 
(The accompanying notes are an integral part of the unaudited pro forma condensed combined financial information of Asure Software, Inc.)

Notes to Unaudited Pro Forma Condensed Combined Balance Sheet:

Gives effect to or reflects the following:

(a)
The elimination of assets in iSystems Holdings LLC not acquired by Asure Software, Inc.

(b)
The estimated value of goodwill recorded in conjunction with the iSystems and Compass acquisitions.

(c)
The estimated value of intangibles recorded in conjunction with the iSystems and Compass acquisitions.

(d)
The estimated fair value of the subordinated promissory note issued to the Seller in the iSystems and Compass acquisitions and the additional term loan under the Restated Credit Agreement.

(e)
The estimated fair value of Asure Software common stock issued to the Seller in the acquisition of iSystems.

Notes to Unaudited Pro Forma Condensed Combined Income Statement:

Gives effect to or reflects the following:

(a)
The elimination of intercompany revenue and cost of sales between Asure Software, Inc., CPI and PSNW.

(b)
The adjustments to the historical intangible amortization expense resulting from the effects of the preliminary purchase price associated with the acquisitions of PMSI, CPI, PSNW, iSystems, and Compass. The final allocation of the actual purchase price is subject to the final valuation of the acquired assets, but that allocation is not expected to differ materially from the preliminary allocation presented in this pro forma condensed combined financial information.

(c)
The adjustments for interest expense on acquisition related debt and transaction costs incurred pursuant the acquisitions of PMSI, CPI, PSNW, iSystems, and Compass.