What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2025-03-06 compared with 2024-02-26 · 133 added, 130 removed, 296 unchanged (47% of the section changed)

21 unchanged sentences

Any actual or perceived breach of our security could damage our reputation, cause existing clients and resellers to terminate our services, prevent future clients from doing business with us and result in regulatory liability and third-party liability, any of which could adversely affect our business and results of operations.

We generate a portion of our revenues by providing tax processing services to enable businesses to file for Employee Retention Tax Credits under the CARES Act.

Such regulations were originally expected to expire in 2024 and 2025, which, following their expiration, will adversely impact our revenues and abuses of this program may require government intervention, that could adversely affect the timing of our processing services and delay or otherwise materially affect our future revenue and cash collections.

Since the introduction of the Employee Retention Tax Credits in 2021, we have received a significant portion of our tax processing revenues from the support we provide our customers as a tax processor in filing for Employee Retention Tax Credits.

Employee Retention Tax Credits were originally expected to expire during 2024 and 2025;

however, it is possible that the government could make changes to or revoke the program prior to its scheduled expiration.

In January 2024, the United States House of Representatives passed the Tax Relief for American Families and Workers Act of 2024, which sets an expiration date of January 31, 2024, on additional claims for ERTC that can potentially apply retroactively.

The bill also includes various enforcement provisions related to ERTC, including extending the statute of limitation on assessment for the credit, and increasing certain penalties and reporting requirements for those who are considered COVID-ERTC promoters.

The Senate must also pass an identical version of the bill that must then be signed by the President before it becomes law.

On September 14, 2023, the IRS announced a moratorium on processing new ERTC claims until at least December 31, 2023, to handle the increased number of fraudulent ERTC claims filed.

While the IRS is not pausing the processing of ERTC claims filed before September 14, 2023, and eligible taxpayers retain the right to continue to file legitimate ERTC claims, the moratorium will likely adversely affect revenues earned from support provided to customers who would otherwise undergo ERTC claim processing.

Given this, investors should not expect our tax processing revenues from ERTC filings to continue beyond 2024, and any earlier expiration or revocation of the ERTC program, including the moratorium described above, will have an adverse effect on our financial condition and results of operation.

Further, we have entered into deferred payment arrangements with some customers and referral partners whereby collections from the customer are expected to be received upon the customer’s future receipt of their tax credit.

Given the deferred nature of such receipts there is risk pertaining to our ability to collect such amounts in the future.

In certain situations, the tax authorities could have the ability to challenge the validity of a business’ filing or could challenge our calculations or find other deficiencies in our filings that could expose us to uncertain penalties or damages.

We have identified a material weakness in our internal control over financial reporting and may identify additional material weaknesses in the future, fail to remediate the identified material weakness, or otherwise fail to maintain an effective system of internal control, all of which, if they occur, may result in material misstatements of our financial statements.

In connection with the preparation of our Annual Report for the year ended December 31, 2024, we have identified a material weakness in our internal controls over financial reporting.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Controls and Procedures included in Item II of this Annual Report for more information about the identified material weakness.

We are in the process of designing and implementing measures to improve our internal controls over financial reporting and remediate the identified material weakness.

However, we cannot predict the success of these measures nor give assurance that these measures will remediate the material weakness or prevent additional material weaknesses or significant deficiencies in our internal controls over financial reporting from occuring.

If our remediation measures are insufficient to address the material weakness or additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, we may not detect errors in a timely manner, our financial statements could be misstated, we could face a loss of confidence by stakeholders, or we could be subject to regulatory scrutiny, sanctions, or litigation, any of which could harm our business, financial condition, results of operations, or the market price of our securities.

We have a history of losses, and we cannot be certain that we will achieve or sustain profitability.

3 unchanged sentences

We expect to continue to incur operating losses as a result of expenses associated with the continued development and expansion of our business.

Such exp enses include among others, transaction costs associated with acquisitions, sales and marketing, research and development, consulting and support services and other costs relating to the development, marketing and sale and service of our products that may not generate revenue until later periods, if at all.

Such expenses include among others, transaction costs associated with acquisitions, sales and marketing, research and development, consulting and support services and other costs relating to the development, marketing and sale and service of our products that may not generate revenue until later periods, if at all.

Any failure to increase revenue or manage our cost structure as we implement initiatives to grow our business could prevent us from achieving or sustaining profitability.

6 unchanged sentences

Some of these laws, such as the CCPA and IBIPA, grant consumers private right of actions for data breaches or violations as applicable.

Additionally, new privacy legislation became effective throughout 2023 in various states including Virginia, Colorado, Utah and Connecticut.

Additionally, new privacy legislation became effective throughout 2023 in many other states in which we operate.

These laws track significant portions of existing laws but include differences that may or may not increase our compliance burden.

8 unchanged sentences

Evolving privacy requirements and privacy concerns could restrict our ability to store and process data, which may impact our ability to offer our services thereby reducing demand.

Enforcement actions and investigations could also impact us through increased costs, regulatory penalties, or restrictions o n our business.

The adoption of new or interpretation of existing money service business statutes and money transmitter statutes at the federal and state level could subject us to additional regulation and related expense and necessitate changes to our business model.

The adoption of new money transmitter or money service business statutes in new jurisdictions, changes in regulators’ interpretations of existing statutes, or disagreement by regulators of our interpretation of such statutes or regulations could require additional registrations or licensing, limit certain of our business activities until we are properly licensed and expose us to financial penalties.

These occurrences could also require change to the manner in which we conduct some aspects of our money movement business, client funds investment strategy or our overall business strategy.

Although we maintain that we are not a money service business or money transmitter at the federal level, we proactively registered with FinCEN and adopted an Anti-Money Laundering Policy and compliance program designed to mitigate the risk of our services and application being utilized for illegal purposes including money laundering and to assist in detecting fraud.

We are licensed or are pursuing licensure in any jurisdiction that requires a payroll processor to be licensed under state money transmission laws.

The statutes governing our money transmitter licenses subject us to routine examinations from the regulatory agencies overseeing these licenses.

If these examinations reveal violations of the money transmitter license and those violations cannot be remediated, we may be subject to civil and criminal fines and penalties and we could lose our license to provide our services in those jurisdictions, all of which could have a material adverse effect on our business.

Further, should states or jurisdictions where we are not licensed or pursuing licenses determine that that we are a money service business or money transmitter, we could be subject to civil and criminal fines, penalties, registration fees, cost of surety bonds or other security, reputational damage and other negative consequences that may have an adverse effect on our financial condition.

We have acquired and plan to continue to acquire from time to time our Reseller Partners' businesses that have licensed our proprietary software either through stock acquisition or through an asset purchase of their client service agreements and related assets.

Enforcement actions and investigations could also impact us through increased costs, regulatory penalties, or restrictions on our business.

We have acquired and plan to continue to acquire from time to time our Reseller Partners’ businesses that have licensed our proprietary software and other complementary businesses either through stock acquisition or through an asset purchase of their client service agreements and related assets.

These acquisitions could prove difficult to integrate, result in unknown or unforeseen liabilities, disrupt our business, dilute stockholder value and ownership and adversely affect our operating results and financial condition.

3 unchanged sentences

• diversion of financial and managerial resources from existing operations;

• the potential entry into new markets in which we have little or no experience or where competitors may have stronger

market positions;

• the potential entry into new markets in which we have little or no experience or where competitors may have stronger market positions;

• potential write-offs of acquired assets or investments, and potential financial and credit risks associated with acquired customers;

15 unchanged sentences

If we finance acquisitions by issuing equity or convertible or other debt securities or loans, or issue equity as consideration for an acquisition, our existing stockholders may be diluted, or we could face constraints related to the terms of, and repayment obligations related to, the incurrence of indebtedness.

Our failure to comply with existing laws and regulations may result in adverse effects on our business, service and financial condition and failure to comply with licensing requirements or changing laws and regulations through modifications, developments, and enhancements to our products and services could have a material adverse effect on our business and results of operations.

Our services are subject to various laws and regulations including COBRA, HIPAA, laws and regulations promulgated by state wage and hour authorities, anti-money laundering regulations, and licensure requirements.

Failure to comply with the multiple laws and regulations that impact us may result in civil liability from our clients for noncompliance, regulatory fines, and loss of reputation in the event of a public regulatory investigation or consent order or civil lawsuit.

Moreover, many of our solutions are designed to assist our clients with their compliance with myriad government regulations and laws that continually change.

For example, regulatory changes in 2020 in response to the COVID-19 pandemic necessitated multiple product modifications to accommodate changes relevant to the collection and remittance of payroll tax, including payroll tax deferments.

The introduction of new regulatory requirements or changes in interpretation of existing laws or regulations could increase our cost of doing business.

As with the development changes necessitated with new regulations in response to COVID-19, changing regulatory requirements may require the introduction of new applications or enhancements, or may make new modifications or new applications more expensive or could prevent the introduction of new applications.

Changes in laws could also impact applications under development, rendering them in applicable or obsolete mid-development which could result in wasted time and development money.

Furthermore, we could fail to renew expiring licenses or have active licenses suspended or revoked for noncompliance with rules or regulations issued by the licensing bodies.

Any failure to anticipate and respond to these legal regulations and changes and provide tools and applications to solve for these changes in a timely fashion could adversely affect our reputation and affect our business and results of operations.

Our software and solutions may not function adequately, which could damage our reputation and give rise to claims against us, which could harm our business and operating results.

Our software and solutions are complex and operate in an environment of intricate federal, state and local regulations that pertain to human resources, taxes, payroll, benefits and other areas of the Human Capital Management marketplace.

To the extent to which our software contains defects or errors our clients might assert claims against us in the future alleging that they suffered damages due to a defect, error or other failure of our software or solutions.

While our agreements with our clients may contain provisions intended to limit our exposure to such claims, they may not be effective in limiting our exposure.

A successful claim for product or service liability brought against us could result in substantial cost to us.

We maintain insurance to cover such claims, however, it may be inadequate or may not be available in the future on acceptable terms or at all.

In addition, the cost of defending a suit, regardless of its merit, could be costly and divert management’s attention.

We depend on data centers and computing infrastructure operated by third parties, and any disruption in these operations or changes of these providers could adversely affect our business.

We rely on hosted infrastructure partners, such as Amazon Web Services and to a lesser extent, data center providers, to provide third-party hosted environments for our applications.

While we control and have access to our servers and all the components of the networks that are located in our hosted environments, we do not control the operations of these facilities.

The owners of such facilities have no obligation to renew their agreements with us on commercially reasonable terms.

If we are not able to renew these contracts on commercially reasonable terms, we may be required to transfer our servers and other infrastructure to new data facilities, and we may incur significant costs and possible service interruption in doing so.

We may not have adequately distributed our systems within our hosted infrastructure partner’s environment to prevent in any regional disruption or interference at our hosted infrastructure partners from adversely impacting our operations and our business.

Our SaaS hosting network infrastructure is a critical part of our business operations.

Our clients access our HCM software through a standard web browser and depend on us for fast and reliable access to our products.

Our software is proprietary, and we rely on third-party data center hosting facilities and the expertise of members of our engineering and software development teams for the continued performance of our software.

We have experienced, and may in the future experience, disruptions in our computing and communications infrastructure.

Factors that may cause such disruptions include:

• human error;

• security breaches;

• telecommunications outages from third-party providers;

• computer viruses;

• acts of terrorism, war, sabotage or other intentional acts of vandalism, including cyber attacks;

• unforeseen interruption or damages experienced in moving hardware to a new location, including government-imposed travel restrictions;

• fire, earthquake, flood, the spread of major epidemics and other natural disasters;

• power loss.

Although we generally back up our client databases hourly, and store our data in more than one geographically distinct location at least weekly, we do not currently offer immediate access to disaster recovery locations in the event of a disaster or major outage.

Thus, in the event of any of the factors described above, or other failures of our computing infrastructure, clients may not be able to access their data for lengthy periods of time and it is possible that client data from recent transactions may be permanently lost or otherwise compromised.

In addition, we may not have adequate insurance coverage to compensate for losses from a major interruption.

Moreover, some of our agreements include performance guarantees and service level standards that obligate us to provide credits, refunds or termination rights in the event of a significant disruption in our SaaS hosting network infrastructure or other technical problems that relate to the functionality or design of our software.

We may be required to incur debt to meet future capital requirements of our business.

Should we be required to incur debt, the restrictions imposed by the terms of such debt could adversely affect our financial condition and our ability to respond to changes in our business.

If we incur debt, we may be subject to the following risks:

• our vulnerability to adverse economic conditions may be heightened;

• our flexibility in planning for, or reacting to, changes in our business may be limited;

• our debt covenants may affect our flexibility in planning for, and reacting to, changes in the economy and in our industry;

• higher levels of debt may place us at a competitive disadvantage compared to our competitors or prevent us from pursuing opportunities;

• covenants contained in the agreements governing our indebtedness may limit our ability to borrow additional funds and make certain investments;

• a significant portion of our cash flow could be used to service our indebtedness;

• our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or other general corporate purposes may be impaired.

We cannot assure you that our leverage and such restrictions will not materially and adversely affect our ability to finance our future operations or capital needs or to engage in other business activities.

Volatility and weakness in bank and capital markets may adversely affect credit availability and related financing costs for us.

Banking and capital markets have recently and may in the future experience periods of volatility and disruption.

If the disruption in these markets is prolonged, our ability to refinance, and the related cost of refinancing, some or all of our debt could be adversely affected.

Although we currently can access the bank and capital markets, there is no assurance that such markets will continue to be a reliable source of financing for us.

These factors, including the tightening of credit markets, could adversely affect our ability to obtain cost effective financing.

Increased volatility and disruptions in the financial markets also could make it more difficult and more expensive for us to refinance outstanding indebtedness and to obtain financing.

In addition, the adoption of new statutes and regulations, the implementation of recently enacted laws, or new interpretations or the enforcement of older laws and regulations applicable to the financial markets or the financial services industry could result in a reduction in the amount of available credit or an increase in the cost of credit.

Disruptions in the financial markets can also adversely affect our lenders, insurers, customers, and other counterparties.

Any of these results could have a material adverse effect on our business, financial condition, and results of operations.

We may require additional capital to support business growth, and this capital may not be available on acceptable terms, or at all.

We intend to continue to make investments, including the acquisition of complementary businesses, to support our business growth and may seek additional funds to respond to business challenges, including the need to develop new features or enhance our existing products, improve our operating infrastructure or acquire complementary businesses and technologies.

Accordingly, we may need to engage in equity or debt financings to secure additional funds.

If we raise additional funds through issuances of equity or debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock.

In addition, we may not be able to obtain additional financing on terms favorable to us, if at all.

If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired.

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control.

Our business may not generate cash flow from operations in the future sufficient to satisfy our obligations under the notes and any future indebtedness we may incur and to make necessary capital expenditures.

If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, refinancing or obtaining additional equity capital on terms that may be onerous or highly dilutive.

Our ability to refinance future indebtedness will depend on the capital markets and our financial condition at such time.

We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on the notes or future indebtedness.

We incur significant costs as a result of operating as a public company, and our management will devote substantial time to new compliance initiatives, including incremental requirements as a result in a change of filer status.

We may fail to comply with the rules that apply to such public companies, which could result in sanctions or other penalties that would harm our business.

We incur significant legal, accounting and other expenses as a public company, including costs resulting from public company reporting obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Sarbanes-Oxley Act of 2002, and regulations regarding corporate governance practices.

The listing requirements of The Nasdaq Capital Market require that we satisfy certain corporate governance requirements relating to director independence, distributing annual and interim reports, stockholder meetings, approvals and voting, soliciting proxies, conflicts of interest and a code of conduct.

Our management and other personnel devote a substantial amount of time to ensure that we comply with all of these requirements.

Moreover, new reporting requirements, rules and regulations will increase our legal and financial compliance costs and will make some activities more time consuming and costly.

Any changes we make to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis, or at all.

A portion of our accounts receivable is related tax processing services to that enabled businesses to file for Employee Retention Tax Credits under the CARES Act.

Such regulations were originally expected to expire in 2024 and 2025, which, following their expiration, will adversely impact our revenues on a comparative basis.

Further, abuses of this program may require government intervention that could adversely affect the timing of our cash collections.

Employee Retention Tax Credits were originally expected to expire during 2024 and 2025;

however, it is possible that the government could make changes to or revoke the program prior to its scheduled expiration.

The Senate must also pass an identical version of the bill that must then be signed by the President before it becomes law.

On September 14, 2023, the IRS announced a moratorium on processing new ERTC claims until at least December 31, 2023, to handle the increased number of fraudulent ERTC claims filed.

Given the deferred nature of such receipts there is risk pertaining to our ability to collect such amounts in the future.

If we are unable to release timely updates to reflect changes in wage and hour laws, tax, privacy, benefit and other laws and regulations that our products help our clients address, the market acceptance of our products may be adversely affected and our revenues could decline.

29 unchanged sentences

These risks may be exacerbated during periods of unusual financial market volatility.

Any loss or inability to access client funds could have an adverse impact on our cash position and could require us to obtain additional sources of liquidity, and could have a material adverse effect on our business, financial condition and results of oper ations.

The markets in which we participate are highly competitive, and if we do not compete effectively, our operating results could be adversely affected.

40 unchanged sentences

Any future impairment of a significant portion of goodwill or intangible assets could have a material adverse effect on our business, operating results and financial condition.