What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-07 compared with 2023-05-08 · 115 added, 65 removed, 144 unchanged (56% of the section changed)

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The risks and uncertainties referred to above include—but are not limited to—risks associated with breaches of the Company’s security measures;

risks associated with the Company’s rate of growth and anticipated revenue run rate, including impact of the current environment, interruptions to supply chains and extended shut down of businesses, political unrest, including the current issues between Russian and Ukraine, reductions in employment and an increase in business failures, specifically among our clients, the Company’s ability to convert deferred revenue and unbilled deferred revenue into revenue and cash flow, and ability to maintain continued growth of deferred revenue and unbilled deferred revenue;

risks associated with the Company’s rate of growth and anticipated revenue run rate, including impact of the current environment;

interruptions to supply chains and extended shut down of businesses;

political unrest, including the current issues between Russia and Ukraine;

reductions in employment and an increase in business failures, specifically among our clients;

the Company’s ability to convert deferred revenue and unbilled deferred revenue into revenue and cash flow, and ability to maintain continued growth of deferred revenue and unbilled deferred revenue;

possible fluctuations in the Company’s financial and operating results;

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

The following review of Asure’s financial position as of March 31, 2023 and December 31, 2022, and results of operations for the three months ended March 31, 2023 and 2022 should be read in conjunction with our 2022 Annual Report on Form 10-K filed with the SEC on February 27, 2023.

The following review of Asure’s financial position as of June 30, 2023 and December 31, 2022, and results of operations for the three and six months ended June 30, 2023 and 2022 should be read in conjunction with our 2022 Annual Report on Form 10-K filed with the SEC on February 27, 2023.

Asure’s internet website address is www.asuresoftware.com.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available through the investor relations page of our internet website free of charge as soon as reasonably practicable after they are electronically filed, or furnished to, the SEC.

Asure’s internet website and the information contained in our website or connected to our website are not incorporated into this Quarterly Report on Form 10-Q, however we do post information on the investor relations page of our website that we believe may be of interest to our investors.

Asure’s internet website and the information contained in our website or connected to our website are not incorporated into this Quarterly Report on Form 10-Q.

However, we do post information on the investor relations page of our website that we believe may be of interest to our investors.

Asure 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”).

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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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The partner is located in the northeastern United States.

The aggregate purchase price that the Company paid for these assets was $2,350, paid as follows:

(i) $1,939 in cash at closing and (ii) the delivery of a promissory note in the amount of $411.

The aggregate purchase price that the Company paid for these assets was $2,350, as follows:

(i) $1,970 in cash at closing (including $31 of transaction costs) and (ii) the delivery of a promissory note in the amount of $411.

The Company paid the full amount due, including interest, on this promissory note on May 1, 2023.

On September 30, 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, respectively .

The acquisition related to the promissory note in the amount of $4,080 also included 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 finally calculated at $587, which was added as an increase to the outstanding principal balance due on the promissory note in the second quarter of 2023.

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

The acquisition related to the promissory note in the amount of $4,667 also included contingent purchase consideration.

As of June 30, 2023, the Company calculated the final contingent consideration due in connection with the acquisition.

As a result, the fair value for the contingent consideration was determined to be $587, which was added as an increase to the principal balance due on the promissory note during the second quarter of 2023.

The two outstanding promissory notes mature on September 30, 2023 and September 30, 2026.

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 paid in July 2023 through the issuance of 214 shares of the Company’s common stock in lieu of cash.

As a result, no further contingent purchase obligation remains.

RESULTS OF OPERATIONS (in thousands)

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

Three Months Ended March 31,

Six Months Ended June 30,

Revenues 100 % 100 %

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Interest expense (6) % (4) %

Other income(expense), net — % — %

Income (loss) from operations before income taxes — % (12) %

Net income (loss) 1 % (12) %

Other (expense) income, net — % 3 %

Loss from operations before income taxes (5) % (20) %

Net loss (5) % (20) %

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

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As a percentage of total revenues, we expect our mix of recurring revenues, and professional services, hardware and other revenues to remain relatively constant.

While revenue mix varies by product, recurring revenue represented over 84% of total revenue in three months ended March 31, 2023, compared to 94% in three months ended March 31, 2022.

While revenue mix varies by product, recurring revenue represented over 80% of total revenue in six months ended June 30, 2023, compared to 94% in six months ended June 30, 2022.

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

Three Months Ended March 31, Variance

Three Months Ended June 30, Variance

2023 2022 $ %

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Total $ 30,420 $ 20,300 $ 10,120 50 %

Six Months Ended June 30, Variance

2023 2022 $ %

Recurring $ 50,916 $ 42,018 $ 8,898 21 %

Professional services, hardware and other 12,568 2,615 9,953 381 %

Total $ 63,484 $ 44,633 $ 18,851 42 %

Recurring Revenues

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Our billing period varies by client based on when each client pays its employees, which may be weekly, bi-weekly, semi-monthly or monthly.

We also generate recurring revenue from our Reseller Partners that license our solutions.

We also generate recurring revenues from our Reseller Partners that license our solutions.

Because recurring revenues are based, in part, on fees for use of our applications and the delivery of checks and reports that are levied on a per-employee basis, our recurring revenues increase as our clients hire more employees.

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In addition, we often experience increased revenues during the fourth quarter due to unscheduled payroll runs for our clients that occur before the end of the year.

Therefore, we expect the seasonality of our revenue cycle to decrease to the extent clients utilize more of our non-payroll applications.

This revenue line also includes interest earned on funds held for clients as well as revenues generated via fixed fee arrangements for provisioning and filing for Employee Retention Tax Credit (“ERTC”) credits.

We expect the seasonality of our revenue cycle to decrease to the extent clients utilize more of our non-payroll applications.

Our revenue also includes interest earned on funds held for clients as well as revenues generated via fixed fee arrangements for provisioning and filing for Employee Retention Tax Credit (“ERTC”) credits.

Interest earned is generated from funds we collect from clients in advance of either the applicable due date for payroll tax submissions or the applicable disbursement date for employee payment services.

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Revenue generated for such activity is based on multi-year contracts with volume commitments and is recorded as recurring revenues.

Recurring revenue for the three months ended March 31, 2023 was $27,956, an increase of $4,952, or 22%, from $23,004 for the three months ended March 31, 2022.

Recurring revenue increase is primarily due to an increase of approximately $1,874 in interest earned on funds held for clients, an increase of $1,336 in HR compliance revenue, and an increase of $1,157 in revenue from AsureMarketplace™.

Recurring revenue for the three months ended June 30, 2023 was $22,960, an increase of $3,946, or 21%, from $19,014 for the three months ended June 30, 2022.

Recurring revenue increase is primarily due to an increase in HR compliance revenue, an increase in interest earned on funds held for clients, and an increase in revenue from AsureMarketplace™.

Recurring revenue for the six months ended June 30, 2023 was $50,916, an increase of $8,898, or 21%, from $42,018 for the six months ended June 30, 2022.

Recurring revenue increase is primarily due to a n increase of approximately $3,800 in interest earned on funds held for clients, an increase of $3,200 in HR compliance revenue, and an increase of $1,900 in revenue from AsureMarketplace™.

Professional Services, Hardware and Other Revenues

Professional services, hardware and other revenues represents implementation fees, one-time consulting projects, on-premise maintenance, hardware devices to enhance our software products as well as ERTC revenues that are transactional in nature.

Professional services, hardware and other revenue increased $3,779, or 284%, for the three months ended March 31, 2023 from the similar period in 2022, primarily due to growth in non-recurring ERTC revenue.

Professional services, hardw are and other revenue increased $6,174, or 480%, for the three months ended June 30, 2023 from the similar period in 2022, primarily due to growth in non-recurring ERTC revenues.

ERTC revenues are expected to wind down as ERTC tax credits under the CARES Act and such regulations will expire in 2025.

Professional services, hardware and other re venue increased $9,953, or 381%, for the six months ended June 30, 2023 from the similar period in 2022, primarily due to growth in non-recurring ERTC revenues.

Although our total customer base is widely spread across industries, our sales are concentrated in SMBs.

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Gross Profit and Gross Margin

Consolidated gross profit for the three months ended March 31, 2023 was $24,400, an increase of $8,936, or 58%, from $15,464 for the three months ended March 31, 2022.

Gross margin as a percentage of revenue was 74% for the three months ended March 31, 2023 as compared to 64% for the three months ended March 31, 2022.

Our increase in gross margin is primarily attributable to the increase in revenue and more efficient operations resulting primarily from a decrease in salaries and benefits driven by consolidation and standardization efforts across the Company, which have reined in costs.

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

Consolidated gross profit for the three months ended June 30, 2023, was $22,018, an increase of $9,757, or 80%, from $12,261 for the three months ended June 30, 2022.

Gross margin as a percentage of revenue was 72% for the three months ended June 30, 2023 as compared to 60% for the three months ended June 30, 2022.

Our increase in gross margin is primarily attributable to the increase in revenue and more efficient operations driven by consolidation and standardization efforts across the Company.

Consolidated gross profit for the six months ended June 30, 2023 was $46,418, an increase of $18,693, or 67%, from $27,725 for the six months ended June 30, 2022.

Gross margin as a percentage of revenue was 73% for the six months ended June 30, 2023 as compared to 62% for the six months ended June 30, 2022.

Our increase in gross margin is primarily attributable to the increase in revenue and more efficient operations driven by consolidation and standardization efforts across the Company.

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

We include intangible amortization related to developed and acquired technology within cost of sales.

Sales and Marketing Expenses

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

Selling and marketing expenses for the three months ended March 31, 2023 were $7,200, an increase of $2,303, or 47%, from $4,897 for the three months ended March 31, 2022, primarily due to increased personnel costs, higher sales commissions owing to increased revenues and higher advertising expense.

Selling and marketing expenses as a percentage of revenue increased to 22% for the three months ended March 31, 2023 from 20% for the same period in 2022.

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

Sales and marketing expenses primarily consist of salaries and related expenses for sales and marketing staff, including stock-based expenses and commissions.

Marketing programs includes events, corporate communications and product marketing activities.

Sales and marketing expenses for the three months ended June 30, 2023 were $8,515, an increase of $3,926, or 86%, from $4,589 for the three months ended June 30, 2022 , primarily due to an increase in direct sales personnel, higher sales commissions owing to increased revenues, and an increase in accounts receivable reserves.

Sales and marketing expenses as a percentage of revenue increased to 28% for the three months ended June 30, 2023 from 23% for the same period in 2022.

Sales and marketing expenses for the six months ended June 30, 2023 were $15,715, an increase of $6,229, or 66%, from $9,486 for the six months ended June 30, 2022 , primarily due to an increase in direct sales personnel, higher sales commissions owing to increased revenues, and an increase in accounts receivable reserves.

Sales and marketing expenses as a percentage of revenue increased to 25% for the six months ended June 30, 2023 from 21% for the same period in 2022.

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

General and Administrative Expenses

General and administrative expenses primarily consist of salaries and related expenses, including stock-based expenses for finance and accounting, legal, internal audit, human resources and management information systems personnel, legal costs, professional fees, and other corporate expenses such as transaction costs for acquisitions.

General and administrative expenses for the three months ended March 31, 2023 were $9,956, an increase of $2,471, or 33%, from $7,485 for the three months ended March 31, 2022, primarily attributable to increased personnel, share-based compensation, and contracting costs.

General and administrative expenses as a percentage of revenue decreased to 30% for the three months ended March 31, 2023 from 31% for the same period in 2022.

General and administrative expenses for the three months ended June 30, 2023 were $10,336, an increase of $1,640, or 19%, from $8,696 for the three months ended June 30, 2022 , primarily attributable to increased personnel, share-based compensation, and contracting costs.

General and administrative expenses as a percentage of revenue decreased to 34% for the three months ended June 30, 2023 from 43% for the same period in 2022.

General and administrative expenses for the six months ended June 30, 2023 were $20,292, an increase of $4,111, or 25%, from $16,181 for the six months ended June 30, 2022, primarily attributable to increased personnel, share-based compensation, and contracting costs.

G eneral and administrative expenses as a percentage of revenue decreased to 32% for the six months ended June 30, 2023 from 36% for the same period in 2022.

Research and Development Expenses

Research and development (“R&D”) expenses consist primarily of salaries and related expenses, including stock-based expenses for employees supporting our R&D activities.

R&D expenses for the three months ended March 31, 2023 were $1,979, an increase of $158, or 9%, from $1,821 for the three months ended March 31, 2022.

The increase in R&D expense is primarily attributable to an increase in personnel costs driven by continued enhancements of our products and technologies.

R&D expenses as a percentage of revenue decreased to 6% for the three months ended March 31, 2023 from 7% for the same period in 2022.

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

We will continue to expand the breadth of integration between our solutions, allowing direct clients and resellers the ability to easily add and implement components across our entire solution set.

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

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

R&D expenses for the three months ended June 30, 2023 were $1,325, a decrease of $147, or 10%, from $1,472 for the three months ended June 30, 2022.

The decrease in R&D expense is primarily attributable to an increase in capitalized software expenses driven by continued investments in development of our products, partially offset by higher personnel costs.

R&D expenses as a percentage of revenue decreased to 4% for the three months ended June 30, 2023 from 7% for the same period in 2022.

R&D expenses for the six months ended June 30, 2023 were $3,304, and remained flat compared with $3,293 for the six months ended June 30, 2022.

R &D expenses as a percentage of revenue decreased to 5% for the six months ended June 30, 2023 from 7% for the same period in 2022.

We plan to continue to enhance our products and technologies by leveraging the latest technology stack, Robotic Process Automation (“RPA”), and artificial intelligence (“AI”), and development partnerships.

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

We also plan to expand our technological resources through organic improvements and acquired intellectual property.

We expect to continue to expand the breadth of integration between our solutions, allowing direct clients and resellers the ability to easily add and implement components across our entire solution set.

Our initiatives include providing our customers with more accurate and efficient automation powered by an informed knowledge base.

Consistent with that effort, our engineering team utilizes an AI development Copilot to increase their productivity and efficiency.

Our operations team utilizes a digital assistant to allow for a more efficient and accurate way to automate repetitive tasks, which we believe will free up our time for more strategic work and reducing the risk of errors.

We are committed to providing the best-in-class solutions.

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

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Amortization of Intangible Assets

Amortization expense in operating expenses for the three months ended March 31, 2023 was $3,302, a decrease of $130, or 4%, from $3,432 for the three months ended March 31, 2022.

Amortization expense as a percentage of revenue decreased to 10% for the three months ended March 31, 2023 from 14% for the same period in 2022, respectively.

Amortization expense for the three months ended June 30, 2023 was $3,294, a decrease of $58, or 2%, from $3,352 for the three months ended June 30, 2022.

Amortization expense as a percentage of revenue decreased to 11% for the three months ended June 30, 2023 from 17% for the same period in 2022.

Amortization expense for the six months ended June 30, 2023 was $6,596, a decrease of $188, or 3%, from $6,784 for the six months ended June 30, 2022.

Amortization expense as a percentage of revenue decreased to 10% for the six months ended June 30, 2023 from 15% for the same period in 2022.

Interest Expense, Net

Interest expense, net for the three months ended March 31, 2023 was $1,944 compared to $820 for the three months ended March 31, 2022.

Interest expense, net as a percentage of revenue was 6% and 3% for the three months ended March 31, 2023 and March 31, 2022, respectively.

The increase in interest expense, net in the current period is primarily due to our credit facility with Structural Capital Investments II LP signed in the third quarter of 2021 as discussed in Note 6 - Notes Payable.

Other Income, Net

Other income, net for the three months ended March 31, 2023 was $83 compared to $4 for the three months ended March 31, 2022.

Other income, net as a percentage of revenue was negligible for the three months ended March 31, 2023 and March 31, 2022, respectively.

For the three months ended March 31, 2023, the amounts in other income, net primarily consisted of contingent liability adjustments.

For the three months ended March 31, 2023 and 2022, we recorded an income tax benefit attributable to continuing operations of $237 and expense of $30, respectively, a decrease of $267 or 890%.

Net Income (Loss)

We generated income of $339, or $0.02 per share, during the three months ended March 31, 2023, compared to a loss of $3,017, or $0.15 per share, during the three months ended March 31, 2022.

Income and loss as a percentage of total revenues was 1% and 12% for the three months ended March 31, 2023 and 2022, respectively.

Interest expense, net for the three months ended June 30, 2023 was $1,593 compared to $1,085 for the three months ended June 30, 2022.

Interest expense, net as a percentage of revenue was 5% for the three months ended June 30, 2023 and June 30, 2022 .

The increase in interest expense, net in the current period is primarily due to the interest rates on our borrowings under our credit facility with Structural Capital Investments II LP.

Interest expense, net for the six months ended June 30, 2023 was $3,538 compared to $1,901 for the six months ended June 30, 2022.

Interest expense, net as a percentage of revenue was 6% and 4% for the six months ended June 30, 2023 and June 30, 2022, respectively .

The increase in interest expense, net in the current period is primarily due to the interest rates on our borrowings under our credit facility with Structural Capital Investments II LP.

Other (Expense) Income, Net

Other (expense) income, net for the three months ended June 30, 2023 was $(93) compared to $1,147 for the three months ended June 30, 2022.

Other (expense) income, net as a p ercentage of revenue was negligible for the three months ended June 30, 2023 compared to 6% for the same period ended June 30, 2022.

For the three months ended June 30, 2023, the amounts in other (expense) income, net primarily consisted of loss on disposal of assets.

F or the three months ended June 30, 2022 , the amounts in other (expense) income, net primarily consisted of a fair value adjustment on contingent purchase consideration in connection with the acquisition of a payroll business in September 2021.

Other (expense) income, net for the six months ended June 30, 2023 was $(9) compared to $1,147 for the six months ended June 30, 2022.

Other (expense) income, net as a percentage of revenue was negligible for the six months ended June 30, 2023, and 3% for the six months ended June 30, 2022.

For the six months ended June 30, 2023 , the amounts in other (expense) income, net primarily consisted of loss on disposal of assets.

For the six months ended June 30, 2022, the amounts in other (expense) income, net primarily consisted of a fair value adjustment on contingent purchase consideration in connection with the acquisition of a payroll business in September 2021.

For the three months ended June 30, 2023 and 2022, we recorded income tax expense attributable to continuing operations of $627 and $74, respectively, an increase of $553 or 747%.

For the six months ended June 30, 2023 and 2022, w e recorded income tax expense attributable to continuing operations of $390 and $104, respectively, an increase of $286 or 275%.

We incurred a loss of $3,765, or $0.18 per share, during the three months ended June 30, 2023, compared to a loss of $5,860, or $0.29 per share, during the three months ended June 30, 2022.

Loss as a percentage of total revenues was 12% and 29% for the three months ended June 30, 2023 and 2022, respectively.

We incurred a loss of $3,426, or $0.17 per share, during the six months ended June 30, 2023, compared to a loss of $8,877, or $0.44 per share, during the six months ended June 30, 2022.

Loss as a percentage of total revenues was 5% and 20% for the six months ended June 30, 2023 and 2022, respectively.

LIQUIDITY AND CAPITAL RESOURCES (in thousands)

March 31, 2023 December 31, 2022

Cash and cash equivalents (1)

June 30, 2023 December 31, 2022

Cash, cash equivalents and restricted cash (1)

$ 21,613 $ 17,010

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Working Capital .

We had working capital of $14,191 at March 31, 2023, an increase of $6,098 from working capital of $8,093 at December 31, 2022.

Working capital as of March 31, 2023 and December 31, 2022 includes $4,182 and $8,461 of short-term deferred revenue, respectively.

We had working capital of $13,583 at June 30, 2023, an increase of $5,490 from working capital of $8,093 at December 31, 2022.

Working capital as of June 30, 2023 and December 31, 2022 includes $3,293 and $8,461 of short-term deferred revenue, respectively.

Deferred revenue is an obligation to perform future services.

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Operating Activities .

Net cash provided by operating activities of $4,588 for the three months ended March 31, 2023 was primarily driven by non-cash adjustments to our net income of approximately $7,787, primarily due to depreciation and amortization.

Net cash provided by operating activities of $6,096 for the six months ended June 30, 2023 was primarily driven by non-cash adjustments to our net loss of approximately $16,082, primarily due to depreciation and amortization.

This was offset by changes in operating assets and liabilities, which resulted in a use of $6,560 in cash.

Net cash provided by operating activities of $2,530 for the three months ended March 31, 2022 was driven by non-cash adjustments to our net loss of approximately $5,967, primarily due to depreciation and amortization, offset by our net loss of $3,017.

For the three months ended March 31, 2022, changes in operating assets and liabilities resulted in a use of $420 in cash.

Net cash provided by operating activities of $7,481 for the six months ended June 30, 2022 was driven by non-cash adjustments to our net loss of approximately $11,058, primarily due to depreciation and amortization, offset by our net loss of $8,877.

For the six months ended June 30, 2022, changes in operating assets and liabilities resulted in cash provided of $5,300.

Investing Activities .

Net cash used in investing activities of $6,647 for the three months ended March 31, 2023 is primarily due to purchases of available-for-sale securities and maturities of $10,189, offset by proceeds from sales and maturities of available-for-sale securities of $5,426.

Net cash used in investing activities of $6,719 for the three months ended March 31, 2022 is primarily due to purchases of available-for-sale securities and maturities of $4,504.

Net cash used in investing activities of $17,266 for the six months ended June 30, 2023 is primarily due to purchases of available-for-sale securities and maturities of $18,885, offset by proceeds from sales and maturities of available-for-sale securities of $5,940.

Net cash used in investing activities of $21,570 for the six months ended June 30, 2022 is primarily due to purchases of available-for-sale securities and maturities of $19,870.

Financing Activities .

Net cash provided by financing activities was $21,128 for the three months ended March 31, 2023, which primarily consisted of a net increase in client fund obligations of $19,372.

Net cash provided by financing activities was $21,296 for the three months ended March 31, 2022, which consisted solely of a net increase in client fund obligations of $21,296.

Net cash used in financing activities was $15,602 for the six months ended June 30, 2023, which primarily consisted of a net decrease in client fund obligations of $17,225.

Net cash used in financing activities was $32,524 for the six months ended June 30, 2022, which primarily consisted of a net decrease in client fund obligations of $32,716.

Principal payments on the Senior Credit Facility with Structural Capital Investments III, LP begin in October 2023 after the expiration of the interest only period, and are based on a five year amortization schedule, with a balloon payment due in October 2025.

The Company also has two promissory notes outstanding in connection with two payroll businesses acquired in September 2021, in the amounts of $2,223 and 4,667 as of June 30, 2023.

The two outstanding promissory notes mature on September 30, 2023 and September 30, 2026.

Sources of Liquidity .

As of March 31, 2023, the Company’s principal sources of liquidity consisted of approximately $21,438 of cash, cash equivalents and restricted cash, together with cash generated from operations of our business over the next twelve months.

As of June 30, 2023, the Company’s principal sources of liquidity consisted of approximately $21,613 of cash, cash equivalents and restricted cash, together with cash generated from operations of our business over the next twelve months.

We cannot assure that we can grow our cash balances or limit our cash consumption and thus maintain sufficient cash balances for our planned operations or future acquisitions;

however we do believe that we have sufficient liquidity to support our business operations for at least the next twelve months.

Future business demands may lead to cash utilization at levels greater than recently experienced.

Future business demands may lead to cash utilization at levels greater than recently experienced or expected.

We may need to raise additional capital in the future in order to grow our existing software operations and to seek additional strategic acquisitions in the near future.

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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 2. Management’s Discussion and Analysis