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NOTES PAYABLE | 6 Months Ended
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Jun. 30, 2023
Debt Disclosure [Abstract] |
NOTES PAYABLE | NOTES PAYABLE The following table summarizes our outstanding debt as of the dates indicated (in thousands):
| Maturity |  | Cash Interest Rate |  | June 30, 2023 |  | December 31, 2022
Subordinated Notes Payable – Acquisitions(1) | 12/31/2022 – 9/30/2026 |  | 2.00% - 3.00% |  | $ | 6,890 |  |  | $ | 6,947 |
Senior Credit Facility | 10/1/2025 |  | 14.00% |  | 32,190 |  |  | 30,607 |
Gross Notes Payable |  |  |  |  | $ | 39,080 |  |  | $ | 37,554 |
(1)See Note 3 — Business Combinations and Asset Acquisitions and Subordinated Notes Payable - Acquisitions section below for further discussion regarding the notes payable related to acquisitions. The following table summarizes the debt issuance costs as of the dates indicated (in thousands):
| Gross Notes Payable |  | Debt Issuance Costs and Debt Discount |  | Net Notes Payable
June 30, 2023 |  |  |  |  |
Current portion of notes payable | $ | 7,190 |  |  | $ | (633) |  |  | $ | 6,557 |
Notes payable, net of current portion | 31,890 |  |  | (1,664) |  |  | 30,226 |
Total | $ | 39,080 |  |  | $ | (2,297) |  |  | $ | 36,783 |
December 31, 2022 |  |  |  |  |
Current portion of notes payable | $ | 4,774 |  |  | $ | (668) |  |  | $ | 4,106 |
Notes payable, net of current portion | 32,780 |  |  | (1,985) |  |  | 30,795 |
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):
2023 | $ | 4,190 |
2024 | 6,420 |
2025 | 25,068 |
2026 | 3,402 |
Total | $ | 39,080 |
Subordinated Notes Payable - Acquisitions In January 2023, the Company resolved the outstanding claims for indemnification for which it was withholding payment of the subordinated note payable as security for such claim. As a result of the resolution of those claims, the remaining balance of $232 has been paid to the Seller ($182) and to the claimant ($50) in satisfaction of its claim. There are no further amounts due or owing under this subordinated promissory note. In April 2023, the Company calculated the final contingent consideration due in connection with the acquisition of a payroll business in September 2021. As a result, the fair value of the contingent consideration of $587 was added as an increase to the principal balance due on the promissory note. In May 2023, the Company paid the outstanding balance of a subordinated note payable in connection with the acquisition of customer relationships of a payroll business that took place in 2022. As a result, the Company paid the remaining balance of $422 on the promissory note consisting of $411 in principal and $11 in accrued interest. As of June 30, 2023, there are no further amounts due or owing under the subordinated note payable. Senior Credit Facility with Structural Capital Investments III, LP On September 10, 2021, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Structural Capital Investments III, LP (“Structural” and together with the other lenders that are or become parties thereto, the “Lenders”), and Ocean II PLO LLC, as administrative and collateral agent for the Lenders (“Agent”), under the terms of which the Lenders have committed to lend us up to $50,000 in term loan financing to support our growth needs (the “Facility”). Of the amount committed by the Lenders, the Company drew $30,000 in September 2021, and the remaining $20,000 has lapsed. The Company also entered into a secured promissory note with the Agent evidencing our obligations under the Facility. 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.

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