UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549








FORM 10-Q





o
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934





OR




x
            TRANSITION
      REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934





For
the transition period from August 1, 2009 to December 31, 2009





Commission
file number: 0-20008








ASURE
SOFTWARE, INC.


(Exact
Name of Registrant as Specified in its Charter)





Delaware
            
            74-2415696(State
      of other jurisdiction of
            
            (I.R.S.
      Employerincorporation
      or organization)
            
            Identification
      No.)108
      Wild Basin RoadAustin,
      Texas
            
            78746(Address
      of Principal Executive Offices)
            
            (Zip
      Code)





(512)
437-2700


(Registrant’s
Telephone Number, including Area Code)








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 x     No  o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).


Yes o  No o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).


Large
      accelerated filero
            Accelerated
      filero
            Non-accelerated
      filero
            Smaller
      reporting companyx





Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).


Yes o     No  x





At
February 9, 2010, the registrant had outstanding 3,086,022 shares of its Common
Stock, $0.01 par value.













INDEX TO FINANCIAL STATEMENTS





PageNumberPART I - FINANCIAL INFORMATIONItem 1 –  Condensed Consolidated Financial
      StatementsCondensed Consolidated Balance
      Sheets as of December 31, 2009 (unaudited) and July 31,
      2009
            3Unaudited Condensed Consolidated
      Statements of Operations for the Two and Five Months Ended
      December 31, 2009 and 2008
            4Unaudited Condensed Consolidated
      Statements of Cash Flows for the Five Months Ended December 31, 2009
      and 2008
            5Notes to the Unaudited Condensed
      Consolidated Financial Statements
            6Item 2 -  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            11Item 3 -  Quantitative and
      Qualitative Disclosures About Market Risk
            16Item 4 -  Controls and
      Procedures
            16PART II - OTHER
      INFORMATIONItem 1 -  Legal
      Proceedings
            17Item 1A - Risk
      Factors
            17Item 2 -
 

      Unregistered Sales of Equity Securities and
      Use of Proceeds
            17Item 3 - Defaults upon Senior
      Securities
            17Item 4 - Submission of
      Matters to a Vote of Security Holders
            17Item 5 -
      Exhibits
            18Signatures
            19Index to
      Exhibits
            20





2
 Table of
Contents





ASURE SOFTWARE, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Amounts
in thousands, except per share data)





December 31,
              2009
            
            
            JULY 31,
              2009(UNAUDITED)ASSETSCurrent
      Assets:Cash
      and equivalents
            
            $
            2,263
            
            
            $
            4,375Short-term
      investments
            
            
            —
            
            
            
            5,339Accounts
      receivable, net of allowance for doubtful accounts of $34 and $20 at
      December 31, 2009 and July 31, 2009,
      respectively
            
            
            1,526
            
            
            
            1,207Inventory
            
            
            49
            
            
            
            3Prepaid
      expenses and other current assets
            
            
            213
            
            
            
            143Total
      Current Assets
            
            
            4,051
            
            
            
            11,067Property
      and equipment, net
            
            
            581
            
            
            
            672Intangible
      assets, net
            
            
            3,623
            
            
            
            3,949Total
    Assets
            
            $
            8,255
            
            
            $
            15,688LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      Liabilities:Accounts
      payable
            
            $
            1,039
            
            
            $
            6,294Accrued
      compensation and benefits
            
            
            79
            
            
            
            278Lease
      impairment and advance
            
            
            562
            
            
            
            899Other
      accrued liabilities
            
            
            411
            
            
            
            541Deferred
      revenue
            
            
            1,744
            
            
            
            1,897Total
      Current Liabilities
            
            
            3,835
            
            
            
            9,909Long-Term
      Liabilities:Deferred
      revenue
            
            
            134
            
            
            
            119Lease
      impairment and advance
            
            
            196
            
            
            
            250Other
      long-term obligations
            
            
            212
            
            
            
            206Total
      Long-Term Liabilities
            
            
            542
            
            
            
            575Stockholders’
      Equity:Preferred
      stock, $.01 par value; 1,500 shares authorized; none issued or
      outstanding
            
            
            —
            
            
            
            —Common
      stock, $.01 par value; 6,500 shares authorized; 3,341 and 3,291
      sharesissued;
      3,128 and 3,112 shares outstanding at December 31, 2009 and
      July 31, 2009, respectively
            
            
            334
            
            
            
            329Treasury
      stock at cost, 213 and 179 shares at December 31, 2009 and
      July 31, 2009, respectively
            
            
            (4,907
            )
            
            
            (4,815
            )Additional
      paid-in capital
            
            
            270,925
            
            
            
            270,738Accumulated
      deficit
            
            
            (262,404
            )
            
            
            (260,947
            )Accumulated
      other comprehensive (loss)
            
            
            (70
            )
            
            
            (101
            )Total
      Stockholders’ Equity
            
            
            3,878
            
            
            
            5,204Total
      Liabilities and Stockholders’ Equity
            
            $
            8,255
            
            
            $
            15,688





The
accompanying notes are an integral part of these condensed consolidated
financial statements.





3
 Table of Contents





ASURE SOFTWARE, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Amounts
in thousands, except per share data)





FOR
      THE
              TWO
      MONTHS ENDED
              DECEMBER
      31,
            
            
            FOR
      THE
              FIVE
      MONTHS ENDED
              DECEMBER
      31,2009
            
            
            2008
            
            
            2009
            
            
            2008(UNAUDITED)
            
            
            (UNAUDITED)Revenues
            
            $
            1,679
            
            
            $
            1,467
            
            
            $
            4,000
            
            
            $
            4,259Cost
      of Sales
            
            
            (435
            )
            
            
            (294
            )
            
            
            (914
            )
            
            
            (858
            )Gross
      Margin
            
            
            1,244
            
            
            
            1,173
            
            
            
            3,086
            
            
            
            3,401OPERATING
      EXPENSES:Selling, general and
      administrative
            
            
            797
            
            
            
            1,839
            
            
            
            3,537
            
            
            
            5,036Research and
      development
            
            
            264
            
            
            
            343
            
            
            
            676
            
            
            
            904Amortization of intangible
      assets
            
            
            100
            
            
            
            99
            
            
            
            249
            
            
            
            248Total Operating
      Expenses
            
            
            1,161
            
            
            
            2,281
            
            
            
            4,462
            
            
            
            6,188INCOME
      (LOSS) FROM OPERATIONS
            
            
            83
            
            
            
            (1,108
            )
            
            
            (1,376
            )
            
            
            (2,787
            )OTHER
      INCOME AND (EXPENSE):Interest income
            
            
            2
            
            
            
            25
            
            
            
            9
            
            
            
            80Foreign currency translation
      (loss) gain
            
            
            (15
            )
            
            
            (18
            )
            
            
            (46
            )
            
            
            102Gain on sale of
      assets
            
            
            —
            
            
            
            250
            
            
            
            —
            
            
            
            250Interest expense and
      other
            
            
            (8
            )
            
            
            (17
            )
            
            
            (19
            )
            
            
            (27
            )Total Other Income
      (Expense)
            
            
            (21
            )
            
            
            240
            
            
            
            (56
            )
            
            
            405INCOME
      (LOSS) FROM OPERATIONS, BEFORE INCOME TAXES
            
            
            62
            
            
            
            (868
            )
            
            
            (1,432
            )
            
            
            (2,382
            )Provision
      for income taxes
            
            
            (13
            )
            
            
            —
            
            
            
            (25
            )
            
            
            (25
            )NET
      INCOME (LOSS)
            
            $
            49
            
            
            $
            (868
            )
            
            $
            (1,457
            )
            
            $
            (2,407
            )BASIC
      AND DILUTED INCOME (LOSS) PER SHARE:Net
      income (loss) per share – basic
            
            $
            0.02
            
            
            $
            (0.28
            )
            
            $
            (0.46
            )
            
            $
            (0.77
            )Net
      income (loss) per share – diluted
            
            $
            0.02
            
            
            $
            (0.28
            )
            
            $
            (0.46
            )
            
            $
            (0.77
            )WEIGHTED
      AVERAGE SHARES OUTSTANDING:Basic
            
            
            3,156
            
            
            
            3,111
            
            
            
            3,141
            
            
            
            3,111Diluted
            
            
            3,162
            
            
            
            3,111
            
            
            
            3,141
            
            
            
            3,111





The
accompanying notes are an integral part of these condensed consolidated
financial statements.





4
 Table of Contents





ASURE SOFTWARE, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Amounts
in thousands, except per share data)


FOR THE FIVE
                MONTHS ENDED
                DECEMBER 31,2009
              
              
              2008(UNAUDITED)CASH
      FLOWS FROM OPERATING ACTIVITIES:Loss
      from operations
              
              $
              (1,457
              )
              
              $
              (2,407
              )Adjustments
      to reconcile net loss to net cash used in operations:Depreciation
      and amortization
              
              
              452
              
              
              
              548Amortization
      of leasehold advance and lease impairment
              
              
              (391
              )
              
              
              (158
              )Share-based
      compensation
              
              
              17
              
              
              
              48Gain
      on sale of assets
              
              
              —
              
              
              
              (5
              )Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              (319
              )
              
              
              85Inventory
              
              
              (46
              )
              
              
              9Prepaid
      expenses and other current assets
              
              
              (70
              )
              
              
              15Accounts
      payable
              
              
              (5,255
              )
              
              
              (473
              )Accrued
      expenses and other long-term obligations
              
              
              (295
              )
              
              
              (68
              )Deferred
      revenue
              
              
              (138
              )
              
              
              (45
              )Net
      cash used in operating activities
              
              
              (7,502
              )
              
              
              (2,451
              )CASH
      FLOWS FROM INVESTING ACTIVITIES:Net
      sales (purchases) of short-term investments
              
              
              5,339
              
              
              
              (131
              )Net
      purchases of property and equipment
              
              
              (35
              )
              
              
              (127
              )Net
      cash provided by (used in) investing activities
              
              
              5,304
              
              
              
              (258
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      proceeds from issuance of stock
              
              
              175
              
              
              
              2Payments
      on capital leases
              
              
              (28
              )
              
              
              (12
              )Purchase
      of Treasury stock
              
              
              (92
              )
              
              
              —Net
      cash provided by (used in) financing activities
              
              
              55
              
              
              
              (10
              )Effect
      of translation exchange rates
              
              
              31
              
              
              
              (108
              )Net
      decrease in cash and equivalents
              
              
              (2,112
              )
              
              
              (2,827
              )Cash
      and equivalents at beginning of period
              
              
              4,375
              
              
              
              12,062Cash
      and equivalents at end of period
              
              $
              2,263
              
              
              $
              9,235





The
accompanying notes are an integral part of these condensed consolidated
financial statements.




5
 Table of Contents





ASURE SOFTWARE, INC.


NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands, except per share data unless otherwise noted)





NOTE
1 - GENERAL AND BASIS OF FINANCIAL STATEMENTS





The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission and accordingly, do not include all information and
footnotes required under U.S. generally accepted accounting principles for
complete financial statements. In the opinion of management, these interim
financial statements contain all adjustments, consisting of normal, recurring
adjustments, necessary for a fair presentation of the financial position of
Asure Software, Inc. (“Asure” or the “Company”) as of December 31, 2009 and
July 31, 2009, the results of operations for the two and five months ended
December 31, 2009 and 2008, and the cash flows for the five months ended
December 31, 2009 and December 31, 2008. These condensed consolidated financial
statements should be read in conjunction with the Company’s audited consolidated
financial statements and notes thereto filed with the Securities and Exchange
Commission in the Company’s annual report on Form 10-K for the fiscal year
ended July 31, 2009.  The results for the interim periods are not
necessarily indicative of results for a full fiscal year.





On
November 24, 2009, the Board of Directors of the Company approved a change in
the Company's fiscal year end from July 31 to December 31 of each
year.  This change to the calendar year reporting cycle began January
1, 2010. As a result of the change, the Company had a five month transition
period from August 1, 2009 to December 31, 2009. The unaudited results for the
five   month period ended December 31, 2009 are included in this
report. The Company has also included selected unaudited results for the five
month period ended December 31, 2008. The audited results for the five month
period ended December 31, 2009 will be included in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2010.





In
addition, the results for the two month and five month periods ended December
31, 2009 are compared with the results of the two month and five month periods
ended December 31, 2008, which have been recast due to the change in the
Company's fiscal year end from July 31 to December 31.





Effective
on December 28, 2009, we implemented a reverse stock split approved by
Asure’s stockholders at the December 17, 2009 Annual
Meeting.  Pursuant to the reverse stock split, every ten shares of
issued and outstanding common stock of Asure, $.01 par value per share were
automatically converted to one issued and outstanding share of common stock
without any change in the par value of such shares. Historical share data
presented in these consolidated financial statements and notes thereto have been
restated to reflect this reverse stock split.





As of
December 31, 2009, Asure’s principal sources of liquidity consisted of $2.3
million of cash and cash equivalents. Management is focused on growing its
existing software operations and thus plans to utilize its cash balances to
expand its operations by making additional prudent investments as necessary and
repurchase outstanding shares.





There is
no assurance that the Company will be able to limit its cash consumption and
preserve its cash balances, and it is possible that the Company’s future
business demands may lead to cash utilization at levels greater than recently
experienced. Management believes that the Company has sufficient capital and
liquidity to fund and cultivate the growth of its current and future operations
for the next 12 months and thereafter.  However, due to uncertainties
related to the timing and costs of these efforts, Asure may need to raise
additional capital in the future.  Yet, there is no assurance that the
Company will be able to raise additional capital if and when it is
needed.





2.
INTANGIBLE ASSETS




Asure
accounted for its historical acquisitions in accordance with FASB ASC
805,Business Combinations(FASB ASC 805).  The Company recorded the amount exceeding the
fair value of net assets acquired at the date of acquisition as goodwill. The
Company recorded intangible assets apart from goodwill if the assets had
contractual or other legal rights or if the assets could be separated and sold,
transferred, licensed, rented or exchanged.  Asure’s goodwill and
intangible assets relate to its acquisition of iSarla Inc. and the iEmployee
operations.





In
accordance with FASB ASC 350,Intangibles-Goodwill and Other (FASB ASC 350), Asure reviews and
evaluates its long-lived assets, including intangible assets with finite lives,
for impairment whenever events or changes in circumstances indicate that their
net book value may not be recoverable.  Based on Asure’s impairment
test, no impairment was identified for the Company’s intangible assets for the
year ended July 31, 2009 and there have been no circumstances during the five
months ended December 31, 2009 that require additional evaluation.








The gross
carrying amount and accumulated amortization of the Company’s intangible assets
as of December 31, 2009 and July 31, 2009 are as follows:




6
 Table of Contents





ASURE
SOFTWARE, INC.


NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands, except per share data unless otherwise noted)





December 31, 2009Amortization
            
            
            
            
            
            AccumulatedIntangible Asset
            
            Period (in Years)
            
            
            Gross
            
            
            Amortization
            
            
            NetDeveloped
      Technology
            
            
            5
            
            
            $
            915
            
            
            $
            (409
            )
            
            $
            506Customer
      Relationships
            
            
            8
            
            
            
            2,470
            
            
            
            (691
            )
            
            
            1,779Ceridian
      Contract
            
            
            8
            
            
            
            1,545
            
            
            
            (432
            )
            
            
            1,113Trade
      Names
            
            
            5
            
            
            
            288
            
            
            
            (129
            )
            
            
            159Covenant
      not-to-compete
            
            
            4
            
            
            
            150
            
            
            
            (84
            )
            
            
            66$
            5,368
            
            
            $
            (1,745
            )
            
            $
            3,623





July 31, 2009Amortization
            
            
            
            
            
            AccumulatedIntangible Asset
            
            Period (in Years)
            
            
            Gross
            
            
            Amortization
            
            
            NetDeveloped
      Technology
            
            
            5
            
            
            $
            915
            
            
            $
            (333
            )
            
            $
            582Customer
      Relationships
            
            
            8
            
            
            
            2,470
            
            
            
            (562
            )
            
            
            1,908Ceridian
      Contract
            
            
            8
            
            
            
            1,545
            
            
            
            (351
            )
            
            
            1,194Trade
      Names
            
            
            5
            
            
            
            288
            
            
            
            (105
            )
            
            
            183Covenant
      not-to-compete
            
            
            4
            
            
            
            150
            
            
            
            (68
            )
            
            
            82$
            5,368
            
            
            $
            (1,419
            )
            
            $
            3,949





Amortization
expense is recorded using the straight-line method over the estimated economic
useful lives of the intangible assets, as noted above.  Amortization
expense for the two months ended December 31, 2009 and 2008 was $130. 
Amortization expense for the five months ended December 31, 2009 and 2008
was $325.  The following table summarizes the estimated amortization
expense relating to the Company’s intangible assets for the next five fiscal
years and thereafter as of December 31, 2009:





Fiscal Years2011
            
            $
            7802012
            
            7712013
            
            6862014
            
            5022015
            
            502Thereafter
            
            382$
            3,623





NOTE
3 – FAIR VALUE MEASUREMENTS





Effective
August 1, 2008, Asure adopted ASC 820, Fair Value Measurements and
Disclosures (FASB ASC 820).  FASB ASC 820 defines fair value,
establishes a framework for measuring fair value in U.S. generally accepted
accounting principles and expands disclosures about fair value measurements.
 The adoption of FASB ASC 820 did not have a material impact to the
Company’s consolidated financial statements.





FASB ASC
820 establishes a three-tier fair value hierarchy, which are based on the
reliability of the inputs used in measuring fair values. These tiers
include:





Level 1:
Quoted prices in active markets foridentical assets or
liabilities;




7
 Table of Contents





ASURE
SOFTWARE, INC.


NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands, except per share data unless otherwise noted)





Level 2:
            Quoted
      prices in active markets forsimilar 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.





The
following table presents the fair value hierarchy for the Company’s financial
assets (cash equivalents and short-term investments) measured at fair value on a
recurring basis as of December 31, 2009:





Fair Value Measure at December 31, 2009Total
            
            
            Quoted
            
            
            SignificantCarrying
            
            
            Prices
            
            
            Other
            
            
            SignificantValue at
            
            
            in Active
            
            
            Observable
            
            
            UnobservableDecember 31,
            
            
            Market
            
            
            Inputs
            
            
            InputsDescription
            
            2009
            
            
            (Level
      1)
            
            
            (Level
      2)
            
            
            (Level
      3)Cash
      Equivalents
            
            $
            2,263
            
            
            $
            2,263
            
            
            $
            —
            
            
            $
            —Total
            
            $
            2,263
            
            
            $
            2,263
            
            
            $
            —
            
            
            $
            —







NOTE
4 - COMPREHENSIVE INCOME (LOSS)





In
accordance with the disclosure requirements of FASB ASC 220, Comprehensive Income(FASB
ASC 220), the Company’s comprehensive income (loss) is comprised of net income
(loss), foreign currency translation adjustments and unrealized gains and losses
on short-term investments held as available-for-sale securities.  The
following table presents the Company’s comprehensive income (loss) and its
components for the two and five months ended December 31, 2009 and
2008:








For
      the Two Months
            
            
            For
      the Five MonthsEnded
      December 31,
            
            
            Ended
      December 31,2009
            
            
            2008
            
            
            2009
            
            
            2008Net
      Income (Loss)
            
            $
            49
            
            
            $
            (868
            )
            
            $
            (1,457
            )
            
            $
            (2,407
            )Foreign
      currency gain (loss)
            
            
            10
            
            
            
            23
            
            
            
            33
            
            
            
            (139
            )Unrealized
      gain (loss) on short-term investments
            
            
            0
            
            
            
            19
            
            
            
            (2
            )
            
            
            23Comprehensive
      Income (Loss)
            
            $
            59
            
            
            $
            (826
            )
            
            $
            (1,426
            )
            
            $
            (2,523
            )





8
 Table of Contents





ASURE
SOFTWARE, INC.


NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands, except per share data unless otherwise noted)





NOTE
5 - RECENT ACCOUNTING PRONOUNCEMENTS





In
October 2009, the FASB updated FASB ASC 605, Revenue Recognition (FASB ASC
605) to address how to determine whether an arrangement involving multiple
deliverables contains more than one unit of accounting and how the arrangement
consideration should be measured and allocated to the separate units of
accounting. This guidance eliminates the residual method and replaces it with
the “relative selling price” method when allocating revenue in a multiple
deliverable arrangement. The selling price for each deliverable shall be
determined using vendor specific objective evidence of selling price, if it
exists, otherwise third-party evidence of selling price shall be used. If
neither exists for a deliverable, the vendor shall use its best estimate of the
selling price for that deliverable. After adoption, this guidance will also
require expanded qualitative and quantitative disclosures. The updated FASB ASC
605 is effective for the Company’s revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010, with
early adoption permitted. The Company is currently evaluating the impact of
adoption on its consolidated results of operations and financial
position.





NOTE
6 – SHARE BASED COMPENSATION





Share
based compensation for the Company’s stock option, restricted stock and stock
purchase plans for the two and five months ended December 31, 2009 was $10
and $17, respectively. Share based compensation for the Company’s stock
option, restricted stock and stock purchase plans for the two and five months
ended December 31, 2008 was $11 and $48, respectively.  The Company
issued 0 shares of common stock related to exercises of stock options granted
from its Stock Option, Restricted Stock, and Stock Purchase Plans for the two
and five months ended December 31, 2009, respectively. The Company issued
0.2 and 0.9 thousand shares of common stock related to its Stock Option,
Restricted Stock, and Stock Purchase Plans for the two and five months ended
December 31, 2008, respectively.





On September 21, 2009, the
Board adopted the Company’s 2009 Equity Plan (the “2009 Equity Plan”) and the
plan was approved by the Company’s stockholders at the December 17, 2009 Annual
Meeting of Stockholders.  The purpose of the 2009 Equity Plan is to
enhance the long-term stockholder value of the Company by offering opportunities
to directors, officers, employees and eligible consultants of the Company to
acquire and maintain stock ownership in the Company in order to give these
persons the opportunity to participate in the Company’s growth and success, and
to encourage them to remain in the service of the Company.  A total of
200 thousand shares of the Company’s Common Stock were available for issuance
under the 2009 Equity Plan and provides for the granting of (i) incentive stock
options, (ii) non statutory stock options and (iii) stock purchase
rights.  A total of 189 thousand options have been granted pursuant to
the plan.





NOTE
7 – CONTINGENCIES





Asure was
the defendant or plaintiff in various actions that arose in the normal course of
business. With the exception of the proceedings described below, none of the
pending legal proceedings to which the Company is a party are material to the
Company.





Litigation
with Jenkens & Gilchrist, P.C.





On July
16, 2007, Jenkens & Gilchrist, P.C. (“Jenkens”), Asure’s former legal
counsel, filed a complaint against Asure and Compressions Labs, Inc., in the
District Court of Dallas County, Texas.  In its complaint, Jenkens
alleged a breach of contract and sought a declaratory judgment.  Asure
disputed Jenkens’ claims and also sought relief through the court
system.





9
 Table of Contents





ASURE
SOFTWARE, INC.


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands, except per share data or otherwise noted)





After
Asure terminated Jenkens, the Company entered into a Resolution Agreement with
Jenkens in December 2004.  Under the Resolution Agreement, the Company
believed Jenkens was entitled to $1,400 for all fees and expenses related to
certain settlements received from licensing the Company's intellectual
property.  Jenkens interpreted the Resolution Agreement on broader
terms and initially believed it was entitled to $2,800.  As of July
31, 2007, Asure accrued $2,100 for Jenkens’ contingency fees related to these
settlements. The Company recorded the contingency fees as part of cost of sales
on its Consolidated Statement of Operations for the year ended July 31, 2007 in
order to properly match the expenses to the related licensing
revenues.  The $2,100 accrual remained as part of Asure’s current
liabilities through its prior fiscal year ending July 31, 2009.





On July
20, 2009, the trial with Jenkens commenced.  As the result of the jury
verdict in July 2009 to award Jenkens approximately $4,600 in damages,
attorney’s fees and interest, Asure entered into a settlement agreement with
Jenkens, effective August 20, 2009.  Under the settlement agreement,
Asure agreed to pay Jenkens $4,300 and the parties agreed to release all claims
against each other.  Based on the settlement amount, the Company
accrued an additional $2,200 in July 2009 for a total amount accrued of $4,300
as of July 31, 2009. Since the Company was no longer licensing its intellectual
property and had no related licensing revenues in fiscal year 2009, this
additional $2,200 expense was recorded as part of operating expenses on the
Consolidated Statement of Operations for the year ended July 31,
2009.  Asure paid Jenkens $4,300 on August 25, 2009 and the Company
considers this litigation to be concluded.





Litigation
with Wild Basin





On
September 6, 2007, Asure filed a petition against Wild Basin One & Two, Ltd.
(“Wild Basin”) in the District Court of Travis County, Texas.  The
petition claimed Wild Basin was in breach of contract relating to Asure’s lease
agreement by unreasonably withholding and delaying its consent to Asure’s lease
assignment to a third party.  On October 19, 2007, Asure amended its
petition to include claims of fraud and breach of fiduciary duty against Wild
Basin.  On June 5, 2008, Asure amended its petition to request the
Court make declaratory judgments on several issues in the case and to include as
a breach of contract claim its claim for withholding amounts that should have
been distributed by Wild Basin in the past pursuant to the
lease.  Asure sought to recover all damages as a result of the delay
in closing its pending assignment and amounts not distributed in the past, among
other damages.





The trial
for this litigation commenced on September 22, 2008.  Prior to the
conclusion of the trial, Asure and Wild Basin reached a settlement agreement,
effective September 25, 2008.  This settlement agreement requires,
among other terms, that Wild Basin consents to Asure’s lease
assignment.  In return, Asure paid Wild Basin $75 in November
2008.  Both parties agreed to mutually release claims against each
other.





While
Asure was significantly delayed in obtaining Wild Basin’s consent to its lease
assignment, the identified third party encountered difficulties obtaining the
required financing due to the tightened capital
markets.    Additionally, Asure continues to work with Wild
Basin regarding its breach of contract claim that Wild Basin withheld amounts
that should have been distributed to Asure. Asure will renew its litigation
against Wild Basin regarding this matter, only if necessary.




Note
8:  Income (Loss) per Share
 
 Basic
Income (Loss) per share (EPS) is computed based on the weighted average number
of common shares outstanding for the period.  Diluted EPS reflects the
maximum dilution that would have resulted from incremental common shares
issuable upon the exercise of stock options.  The number of common share equivalents,
which includes stock options, is computed using the treasury stock
method.
 
 The following tables provide the
components of the basic and diluted EPS computations for the two and five month
periods ended December 31, 2009 and 2008
 
 For
      the Two Months
              
              
              For
      the Five MonthsEnded
      December 31,
              
              
              Ended
      December 31,Basic EPS Computation
              
              2009
              
              
              2008
              
              
              2009
              
              
              2008Net
      Income (Loss)
              
              $
              49
              
              
              $
              (868
              )
              
              $
              (1,457
              )
              
              $
              (2,407
              )Weighted
      average shares outstanding
              
              
              3,156
              
              
              
              3,111
              
              
              
              3,141
              
              
              
              3,111Basic
      Income (Loss) per share
              
              $
              0.02
              
              
              $
              (0.28
              )
              
              $
              (0.46
              )
              
              $
              (0.77
              )
 
 For
      the Two Months
              
              
              For
      the Five MonthsEnded
      December 31,
              
              
              Ended
      December 31,Diluted EPS Computation
              
              2009
              
              
              2008
              
              
              2009
              
              
              2008Net
      Income (Loss)
              
              $
              49
              
              
              $
              (868
              )
              
              $
              (1,457
              )
              
              $
              (2,407
              )Weighted
      average shares outstanding
              
              
              3,156
              
              
              
              3,111
              
              
              
              3,141
              
              
              
              3,111Common
      share equivalents: Stock options
              
              
              6
              
              
              
              -
              
              
              
              -
              
              
              
              -Diluted
      shares outstanding
              
              
              3,162
              
              
              
              3,111
              
              
              
              3,141
              
              
              
              3,111Diluted
      Income (Loss) per share
              
              $
              0.02
              
              
              $
              (0.28
              )
              
              $
              (0.46
              )
              
              $
              (0.77
              )
 
 
 Stock
options to acquire 154 and 116 shares for the two month period ended December
31, 2009 and 2008, respectively, and 301 and 116 shares for the five month
period ended December 31, 2009 and 2008, respectively, were excluded in the
computations of diluted EPS because the effect of including the stock options
would have been anti-dilutive.




NOTE
9 – SUBSEQUENT EVENTS





The
Company has evaluated subsequent events for recognition and disclosure through
February 16, 2010, the date these financial statements on this Form 10-Q were
filed with the Securities and Exchange Commission.  Through that date,
there were no events requiring adjustment to or disclosure in these financial
statements.





10
 Table of Contents





ITEM 2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





The
following review of Asure’s financial position as of December 31, 2009 and
July 31, 2009 and for the two and five months ended December 31, 2009
and 2008 should be read in conjunction with the Company’s 2009 Annual Report on
Form 10-K filed with the Securities and Exchange Commission.  Asure’s
internet website address is http://www.asuresoftware.com.  The Company’s
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 the Company’s
internet website free of charge as soon as reasonably practicable after they are
electronically filed, or furnished to, the Securities and Exchange Commission.
 Asure’s internet website and the information contained therein or
connected thereto are not intended to be incorporated into this Quarterly Report
on Form 10-Q.





In
September 2007, the Company (formerly known as Forgent Networks, Inc.) announced
its name change to “Asure Software” to reflect the Company’s focus on its
software business for its future growth.  The Company’s stockholders
approved the name change at the December 17, 2009 Annual Meeting.  As
a software and services provider, in October 2007, Asure purchased iSarla Inc.,
a Delaware corporation and application service provider that offers on-demand
software solutions.  As a result of the iEmployee acquisition, the
Company currently offers two main product lines in its software and services
business: NetSimplicity and iEmployee. Asure’s NetSimplicity product line
provides simple and affordable solutions to common office administration
problems.  NetSimplicity’s flagship product, Meeting Room Manager
(“MRM”), automates the entire facility scheduling process: reserving rooms,
requesting equipment, ordering food, sending invitations, reporting on the
meeting environment and more.  Asure’s iEmployee product line helps
simplify the HR process and improves employee productivity by managing and
communicating human resources, employee benefits and payroll
information.  iEmployee's web-based solutions include Time &
Attendance, Timesheets, Human Resource Benefits, Expenses and others. Additional
business information is contained elsewhere in this Report, including under Item
7 of Part II (Management’s
Discussion and Analysis of Financial Condition and Results of Operations
).





Effective
September 19, 2008, the Company transferred the listing of its common stock from
the Nasdaq Global Market Exchange to the Nasdaq Capital Market
Exchange.  The Company’s trading symbol continued to be “ASUR” and the
trading of the Company’s stock was unaffected by this change.  As a
result of this transfer, Asure was provided an additional 180 calendar days, or
until February 2, 2009, to regain compliance with the minimum $1.00 share bid
price requirement pursuant to Nasdaq Marketplace Rule 4450(a)(5).





Due to
the continued unprecedented market conditions, Nasdaq, on several occasions,
further suspended the enforcement of its rules requiring a minimum $1.00 share
bid price for all Nasdaq-listed companies.  Consequently, Asure’s
compliance deadline was extended until November 17, 2009.  On November
18, 2009, the Company was notified by Nasdaq that due to its failure to
satisfying the minimum $1.00 bid price per share requirement, its stock would be
delisted from Nasdaq’s Capital Markets on November 30, 2009 unless an appeal was
requested.  On November 18, 2009 Asure requested and was granted a hearing
request to appeal the Nasdaq staff’s decision.On December 10,
2009, Nasdaq held a telephonic panel hearing regarding the Company’s notice of
delisting due to its deficiency in its minimum bid price requirement.  On
December 17, 2009, the Company’s stockholders approved a proposal to effect a
10-for-1 reverse stock split.  The reverse stock split was effective
December 28, 2009 and as a result the Company’s stock began and has continued to
trade above $1.00.  On January 20, 2010, the Company received a letter
from Nasdaq stating that it had regained compliance with the minimum $1.00 bid
price requirement.





On
January 29, 2009, Asure’s Board announced its plan to take the Company
private.  Due to concerns including the loss of liquidity and reduced
requirements for regular financial reporting and disclosure, a group of
shareholders led by Red Oak Fund, LP (“Red Oak”) opposed the Go-Private
effort.  As shareholder vote counts indicated a majority of
shareholders also opposed the Go-Private effort, the Board canceled the special
meeting and withdrew its proposal to go private.  Subsequently, Red
Oak nominated a slate of board directors, who were elected to replace Asure’s
prior Board during the Company’s annual shareholders meeting on August 28,
2009.  In addition to a new board of directors, the Company is
currently managed by a new Chief Executive Officer, Pat Goepel and a new Chief
Financial Officer, David Scoglio.  The new board of directors believes
the new CEO and CFO will be able to implement its strategy for growing the
software business and achieving profitability and positive cash
flows.  However, uncertainties and challenges remain and there can be
no assurances that Asure's current strategy will be
successful.





CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS





Certain
statements in this Report represent forward-looking statements. These statements
involve known and unknown risks, uncertainties and other factors that may cause
actual results of operations, levels of activity, economic performance,
financial condition or achievements to be materially different from future
results of operations, levels of activity, economic performance, financial
condition or achievements as expressed or implied by such forward-looking
statements.





Asure has attempted to
identify these forward-looking statements with the words “believes,”
“estimates,” “plans,” “expects,” “anticipates,” “may,” “could” and other similar
expressions. Although these forward-looking statements reflect management’s
current plans and expectations, which are believed to be reasonable as of the
filing date of this report, they inherently are subject to certain risks and
uncertainties.  Additionally, 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.





11
 Table of Contents





RESULTS OF
OPERATIONS





The
following table sets forth for the fiscal periods indicated the percentage of
total revenues represented by certain items in Asure’s Consolidated Statements
of Operations:








FOR
      THE TWO
              MONTHS
      ENDED
              DECEMBER
      31,
            FOR
      THE FIVE
              MONTHS
      ENDED
              DECEMBER
      31,2009
            2008
            2009
            2008Revenues
            100%
            100%
            100%
            100%Gross
      margin
            74.1
            80.0
            77.2
            79.9Selling,
      general and administrative
            47.5
            125.4
            88.4
            118.2Research
      and development
            15.7
            23.4
            16.9
            21.2Amortization
      of intangible assets
            6.0
            6.7
            6.2
            5.8Total
      operating expenses
            69.1
            155.5
            111.6
            145.3Other
      income (expense), net
            (1.3)
            16.4
            (1.4)
            9.5Net
      income (loss)
            2.9
            59.2
            (36.5)
            (56.5)





TWO
MONTHS ENDED DECEMBER 31, 2009 AND 2008





Revenues





Revenues
for the two months ended December 31, 2009 were $1.7 million, an increase
of $0.2 million, or 14.5%, from the $1.5 million reported for the two months
ended December 31, 2008.  Revenues for the five months ended December
31, 2009 were $4.0 million, a decrease of $0.3 million, or 6.1%, from the $4.3
million reported for the five months ended December 31, 2008. Consolidated
revenues represent the combined revenues of the Company and its subsidiaries,
including sales of the Company’s scheduling software, asset management software,
human resource and time and attendance software, complementary hardware devices
to enhance its software products, software maintenance and support services,
installation and training services and other professional services.





During
the two months ended December 31, 2009, an increase in hardware revenue for the
scheduling software and time and attendance software accounted for approximately
80% of the $0.2 million increase in revenue.  Software license and
deployment revenues decreased by $0.5 million during the five months ended
December 31, 2009.  This decrease was offset by increases in hardware
revenue and subscription revenues, the combination of which accounted for
approximately 103% of the $0.3 million decrease in revenues during the five
months ended December 31, 2009.




Asure
will continue to target small and medium businesses and divisions of
enterprises.  In addition to continuing to develop its workforce
management solutions and release new software updates and enhancements, the
Company is actively exploring other opportunities to acquire additional products
or technologies to complement its current software and
services.  Asure also is implementing marketing initiatives, including
tailoring its solutions to provide increased value and a simplified purchasing
model to targeted customers.  As the overall workforce management
solutions market continues to experience significant growth related to software
as a service (“SaaS”) products, Asure will continue to focus on sales of its MRM
On Demand and iEmployee SaaS products.  Management believes that as
the economy starts to recover, Asure will grow its revenues in calendar year
2010.








Gross
Margin





Gross
margins for the two months ended December 31, 2009 were $1.24 million, an
increase of $71 thousand, or 6.1%, from the $1.17 million reported for the two
months ended December 31, 2008.The 6.1% increase in gross
margin dollars was mainly attributable to the increase in hardware revenues over
the same period.  Gross margins for the five months ended December 31,
2009 were $3.0 million, a decrease of $0.3 million, or 9.3%, from the $3.4
million reported for the five months ended December 31, 2008.  The
$0.3 million decrease in gross margins during the five months ended December 31,
2009 is primarily due to the decrease in software revenues. Gross margins as a
percentage of revenues were 74.1% and 80.0% for the two months ended
December 31, 2009 and 2008, respectively. This decrease in gross margin
percentage was primarily due to the increase in hardware revenue which generates
lower gross margins than software.  Gross margin as a percentage of
total revenues were 77.2% and 79.9% for the five months ended December 31, 2009
and 2008, respectively.  This decrease was mainly due to the decrease
in revenues for the same period.





12
 Table of Contents





Asure’s
cost of sales relates primarily to compensation expenses, hardware expenses and
the amortization of the Company’s purchased software costs.  These expenses
represented approximately 77.9% and 66.0% of the total cost of sales for the two
months ended December 31, 2009 and 2008, respectively and 78.1% and 65.3%
of the total cost of sales for the five months ended December 31, 2009 and
2008, respectively.  The short term variability in cost of goods sold as a
percentage of revenue is primarily attributable to product mix.





Selling,
General and Administrative





Selling,
general and administrative (“SG&A”) expenses for the two months ended
December 31, 2009 were $.8 million, a decrease of $1.1 million or 56.7%,
from the $1.9 million reported for the two months ended December 31, 2008.
SG&A expenses as a percentage of revenues were 47.5% and 125.4% for the two
months ended December 31, 2009 and 2008, respectively.





SG&A
expenses for the five months ended December 31, 2009 were $3.5 million, a
decrease of $1.5 million, or 29.8%, from the $5.0 million reported for the five
months ended December 31, 2008. SG&A expenses as a percentage of revenues
were 88.4% and 118.2% for the five months ended December 31, 2009 and 2008,
respectively.





During the two months ended
December 31, 2009, SG&A expenses decreased $1.1 million, primarily due
to decreases in compensation, marketing expenses and renegotiation of some
expenses deemed excessive by management.  Effective March 1, 2009,
Asure implemented a mandatory 10% pay reduction for its personnel and also
terminated headcount at the beginning of the fiscal quarter ended October 31,
2009, which led to decreased compensation expenses by approximately $0.3 million
during the current fiscal quarter as well.  Additionally, in efforts to
further trim overhead costs, Asure’s reduced its marketing budget, decreasing
marketing expenses by $0.1 million during the two months ended December 31,
2009.  Finally, across the board cost reduction efforts and
renegotiation of some payables resulted in a total reduction of expenses of $0.5
million in the two month period ended December 31, 2009.





During
the five months ended December 31, 2009, SG&A expenses decreased $1.5
million, approximately 69% of which is due to decreases in compensation and
marketing expenses. The mandatory 10% pay reduction for its personnel and also
terminated headcount at the beginning of the fiscal year, decreased compensation
costs by approximately $0.6 million and reduction in marketing budget, decreased
marketing expenses by $0.5 million for the five month period ending December 31,
2009.  Finally, across the board cost reduction efforts resulted in a
total reduction of expenses of $0.5 million in the five month period ended
December 31, 2009





Throughout
its operations, Asure continues to evaluate any unnecessary SG&A expenses
and plans to further reduce expenses as appropriate.








Research
and Development





Research
and development expenses for the two months ended December 31, 2009 were
$0.26 million, a decrease of $79 thousand, or 23.0%, from the $0.34 million
reported for the two months ended December 31, 2008. Research and
development (“R&D”) expenses as a percentage of revenues were 15.7% and
23.4% for the two months ended December 31, 2009 and 2008, respectively.
R&D expenses for the five months ended December 31, 2009 were $0.7 million,
a decrease of $0.2 million, or 25.2%, from the $0.9 million reported for the
five months ended December 31, 2008. R&D expenses as a percentage of
revenues were 16.9% and 21.2% for the five months ended December 31, 2009 and
2008, respectively.





During
the two months ended December 31, 2009, R&D expenses decreased $79
thousand primarily due to decreases in compensation. Approximately 99% of the
decrease in R&D expenses for the five months ending December 31, 2009 is
also due to a decrease in compensation.





Asure
continues to improve and enhance its workforce management solutions –
particularly its Time & Attendance software from the iEmployee product line
and its Meeting Room Manager (“MRM”) software from its NetSimplicity product
line.   Time & Attendance included an additional application
programming interface for time collection, which expands the software’s
interoperability with various time clocks in addition to Asure’s Easy Touch Time
Clock.  Additionally, the Company implemented a new line of clocks
that contains several forms of data collection including magnetic stripe,
barcode, proximity and biometric readers. The expanded interoperability and new
line of clocks expanded Time & Attendance’s capabilities to meet various
customers’ requirements by increasing the customers’ choices when selecting
hardware devices.  Asure also added functionality to its Time &
Attendance software by developing an automated calculation of the time off
accruals and a new flexible pay schedule that allows customers to specify start
and end dates and times for multiple different pay periods.





Asure has
continued to develop MRM and enhanced the Microsoft Outlook Plug-in, Web and
Interactive LCD interfaces, allowed assigned delegates the ability to schedule
meetings on behalf of others, and provided more sophisticated conflict
resolution options for scheduling recurring meetings via Microsoft Outlook®.
Asure’s R&D efforts related to its NetSimplicity product line culminated in
August 2009 when the Company released MRM, Version 8.0.  Under this
next generation of the Company’s room and resource scheduling solution,
customers have the benefit of a bi-directional Outlook
Plug-in.  Meetings and resources scheduled through Microsoft Outlook
are synchronized to the Web client, thus allowing users to create, manage and
update information from the Web client, given the appropriate
privileges.  Customers can now delegate scheduling responsibilities to
individuals without requiring access to Microsoft Outlook.





13
 Table of Contents





Asure’s
development efforts for future releases and enhancements are driven by feedback
received from its existing and potential  customers and by gauging
marketing trends.  Management believes it has the appropriate
development team to design and further improve its workforce management
solutions.





Amortization
of intangible assets





Amortization
expenses for the two months ended December 31, 2009 were $0.1 million,
which is the same amount reported for the two months ended December 31,
2008. Amortization expenses as a percentage of revenues were 6.0% and 6.7% for
the two months ended December 31, 2009 and 2008, respectively. 
Amortization expenses for the five months ended December 31, 2009 were $0.3
million, which is the same amount reported for the five months ended December
31,2008. Amortization expenses as a percentage of revenues were 6.2% and 5.8%
for the five months ended December 31, 2009 and 2008, respectively. Upon
acquiring the iEmployee business in October 2007, Asure recorded several
intangible assets, which are being amortized over their estimated useful
lives.  The amortization expenses during the two months and five months
ended December 31, 2009 and 2008 relate entirely to these acquired
intangible assets.





Net
Income (Loss)





Asure
generated a net profit of $0.1 million, or $0.02 per share, during the two
months ended December 31, 2009, compared to $0.9 million of loss reported
for the two months ended December 31, 2008.  Net profits as a
percentage of total revenues were 2.9% for the two months ended December 31,
2009 and net loss was 60.5% for the two months ended December 31, 2008.
Asure incurred a net loss of $1.5 million, or $0.46per share, during the
five months ended December 31, 2009 compared to a net loss of $2.4 million, or
$0.77 per share, during the five months ended December 31, 2008. Net loss as a
percentage of revenues were 36.5% and 56.5% for the five months ended December
31, 2009 and 2008, respectively.





The $0.9
million decrease in net loss during the five months ended December 31, 2009 is
due primarily to the $1.7 million decrease in operating expenses, offset by a
$0.3 million decrease in revenues and $0.3 million decrease in other income
& expenses due to a one-time gain recorded during the five month period
ending December 31, 2008 related to the release of Tandberg escrow
funds.





Asure
will continue to implement its corporate strategy for growing its software and
services business by modestly investing in areas that directly generate revenue
and positive cash flows for the Company.  However, uncertainties and
challenges remain, especially during this macroeconomic environment downturn,
and there can be no assurance that the Company can successfully grow its
revenues or achieve profitability during the remainder of fiscal year
2010.








LIQUIDITY AND CAPITAL
RESOURCES





FOR THE FIVE
              MONTHS ENDED
              DECEMBER 31,2009
            
            
            2008(in thousands)Working
      capital
            
            $
            216
            
            
            $
            7,843Cash,
      cash equivalents and short-term investments
            
            
            2,263
            
            
            
            12,016Cash
      provided by (used in) operating activities
            
            
            (7,502
            )
            
            
            (2,451
            )Cash
      provided by (used in) investing activities
            
            
            5,304
            
            
            
            (258
            )Cash
      provided by (used in) financing activities
            
            
            55
            
            
            
            (10
            )





Cash used
in operating activities was $7.5 million for the five months ended
December 31, 2009 due primarily to $1.5 million in net loss and a $5.2
million reduction in accounts payable primarily due to the one time payment of
the Jenkens litigation settlement of $4.3 during the first fiscal quarter ended
October 31, 2009. Cash used in operating activities was $2.5 million for the
five months ended December 31, 2008 due primarily to the $2.4 million in net
loss.





Cash
provided by investing activities was $5.3 million for the five months ended
December 31, 2009 due primarily to liquidation of short-term investments to pay
out Jenken’s litigation of $4.3 million. Cash used in investing activities was
$0.3 million for the five months ended December 31, 2008 due primarily to net
purchases of short-term investments.Asure’s current operations
are not capital intensive and management does not anticipate any significant
capital expenditures during the remainder of fiscal year 2010.





14
 Table of Contents





The
Company leases office space and equipment under non-cancelable operating leases
that expire at various dates through 2013. Certain leases obligate Asure to pay
property taxes, maintenance and insurance and include escalation clauses. The
total amount of base rentals over the term of the Company’s leases is charged to
expense on a straight-line basis, with the amount of the rental expense in
excess of the lease payments recorded as a deferred rent
liability.  Approximately $11.4 million, or 95.9% of the Company’s
total operating lease obligations, relate to its corporate office facility at
Wild Basin in Austin, Texas.  As of December 31, 2009, Asure had $3.7
million in future minimum lease payments receivable under non-cancelable
sublease arrangements.





Management continues to
evaluate and reduce any unnecessary expenditure, while continuing to closely
monitor all of its cash sources and uses as it manages its operations through
the current recession.





Cash
provided by financing activities was $0.1 million for the five months ended
December 31, 2009 related to the Stock Purchase Agreement between Asure and its
CEO for $0.2 million, which was offset by repurchase of treasury stock for $0.1
million. Cash used in financing activities was $10 thousand for the five months
ended December 31, 2008. Management believes it currently has sufficient cash
and short-term investments on hand to fund its operations during the next twelve
months and beyond without needing to obtain long-term financing. Therefore, the
Company does not anticipate that it will be affected by any credit shortage in
the current economic business environment.





Pursuant
to Asure’s stock repurchase plan, the Company is allowed up to repurchase to
300,000 shares (adjusted for the 10 to 1 reverse stock split) of the Company’s
common stock.  During the two and five months ended December 31, 2009
Asure repurchased 33,703 shares of common stock for $92 thousand.  In
total, Asure has repurchased 212,743 shares for approximately $4.9 million over
the life of the plan.  Management will periodically assess
repurchasing additional shares, depending on the Company’s cash position, market
conditions and other factors.





As of
December 31, 2009, Asure’s principal sources of liquidity consisted of $2.3
million of cash and cash equivalents.  Management is focused on growing its
existing software operations and thus plans to utilize its cash balances to
expand its operations by making additional prudent investments as
necessary.  Although Asure is currently not actively exploring prospects in
acquiring a public or privately held technology business or product line, the
Company may consider a potential opportunity if the right opportunity presents
itself.





There is
no assurance that the Company will be able to limit its cash consumption and
preserve its cash balances, and it is possible that the Company’s future
business demands may lead to cash utilization at levels greater than recently
experienced. Management believes that the Company has sufficient capital and
liquidity to fund and cultivate the growth of its current and future operations
for the next 12 months and thereafter.  However, due to uncertainties
related to the timing and costs of these efforts, Asure may need to raise
additional capital in the future.  Yet, there is no assurance that the
Company will be able to raise additional capital if and when it is
needed.








CRITICAL ACCOUNTING
POLICIES




The
Company’s consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles and include the accounts of
Asure's wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in the consolidation. Preparation of the
consolidated financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of the assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. These
estimates are subjective in nature and involve judgments that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at fiscal year end and the reported amounts of revenues and
expenses during the fiscal year.  The more significant estimates made
by management include the valuation allowance for the gross deferred tax asset,
contingency legal reserves, lease impairment, 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 the iEmployee acquisition. The
Company bases its estimates on historical experience and on various other
assumptions that are believed to be 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 financial statements for continued
reasonableness. Appropriate adjustments, if any, to the estimates used are made
prospectively based upon such periodic evaluation.





Management
believes the following represent Asure’s critical accounting
policies:





Revenue
Recognition





The
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the fee is fixed or determinable and collectability is
probable.   The Company recognizes software revenue in accordance
with FASB ASC 985-605, Revenue Recognition – Multiple Element Arrangements (FASB
ASC 985-605).  The Company’s revenues consists of software license,
software subscription and service fees.  Revenue from the software
element is earned through the licensing or right to use the Company’s software
and from the sale of specific software products.  Service fee income
is earned through the sale of maintenance and technical support, training and
installation. Revenue from the sale of hardware devices is recognized upon
shipment of the hardware.  Asure also sells multiple elements within a
single sale.




15
 Table of Contents




When the
Company sells software licenses in a multiple element arrangement and
vendor-specific objective evidence (“VSOE”) of fair value is available for the
undelivered element, sales revenue is generally recognized on the date the
product is shipped, using the residual method, with a portion of revenue
recorded as deferred (unearned) due to the applicable undelivered elements. VSOE
of fair value for the maintenance, training and installation services are based
on the prices charged for the maintenance and services when sold separately.
Undelivered elements for our multiple element arrangements with a customer are
generally restricted to post contract support, training and install. The amount
of revenue allocated to these undelivered elements is based on the VSOE of fair
value for those undelivered elements. Deferred revenue due to undelivered
elements is recognized ratably on a straight-line basis over the service period
(typically one year) or when the service is completed. When VSOE of fair value
is not available for the undelivered element of a multiple element arrangement,
sales revenue is generally recognized ratably, on a straight-line basis over the
service period of the undelivered element.  The Company’s training and
installation services are not essential to the functionality of the Company’s
products as such services can be provided by a third party or the customers
themselves.





For
software subscription arrangements, the Company recognizes the total contract
value ratably as a single unit of accounting over the contract term, beginning
when the customer is able to utilize the software.





The
Company does not recognize revenue for agreements with rights of return,
refundable fees, cancellation rights or acceptance clauses until such rights of
return, refund or cancellation have expired or acceptance has
occurred.  The Company's arrangements with resellers do not allow for
any rights of return.





Deferred
revenue includes amounts received from customers in excess of revenue
recognized, and is comprised of deferred maintenance, service and other
revenue.  Deferred revenues are recognized in the Consolidated
Statements of Operations when the service is completed and over the terms of the
arrangements, primarily ranging from one to three years.





Impairment
of Goodwill, Intangible Assets and Long-Lived Assets





Goodwill
and other intangible assets with indefinite lives are not required to be
amortized under FASB ASC 350,Intangibles-Goodwill and Other(FASB ASC 350) and accordingly, the
Company reviews its goodwill for possible impairment on an annual basis, or
whenever specific events warrant. Events that may create an impairment review
include, but are not limited to: significant and sustained decline in the
Company's stock price or market capitalization, significant underperformance of
operating units and significant changes in market conditions and trends. Asure
uses a two-step process and a discounted cash flow model to evaluate its assets
for impairment. If the carrying amount of the goodwill or asset exceeds its
implied fair value, an impairment loss is recognized in an amount equal to the
excess during that fiscal period.  Intangible assets that are not
deemed to have indefinite lives are amortized over their useful lives and are
tested for impairment in accordance with FASB ASC 350.





In
accordance with FASB ASC 350, Asure reviews and evaluates its long-lived assets
for impairment whenever events or changes in circumstances indicate that their
net book value may not be recoverable.  When such factors and circumstances
exist, including those noted above, the Company compares the assets’ carrying
amounts against the estimated undiscounted cash flows to be generated by those
assets over their estimated useful lives.  If the carrying amounts are
greater than the undiscounted cash flows, the fair values of those assets are
estimated by discounting the projected cash flows.  Any excess of the
carrying amounts over the fair values are recorded as impairments in that fiscal
period.





ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





The
Company is a smaller reporting company as defined by Rule 12b-2 under the
Exchange Act and is not required to provide the information required under this
item.





ITEM 4.CONTROLS AND PROCEDURES





The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting for the Company.  The Company
maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the reports it files under the
Securities and Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission.  Such controls include
those designed to ensure that information for disclosure is communicated to
management, including the Chairman of the Board and the Chief Executive Officer
(“CEO”), as appropriate to allow timely decisions regarding required
disclosure.





The CEO
and CFO, with the participation of management, have evaluated the effectiveness
of the Company’s disclosure controls and procedures as of December 31,
2009.  Based on their evaluation, they have concluded, to the best of their
knowledge and belief, that the disclosure controls and procedures are
effective.  No changes were made in the Company’s internal controls over
financial reporting during the two months ended December 31, 2009, that
have materially affected, or are reasonably likely to materially affect, the
Company’s internal controls over financial reporting.  In making this
assessment, management used the criteria set forth inInternal
Control-Integrated Framework  issued by the Committee of
Sponsoring Organizations of the Treadway Commission.





16
 Table of Contents





PART II – OTHER INFORMATION





ITEM 1. LEGAL PROCEEDINGS





Asure was
the defendant or plaintiff in various actions that arose in the normal course of
business. With the exception of the proceedings described below, none of the
pending legal proceedings to which the Company is a party are material to the
Company.





Litigation
with Jenkens & Gilchrist, P.C.





On July
16, 2007, Jenkens & Gilchrist, P.C. (“Jenkens”), Asure’s former legal
counsel, filed a complaint against Asure and Compressions Labs, Inc., in the
District Court of Dallas County, Texas.  In its complaint, Jenkens
alleged a breach of contract and sought a declaratory judgment.  Asure
disputed Jenkens’ claims and also sought relief through the court
system.





After
Asure terminated Jenkens, the Company entered into a Resolution Agreement with
Jenkens in December 2004.  Under the Resolution Agreement, the Company
believed Jenkens was entitled to $1,400 for all fees and expenses related to
certain settlements received from licensing the Company's intellectual
property.  Jenkens interpreted the Resolution Agreement on broader
terms and initially believed it was entitled to $2,800.  As of July
31, 2007, Asure accrued $2,100 for Jenkens’ contingency fees related to these
settlements. The Company recorded the contingency fees as part of cost of sales
on its Consolidated Statement of Operations for the year ended July 31, 2007 in
order to properly match the expenses to the related licensing
revenues.  The $2,100 accrual remained as part of Asure’s current
liabilities through fiscal year 2009.





On July
20, 2009, the trial with Jenkens commenced.  As the result of the jury
verdict in July 2009 to award Jenkens approximately $4,600 in damages,
attorney’s fees and interest, Asure entered into a settlement agreement with
Jenkens, effective August 20, 2009.  Under the settlement agreement,
Asure agreed to pay Jenkens $4,300 and the parties agreed to release all claims
against each other.  Based on the settlement amount, the Company
accrued an additional $2,200 as of July 31, 2009. Since the Company was no
longer licensing its intellectual property and had no related licensing revenues
in fiscal year 2009, this additional $2,200 expense was recorded as part of
operating expenses on the Consolidated Statement of Operations for the year
ended July 31, 2009.  Asure paid Jenkens $4,300 on August 25, 2009 and
the Company considers this litigation to be concluded.





Litigation
with Wild Basin





On
September 6, 2007, Asure filed a petition against Wild Basin One & Two, Ltd.
(“Wild Basin”) in the District Court of Travis County, Texas.  The
petition claimed Wild Basin was in breach of contract relating to Asure’s lease
agreement by unreasonably withholding and delaying its consent to Asure’s lease
assignment to a third party.  On October 19, 2007, Asure amended its
petition to include claims of fraud and breach of fiduciary duty against Wild
Basin.  On June 5, 2008, Asure amended its petition to request the
Court make declaratory judgments on several issues in the case and to include as
a breach of contract claim its claim for withholding amounts that should have
been distributed by Wild Basin in the past pursuant to the
lease.  Asure sought to recover all damages as a result of the delay
in closing its pending assignment and amounts not distributed in the past, among
other damages.





The trial
for this litigation commenced on September 22, 2008.  Prior to the
conclusion of the trial, Asure and Wild Basin reached a settlement agreement,
effective September 25, 2008.  This settlement agreement requires,
among other terms, that Wild Basin consents to Asure’s lease
assignment.  In return, Asure paid Wild Basin $75 in November
2008.  Both parties agreed to mutually release claims against each
other.





While
Asure was significantly delayed in obtaining Wild Basin’s consent to its lease
assignment, the identified third party encountered difficulties obtaining the
required financing due to the tightened capital
markets.    Additionally, Asure continues to work with Wild
Basin regarding its breach of contract claim that Wild Basin withheld amounts
that should have been distributed to Asure. Asure will renew its litigation
against Wild Basin regarding this matter, only if necessary.





ITEM 1A. RISK FACTORS





The
Company is a smaller reporting company as defined by Rule 12b-2 of the
Exchange Act and is not required to provide the information required under this
item.





ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





None





ITEM 3. DEFAULTS UPON SENIOR SECURITIES





None





ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS





None





17
 Table of Contents








ITEM 5. EXHIBITS





Exhibits:2.2
            
            Agreement
      and Plan of Merger, dated as of September 11, 2007 by and among Asure
      Software, Inc., Cheetah Acquisition Company, Inc. and iSarla Inc.
      (incorporated by reference to Exhibit 2.2 to the Company’s quarterly
      report on Form 10-Q for the three months ended October 31,
      2007).3.1
            
            Restated
      Certificate of Incorporation (incorporated by reference to
      Exhibit 3.1 to the Company’s quarterly report on Form 10-Q for
      the three months ended October 31, 2004).3.2
            
            Restated
      Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s
      quarterly report on Form 10-Q for the three months ended
      October 31, 2004).4.1
            
            Specimen
      Certificate for the Common Stock (incorporated by reference to
      Exhibit 4.1 to the Company’s Registration Statement on Form S-1,
      File No. 33-45876, as amended).4.2
            
            Rights
      Agreement, dated as of December 19, 2005 between Asure
      Software, Inc. and American Stock Transfer & Trust Company,
      which includes the form of Series A Preferred Stock, $.01 par value,
      the form of Rights Certificate, and the Summary of Rights (incorporated by
      reference to Exhibit 4.1 to the Company’s Current Report on
      Form 8-K dated December 19, 2005).31.1*
            
            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.31.2*
            
            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.32.1*
            
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002.32.2*
            
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of
  2002.







*
      Filed herewith











18
 Table of Contents





SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.




ASURE
      SOFTWARE, INC.February 16,
      2010
              By:
              /s/
      PATRICK GOEPELPatrick
      GoepelChief
      Executive Officer





February 16,
      2010
              By:
              /s/
      DAVID SCOGLIODavid
      ScoglioChief
      Financial Officer
















19
 Table of Contents





INDEX TO EXHIBITS





EXHIBITNUMBER
            
            DESCRIPTION2.2
            
            Agreement
      and Plan of Merger, dated as of September 11, 2007 by and among Asure
      Software, Inc., Cheetah Acquisition Company, Inc. and iSarla
      Inc. (incorporated by reference to Exhibit 2.2 to the Company’s
      quarterly report on Form 10-Q for the three months ended
      October 31, 2007).3.1
            
            Restated
      Certificate of Incorporation (incorporated by reference to
      Exhibit 3.1 to the Company’s quarterly report on Form 10-Q for
      the three months ended October 31, 2004).3.2
            
            Restated
      Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s
      quarterly report on Form 10-Q for the three months ended
      October 31, 2004).4.1
            
            Specimen
      Certificate for the Common Stock (incorporated by reference to
      Exhibit 4.1 to the Company’s Registration Statement on Form S-1,
      File No. 33-45876, as amended).4.2
            
            Rights
      Agreement, dated as of December 19, 2005 between Asure
      Software, Inc. and American Stock Transfer & Trust Company,
      which includes the form of Series A Preferred Stock, $.01 par value,
      the form of Rights Certificate, and the Summary of Rights (incorporated by
      reference to Exhibit 4.1 to the Company’s Current Report on
      Form 8-K dated December 19, 2005).31.1
            
            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.31.2
            
            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.32.1
            
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002.32.2
            
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of
  2002.









20