What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-11-13 compared with 2023-08-07 · 118 added, 96 removed, 399 unchanged (35% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts)

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Current assets:

Cash, cash equivalents, and restricted cash $ 32,787 $ 17,010

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

Accounts receivable, net of allowance for doubtful accou nts of $ 1,186 a nd $ 3,248 at September 30, 2023 and December 31, 2022, respectively

15,133 12,123

36 unchanged sentences

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

25,235 and 20,628 shares issued, 24,851 and 20,244 shares outstanding at September 30, 2023 and December 31, 2022, respectively

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

( 5,017 ) ( 5,017 )

9 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

10 unchanged sentences

Total operating expenses 21,027 17,355 66,934 53,099

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

Income (loss) from operations 253 ( 3,708 ) 764 ( 11,727 )

Interest expense, net ( 782 ) ( 1,122 ) ( 4,321 ) ( 3,006 )

(Loss) gain on extinguishment of debt ( 1,517 ) — ( 1,517 ) 180

Other (expense) income, net ( 283 ) 399 ( 291 ) 1,349

Loss from operations before income taxes ( 2,329 ) ( 4,431 ) ( 5,365 ) ( 13,204 )

Income tax expense 627 74 390 104

Income tax (benefit) expense ( 123 ) 102 267 206

Net loss ( 2,206 ) ( 4,533 ) ( 5,632 ) ( 13,410 )

25 unchanged sentences

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

Stock issued upon option exercise and vesting of restricted stock units 99 1 — 479 — — 480

Shares issued, net of issuance costs 4,047 40 — 45,484 — — 45,524

Share based compensation — — — 1,251 — — 1,251

Net loss — — — — ( 2,206 ) — ( 2,206 )

Other comprehensive loss — — — — — ( 201 ) ( 201 )

Balance at September 30, 2023 24,851 $ 252 $ ( 5,017 ) $ 485,981 $ ( 286,858 ) $ ( 2,696 ) $ 191,662

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

15 unchanged sentences

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.

2 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

5 unchanged sentences

Non-cash interest expense 1,471 —

Net amortization of premiums and accretion of discounts on available-for-sale securities ( 31 ) 205

Net accretion of discounts and amortization of premiums on available-for-sale securities ( 63 ) 279

Provision for doubtful accounts 2,004 304

Provision for deferred income taxes 111 163

Gain on extinguishment of debt — ( 180 )

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

Loss (gain) on extinguishment of debt 1,208 ( 180 )

Net realized gains on sales of available-for-sale securities ( 1,645 ) ( 808 )

Share-based compensation 4,170 2,341

1 unchanged sentence

Change in fair value of contingent purchase consideration 175 ( 1,350 )

Adjustment to Intangibles — 23

Changes in operating assets and liabilities:

17 unchanged sentences

Payments of notes payable ( 35,627 ) ( 1,688 )

Debt extinguishment costs ( 468 ) —

Payments of contingent purchase consideration — ( 9 )

Net proceeds from issuance of common stock 45,986 192

Capital raise fees ( 258 ) —

Net change in client fund obligations ( 31,033 ) ( 32,527 )

7 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

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

8 unchanged sentences

Notes payable issued for acquisitions $ — $ 411

Shares issued to settle contingent consideration $ 2,543 $ —

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

24 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 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.

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

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

17 unchanged sentences

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

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

In March 2021, we filed a universal shelf registration statement on Form S-3 with the Securities and Exchange Commission (“SEC”) to provide access to additional capital, if needed.

Pursuant to the shelf registration statement, we may from time to time offer to sell in one or more offerings shares of our common stock or other securities having an aggregate value of up to $ 150,000 (which includes 1,480 of unsold securities that were previously registered on other registration statements effective at the time of the filing of our current S-3).

The shelf registration statement relating to these securities became effective on April 21, 2021.

As of September 30, 2023, there is $ 104,000 available under the shelf registration statement.

On August 21, 2023, we completed an underwritten public offering in which we sold an aggregate of 3,333 newly issued shares of our common stock at a public offering price of $ 12.00 per share, and realized net proceeds of $ 37,475 , after deducting underwriting discounts and offering expenses of $ 2,525 .

Additionally, on August 30, 2023, the Underwriters exercised their option to purchase an additional 500 shares of our common stock, and we realized net proceeds of $ 5,507 , after deducting underwriting discounts and offering expenses of $ 493 .

As of September 30, 2023, the Company’s principal sources of liquidity consisted of approximately $ 32,787 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 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 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.

Currently the Company does not have a credit facility or access to a line of credit.

Further, we cannot assure that we will be able to raise additional capital on acceptable terms, or at all.

RECENT ACCOUNTING PRONOUNCEMENTS

7 unchanged sentences

ACCUMULATED OTHER COMPREHENSIVE LOSS

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.

As of September 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

2 unchanged sentences

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.

As of September 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 $ 4,667 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.

In connection with these acquisitions there were two outstanding promissory notes payable.

In September 2023, the Company paid the remaining balance of $ 2,312 on one of the promissory notes, consisting of $ 2,223 in principal and $ 89 in accrued interest.

The second promissory note also includes contingent consideration for which the Company calculated the final value to be $ 587 .

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

As of September 30, 2023, the second promissory note had an outstanding balance of $ 4,200 and matures on September 30, 2026.

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

1 unchanged sentence

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 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.

As a result, the outstanding contingent consideration of $ 2,299 was extinguished with the issuance of 214 shares of the Company’s common stock.

As of September 30, 2023, no further contingent purchase obligation remains.

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

Total Carrying Value Level 1 Level 2 Level 3

June 30, 2023

September 30, 2023

Funds held for clients

2 unchanged sentences

Total $ 73,693 $ 4,704 $ 68,989 $ —

Contingent purchase consideration (1)

$ 2,299 $ — $ — $ 2,299

Total $ 2,299 $ — $ — $ 2,299

December 31, 2022

8 unchanged sentences

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

June 30, 2023

September 30, 2023

Restricted cash equivalents $ 4,711 $ — $ ( 7 ) $ 4,704

16 unchanged sentences

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

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 September 30, 2023 and December 31, 2022, there were 7 and 3 securities, respectively, in an unrealized gain position and there were 159 and 124 securities in an unrealized loss position, respectively.

As of September 30, 2023, these unrealized losses were less than $ 79 individually and $ 2,719 in the aggregate.

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

3 unchanged sentences

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 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.

(2) At September 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):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Restricted cash and cash equivalents held to satisfy client funds obligations $ 103,514 $ 147,032

2 unchanged sentences

Total funds held for clients $ 172,503 $ 203,588

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

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

One year or less $ 9,297

2 unchanged sentences

NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS

December 31, 2022 Acquisitions June 30, 2023

December 31, 2022 Acquisitions September 30, 2023

Goodwill $ 86,011 $ — $ 86,011

2 unchanged sentences

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

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

As of September 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 September 30, 2023

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

4 unchanged sentences

$ 132,228 $ 1,029 $ 133,257

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):

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

Weighted Average

1 unchanged sentence

Amortization Net

June 30, 2023

September 30, 2023

Customer relationships 8.7 $ 116,971 $ ( 62,498 ) $ 54,473

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 $ 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.

Amortization expenses recorded in Operating Expenses were $ 9,929 and $ 10,134 for the nine months ended September 30, 2023 and 2022, respectively.

Amortization expenses recorded in Cost of Sales were $ 368 and $ 889 for the nine months ended September 30, 2023 and 2022, respectively.

There was no impairment of intangibles during the nine months ended September 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 June 30, 2023 (in thousands):

The following table summarizes the future estimated amortization expense relating to our intangible assets as of September 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 June 30, 2023 December 31, 2022

Maturity Cash Interest Rate September 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

June 30, 2023

September 30, 2023

Current portion of notes payable $ 420 $ ( 225 ) $ 195

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 June 30, 2023 (in thousands):

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

Total $ 4,200

2 unchanged sentences

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 promissory note.

As of September 30, 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.

As of September 30, 2023, the promissory note had an outstanding balance of $ 4,200 .

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.

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

In September 2023, the Company paid the outstanding balance of a subordinated note payable in connection with the acquisition of certain assets of a payroll business that took place in 2021.

As a result, the Company paid the remaining balance of $ 2,312 on the promissory note consisting of $ 2,223 in principal and $ 89 in accrued interest.

As of September 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 (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.

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 Lender (“Agent”), under the terms of which the Lenders 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.

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

The Company’s obligations are further guaranteed by each of our subsidiaries and secured by our assets and the assets of our subsidiaries.

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 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.

The PIK interest is added to our outstanding balance and accrues interest at the Basic Rate.

Interest only payments are due until October 2023, with an option to extend until October 2024, dependent on certain financial or revenue metrics before the end of the first twenty-four months of the Facility.

Principal payments begin 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 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 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 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 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.

On August 7, 2023, the Company entered into an amendment to the Facility, 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 Fee 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 Company also paid the Lenders a fee equal to $ 250 to be credited against any reimbursable expenses owed to the Lenders in a future refinancing of the Facility if it occurs prior to December 31, 2024.

On September 12, 2023, the Company opted to terminate the Loan Agreement and repay the outstanding balance on the secured promissory note (the “Note”).

In connection with the termination, the Company paid the Agent for the benefit of the Lenders an aggregate amount of $ 30,927 (the “Payoff Amount”) in full payment of our outstanding obligations under the Loan Agreement.

The Payoff Amount represented $ 30,617 of outstanding principal and interest on the unpaid principal balance, a 1.0 % prepayment fee in the amount of $ 306 and $ 5 for the accrued non-utilization fee and lender expenses associated with the extinguishment.

As of September 30, 2023, there are no further amounts due or owing under the Facility.

NOTE 7 – CONTRACTS WITH CUSTOMERS AND REVENUE CONCENTRATION

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 $ 1,186 , w ere $ 15,133 at September 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 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.

The decrease in the allowance for doubtful accounts balance during the three and nine months ended September 30, 2023 is primarily due to the removal of fully reserved receivable balances.

The increase in the receivable balance during the first nine 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 September 30, 2023 and December 31, 2022, respectively.

Deferred Commissions

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 commission costs from contracts with customers w ere $ 9,155 and $ 6,660 at September 30, 2023 and December 31, 2022 , respectively.

The amount of amortization recognized for the three and nine months ended September 30, 2023 was $ 1,029 and $ 2,176 , respectively, and for the three and nine months ended September 30, 2022 was $ 412 and $ 1,192 , respectively.

Deferred Revenue

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.

During the three and nine months ended September 30, 2023, revenue of $ 924 and $ 6,650 , respectively, an d during the three and nine months ended September 30, 2022, revenue of $ 156 and $ 3,362 , respectively, was recognized from the deferred revenue balance at the beginning of each period.

Transaction Price Allocated to the Remaining Performance Obligations

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

As of September 30, 2023, approximately $ 18,891 of revenue is expected to be recognized from remaining performance obligations.

We expect to recognize revenue on approximately 81 % of these remaining performance obligations over the next 12 months, with the balance recognized thereafter.

Revenue Concentration

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.

Revenue Co ncentration

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

NOTE 8 - LEASES

6 unchanged sentences

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,

The components of the rent expense for the three and nine months ended September 30, 2023 and 2022 are as follows (in thousands):

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

2023 2022 2023 2022

3 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 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,

The weighted average discount rate of our operating leases is 10 % and 8 % as of September 30, 2023 and December 31, 2022, respectively.

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

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,

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

1 unchanged sentence

Non-cash operating activities:

Operating lease assets obtained in exchange for new operating lease liabilities $ — $ 1,512

Operating lease assets obtained or removed in exchange for new, modified or terminated operating lease liabilities $ ( 473 ) $ 2,221

Future minimum commitments over the life of all operating leases, which exclude variable rent payments, are as follows (in thousands):

5 unchanged sentences

We have one active equity plan, the 2018 Incentive Award Plan (the “2018 Plan”).

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.

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 2018 Plan, approved by our stockholders, 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 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 .

We have an aggregate of 2,306 options, RSUs and PSUs granted and outstanding pursuant to the 2018 Plan as of September 30, 2023.

As of September 30, 2023, the number of shares available for future grant under the 2018 Plan is 1,737 .

Share based compensation for our stock option plans for the three months ended September 30, 2023, and September 30, 2022, was $ 1,251 and $ 799 , respectively, and for the nine months ended September 30, 2023, and September 30, 2022, was $ 4,170 and $ 2,341 , respectively.

We issued 66 and 349 shares of common stock related to exercises of stock options for the three and nine months ended September 30, 2023, and issued no shares of common stock related to exercises of stock options for the three and nine months ended September 30, 2022.

We issued 40 and 164 shares of common stock upon the vesting of restricted stock units for the three and nine months ended September 30, 2023, and issued 22 and 95 shares of common stock upon the vesting of restricted stock units for the three and nine months ended September 30, 2022 .

NOTE 10 - NET LOSS PER SHARE

3 unchanged sentences

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,

The following table sets forth the computation of basic and diluted net loss per common share for the periods presented below (in thousands, except per share amounts):

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

2023 2022 2023 2022

14 unchanged sentences

NOTE 12 - SUBSEQUENT EVENTS

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.

On October 1, 2023, the Company acquired certain assets of a Reseller Partner, which were used to provide payroll processing services.

The Partner is located in the southeastern United States.

The aggregate purchase price that the Company paid for these assets was $ 8,391 , paid as follows:

(i) $ 6,891 in cash of which $ 6,545 was paid at closing and (ii) the delivery of a promissory note in the amount of $ 1,500 .

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