What changed in this filing

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Item 1. Financial Statements

2023-08-07 compared with 2023-05-08 · 142 added, 117 removed, 353 unchanged (42% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts)

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Current assets:

Cash, cash equivalents, and restricted cash $ 21,613 $ 17,010

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

Accounts receivable, net of allowance for doubtful accou nts of $ 4,863 a nd $ 3,248 at June 30, 2023 and December 31, 2022, respectively

16,629 12,123

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Common stock, $ 0.01 par value;

44,000 shares authorized;

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

44,000 shares author ized;

21,089 and 20,628 shares issued, 20,705 and 20,244 shares outstanding at June 30, 2023 and December 31, 2022, respectively

Treasury stock at cost, 384 shares at June 30, 2023 and December 31, 2022

( 5,017 ) ( 5,017 )

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ASURE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands, except per share amounts)

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Recurring $ 22,960 $ 19,014 $ 50,916 $ 42,018

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Total operating expenses 23,470 18,109 45,907 35,744

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

(Loss) income from operations ( 1,452 ) ( 5,848 ) 511 ( 8,019 )

Interest expense, net ( 1,593 ) ( 1,085 ) ( 3,538 ) ( 1,901 )

Other income, net 83 4

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

Other (expense) income, net ( 93 ) 1,147 ( 9 ) 1,147

Loss from operations before income taxes ( 3,138 ) ( 5,786 ) ( 3,036 ) ( 8,773 )

Income tax expense 627 74 390 104

Net loss ( 3,765 ) ( 5,860 ) ( 3,426 ) ( 8,877 )

Other comprehensive loss:

Unrealized loss on marketable securities ( 493 ) ( 496 ) ( 12 ) ( 1,559 )

Comprehensive loss $ ( 4,258 ) $ ( 6,356 ) $ ( 3,438 ) $ ( 10,436 )

Basic and diluted loss per share

Basic $ ( 0.18 ) $ ( 0.29 ) $ ( 0.17 ) $ ( 0.44 )

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(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, 2022 20,244 $ 206 $ ( 5,017 ) $ 433,586 $ ( 281,226 ) $ ( 2,483 ) $ 145,066

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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 40 — — 42 — — 42

Stock issued, ESPP 46 1 — 236 — — 237

Share based compensation — — — 1,582 — — 1,582

Net loss — — — — ( 3,765 ) — ( 3,765 )

Other comprehensive loss — — — — — ( 493 ) ( 493 )

Balance at June 30, 2023 20,705 $ 211 $ ( 5,017 ) $ 438,767 $ ( 284,652 ) $ ( 2,495 ) $ 146,814

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 Loss Total Stockholders’ Equity

5 unchanged sentences

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 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

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

2 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

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

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

Net loss $ ( 3,426 ) $ ( 8,877 )

Adjustments to reconcile loss to net cash provided by operations:

Depreciation and amortization 9,675 9,363

5 unchanged sentences

Provision for deferred income taxes 86 75

Gain on extinguishment of debt — ( 180 )

Net realized losses on sales of available-for-sale securities ( 1,024 ) ( 406 )

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Net change in client fund obligations ( 17,225 ) ( 32,716 )

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

Net cash used in financing activities ( 15,602 ) ( 32,524 )

Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents ( 26,772 ) ( 46,613 )

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

4 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

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

4 unchanged sentences

Cash paid for interest $ 2,119 $ 1,435

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

Cash paid for income taxes $ 466 $ 175

Non-cash investing and financing activities:

Acquisition of intangible assets $ 954 $ —

Notes payable issued for acquisitions $ — $ 411

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NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION

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”).

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.

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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.

The Company’s approach to HR compliance services incorporates artificial intelligence technology to enhance scalability and efficiency while prioritizing client interactions.

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

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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.

O ur 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.

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

We have prepared the accompanying unaudited Condensed Consolidated Financial Statements in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and accordingly, they do not include all information and footnotes required under U.S.

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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 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.

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 June 30, 2023, comprehensive loss and changes in stockholders’ equity for the three and six months ended June 30, 2023 and June 30, 2022, and cash flows for the six months ended June 30, 2023 and June 30, 2022.

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

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These unaudited Condensed Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and notes thereto filed with the SEC in our annual report on Form 10-K for the fiscal year ended December 31, 2022 (our “2022 Annual Report on Form 10-K”).

The results for the interim periods are not necessarily indicative of results for a full fiscal year.

The Company’s results for any interim period are not necessarily indicative of results for a full fiscal year.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

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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.

As of June 30, 2023, the Company had no restricted cash.

RECENT ACCOUNTING PRONOUNCEMENTS

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

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

The standard became effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted.

We adopted ASU 2019-12 during the quarter beginning January 1, 2021, using the prospective approach except for hybrid tax regimes, which we adopted using the modified retrospective approach.

The adoption of ASU 2019-12 resulted in no material impact to the Company’s financial statements.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments — Credit Losses (Topic 326):

This update establishes a new approach to estimate credit losses on certain financial instruments.

2016-13, Financial Instruments — Credit Losses (Topic 326), which establishes a new approach to estimate credit losses on certain financial instruments.

The update requires financial assets measured at amortized cost to be presented at the net amount expected to be collected.

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ACCUMULATED OTHER COMPREHENSIVE LOSS

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.

As of June 30, 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

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

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

In May 2023, the Company paid the remaining balance of $ 422 on the promissory note, consisting of $ 411 in principal and $ 11 in accrued interest.

As of June 30, 2023, there are no further amounts due or owing under the subordinated promissory note.

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.

In connection with these acquisitions there are two outstanding promissory notes payable in the amounts of $ 2,223 and $ 4,667 as of June 30, 2023.

One promissory note also includes contingent consideration for which the Company calculated the final value to be $ 587 as of June 30, 2023.

The contingent consideration was added as an increase to the principal balance due on the promissory note during the second quarter of 2023.

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

The Asset Purchase Agreement set forth two subsequent purchase consideratio n 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.

The outstanding contingent purchase consideration of $ 2,299 was valued based on the trailing twelve-month revenue at October 31, 2021 and was paid in shares of the Company’s common stock in July 2023, see Note 12, Subsequent Events for information regarding final payment of the outstanding contingent purchase consideration occurring after June 30, 2023.

NOTE 4 - INVESTMENTS AND FAIR VALUE MEASUREMENTS

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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 March 31, 2023 and December 31, 2022, 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 June 30, 2023 and December 31, 2022, respectively (in thousands):

Total Carrying Value Level 1 Level 2 Level 3

March 31, 2023

June 30, 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):

March 31, 2023

June 30, 2023

Restricted cash equivalents $ 14 $ — $ — $ 14

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

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 June 30, 2023 and December 31, 2022, there were 8 and 3 securities, respectively, in an unrealized gain position and there were 160 and 124 securities in an unrealized loss position, respectively.

As of June 30, 2023, these unrealized losses were less than $ 82 individually and $ 2,512 in the aggregate.

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

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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.

(2) At June 30, 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):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Restricted cash and cash equivalents held to satisfy client funds obligations $ 115,657 $ 147,032

2 unchanged sentences

Total funds held for clients $ 186,517 $ 203,588

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

Expected maturities of available-for-sale securities as of June 30, 2023 are as follows (in thousands):

One year or less $ 9,762

2 unchanged sentences

NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS

December 31, 2022 Acquisitions March 31, 2023

December 31, 2022 Acquisitions June 30, 2023

Goodwill $ 86,011 $ — $ 86,011

2 unchanged sentences

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

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

As of June 30, 2023, there has been no impairment of goodwill based on the qualitative assessments performed by the Company.

Gross Intangible Assets December 31, 2022 Acquisitions June 30, 2023

Customer relationships $ 116,971 $ — $ 116,971

3 unchanged sentences

Non-compete agreements 1,032 — 1,032

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):

$ 132,228 $ 954 $ 133,182

The gross carrying amount and accumulated amortization of our intangible assets as of June 30, 2023 are as follows (in thousands, except weighted average periods):

Weighted Average

1 unchanged sentence

Amortization Net

March 31, 2023

June 30, 2023

Customer relationships 8.7 $ 116,971 $ ( 59,235 ) $ 57,736

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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 $ 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.

Amortization expenses recorded in Operating Expenses were $ 6,596 and $ 6,784 for the six months ended June 30, 2023 and 2022, respectively.

Amortization expenses recorded in Cost of Sales were $ 318 and $ 593 for the six months ended June 30, 2023 and 2022, respectively.

There was no impairment of intangibles during the six months ended June 30, 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 March 31, 2023 (in thousands):

2023 $ 10,030

The following table summarizes the future estimated amortization expense relating to our intangible assets as of June 30, 2023 (in thousands):

Thereafter 4,675

1 unchanged sentence

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

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

Maturity Cash Interest Rate June 30, 2023 December 31, 2022

Subordinated Notes Payable – Acquisitions (1)

6 unchanged sentences

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

March 31, 2023

June 30, 2023

Current portion of notes payable $ 7,190 $ ( 633 ) $ 6,557

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

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

The following table summarizes the future principal payments related to our outstanding debt as of June 30, 2023 (in thousands):

Total $ 39,080

Subordinated Notes Payable - Acquisitions

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.

In January 2023, the Company resolved the outstanding claims for indemnification for which it was withholding 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.

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

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 Company paid the remaining balance of $422 on the promissory note consisting of $411 in principal and $11 in accrued interest.

As of June 30, 2023, there are no further amounts due or owing under the subordinated note payable.

Senior Credit Facility with Structural Capital Investments III, LP

On September 10, 2021, the Company entered into a Loan and Security Agreement with Structural Capital Investments III, LP (“Structural” and together with the other lenders that are or become parties thereto, the “Lenders”), and Ocean II PLO LLC, as administrative and collateral agent for Structural and the Lenders (“Agent”), under the terms of which the Lenders have committed to lend us up to $ 50,000 in term loan financing to support our growth needs (the “Facility”) until June 30, 2022.

Of the amount committed by the Lenders, the Company drew $30,000 in September 2021, at the closing and the remaining $20,000 has lapsed.

On September 10, 2021, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Structural Capital Investments III, LP (“Structural” and together with the other lenders that are or become parties thereto, the “Lenders”), and Ocean II PLO LLC, as administrative and collateral agent for the Lenders (“Agent”), under the terms of which the Lenders have committed to lend us up to $ 50,000 in term loan financing to support our growth needs (the “Facility”).

Of the amount committed by the Lenders, the Company drew $30,000 in September 2021, and the remaining $20,000 has lapsed.

The Company also entered into a secured promissory note with the Agent evidencing our obligations under the Facility.

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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 March 31, 2023 was 13.75%.

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 June 30, 2023 was 14.00%.

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.

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The table above in this Note 6 — Notes Payable summarizing future principal payments assumes the Company will not extend the period of interest only payments to October 2024.

Upon payment in full of the obligations under the Facility, we are to pay Lenders a final payment fee equal to 1.0% of the increase in our market capitalization since the onset of the agreement, at that time valued at $182,400.

Upon payment in full of the obligations under the Facility, we agreed to pay Lenders a final payment fee equal to 1.0% of the increase in our market capitalization since September 10, 2021, at that time valued at $182,400.

The Company has agreed to provide the Lenders the right to participate in a future offering—whether public or private—on the same terms and conditions as other investors for an amount not to exceed $3,000.

There are no financial covenants if our net cash position is equal to or greater than zero.

There are no financial covenants under the agreement if our net cash position is equal to or greater than zero.

If our net cash position is less than zero, the Company would be subject to the following financial covenants:

(i) unrestricted cash of no less than $5,000, (ii) maintain an APR ratio of no less than 0.70:1.00 through September 10, 2023, and (iii) maintain an APR ratio of no less than 0.60:1.00 from September 10, 2023 through the remainder of the term of the Facility.

The APR ratio would be the ratio of our tested debt to our annual recurring revenue and would be measured on a quarterly basis.

(i) unrestricted cash of no less than $5,000, (ii) maintain an ARR ratio of no less than 0.70:1.00 through September 10, 2023, and (iii) maintain an ARR ratio of no less than 0.60:1.00 from September 10, 2023 through the remainder of the term of the Facility.

The ARR ratio would be the ratio of our tested debt to our annual recurring revenue and would be measured on a quarterly basis.

Our tested debt consists of our outstanding obligations under the Facility (exclusive of PIK interest) and any indebtedness issued or earnouts owed to sellers in connection with acquisitions.

NOTE 7 – CONTRACTS WITH CUSTOMERS AND REVENUE CONCENTRATION

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 $ 4,863 , w ere $ 16,629 at June 30, 2023.

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

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.

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

No customer represented more than 10% of our net accounts receivable balance as of June 30, 2023 and December 31, 2022, respectively.

Deferred Commissions

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 commission costs from contracts with customers w ere $ 8,314 and $ 6,660 at June 30, 2023 and December 31, 2022, respectively.

The amount of amortization recognized for the three and six months ended June 30, 2023 wa s $ 650 and $ 1,147 , respectively, and for the three and six months ended June 30, 2022 was $ 435 and $ 780 , respectively.

Deferred Revenue

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.

During the three and six months ended June 30, 2023, reve nue of $ 170 and $ 5,783 , respectively, an d during the three and six months ended June 30, 2022, revenue of $ 293 and $ 3,205 , respectively, was recognized from the deferred revenue balance at the beginning of each period.

Transaction Price Allocated to the Remaining Performance Obligations

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

As of June 30, 2023, approximately $ 23,124 of revenue is expected to be recognized from remaining performance obligations.

We expect to recognize revenue on approximately 87 % of these remaining performance obligations over the next 12 months, with the balance recognized thereafter.

Revenue Concentration

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

During the three and six months ended June 30, 2023 and 2022 , there were no customers that individually represented 10% or more of consolidated revenue.

NOTE 8 - LEASES

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Under such leases, the lessors receive annual minimum (base) rent.

The leases have original terms (excluding extension options) ranging from one year to ten years .

The leases have original terms (excluding extension options) ranging from one year to eight years .

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

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

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,

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 three and six months ended June 30, 2023 and 2022 are as follows (in thousands):

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

2023 2022 2023 2022

Operating lease cost $ 884 $ 576 $ 1,415 $ 1,142

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 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,

The weighted average discount rate of our operating leases is 9 % and 8 % as of June 30, 2023 and December 31, 2022, respectively.

The weighted average remaining lease term is five years as of June 30, 2023 and December 31, 2022.

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

Six Months Ended June 30,

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

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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

The number of shares reserved for issuance under the 2018 Plan is 4,350 shares.

We have an aggregate of 2,557 options, RSUs and PSUs granted and outstanding pursuant to the 2018 Plan as of June 30, 2023.

As of June 30, 2023, the number of shares available for future grant under the 2018 Plan is 1,625 .

Share based compensation for our stock option plans for the three months ended June 30, 2023 and June 30, 2022 was $ 1,582 and $ 814 , respectively, and for the six months ended June 30, 2023 and June 30, 2022 was $ 2,919 and $ 1,544 , respectively.

We issued 6 shares of common stock related to exercises of stock options for the three months ended June 30, 2023 and issued no shares of common stock related to exercises for the three months ended June 30, 2022.

We issued 26 and 30 shares of common stock upon the vesting of restricted stock units for the three months ended June 30, 2023 and 2022, respectively .

NOTE 10 - NET LOSS PER SHARE

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

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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 )

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

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

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

2023 2022 2023 2022

Net loss $ ( 3,765 ) $ ( 5,860 ) $ ( 3,426 ) $ ( 8,877 )

Weighted-average shares of common stock outstanding 20,651 20,106 20,500 20,067

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

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

Basic loss per share $ ( 0.18 ) $ ( 0.29 ) $ ( 0.17 ) $ ( 0.44 )

Net loss $ ( 3,765 ) $ ( 5,860 ) $ ( 3,426 ) $ ( 8,877 )

Weighted-average shares of common stock outstanding 20,651 20,106 20,500 20,067

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

Diluted loss per share $ ( 0.18 ) $ ( 0.29 ) $ ( 0.17 ) $ ( 0.44 )

NOTE 11 - EMPLOYEE RETENTION TAX CREDIT

In March 2020, the Coronavirus Aid, Relief, and Economic Security Act was signed into law, providing numerous tax provisions and other stimulus measures, including the Employee Retention Tax Credit (“ERTC”):

a refundable tax credit against certain employment taxes.

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERTC.

We qualified for the ERTC in the first three quarters of 2021.

During the quarter ended September 30, 2021, we recorded an aggregate benefit of $ 10,533 in our Condensed Consolidated Statements of Comprehensive Loss to reflect the ERTC payable to us for the first three quarters in 2021 presented as other current assets within our Condensed Consolidated Balance Sheets.

In 2022, the Company received cash of $3,457, reflecting a portion of our ERTC.

In January and February 2023, the Company received the remaining balance of $7,076 for the ERTC benefit.

NOTE 12 - 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.

In July 2023, the Company paid the outstanding contingent purchase consideration due in connection with the acquisition of a payroll tax business in July 2020, see Note 3 - Business Combinations and Asset Acquisitions for more detail on the July 2020 acquisition.

As a result, the outstanding contingent consideration of $ 2,299 was extinguished with 214 shares of the Company’s common stock in lieu of cash and no further contingent purchase obligation remains.

On August 7, 2023, the Company entered into an amendment to the Senior Credit Facility described in Note 6 – Notes Payable, whereby the Final Payment Fee (as defined in the Loan Agreement) was settled for $ 1,677 (the “Settled Amount”) which was paid on August 7, 2023.

The Final Payment was originally equal to 1.0 % of the increase in our market capitalization since September 10, 2021, and was due upon payment in full of the obligations under the Senior Credit Facility.

The Settled Amount is subject to adjustment and any adjusted amount, if due, is expected to be immaterial in amount and would be paid no later than August 18, 2023.

In addition, we also paid the Lenders a fee equal to $ 250 , which will be credited against reimbursable expenses owed to Lenders in a future refinancing of the Senior Credit Facility if it occurs before December 31, 2024.

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