What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-09 compared with 2021-05-10 · 116 added, 95 removed, 127 unchanged (62% of the section changed)

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements about our financial results, which may include expected GAAP and non-GAAP financial and other operating and non-operating results, including revenue, net income, diluted earnings per share, operating cash flow growth, operating margin improvement, deferred revenue growth, expected revenue run rate, expected tax rates, stock-based compensation expenses, amortization of purchased intangibles, amortization of debt discount and shares outstanding.

This Form 10-Q contains forward-looking statements about our financial results, which may include expected U.S GAAP and non-U.S.

GAAP financial and other operating and non-operating results, including revenue, net income, diluted earnings per share, operating cash flow growth, operating margin improvement, deferred revenue growth, expected revenue run rate, expected tax rates, stock-based compensation expenses, amortization of purchased intangibles, amortization of debt discount and shares outstanding.

The achievement or success of the matters covered by such forward-looking statements involves risks, uncertainties and assumptions.

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The risks and uncertainties referred to above include—but are not limited to—risks associated with possible fluctuations in the Company’s financial and operating results;

the company's rate of growth and anticipated revenue run rate, including impact of the current environment, the spread of major epidemics (including Coronavirus) and other related uncertainties such as government-imposed travel restrictions, interruptions to supply chains and extended shut down of businesses, reductions in employment and an increase in business failures, specifically among our clients, the company's ability to convert deferred revenue and unbilled deferred revenue into revenue and cash flow, and ability to maintain continued growth of deferred revenue and unbilled deferred revenue;

foreign currency exchange rates;

the Company’s rate of growth and anticipated revenue run rate, including impact of the current environment, the spread of major pandemics or epidemics (including COVID-19) and other related uncertainties such as government-imposed travel restrictions, interruptions to supply chains and extended shut down of businesses, reductions in employment and an increase in business failures, specifically among our clients, the Company’s ability to convert deferred revenue and unbilled deferred revenue into revenue and cash flow, and ability to maintain continued growth of deferred revenue and unbilled deferred revenue;

errors, interruptions or delays in the Company’s services or the Company’s Web hosting;

breaches of the Company’s security measures;

changes in the forgiveness provisions for loans under the Paycheck Protection Program;

domestic and international regulatory developments, including changes to or applicability to our business of privacy and data securities laws, money transmitter laws and anti-money laundering laws;

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unanticipated changes in the Company’s effective tax rate;

factors affecting the company's outstanding convertible notes, term loan, and revolving credit facility;

factors affecting the Company’s term loan and revolving credit facility;

fluctuations in the number of Company shares outstanding and the price of such shares;

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and general developments in the economy, financial markets, credit markets and the impact of current and future accounting pronouncements and other financial reporting standards.

Further information on these and other factors that could affect the company's financial results is included in the reports on Forms 10-K, 10-Q and 8-K, and in other filings we make with the Securities and Exchange Commission from time to time.

Further information on these and other factors that could affect the Company’s financial results is included in the reports on Forms 10-K, 10-Q and 8-K, and in other filings we make with the SEC from time to time.

These documents are available on the SEC Filings section of the Investor Information section of the Company’s website at investor.asuresoftware.com.

Asure Software assumes no obligation and does not intend to update these forward-looking statements, except as required by law.

The following description of Asure’s financial position as of March 31, 2021 and December 31, 2020, and results of operations for the three months ended March 31, 2021 and 2020 should be read in conjunction with our 2020 Annual Report on Form 10-K filed with the SEC on March 11, 2021.

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 (the "Exchange Act") 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 SEC.

Asure assumes no obligation and does not intend to update these forward-looking statements, except as required by law.

The following review of Asure’s financial position as of June 30, 2021 and December 31, 2020, and results of operations for the three and six months ended June 30, 2021 and 2020 should be read in conjunction with our 2020 Annual Report on Form 10-K filed with the SEC on March 11, 2021.

Asure’s internet website address is 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 SEC.

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.

We are a leading provider of cloud-based Human Capital Management (HCM) solutions, delivered as software-as-a-service (SaaS) for small and mid-sized businesses (SMBs).

From recruitment to retirement, our solutions help more than 80,000

SMBs across the United States grow their businesses.

About 10,000 of our clients are direct and the approximately 70,000 remaining are indirect as they have contracts with Reseller Partners that white label our solutions.

Asure is a leading provider of cloud-based Human Capital Management (“HCM”) software and services.

We help small- and medium-sized businesses grow by offering the HR tools necessary to build a better workforce, providing the resources to stay compliant with ever changing federal, state, and local tax jurisdictions and labor laws, ultimately freeing their cash flows 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.

We are a leading provider of cloud-based HCM solutions, delivered as a software-as-a-service (SaaS) for small- and medium-sized businesses (SMBs).

From recruitment to retirement, our solutions help more than 80,000 SMBs across the United States grow their businesses.

About 10,000 of our clients are direct and approximately 70,000 remaining clients are indirect as they have contracts with Reseller Partners that white label our solutions.

We strive to be the most trusted HCM resource to entrepreneurs and are focused on less densely populated U.S.

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HR complexity, allocation of human and financial capital, and the ability to build great teams.

We have invested in, and we intend to continue to invest in, research and development to expand our solutions.

We have invested in, and intend to continue to invest in, research and development to expand our solution.

Asure HCM, our user-friendly solution, reduces the administrative burden on employers and increases employee productivity while managing the complete employment lifecycle.

Impact of the COVID-19 Pandemic to be updated

Impact of the COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic.

In response, federal, state and local governments imposed various restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the disease, and many such restrictions remain in place.

Beginning in February 2020, we took various actions in order to minimize the risk of COVID-19 to our employees, our clients, and the communities in which we operate, and in March 2020, we prohibited all business-related travel until further notice and began transitioning our employees to work-from-home arrangements.

As of March 31, 2021, more than 70% of our employees were working remotely.

As of June 1, 2021, we have opened our offices and resumed in person work.

We continue to take proactive measures, including regular cleaning of the offices, and monitoring of the Center for Disease Control guidelines for return to work.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees and clients.

In addition, the COVID-19 pandemic has disrupted the operations of our clients and client prospects and may continue to do so for an indefinite period of time.

Beginning in 2020, the COVID-19 pandemic disrupted the operations of our clients and client prospects and may continue to do so for an indefinite period of time.

Across many industries, temporary and permanent business closures as well as business occupancy limitations have resulted in significant layoffs and employee furloughs since late March 2020.

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In 2020, we continued to aggressively invest in sales and marketing and in research and development to drive future growth and expand our market share.

Lower headcount at our clients and the other pandemic-related factors described above, which had and may continue to have, a negative impact on recurring revenue, combined with increased sales and marketing and research and development expenses, resulted in a decrease in net income for the year ended December 31, 2020 as compared to the year ended December 31, 2019.

Lower headcount at our clients and the other pandemic-related factors described above, which had and may continue to have, a negative impact on recurring revenue, combined with increased sales and marketing and research and development expenses, cumulatively had an adverse impact on our operating results for the year ended December 31, 2020.

We expect net income to be negatively affected by the impact of the pandemic on our recurring revenue and our deliberate, increased level of investment in sales and marketing and research and development to drive the growth of our business.

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Although we have not experienced such challenges to date, if clients and client prospects are not as willing or available to engage by video conference and teleconference, the shift from in-person to virtual sales meetings could negatively affect our sales efforts, impede client acquisition and lengthen our sales cycles, which would negatively impact our business and results of operations and could impact our financial condition in the future.

We are unable to estimate the full impact that the COVID-19 pandemic could have on our business and results of operations in the future due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact it may have on the business of our clients and other factors identified in Part I, Item 1A “Risk Factors” in our Form 10-K.

We are unable to estimate the full impact that the COVID-19 pandemic could have on our business and results of operations in the future due to numerous uncertainties, including the severity of the disease, the occurrence of variant strains, the duration of the outbreak, actions that may be taken by governmental authorities, the impact it may have on the business of our clients and other factors identified in Part I, Item 1A “Risk Factors” in our Form 10-K.

As a result, the effect of the ongoing COVID-19 pandemic may not be fully reflected in our results of operations and overall financial performance until future periods.

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($ in thousands)

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

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 March 31,

Three and Six Months Ended June 30, 2021 Compared to Three and Six Months Ended June 30, 2020

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

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Revenues 100 % 100 % 100 % 100 %

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Interest expense and other, net (1) % — % (1) % 2 %

Loss before income taxes (8) % (9) %

Net loss (8) % (9) %

Gain on extinguishment of debt 50 % — % 23 % — %

Gain (loss) from operations before income taxes 24 % (25) % 7 % (16) %

Net gain (loss) from continuing operations 22 % (28) % 6 % (17) %

Revenues are comprised of recurring revenues, professional services, hardware, and other revenues.

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Professional Services, Hardware and Other Revenues represents implementation fees, one-time consulting projects, on-premise maintenance, and hardware devices to enhance our software products.

Our revenue was derived from the following sources (Amounts in thousands):

Three Months Ended March 31, Increase

Our revenue was derived from the following sources (in thousands):

Three Months Ended June 30, Variance

2021 2020 $ %

Recurring $ 16,072 $ 13,733 $ 2,339 17.0 %

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Total $ 17,168 $ 14,115 $ 3,053 21.6 %

Six Months Ended June 30, Variance

2021 2020 $ %

Recurring $ 35,314 $ 32,168 $ 3,146 9.8 %

Professional services, hardware and other 1,656 893 763 85.4 %

Total $ 36,970 $ 33,061 $ 3,909 11.8 %

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.

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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.

While revenue mix varies by product, recurring represented over 95% of total revenue in the first quarter.

Revenue for the three months ended March 31, 2021 was $19,802, an increase of $855, or 4.5%, from $18,947 for the three months ended March 31, 2020.

Recurring revenue increased primarily due to an increase in clients due to our acquisitions in 2020 and higher account balances in funds held for clients partially offset by impact of COVID.

Revenue for the three months ended March 31, 2021, increased sequentially $3,371 or 20.5%, from $16,430 for the three months ended December 31, 2020 primarily due to year end W-2/ACA revenue.

Although our total customer base is widely spread across industries, our sales are concentrated in small to mid-size businesses.

We continue to target small and mid-sized businesses across industries as prospective customers.

While revenue mix varies by product, recurring revenue represented over 90% of total revenue in the second quarter.

Revenue for the three months ended June 30, 2021 was $17,168, an increase of $3,053, or 21.6%, from $14,115 for the three months ended June 30, 2020.

Revenue increased evenly, approximately, between organic and inorgranic growth.

The inorganic growth was driven by an increase in clients from our acquisitions in the second half of 2020.

Higher account balances in funds held for clients increased interest revenue compared to the prior year.

Professional services, hardware and other revenue increased $714, or 186.9%, for the three months ended June 30, 2021 from the similar period in 2020 due to the continued success of our Employee Retention Tax Credit (“ERTC”) service launch, which we anticipate to have a positive impact on our operating results through 2021.

Revenue for the three months ended June 30, 2021, decreased sequentially $2,634 or 13.3%, from $19,802 for the three months ended March 31, 2021 primarily due to year end W-2/ACA revenue that is recognized in the first quarter, offset by Professional services, hardware and other revenue.

Revenue for the six months ended June 30, 2021 was $36,970, an increase of $3,909, or 11.8%, from $33,061 for the six months ended June 30, 2020.

Recurring revenue increased primarily due to an increase in clients due to our acquisitions in 2020 and higher account balances in funds held for clients and correlated interest revenue.

Professional services, hardware and other revenue increased $763, or 85.4%, for the six months ended June 30, 2021 from the similar period in 2020, due to the implementation of our ERTC service in 2021.

Although our total customer base is widely spread across industries, our sales are concentrated in small- to medium-sized businesses.

We continue to target small- and medium-sized businesses across industries as prospective customers.

Geographically, we sell our products primarily in the United States.

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Gross Profit and Gross Margin

Consolidated gross profit for the three months ended March 31, 2021 was $12,492, an increase of $1,385 or 12.5%, from $11,107 for the three months ended March 31, 2020.

Gross margin as a percentage of revenue was 63.1% for the three months ended March 31, 2021 as compared to 58.6% for the three months ended March 31, 2020.

Consolidated gross profit for the three months ended June 30, 2021 was $9,945, an increase of $1,838, or 22.7%, from $8,107 for the three months ended June 30, 2020.

Gross margin as a percentage of revenue was 57.9% for the three months ended June 30, 2021 as compared to 57.4% for the three months ended June 30, 2020.

Our increase in gross margin is primarily attributable to the increase in revenue and more efficient operations.

Consolidated gross profit for the six months ended June 30, 2021 was $22,437, an increase of $3,224, or 16.8%, from $19,213 for the six months ended June 30, 2020.

Gross margin as a percentage of revenue was 60.7% for the six months ended June 30, 2021 as compared to 58.1% for the six months ended June 30, 2020.

Our increase in gross margin is primarily attributable to the increase in revenue and more efficient operations.

Our cost of sales relates primarily to direct product costs, compensation for operations and related consulting expenses, hardware expenses, facilities and related expenses and the amortization of our purchased software development costs.

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Sales and Marketing Expenses

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

Selling and marketing expenses for the three months ended March 31, 2021 were $3,611, an increase of $36 from $3,575 for the three months ended March 31, 2020.

Sales and marketing expenses primarily consist of salaries and related expenses for sales and marketing staff, including stock-based expenses, 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, 2021 were $3,622, an increase of $853, or 30.8%, from $2,769 for for the three months ended June 30, 2020.

The increase in sales and marketing is primarily due to increased personnel costs offset by lower discretionary marketing spend as we focus on hiring direct sales personnel.

Sales and marketing expenses as a percentage of revenue decreased to 18.2% for the three months ended March 31, 2021 from 18.9% for the same period in 2020.

Sales and marketing expenses as a percentage of revenue increased to 21.1% for the three months ended June 30, 2021 from 19.6% for the same period in 2020.

Selling and marketing expenses for the six months ended June 30, 2021 were $7,233, an increase of $889, or 14.0%, from $6,344 for the six months ended June 30, 2020, primarily due to increased personnel costs offset by lower discretionary marketing spend as we focus on hiring direct sales personnel.

Selling and marketing expenses as a percentage of revenue increased to 19.6% for the six months ended June 30, 2021 from 19.2% for the same period in 2020.

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

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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 March 31, 2021 were $6,498, an increase of $976 from $5,522 for the three months ended March 31, 2020, primarily attributable to the income from the transition services agreement with FM:Systems in relation to the sale of the Workspace business in 2019 as well as increased personnel costs.

General and administrative expenses as a percentage of revenue increased to 32.8% for the three months ended March 31, 2021 from 29.1% for the same period in 2020.

General and administrative expenses for the three months ended June 30, 2021 were $6,821, an increase of $1,628, or 31.3%, from $5,193 for the three months ended June 30, 2020, primarily attributable to increased personnel, contracting and placement costs.

General and administrative expenses as a percentage of revenue increased to 39.7% for the three months ended June 30, 2021 from 36.8% for the same period in 2020.

General and administrative expenses for the six months ended June 30, 2021 were $13,319, an increase of $1,673, or 14.4%, from $11,646 for the six months ended June 30, 2020, primarily attributable to increased personnel, contracting and placement costs.

General and administrative expenses as a percentage of revenue increased to 36.0% for the six months ended June 30, 2021 from 35.2% for the same period in 2020.

We continue to drive efficiencies within our payroll operations and continually reevaluate our vendor relationships.

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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 March 31, 2021 were $1,124, a decrease of $50, or 4.3%, from $1,174 for the three months ended March 31, 2020.

R&D expenses for the three months ended June 30, 2021 were $1,343, a decrease of $34, or 2.5%, from $1,377 for the three months ended June 30, 2020.

The decrease in R&D expense is primarily attributable to an increase in investment costs offset by an increase in capitalization costs.

R&D expenses as a percentage of revenues decreased to 5.7% for the three months ended March 31, 2021 from 6.2% for the same period in 2020.

R&D expenses as a percentage of revenues decreased to 7.8% for the three months ended June 30, 2021 from 9.8% for the same period in 2020.

R&D expenses for the six months ended June 30, 2021 were $2,467, a decrease of $84, or 3.3%, from $2,551 for the six months ended June 30, 2020.

The decrease in R&D expense is primarily attributable to an increase in investment costs offset by an increase in capitalization costs.

R&D expenses as a percentage of revenues decreased to 6.7% for the six months ended June 30, 2021 from 7.7% for the same period in 2020.

We will continue to enhance our products and technologies through expansion of our technological resources by increasing headcount and development partnerships, as well as through organic improvements and acquired intellectual property.

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Amortization of Intangible Assets

Amortization expense for the three months ended March 31, 2021 was $2,528 an increase of $179 from $2,349 for the three months ended March 31, 2020.

Amortization expense as a percentage of revenue was 12.8% and 12.4% for the three months ended March 31, 2021 and 2020, respectively.

Interest Expense and Other, net

Interest expense and other, net for the three months ended March 31, 2021 was $224 compared to $235 for the three months ended March 31, 2020.

Interest expense and other as a percentage of revenue was at 1.1% and 1.2% for the three months ended March 31, 2021 and March 31, 2020, respectively.

Interest expense and other for the three months ended March 31, 2021 and March 31, 2020 is composed primarily of interest expense on notes payable.

For the three months ended March 31, 2021 and 2020, we recorded an income tax expense attributable to continuing operations of $105 and $19, respectively, an increase of $86, or 450.6%.

Amortization expense in operating expenses for the three months ended June 30, 2021 was $2,528, an increase of $179, or 7.6%, from $2,349 for the three months ended June 30, 2020.

Amortization expense as a percentage of revenue was 14.7% and 16.6% for the three months ended June 30, 2021 and 2020, respectively.

Amortization expense in operating expenses for the six months ended June 30, 2021 was $5,056, an increase of $358, or 7.6%, from $4,698 for for the six months ended June 30, 2020.

Amortization expense as a percentage of revenue was 13.7% and 14.2% for the six months ended June 30, 2021 and 2020, respectively.

Interest (Expense) Income and Other, Net

Interest (expense) income and other, net for the three months ended June 30, 2021 was a loss of $223 compared to a gain of $14 for the three months ended June 30, 2020.

Interest (expense) income and other, net as a percentage of revenue was at (1.3)% and 0.1% for the three months ended June 30, 2021 and June 30, 2020, respectively.

Interest (expense) income and other, net for the three months ended June 30, 2021 and 2020 is composed primarily of interest expense on notes payable.

Interest (expense) income and other, net for the six months ended June 30, 2021 was a loss of $447 compared to a gain of $710 for the six months ended June 30, 2020.

Interest (expense) income and other, net as a percentage of revenue was at (1.2)% and 2.1% for the six months ended June 30, 2021 and June 30, 2020, respectively.

Interest (expense) income and other, net for the six months ended June 30, 2021 and 2020 is composed primarily of interest expense on notes payable.

For the three months ended June 30, 2021 and 2020, we recorded an income tax expense attributable to continuing operations of $298 and $377, respectively, a decrease of $79 or 21.0%.

For the six months ended June 30, 2021 and 2020, we recorded an income tax expense attributable to continuing operations of $403 and $395, respectively, an increase of $8 or 2.0%.

Loss From Operations

We incurred a loss from operations of $1,598, or $0.08 per share, during the three months ended March 31, 2021, compared to a loss from operations of $1,767, or $0.11 per share, during the three months ended March 31, 2020.

operations as a percentage of total revenues was 8.1% and 9.3% for the three months ended March 31, 2021 and 2020, respectively.

We incurred a loss from operations of $4,369, or $0.23 per share, during the three months ended June 30, 2021, compared to a loss from operations of $3,581, or $0.25 per share, during the three months ended June 30, 2020.

Loss from continuing operations as a percentage of total revenues was 21.9% and 27.9% for the three months ended June 30, 2021 and 2020, respectively.

We incurred a loss from operations of $5,638, or $0.30 per share, during the six months ended June 30, 2021, compared to a loss from operations of $6,026, or $0.36 per share, during the six months ended June 30, 2020.

Loss from continuing operations as a percentage of total revenues was 5.9% and 17.3% for the six months ended June 30, 2021 and 2020, respectively.

We intend to continue to implement our corporate strategy for growing our software and services business by 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 2021.

LIQUIDITY AND CAPITAL RESOURCES (Amounts in thousands)

March 31, 2021 December 31, 2020

Working capital $ 7,340 $ 8,206

LIQUIDITY AND CAPITAL RESOURCES (in thousands)

June 30, 2021 December 31, 2020

Cash and cash equivalents (1)

Three Months Ended March 31,

Net cash used in operating activities $ (1,235) $ (3,403)

Net cash provided by investing activities $ 65,158 $ 24,806

Net cash used in financing activities $ (68,210) $ (29,449)

$ 20,292 $ 28,577

(1) This balance excludes cash equivalents in funds held for clients

Working Capital .

We had working capital of $7,340 at March 31, 2021, a decrease of $866 from working capital of $8,206 at December 31, 2020.

Working capital as of March 31, 2021 and December 31, 2020 includes $1,605 and $4,343 of short-term deferred revenue, respectively.

We had working capital of $14,836 at June 30, 2021, an increase of $6,630 from working capital of $8,206 at December 31, 2020.

Working capital as of June 30, 2021 and December 31, 2020 includes $1,279 and $4,343 of short-term deferred revenue, respectively.

Deferred revenue is an obligation to perform future services.

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Operating Activities .

Net cash used in operating activities of $1,235 for the three months ended March 31, 2021 was primarily driven by a net loss of $1,598.

Non-cash adjustments to our net loss increased by approximately $5,038 due to primarily due to depreciation and amortization.

Changes in operating assets and liabilities resulted in a use of cash of $4,675.

Net cash used in operating activities of $1,898 for the six months ended June 30, 2021 was primarily driven by changes in operating assets and liabilities, which resulted in a use of $5,645 in cash.

This was offset by non-cash adjustments to our net income of approximately $1,581, primarily due to depreciation and amortization, and net income of $2,166.

Net cash used in operating activities of $350 for the six months ended June 30, 2020 was primarily driven by our net loss of $5,711.

Non-cash adjustments to our net loss was approximately $8,935, primarily due to depreciation and amortization.

Changes in operating assets and liabilities resulted in a use of $3,574 in cash.

Investing Activities .

Net cash provided by investing activities of $65,158 for the three months ended March 31, 2021 is primarily due to the net change in funds held for clients.

Net cash provided by investing activities of $24,806 for the three months ended March 31, 2020 is primarily due to the net change in funds held for clients.

Net cash provided by investing activities of $5,180 for the six months ended June 30, 2021 is primarily due to proceeds from sales and maturities of available-for-sale securities.

Net cash used in investing activities of $8,130 for the six months ended June 30, 2020 is primarily due to the purchase and sale of available-for-sale securities.

Financing Activities .

Net cash used in financing activities was $68,210 for the three months ended March 31, 2021, which primarily consisted of a net decrease in client fund obligations of $66,337 and payments of notes payable of $1,981.

Net cash used in financing activities was $29,449 for the three months ended March 31, 2020 primarily due to a net change in client fund obligations of $27,751.

Net cash used in financing activities was $117,657 for the six months ended June 30, 2021, which primarily consisted of a net decrease in client fund obligations of $113,251 and payments of notes payable of $3,090.

Net cash used in financing activities was $10,350 for the six months ended June 30, 2020, which primarily consisted of a net decrease in client fund obligations of $17,393.

Sources of Liquidity .

As of March 31, 2021, Asure's principal sources of liquidity consisted of approximately $24,290 of cash and cash equivalents, cash generated from operations of our business over the next twelve months, and $4,500 available for borrowing under our Wells Fargo revolver.

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.

The Credit Agreement has been amended and restated multiple times, with the most recent amendment and restatement effective December 31, 2019.

As described below, the Credit Agreement was amended during 2020, with the most recent amendment effective August 10, 2020.

Following the amendment, the Credit Agreement provided for $10,000 in term loans and a $5,000 revolver and provided for new applicable margin rates for determining the interest payable on loans and amended certain of our financial

covenants as described in our Form 10-K filed with the SEC on March 9, 20121.

We expect to be in compliance with these amended financial covenants over the next twelve months.

As of March 31, 2021 and December 31, 2020, no amount was outstanding and $4,500, respectively, was available for borrowing under the revolver.

Due to the effects of COVID-19 on our business and the related need to support our operations, we applied for and received a loan from Pinnacle Bank under the PPP during the second quarter of 2020.

Under the terms of our note with Pinnacle Bank, principal payments would have begun in November 2020.

However, the SBA, who administers loans issued under the PPP, has issued guidance, deferring all payments that would be owed on this loan until the SBA makes a decision on our loan forgiveness application.

While we expect that the entire loan will be forgiven, we cannot be certain that the SBA will forgive our entire loan.

If we do not receive forgiveness of our entire loan, we will be obligated to begin repaying the portion of the principal and interest that is not forgiven such that it is fully paid no later than April 15, 2022, unless we are able to negotiate new payment terms with Pinnacle Bank.

We applied our initial application for forgiveness of this loan in December 2020 and completed this application in early February 2021.

As a result, we expect that payments we may owe, if any, would not start until second or third quarter of 2021.

Under GAAP, we are required to report this entire loan as outstanding debt in our financial statements and further identify the current portion of this debt (e.g.

amounts which would be payable in the next 12 months) with reference to the actual terms of our note with Pinnacle Bank.

Notwithstanding how this loan is reported in our financial statements, we do not expect to make any payments on this note until at least second quarter of 2021, and then only to the extent that any portion of this note is not forgiven in accordance with the terms of the PPP.

Thus, we do not anticipate our obligations to Pinnacle Bank to have a material effect on our liquidity needs in the next twelve months.

OFF-BALANCE SHEET ARRANGEMENTS

As of March 31, 2021, we did not have any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

COMMITMENTS AND CONTINGENCIES

CRITICAL ACCOUNTING POLICIES

As of June 30, 2021, the Company’s principal sources of liquidity consisted of approximately $20,292 of cash and cash equivalents, cash generated from operations of our business over the next twelve months, and $4,500 available for borrowing under our Wells Fargo revolver.

Furthermore, following the end of the quarter, we signed a commitment letter with Structural Capital Investments III, LP for a new credit facility, see Item 5.

Other Information.

As of June 30, 2021 and December 31, 2020, no amount was outstanding and $4,500 was available for borrowing under the revolver.

CRITICAL ACCOUNTING POLICIES AND 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 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 Condensed Consolidated Financial Statements for continued reasonableness.

We make appropriate adjustments, if any, to the estimates used prospectively based upon such periodic evaluation.

Information regarding recent accounting pronouncements is provided in Note 2, Significant Accounting Policies , to the Condensed Consolidated Financial Statements.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis