Asure Software(ASUR) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis of the company's financial performance and condition ITEM 1. FINANCIAL STATEMENTS (Unaudited) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of comprehensive loss, statements of changes in stockholders' equity, and statements of cash flows, along with their accompanying notes, for the periods ended June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets Total assets increased, driven by cash and client funds, while liabilities rose from notes payable and client obligations | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change ($) | Change (%) | | :----------------------------------- | :----------------------------- | :------------------------------- | :--------- | :--------- | | Total Assets | $505,565 | $436,638 | $68,927 | 15.78% | | Cash, cash equivalents, and restricted cash | $66,000 | $21,425 | $44,575 | 208.06% | | Funds held for clients | $213,972 | $192,615 | $21,357 | 11.09% | | Total Liabilities | $311,313 | $239,323 | $71,990 | 30.08% | | Notes payable, net | $67,382 | $12,717 | $54,665 | 430.02% | | Total Stockholders' Equity | $194,252 | $197,315 | $(3,063) | -1.55% | Condensed Consolidated Statements of Comprehensive Loss Net loss increased due to higher operating expenses and a significant rise in interest expense for both periods | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Total Revenue | $30,124 | $28,044 | $2,080 | 7.42% | | Gross Profit | $19,911 | $18,868 | $1,043 | 5.53% | | Loss from Operations | $(4,652) | $(4,182) | $(470) | 11.24% | | Interest Expense | $(809) | $(208) | $(601) | 288.94% | | Net Loss | $(6,123) | $(4,360) | $(1,763) | 40.44% | | Basic Loss Per Share | $(0.22) | $(0.17) | $(0.05) | 29.41% | | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Total Revenue | $64,978 | $59,696 | $5,282 | 8.85% | | Gross Profit | $44,519 | $41,475 | $3,044 | 7.34% | | Loss from Operations | $(6,667) | $(4,623) | $(2,044) | 44.21% | | Interest Expense | $(1,260) | $(388) | $(872) | 224.74% | | Net Loss | $(8,521) | $(4,668) | $(3,853) | 82.54% | | Basic Loss Per Share | $(0.31) | $(0.18) | $(0.13) | 72.22% | Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity slightly decreased due to net loss, partially offset by stock issuance and share-based compensation | Metric (in thousands) | December 31, 2024 | June 30, 2025 | | :-------------------- | :---------------- | :------------ | | Total Stockholders' Equity | $197,315 | $194,252 | | Accumulated Deficit | $(307,226) | $(315,747) | | Additional Paid-in Capital | $504,849 | $509,630 | | Common Stock Outstanding (shares) | 26,671 | 27,365 | - The company issued 451 shares upon option exercise and vesting of restricted/performance stock units, and 54 shares through ESPP during the six months ended June 30, 2025, contributing to an increase in additional paid-in capital[16] Condensed Consolidated Statements of Cash Flows Cash and equivalents significantly increased, driven by financing activities and new notes payable | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | | :-------------------------------- | :----------------------------- | :----------------------------- | :--------- | | Net cash provided by (used in) operating activities | $5,151 | $(1,719) | $6,870 | | Net cash used in investing activities | $(17,814) | $(7,359) | $(10,455) | | Net cash provided by (used in) financing activities | $73,097 | $(27,935) | $101,032 | | Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents | $60,434 | $(37,013) | $97,447 | | End of period cash, cash equivalents, restricted cash, and restricted cash equivalents | $206,146 | $140,609 | $65,537 | - Financing activities were significantly boosted by $57,982 (in thousands) in net proceeds from notes payable (MidCap Loan Agreement) and a $20,461 (in thousands) net increase in client fund obligations for the six months ended June 30, 2025[21] Notes to Condensed Consolidated Financial Statements These notes detail the company's operations, accounting policies, financial instruments, assets, liabilities, and key events NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION Asure Software, Inc. provides cloud-based HCM SaaS solutions, including payroll and HR, through direct and partner channels - Asure Software, Inc. provides cloud-based Human Capital Management (HCM) software solutions as Software-as-a-Service (SaaS)[25] - Core offerings include Payroll & Tax filing, Recruiting, Time & Attendance software, HR management tools, and Benefits Administration[25] - Solutions are delivered directly and through a national network of Reseller Partners and Referral Partners[25][26] NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES The company operates as a single segment, primarily from US payroll services, with key accounting policies on estimates and restricted cash - The company has a single reportable segment, primarily generating revenue from payroll services in the United States[32] - As of June 30, 2025, $40,000 (in thousands) of restricted cash is held, designated solely for Permitted Acquisitions under the Loan Agreement with MidCap Financial Trust[35] - The FASB issued ASU No. 2023-09, 'Improvements to Income Tax Disclosures,' effective for public entities for annual periods beginning after December 15, 2024, which the company is currently evaluating[36] NOTE 3 - BUSINESS COMBINATIONS AND ASSET ACQUISITIONS Asure completed four customer relationship acquisitions in H1 2025, following 2024 acquisitions of an applicant tracking company and other assets - During the six months ended June 30, 2025, Asure completed four customer relationship asset acquisitions for a total purchase price of $8,086 (in thousands)[38] - Effective July 11, 2024, Asure acquired an applicant tracking technology company for $15,162 (in thousands), allocating $2,700 to customer relationships, $3,200 to developed technology, and $8,713 to goodwill[39][40][41] - During the year ended December 31, 2024, Asure completed eleven customer relationship asset acquisitions for a total purchase price of $15,202 (in thousands)[42] NOTE 4 - INVESTMENTS AND FAIR VALUE MEASUREMENTS Financial assets at fair value include money market funds and available-for-sale securities, totaling $77.109 million | Asset Category (in thousands) | June 30, 2025 (Fair Value) | December 31, 2024 (Fair Value) | | :---------------------------- | :------------------------- | :----------------------------- | | Money market funds | $3,283 | $8,105 | | Available-for-sale securities | $73,826 | $68,328 | | Total | $77,109 | $76,433 | - Available-for-sale securities primarily include corporate debt securities ($66,671 thousand), municipal bonds ($1,957 thousand), and U.S. Government agency securities ($5,198 thousand) as of June 30, 2025[48] - Funds held for clients, totaling $213,972 (in thousands) as of June 30, 2025, are invested in restricted cash, cash equivalents, and marketable securities to satisfy payroll and payroll tax filing obligations[49] NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill remained constant, while gross intangible assets increased due to acquisitions, with amortization expense totaling $8.481 million | Intangible Asset (in thousands) | December 31, 2024 | Acquisitions | June 30, 2025 | | :------------------------------ | :---------------- | :----------- | :------------ | | Goodwill | $94,724 | $— | $94,724 | | Customer relationships | $148,097 | $9,383 | $157,480 | | Developed technology | $15,201 | $— | $15,201 | | Trade names | $880 | $— | $880 | | Non-compete agreements | $1,032 | $— | $1,032 | | Total Gross Intangible Assets | $165,210 | $9,383 | $174,593 | | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Amortization expenses (operating expenses) | $8,481 | $7,495 | | Amortization expenses (cost of sales) | $420 | $100 | - Future estimated amortization expense for intangible assets is projected to be $9,024 (in thousands) for the remainder of 2025 and $14,974 (in thousands) for 2026[53] NOTE 6 - NOTES PAYABLE Gross notes payable significantly increased due to a new $60 million MidCap Loan Agreement, subject to financial covenants | Debt Category (in thousands) | June 30, 2025 | December 31, 2024 | | :--------------------------- | :------------ | :---------------- | | Notes Payable – Acquisitions | $11,345 | $9,943 | | Notes Payable – Other | $— | $5,000 | | Notes Payable – MidCap | $60,000 | $— | | Gross Notes Payable | $71,345 | $14,943 | - On April 10, 2025, the company entered into a Loan Agreement with MidCap Financial Trust for up to $60,000 (in thousands), all of which was funded by June 30, 2025. The loan matures on April 1, 2030, with interest-only payments until April 1, 2029[59][60][61] - The MidCap loan has an annual interest rate of Term SOFR plus 5.00% (9.33% as of June 30, 2025) and requires compliance with a Total Leverage Ratio (no greater than 5.50 to 1.00) and a minimum liquidity threshold (10.00% of outstanding principal)[61] NOTE 7 – CONTRACTS WITH CUSTOMERS AND REVENUE CONCENTRATION Receivables from customer contracts decreased, with significant revenue expected from remaining obligations and no major customer concentration | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Accounts receivable, net | $13,623 | $18,154 | | Contract assets | $2,885 | $1,712 | | Deferred commission costs | $13,317 | $12,351 | - Approximately $82,390 (in thousands) of revenue is expected to be recognized from remaining performance obligations as of June 30, 2025, with about 27% recognized within the next twelve months[68] - No customer represented more than 10% of net accounts receivable or consolidated revenue for the periods presented[64][69] NOTE 8 - COMMITMENTS AND CONTINGENCIES The company holds operating lease agreements with $6.912 million in minimum payments and no material legal proceedings | Lease Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $1,054 | $953 | | Net rent expense | $1,054 | $949 | | Future Minimum Lease Payments (in thousands) | Amount | | :------------------------------------------- | :----- | | 2025 (Remaining) | $992 | | 2026 | $1,801 | | 2027 | $1,588 | | 2028 | $1,417 | | 2029 | $879 | | 2030 | $208 | | Thereafter | $27 | | Total minimum lease payments | $6,912 | | Less: imputed interest | $(1,260) | | Total lease liabilities | $5,652 | - As of June 30, 2025, the company was not a party to any material legal proceedings[73] NOTE 9 - SHARE-BASED COMPENSATION Share-based compensation expense increased, with 2,428 options, RSUs, and PSUs outstanding, and new PSU grants | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Share-based compensation | $1,891 | $1,488 | $3,754 | $3,390 | - As of June 30, 2025, 2,428 options, restricted stock units (RSUs), and performance stock units (PSUs) were outstanding under the 2018 Incentive Award Plan, with 2,602 shares available for future grants[75] - Effective January 1, 2025, executive officers were granted PSUs under the 2018 Plan, convertible to RSUs based on 2025 recurring revenue and gross profit performance[78] NOTE 10 - NET LOSS PER SHARE Basic and diluted net loss per share increased to $(0.22) for three months and $(0.31) for six months, driven by higher net loss | Metric (in thousands, except per share) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Loss | $(6,123) | $(4,360) | $(8,521) | $(4,668) |\n| Weighted-average shares outstanding | 27,237 | 25,840 | 27,100 | 25,587 | | Basic and Diluted Loss Per Share | $(0.22) | $(0.17) | $(0.31) | $(0.18) | NOTE 11 - SEGMENT INFORMATION The company operates as a single reportable segment, with the CODM reviewing consolidated net loss for performance and resource allocation - The company operates as a single reportable segment, with the Chairman and CEO serving as the Chief Operating Decision Maker (CODM)[81] - The CODM uses consolidated net loss to assess financial performance and allocate resources, and does not review assets in evaluating segment results[81] NOTE 12 - SUBSEQUENT EVENTS Asure acquired Lathem Time 2025 LLC for $39.5 million, funded by restricted cash and a promissory note, with subsequent loan amendments - On July 1, 2025, Asure acquired Lathem Time 2025 LLC for $39,500 (in thousands), consisting of $37,500 in restricted cash from the MidCap Loan Agreement and a $2,000 promissory note[83] - In July 2025, amendments to the Loan Agreement increased the minimum liquidity threshold from $6,000 (in thousands) to $10,000 (in thousands) and the final payment fee from 1.00% to 2.00% of the advanced amount[85] - Lathem Time 2025 LLC joined the Loan Agreement as a Guarantor, and the lenders consented to the Lathem acquisition[85] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses financial condition and results, covering revenue, expenses, liquidity, capital, and critical accounting policies CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS The report contains forward-looking statements about financial results, operations, and strategy, subject to various risks - The report contains forward-looking statements regarding financial results, operations, and strategy, identified by words like 'believe,' 'may,' 'will,' 'estimate,' 'projects,' 'anticipate,' 'intend,' 'expect,' 'should,' and 'plan'[86] - Risks and uncertainties include security breaches, material weaknesses, financial and operating result fluctuations, privacy concerns, impacts of acquisitions, regulatory developments, and market volatility[86] - The company assumes no obligation to update these forward-looking statements, except as required by law[87] OVERVIEW Asure Software, Inc. provides cloud-based HCM SaaS solutions, serving over 100,000 clients, and recently acquired Lathem Time - Asure provides cloud-based Human Capital Management (HCM) software solutions as SaaS, including Payroll & Tax filing, Recruiting, Time & Attendance, HR management, and Benefits Administration[90] - The company serves over 100,000 clients across the United States, with approximately 20% direct clients and 80% indirect clients through reseller partners[92] - On July 1, 2025, Asure acquired Lathem Time 2025, LLC to enhance its time and attendance offerings and facilitate cross-selling of its full HCM suite[93] RESULTS OF OPERATIONS Total revenue increased, but net loss widened from increased operating expenses and a significant rise in interest expense Revenue Total revenue increased by 7-9%, driven by recurring revenue growth, primarily from tax management solutions | Revenue Category (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Variance ($) | Variance (%) | | :------------------------------ | :------------------------------- | :------------------------------- | :----------- | :----------- | | Recurring | $28,596 | $27,051 | $1,545 | 6% | | Professional services, hardware and other | $1,528 | $993 | $535 | 54% | | Total Revenue | $30,124 | $28,044 | $2,080 | 7% | | Revenue Category (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Variance ($) | Variance (%) | | :------------------------------ | :----------------------------- | :----------------------------- | :----------- | :----------- | | Recurring | $61,783 | $57,324 | $4,459 | 8% | | Professional services, hardware and other | $3,195 | $2,372 | $823 | 35% | | Total Revenue | $64,978 | $59,696 | $5,282 | 9% | - Recurring revenue consistently represented over 95% of total revenue for the three and six months ended June 30, 2025, primarily driven by tax management solutions[95][100] Gross Profit and Gross Margin Consolidated gross profit increased, with gross margin slightly decreasing for three months but remaining flat for six months | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Gross Profit | $19,911 | $18,868 | $1,043 | 6% | | Gross Margin | 66% | 67% | -1% | | | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Gross Profit | $44,519 | $41,475 | $3,044 | 7% | | Gross Margin | 69% | 69% | 0% | | Sales and Marketing Expenses Sales and marketing expenses increased by 18-13%, primarily due to higher headcount and referral fees | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Sales and marketing expenses | $8,149 | $6,924 | $1,225 | 18% | | As % of revenue | 27% | 25% | 2% | | | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Sales and marketing expenses | $16,535 | $14,691 | $1,844 | 13% | | As % of revenue | 25% | 25% | 0% | | - The company expects to continue expanding and increasing selling costs by hiring direct sales personnel, enhancing brand recognition, and generating leads[111] General and Administrative Expenses General and administrative expenses increased by 8-13%, primarily due to increased personnel compensation and service costs | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | General and administrative expenses | $10,968 | $10,118 | $850 | 8% | | As % of revenue | 36% | 36% | 0% | | | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | General and administrative expenses | $22,868 | $20,181 | $2,687 | 13% | | As % of revenue | 35% | 34% | 1% | | Research and Development Expenses R&D expenses decreased by 35-11%, primarily due to increased capitalization of software development expenses | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | R&D expenses | $1,273 | $1,962 | $(689) | -35% | | As % of revenue | 4% | 7% | -3% | | | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | R&D expenses | $3,302 | $3,731 | $(429) | -11% | | As % of revenue | 5% | 6% | -1% | | Amortization of Intangible Assets Amortization expense increased by 3-13%, attributed to the company's ongoing acquisition strategy | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Amortization expense | $4,173 | $4,046 | $127 | 3% | | As % of revenue | 14% | 14% | 0% | | | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Amortization expense | $8,481 | $7,495 | $986 | 13% | | As % of revenue | 13% | 13% | 0% | | Interest Income and Expense Interest income remained stable, but interest expense significantly increased due to the new MidCap Loan Agreement | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest income | $277 | $261 | $448 | $597 | | Interest expense | $(809) | $(208) | $(1,260) | $(388) | - The significant increase in interest expense for both periods is primarily attributable to the new Loan Agreement with MidCap Financial Trust[120][121] Other (Expense) Income, Net Other (expense) income, net, shifted to a $96 thousand expense for three months and $92 thousand income for six months | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Other (expense) income, net | $(96) | $— | $92 | $10 | Income Taxes Income tax expense significantly increased to $843 thousand for three months and $1.134 million for six months | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax expense | $843 | $231 | $1,134 | $264 | Net Loss Net loss increased to $6.123 million for three months and $8.521 million for six months, with loss per share rising | Metric (in thousands, except per share) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Loss | $(6,123) | $(4,360) | $(8,521) | $(4,668) | | Loss Per Share | $(0.22) | $(0.17) | $(0.31) | $(0.18) | | Loss as % of Total Revenue | 20% | 16% | 13% | 8% | LIQUIDITY AND CAPITAL RESOURCES Working capital significantly increased, driven by cash from the MidCap Loan Agreement, with operating and financing activities impacting cash flows | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Cash and cash equivalents | $66,000 | $21,425 | | Working Capital | $64,268 | $13,641 | | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $5,151 | $(1,719) | | Net cash used in investing activities | $(17,814) | $(7,359) | | Net cash provided by (used in) financing activities | $73,097 | $(27,935) | - The company has access to an 'at the market offering' program, with $25,000 (in thousands) of common stock available for issuance as of June 30, 2025[137] CRITICAL ACCOUNTING POLICIES AND ESTIMATES Financial statement preparation involves significant management estimates, with no material changes to critical accounting estimates - The preparation of financial statements involves significant management estimates and assumptions[139] - No material changes have occurred to the critical accounting estimates since the 2024 Annual Report on Form 10-K[139] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK No material changes to the company's market risk exposure have occurred since the 2024 Annual Report on Form 10-K - No material changes to market risk exposure have occurred since the 2024 Annual Report on Form 10-K[140] ITEM 4. CONTROLS AND PROCEDURES Disclosure controls were ineffective due to a material weakness in program change management, with remediation efforts underway Evaluation of Disclosure Control and Procedures Disclosure controls were deemed ineffective due to a material weakness, though management believes financial statements fairly present the company's condition - As of June 30, 2025, disclosure controls and procedures were deemed not effective at the reasonable assurance level[143] - Management believes the consolidated financial statements fairly present the financial condition, results of operations, and cash flows, despite the material weakness[143] Identified Material Weakness A material weakness was identified in program change management controls due to incomplete logs, posing a risk of material misstatement - A material weakness was identified as of December 31, 2024, related to ineffective design and operation of controls over program change management[145] - The weakness stemmed from a lack of complete program and data change logs for certain financially relevant applications[145] - This deficiency created a reasonable possibility that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis[146] Status of Remediation Automated tracking tools were implemented, but the material weakness is not yet fully remediated pending testing - Automated tracking tools were implemented and activated as of April 29, 2025, to ensure complete logging of program and data changes[147] - The material weakness is not considered fully remediated until updated controls have operated effectively for a sufficient period and management has confirmed their effectiveness through testing[148] Planned Conclusion The company expects to conclude full remediation of the material weakness in a future reporting period, contingent on sustained testing - The company expects to conclude full remediation of the material weakness in a future reporting period, contingent on sustained effective operation and testing of the controls[149] Change in Internal Controls over Financial Reporting No other material changes in internal control over financial reporting occurred, apart from the identified material weakness and its remediation - No other material changes in internal control over financial reporting occurred during the period ended June 30, 2025, apart from the identified material weakness and its remediation[150] PART II – OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity sales, defaults, mine safety, other disclosures, and a list of exhibits ITEM 1. LEGAL PROCEEDINGS As of June 30, 2025, the company was not a party to any material legal proceedings, though it may be involved in normal course actions - As of June 30, 2025, the company was not a party to any material legal proceedings[153] ITEM 1A. RISK FACTORS This section updates risk factors, emphasizing risks related to increased indebtedness, restrictive covenants, market volatility, and trade policies - The company's ability to make scheduled payments or refinance existing indebtedness, including the MidCap Loan Agreement and subordinated promissory notes, depends on future performance and is subject to economic, financial, and competitive factors[155] - Restrictive covenants in the MidCap Loan Agreement limit the company's ability to incur debt, pay dividends, and use funds (e.g., proceeds are restricted to permitted acquisitions), potentially affecting financial flexibility[156] - Volatility in bank and capital markets may adversely affect credit availability, increase interest and financing costs, and changes in international trade policies (e.g., tariffs) could increase the cost of goods sold for Time and Attendance products[158][159] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS No unregistered sales of equity securities or use of proceeds were reported - No unregistered sales of equity securities or use of proceeds were reported[160] ITEM 3. DEFAULTS UPON SENIOR SECURITIES No defaults upon senior securities were reported - No defaults upon senior securities were reported[161] ITEM 4. MINE SAFETY DISCLOSURES No mine safety disclosures were reported - No mine safety disclosures were reported[162] ITEM 5. OTHER INFORMATION No directors or officers entered into 10b5-1 trading plans, and the Loan Agreement's minimum liquidity threshold increased to $10 million - No directors or officers entered into, amended, or terminated 10b5-1 trading plans during the three months ended June 30, 2025[163] - On July 31, 2025, Amendment No. 2 to the Loan Agreement increased the minimum liquidity threshold to $10,000 (in thousands)[163] ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES This section lists all exhibits filed, including key agreements and Sarbanes-Oxley Act certifications - Key exhibits include the Equity Purchase Agreement for Lathem Time 2025, LLC, and the Credit, Security and Guaranty Agreement with MidCap Financial Trust, along with its amendments[164] - Certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are also filed/furnished[164]