What changed in this filing

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Item 1. Financial Statements

2023-05-08 compared with 2022-11-07 · 138 added, 168 removed, 332 unchanged (48% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Current assets:

Cash, cash equivalents, and restricted cash $ 21,438 $ 17,010

Accounts receivable, net of allowance for doubtful accounts of $ 2,751 and $ 2,210 at September 30, 2022 and December 31, 2021, respectively

Accounts receivable, net of allowance for doubtful accou nts of $ 4,027 a nd $ 3,248 at March 31, 2023 and December 31, 2022, respectively

14,762 12,123

Inventory 218 251

26 unchanged sentences

Operating lease liabilities, noncurrent 6,098 6,459

Contingent purchase consideration 670 2,424

Other liabilities 132 114

7 unchanged sentences

44,000 shares authorized;

20,544 and 20,412 shares issued, 20,160 and 20,028 shares outstanding at September 30, 2022 and December 31, 2021, respectively

Treasury stock at cost, 384 shares at September 30, 2022 and December 31, 2021

21,003 and 20,628 shares issued, 20,619 and 20,244 shares outstanding at March 31, 2023 and December 31, 2022, respectively

Treasury stock at cost, 384 shares at March 31, 2023 and December 31, 2022

( 5,017 ) ( 5,017 )

6 unchanged sentences

ASURE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share amounts)

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(unaudited) (unaudited)

Recurring $ 27,956 $ 23,004

9 unchanged sentences

Total operating expenses 22,437 17,635

Loss from operations ( 3,708 ) ( 4,073 ) ( 11,727 ) ( 9,711 )

Income (loss) from operations 1,963 ( 2,171 )

Interest expense, net ( 1,944 ) ( 820 )

(Loss) gain on extinguishment of debt — ( 342 ) 180 8,312

Employee retention tax credit — 10,533 — 10,533

Other income, net 83 4

(Loss) Income from operations before income taxes ( 4,431 ) 5,588 ( 13,204 ) 8,157

Income tax expense 102 260 206 663

Net (loss) income ( 4,533 ) 5,328 ( 13,410 ) 7,494

Other comprehensive loss:

Unrealized loss on marketable securities ( 1,243 ) ( 79 ) ( 2,802 ) ( 287 )

Comprehensive (loss) income $ ( 5,776 ) $ 5,249 $ ( 16,212 ) $ 7,207

Basic and diluted (loss) earnings per share

Income (loss) from operations before income taxes 102 ( 2,987 )

Income tax (benefit) expense ( 237 ) 30

Net income (loss) 339 ( 3,017 )

Other comprehensive income (loss):

Unrealized income (loss) on marketable securities 481 ( 1,063 )

Comprehensive income (loss) $ 820 $ ( 4,080 )

Basic and diluted earnings (loss) per share

Basic $ 0.02 $ ( 0.15 )

11 unchanged sentences

Share based compensation — — — 1,337 — — 1,337

Net loss — — — — ( 3,017 ) — ( 3,017 )

Other comprehensive loss — — — — — ( 1,063 ) ( 1,063 )

Net income — — — — 339 — 339

Other comprehensive income — — — — — 481 481

Balance at March 31, 2023 20,619 $ 210 $ ( 5,017 ) $ 436,907 $ ( 280,887 ) $ ( 2,002 ) $ 149,211

Stock issued upon option exercise and vesting of restricted stock units 33 — — — — — —

Stock issued, ESPP 38 — — 192 — — 192

Share based compensation — — — 814 — — 814

Net loss — — — — ( 5,860 ) — ( 5,860 )

Other comprehensive loss — — — — — ( 496 ) ( 496 )

Balance at June 30, 2022 20,142 $ 205 $ ( 5,017 ) $ 431,647 $ ( 275,637 ) $ ( 1,658 ) $ 149,540

Stock issued upon option exercise and vesting of restricted stock units 18 — — — — — —

Share based compensation — — — 798 — — 798

Net loss — — — — ( 4,533 ) — ( 4,533 )

Other comprehensive loss — — — — — ( 1,243 ) ( 1,243 )

Balance at September 30, 2022 20,160 $ 205 $ ( 5,017 ) $ 432,445 $ ( 280,170 ) $ ( 2,901 ) $ 144,562

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

ASURE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands)

Common Stock Outstanding Common Stock Amount Treasury Stock Additional Paid-in Capital Accumulated Deficit Other Comprehensive Income (Loss) Total Stockholders’ Equity

Common Stock Outstanding Common Stock Amount Treasury Stock Additional Paid-in Capital Accumulated Deficit Other Comprehensive Loss Total Stockholders’ Equity

Balance at December 31, 2021 20,028 $ 204 $ ( 5,017 ) $ 429,912 $ ( 266,760 ) $ ( 99 ) $ 158,240

1 unchanged sentence

Share based compensation — — — 729 — — 729

Share issuance costs — — — ( 23 ) — — ( 23 )

Net loss — — — — ( 3,017 ) — ( 3,017 )

1 unchanged sentence

Balance at March 31, 2022 20,071 $ 205 $ ( 5,017 ) $ 430,641 $ ( 269,777 ) $ ( 1,162 ) $ 154,890

Stock issued upon option exercise and vesting of restricted stock units 49 1 — 188 — — 189

Stock issued, ESPP 29 — — 170 — — 170

Share based compensation — — — 714 — — 714

Net income — — — — 3,764 — 3,764

Other comprehensive loss — — — — — ( 69 ) ( 69 )

Balance at June 30, 2021 19,099 $ 195 $ ( 5,017 ) $ 421,633 $ ( 267,787 ) $ 396 $ 149,420

Stock issued upon option exercise and vesting of restricted stock units 102 1 — 57 — — 58

Shares issued — acquisitions 767 8 — 6,420 — — 6,428

Share based compensation — — — 784 — — 784

Net income — — — — 5,328 — 5,328

Other comprehensive loss — — — — — ( 79 ) ( 79 )

Balance at September 30, 2021 19,968 $ 204 $ ( 5,017 ) $ 428,894 $ ( 262,459 ) $ 317 $ 161,939

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

2 unchanged sentences

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

Net (loss) income $ ( 13,410 ) $ 7,494

Adjustments to reconcile (loss) income to net cash provided by (used in) operations:

Net income (loss) $ 339 $ ( 3,017 )

Adjustments to reconcile income (loss) to net cash provided by operations:

Depreciation and amortization 4,789 4,754

1 unchanged sentence

Amortization of debt financing costs and discount 169 164

Non-cash interest expense 982 —

Net amortization of premiums and accretion of discounts on available-for-sale securities ( 14 ) 118

1 unchanged sentence

Provision for deferred income taxes ( 73 ) 22

Gain on extinguishment of debt ( 180 ) ( 8,312 )

Net realized gains on sales of available-for-sale securities ( 808 ) ( 390 )

Net realized losses on sales of available-for-sale securities ( 453 ) ( 203 )

Share-based compensation 1,337 729

Loss (gain) on disposals of long-term assets 1 ( 32 )

Loss on disposals of long-term assets 160 1

Change in fair value of contingent purchase consideration ( 69 ) —

Adjustment to Intangibles 23 —

Changes in operating assets and liabilities:

7 unchanged sentences

Deferred revenue ( 4,339 ) ( 2,137 )

Net cash provided by (used in) operating activities 6,957 ( 1,144 )

Net cash provided by operating activities 4,588 2,530

Cash flows from investing activities:

4 unchanged sentences

Proceeds from sales and maturities of available-for-sale securities 5,426 501

Net cash (used in) provided by investing activities ( 33,991 ) ( 21,042 )

Net cash used in investing activities ( 6,647 ) ( 6,719 )

Cash flows from financing activities:

Proceeds from notes payable — 29,425

Payments of notes payable ( 232 ) —

Payments of contingent purchase consideration ( 9 ) ( 1,784 )

Debt financing fees — ( 878 )

Net proceeds from issuance of common stock 1,988 —

Net change in client fund obligations 19,372 21,296

Net cash used in financing activities ( 34,032 ) ( 133,990 )

Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents ( 61,066 ) ( 156,176 )

Net cash provided by financing activities 21,128 21,296

Net increase in cash, cash equivalents, restricted cash, and restricted cash equivalents 19,069 17,107

Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period 164,042 198,743

4 unchanged sentences

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the Condensed Consolidated Balance Sheets

4 unchanged sentences

Cash paid for interest $ 1,038 $ 684

Cash paid for income taxes $ 246 $ 332

Net assets added from acquisitions $ — $ 763

Cash paid (refunded) for income taxes $ 82 $ ( 14 )

Non-cash investing and financing activities:

Contingent purchase consideration issued for acquisitions $ — $ 3,038

Notes payable issued for acquisitions $ — $ 411

Stock issuance for acquisitions $ — $ 6,428

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

1 unchanged sentence

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION

Asure Software, Inc., (“Asure”, the “Company”, “we” and “our”), a Delaware corporation, is a provider of Human Capital Management (“HCM”) software solutions.

We help small and medium-sized companies grow by helping them build more productive teams, providing the tools and resources that help them stay compliant with ever-changing federal, state, and local tax jurisdictions and labor laws, and better allocate cash so they can spend their financial capital on growing their business rather than back-office overhead expenses.

Asure’s Human Capital Management suite, named Asure HCM, includes cloud-based Payroll, Tax Services, and Time & Attendance software as well as human resources (“HR”) services ranging from HR projects to completely outsourcing payroll and HR staff.

We also offer these products and services through our network of reseller partners.

Our platform vision is to become the most trusted HCM resource to entrepreneurs everywhere by helping our clients grow their businesses.

Our product strategy is driven by three primary challenges that prevent businesses from growing:

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

The Asure HCM suite includes four product lines:

Asure Payroll & Tax, Asure HR, Asure Time & Attendance, and Asure HR Services.

Asure Software, Inc., (“Asure”, the “Company”, “we” and “our”), a Delaware corporation, is a provider of cloud-based Human Capital Management (“HCM”) software solutions delivered as Software-as-a-Service (“SaaS”) for small and medium-sized businesses (“SMBs”).

We offer human resources (“HR”) tools necessary to build a thriving workforce, provide the resources to stay compliant with dynamic federal, state, and local tax jurisdictions and their respective labor laws, freeing cash flows so SMBs can spend their financial capital on growing their businesses rather than administrative overhead that can impede growth.

Our solutions also provide new ways for employers to connect with and to differentiate themselves with their employees in order to enhance their relationships with their talent.

Asure’s HCM suite (“Asure HCM”) includes Payroll & Tax solutions, HR compliance and services, Time & Attendance software and data integrations that enable employers and their employees to enhance efficiencies and take advantage of value-added solutions, which we refer to as AsureMarketplace™.

AsureMarketplace™ automates interactions between our HCM systems with third-party providers to enhance efficiency, improve accuracy and to extend the range of services offered to employers and their employees.

We offer our services directly and indirectly through our network of Reseller Partners.

We strive to be the most trusted HCM resource to SMBs.

We target less densely populated U.S.

metropolitan cities where fewer of our competitors have a presence.

Our solutions solve three primary challenges that prevent businesses from growing:

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

We have and will continue to invest in research and development to expand our solutions.

Our solutions reduce the administrative burden on employers and increase employee productivity while managing the employment lifecycle.

The Asure HCM suite includes five product lines:

Asure Payroll & Tax, Asure Tax Management Solutions, Asure Time & Attendance, Asure HR Compliance, and AsureMarketplace™.

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

2 unchanged sentences

GAAP”) for complete financial statements.

In the opinion of management, these interim financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary for a fair presentation of our financial position as of September 30, 2022 and the results of operations, statements of changes in stockholders’ equity for the three and nine months ended September 30, 2022 and September 30, 2021, and our statements of cash flows for the nine months ended September 30, 2022 and September 30, 2021.

In the opinion of management, these interim financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary for a fair presentation of our financial position as of March 31, 2023 and the results of operatio ns, statements of changes in stockholders’ equity for the three months ended March 31, 2023 and March 31, 2022, and our statements of cash flows for the three months ended March 31, 2023 and March 31, 2022.

Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements.

16 unchanged sentences

Restricted cash consists of cash balances which are restricted as to withdrawal or usage.

As of September 30, 2022, the Company has $500 of restricted cash related to collateralizing a letter of credit issued by South State Bank in connection with our money transmission licenses.

As of December 31, 2022, the Company had a restricted cash balance of $500 related to the collateralization of a letter of credit issued by South State Bank in connection with its money transmission licenses, which was released in the first quarter of 2023.

As of March 31, 2023, the Company had no restricted cash.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2019, the FASB issued ASU No.

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No.

2019-12, Income Taxes (Topic 740):

9 unchanged sentences

The amended guidance will also update the impairment model for available-for-sale debt securities, requiring entities to determine whether all or a portion of the unrealized loss on such securities is a credit loss .

The Company is currently evaluating this standard and the potential effects of these changes to its consolidated financial statements and will adopt this new standard in the fiscal year beginning January 1, 2023.

The standard became effective for interim and annual periods beginning after December 15, 2022.

Effective January 1, 2023, the Company adopted the provisions of ASU No.

2016-13 and determined that adoption did not have a material impact on our consolidated financial statements.

ACCUMULATED OTHER COMPREHENSIVE LOSS

As of September 30, 2022 and December 31, 2021, accumulated other comprehensive loss consisted of net unrealized gains and losses on available-for-sale securities.

As of March 31, 2023 and December 31, 2022, accumulated other comprehensive loss consisted of net unrealized gains and losses on available-for-sale securities.

NOTE 3 - BUSINESS COMBINATIONS AND ASSET ACQUISITIONS

1 unchanged sentence

The acquired customer relationships are recorded as an intangible asset and are being amortized on a straight-line basis over eight years.

In September 2021, the Company acquired certain assets (the “Asset Purchase Agreement”) of a payroll business, which was used to provide payroll processing services.

The aggregate purchase price that the Company paid for these assets was $ 14,750 , paid as follows:

(i) $ 10,325 in cash at closing, (ii) the delivery of 244 shares of the Company’s common stock, which the parties agreed had an aggregate value of $ 2,213 as of September 30, 2021, and (iii) the delivery of a promissory note in the amount of $ 2,213 .

The promissory note was adjusted to $ 2,223 to account for post close and working capital adjustments.

The Asset Purchase Agreement is subject to working capital adjustments to the purchase price.

Also in September 2021, we acquired certain assets of a payroll business (the “Second Asset Purchase Agreement”), which were used to provide payroll processing services.

The aggregated purchase price for these assets was $ 24,150 , paid as follows:

(i) $ 15,000 was paid in cash at closing, (ii) the delivery of 523 shares of the Company’s common stock which both parties agreed had an aggregate value of $ 4,800 at closing, and (iii) the delivery of a promissory note of $ 4,350 .

The promissory note also includes a contingent consideration, which is contingent on certain thresholds and will be based on the trailing twelve-month revenue at September 30, 2022.

Additionally, we utilized a Monte Carlo simulation to determine the fair value of the contingent consideration.

For the year ended December 31, 2021, there was a measurement period adjustment to the fair value of the contingent consideration of $ 465 .

For the quarter ended September 30, 2022, there was a measurement period adjustment to the fair value of the contingent consideration of $ 404 .

For the nine months ended September 30, 2022 the fair value of the contingent consideration was $671, which will be added to promissory note in the fourth quarter of 2022.

The promissory note amount as of September 30, 2022 was $ 4,080 due to a principal payment made during the period.

See Note 11, Subsequent Events for information regarding payments made on this promissory note occurring after March 31, 2023.

2021 and 2020

In September 2021, the Company acquired certain assets of two payroll businesses, which were used to provide payroll processing services.

In connection with these acquisitions there are two outstanding promissory notes payable in the amounts of $ 2,223 and $ 4,080 as of March 31, 2023 .

One promissory note also includes contingent consideration for which we utilized a Monte Carlo simulation to determine the fair value of the contingent consideration as of March 31, 2023.

For the quarter ended March 31, 2023, there was a measurement period adjustment to the fair value of a decrease in the contingent consideration of $ 69 .

For the three months ended March 31, 2023, the fair value of the contingent consideration was $ 587 , which will be added to promissory note in the second quarter of 2023.

See Note 11, Subsequent Events for information regarding an adjustment to the promissory note for additional contingent consideration occurring after March 31, 2023.

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

The Asset Purchase Agreement set forth two subsequent purchase consideration payments, which are contingent on certain thresholds.

The first contingent purchase consideration was paid in June 2021.

The outstanding contingent purchase consideration of $ 2,299 was valued based on the trailing twelve-month revenue at October 31, 2021 and is due to be paid on July 1, 2023.

NOTE 4 - INVESTMENTS AND FAIR VALUE MEASUREMENTS

9 unchanged sentences

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 our financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021, respectively (in thousands):

The following table presents the fair value hierarchy for our financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022, respectively (in thousands):

Total Carrying Value Level 1 Level 2 Level 3

September 30, 2022

March 31, 2023

Funds held for clients

15 unchanged sentences

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

September 30, 2022

March 31, 2023

Restricted cash equivalents $ 6,297 $ — $ ( 11 ) $ 6,286

16 unchanged sentences

(1) Unrealized gains and losses on available-for-sale securities are included as a component of comprehensive loss.

As of September 30, 2022 and December 31, 2021, there were 2 and 10 securities, respectively, in an unrealized gain position and there were 104 and 57 securities in an unrealized loss position, respectively.

As of September 30, 2022, these unrealized losses were less than $ 99 individually and $ 2,601 in the aggregate.

As of March 31, 2023 and December 31, 2022, there were 23 and 3 securities, respectively, in an unrealized gain position and there were 114 and 124 securities in an unrealized loss position, respectively.

As of March 31, 2023, these unrealized losses were less than $ 81 individually and $ 2,071 in the aggregate.

As of December 31, 2022, these unrealized losses were less than $ 96 individually and $ 2,480 in the aggregate.

1 unchanged sentence

We do not intend to sell these investments and we do not expect to sell these investments before recovery of their amortized cost basis, which may be at maturity.

We review our investments to identify and evaluate investments that indicate possible other-than-temporary impairment.

Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

(2) At September 30, 2022 and December 31, 2021, none of these securities were classified as cash and cash equivalents on the accompanying Condensed Consolidated Balance Sheets.

We review our investments to identify and evaluate investments that indicate credit losses.

Factors considered in determining whether a loss is a credit loss include the length of time and extent to which fair value has been less than the cost basis, the credit rating of the investment, and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

(2) At March 31, 2023 and December 31, 2022, none of these securities were classified as cash and cash equivalents on the accompanying Condensed Consolidated Balance Sheets.

Funds held for clients represent assets that the Company has classified as restricted for use solely for the purposes of satisfying the obligations to remit funds relating to the Company’s payroll and payroll tax filing services, which are classified as client funds obligations on our Condensed Consolidated Balance Sheets.

Funds held for clients have been invested in the following categories (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Restricted cash and cash equivalents held to satisfy client funds obligations $ 161,673 $ 147,032

2 unchanged sentences

Total funds held for clients $ 223,465 $ 203,588

Expected maturities of available-for-sale securities as of September 30, 2022 are as follows (in thousands):

Expected maturities of available-for-sale securities as of March 31, 2023 are as follows (in thousands):

One year or less $ 6,789

1 unchanged sentence

Total $ 61,792

The previously reported comprehensive loss on the Condensed Consolidated Statement of Comprehensive Loss for the three-month and six-month period ended June 30, 2022, was inconsistent with the amount reported as “Other Comprehensive Loss” on the Condensed Consolidated Balance Sheet and the Condensed Consolidated Statement of Stockholders’ Equity as of and for the period ended June 30, 2022, which reported the correct changes in other comprehensive loss.

For the three months ended June 30, 2022 the Company reported “Other Comprehensive Loss” of $7,614 versus the amount of $6,356.

For the six months ended June 30, 2022 the Company reported “Other Comprehensive Loss” of $9,940 versus the amount of $10,436.

The Company completed an analysis based on the guidance from Staff Accounting Bulletin No.

99 and determined that the related impacts were not material to any previously presented financial statements, and therefore decided to modify the reporting of this inconsistency on a prospective basis.

NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS

December 31, 2021 Acquisitions September 30, 2022

December 31, 2022 Acquisitions March 31, 2023

Goodwill $ 86,011 $ — $ 86,011

2 unchanged sentences

A portion of acquired goodwill will be amortizable for tax purposes.

As of September 30, 2022, there has been no impairment of goodwill based on the qualitative assessments performed by the Company.

Gross Intangible Assets December 31, 2021 Acquisitions September 30, 2022

As of March 31, 2023, there has been no impairment of goodwill based on the qualitative assessments performed by the Company.

Gross Intangible Assets March 31, 2023

Customer relationships $ 116,971

3 unchanged sentences

Non-compete agreements 1,032

$ 129,536 $ 2,687 $ 132,223

The gross carrying amount and accumulated amortization of our intangible assets as of September 30, 2022 are as follows (in thousands, except weighted average periods):

The gross carrying amount and accumulated amortization of our intangible assets as of March 31, 2023 are as follows (in thousands, except weighted average periods):

Weighted Average

1 unchanged sentence

Amortization Net

September 30, 2022

March 31, 2023

Customer relationships 8.7 $ 116,971 $ ( 55,972 ) $ 60,999

12 unchanged sentences

We record amortization expenses using the straight-line method over the estimated useful lives of the intangible assets, as noted above.

Amortization expenses recorded in Operating Expenses were $ 10,134 and $ 7,590 for the nine months ended September 30, 2022 and 2021, respectively.

Amortization expenses recorded in Cost of Sales were $ 889 and $ 1,135 for the nine months ended September 30, 2022 and 2021, respectively.

There was no impairment of intangibles during the nine months ended September 30, 2022 based on the qualitative assessment performed by the Company.

Amortization expenses recorded in Operating Expenses were $ 3,302 and $ 3,432 for the three months ended March 31, 2023 and 2022, respectively.

Amortization expenses recorded in Cost of Sales were $ 268 and $ 296 for the three months ended March 31, 2023 and 2022, respectively.

There was no impairment of intangibles during the three months ended March 31, 2023 based on the qualitative assessment performed by the Company.

However, if market, political and other conditions over which we have no control continue to affect the capital markets and our stock price declines, we may experience an impairment of our intangibles in future quarters.

The following table summarizes the future estimated amortization expense relating to our intangible assets as of September 30, 2022 (in thousands):

The following table summarizes the future estimated amortization expense relating to our intangible assets as of March 31, 2023 (in thousands):

2023 $ 10,030

Thereafter 4,577

1 unchanged sentence

The following table summarizes our outstanding debt as of the dates indicated (in thousands):

Maturity Cash Interest Rate September 30, 2022 December 31, 2021

Maturity Cash Interest Rate March 31, 2023 December 31, 2022

Subordinated Notes Payable – Acquisitions (1)

3 unchanged sentences

Gross Notes Payable $ 38,379 $ 37,554

(1) See Note 3 — Business Combinations and Asset Acquisitions for further discussion regarding the notes payable related to acquisitions.

(1) See Note 3 — Business Combinations and Asset Acquisitions and Subordinated Notes Payable - Acquisitions section below for further discussion regarding the notes payable related to acquisitions.

The following table summarizes the debt issuance costs as of the dates indicated (in thousands):

Gross Notes Payable Debt Issuance Costs and Debt Discount Net Notes Payable

September 30, 2022

March 31, 2023

Current portion of notes payable $ 6,043 $ ( 625 ) $ 5,418

5 unchanged sentences

Total $ 37,554 $ ( 2,653 ) $ 34,901

The following table summarizes the future principal payments related to our outstanding debt as of September 30, 2022 (in thousands):

The following table summarizes the future principal payments related to our outstanding debt as of March 31, 2023 (in thousands):

Total $ 38,379

Subordinated Notes Payable - Acquisitions

In August 2022, the Company reached an agreement with the holders of the subordinated note payable, issued in connection with the purchase of a business acquired in 2018 to settle outstanding indemnification claims for $ 190 , which reduced the outstanding balance of the subordinated note payable (including interest) to $ 600 .

There remained no outstanding balance on the note as of September 30, 2022.

There remains an outstanding principal balance on the subordinated note payable issued in connection with the

purchase of a business the Company acquired in 2020, which note matured on July 1, 2022.

$ 634 of the principal balance was paid on July 1, 2022.

A $ 232 payment on the principal balance was withheld as security for outstanding claims for which we are entitled to indemnification under the purchase agreement.

The Company will make payment, subject to its rights of set-off under the purchase agreement, when the claims are resolved.

Due to its rights under the purchase agreement and the terms of this note, the Company is not in default under the note.

In January 2023, the Company resolved the outstanding claims for indemnification for which it was holding back payment of the subordinated note payable as security for such claim.

As a result of the resolution of those claims, the remaining balance of $ 232 has been paid to the Seller ($182) and to the claimant ($50) in satisfaction of its claim.

There are no further amounts due or owing under this subordinated note payable.

There remains an outstanding contingent consideration of $ 587 in connection with a payroll business acquired in September 2021, which will be added to the promissory note issued in connection with the acquisition in the second quarter of 2023.

See Note 11, Subsequent Events for information regarding an adjustment to the promissory note for additional contingent consideration occurring after March 31, 2023.

Senior Credit Facility with Structural Capital Investments III, LP

4 unchanged sentences

At the onset of the agreement, we paid to the Lenders an origination fee of $ 500 .

Interest accrues on any outstanding balance at a rate equal to the greater of 9.0% or the Prime Rate, plus 5.75% (the “Basic Rate”) and is payable in advance, which as of September 30, 2022 was 12.0%.

Interest accrues on any outstanding balance at a rate equal to the greater of 9.0% or the Prime Rate, plus 5.75% (the “Basic Rate”) and is payable in advance, which as of March 31, 2023 was 13.75%.

In addition, interest is paid in kind (“PIK”) at a rate of 1.00% or 1.25% based on our APR Ratio, measured on a quarterly basis.

11 unchanged sentences

NOTE 7 – CONTRACTS WITH CUSTOMERS AND REVENUE CONCENTRATION

Receivables from contracts with customers, net of allowance for doubtful accounts of $ 2,751 , were $ 6,821 at September 30, 2022.

Receivables from contracts with customers, net of allowance for doubtful accounts of $ 4,027 , were $ 14,762 at March 31, 2023.

Receivables from contracts with customers, net of allowance for doubtful accounts of $ 3,248 , were $ 12,123 at December 31, 2022.

No customers represented more than 10% of our net accounts receivable balance as of September 30, 2022 and December 31, 2021, respectively.

The increase in the receivable balance during the first quarter of 2023 is primarily due to deferred payment terms on many of our Earned Retention Tax Credit commitments.

No customers represented more than 10% of our net accounts receivable balance as of March 31, 2023 and December 31, 2022, respectively.

Deferred Commissions

Deferred commission costs from contracts with customers were $ 5,875 and $ 4,684 at September 30, 2022 and December 31, 2021, respectively.

The amount of amortization recognized for the three and nine months ended September 30, 2022 $ 412 and $ 1,192 , respectively, and for the three and nine months ended September 30, 2021 was $ 424 and $ 963 , respectively.

Deferred commission costs from contracts with customers were $ 7,525 and $ 6,660 at March 31, 2023 and December 31, 2022, respectively.

The amount of amortization recognized for the three months ended March 31, 2023 was $ 496 , and for the three months ended March 31, 2022 was $ 345 .

Deferred Revenue

During the three and nine months ended September 30, 2022, revenue of $ 156 and $ 3,362 , and the three and nine months ended September 30, 2021, revenue of $ 460 and $ 4,308 , respectively, was recognized from the deferred revenue balance at the beginning of each period.

During the three months ended March 31, 2023 and March 31, 2022, revenue of $ 5,613 and $ 3,058 , respectively, was recognized from the deferred revenue balance at the beginning of each period.

Transaction Price Allocated to the Remaining Performance Obligations

As of September 30, 2022, approximately $ 26,509 of revenue is expected to be recognized from remaining performance obligations.

As of March 31, 2023, approximately $ 21,295 of revenue is expected to be recognized from remaining performance obligations.

We expect to recognize revenue on approximately 92 % of these remaining performance obligations over the next 12 months, with the balance recognized thereafter.

Revenue Concentration

During the three and nine months ended September 30, 2022 and 2021, there were no customers that individually represented 10% or more of consolidated revenue.

During the three months ended March 31, 2023 and 2022, there were no customers that individually represented 10% or more of consolidated revenue.

NOTE 8 - LEASES

5 unchanged sentences

We record base rent expense under the straight-line method over the term of the lease.

In the accompanying Condensed Consolidated Statements of Comprehensive Loss, rent expense is included in operating expenses under general and administrative expenses.

The components of the rent expense for the nine months ended September 30, 2022 and 2021 are as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

In the accompanying Condensed Consolidated Statements of Comprehensive Income (Loss), rent expense is included in operating expenses under general and administrative expenses.

The components of the rent expense for the three months ended March 31, 2023 and 2022 are as follows (in thousands):

Three Months Ended March 31,

Operating lease cost $ 531 $ 557

2 unchanged sentences

For purposes of calculating the operating lease assets and lease liabilities, extension options are not included in the lease term unless it is reasonably certain we will exercise the option, or the lessor has the sole ability to exercise the option.

The weighted average discount rate of our operating leases is 8 % as of September 30, 2022 and December 31, 2021, respectively.

The weighted average remaining lease term is five years and five years as of September 30, 2022 and December 31, 2021, respectively.

Supplemental cash flow information related to operating leases for the nine months ended September 30 are as follows (in thousands):

Nine Months Ended September 30,

The weighted average discount rate of our operating leases is 8 % as of March 31, 2023 and December 31, 2022, respectively.

The weighted average remaining lease term is five years and five years as of March 31, 2023 and December 31, 2022, respectively.

Supplemental cash flow information related to operating leases for the three months ended March 31 are as follows (in thousands):

Three Months Ended March 31,

Cash paid for amounts included in the measurement of lease liabilities:

10 unchanged sentences

The 2018 Plan, approved by our shareholders, replaced our 2009 Equity Incentive Plan, as amended (the “2009 Plan”), however, the terms and conditions of the 2009 Plan will continue to govern any outstanding awards granted thereunder.

The number of shares available for issuance under the 2018 Plan is equal to the sum of (i) 4,350 shares, and (ii) any shares subject to issued and outstanding awards under the 2009 Plan as of the effective date of the 2018 Plan that expire, are canceled or otherwise terminate following the effective date of the 2018 Plan.

We have 2,285 options and RSUs granted and outstanding pursuant to the 2018 Plan as of September 30, 2022.

As of September 30, 2022, the number of shares available for issuance under the 2018 Plan is 1,439 .

Share based compensation for our stock option plans for the three months ended September 30, 2022 and September 30, 2021 was $ 799 and $ 714 , respectively and for the nine months ended September 30, 2022 and September 30, 2021 $ 2,342 and $ 2,124 .

We issued no common stock related to exercises of stock options for the three months ended September 30, 2022 and issued 9 shares of common stock related to exercises for the three months ended September 30, 2021.

We issued 22 and 93 shares of common stock upon the vesting of restricted stock units, net for the three months ended September 30, 2022 and 2021, respectively.

NOTE 10 - NET LOSS PER SHARE

We compute net loss per share based on the weighted average number of common shares outstanding for the period.

Diluted net loss per share reflects the maximum dilution that would have resulted from incremental common shares issuable upon the exercise of stock options.

We compute the number of common share equivalents, which includes stock options, using the treasury stock method.

We have excluded stock options and restricted stock units of 2,285 and 2,040 for the three and nine months ended September 30, 2022 and 2021, respectively, from the computation of the diluted shares because the effect of including the stock options and restricted stock units would have been anti-dilutive.

The following table sets forth the computation of basic and diluted net loss per common share for the three and nine months ended September 30 (in thousands, except per share amounts):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

In January 2023, we granted Performance Stock Units (“PSU”) to certain members of management under the 2018 Plan.

Each PSU will convert into one restricted stock unit (“RSU”) at the end of the performance period.

The number of RSUs into which the PSUs convert for each member of management who received the award will be a sliding scale between 0% to 200% of the target amount based on the Company’s achievement of certain performance metrics tied to the Company’s recurring revenue and gross profit for 2023.

Once converted, the RSU will vest as follows:

one-third on the date the PSU is converted (which is expected to be between January 1, 2024, and March 31, 2024), one-third will vest on January 2, 2025, and one-third will vest on January 2, 2026.

The number of shares available for issuance under the 2018 Plan is equal to 4,350 shares.

We have an aggregate of 2,549 options, RSUs and PSUs granted and outstanding pursuant to the 2018 Plan as of March 31, 2023.

As of March 31, 2023, the number of shares available for future grant under the 2018 Plan is 1,632 .

Share based compensation for our stock option plans for the three months ended March 31, 2023 and March 31, 2022 was $ 1,337 and $ 729 , respectively.

We issued 277 shares of common stock related to exercises of stock options for the three months ended March 31, 2023 and issued no shares of common stock related to exercises for the three months ended March 31, 2022.

We issued 98 and 43 shares of common stock upon the vesting of restricted stock units for the three months ended March 31, 2023 and 2022, respectively .

NOTE 10 - NET EARNINGS (LOSS) PER SHARE

We compute net income or loss per share based on the weighted average number of common shares outstanding for the period.

Diluted net income per share reflects the maximum dilution that would have resulted from incremental common shares issuable upon the exercise of stock options or vesting of RSUs and in some cases PSUs.

In periods of net income, we compute the adjustment to the denominator of our dilutive net earnings per share calculation to include these stock options, RSUs, and PSUs, as applicable, using the treasury stock method.

Regardless of the period resulting in net income or net loss, we exclude the adjustment to the denominator of our dilutive net earnings (loss) per share calculation to the extent that they are anti-dilutive.

For the three months ended March 31, 2023, we included an adjustment to the denominator of our dilutive earnings per share calculation for 773 options and RSUs but excluded 79 shares related to PSUs as these instruments would not be considered vested if we were at the end of the contingency period.

For the three months ended March 31, 2022, we have excluded stock options and restricted stock units of 309 as they were anti-dilutive.

The following table sets forth the computation of basic and diluted net income (loss) per common share for the three months ended March 31 (in thousands, except per share amounts):

Three Months Ended March 31,

Net income (loss) $ 339 $ ( 3,017 )

Weighted-average shares of common stock outstanding 20,347 20,041

Basic loss per share $ ( 0.22 ) $ 0.28 $ ( 0.67 ) $ 0.39

Basic earnings (loss) per share $ 0.02 $ ( 0.15 )

Net income (loss) $ 339 $ ( 3,017 )

Weighted-average shares of common stock outstanding 21,041 20,041

Diluted loss per share $ ( 0.22 ) $ 0.28 $ ( 0.67 ) $ 0.39

Diluted earnings (loss) per share $ 0.02 $ ( 0.15 )

NOTE 11 - SUBSEQUENT EVENTS

In April 2023, the Company calculated the final contingent consideration due in connection with the acquisition of a payroll business in September 2021.

As a result, the fair value of the contingent consideration of $ 587 was added as an increase to the principal balance due on the promissory note.

In May 2023, the Company paid the outstanding balance of a subordinated note payable in connection with the acquisition of customer relationships of a payroll business that took place in 2022.

As a result, the remaining balance of $422 has been paid to the seller consisting of $411 in principal and $11 in accrued interest.

There are no further amounts due or owing under this subordinated note payable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements