asur-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2022


☐			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 incorporation)

(I.R.S. Employer 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)
None
(Former name, former address and former fiscal year, if changed since last report)

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

The Nasdaq Capital Market

Series A Junior Participating Preferred Share Purchase Rights

N/A

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

☐

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

☐

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

☒

As of May 6, 2022, 20,071,692 shares of the registrant’s Common Stock, $0.01 par value, were outstanding.

Table of Contents

TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	1
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2022 and March 31, 2021	2
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2022 and March 31, 2021	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and March 31, 2021	4
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 4.	Controls and Procedures	22

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults upon Senior Securities	24
Item 4.	Other Information	24
Item 5.	Exhibits	24

	Signatures	26

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PART I

ITEM 1. FINANCIAL STATEMENTS

ASURE SOFTWARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)


	March 31, 2022		December 31, 2021
	(unaudited)
ASSETS
Current assets:
Cash, cash equivalents, and restricted cash	$	12,054	$	13,427
Accounts receivable, net of allowance for doubtful accounts of $2,264 and $2,210 at March 31, 2022 and December 31, 2021, respectively	6,608		5,308
Inventory	286		246
Prepaid expenses and other current assets	10,635		13,475
Total current assets before funds held for clients	29,583		32,456
Funds held for clients	238,679		217,376
Total current assets	268,262		249,832
Property and equipment, net	8,664		8,945
Goodwill	86,011		86,011
Intangible assets, net	77,205		78,573
Operating lease assets, net	5,315		5,748
Other assets, net	4,406		4,136
Total assets	$	449,863	$	433,245
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of notes payable	$	1,773	$	1,907
Accounts payable	1,619		565
Accrued compensation and benefits	2,720		3,568
Operating lease liabilities, current	1,380		1,551
Other accrued liabilities	2,967		2,436
Contingent purchase consideration	1,905		1,905
Deferred revenue	1,626		3,750
Total current liabilities before client fund obligations	13,990		15,682
Client fund obligations	238,440		217,144
Total current liabilities	252,430		232,826
Long-term liabilities:
Deferred revenue	23		36
Deferred tax liability	1,617		1,595
Notes payable, net of current portion	33,977		33,120
Operating lease liabilities, noncurrent	4,440		4,746
Contingent purchase consideration	2,424		2,424
Other liabilities	62		258
Total long-term liabilities	42,543		42,179
Total liabilities	294,973		275,005
Stockholders’ equity:
Preferred stock, $0.01 par value; 1,500 shares authorized; none issued or outstanding	—		—
Common stock, $0.01 par value; 44,000 shares authorized; 20,455 and 20,412 shares issued, 20,071 and 20,028 shares outstanding at March 31, 2022 and December 31, 2021, respectively	205		204
Treasury stock at cost, 384 shares at March 31, 2022 and December 31, 2021	(5,017)		(5,017)
Additional paid-in capital	430,641		429,912
Accumulated deficit	(269,777)		(266,760)
Accumulated other comprehensive income	(1,162)		(99)
Total stockholders’ equity	154,890		158,240
Total liabilities and stockholders’ equity	$	449,863	$	433,245

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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ASURE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands, except per share amounts)


	Three Months Ended March 31,
	2022		2021
	(unaudited)
Revenue:
Recurring	$	23,004	$	19,242
Professional services, hardware and other	1,329		560
Total revenue	24,333		19,802
Cost of Sales	8,869		7,310
Gross profit	15,464		12,492
Operating expenses:
Sales and marketing	4,897		3,611
General and administrative	7,485		6,498
Research and development	1,821		1,124
Amortization of intangible assets	3,432		2,528
Total operating expenses	17,635		13,761
Loss from operations	(2,171)		(1,269)
Interest expense and other, net	(816)		(224)
Loss from operations before income taxes	(2,987)		(1,493)
Income tax expense	30		105
Net loss	(3,017)		(1,598)
Other comprehensive loss:
Unrealized loss on marketable securities	(1,063)		(139)
Comprehensive loss	$	(4,080)	$	(1,737)

Basic and diluted loss per share
Basic	$	(0.15)	$	(0.08)
Diluted	$	(0.15)	$	(0.08)

Weighted average basic and diluted shares
Basic	20,041		19,007
Diluted	20,041		19,007

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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ASURE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(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, 2021	20,028	$	204	$	(5,017)	$	429,912	$	(266,760)	$	(99)	$	158,240
Stock issued upon option exercise and vesting of restricted stock units	43	1		—		—		—		—		1
Share based compensation	—	—		—		729		—		—		729
Net loss	—	—		—		—		(3,017)		—		(3,017)
Other comprehensive loss	—	—		—		—		—		(1,063)		(1,063)
March 31, 2022	20,071	$	205	$	(5,017)	$	430,641	$	(269,777)	$	(1,162)	$	154,890


	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, 2020	18,970	$	193	$	(5,017)	$	419,827	$	(269,954)	$	604	$	145,653
Stock issued upon option exercise and vesting of restricted stock units	51	1		—		131		—		—		132
Share based compensation	—	—		—		626		—		—		626
Share issuance costs	—	—		—		(23)		—		—		(23)
Net loss	—	—		—		—		(1,598)		—		(1,598)
Other comprehensive loss	—	—		—		—		—		(139)		(139)
Balance at March 31, 2021	19,021	$	194	$	(5,017)	$	420,561	$	(271,552)	$	465	$	144,651

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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ASURE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Three Months Ended March 31,
	2022		2021
	(unaudited)
Cash flows from operating activities:
Net loss	$	(3,017)	$	(1,598)
Adjustments to reconcile loss to net cash provided by (used in) operations:
Depreciation and amortization	4,754		3,862
Amortization of operating lease assets	430		421
Amortization of debt financing costs and discount	164		30
Net amortization of premiums and accretion of discounts on available-for-sale securities	118		48
Provision for doubtful accounts	(48)		1
Provision for deferred income taxes	22		98
Net realized gains on sales of available-for-sale securities	(203)		(153)
Share-based compensation	729		626
(Gain) loss on disposals of long-term assets	1		—
Changes in operating assets and liabilities:
Accounts receivable	(1,252)		(947)
Inventory	(40)		46
Prepaid expenses and other assets	2,756		(43)
Operating lease right-of-use assets	2		(324)
Accounts payable	1,072		(538)
Accrued expenses and other long-term obligations	(345)		9
Operating lease liabilities	(476)		(138)
Deferred revenue	(2,137)		(2,761)
Net cash provided by (used in) operating activities	2,530		(1,361)
Cash flows from investing activities:
Acquisition of intangible asset	(1,970)		—
Purchases of property and equipment	(55)		(48)
Software capitalization costs	(691)		(1,233)
Purchases of available-for-sale securities	(4,504)		—
Proceeds from sales and maturities of available-for-sale securities	501		1,926
Net cash (used in) provided by investing activities	(6,719)		645
Cash flows from financing activities:
Payments of notes payable	—		(2,186)
Net proceeds from issuance of common stock	—		108
Net change in client fund obligations	21,296		(66,337)
Net cash provided by (used in) financing activities	21,296		(68,415)
Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents	17,107		(69,131)
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period	198,743		324,985
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period	$	215,850	$	255,854

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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ASURE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)


	Three Months Ended March 31,
	2022		2021
	(unaudited)
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the Condensed Consolidated Balance Sheets
Cash and cash equivalents	$	12,054	$	24,290
Restricted cash and restricted cash equivalents included in funds held for clients	203,796		231,564
Total cash, cash equivalents, restricted cash, and restricted cash equivalents	$	215,850	$	255,854

Supplemental information:
Cash paid for interest	$	684	$	219
Cash (refunded) paid for income taxes	$	(14)	$	183

Non-cash investing and financing activities:
Notes payable issued for acquisitions	$	411	$	—

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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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 provider of Human Capital Management (“HCM”) software solutions. We help small and medium-sized companies grow by helping them build more productive teams, providing the tools and resources that help them stay compliant with ever-changing federal, state, and local tax jurisdictions and labor laws, and better allocate cash so they can spend their financial capital on growing their business rather than back-office overhead expenses. Asure’s Human Capital Management suite, named Asure HCM, includes cloud-based Payroll, Tax Services, and Time & Attendance software as well as human resources (“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.

Our platform vision is to become the most trusted HCM resource to entrepreneurs everywhere by helping our clients grow their businesses. Our 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 Asure HCM suite includes four product lines: Asure Payroll & Tax, Asure HR, Asure Time & Attendance, and Asure HR Services.

We develop, market, sell and support our offerings nationwide through our principal office in Austin, Texas and from our processing hubs in California, Florida, Nebraska, New Jersey, New York, Tennessee, and Vermont.

We have prepared the accompanying unaudited Condensed Consolidated Financial Statements in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) 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.

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 March 31, 2022 and the results of operations, statements of changes in stockholders’ equity for the three months ended March 31, 2022 and March 31, 2021, and our statements of cash flows for the three months ended March 31, 2022 and March 31, 2021.

These unaudited Condensed Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and notes thereto filed with the SEC in our annual report on Form 10-K for the fiscal year ended December 31, 2021 (our “2021 Annual Report on Form 10-K”). 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 Condensed 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 Condensed 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, 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.

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CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash equivalents include investments in an institutional money market fund, which invests in U.S. Treasury bills, notes and bonds, and/or repurchase agreements, backed by such obligations. Carrying value approximates fair value. Restricted cash consists of cash balances which are restricted as to withdrawal or usage. As of March 31, 2022, the Company has $500 of restricted cash related to our agreement with Atlantic Capital Bank.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The standard became effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We adopted ASU 2019-12 during the quarter beginning January 1, 2021, using the prospective approach except for hybrid tax regimes, which we adopted using the modified retrospective approach. The adoption of ASU 2019-12 resulted in no material impact to the Company’s financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): This update establishes a new approach to estimate credit losses on certain financial instruments. The update requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The amended guidance will also update the impairment model for available-for-sale debt securities, requiring entities to determine whether all or a portion of the unrealized loss on such securities is a credit loss. The Company is currently evaluating this standard and the potential effects of these changes to its consolidated financial statements and will adopt this new standard in the fiscal year beginning January 1, 2023.

RECLASSIFICATION

The Company reclassified its presentation of restricted cash and restricted cash equivalents included in funds held for clients as of March 31, 2021 in the Condensed Consolidated Statements of Cash Flows to conform to the current period presentation. Such reclassification had no effect on the consolidated financial position or consolidated results of operations of the Company.

ACCUMULATED OTHER COMPREHENSIVE LOSS

As of March 31, 2022 and December 31, 2021, accumulated other comprehensive loss consisted of net unrealized gains and losses on available-for-sale securities.

NOTE 3 - BUSINESS COMBINATIONS AND ASSET ACQUISITIONS

2021

In September 2021, the Company acquired certain assets (the “Asset Purchase Agreement”) of a payroll business, which was used to provide payroll processing services. The aggregate purchase price that the Company paid for these assets was $14,750, paid as follows: (i) $10,325 in cash at closing, (ii) the delivery of a promissory note in the amount of $2,213, and (iii) the delivery of 244 shares of the Company’s common stock, which the parties agreed had an aggregate value of $2,213 as of September 31, 2021. The Asset Purchase Agreement is subject to working capital adjustments to the purchase price.

Also in September 2021, we acquired certain assets of a payroll business (the “Second Asset Purchase Agreement”). The initial purchase price for the assets was $24,150, of which $15,000 was paid in cash at closing. The Second Asset Purchase Agreement also included the delivery of 523 shares of the Company’s common stock, which both parties agreed had an aggregate value of $4,800 at closing. Finally, the Second Asset Purchase Agreement set forth a promissory note initially valued at $4,350 and includes a contingent consideration, which is contingent on certain thresholds and will be based on the trailing twelve-month revenue at September 30, 2022, which we expect will be paid in the fourth quarter of 2022. The promissory note was adjusted to $4,318 to account for an estimated shortfall in working capital when compared to the working capital target at closing of the transaction. The Second Asset Purchase Agreement is subject to post-closing adjustments for working capital and purchase price. We utilized a Monte Carlo simulation to determine the fair value of the contingent consideration. For the year ended December 31, 2021, there was a measurement period adjustment to the fair value of the contingent consideration of $465.

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As of March 31, 2022, certain amounts of funds held for clients on our Condensed Consolidated Balance Sheets are in the process of being transferred to the Company’s legal possession, as stipulated by the respective transitional service agreements included as part of the Asset Purchase Agreement and Second Asset Purchase Agreement.

The Asset Purchase Agreement and Second Asset Purchase Agreement mentioned above were of privately held companies, whose historic cash basis financial statements were unaudited and not prepared under generally accepted accounting principles in the United States, including, but not limited to, differences in revenue recognition. The disclosure of supplemental pro forma financial information suggested under ASC 805 for a public business entity has been deemed impracticable by management due to these reasons.

2022

Effective January 1, 2022, the Company acquired customer relationships of a payroll business for a cash payment of $1,970, which included $31 of transaction costs, and the delivery of a promissory note in the amount of $411. The acquired customer relationships are recorded as an intangible asset and are being amortized on a straight-line basis over eight years.

NOTE 4 - INVESTMENTS AND FAIR VALUE MEASUREMENTS

Accounting Standards Codification (ASC) 820 “Fair Value Measurement” (ASC 820) defines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 describes a fair value hierarchy based on the following three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last unobservable:


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.

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The following table presents the fair value hierarchy for our financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021, respectively (in thousands):


	Total Carrying Value		Level 1		Level 2		Level 3
March 31, 2022
Assets:
Funds held for clients
Money market funds	$	1,144	$	1,144	$	—	$	—
Available-for-sale securities	34,883		—		34,883		—
Total	$	36,027	$	1,144	$	34,883	$	—

Liabilities:
Contingent purchase consideration(1)	$	4,329	$	—	$	—	$	4,329
Total	$	4,329	$	—	$	—	$	4,329

December 31, 2021
Assets:
Funds held for clients
Money market funds	1,116		1,116		—		—
Available-for-sale securities	32,060		—		32,060		—
Total	$	33,176	$	1,116	$	32,060	$	—

Liabilities:
Contingent purchase consideration(1)	$	4,329	$	—	$	—	$	4,329
Total	$	4,329	$	—	$	—	$	4,329

(1)See Note 2 — Business Combinations for further discussion regarding the contingent purchase consideration.

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Restricted cash equivalents and investments classified as available-for-sale within funds held for clients consisted of the following (in thousands):


	Amortized Cost		Gross Unrealized Gains (1)		Gross Unrealized Losses (1)		Aggregate Estimated Fair Value
March 31, 2022
Restricted cash equivalents	$	1,144	$	—	$	—	$	1,144
Available-for-sale securities:
Certificates of deposit	1,237		6		(3)		1,240
Corporate debt securities	26,502		—		(843)		25,659
Municipal bonds	7,809		—		(292)		7,517
U.S. Government agency securities	500		—		(33)		467
Total available-for-sale securities

SEC Form 10-Q filed by Asure Software Inc