asur-20210331

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 March 31, 2021


☐			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

(State or other jurisdiction of

incorporation or organization)

3700 N. Capital of Texas Hwy #350

Austin, Texas

(Address of Principal Executive Offices)

74-2415696

(I.R.S. Employer

Identification No.)

78746

(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
Series A Junior Participating Preferred Share Purchase Rights	N/A	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 ☒ 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 May 6, 2021, 19,033,872 shares of the registrant’s Common Stock were outstanding.

Table of Contents

TABLE OF CONTENTS


		Page Number
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020	1
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2021 and March 31, 2020	4
	Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended March 31, 2021 and March 31, 2020	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and March 31, 2020	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults upon Senior Securities	26
Item 5.	Other Information	26
Item 6.	Exhibits	26

Signatures		27

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ASURE SOFTWARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)


	March 31, 2021		December 31, 2020
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	24,290	$	28,577
Accounts receivable, net of allowance for doubtful accounts of $1,909 and $2,194 at March 31, 2021 and December 31, 2020, respectively	3,873		3,354
Inventory	349		449
Prepaid expenses and other current assets	3,372		3,284
Total current assets before funds held for clients	31,884		35,664
Funds held for clients	254,492		321,069
Total current assets	286,376		356,733
Property and equipment, net	8,662		8,281
Goodwill	73,958		73,958
Intangible assets, net	61,646		64,552
Operating lease assets, net	6,354		6,450
Other assets, net	4,107		3,953
Total assets	$	441,103	$	513,927
Liabilities and stockholders’ equity
Current liabilities:
Current portion of notes payable	$	11,901	$	12,310
Accounts payable	750		1,288
Accrued compensation and benefits	3,610		2,916
Operating lease liabilities, current	1,985		1,833
Other accrued liabilities	1,064		1,380
Contingent purchase obligation	3,880		3,880
Deferred revenue	1,605		4,343
Total current liabilities before client fund obligations	24,795		27,950
Client fund obligations	254,241		320,577
Total current liabilities	279,036		348,527
Long-term liabilities:
Deferred revenue	86		111
Deferred tax liability	985		888
Notes payable, net of current portion	10,683		12,225
Operating lease liabilities, noncurrent	5,076		5,366
Other liabilities	586		1,157
Total long-term liabilities	17,416		19,747
Total liabilities	296,452		368,274
Commitments
Stockholders’ equity:
Preferred stock, $0.01 par value; 1,500 shares authorized; none issued or outstanding	—		—
Common stock, $0.01 par value; 44,000 and 22,000 shares authorized; 19,405 and 19,354 shares issued, 19,021 and 18,970 shares outstanding at March 31, 2021 and December 31, 2020, respectively	194		193
Treasury stock at cost, 384 shares at March 31, 2021 and December 31, 2020	(5,017)		(5,017)
Additional paid-in capital	420,561		419,827
Accumulated deficit	(271,552)		(269,954)
Accumulated other comprehensive income	465		604
Total stockholders’ equity	144,651		145,653
Total liabilities and stockholders’ equity	$	441,103	$	513,927

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

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

(Unaudited)


	Three Months Ended March 31,
	2021		2020
Revenue:
Recurring	$	19,242	$	18,436
Professional services, hardware and other	560		511
Total revenue	19,802		18,947
Cost of Sales	7,310		7,840
Gross profit	12,492		11,107
Operating expenses:
Sales and marketing	3,611		3,575
General and administrative	6,498		5,522
Research and development	1,124		1,174
Amortization of intangible assets	2,528		2,349
Total operating expenses	13,761		12,620
Loss from operations	(1,269)		(1,513)
Interest expense and other, net	(224)		(235)
Loss from operations before income taxes	(1,493)		(1,748)
Income tax expense	105		19
Net loss	(1,598)		(1,767)
Other comprehensive income:
Unrealized (loss) gain on marketable securities	(139)		65
Comprehensive loss	$	(1,737)	$	(1,702)

Basic and diluted net loss per share
Basic	$	(0.08)	$	(0.11)
Diluted	$	(0.08)	$	(0.11)
Weighted average basic and diluted shares
Basic	19,007,000		15,727,000
Diluted	19,007,000		15,727,000

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

(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, 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


	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

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

(Amounts in thousands)

(Unaudited)


	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities:
Net loss	$	(1,598)	$	(1,767)
Adjustments to reconcile loss to net cash (used in) provided by operations:
Depreciation and amortization	3,862		3,516
Amortization of operating lease assets	421		386
Amortization of debt financing costs and discount	30		75
Provision for (recovery of) doubtful accounts	1		75
Provision for deferred income taxes	98		8
Gain on modification of debt	—		(36)
Share-based compensation	626		438
Changes in operating assets and liabilities:
Accounts receivable	(210)		806
Inventory	44		84
Prepaid expenses and other assets	(552)		(900)
Accounts payable	(538)		(982)
Accrued expenses and other long-term obligations	(195)		(1,392)
Operating lease liabilities	(462)		(405)
Deferred revenue	(2,762)		(3,309)
Net cash used in operating activities	(1,235)		(3,403)
Cash flows from investing activities:
Acquisition of intangible asset	—		(1,823)
Purchases of property and equipment	(48)		(241)
Software capitalization costs	(1,233)		(844)
Net change in funds held for clients	66,439		27,714
Net cash provided by investing activities	65,158		24,806
Cash flows from financing activities:
Payments of notes payable	(1,981)		(1,784)
Debt financing fees	—		(20)
Net proceeds from issuance of common stock	108		106
Net change in client fund obligations	(66,337)		(27,751)
Net cash used in financing activities	(68,210)		(29,449)
Net decrease in cash and cash equivalents	(4,287)		(8,046)
Cash and cash equivalents at beginning of period	28,577		28,826
Cash and cash equivalents at end of period	$	24,290	$	20,780
Supplemental information:
Cash paid for:
Interest	$	219	$	99
Income taxes	183		—

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 leading provider of cloud-based Human Capital Management (“HCM”) software solutions. We help small and mid-sized companies grow by assisting them in building better teams with skills that reach the next level, 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 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 help clients grow their business and become the most trusted HCM resource to entrepreneurs everywhere. 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 HRServices.

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

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. Certain reclassifications were made to conform to the current period presentation in the condensed consolidated statements of comprehensive loss.

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, 2021 and the results of operations, statements of changes in stockholders' equity for the three months ended March 31, 2021 and March 31, 2020, and our statements of cash flows for the three months ended March 31, 2021 and March 31, 2020.

These 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, 2020 (our "2020 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 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.

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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)

SIGNIFICANT RISKS AND UNCERTAINTIES

The coronavirus ("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, including the administration of vaccinations 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.

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.

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 March 31, 2021, we were not a party to any pending legal proceedings that are material to our business.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

As of March 31, 2021 and December 31, 2020, accumulated other comprehensive income consisted of net unrealized gains and losses on available-for-sale securities.

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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 3 – INVESTMENTS AND FAIR VALUE MEASUREMENTS

As of March 31, 2021 and December 31, 2020, funds held for clients invested in available-for-sale securities consisting of government and commercial bonds, including mortgage-backed securities, amounted to $24,233 and $25,919, respectively. As of March 31, 2021, and December 31, 2020, funds held for clients invested in money market funds and other cash equivalents amounted to $1,082 and $63,999, respectively. Additionally, as of March 31, 2021 and December 31, 2020, we had $3,301 and $5,204, respectively, of operating funds in money market funds, classified as cash equivalents.

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


	March 31, 2021
	Amortized Cost		Gross Unrealized Gains (1)		Gross Unrealized Losses (1)		Aggregate Estimated Fair Value
Funds Held for Clients (2)
Certificates of deposit	$	7,119	$	165	$	—	$	7,284
Corporate debt securities	8,894		213		(4)		9,103
Municipal bonds	7,254		99		—		7,353
US Government agency securities	500		—		(7)		493
Asset-backed securities	—		—		—		—
Total	$	23,767	$	477	$	(11)	$	24,233


	December 31, 2020
	Amortized Cost		Gross Unrealized Gains (1)		Gross Unrealized Losses (1)		Aggregate Estimated Fair Value
Funds Held for Clients (2)
Certificates of deposit	$	7,370	$	204	$	—	$	7,574
Corporate debt securities	9,415		297		(1)		9,711
Municipal bonds	7,531		103		(1)		7,633
US Government agency securities	500		1		—		501
Asset-backed securities	499		1		—		500
Total	$	25,315	$	606	$	(2)	$	25,919

(1)Unrealized gains and losses on available-for-sale securities are included as a component of comprehensive loss. As of March 31, 2021 and December 31, 2020, there were 63 and 69 securities, respectively, in an unrealized gain position and there were 2 and 2 securities, respectively, in an unrealized loss position. As of March 31, 2021, we had $(11) in unrealized losses. As of March 31, 2021, these unrealized losses were less than$(7) individually and $(11) in the aggregate. As of December 31, 2020, these unrealized losses were less than $(1) individually and $(2) in the aggregate. No securities have been in a continuous unrealized 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 March 31, 2021 and December 31, 2020, none of these securities were classified as cash and cash equivalents on the accompanying condensed consolidated balance sheets.

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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)

Expected maturities of available-for-sale securities as of March 31, 2021 are as follows:


Expected Maturities	Amount

One year or less	$	4,228
After one year through five years	20,005
After five years through 10 years	—
After 10 years	—
	$	24,233

In July 2020, we acquired certain assets of a payroll tax business. The initial purchase price for the assets was $4,250, which we paid cash at closing. The seller will be paid additional consideration for the assets based on the trailing twelve-month revenue at each of April 30, 2021 and October 31, 2021. Contingent purchase consideration, if any, will generally be made by May 30, 2021 and December 30, 2021. The payment of the contingent consideration paid will be contingent on certain thresholds set forth in the asset purchase agreement. We utilized a Monte Carlo simulation to determine the fair value of the contingent consideration. There was no adjustment to the fair value of the contingent consideration at March 31, 2021.

Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures defines fair value, establishes a framework for measuring fair value in U.S. GAAP 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.

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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)

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, 2021 and December 31, 2020, respectively:


	March 31, 2021
	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	$	3,301	$	3,301	$	—	$	—
Funds held for clients
Money market funds	1,082		1,082		—		—
Available-for-sale securities	24,233		—		24,233		—
Total	$	28,616	$	4,383	$	24,233	$	—

Liabilities:
Contingent purchase consideration	$	3,880	$	—	$	—	$	3,880
Total	$	3,880	$	—	$	—	$	3,880


	December 31, 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	$	5,204	$	5,204	$	—	$	—
Funds held for clients
Money market funds	63,999		63,999		—		—
Available-for-sale securities	25,919		—		25,919		—
Total	$	95,122	$	69,203	$	25,919	$	—

Liabilities:
Contingent purchase consideration	$	3,880	$	—	$	—	$	3,880
Total	$	3,880	$	—	$	—

SEC Form 10-Q filed by Asure Software Inc