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NOTE 4 - ACQUISITIONS | 12 Months Ended
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Dec. 31, 2017
Disclosure Text Block Supplement [Abstract] |
Mergers, Acquisitions and Dispositions Disclosures [Text Block] | NOTE 4 - ACQUISITIONS 2017 Acquisitions In January 2017, we closed three strategic acquisitions: Personnel Management Systems, Inc., a provider of outsourced HR solutions; Corporate Payroll, Inc. (Payroll Division), a provider of payroll services; and Payroll Specialties NW, Inc., a provider of payroll services. In May 2017, we closed two strategic acquisitions: iSystems Internediate HoldCo, Inc. (“iSystems”), and Compass HRM. iSystems, through its flagship product, Evolution HCM, offers payroll, tax management and HR software combined with comprehensive back-end service bureau tools to service providers across the United States. Tampa-based Compass HRM is a current reseller of our HCM offering (formerly Mangrove), which provides human resources solutions that enhance organizations, people, and profits through payroll and HR solutions. The acquisition of Compass HRM expands our reach in the Southeast, particularly Florida. In October 2017, we acquired Associated Data Services (“ADS”). ADS, based in Birmingham, Alabama, is a leading regional human resources and payroll services bureau in the Southeast and a current reseller of our HCM solution, Evolution. Stock Purchase Agreement In January 2017, we closed on the acquisition of all of the outstanding shares of common stock (the “Shares”) of Personnel Management Systems, Inc., a Washington corporation (“PMSI”), pursuant to a Stock Purchase Agreement (the “Stock Purchase Agreement”), among us, PMSI, the sellers identified therein, and the stockholders’ representative named therein. The aggregate consideration for the Shares consisted of (i) $3,875 in cash and (ii) a subordinated promissory note (the “PMSI Note”) in the principal amount of $1,125 subject to adjustment as provided in the Stock Purchase Agreement. We funded the cash payment with proceeds from our recent underwritten public offering in June 2017. The PMSI Note bears interest at an annual rate of 2.0% and matures on April 30, 2018. The entire unpaid principal and all accrued interest under the PMSI Note is payable at maturity. The Stock Purchase Agreement contains certain customary representations, warranties, indemnities and covenants. Asset Purchase Agreement In January 2017, we closed on the acquisition of substantially all the assets of Corporate Payroll, Inc., an Ohio corporation (“CPI”), relating to its payroll service bureau business, pursuant to an Asset Purchase Agreement (the “CPI Asset Purchase Agreement”). The aggregate consideration for the assets consisted of (i) $1,500 in cash, (ii) a subordinated promissory note (the “CPI Note”) in the principal amount of $500 and (iii) 112,166 shares of our common stock valued at $1,000, subject to adjustment as provided in the CPI Asset Purchase Agreement. We funded the cash payment with proceeds from our recent underwritten public offering in June 2017. The CPI Note bears no interest and matures on April 30, 2018. The entire unpaid principal under the CPI Note is payable at maturity. The recipient of the shares of our common stock entered into a six month lock-up agreement with us. The CPI Asset Purchase Agreement contains certain customary representations, warranties, indemnities and covenants. Asset Purchase Agreement In January 2017, we closed on the acquisition of substantially all the assets of Payroll Specialties NW, Inc., an Oregon corporation (“PSNW”), pursuant to an Asset Purchase Agreement (the “PSNW Asset Purchase Agreement”). The aggregate consideration for the assets consisted of (i) $3,010 in cash and (ii) a subordinated promissory note (the “PSNW Note”) in the principal amount of $600, subject to adjustment as provided in the PSNW Asset Purchase Agreement. We funded the cash payment with proceeds from our recent underwritten public offering in June 2017. The PSNW Note bears interest at an annual rate of 2.0% and matures on April 30, 2018. The entire unpaid principal and all accrued interest under the PSNW Note is payable at maturity. The PSNW Asset Purchase Agreement contains certain customary representations, warranties, indemnities and covenants. Equity Purchase Agreement In May 2017, we entered into an equity purchase agreement (the “Equity Purchase Agreement”) with 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, subject to adjustment as provided in the Equity Purchase Agreement. The aggregate purchase price consists of (i) $32,000 in cash, subject to adjustment, (ii) a secured subordinated promissory note (“iSystems Note”) in the principal amount of $5,000, subject to adjustment, and (iii) 1,526,332 shares of unregistered common stock valued at $18,000 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 with Wells Fargo Bank, National Association, as administrative agent (the “Restated Credit Agreement”) to add an additional term loan in the amount of approximately $40,000, of which we borrowed approximately $32,000 to complete the iSystems acquisition. See Note 6- Notes Payable for further detail. In connection with the iSystems acquisition, we also entered into an investor rights agreement (the “Investor Rights Agreement”) with the Seller. Pursuant to the terms of the Investor Rights Agreement, until May 2018, the holders of the registrable securities received in connection with the acquisition have agreed not to directly or indirectly transfer, sell, make any short sale or otherwise dispose of any of our equity securities and not to vote any of our equity securities or solicit proxies other than in favor of each director that our board recommends for election, against any director that our board has not nominated for election, and in accordance with the recommendation of our board on any other matters, subject to certain exceptions. In addition, under the Investor Rights Agreement, holders of the registrable securities have demand registration rights which allow a registration statement to be filed on or about March 31, 2018 and piggyback registration rights which become effective in May 2018. In addition, under the terms of the Investor Rights Agreement, such holders have the right to nominate one director to our board of directors until the first date that the holders of the registrable securities no longer hold more than the lesser of (x) 5% of our outstanding common stock (as equitably adjusted for any stock splits, stock combinations, reorganizations, exchanges, merger, recapitalizations or similar transaction after the date hereof) and (y) 90% of the shares of our common stock held by such holders as of May 25, 2017. The director nominee appointed by the holders is Daniel Gill. Our board appointed him to serve as a director on June 6, 2017. Mr. Gill is a founder and a co-managing partner of Silver Oak Services Partners, a private equity firm. In 2014 Silver Oak acquired iSystems, LLC (currently, a wholly owned subsidiary of iSystems) and Mr. Gill served on the board of directors of iSystems, LLC. Stock Purchase Agreement In May 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, subject to adjustment as provided in the Stock Purchase Agreement. The aggregate purchase price consists of $4,500 in cash and a subordinated promissory note (“Compass Note”) in the principal amount of $1,500, subject to adjustment. The Compass Note bears interest at an annual rate of 2.0% and matures on May 25, 2022. The Compass Note is payable in five annual installments of $300 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 of additional indebtedness pursuant to an additional term loan under our Restated Credit Agreement. See Note 6 –Notes Payable for further details. Stock Purchase Agreement In October 2017, we entered into a stock purchase agreement (the “ADS Stock Purchase Agreement”) with Associated Data Services (“ADS”) and the sellers and seller representative named therein, pursuant to which the sellers sold 100% of the outstanding shares of capital stock of ADS to us for an aggregate purchase price of $3,400, subject to adjustment as provided in the ADS Stock Purchase Agreement. The aggregate purchase price consists of $1,778 in cash; 44,624 shares of common stock in Asure Software, Inc. estimated to have a fair value of $528,200; and a subordinated promissory note (“ADS Note”) in the principal amount of $1,122, subject to adjustment. The ADS Note bears interest at an annual rate of 2.0% and matures on October 1, 2019. The ADS Note is payable in two annual installments of $370 and $752 on the anniversary of the closing date, subject to adjustment. ADS is a leading regional human resources and payroll services bureau in the Southeast and a current reseller of our HCM solution, Evolution, based in Birmingham, Alabama. Purchase Price Allocation Following is the purchase price allocation for the 2017 acquisitions. We based the preliminary fair value estimate for the assets acquired and liabilities assumed for these acquisitions upon preliminary calculations and valuations. Our estimates and assumptions for these acquisition are subject to change as we obtain additional information for our estimates during the respective measurement periods (up to one year from the acquisition date). The primary areas of those preliminary estimates that we have not yet finalized relate to certain tangible assets and liabilities acquired, and income and non-income based taxes. We recorded the transactions using the acquisition method of accounting and recognized assets and liabilities assumed at their fair value as of the dates of acquisitions. The $26,408 of intangible assets subject to amortization consist of $23,085 allocated to Customer Relationships, $1,621 for Trade Names, $1,010 for Developed Technology, and $692 for Noncompete Agreements. To value the Trade Names, we employed the relief from royalty method under the market approach. For the Noncompete Agreements, we employed a form of the income approach which analyzes the Company’s profitability with these assets in place, in contrast to the Company’s profitability without them. For the Customer Relationships and Developed Technology, we employed a form of the excess earnings method, which is a form of the income approach. The discount rate used in valuing these assets ranged from 14.0% to 17.0%, which reflects the risk associated with the intangible assets related to the other assets and the overall business operations to us. We estimated the fair values of the Trade Names using the relief from royalty method based upon a 1.0% to 1.7% royalty rate. We believe significant synergies are expected to arise from these strategic acquisitions. 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 for each acquisition. A portion of acquired goodwill will be deductible for tax purposes. We based the allocations on fair values at the date of acquisition:
Assets Acquired |  | CPI |  |  | PMSI |  |  | PSNW |  |  | iSystems |  |  | Compass |  |  | ADS |  |  | Total |
Cash & cash equivalents |  | $ | 126 |  |  |  | 131 |  |  |  | 53 |  |  |  | 211 |  |  |  | 207 |  |  |  | 124 |  |  | $ | 852 |
Accounts receivable |  |  | 22 |  |  |  | 347 |  |  |  | 111 |  |  |  | 951 |  |  |  | 241 |  |  |  | - |  |  |  | 1,672 |
Restricted cash |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 200 |  |  |  | - |  |  |  | - |  |  |  | 200 |
Fixed assets |  |  | - |  |  |  | 130 |  |  |  | 7 |  |  |  | 681 |  |  |  | 38 |  |  |  | 4 |  |  |  | 860 |
Other assets |  |  | - |  |  |  | 17 |  |  |  | 17 |  |  |  | 699 |  |  |  | 33 |  |  |  | 1 |  |  |  | 767 |
Funds held for clients |  |  | 2,809 |  |  |  | - |  |  |  | 6,294 |  |  |  | - |  |  |  | - |  |  |  | 5,091 |  |  |  | 9,103 |
Goodwill |  |  | 1,190 |  |  |  | 2,289 |  |  |  | 1,579 |  |  |  | 42,253 |  |  |  | 2,049 |  |  |  | 1,450 |  |  |  | 50,810 |
Intangibles |  |  | 1,563 |  |  |  | 2,646 |  |  |  | 1,879 |  |  |  | 15,070 |  |  |  | 3,470 |  |  |  | 1,780 |  |  |  | 26,408 |
Total assets acquired |  | $ | 5,710 |  |  |  | 5,560 |  |  |  | 9,940 |  |  |  | 60,065 |  |  |  | 6,038 |  |  |  | 8,450 |  |  | $ | 90,672 |
Liabilities assumed |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Accounts payable |  |  | 51 |  |  |  | 19 |  |  |  | 28 |  |  |  | 392 |  |  |  | 65 |  |  |  | 18 |  |  |  | 573 |
Accrued other liabilities |  |  | - |  |  |  | 191 |  |  |  | 40 |  |  |  | 791 |  |  |  | 45 |  |  |  | 6 |  |  |  | 1,073 |
Deferred revenue |  |  | - |  |  |  | 370 |  |  |  | - |  |  |  | 1,073 |  |  |  | - |  |  |  | - |  |  |  | 1,443 |
Client fund obligations |  |  | 2,754 |  |  |  | - |  |  |  | 6,294 |  |  |  | - |  |  |  | - |  |  |  | 5,091 |  |  |  | 9,048 |
Total liabilities assumed |  |  | 2,805 |  |  |  | 580 |  |  |  | 6,362 |  |  |  | 2,256 |  |  |  | 110 |  |  |  | 5,115 |  |  |  | 12,137 |
Net assets acquired |  | $ | 2,905 |  |  |  | 4,980 |  |  |  | 3,578 |  |  |  | 57,809 |  |  |  | 5,928 |  |  |  | 3,335 |  |  | $ | 78,535 |
The following is a reconciliation of the purchase price to the fair value of net assets acquired at the date of acquisition:
|  | CPI |  |  | PMSI |  |  | PSNW |  |  | iSystems |  |  | Compass |  |  | ADS |  |  | Total |
Purchase price |  | $ | 3,000 |  |  |  | 5,000 |  |  |  | 3,610 |  |  |  | 55,000 |  |  |  | 6,000 |  |  |  | 3,400 |  |  | $ | 76,010 |
Working capital adjustment |  |  | - |  |  |  | 42 |  |  |  | - |  |  |  | 202 |  |  |  | 81 |  |  |  | - |  |  |  | 325 |
Adjustment to fair value of Asure’s stock issued |  |  | (54 | ) |  |  | - |  |  |  | - |  |  |  | 2,880 |  |  |  | - |  |  |  | 28 |  |  |  | 2,854 |
Debt discount |  |  | (41 | ) |  |  | (62 | ) |  |  | (32 | ) |  |  | (273 | ) |  |  | (153 | ) |  |  | (93 | ) |  |  | (654 | )
Fair value of net assets acquired |  | $ | 2,905 |  |  |  | 4,980 |  |  |  | 3,578 |  |  |  | 57,809 |  |  |  | 5,928 |  |  |  | 3,335 |  |  | $ | 78,535 |
Transaction costs for the 2017 acquisitions were $3,112 and were expensed as incurred and included in selling, general and administrative expenses. 2016 Acquisitions Through the stock and asset purchases described below, we have entered into the human resource management, payroll processing and benefits administration services businesses, which we intend to integrate into our existing AsureForce® product line. Stock Purchase Agreement In March 2016, we acquired all of the issued and outstanding shares of common stock (the “Shares”) of Mangrove Employer Services, Inc. of Tampa, Florida (“Mangrove”). Pursuant to this stock purchase, we acquired the payroll division of Mangrove, which is engaged in the human resource management and payroll processing businesses. The aggregate consideration for the Shares consisted of (i) $11,348 in cash, a portion of which was used to pay certain obligations of Mangrove and (ii) a secured subordinated promissory note (the “Note”) in the principal amount of $6,000, subject to adjustment as provided in the Stock Purchase Agreement. We funded the cash payment with proceeds from our credit agreement with Wells Fargo. The Note was paid in full in the first quarter of 2017. The Stock Purchase Agreement contains certain customary representations, warranties, indemnities and covenants. Details regarding the financing of the acquisition are described under Note 6- Notes Payable. Transaction costs for this acquisition were $706 and we expensed them as incurred and included in selling, general and administrative expenses. Asset Purchase Agreement In March 2016, we also acquired substantially all the assets of Mangrove COBRAsource Inc., a benefits administration services business which then was a wholly owned subsidiary of Mangrove. The aggregate consideration for the assets was $1,036, which Mangrove COBRAsource applied to pay off certain loan balances. The Asset Purchase Agreement contains certain customary representations, warranties, indemnities and covenants. Purchase Price Allocation Following is the purchase price allocation for the acquisition of Mangrove. We recorded the transaction using the acquisition method of accounting and recognized assets and liabilities assumed at their fair value as of the date of acquisition. The $8,700 of intangible assets subject to amortization consist of $1,200 allocated to Customer Relationships, $6,900 in Developed Technology and $600 for Trade Names. We estimated the fair value of the Customer Relationships and Developed Technology using the excess earnings method, a form of the income approach. We discounted cash flow projections using a rate of 18.1%, which reflects the risk associated with the intangible asset related to the other assets and the overall business operations to us. We estimated the fair value of the Trade Names using the relief from royalty method based upon a 1.2% royalty rate for the payroll division and 0.5% for the benefits administration services business. We believe significant synergies are expected to arise from this strategic acquisition. This factor contributed to a purchase price that was in excess of the fair value of the net assets acquired and, as a result, 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:
|  | Amount |
Assets acquired |  |  |
Accounts receivable |  | $ | 523 |
Funds held for clients |  |  | 16,419 |
Fixed assets |  |  | 258 |
Other assets |  |  | 28 |
Goodwill |  |  | 9,016 |
Intangibles |  |  | 8,700 |
Total assets acquired |  | $ | 34,944 |
Liabilities assumed |  |  |  |
Accounts payable |  |  | 64 |
Accrued other liabilities |  |  | 461 |
Client fund obligations |  |  | 16,419 |
Total liabilities assumed |  | $ | 16,944 |
Net assets acquired |  | $ | 18,000 |
Unaudited Pro Forma Financial Information The following unaudited summary of pro forma combined results of operations for the twelve months ended December 31, 2017 and 2016 gives effect to the acquisitions of Mangrove, PMSI, iSystems, Compass, and ADS and the acquisition of the assets of COBRAsource, PSNW and CPI as if we had completed them on January 1, 2016. This pro forma summary does not reflect any operating efficiencies, cost savings or revenue enhancements that we may achieve by combining operations. In addition, we have not reflected certain non-recurring expenses, such as legal expenses and other transactions expenses for the first 12 months after the acquisition, in the pro forma summary. We present this pro forma summary for informational purposes only and it is not necessarily indicative of what our actual results of operations would have been had the acquisitions taken place as January 1, 2016, nor is it indicative of future consolidated results of operations.
|  | FOR THE YEAR |  |  | FOR THE YEAR |
|  | ENDED DECEMBER 31, |  |  | ENDED DECEMBER 31, |
|  | 2017 |  |  | 2016 |
Revenues |  | $ | 62,393 |  |  | $ | 61,412 |
Net income (loss) |  | $ | (4,693 | ) |  | $ | (5,612 | )
Net income (loss) per common share: |  |  |  |  |  |  |  |
Basic and diluted |  | $ | (0.40 | ) |  | $ | (0.68 | )
Weighted average shares outstanding: |  |  |  |  |  |  |  |
Basic |  |  | 11,639 |  |  |  | 8,216 |
Diluted |  |  | 11,639 |  |  |  | 8,216 |

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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