What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-11-09 compared with 2020-08-10 · 96 added, 95 removed, 134 unchanged (59% of the section changed)

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These risks and uncertainties include — but are not limited to — our ability to achieve or sustain profitability;

the impact of COVID-19 on the US and global economy, including business disruptions, reductions in employment and a decrease in business failures, specifically among our clients;

the impact of COVID-19 on the US and global economy, including business disruptions, reductions in employment and an increase in business failures, specifically among our clients;

adverse changes in the economy, financial markets, and credit markets, including a continuing high unemployment rate and the impact of low interest rates on the interest we receive on our cash, cash equivalents and investments;

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Asure is under no obligation to update any of the forward-looking statements after the date of this Form 10-Q to conform such statements to actual results.

The following review of Asure’s financial position as of June 30, 2020 and December 31, 2019, and results of operations for the three and six months ended June 30, 2020 and 2019 should be read in conjunction with our 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

The following review of Asure’s financial position as of September 30, 2020 and December 31, 2019, and results of operations for the three and nine months ended September 30, 2020 and 2019 should be read in conjunction with our 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Asure’s internet website address is http://www.asuresoftware.com.

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Small Business Administration in a principal amount of $8,856.

We did not record any asset impairments or bad debt reserves related to COVID-19 during the first two quarters of 2020, but future events may require such charges.

In July 2020, we acquired certain assets of a payroll tax business.

We did not record any asset impairments or bad debt reserves related to COVID-19 during the first three quarters of 2020, but future events may require such charges.

We will continue to evaluate the nature and extent of the COVID-19 outbreak’s impact on our financial condition, results of operations and cash flows.

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($ in thousands)

Three and Six Months Ended June 30, 2020 Compared to Three and Six Ended June 30, 2019

Three and Nine Months Ended September 30, 2020 Compared to Three and Nine Months Ended September 30, 2019

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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Sales and marketing

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Loss from continuing operations before income taxes

Loss from continuing operations

Net loss from continuing operations

Our revenue was derived from the following sources:

Three Months Ended June 30,

Three Months Ended September 30,

Increase (Decrease)

Professional services, hardware and other

Six Months Ended June 30,

Nine Months Ended September 30,

Increase (Decrease)

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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.

Recurring revenue consists of cloud revenue, hardware as a service, maintenance and support revenue and interest earned on client funds.

Recurring revenue consists of cloud revenue, recurring HR consulting revenue, hardware as a service, maintenance and support revenue and interest earned on client funds.

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.

Revenue mix varies by product.

Revenue for the three months ended June 30, 2020 was $14,115, a decrease of $3,159, or 18.3%, from $17,274 for the three months ended June 30, 2019, which excludes revenue from discontinued operations.

Recurring revenue decreased primarily due to the impact of COVID, the loss of one major client and lower interest rates.

Revenue for the six months ended June 30, 2020 was $33,061, a decrease of $4,623, or 12.3%, from $37,684 for the six months ended June 30, 2019, which excludes revenue from discontinued operations.

Recurring revenue decreased primarily due to the impact of COVID, the loss of one major client, and lower interest rates.

While revenue mix varies by product, recurring represents over 95% of total revenue.

Revenue for the three months ended September 30, 2020 was $16,015, a decrease of $1,839, or 10.3%, from $17,854 for the three months ended September 30, 2019, which excludes revenue from discontinued operations.

Recurring revenue decreased primarily due to the impact of COVID and lower interest rates.

Revenue for the nine months ended September 30, 2020 was $49,076, a decrease of $6,462, or 11.6%, from $55,538 for the nine months ended September 30, 2019, which excludes revenue from discontinued operations.

Recurring revenue decreased primarily due to the impact of COVID and lower interest rates.

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

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

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

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

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Gross Profit and Gross Margin

Consolidated gross profit for the three months ended June 30, 2020 was $8,107, a decrease of $2,108 or 20.6%, from $10,215 for the three months ended June 30, 2019.

Gross margin as a percentage of revenue was 57.4% for the three months ended June 30, 2020 as compared to 59.1% for the three months ended June 30, 2019.

Our decline in gross margin is primarily attributable to lower sales volumes, a growing investment in HCM service resources and personnel, a migration to secure cloud hosting services and an increase in the amortization of capitalized software costs.

Consolidated gross profit for the six months ended June 30, 2020 was $19,213, a decrease of $5,158 or 21.2%, from $24,371 for the six months ended June 30, 2019.

Gross margin as a percentage of revenue was 58.1% for the six months ended June 30, 2020 as compared to 64.7% for the six months ended June 30, 2019.

Our decline in gross margin is attributable to lower sales volumes, a growing investment in HCM service resources and personnel, increased amortization of capitalized software costs as well as migration to secure cloud hosting services.

Consolidated gross profit for the three months ended September 30, 2020 was $9,073, a decrease of $1,695 or 15.7%, from $10,768 for the three months ended September 30, 2019.

Gross margin as a percentage of revenue was 56.7% for the three months ended September 30, 2020 as compared to 60.3% for the three months ended September 30, 2019.

Our decline in gross margin is primarily attributable to lower sales volumes, a growing investment in HCM service resources and personnel, maintaining COVID related tax codes, employment levels are also down due to COVID, a migration to secure cloud hosting services and an increase in the amortization of capitalized software costs.

Consolidated gross profit for the nine months ended September 30, 2020 was $28,269, a decrease of $6,870 or 19.6%, from $35,139 for the nine months ended September 30, 2019.

Gross margin as a percentage of revenue was 57.6% for the nine months ended September 30, 2020 as compared to 63.3% for the nine months ended September 30, 2019.

Our decline in gross margin is attributable to lower sales volumes, a growing investment in HCM service resources and personnel, maintaining COVID related tax codes, employment levels are also down due to COVID, increased amortization of capitalized software costs as well as migration to secure cloud hosting services.

Sales and Marketing Expenses

Sales and marketing expenses primarily consist of salaries and related expenses, including stock-based expenses, for sales and marketing staff, including 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, 2020 were $2,769, a decrease of $289 from $3,058 for the three months ended June 30, 2019.

The decline in sales and marketing is primarily attributable to reduced travel expenses as a result of travel restrictions due to the COVID-19 virus.

Sales and marketing expenses as a percentage of revenue increased to 19.6% for the three months ended June 30, 2020 from 17.7% for the same period in 2019 primarily due to lower sales volumes.

Selling and marketing expenses for the six months ended June 30, 2020 were $6,344, an increase of $581 from $5,763 for the six months ended June 30, 2019, primarily due to increased personnel costs as we focus on hiring direct sales personnel, We continue to expand and increase selling costs as we focus on hiring direct sales personnel, expanding recognition of our brand, and lead generation.

Selling and marketing expenses as a percentage of revenue increased to 19.2% for the six months ended June 30, 2020 from 15.3% for the same period in 2019.

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 September 30, 2020 were $3,573, an increase of $328 from $3,245 for the three months ended September 30, 2019.

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

Sales and marketing expenses as a percentage of revenue increased to 22.3% for the three months ended September 30, 2020 from 18.2% for the same period in 2019.

Selling and marketing expenses for the nine months ended September 30, 2020 were $9,916, an increase of $908 from $9,008 for the nine months ended September 30, 2019, primarily due to increased personnel costs as we focus on hiring direct sales personnel.

Selling and marketing expenses as a percentage of revenue increased to 20.2% for the nine months ended September 30, 2020 from 16.2% for the same period in 2019.

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 June 30, 2020 were $5,193, a decrease of $1,425 from $6,618 for the three months ended June 30, 2019, primarily attributable to reduced personnel costs and reduced rent expenses associated with closures of certain facilities we had acquired due to acquisition.

General and administrative expenses as a percentage of revenue decreased to 36.8% for the three months ended June 30, 2020 from 38.3% for the same period in 2019.

General and administrative expenses for the six months ended June 30, 2020 were $11,646, a decrease of $3,161 from $14,807 for the six months ended June 30, 2019.

The decline in general and administrative expenses is primarily attributable to a reduction in professional fees that were incurred in the six months ended June 30, 2019, as well as reduced rent expenses associated with closures of certain facilities, we had acquired due to acquisition.

General and administrative expenses as a percentage of revenue decreased to 35.2% for the six months ended June 30, 2020 from 39.3% for the same period in 2019.

General and administrative expenses for the three months ended September 30, 2020 were $5,947, a decrease of $1,025 from $6,972 for the three months ended September 30, 2019, primarily attributable to reduced personnel costs and reduced rent expenses associated with closures of certain facilities we had acquired due to acquisition.

General and administrative expenses as a percentage of revenue decreased to 37.1% for the three months ended September 30, 2020 from 39.1% for the same period in 2019.

General and administrative expenses for the nine months ended September 30, 2020 were $17,580, a decrease of $4,199 from $21,779 for the nine months ended September 30, 2019 primarily attributable to a reduction in professional fees that were incurred in the nine months ended September 30, 2019, as well as reduced rent expenses associated with closures of certain facilities we had acquired due to acquisition.

General and administrative expenses as a percentage of revenue decreased to 35.8% for the nine months ended September 30, 2020 from 39.2% for the same period in 2019.

We continue to drive efficiencies within our payroll operations and execute vendor rationalization with the sale of the Workspace Management business in the fourth quarter of 2019.

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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 June 30, 2020 were $1,377, an increase of $408, or 42.1%, from $969 for the three months ended June 30, 2019.

R&D expenses for the three months ended September 30, 2020 were $1,805, an increase of $534, or 42.0%, from $1,271 for the three months ended September 30, 2019.

The increase in R&D expense is primarily attributable to increased personnel costs as well as COVID-19 related initiatives in order to comply with the CARES Act legislation.

R&D expenses as a percentage of revenues increased to 9.8% for the three months ended June 30, 2020 from 5.6% for the same period in 2019.

R&D expenses for the six months ended June 30, 2020 were $2,551, an increase of $261, or 11.4%, from $2,290 for the six months ended June 30, 2019.

The increase in R&D expense is primarily attributable to COVID-19 related initiatives in order to comply with the CARES Act.

R&D expenses as a percentage of revenues increased to 7.7% for the six months ended June 30, 2020 from 6.1% for the same period in 2019.

R&D expenses as a percentage of revenues increased to 11.3% for the three months ended September 30, 2020 from 7.1% for the same period in 2019.

R&D expenses for the nine months ended September 30, 2020 were $4,356, an increase of $795, or 22.3%, from $3,561 for the nine months ended September 30, 2019.

The increase in R&D expense is primarily attributable to increased personnel costs as well as COVID-19 related initiatives in order to comply with the CARES Act.

R&D expenses as a percentage of revenues increased to 8.9% for the nine months ended September 30, 2020 from 6.4% for the same period in 2019.

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

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We believe that our expanded investment in product, engineering, SaaS hosting, mobile and hardware technologies lays the groundwork for broader market opportunities and represents a key aspect of our competitive differentiation.

Native mobile applications, QR Code integration, expanded web service integration and other technologies are all part of our initiatives.

Native mobile applications, common user interface, expanded web service integration and other technologies are all part of our initiatives.

Our development efforts for future releases and enhancements are driven by feedback received from our existing and potential customers and by gauging market trends.

We believe we have the appropriate development team to design and enhance our solution suite and integrated platform.

We have also made significant investments outside of core R&D dollars into compliance and certifications, including SOC I Type 2 and SOC II Type 2 certifications, GDPR, CCPA, and other initiatives.

We have also made significant investments outside of core R&D into compliance and certifications, including SOC I Type 2 and SOC II Type 2 certifications, GDPR, CCPA, and other initiatives.

In the second quarter of 2020, we launched the new Simple Payroll Entry cloud solution for providing clients self-service payroll entry capabilities, with a modern user experience appropriate for small companies.

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Amortization of Intangible Assets

Amortization expense for the three months ended June 30, 2020 of $2,349 was consistent with amortization expense of $2,403 for the three months ended June 30, 2019.

Amortization expense as a percentage of revenue was 16.6% and 13.9% for the three months ended June 30, 2020 and 2019, respectively.

Amortization expense for the six months ended June 30, 2020 of $4,698 was consistent with amortization expense of $4,821 for the six months ended June 30, 2019.

Amortization expense as a percentage of revenue was 14.2% and 12.8% for the six months ended June 30, 2020 and 2019, respectively.

Amortization expense for the three months ended September 30, 2020 was $2,424 an increase of $102 from $2,322 for the three months ended September 30, 2019.

Amortization expense as a percentage of revenue was 15.1% and 13.0% for the three months ended September 30, 2020 and 2019, respectively.

Amortization expense for the nine months ended September 30, 2020 of $7,123 was consistent with amortization expense of $7,143 for the nine months ended September 30, 2019.

Amortization expense as a percentage of revenue was 14.5% and 12.9% for the nine months ended September 30, 2020 and 2019, respectively.

Interest Expense and Other, net

Interest expense and other, net for the three months ended June 30, 2020 was a gain of $14 compared to a loss of $3,069 for the three months ended June 30, 2019.

Interest expense and other as a percentage of revenue was at 0.1% and (17.8%) for the three months ended June 30, 2020 and June 30, 2019, respectively.

Interest expense and other for the three months ended June 30, 2020 is composed of income from the transition services agreement with FM:Systems in relation to the sale of the Workspace business in 2019, offset by interest expense on notes payable.

Interest expense and other for the three months ended June 30, 2019 is composed primarily of interest expense on notes payable.

Interest expense and other, net for the six months ended June 30, 2020 was a gain of $710 compared to a loss of $5,783 for the six months ended June 30, 2019.

Interest expense and other as a percentage of revenue was at 2.1% and (15.3%) for the six months ended June 30, 2020 and June 30, 2019, respectively.

Interest expense and other for the six months ended June 30, 2020 is composed of income from the transition services agreement with FM:Systems in relation to the sale of the Workspace business in 2019, offset by interest expense on notes payable.

Interest expense and other for the six months ended June 30, 2019 is composed primarily of interest expense on notes payable.

For the three months ended June 30, 2020 and 2019, we recorded an income tax expense attributable to continuing operations of $377 and $396, respectively, a decrease of $19, or 4.8%.

For the six months ended June 30, 2020 and 2019, we recorded an income tax expense attributable to continuing operations of $395 and $642, respectively, a decrease of $247, or 38.4%, primarily attributable to a reduction in our deferred tax liabilities.

Interest expense and other, net for the three months ended September 30, 2020 was a loss of $408 compared to a loss of $2,712 for the three months ended September 30, 2019.

Interest expense and other as a percentage of revenue was at (2.5%) and (15.2%) for the three months ended September 30, 2020 and September 30, 2019, respectively.

Interest expense and other for the three months ended September 30, 2020 is composed of interest expense on notes payable.

Interest expense and other for the three months ended September 30, 2019 is composed primarily of interest expense on notes payable.

Interest expense and other, net for the nine months ended September 30, 2020 was a gain of $302 compared to a loss of $8,495 for the nine months ended September 30, 2019.

Interest expense and other as a percentage of revenue was at 0.6% and (15.3%) for the nine months ended September 30, 2020 and September 30, 2019, respectively.

Interest expense and other for the nine months ended September 30, 2020 is composed of income from the transition services agreement with FM:Systems in relation to the sale of the Workspace business in 2019, offset by interest expense on notes payable.

Interest expense and other for the nine months ended September 30, 2019 is composed primarily of interest expense on notes payable.

For the three months ended September 30, 2020 and 2019, we recorded an income tax benefit attributable to continuing operations of $(325) and $(130), respectively, an increase of $195, or 149.6%.

For the nine months ended September 30, 2020 and 2019, we recorded an income tax expense attributable to continuing operations of $71 and $512, respectively, a decrease of $441, or 86.2%.

Loss From Continuing Operations

We incurred a loss from continuing operations of $3,944, or $0.25 per share, during the three months ended June 30, 2020, compared to a loss from continuing operations of $6,298, or $0.41 per share, during the three months ended June 30, 2019.

Loss from continuing operations as a percentage of total revenues was 27.9% and 36.5% for the three months ended June 30, 2020 and 2019, respectively.

We incurred a loss from continuing operations of $5,711, or $0.36 per share, during the six months ended June 30, 2020, compared to a loss from continuing operations of $9,735, or $0.63 per share, during the six months ended June 30, 2019.

Loss from continuing operations as a percentage of total revenues was 17.3% and 25.8% for the six months ended June 30, 2020 and 2019, respectively.

We intend to continue to implement our corporate strategy for growing our software and services business by modestly investing in areas that directly generate revenue and positive cash flows for the Company.

We incurred a loss from continuing operations of $4,759, or $0.30 per share, during the three months ended September 30, 2020, compared to a loss from continuing operations of $5,624, or $0.36 per share, during the three months ended September 30, 2019.

Loss from continuing operations as a percentage of total revenues was 29.7% and 31.5% for the three months ended September 30, 2020 and 2019, respectively.

We incurred a loss from continuing operations of $10,475, or $0.66 per share, during the nine months ended September 30, 2020, compared to a loss from continuing operations of $15,359, or $0.99 per share, during the nine months ended September 30, 2019.

Loss from continuing operations as a percentage of total revenues was 21.3% and 27.7% for the nine months ended September 30, 2020 and 2019, 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 2020.

LIQUIDITY AND CAPITAL RESOURCES (Amounts in thousands)

June 30, 2020

September 30, 2020

December 31, 2019

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Cash and cash equivalents

Six Months Ended June 30,

Net cash provided by (used in) operating activities

Net cash provided by investing activities

Net cash used in financing activities

Nine Months Ended September 30,

Net cash (used in) provided by operating activities

Net cash (used in) provided by investing activities

Net cash provided by (used in) financing activities

Working Capital .

We had working capital of $10,513 at June 30, 2020, a decrease of $7,341 from working capital of $17,854 at December 31, 2019.

Working capital as of June 30, 2020 and December 31, 2019 includes $3,766 and $5,500 of short-term deferred revenue, respectively.

We had working capital of $477 at September 30, 2020, a decrease of $17,377 from working capital of $17,854 at December 31, 2019.

Working capital as of September 30, 2020 and December 31, 2019 includes $3,585 and $5,500 of short-term deferred revenue, respectively.

Deferred revenue is an obligation to perform future services.

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Deferred revenue can vary based on seasonality, expiration of initial multi-year contracts and deals that are billed after implementation rather than in advance of service delivery.

The decrease in working capital is primarily due to a $9,750 reclassification of outstanding principal on our credit facility from current to short term.

Operating Activities .

Net cash used in operating activities of $4,131 for the six months ended June 30, 2020 was primarily driven by a net loss of $5,711.

Non-cash adjustments to our net loss by approximately $881 due to a reduction in the amortization of our deferred financing costs and adjustments made to our allowance for doubtful accounts.

Net cash used in operating activities of $1,717 for the nine months ended September 30, 2020 was primarily driven by a net loss of $10,475.

Non-cash adjustments to our net loss by approximately $87 due to a reduction in the amortization of our deferred financing costs.

Changes in operating assets and liabilities resulted in an increased use of cash of $6,295.

Investing Activities .

Net cash provided by investing activities of $29,891 for the six months ended June 30, 2020 is primarily due to the net change in funds held for clients.

Net cash provided by investing activities of $21,396 for the six months ended June 30, 2019 is primarily due to the net change in funds held for clients offset by the acquisition of Payroll Maxx in the first quarter of 2019.

Net cash used in investing activities of $64,687 for the nine months ended September 30, 2020 is primarily due to the net change in funds held for clients and our acquisition of a payroll tax business during the quarter.

Net cash provided by investing activities of $36,552 for the nine months ended September 30, 2019 is primarily due to the net change in funds held for clients offset by the acquisition from first quarter of 2019.

Financing Activities .

Net cash used in financing activities was $25,327 for the six months ended June 30, 2020, which primarily consisted of a net decrease in client fund obligations of $32,370 and payments of notes payable of $2,359 offset by proceeds of notes payable of $8,856.

Net cash used in financing activities was $25,042 for the six months ended June 30, 2019.

Net cash provided by financing activities was $50,517 for the nine months ended September 30, 2020, which primarily consisted of a net increase in client fund obligations of $53,465 and payments of notes payable of $12,171 offset by proceeds of notes payable of $8,856.

Net cash used in financing activities was $43,310 for the nine months ended September 30, 2019.

We incurred $8,000 of indebtedness, resulting in a source of cash.

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Sources of Liquidity .

As of June 30, 2020, Asure’s principal sources of liquidity consisted of approximately $29,259 of cash and cash equivalents, cash generated from operations of our business over the next twelve months, and $9,500 available for borrowing under our Wells Fargo revolver.

Our cash and cash equivalents is offset by $33,882 in notes payable.

Accordingly, after reviewing the terms of the Third Restated Credit Agreement and in light of the impact of COVID-19 on our business and the related need to support our operations, we entered into a loan with Pinnacle Bank under the Paycheck Protection Program (the “PPP Loan”) offered by the U.S.

Small Business Administration amounting to $8,856 pursuant to Title 1 of the Coronavirus Aid, Relief and Economic Security Act (the “Cares Act”).

The PPP Loan proceeds are available to be used to pay for payroll costs, including salaries, commissions, and similar compensation, group health care benefits, and paid leaves.

Under the Cares Act, the PPP loan may be forgiven if certain criteria are satisfied.

The amount that will be forgiven will be calculated in part with reference to the Company’s full time headcount during the twenty-four week period following the funding of the PPP Loan.

Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loans granted under the Cares Act.

The PPP Loan is subject to forgiveness to the extent proceeds are used for payroll costs, including payments required to continue group health benefits, and certain rent, utility, and mortgage interest expenses (collectively, “Qualifying Expenses”), pursuant to the terms and limitations of the Cares Act.

The Company intends to use a significant majority of the PPP Loan amount for Qualifying Expenses.

However, we make no assurances that we will obtain forgiveness of the PPP Loan in whole or in part.

Due to the effects of Covid-19 on our business, we were not in compliance with our minimum EBITDA financial covenant as of March 31, 2020 and June 30, 2020 and do not expect to be in compliance with the minimum EBITDA financial covenants as set forth in the Third Restated Credit Agreement in future quarters.

These covenants were set in December 31, 2019, before the Covid-19 pandemic and its possible effects on our business were known to our senior lender or us.

On August 10, 2020, we entered into a waiver and amendment to our Third Restated Credit Agreement and our Amended and Restated Guaranty and Security Agreement (the “Fourth Amendment”).

As amended by the Fourth Amendment, the Third Restated Credit Agreement reduced our facility from $30,000 to $15,000, consisting of $10,000 in term loans and a $5,000 revolver.

As of September 30, 2020, Asure’s principal sources of liquidity consisted of approximately $12,939 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.

Due to the effects of Covid-19 on our business, we were not in compliance with our minimum EBITDA financial covenant as of March 31, 2020.

This covenant was set in December 31, 2019, before the Covid-19 pandemic and its possible effects on our business were known to our senior lender or us.

On July 10, 2020, our senior lender issued a reservation of rights letter related to our failure to comply with the minimum EBITDA financial covenant, along with other technical defaults.

See Part II, Item 3 for more information about this default and our senior lender’s reservation of rights letter.

Following this default, we negotiated and entered a waiver and amendment to our Credit Agreement and our Amended and Restated Guaranty and Security Agreement (the “Amendment”) on August 10, 2020.

The Amendment reduced our facility from $30,000 to $15,000, consisting of $10,000 in term loans and a $5,000 revolver.

As a result, we were required to make a principal payment of $9,750 on our outstanding term loans.

The Fourth Amendment provides for an accordion feature to our term loan that would allow us to borrow up to an additional $15,000 in term loans subject to certain conditions following the Covenant Conversion Date, which is described below.

The Amendment provides for an accordion feature to our term loan that would allow us to borrow up to an additional $15,000 in term loans subject to certain conditions following the Covenant Conversion Date, which is described below.

The Fourth Amendment also reset our financial covenants and added a new financial covenant for minimum recurring revenue.

The Fourth Amendment does not require that we meet our fixed charge ratio or leverage ratio covenant until the Covenant Conversion Date.

For this purpose, the Coverage Conversion Date is the earlier of August 10, 2022 or the date in which we have satisfied the fixed charge coverage ratio and leverage ratio for two consecutive reporting periods.

The Amendment does not require that we meet our fixed charge ratio or leverage ratio covenant until the Covenant Conversion Date.

The Coverage Conversion Date is the earlier of August 10, 2022 or the date in which we have satisfied the fixed charge coverage ratio and leverage ratio for two consecutive reporting periods.

Until such time, we are only obligated to comply with our minimum EBITDA and minimum recurring revenue covenants.

In addition to the requirement that we pay $9,750 on our outstanding term loans, we were also required to pay our senior lender an amendment fee of $225.

Our senior lender waived the payment of default interest that had accrued since May 11, 2020 and stopped assessing default interest as of August 10, 2020.

Our senior lender further waived any prepayment penalty that would have otherwise been due on the $9,750 payment toward our term loan and agreed that we would not owe a prepayment penalty if we were to refinance our facility before December 31, 2021.

Our senior lender waived any prepayment penalty that would have otherwise been due on the $9,750 payment toward our term loan and agreed that we would not owe a prepayment penalty if we were to refinance our facility before December 31, 2021.

Finally, as a condition to the amendment, our senior lender required that we agree to obtain lender consent for any acquisitions until the later of August 10, 2021 or the Covenant Conversion Date.

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We had sufficient cash on hand to make the required payment of $9,750 in connection with the Fourth Amendment and expect to have enough cash on hand to meet our future business needs.

Further, we expect to comply with our financial covenants in future quarters under the Third Restated Credit Agreement, as amended by the Fourth Amendment.

Further, we expect to comply with our financial covenants in future quarters under the Credit Agreement, as amended by the Fourth Amendment.

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 Paycheck Protection Program 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 Small Business Administration, who administers loans issued under the Paycheck Protection Program, has issued guidance, deferring all payments that would be owed on this loan until the Small Business Administration makes a decision on our loan forgiveness application.

While we expect that the entire loan will be forgiven, we cannot be certain that the Small Business Administration will grant forgiveness of 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 intend to apply for forgiveness of this loan in the fourth quarter of 2020.

Given this, we expect that payments we may owe, if any, would not start until second 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 Paycheck Protection Program.

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 June 30, 2020, we did not have any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.

As of September 30, 2020, we did not have any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.

COMMITMENTS AND CONTINGENCIES

5 unchanged sentences

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What changed 10-Q

Item 2. Management’s Discussion and Analysis