UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from ________ to ________.
Commission File Number:
USIO, INC.
(Exact name of registrant as specified in its charter)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name on each exchange on which registered |
| | | The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| | Smaller reporting company |
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| Emerging Growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
As of November 6, 2023, the number of outstanding shares of the registrant's common stock was
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Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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| Item 1A. |
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| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds. |
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
USIO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Settlement processing assets | ||||||||
| Prepaid card load assets | ||||||||
| Customer deposits | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other | ||||||||
| Current assets before merchant reserves | ||||||||
| Merchant reserves | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Other assets: | ||||||||
| Intangibles, net | ||||||||
| Deferred tax asset, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Other assets | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Operating lease liabilities, current portion | ||||||||
| Equipment loan, current portion | ||||||||
| Settlement processing obligations | ||||||||
| Prepaid card load obligations | ||||||||
| Customer deposits | ||||||||
| Current liabilities before merchant reserve obligations | ||||||||
| Merchant reserve obligations | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Equipment loan, non-current portion | ||||||||
| Operating lease liabilities, non-current portion | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value, shares authorized; -- shares outstanding at September 30, 2023 (unaudited) and December 31, 2022, respectively | ||||||||
| Common stock, $ par value, shares authorized; and issued, and and outstanding at September 30, 2023 (unaudited) and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, at cost; and shares at September 30, 2023 (unaudited) and December 31, 2022, respectively | ( | ) | ( | ) | ||||
| Deferred compensation | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See the accompanying notes to the condensed interim consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| 2023 |
2022 |
2023 |
2022 |
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| Revenues |
$ | $ | $ | $ | ||||||||||||
| Cost of services |
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| Gross profit |
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| Selling, general and administrative: |
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| Stock-based compensation |
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| Other SG&A expenses |
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| Depreciation and amortization |
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| Total selling, general and administrative expenses |
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| Operating (loss) |
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| Other income and (expense): |
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| Interest income |
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| Other income |
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| Interest expense |
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| Other income and (expense), net |
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| (Loss) before income taxes |
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| Income tax expense |
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| Net (Loss) |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
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| (Loss) Per Share |
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| Basic (loss) per common share: |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
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| Diluted (loss) per common share: |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
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| Weighted average common shares outstanding |
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| Basic |
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| Diluted |
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See the accompanying notes to the condensed interim consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Operating activities: | ||||||||
| Net (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net (loss) to net cash provided (used) by operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization | ||||||||
| Employee stock-based compensation | ||||||||
| Vendor stock-based compensation | ||||||||
| Amortization of warrant costs | ||||||||
| Non-cash revenue from return of treasury stock | ( | ) | ||||||
| Changes in current assets and current liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other | ( | ) | ( | ) | ||||
| Operating lease right-of-use assets | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| Inventory | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ||||||
| Prepaid card load obligations | ( | ) | ||||||
| Merchant reserves | ( | ) | ||||||
| Customer deposits | ||||||||
| Deferred revenue | ( | ) | ||||||
| Net cash provided (used) by operating activities | ( | ) | ||||||
| Investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net cash (used) by investing activities | ( | ) | ( | ) | ||||
| Financing activities: | ||||||||
| Payments on equipment loan | ( | ) | ( | ) | ||||
| Purchases of treasury stock | ( | ) | ( | ) | ||||
| Net cash (used) by financing activities | ( | ) | ( | ) | ||||
| Change in cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves | ( | ) | ||||||
| Cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves, beginning of period | ||||||||
| Cash, Cash Equivalents, Prepaid Card Load Assets, Customer Deposits and Merchant Reserves, End of Period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | ||||||||
| Non-cash financing activity: | ||||||||
| Issuance of deferred stock compensation | ||||||||
See accompanying notes to the condensed interim consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
| Common Stock |
Additional Paid- In |
Treasury |
Deferred |
Accumulated |
Total Stockholders' |
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| Shares |
Amount |
Capital |
Stock |
Compensation |
Deficit |
Equity |
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| Balance at December 31, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
| Issuance of common stock under equity incentive plan |
( |
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| Deferred compensation amortization |
— | — | — | — | — | |||||||||||||||||||||||
| Purchase of treasury stock costs |
— | ( |
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| Net income for the period |
— | |||||||||||||||||||||||||||
| Balance at March 31, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
| Issuance of common stock under equity incentive plan |
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| Reversal of deferred compensation amortization that did not vest |
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| Deferred compensation amortization |
— | — | — | — | — | |||||||||||||||||||||||
| Purchase of treasury stock costs |
— | ( |
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| Non-cash return of treasury stock |
— | ( |
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| Net income for the period |
— | |||||||||||||||||||||||||||
| Balance at June 30, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
| Issuance of common stock under equity incentive plan |
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| Deferred compensation amortization |
— | |||||||||||||||||||||||||||
| Purchase of treasury stock costs |
— | ( |
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| Net (loss) for the period |
— | ( |
) | ( |
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| Balance at September 30, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
| Balance at December 31, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
| Issuance of common stock under equity incentive plan |
( |
) | ||||||||||||||||||||||||||
| Warrant compensation costs |
— | |||||||||||||||||||||||||||
| Deferred compensation amortization |
— | |||||||||||||||||||||||||||
| Purchase of treasury stock costs |
— | ( |
) | ( |
) | |||||||||||||||||||||||
| Net (loss) for the period |
— | ( |
) | ( |
) | |||||||||||||||||||||||
| Balance at March 31, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
| Issuance of common stock under equity incentive plan |
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| Warrant compensation costs |
— | |||||||||||||||||||||||||||
| Reversal of deferred compensation amortization that did not vest |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
| Deferred compensation amortization |
— | |||||||||||||||||||||||||||
| Purchase of treasury stock costs |
— | ( |
) | ( |
) | |||||||||||||||||||||||
| Net (loss) for the period |
— | ( |
) | ( |
) | |||||||||||||||||||||||
| Balance at June 30, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
| Issuance of common stock under equity incentive plan |
( |
) | ||||||||||||||||||||||||||
| Warrant compensation cost |
— | |||||||||||||||||||||||||||
| Reversal of deferred compensation amortization that did not vest |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
| Deferred compensation amortization |
— | |||||||||||||||||||||||||||
| Purchase of treasury stock |
— | ( |
) | ( |
) | |||||||||||||||||||||||
| Net (loss) for the period |
— | ( |
) | ( |
) | |||||||||||||||||||||||
| Balance at September 30, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements of Usio, Inc. and its subsidiaries (collectively, the “Company”) have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles ("GAAP") have been omitted pursuant to such rules and regulations. In the opinion of management, the accompanying interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature considered necessary to present fairly the Company's financial position, results of operations and cash flows for such periods. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2022, as filed with the Commission on March 8, 2023, and as amended by Form 10-K/A Amendment No. 1 filed with the Commission on May 1, 2023 (together, the "2022 Annual Report"). Results of operations for interim periods are not necessarily indicative of results that may be expected for any other interim periods or the full fiscal year. References in this quarterly report to "the quarter" or the "third quarter" mean the three month period ended September 30, 2023 or 2022, as the case may be and unless otherwise noted.
Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition: Revenue consists primarily of fees generated through the electronic processing of payment transactions and related services. Revenue is recognized during the period in which the transactions are processed or when the related services are performed. The Company complies with ASC 606-10 and reports revenues at gross as a principal versus net as an agent. Although some of the Company's processing agreements vary with respect to specific credit risks, the Company has determined for each agreement it is acting in the principal role. Merchants may be charged for these processing services at a bundled rate based on a percentage of the dollar amount of each transaction and, in some instances, additional fees are charged for each transaction. Certain merchant customers are charged a flat fee per transaction, while others may also be charged miscellaneous fees, including fees for chargebacks or returns, monthly minimums, and other miscellaneous services. Revenues derived from electronic processing of credit, debit, and prepaid card transactions that are authorized and captured through third-party networks are reported gross of amounts paid to sponsor banks as well as interchange and assessments paid to credit card associations. Certain card distributors remit payment of fees earned 45 days after the end of the processing period. Prepaid card distributors have payment terms of 30 days following the end of the month. Sales taxes billed are reported directly as a liability to the taxing authority and are not included in revenue. Our subsidiary, Usio Output Solutions, Inc., provides bill preparation, presentment, and mailing services. Revenue from Output Solutions is recognized when the related services are performed for printing and delivered to USPS for postage.
The following table presents the Company's consolidated revenues by source:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| ACH and complementary service revenue | $ | $ | $ | $ | ||||||||||||
| Credit card revenue | ||||||||||||||||
| Prepaid card services revenue | ||||||||||||||||
| Output solutions revenue | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
Cash and Cash Equivalents: Cash and cash equivalents includes cash and other money market instruments. The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents.
Settlement Processing Assets and Obligations: Settlement processing assets and obligations represent intermediary balances arising in our settlement process for merchants.
Prepaid Card Load Assets: The Company maintains pre-funding accounts for its customers to facilitate prepaid card loads as initiated by the customer. These prepaid card load assets are carried on the Company's balance sheet with a corresponding liability. As the prepaid business line continues to expand, card load assets will rise as funds are sent from clients to the Company. As clients begin to load cash onto cards, the balance of both the prepaid card asset and corresponding liability decrease. As these balances decrease, the Company recognizes processing revenue and cardholder fees.
Customer Deposits: The Company holds customer deposits primarily for postage expenses to ensure the Company is not out of pocket for amounts billed daily by the USPS. These customer deposits are carried on the Company's balance sheet with a corresponding liability.
Merchant Reserves: The Company has merchant reserve requirements associated with Automated Clearing House, or ACH, transactions. The merchant reserve assets are carried on the Company's balance sheet with a corresponding liability. Merchant reserves are set for each merchant and funds are collected and held as collateral to minimize contingent liabilities associated with any losses that may occur. While this cash is not restricted in its use, the Company believes that designating this cash to collateralize merchant reserves strengthens the Company's standing with its member sponsors and is in accordance with the guidelines set by the card networks.
The reconciliation of cash and cash equivalents to cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves is as follows for each period presented:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Beginning cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves: | ||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| Prepaid card load assets | ||||||||||||||||
| Customer deposits | ||||||||||||||||
| Merchant reserves | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Ending cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves: | ||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| Prepaid card load assets | ||||||||||||||||
| Customer deposits | ||||||||||||||||
| Merchant reserves | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Allowance for Estimated Losses: The Company maintains an allowance for estimated doubtful accounts receivable resulting from the inability or failure of the Company’s customers to make required payments. The Company determines the allowance for estimated doubtful accounts receivable losses based on an account-by-account review, taking into consideration such factors as the age of the outstanding balance, historical pattern of collections, and financial condition of the customer. During the nine months ended September 30, 2023 and the year ended December 31, 2022, there were no losses due to bad debt. In the past, losses incurred by the Company due to bad debts were within its expectations. If the financial conditions of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make contractual payments, additional losses may be incurred in future periods. Estimates for doubtful account losses are variable based on the volume of transactions processed and could increase or decrease accordingly. The allowance for estimated doubtful accounts was $
Inventory: Inventory is stated at the lower of cost or net realizable value. At September 30, 2023 and December 31, 2022, inventory consisted primarily of printing and paper supplies used for Output Solutions.
Accounting for Internal Use Software: The Company capitalizes the costs associated with software being developed or obtained for internal use when both the preliminary project stage is completed and it is probable that computer software being developed will be completed and placed in service. Capitalized costs include only (i) external direct costs of materials and services consumed in developing or obtaining internal-use software, (ii) payroll and other related costs for employees who are directly associated with and who devote time to the internal-use software project, and (iii) interest costs incurred, when material, while developing internal-use software. The Company ceases capitalization of such costs no later than the point at which the project is substantially complete and ready for its intended purpose. During the nine months ended September 30, 2023 and September 30, 2022, the Company capitalized software costs of $
Valuation of Long-Lived and Intangible Assets: The Company assesses the impairment of long-lived and intangible assets at least annually, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important, which could trigger an impairment review, include the following: significant underperformance relative to historical or projected future cash flows; significant changes in the manner of use of the assets or the strategy of the overall business; and significant negative industry trends. When management determines that the carrying value of long-lived and intangible assets may not be recoverable, impairment is measured as the excess of the assets’ carrying value over the estimated fair value.
Reserve for Processing Losses: If, due to insolvency or bankruptcy of one of the Company’s merchant customers, or for any other reason, the Company is not able to collect amounts from its credit card, ACH or prepaid customers that have been properly "charged back" by the customer, or if a prepaid cardholder incurs a negative balance, the Company must bear the credit risk for the full amount of the transaction. The Company may require cash deposits and other types of collateral from certain merchants to minimize any such risks. In addition, the Company utilizes multiple systems and procedures to manage merchant risk. ACH, prepaid and credit card merchant processing loss reserves are primarily determined by performing a historical analysis of the Company’s loss experience, considering other factors that could affect that experience in the future, such as the types of transactions processed and nature of the merchant relationship with its consumers and the Company’s relationship with the Company’s prepaid card holders. This reserve amount is subject to the risk that actual losses may be greater than the Company’s estimates. Estimates for processing losses are variable based on the volume of transactions processed and could increase or decrease accordingly. At September 30, 2023 and December 31, 2022, the Company’s reserve for processing losses was $
Legal Proceedings: The Company may be involved in legal matters arising in the ordinary course of business from time to time. While the Company believes that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is or could become involved in litigation will not have a material adverse effect on its business, financial condition or results of operations.
Recently Adopted Accounting Pronouncements: In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326), to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in Topic 326 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Topic 326 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for smaller reporting companies. The Company adopted the amendments effective January 1, 2023, and it has not had a material impact on its financial position and the results of its operations. The Company will continue to monitor the adoption of this amendment in order to evaluate if it has any material effect on its financial position and results of operations.
Accounting standards that have been issued or proposed by the FASB, the SEC or other standard setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
Note 2. Leases
The Company leases facilities and office equipment under various operating leases, which generally are expected to be renewed or replaced by other leases. For each of the three months ended September 30, 2023 and 2022, operating lease expenses totaled $
Note 3. Accrued Expenses
Accrued expenses consisted of the following balances:
| September 30, 2023 |
December 31, 2022 |
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| Accrued commissions |
$ | $ | ||||||
| Reserve for processing losses |
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| Other accrued expenses |
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| Accrued taxes |
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| Accrued salaries |
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| Total accrued expenses |
$ | $ | ||||||
Note 4. Equipment Loan
On March 20, 2021, the Company entered into a debt arrangement to finance $
Note 5. Stockholders' Equity
Stock Warrants: On August 21, 2018, the Company issued University FanCards, LLC warrants to purchase
On July 31, 2022, the remaining, unvested warrants expired, and the Company is no longer recording a reduction of revenues associated with the amortization of their fair value.
On December 15, 2020, the Company issued warrants to purchase
Note 6. Net (Loss) Per Share
Basic (loss) per share (EPS) was computed by dividing net (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted EPS differs from basic EPS due to the assumed conversion of potentially dilutive awards and options that were outstanding during the period. The following is a reconciliation of the numerators and the denominators of the basic and diluted per share computations for net (loss) for the three and nine months ended September 30, 2023 and September 30, 2022.
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| 2023 |
2022 |
2023 |
2022 |
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| Numerator: |
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| Numerator for basic and diluted (loss) per share, net (loss) available to common shareholders |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Denominator: |
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| Denominator for basic (loss) per share, weighted average shares outstanding |
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| Effect of dilutive securities |
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| Denominator for diluted earnings per share, adjust weighted average shares and assumed conversion |
||||||||||||||||
| Basic (loss) per common share |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Diluted (loss) per common share and common share equivalent |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
The awards and options to purchase shares of common stock that were outstanding at September 30, 2023 and September 30, 2022 that were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive, are as follows:
| Nine Months Ended September 30, |
||||||||
| 2023 |
2022 |
|||||||
| Anti-dilutive awards and options |
||||||||
Note 7. Income Taxes
Deferred tax assets and liabilities are recorded based on the difference between financial reporting and tax basis of assets and liabilities and are measured by the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Deferred tax assets are computed with the presumption that they will be realizable in future periods when taxable income is generated. Predicting the ability to realize these assets in future periods requires judgment by management. GAAP prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. Income tax benefits that meet the “more likely than not” recognition threshold are recognized.
The Company has recognized a net deferred tax asset of approximately $
At December 31, 2022, the Company had available net operating loss carryforwards of approximately $
Net operating loss carryforwards totaling $
| Tax Year End |
NOL |
Expiration |
||||||
| 2004 |
2024 | |||||||
| 2005 |
2025 | |||||||
| 2006 |
2026 | |||||||
| 2007 |
2027 | |||||||
| 2008 |
2028 | |||||||
| 2009 |
2029 | |||||||
| 2010 |
2030 | |||||||
| 2013 |
2033 | |||||||
| 2016 |
2036 | |||||||
| 2017 |
2037 | |||||||
| Total |
$ | |||||||
Management is not aware of any tax positions that would have a significant impact on the Company’s financial position.
Note 8. Related Party Transactions
Louis Hoch
During the nine months ended September 30, 2023 and September 30, 2022, the Company purchased a total of $
Directors and Officers
On January 6, 2022, the Company repurchased
On February 8, 2022, the Company granted
On June 26, 2022, the Company granted
Effective on February 17, 2023, the Company entered into an employment agreement with Greg Carter, the Company’s Executive Vice President, Payment Acceptance. Under the terms of this agreement, Mr. Carter receives an annual salary of Override/Commissions of
On February 8, 2023, the Company granted
On March 16, 2023, the Company granted an additional
Note 9. Subsequent Events
On October 1, 2023, the Company entered into a debt arrangement to finance $
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS DISCLAIMER
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. If used in this report, the words "will," "anticipate," "believe," "estimate," "intend," and other words or phrases of similar import are intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in the 2022 Annual Report and other reports we file with the Commission. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made. We do not intend to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law.
This discussion and analysis should be read in conjunction with the unaudited interim condensed consolidated financial statements and the notes thereto included in this report, and the 2022 Annual Report, including the audited consolidated financial statements and the notes contained therein.
Overview
Usio, Inc. (collectively with its subsidiaries, "we," "our," "us," the "Company" or "Usio") was founded under the name Billserv Com, Inc. in July 1998 and incorporated in the State of Nevada. On June 26, 2019, we changed our corporate name from Payment Data Systems, Inc. to Usio, Inc. Our principal offices are located at 3611 Paesanos Parkway, Suite 300, San Antonio, TX 78231. Our telephone number is (210) 249-4100.
We provide integrated payment processing services to merchants and businesses, including all types of Automated Clearing House, or ACH, processing, credit, prepaid card and debit card-based processing services and statement preparation, presentment and mailing services.
In addition, we offer customizable prepaid cards which businesses use for expense management, incentives, refunds, claims and disbursements, as well as unique forms of compensation such as per diem payments, government disbursements, and similar payments. We also offer prepaid cards to consumers for use as a tool to stay on budget, manage allowances and share money with family and friends. Our UsioCard platform supports Apple Pay®, Samsung Pay™ and Google Pay™. Our PIN-less debit product allows merchants to debit and credit accounts in real-time. In our over 25-year history, we have created a loyal customer base that relies on us for our convenient, secure, innovative and adaptive services and technology, and we have built long-standing and valuable relationships with premier banking institutions such as Fifth-Third Bank, Sunrise Bank, and Wells Fargo Bank.
Our strategy is to drive growth through a leveraged, one to many, distribution model in the software development marketplace. Following the completion of the Singular Payments acquisition, we launched our payment facilitation, PayFac, platform called "PayFac-in-a-Box" in late 2018 targeting partnership opportunities with app and software developers in bill-centric verticals, such as legal, healthcare, property management, utilities and insurance. The PayFac-in-a-Box platform 'integration layer' offers a simple integration experience for technology companies who are looking to monetize payments within an existing base of downstream clients. We believe that the added value of offering our integration partners access to credit card, debit card, ACH and prepaid card issuance capabilities through a single vendor partner relationship in face-to-face, mobile and virtual payment acceptance environments provides a true single channel commerce experience through an application programming interface, API.
With the acquisition of the assets of Information Management Solutions, LLC, or IMS, in December 2020, we began to offer additional services relating to electronic bill presentment, document composition, document decomposition and printing and mailing services serving hundreds of customers representing a wide range of industry verticals, including utilities and financial institutions through our wholly-owned subsidiary, Usio Output Solutions, Inc., or Output Solutions. This product offering provides an outsourced solution for document design, print and electronic delivery to potential customers and entities looking to reduce postage costs and increase efficiencies.
Summary of Results
We believe that our success will continue to depend in large part on our ability to (a) grow revenues, (b) manage our operating expenses, (c) add quality customers to our client base, (d) meet evolving customer requirements, (e) adapt to technological changes in an emerging market, and (f) assimilate current and future acquisitions of companies and customer portfolios. We will continue to invest in our sales force and technology platforms to drive revenue growth. In particular, we are focused on growing our ACH merchants, adding new software integrators, growing our electronic bill presentment, document composition, document decomposition, printing and mailing services business while providing incremental services to existing merchants. In addition to our near-term growth opportunities, we are focused on leveraging and optimizing the infrastructure of our business allowing expansion of our payment processing and mail and printing capabilities without significantly increasing our operating costs. Total company revenues continue to grow, and net new client implementations and onboards occur regularly due to our ability to address the needs of our market.
We believe that the number of credit card transactions processed, ACH transaction counts, prepaid card volumes and total dollar volumes are the most critical measures to gauge the state of our business. During the third quarter of 2023, the number of credit card transactions processed by us increased by 2% versus the third quarter of 2022. The volume of credit card dollars processed during the third quarter of 2023 increased by 5% compared to the same time period in 2022. The continued growth in credit card metrics was primarily attributable to our PayFac strategy to drive increased penetration across multiple industries including healthcare and legal.
ACH (eCheck) transaction counts during the third quarter of 2023 decreased by 21% compared to the third quarter of 2022. Returned check transactions processed during the third quarter of 2023 decreased by 31% compared to the third quarter of 2022. Electronic check dollars processed during the third quarter of 2023 decreased by 11% compared to the third quarter of 2022. The decreases in eCheck transactions, returns, and electronic check dollar volumes processed were primarily attributable to a softer market for our customers, resulting in less ACH traffic.
Prepaid card load volumes processed during the third quarter of 2023 increased by 239% compared to the third quarter of 2022. Prepaid card transaction counts processed during the third quarter of 2023 increased by 23% compared to the third quarter of 2022. Prepaid card purchase volume during the third quarter of 2023 increased by 152% compared to the third quarter of 2022. This increase occurred primarily due to the continued traction with, and implementation of, guaranteed income and government assistance programs alongside expansion in the corporate expense and healthcare markets.
Total dollar volumes processed across all business lines in the third quarter of 2023 were $1.4 billion compared to $1.4 billion processed in the third quarter of 2022, flat over the prior year quarter.
Material Trends and Uncertainties
On July 6, 2022, our largest cryptocurrency customer, Voyager Digital, filed for bankruptcy protection and the cryptocurrency landscape encountered significant distress during 2022. Due to this bankruptcy, we lost a significant customer, and have pulled out of the cryptocurrency space, resulting in a meaningful loss of revenue and downturn in our ACH and complementary services business segment, which contributed substantial gross profit to the Company in previous periods. Our lost revenue in the ACH and complementary services business was approximately $3 million in third and fourth quarter of 2022 and $2 million in the first and second quarter of 2023. We continue to closely monitor the cryptocurrency environment, and the unique risks associated with cryptocurrencies, including technological, legal, and regulatory risks along with the potentially significant revenue opportunities associated with re-entering the market and offering our services.
On August 16, 2022, President Biden signed the Inflation Reduction Act, or IRA, which implemented a 1% excise tax on certain corporate stock repurchases. On May 13, 2022, our Board of Directors authorized a renewal of the Company's stock buyback program (the "buyback program"), with a repurchase limit equal to $4 million of the Company's common stock and a three year duration. As of December 31, 2022, the Company had repurchased $1.3 million of stock as part of the buyback program, of which $1.1 million is subject to the IRA's 1% excise tax. Should the Company continue the repurchase of its securities on the open market, and the IRA remains in effect, we may be subject to this tax in 2023 and future years. As of September 30, 2023 the Company had repurchased $69,589 of stock as part of the buyback program, which may become subject to the IRA's 1% excise tax if the Company meets or exceeds the IRA's 1% excise tax repurchase minimum of $1 million in stock buy backs.
As the Federal Reserve works to fight economic inflation, the federal funds rate has experienced rapid growth in the past twelve months. This has resulted in the Company receiving more favorable interest rates on it's current cash balances, amounting to $512,089 in interest income in the three months ending September 30, 2023, and $823,861 in the nine months ended September 30, 2023. Should the Federal Reserve begin lowering the federal funds rate in the future, this incremental source of income would decline. We continue to work closely with our bank partners, to ensure we effectively manage our cash balances, and monitor the Federal Reserves monetary policy decisions.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to the reported amounts of revenues and expenses, bad debt, investments, intangible assets, income taxes, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions or conditions. We consider these accounting policies to be critical because the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for such highly uncertain matters or due to the susceptibility of such matters to change or because the impact of the estimates and assumptions on financial condition or operating performance is material.
For a summary of Critical Accounting Policies, please refer to the Notes to Interim Condensed Consolidated Financial Statements, Note 1, Basis of Presentation.
Reserve for Processing Losses
We establish allowances for negative customer balances and estimated transaction losses arising from processing customer transactions, such as chargebacks for unauthorized credit card use and merchant-related chargebacks due to non-delivery or unsatisfactory delivery of purchased items, account takeovers, ACH returns, and insolvency. Additions to the allowance are reflected in our cost of services on our consolidated statements of income (loss). The allowances are based on known facts and circumstances, internal factors including experience with similar cases, historical trends involving collection and write-off patterns, and the mix of transaction and loss types, as well as current and projected factors such as the types of transactions processed and nature of the merchant relationship with its consumers and the Company with its prepaid card holders.
Determining appropriate current expected transactional losses is an inherently uncertain process, and final losses may vary from our current estimates. We regularly review and update our allowance estimates as new facts become known and events occur that may impact the settlement or recovery of losses. In the quarter ended March 31, 2023, we incurred $833,485 in merchant processing losses as a result of fraudulent activity and identity fraud from multiple merchants, of which $755,494 was taken from our reserve for processing losses. This loss has been included in our results of operations for the nine months ended September 30, 2023. We do not expect similar processing losses in the immediate future. Currently, our reserve for processing losses is $793,528 as of September 30, 2023, to be used if future losses are incurred. The allowances are maintained at a level we deem appropriate to adequately provide for current expected losses at the balance sheet date.
Reserve for Doubtful Accounts
We establish an allowance for accounts receivable, which represents our estimate of current expected allowances for doubtful accounts. This evaluation process is subject to numerous estimates and judgements. This allowance is primarily based on expectations of unrecoverable receivables based on historical losses, as well as forecasted trends in customer instability, and general market conditions. The Company reviews this allowance quarterly on an account-by-account basis. Projected loss rates, inclusive of historical loss data and macroeconomic factors, are applied to the principal amount of our merchant and consumer receivables.
Determining appropriate current expected losses on our accounts receivable is an inherently uncertain process, and final losses may vary from our current estimates. We regularly review and update our allowance estimates as new facts become known, and events occur that may impact the settlement or recovery of losses. The allowances are maintained at a level we deem appropriate to adequately provide for current expected losses at the balance sheet date.
Accounting for Income Taxes
Our annual tax rate is based on our income, statutory tax rates, and tax planning opportunities available to us. Tax laws are complex and subject to different interpretations by the taxpayer and respective government taxing authority. Significant judgement is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties. We review our tax positions yearly and adjust the balances as new information becomes available.
Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings, and available tax planning strategies. These rely heavily on estimates that are based on a number of factors, including historical data, and business forecasts. To the extent deferred tax assets are not expected to be realized, we record a valuation allowance.
We recognize and measure uncertain tax positions in accordance with GAAP, pursuant to which we only recognize the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities.
As with all businesses, the Company’s tax returns are subject to periodic examination. The Company’s federal returns for the past four years remain open to examination. The Company is subject to the Texas margin tax and Tennessee franchise tax. Management is not aware of any tax positions that would have a significant impact on its financial position.
Revenue Recognition
Application of the accounting principles in GAAP related to the measurement and recognition of revenue requires us to make judgments and estimates. Complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting. Specifically, the determination of whether we are a principal to a transaction (gross revenue) or an agent (net revenue) can require considerable judgment. Further, we provide incentive payments to consumers and merchants. Evaluating whether these incentives are a payment to a customer, or consideration payable on behalf of a customer, requires judgment by management. Incentives determined to be made to a customer, or payable on behalf of a customer, are recorded as a reduction to gross revenue. Changes in judgments with respect to these assumptions and estimates could impact the amount of revenue recognized.
Key Business Metrics - Non-GAAP Financial Measures
This filing includes the following non-GAAP financial measures as defined in Regulation G of the Securities Exchange Act of 1934, as amended (the "Exchange Act"): EBITDA, adjusted EBITDA, adjusted EBITDA margins and adjusted operating cash flows. The Company reports its financial results in compliance with GAAP, but believes that also discussing non-GAAP financial measures provides investors with financial measures the Company uses in the management of its business. The Company defines EBITDA as operating income (loss), before interest, taxes, depreciation and amortization of intangibles. The Company defines adjusted EBITDA as EBITDA, as defined above, plus non-cash stock option costs and certain non-recurring items, such as costs related to acquisitions. The Company defines adjusted EBITDA margins as adjusted EBITDA, as defined above, divided by total revenues. The Company defines adjusted operating cash flow as net cash provided (used) by operating activities, less changes in prepaid card load obligations, customer deposits, merchant reserves and net operating lease assets and obligations. Operating lease right-of-use assets, operating lease liabilities, prepaid card load obligations, customer deposits and merchant reserves are deducted from operating cash flow, as management believes that these metrics do not serve in providing a clear picture of the true operational cash used or provided in a given time period. These measures may not be comparable to similarly titled measures reported by other companies. Management uses EBITDA, adjusted EBITDA, adjusted EBITDA margins and adjusted operating cash flows as key indicators of the Company's operating performance and ability to fund acquisitions, capital expenditures and other investments and, in the absence of refinancing options, to repay debt obligations.
Management also believes that EBITDA, adjusted EBITDA, adjusted EBITDA margins and adjusted operating cash flows are helpful to investors in evaluating the Company's operating performance because non-cash costs and other items that management believes are not indicative of its results of operations are excluded.
We reported an adjusted EBITDA loss of $0.1 million for the quarter ended September 30, 2023, as compared to an adjusted EBITDA loss of $0.5 million for the same period in the prior year. The increase in adjusted EBITDA in the 2023 quarter was attributable to strong revenue growth and increased profit margins versus the prior year period.
The following tables set forth reconciliations of Operating Income (Loss) to EBITDA; EBITDA to Adjusted EBITDA; and Revenues to Adjusted EBITDA margins for the three months ended September 30, 2023 and 2022.
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Reconciliation from Operating (Loss) to Adjusted EBITDA: |
||||||||||||||||
| Operating (Loss) |
$ | (1,212,609 | ) | $ | (1,701,555 | ) | $ | (1,150,788 | ) | $ | (5,123,616 | ) | ||||
| Depreciation and amortization |
518,573 | 640,599 | 1,559,601 | 2,163,468 | ||||||||||||
| EBITDA |
(694,036 | ) | (1,060,956 | ) | 408,813 | (2,960,148 | ) | |||||||||
| Non-cash stock-based compensation expense, net |
594,815 | 515,992 | 1,677,258 | 1,540,375 | ||||||||||||
| Adjusted EBITDA |
$ | (99,221 | ) | $ | (544,964 | ) | $ | 2,086,071 | $ | (1,419,773 | ) | |||||
| Calculation of Adjusted EBITDA margins: |
||||||||||||||||
| Revenues |
$ | 20,520,441 | $ | 16,395,760 | $ | 63,228,391 | $ | 50,722,789 | ||||||||
| Adjusted EBITDA |
(99,221 | ) | (544,964 | ) | 2,086,071 | (1,419,773 | ) | |||||||||
| Adjusted EBITDA margins |
(0.5 | )% | (3.3 | )% | 3.3 | % | (2.8 | )% | ||||||||
The following table is a reconciliation of operating cash flow provided (used) to adjusted operating cash flow provided (used) for the nine months ended September 30, 2023 and 2022.
| September 30, 2023 |
September 30, 2022 |
|||||||
| Reconciliation from net cash provided (used) by operating activities to Non-GAAP Adjusted Operating Cash Flow (used): |
||||||||
| Net cash provided (used) by operating activities |
$ | 41,506,374 | $ | (22,841,434 | ) | |||
| Operating cash flow (used) adjustments: |
||||||||
| Prepaid card load obligations |
(38,668,841 | ) | 21,272,482 | |||||
| Customer deposits |
(24,376 | ) | (221,393 | ) | ||||
| Merchant reserves |
(427,044 | ) | 726,424 | |||||
| Operating lease right-of-use assets |
(244,040 | ) | 130,699 | |||||
| Operating lease liabilities |
267,553 | (138,361 | ) | |||||
| Total adjustments to net cash provided (used) by operating activities |
$ | (39,096,748 | ) | $ | 21,769,851 | |||
| Adjusted operating cash flows provided (used) |
$ | 2,409,626 | $ | (1,071,583 | ) | |||
We reported cash provided by adjusted operating cash flows of $2.4 million for the nine months ended September 30, 2023 (after adjusting for the impact of operating lease right-of-use assets, operating lease liabilities, prepaid card load obligations, customer deposits, and merchant reserves), as compared to $1.1 million used in the nine months ended September 30, 2022. Operating lease right-of-use assets, operating lease liabilities, prepaid card load obligations, customer deposits and merchant reserves are deducted from operating cash flow, as these metrics do not serve in providing a clear picture of the true operational cash used or provided in a given time period. These adjustments to net cash provided (used) by operating activities do not include any recurring expense items which are included in the calculation of operating income (loss), and only include changes in our assets and liabilities accounts on the balance sheet. The Company believes non-GAAP adjusted operating cash flow to be a more accurate indicator of cash contributions that can be used to sustain current and future business operations. The increase in adjusted operating cash flows in the 2023 quarter compared to the 2022 quarter was primarily attributable to a decrease the Company's net loss, due to strong growth in revenue with improved profit margins, alongside nominal increases in selling, general and administrative expense ("SG&A").
Use of Non-GAAP Financial Measures
EBITDA, adjusted EBITDA, adjusted EBITDA margins and adjusted operating cash flows should be considered in addition to, not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. They are not measurements of our financial performance under GAAP and should not be considered as alternatives to revenue, net income (loss), or cash provided (used) by operating activities, as applicable, or any other performance measures derived in accordance with GAAP and may not be comparable to other similarly titled measures of other businesses. EBITDA, adjusted EBITDA, adjusted EBITDA margins and adjusted operating cash flows have limitations as analytical tools and you should not consider these non-GAAP measures in isolation or as a substitute for analysis of our operating results as reported under GAAP.
Results of Operations
Revenues
Our revenues are principally derived from providing integrated electronic payment services to merchants and businesses, including credit and debit card-based processing services and transaction processing via the Automated Clearing House, or ACH, network and program management and processing of prepaid debit cards. With the acquisition of the assets of IMS in December 2020, we began to offer additional output solution services relating to electronic bill presentment, document composition, document decomposition and printing and mailing services serving hundreds of customers representing a wide range of industry verticals, including utilities and financial institutions.
| Three Months Ended September 30, |
||||||||||||||||
| 2023 |
2022 |
$ Change |
% Change |
|||||||||||||
| ACH and complementary service revenue |
$ | 3,528,133 | $ | 3,242,794 | $ | 285,339 | 9 | % | ||||||||
| Credit card revenue |
7,169,066 | 6,842,065 | 327,001 | 5 | % | |||||||||||
| Prepaid card services revenue |
4,685,212 | 1,576,871 | 3,108,341 | 197 | % | |||||||||||
| Output solutions revenue |
5,138,030 | 4,734,030 | 404,000 | 9 | % | |||||||||||
| Total Revenue |
$ | 20,520,441 | $ | 16,395,760 | $ | 4,124,681 | 25 | % | ||||||||
| Nine Months Ended September 30, |
||||||||||||||||
| 2023 |
2022 |
$ Change |
% Change |
|||||||||||||
| ACH and complementary service revenue |
$ | 10,948,012 | $ | 10,985,722 | $ | (37,710 | ) | (0 | )% | |||||||
| Credit card revenue |
21,624,848 | 20,495,984 | 1,128,864 | 6 | % | |||||||||||
| Prepaid card services revenue |
14,710,084 | 5,733,428 | 8,976,656 | 157 | % | |||||||||||
| Output solutions revenue |
15,945,447 | 13,507,655 | 2,437,792 | 18 | % | |||||||||||
| Total Revenue |
$ | 63,228,391 | $ | 50,722,789 | $ | 12,505,602 | 25 | % | ||||||||
Consolidated revenue for the quarter ended September 30, 2023 increased by 25% to $20.5 million, as compared to $16.4 million for the quarter ended September 30, 2022 due to continued traction and growth in our prepaid card and Output Solutions lines of business, with modest growth in our ACH and credit card lines of business, as our Payfac strategy continues to be implemented, and ACH now compares more favorably to fiscal quarters following our exit from the crypto space in July of 2022, resulting in a return of positive quarterly growth metrics.
Consolidated revenue for the nine months ended September 30, 2022 increased by 25% to $63.2 million, as compared to $50.7 million for the nine months ended September 30, 2022 primarily as a result of strong growth in our prepaid card and Output Solutions lines of business as a result of new client implementation and the execution and expansion of existing customer contracts. Declines in ACH revenues were primarily the result of the Company's withdrawal from the crypto market in July of 2022.
Cost of Services
Cost of services includes the cost of personnel dedicated to the creation and maintenance of connections to third-party payment processors and the fees paid to such third-party providers for electronic payment processing services. Through our contractual relationships with our payment processors and sponsoring banks, we process ACH and debit, credit and prepaid card transactions on behalf of our customers and their consumers. We pay volume-based fees for debit, credit, ACH and prepaid transactions initiated through these processors or sponsoring banks, and pay fees for other transactions such as returns, notices of change to bank accounts and file transmission. Cost of service fees also include fees paid to referral agents and partners.
Cost of services increased by $3.1 million, or 23%, to $16.3 million for the quarter ended September 30, 2023, as compared to $13.3 million for the same period in the prior year, due to increased revenue growth driving similar increases to our processing, banking and transactional expenses.
Cost of services increased by $8.3 million, or 20%, to $49.1 million for the nine months ended September 30, 2023, as compared to $40.8 million for the same period in the prior year, due to increased revenue growth driving similar increases to our processing, banking and transactional expenses.
Gross Profit
Gross profit is the net profit existing after the cost of services.
Gross profit increased by 34% to $4.2 million for the quarter ended September 30, 2023, as compared to $3.1 million for the same period in the prior year. Similarly, gross margin percentage of revenue was 20.4% for the quarter ended September 30, 2023 as compared to 19.1% in the prior year period. The increase in gross profit and gross margin percentage in the quarter ended September 30, 2023, as compared to the same period during the prior year, was primarily attributable to strong revenue growth and improved gross profit metrics across all business lines, driven by more favorable pricing in the quarter.
Gross profit increased by 42% to $14.1 million for the nine months ended September 30, 2023, as compared to $9.9 million for the same period in the prior year. Similarly, gross margin percentage was 22.3% for the nine months ended September 30, 2023 as compared to 19.5% in the prior year period. The increase in gross profit and gross margin percentage in the nine months ended September 30, 2023, as compared to the same period during the prior year, was primarily attributable to strong revenue growth and improved gross profit metrics across all business lines, driven by more favorable pricing on the year.
Stock-based Compensation
Stock-based compensation expenses were $0.6 million for the quarter ended September 30, 2023 as compared to $0.5 million for the quarter ended September 30, 2022, an increase of 15.3% due to stock grants made to retain and attract employees.
Stock-based compensation expenses were $1.7 million for the nine months ended September 30, 2023 as compared to $1.5 million for the nine months ended September 30, 2022, a marginal increase of 8.9% due to stock grants made to retain and attract employees.
Other Selling, General and Administrative Expenses
Other selling, general and administrative expenses, or other SG&A, were $4.3 million for the quarter ended September 30, 2023 as compared to $3.7 million in the prior year quarter. The increase in other SG&A for the quarter ended September 30, 2023 reflects the occurrence of some one-time expenses related to professional services and marketing initiatives alongside increased travel to sales-related events during the quarter. Other SG&A expenses are expected to reduce in subsequent quarters.
Other selling, general and administrative expenses, or other SG&A, were $12.0 million for the nine months ended September 30, 2023 as compared to $11.3 million in the prior year nine-month period, a 6% increase. The increase in other SG&A for the nine months ended September 30, 2022 reflects the occurrence of some one-time expenses related to professional services and marketing initiatives alongside increased travel to sales-related events during the quarter ended September 30, 2023. Other SG&A expenses are expected to reduce in subsequent quarters.
Depreciation and Amortization
Depreciation and amortization expense consists of the reduction in value of our tangible and intangible assets over their useful life. These assets include property, plant, and equipment, along with intangible assets acquired through acquisition, or developed as internal use software.
Depreciation and amortization expense totaled $0.5 million and $0.6 million for the quarters ended September 30, 2023 and 2022, respectively. The decrease in depreciation and amortization expense was due to the completed amortization of intangible assets, reducing overall depreciation and amortization expense versus the same period a year ago.
Depreciation and amortization expense totaled $1.6 million and $2.2 million for the nine months ended September 30, 2023 and 2022, respectively. The decrease in depreciation and amortization expense was due to the completed amortization of intangible assets, reducing overall depreciation and amortization expense versus the same period a year ago.
Other Income (Expense)
Other income (expense), net was $561,696 for the quarter ended September 30, 2023 compared to $1,785 for the quarter ended September 30, 2022. Higher interest-bearing merchant reserves and interest rates drove the increased interest income.
Other income (expense), net was $872,273 for the nine months ended September 30, 2023 compared to $1,231 for the nine months ended September 30, 2022. Higher interest-bearing merchant reserves and interest rates drove the increased interest income.
Net Income (Loss)
We reported a net loss of $0.7 million for the quarter ended September 30, 2023, as compared to a net loss of $1.8 million for the same period in the prior year. The increase in net income was attributable to increases in revenue combined with increased profit margins.
We reported a net loss of $0.5 million for the nine months ended September 30, 2023, as compared to a net loss of $5.3 million for the same period in the prior year. The increase in net income was attributable to increases in revenue combined with increased profit margins.
We may incur future operating losses. To maintain, grow and achieve profitability, we must, among other things, continue to incrementally grow and maintain our customer base, sell our ACH, credit card, prepaid product offerings and Output Solutions offerings to existing and new customers, implement successful marketing strategies, maintain and upgrade our technology and transaction-processing systems, provide superior customer service, respond to competitive developments, attract, retain and motivate personnel, and respond to unforeseen industry developments among other factors.
Liquidity and Capital Resources
Our primary sources of liquidity are available cash and cash equivalents and cash flows provided by operations. As of September 30, 2023, we had cash and cash equivalents of $7.4 million. For the nine months ended September 30, 2023, cash provided by operations was $41.5 million. We expect available cash and cash equivalents and internally generated funds to be sufficient to support working capital needs, capital expenditures (including acquisitions), and our debt service obligations. We believe we have sufficient liquidity to operate for at least the next 12 months from the date of filing this report. Cash from operating activities is dependent on our net income (loss), less depreciation, amortization, bad debt, deferred federal income tax, non-cash stock-based compensation, the amortization of warrant costs, and net of the changes in our operating assets and liabilities. These assets and liabilities include our accounts receivable, prepaid expenses, operating lease right-of-use assets, inventory, other assets, accounts payable and accrued expenses, operating lease liabilities, prepaid card load obligations, merchant reserves, customer deposits, and deferred revenues.
We reported a net loss of $0.7 million for the quarter ended September 30, 2023. At September 30, 2023, we had an accumulated deficit of $71.4 million. Additionally, we had working capital of $7.5 million and $5.8 million at September 30, 2023 and December 31, 2022, respectively.
From time to time we have sold shares of our common stock in order to provide us liquidity. For example, on November 19, 2021, Voyager Digital purchased 142,857 unregistered shares of common stock at a price of $7.00 per share in a private offering. The gross proceeds to us from the private offering were $1,000,000. On May 9, 2023, Voyager Digital returned 142,857 shares of common stock, valued at a price of $1.09 per share, in a non-cash transaction to satisfy payment obligations related to the wind down of their payment disbursement needs following their bankruptcy. This transaction was recognized as revenue for services rendered and as shares returned to treasury stock in the quarter ended June 30, 2023. We have also sold securities in public offerings from time to time. For example, in September 2020, we sold 4,705,883 shares of our common stock and received net proceeds of approximately $8 million. We cannot assure you that we will be able to sell shares of our equity securities on terms acceptable to us or at all in the future.
Cash Flows
Net cash provided by operating activities, including merchant reserve funds, prepaid card load assets, customer deposits and net operating lease assets for the nine months ended September 30, 2023 was $41.5 million, as compared to net cash used by operating activities of $22.8 million for the nine months ended September 30, 2022. The increase in cash provided by operating activities was due to the increase in prepaid card load obligations versus the same period last year. Excluding merchant reserves, prepaid card load assets, customer deposits and lease right of use assets and liabilities, our cash provided by operating activities was $2.4 million as compared to cash used by operating activities of $1.1 million for the nine months ended September 30, 2023 and 2022, respectively. Operating lease right-of-use assets, operating lease liabilities, prepaid card load obligations, customer deposits and merchant reserves are deducted from operating cash flow, as management believes that these metrics do not serve in providing a clear picture of the true operational cash used or provided in a given time period. The Company believes non-GAAP adjusted operating cash flow to be a more accurate indicator of cash contributions that can be used to sustain current and future business operations. For more information relating to this Non-GAAP financial measure, including a reconciliation from net cash provided (used) by operating activities to Non-GAAP adjusted Operating Cash Flow (used), please see "Key Business Metrics - Non-GAAP Financial Measures" in this Report. This increase in cash provided by operating activities was primarily attributable to a decrease in the Company's net loss, due to strong growth in revenue with improved profit margins, alongside nominal increases in SG&A. We continue to invest resources in the infrastructure of our business such as the retention, and acquisition of employees, sales-related travel, and marketing efforts to achieve scale across all business lines.
Net cash used by investing activities was $587,451 as compared to cash used by investing activities of $642,764 for the nine months ended September 30, 2023 and 2022, respectively. The primary drivers of our investing activities were capital expenditures associated with capitalized software development costs and other capital investments associated with growing our business lines and associated employee counts. The decrease in cash used by investing activities was primarily attributable to the reduced amount of fixed asset purchases relative to the same period a year ago.
Net cash used by financing activities for the nine months ended September 30, 2023 was $111,494 and net cash used by financing activities for the nine months ended September 30, 2022 was $935,513. The decrease in cash used by financing activities was due to the Company's stock buyback program and the increased quantity of treasury stock purchased in 2022.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.
Item 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management evaluated, with the participation of our Chief Executive and Chief Financial Officers, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report on Form 10-Q. Based on that evaluation, our Chief Executive and Chief Financial Officers concluded that our disclosure controls and procedures as of September 30, 2023 were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in Commission rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive and Chief Financial Officers, as appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance that such information is accumulated and communicated to our management. Our evaluation of disclosure controls and procedures included an evaluation of certain components of our internal control over financial reporting. Management’s assessment of the effectiveness of our internal control over financial reporting is expressed at the level of reasonable assurance, as a control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system's objectives will be met.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
KDHM, LLC
On September 1, 2021, KDHM, LLC sued PDS Acquisition Corp, now known as Usio Output Solutions, Inc., in the 73rd District Court of Bexar County, Texas claiming a breach of the asset purchase agreement executed by the parties on December 14, 2020. The lawsuit alleges that due to a mistake, accident, or inadvertence, certain customer deposits in the amount of $317,000 were improperly transferred to us.
We believe that plaintiff's claims in the lawsuit have no merit and contradict the express terms of the asset purchase agreement. As a result of this post-sale dispute, we discovered that KDHM, LLC and its principals made certain misrepresentations and breached the terms of the asset purchase agreement.
On September 28, 2021, we filed an answer generally denying the plaintiff’s allegations. On October 5, 2021, we filed a counterclaim and third-party petition. Therein, we allege that neither KDHM nor its principals disclosed that KDHM was not accounting for the customer deposits in accordance with GAAP. KDHM and third-party defendants, its principals Henry Minten and Thomas Dowe, affirmatively represented and warranted in section 3.1(e) of the asset purchase agreement that “[t]he Annual Financial Statements and the Interim Financial Statements have been prepared from the books and records of Seller in accordance with GAAP applied on a consistent basis.”
We also discovered that KDHM by and through its principals failed to disclose that $305,000 in additional customer deposits existed and that these deposits were not conveyed to us as required by the asset purchase agreement. KDHM, Minten and Dowe provided us with fraudulent and misleading profit and loss statements that did not disclose these additional customer deposits. KDHM and the defendants do not dispute that these additional customer deposits exist and that they were purchased by Usio. However, despite a written representation that these funds would be returned, KDHM and its principals have held these funds hostage. Section 2.1(b)(x) of the asset purchase agreement provides that the purchased assets include “All of Seller’s deposits from its customer, including without limitation, those customer deposits listed on Schedule 2.1(b)(xi) of the Disclosure Schedules.” Finally, we discovered that KDHM did not provide us with all customer lists, which are identified as purchased assets under the agreement.
In our counterclaims and third-party petition, we assert causes of action for fraud, breach of contract and conversion.
On August 18, 2023, the judge granted a summary motion entitling KDHM to deposits for customer accounts that were printed and mailed prior to the acquisition, and Usio Output Solutions, Inc. was entitled to deposits for accounts that were not yet printed, and printed but not yet mailed prior to the acquisition. Usio has requested a reconsideration of the motion, as it does not consider that deposits are only owed to KDHM if they were earned and offset against accounts receivable.
Usio Output Solutions, Inc. is scheduled for depositions beginning November 13, 2023.
We consider the risk of loss as remote related to this lawsuit.
Lifetime Home Warranty, LLC
On or about December 1, 2022, Usio and Lifetime Home Warranty, LLC ("Defendant") entered into an Automated Clearing House and Remotely Created Check Service Agreement (the “Agreement”). Pursuant to the terms of the Agreement, Usio agreed to and did provide to Defendant certain automated remotely created check and other payment processing services. Usio initiated certain payment transactions as directed by Defendant, and in exchange, Defendant agreed to pay Usio for its services. Additionally, to the extent that there were any “chargebacks” or “returns,” Defendant contractually agreed to pay Usio and/or cover the amount of these items. Chargebacks and returns are essential rejections or disputes by the Defendant’s end consumer user of the charges Usio was directed to process by Defendant. Pursuant to the Agreement and the Operating Rules and Guidelines as defined in the Agreement, Defendant’s return rate was not to exceed 0.50% of the total transaction volume. By the end of 2022, Defendant’s returns were so large that Usio terminated its Agreement with the Defendant based on the amounts owed to Usio and the risks associated with conducting further business with the Defendant. Pursuant to the Agreement, Usio invoiced Defendant on a monthly basis for all fees, chargeback and returns. Usio attempted to debit Defendant’s Settlement Account for the amount due and owing, but Defendant’s account contained insufficient funds to cover of the excessive chargebacks and returns. Subsequent attempts to collect the amounts due and owing to Usio failed, necessitating the filing of a lawsuit in the 224th District Court of Bexar County, Texas on April 10, 2023. As of September, 2023 the amount owed to Usio, exclusive of interest or attorneys’ fees, totals $213,780. The Defendant has been served, and a motion for default judgment has been filed.
In addition to the proceedings described above, we may be involved in legal matters arising in the ordinary course of business from time to time. While we believe that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which we are or could become involved in litigation will not have a material adverse effect on our business, financial condition or results of operations.
There have been no material changes from risk factors previously disclosed in the 2022 Annual Report.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Recent Sales of Unregistered Securities
We did not issue unregistered securities during the quarter ended September 30, 2023.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On November 2, 2016, we announced that our Board of Directors authorized the buyback program, pursuant to which the Company may repurchase up to $1 million in shares of our common stock from time to time in the open market, in block transactions, or in privately negotiated transactions. On January 9, 2018, our Board of Directors added an additional $2 million to the buyback program. The buyback program began on November 16, 2016 and ended on September 29, 2019. At September 29, 2019 when the program ended, $1,374,049 was available under the buyback program. On November 7, 2019, our Board of Directors approved the renewal of the buyback program. The Board approved a limit of $1,420,000, which was rolled over from the buyback program prior to renewal, with a three-year duration. On May 13, 2022, our Board of Directors authorized another renewal of the buyback program, with a limit equal to $4 million of the Company's common stock and a three year duration. The buyback program, as renewed most recently, terminates on the earliest of May 15, 2025, the date the funds are exhausted, or the date our Board of Directors, at its sole discretion, terminates or suspends the buyback program. The buyback program is used for the repurchase of stock from employees and directors, and for open-market purchases through a broker. During the three months ended September 30, 2023, we made the following stock repurchases:
| Period |
(a) Total number of shares (or units) purchased |
(b) Average price paid per share (or unit) |
(c) Total number of shares (or units) purchased as part of publicly announced plans or programs |
(d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs |
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| July 1 - July 31, 2023 |
1,039 | $ | 1.76 | 1,039 | $ | 2,708,843 | ||||||||||
| August 1 - August 31, 2023 |
89 | $ | 1.63 | 89 | $ | 2,708,698 | ||||||||||
| September 1 - September 30, 2023 |
27,673 | $ | 1.76 | 27,673 | $ | 2,660,124 | ||||||||||
| Total |
28,801 | 28,801 | $ | 2,660,124 | ||||||||||||
Item 3. Defaults Upon Senior Securities.
None.
Item 4. MINE SAFETY DISCLOSURES.
Not applicable.
None.
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Description |
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| 3.1 |
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| 3.4 |
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| 3.5 |
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| 3.6 | Amendment to the Amended and Restated By-laws (included as exhibit A to Schedule 14C filed April 18, 2007, and incorporated herein by reference). | |
| 4.1 | Description of Securities (included as exhibit 4.1 to the Form 10-K for the year ended December 31, 2022 filed on March 8, 2023) | |
| 10.1* |
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| 10.2* |
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| 10.4 |
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| 10.5* |
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| 10.7 |
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| 10.10* |
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| 10.11* |
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| 101.SCH |
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Inline XBRL Taxonomy Extension Schema Document (filed herewith). |
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| 101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith). |
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| 101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith). |
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| 101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith). |
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| 101.PRE |
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Inline XBRL Taxonomy Presentation Linkbase Document (filed herewith). |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
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| † |
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Confidential treatment has been granted for portions of this agreement. |
| + | The schedules to the exhibit have been omitted from this filing pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish copies of any such schedules to the Commission upon request. | |
| * | Management Compensatory Plan or Arrangement |
Copies of above exhibits not contained herein are available to any stockholder, upon written request to: Chief Financial Officer, Usio, Inc., 3611 Paesanos Parkway, Suite 300, San Antonio, TX 78231.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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USIO, INC |
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| Date: November 8, 2023 |
By: |
/s/ Louis A. Hoch |
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Louis A. Hoch |
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Chief Executive Officer |
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(Principal Executive Officer) |
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| Date: November 8, 2023 | By: |
/s/ Tom Jewell |
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Tom Jewell |
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Chief Financial Officer |
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(Principal Accounting and Financial Officer) |
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Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
I, Louis A. Hoch, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of Usio, Inc. for the quarter ended September 30, 2023; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
As the registrant’s certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
As the registrant’s certifying officer, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: November 8, 2023 |
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By: |
/s/ Louis A. Hoch |
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Louis A. Hoch |
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Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
I, Tom Jewell, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of Usio, Inc. for the quarter ended September 30, 2023; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
As the registrant’s certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
As the registrant’s certifying officer, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 8, 2023
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By: |
/s/ Tom Jewell |
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Tom Jewell |
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Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Usio, Inc., a Nevada corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: November 8, 2023 |
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By: |
/s/ Louis A. Hoch |
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Louis A. Hoch |
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Chief Executive Officer |
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(Principal Executive Officer) |
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Date: November 8, 2023 |
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By: |
/s/ Tom Jewell |
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Tom Jewell |
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Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
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Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Preferred stock, authorized (in shares) | 10,000,000 | 10,000,000 |
| Preferred stock, issued (in shares) | 0 | 0 |
| Preferred stock, outstanding (in shares) | 0 | 0 |
| Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
| Common stock, authorized (in shares) | 200,000,000 | 200,000,000 |
| Common stock, issued (in shares) | 28,506,406 | 27,044,900 |
| Common stock, outstanding (in shares) | 26,377,589 | 25,097,963 |
| Treasury stock, shares (in shares) | 2,128,537 | 1,946,937 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Revenues | $ 20,520,441 | $ 16,395,760 | $ 63,228,391 | $ 50,722,789 |
| Cost of services | 16,325,793 | 13,261,240 | 49,121,210 | 40,819,236 |
| Gross profit | 4,194,648 | 3,134,520 | 14,107,181 | 9,903,553 |
| Selling, general and administrative: | ||||
| Stock-based compensation | 594,815 | 515,992 | 1,677,258 | 1,540,375 |
| Other SG&A expenses | 4,293,869 | 3,679,484 | 12,021,110 | 11,323,326 |
| Depreciation and amortization | 518,573 | 640,599 | 1,559,601 | 2,163,468 |
| Total selling, general and administrative expenses | 5,407,257 | 4,836,075 | 15,257,969 | 15,027,169 |
| Operating (loss) | (1,212,609) | (1,701,555) | (1,150,788) | (5,123,616) |
| Other income and (expense): | ||||
| Interest income | 512,089 | 2,728 | 823,861 | 4,475 |
| Other income | 50,000 | 0 | 50,000 | 0 |
| Interest expense | (393) | (943) | (1,588) | (3,244) |
| Other income and (expense), net | 561,696 | 1,785 | 872,273 | 1,231 |
| (Loss) before income taxes | (650,913) | (1,699,770) | (278,515) | (5,122,385) |
| Income tax expense | 70,000 | 70,000 | 222,524 | 210,000 |
| Net (Loss) | $ (720,913) | $ (1,769,770) | $ (501,039) | $ (5,332,385) |
| (Loss) Per Share | ||||
| Basic (loss) per common share: (in dollars per share) | $ (0.04) | $ (0.09) | $ (0.02) | $ (0.26) |
| Diluted (loss) per common share: (in dollars per share) | $ (0.04) | $ (0.09) | $ (0.02) | $ (0.26) |
| Weighted average common shares outstanding | ||||
| Basic (in shares) | 20,098,244 | 20,371,654 | 20,101,686 | 20,322,934 |
| Diluted (in shares) | 20,098,244 | 20,371,654 | 20,101,686 | 20,322,934 |
Note 1 - Basis of Presentation |
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| Business Description and Accounting Policies [Text Block] |
Note 1. Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements of Usio, Inc. and its subsidiaries (collectively, the “Company”) have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles ("GAAP") have been omitted pursuant to such rules and regulations. In the opinion of management, the accompanying interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature considered necessary to present fairly the Company's financial position, results of operations and cash flows for such periods. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2022, as filed with the Commission on March 8, 2023, and as amended by Form 10-K/A Amendment No. 1 filed with the Commission on May 1, 2023 (together, the "2022 Annual Report"). Results of operations for interim periods are not necessarily indicative of results that may be expected for any other interim periods or the full fiscal year. References in this quarterly report to "the quarter" or the "third quarter" mean the three month period ended September 30, 2023 or 2022, as the case may be and unless otherwise noted.
Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition: Revenue consists primarily of fees generated through the electronic processing of payment transactions and related services. Revenue is recognized during the period in which the transactions are processed or when the related services are performed. The Company complies with ASC 606-10 and reports revenues at gross as a principal versus net as an agent. Although some of the Company's processing agreements vary with respect to specific credit risks, the Company has determined for each agreement it is acting in the principal role. Merchants may be charged for these processing services at a bundled rate based on a percentage of the dollar amount of each transaction and, in some instances, additional fees are charged for each transaction. Certain merchant customers are charged a flat fee per transaction, while others may also be charged miscellaneous fees, including fees for chargebacks or returns, monthly minimums, and other miscellaneous services. Revenues derived from electronic processing of credit, debit, and prepaid card transactions that are authorized and captured through third-party networks are reported gross of amounts paid to sponsor banks as well as interchange and assessments paid to credit card associations. Certain card distributors remit payment of fees earned 45 days after the end of the processing period. Prepaid card distributors have payment terms of 30 days following the end of the month. Sales taxes billed are reported directly as a liability to the taxing authority and are not included in revenue. Our subsidiary, Usio Output Solutions, Inc., provides bill preparation, presentment, and mailing services. Revenue from Output Solutions is recognized when the related services are performed for printing and delivered to USPS for postage.
The following table presents the Company's consolidated revenues by source:
Cash and Cash Equivalents: Cash and cash equivalents includes cash and other money market instruments. The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents.
Settlement Processing Assets and Obligations: Settlement processing assets and obligations represent intermediary balances arising in our settlement process for merchants.
Prepaid Card Load Assets: The Company maintains pre-funding accounts for its customers to facilitate prepaid card loads as initiated by the customer. These prepaid card load assets are carried on the Company's balance sheet with a corresponding liability. As the prepaid business line continues to expand, card load assets will rise as funds are sent from clients to the Company. As clients begin to load cash onto cards, the balance of both the prepaid card asset and corresponding liability decrease. As these balances decrease, the Company recognizes processing revenue and cardholder fees.
Customer Deposits: The Company holds customer deposits primarily for postage expenses to ensure the Company is not out of pocket for amounts billed daily by the USPS. These customer deposits are carried on the Company's balance sheet with a corresponding liability.
Merchant Reserves: The Company has merchant reserve requirements associated with Automated Clearing House, or ACH, transactions. The merchant reserve assets are carried on the Company's balance sheet with a corresponding liability. Merchant reserves are set for each merchant and funds are collected and held as collateral to minimize contingent liabilities associated with any losses that may occur. While this cash is not restricted in its use, the Company believes that designating this cash to collateralize merchant reserves strengthens the Company's standing with its member sponsors and is in accordance with the guidelines set by the card networks.
The reconciliation of cash and cash equivalents to cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves is as follows for each period presented:
Allowance for Estimated Losses: The Company maintains an allowance for estimated doubtful accounts receivable resulting from the inability or failure of the Company’s customers to make required payments. The Company determines the allowance for estimated doubtful accounts receivable losses based on an account-by-account review, taking into consideration such factors as the age of the outstanding balance, historical pattern of collections, and financial condition of the customer. During the nine months ended September 30, 2023 and the year ended December 31, 2022, there were no losses due to bad debt. In the past, losses incurred by the Company due to bad debts were within its expectations. If the financial conditions of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make contractual payments, additional losses may be incurred in future periods. Estimates for doubtful account losses are variable based on the volume of transactions processed and could increase or decrease accordingly. The allowance for estimated doubtful accounts was $319,000 at September 30, 2023 and December 31, 2022.
Inventory: Inventory is stated at the lower of cost or net realizable value. At September 30, 2023 and December 31, 2022, inventory consisted primarily of printing and paper supplies used for Output Solutions.
Accounting for Internal Use Software: The Company capitalizes the costs associated with software being developed or obtained for internal use when both the preliminary project stage is completed and it is probable that computer software being developed will be completed and placed in service. Capitalized costs include only (i) external direct costs of materials and services consumed in developing or obtaining internal-use software, (ii) payroll and other related costs for employees who are directly associated with and who devote time to the internal-use software project, and (iii) interest costs incurred, when material, while developing internal-use software. The Company ceases capitalization of such costs no later than the point at which the project is substantially complete and ready for its intended purpose. During the nine months ended September 30, 2023 and September 30, 2022, the Company capitalized software costs of $513,593 and $438,128, respectively.
Valuation of Long-Lived and Intangible Assets: The Company assesses the impairment of long-lived and intangible assets at least annually, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important, which could trigger an impairment review, include the following: significant underperformance relative to historical or projected future cash flows; significant changes in the manner of use of the assets or the strategy of the overall business; and significant negative industry trends. When management determines that the carrying value of long-lived and intangible assets may not be recoverable, impairment is measured as the excess of the assets’ carrying value over the estimated fair value. No impairment losses were recorded in 2022 or during the nine months ended September 30, 2023. Management is not aware of any impairment changes that may currently be required; however, the Company cannot predict the occurrence of events that might adversely affect the reported values in the future.
Reserve for Processing Losses: If, due to insolvency or bankruptcy of one of the Company’s merchant customers, or for any other reason, the Company is not able to collect amounts from its credit card, ACH or prepaid customers that have been properly "charged back" by the customer, or if a prepaid cardholder incurs a negative balance, the Company must bear the credit risk for the full amount of the transaction. The Company may require cash deposits and other types of collateral from certain merchants to minimize any such risks. In addition, the Company utilizes multiple systems and procedures to manage merchant risk. ACH, prepaid and credit card merchant processing loss reserves are primarily determined by performing a historical analysis of the Company’s loss experience, considering other factors that could affect that experience in the future, such as the types of transactions processed and nature of the merchant relationship with its consumers and the Company’s relationship with the Company’s prepaid card holders. This reserve amount is subject to the risk that actual losses may be greater than the Company’s estimates. Estimates for processing losses are variable based on the volume of transactions processed and could increase or decrease accordingly. At September 30, 2023 and December 31, 2022, the Company’s reserve for processing losses was $793,528 and $755,494, respectively.
Legal Proceedings: The Company may be involved in legal matters arising in the ordinary course of business from time to time. While the Company believes that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is or could become involved in litigation will not have a material adverse effect on its business, financial condition or results of operations.
Recently Adopted Accounting Pronouncements: In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326), to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in Topic 326 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Topic 326 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for smaller reporting companies. The Company adopted the amendments effective January 1, 2023, and it has not had a material impact on its financial position and the results of its operations. The Company will continue to monitor the adoption of this amendment in order to evaluate if it has any material effect on its financial position and results of operations.
Accounting standards that have been issued or proposed by the FASB, the SEC or other standard setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
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Note 2 - Leases |
9 Months Ended |
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Sep. 30, 2023 | |
| Notes to Financial Statements | |
| Lessee, Operating Leases [Text Block] |
Note 2. Leases
The Company leases facilities and office equipment under various operating leases, which generally are expected to be renewed or replaced by other leases. For each of the three months ended September 30, 2023 and 2022, operating lease expenses totaled $132,574 and $152,401, respectively.
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Note 3 - Accrued Expenses |
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| Accounts Payable, Accrued Liabilities, and Other Liabilities Disclosure, Current [Text Block] |
Note 3. Accrued Expenses
Accrued expenses consisted of the following balances:
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Note 4 - Equipment Loan |
9 Months Ended |
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Sep. 30, 2023 | |
| Notes to Financial Statements | |
| Debt Disclosure [Text Block] |
Note 4. Equipment Loan
On March 20, 2021, the Company entered into a debt arrangement to finance $165,996 for the purchase of an Output Solutions sorter. The loan is for a period of 36 months with a maturity date of March 20, 2024 and annual interest of 3.95%. Monthly principal and interest payments are required in the amount of $4,902. Principal payments for the three months ended September 30, 2023 and 2022 were $14,312 and $13,762, respectively, and are reflected on the Company's Condensed Consolidated Statement of Cash Flows.
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Note 5 - Stockholders' Equity |
9 Months Ended |
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Sep. 30, 2023 | |
| Notes to Financial Statements | |
| Equity [Text Block] |
Note 5. Stockholders' Equity
Stock Warrants: On August 21, 2018, the Company issued University FanCards, LLC warrants to purchase 150,000 shares of the Company's common stock, which were subject to the following vesting schedule: (i) 30,000 warrants vested upon the date on which the first financial transaction was processed, which occurred on October 5, 2018; and (ii) 120,000 warrants vested annually over years in 30,000 warrant increments beginning on July 31, 2019 and ending on July 31, 2022. The exercise price for the initial 30,000 warrants was $1.80 per share. The exercise price for the remaining 120,000 warrants was the lesser of $2.00 per share or one hundred and twenty percent (120%) of the market price of the Company's common stock on the vesting date of the warrant. At the time of issuance, the warrants were valued using the Black-Scholes option pricing model. Assumptions used were as follows: (i) the fair value of the underlying stock was $0.94 per share for the 30,000 warrants and $0.90 per share for the 120,000 warrants; (ii) the risk-free interest rate is (iii) the contractual life is 5 years; (iv) the dividend yield is and (v) the volatility is 64.6%. The fair value of the warrants was $135,764, which was amortized over the life of the warrants as a reduction of revenues. The reduction of revenues as a result of this amortization recorded for the nine months ended September 30, 2023 and 2022 was $0 and $20,965, respectively.
On July 31, 2022, the remaining, unvested warrants expired, and the Company is no longer recording a reduction of revenues associated with the amortization of their fair value.
On December 15, 2020, the Company issued warrants to purchase 945,599 shares of the Company's common stock with an exercise price of $4.23 per share to Information Management Solutions, LLC ("Management Solutions"). The Management Solutions' warrants vest annually over years and a term of five years in three equal tranches beginning on December 15, 2021 and become fully vested on December 15, 2023. At the time of issuance, these warrants were valued using the Black-Scholes option pricing model. Assumptions used were as follows: (i) the fair value of the underlying stock was per share; (ii) the risk-free interest rate was (iii) the contractual life was 5 years; (iv) the dividend yield was and (v) the volatility was 59.9%. The fair value of the warrants amounted to $552,283 and was recorded as an increase in the customer list asset and has a term of years from time of vesting. The amortization of these warrants, which is included in the total amortization expense of the customer list intangible asset, totaled $82,842 in the nine months ended September 30, 2023 and 2022. |
Note 6 - Net (Loss) Per Share |
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| Earnings Per Share [Text Block] |
Note 6. Net (Loss) Per Share
Basic (loss) per share (EPS) was computed by dividing net (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted EPS differs from basic EPS due to the assumed conversion of potentially dilutive awards and options that were outstanding during the period. The following is a reconciliation of the numerators and the denominators of the basic and diluted per share computations for net (loss) for the three and nine months ended September 30, 2023 and September 30, 2022.
The awards and options to purchase shares of common stock that were outstanding at September 30, 2023 and September 30, 2022 that were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive, are as follows:
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Note 7 - Income Taxes |
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| Income Tax Disclosure [Text Block] |
Note 7. Income Taxes
Deferred tax assets and liabilities are recorded based on the difference between financial reporting and tax basis of assets and liabilities and are measured by the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Deferred tax assets are computed with the presumption that they will be realizable in future periods when taxable income is generated. Predicting the ability to realize these assets in future periods requires judgment by management. GAAP prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. Income tax benefits that meet the “more likely than not” recognition threshold are recognized.
The Company has recognized a net deferred tax asset of approximately $1.5 million and has recorded a valuation allowance of approximately $4.6 million against the other deferred tax assets. The Company reviews the assessment of the deferred tax asset and valuation allowance on an annual basis or more often when events indicate that a change to the valuation allowance may be warranted.
At December 31, 2022, the Company had available net operating loss carryforwards of approximately $23.9 million. Net operating loss carryforwards generated during or prior to 2017 are available to offset taxable income of future periods and expire 20 years after the loss was generated. Net operating loss carryforwards generated after 2017 do not expire.
Net operating loss carryforwards totaling $9.1 million expired in 2022. The schedule below outlines when the Company's net operating losses for 2017 and prior years were generated and the year they may expire.
Management is not aware of any tax positions that would have a significant impact on the Company’s financial position.
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Note 8 - Related Party Transactions |
9 Months Ended |
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Sep. 30, 2023 | |
| Notes to Financial Statements | |
| Related Party Transactions Disclosure [Text Block] |
Note 8. Related Party Transactions
Louis Hoch
During the nine months ended September 30, 2023 and September 30, 2022, the Company purchased a total of $3,483 and $22,478, respectively, of corporate imprinted sportswear, promotional items, and caps from Angry Pug Sportswear. Louis Hoch, the Company’s Chairman of the Board, President, Chief Executive Officer and Chief Operating Officer, is a 50% owner of Angry Pug Sportswear.
Directors and Officers
On January 6, 2022, the Company repurchased 11,361 shares of the Company's common stock for $47,930 in a private transaction at the closing price on January 6, 2022 of $4.21 per share from Tom Jewell, the Company's Chief Financial Officer, to cover his share of taxes in the vesting of stock compensation issued as 3-year vesting restricted stock units ("RSUs").
On February 8, 2022, the Company granted 1,000 RSUs with a 3-year vesting period to Houston Frost as a performance bonus at an issue price of $3.32 per share.
On June 26, 2022, the Company granted 66,667 RSUs with a 3-year vesting period to Elizabeth Michelle Miller for joining the Board of Directors at an issue price of $2.28 per share.
Effective on February 17, 2023, the Company entered into an employment agreement with Greg Carter, the Company’s Executive Vice President, Payment Acceptance. Under the terms of this agreement, Mr. Carter receives an annual salary of Override/Commissions of 10% of the actual cash commissions paid to salespersons under direct management of Mr. Carter, to be paid quarterly, and the payment of a one-time signing bonus of $40,000.
On February 8, 2023, the Company granted 1,403,000 shares of restricted common stock with a 10-year vesting period and 273,000 RSUs with a -year vesting period to employees and Directors as a performance bonus at an issue price of $1.75 per share. Executive officers and Directors included in the 10-year restricted stock grant were Louis Hoch (330,000 shares), Tom Jewell (200,000 shares), Greg Carter (100,000 shares) and Houston Frost (100,000 shares). Executive officers included in the RSU grant were Louis Hoch (33,000 RSUs), Tom Jewell (21,000 RSUs), Greg Carter (12,000 RSUs) and Houston Frost (12,000 RSUs).
On March 16, 2023, the Company granted an additional 69,000 RSUs with a -year vesting period to Directors as a performance bonus at an issue price of $1.60 per share. Directors included in the RSU grant were Blaise Bender (21,000 RSUs), Brad Rollins (21,000 RSUs), Ernesto Beyer (21,000 RSUs) and Michelle Miller (6,000 RSUs).
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Note 9 - Subsequent Events |
9 Months Ended |
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Sep. 30, 2023 | |
| Notes to Financial Statements | |
| Subsequent Events [Text Block] |
Note 9. Subsequent Events
On October 1, 2023, the Company entered into a debt arrangement to finance $811,819 for the purchase of an Output Solutions folder and inserter. The loan is for a period of 66 months with a maturity date of April 5, 2029 and annual interest of 6.75%. Monthly principal and interest payments are required in the amount of $16,017. |
Significant Accounting Policies (Policies) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Use of Estimates, Policy [Policy Text Block] | Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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| Revenue [Policy Text Block] | Revenue Recognition: Revenue consists primarily of fees generated through the electronic processing of payment transactions and related services. Revenue is recognized during the period in which the transactions are processed or when the related services are performed. The Company complies with ASC 606-10 and reports revenues at gross as a principal versus net as an agent. Although some of the Company's processing agreements vary with respect to specific credit risks, the Company has determined for each agreement it is acting in the principal role. Merchants may be charged for these processing services at a bundled rate based on a percentage of the dollar amount of each transaction and, in some instances, additional fees are charged for each transaction. Certain merchant customers are charged a flat fee per transaction, while others may also be charged miscellaneous fees, including fees for chargebacks or returns, monthly minimums, and other miscellaneous services. Revenues derived from electronic processing of credit, debit, and prepaid card transactions that are authorized and captured through third-party networks are reported gross of amounts paid to sponsor banks as well as interchange and assessments paid to credit card associations. Certain card distributors remit payment of fees earned 45 days after the end of the processing period. Prepaid card distributors have payment terms of 30 days following the end of the month. Sales taxes billed are reported directly as a liability to the taxing authority and are not included in revenue. Our subsidiary, Usio Output Solutions, Inc., provides bill preparation, presentment, and mailing services. Revenue from Output Solutions is recognized when the related services are performed for printing and delivered to USPS for postage.
The following table presents the Company's consolidated revenues by source:
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| Cash and Cash Equivalents, Policy [Policy Text Block] | Cash and Cash Equivalents: Cash and cash equivalents includes cash and other money market instruments. The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents.
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| Credit Card Origination Costs, Policy [Policy Text Block] | Settlement Processing Assets and Obligations: Settlement processing assets and obligations represent intermediary balances arising in our settlement process for merchants.
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| Prepaid Card Load Assets, Policy [Policy Text Block] | Prepaid Card Load Assets: The Company maintains pre-funding accounts for its customers to facilitate prepaid card loads as initiated by the customer. These prepaid card load assets are carried on the Company's balance sheet with a corresponding liability. As the prepaid business line continues to expand, card load assets will rise as funds are sent from clients to the Company. As clients begin to load cash onto cards, the balance of both the prepaid card asset and corresponding liability decrease. As these balances decrease, the Company recognizes processing revenue and cardholder fees.
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| Customer Deposits [Policy Text Block] | Customer Deposits: The Company holds customer deposits primarily for postage expenses to ensure the Company is not out of pocket for amounts billed daily by the USPS. These customer deposits are carried on the Company's balance sheet with a corresponding liability.
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| Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block] | Merchant Reserves: The Company has merchant reserve requirements associated with Automated Clearing House, or ACH, transactions. The merchant reserve assets are carried on the Company's balance sheet with a corresponding liability. Merchant reserves are set for each merchant and funds are collected and held as collateral to minimize contingent liabilities associated with any losses that may occur. While this cash is not restricted in its use, the Company believes that designating this cash to collateralize merchant reserves strengthens the Company's standing with its member sponsors and is in accordance with the guidelines set by the card networks.
The reconciliation of cash and cash equivalents to cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves is as follows for each period presented:
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| Receivable [Policy Text Block] | Allowance for Estimated Losses: The Company maintains an allowance for estimated doubtful accounts receivable resulting from the inability or failure of the Company’s customers to make required payments. The Company determines the allowance for estimated doubtful accounts receivable losses based on an account-by-account review, taking into consideration such factors as the age of the outstanding balance, historical pattern of collections, and financial condition of the customer. During the nine months ended September 30, 2023 and the year ended December 31, 2022, there were no losses due to bad debt. In the past, losses incurred by the Company due to bad debts were within its expectations. If the financial conditions of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make contractual payments, additional losses may be incurred in future periods. Estimates for doubtful account losses are variable based on the volume of transactions processed and could increase or decrease accordingly. The allowance for estimated doubtful accounts was $319,000 at September 30, 2023 and December 31, 2022.
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| Inventory, Policy [Policy Text Block] | Inventory: Inventory is stated at the lower of cost or net realizable value. At September 30, 2023 and December 31, 2022, inventory consisted primarily of printing and paper supplies used for Output Solutions.
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| Internal Use Software, Policy [Policy Text Block] | Accounting for Internal Use Software: The Company capitalizes the costs associated with software being developed or obtained for internal use when both the preliminary project stage is completed and it is probable that computer software being developed will be completed and placed in service. Capitalized costs include only (i) external direct costs of materials and services consumed in developing or obtaining internal-use software, (ii) payroll and other related costs for employees who are directly associated with and who devote time to the internal-use software project, and (iii) interest costs incurred, when material, while developing internal-use software. The Company ceases capitalization of such costs no later than the point at which the project is substantially complete and ready for its intended purpose. During the nine months ended September 30, 2023 and September 30, 2022, the Company capitalized software costs of $513,593 and $438,128, respectively.
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| Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block] | Valuation of Long-Lived and Intangible Assets: The Company assesses the impairment of long-lived and intangible assets at least annually, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important, which could trigger an impairment review, include the following: significant underperformance relative to historical or projected future cash flows; significant changes in the manner of use of the assets or the strategy of the overall business; and significant negative industry trends. When management determines that the carrying value of long-lived and intangible assets may not be recoverable, impairment is measured as the excess of the assets’ carrying value over the estimated fair value. No impairment losses were recorded in 2022 or during the nine months ended September 30, 2023. Management is not aware of any impairment changes that may currently be required; however, the Company cannot predict the occurrence of events that might adversely affect the reported values in the future.
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| Contingent Liability Reserve Estimate, Policy [Policy Text Block] | Reserve for Processing Losses: If, due to insolvency or bankruptcy of one of the Company’s merchant customers, or for any other reason, the Company is not able to collect amounts from its credit card, ACH or prepaid customers that have been properly "charged back" by the customer, or if a prepaid cardholder incurs a negative balance, the Company must bear the credit risk for the full amount of the transaction. The Company may require cash deposits and other types of collateral from certain merchants to minimize any such risks. In addition, the Company utilizes multiple systems and procedures to manage merchant risk. ACH, prepaid and credit card merchant processing loss reserves are primarily determined by performing a historical analysis of the Company’s loss experience, considering other factors that could affect that experience in the future, such as the types of transactions processed and nature of the merchant relationship with its consumers and the Company’s relationship with the Company’s prepaid card holders. This reserve amount is subject to the risk that actual losses may be greater than the Company’s estimates. Estimates for processing losses are variable based on the volume of transactions processed and could increase or decrease accordingly. At September 30, 2023 and December 31, 2022, the Company’s reserve for processing losses was $793,528 and $755,494, respectively.
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| Legal Costs, Policy [Policy Text Block] | Legal Proceedings: The Company may be involved in legal matters arising in the ordinary course of business from time to time. While the Company believes that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is or could become involved in litigation will not have a material adverse effect on its business, financial condition or results of operations.
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| New Accounting Pronouncements, Policy [Policy Text Block] | Recently Adopted Accounting Pronouncements: In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326), to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in Topic 326 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Topic 326 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for smaller reporting companies. The Company adopted the amendments effective January 1, 2023, and it has not had a material impact on its financial position and the results of its operations. The Company will continue to monitor the adoption of this amendment in order to evaluate if it has any material effect on its financial position and results of operations.
Accounting standards that have been issued or proposed by the FASB, the SEC or other standard setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
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Note 1 - Basis of Presentation (Tables) |
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| Disaggregation of Revenue [Table Text Block] |
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| Schedule of Cash and Cash Equivalents [Table Text Block] |
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Note 3 - Accrued Expenses (Tables) |
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| Schedule of Accounts Payable and Accrued Liabilities [Table Text Block] |
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Note 6 - Net (Loss) Per Share (Tables) |
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| Schedule of Earnings Per Share, Basic and Diluted [Table Text Block] |
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| Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block] |
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Note 7 - Income Taxes (Tables) |
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| Summary of Operating Loss Carryforwards [Table Text Block] |
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Note 1 - Basis of Presentation (Details Textual) - USD ($) |
9 Months Ended | 12 Months Ended | |
|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Dec. 31, 2022 |
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| Accounts Receivable, Allowance for Credit Loss, Current | $ 319,000 | $ 319,000 | |
| Capitalized Computer Software, Additions | 513,593 | $ 438,128 | |
| Asset Impairment Charges | 0 | 0 | |
| SEC Schedule, 12-09, Valuation Allowances and Reserves, Deduction | $ 793,528 | $ 755,494 | |
Note 1 - Basis of Presentation - Schedule of Disaggregation of Revenue (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
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| Revenues | $ 20,520,441 | $ 16,395,760 | $ 63,228,391 | $ 50,722,789 |
| ACH and Complementary Service Revenue [Member] | ||||
| Revenues | 3,528,133 | 3,242,794 | 10,948,012 | 10,985,722 |
| Credit Card Revenue [Member] | ||||
| Revenues | 7,169,066 | 6,842,065 | 21,624,848 | 20,495,984 |
| Prepaid Card Services Revenue [Member] | ||||
| Revenues | 4,685,212 | 1,576,871 | 14,710,084 | 5,733,428 |
| Output Solutions [Member] | ||||
| Revenues | $ 5,138,030 | $ 4,734,030 | $ 15,945,447 | $ 13,507,655 |
Note 1 - Basis of Presentation - Reconciliation of Cash and Cash Equivalents to Cash, Cash Equivalents and Merchant Reserves (Details) - USD ($) |
Sep. 30, 2023 |
Jun. 30, 2023 |
Dec. 31, 2022 |
Sep. 30, 2022 |
Jun. 30, 2022 |
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| Cash and cash equivalents | $ 6,575,124 | $ 5,709,117 | $ 4,613,123 | $ 5,102,061 | $ 7,255,321 |
| Prepaid card load assets | 46,398,476 | 20,170,761 | 15,318,411 | 15,104,808 | 36,590,893 |
| Customer deposits | 1,563,192 | 1,554,122 | 1,585,586 | 1,471,214 | 1,364,193 |
| Merchant reserves | 5,141,040 | 4,909,501 | 5,654,729 | 6,815,073 | 6,381,153 |
| Cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves, beginning of period | 59,677,832 | 32,343,501 | 27,171,849 | 28,493,156 | 51,591,560 |
| Cash and cash equivalents | 7,396,285 | 6,575,124 | 5,709,117 | 4,613,123 | 5,102,061 |
| Prepaid card load assets | 58,839,602 | 46,398,476 | 20,170,761 | 15,318,411 | 15,104,808 |
| Customer deposits | 1,578,498 | 1,563,192 | 1,554,122 | 1,585,586 | 1,471,214 |
| Merchant reserves | 5,336,545 | 5,141,040 | 4,909,501 | 5,654,729 | 6,815,073 |
| Cash, Cash Equivalents, Prepaid Card Load Assets, Customer Deposits and Merchant Reserves, End of Period | $ 73,150,930 | $ 59,677,832 | $ 32,343,501 | $ 27,171,849 | $ 28,493,156 |
Note 2 - Leases (Details Textual) - USD ($) |
3 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Operating Lease, Expense | $ 132,574 | $ 152,401 |
Note 3 - Accrued Expenses - Summary of Accrued Expenses (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Accrued commissions | $ 2,385,604 | $ 1,479,580 |
| Reserve for processing losses | 793,528 | 755,494 |
| Other accrued expenses | 493,802 | 821,167 |
| Accrued taxes | 235,722 | 320,854 |
| Accrued salaries | 241,642 | 344,013 |
| Total accrued expenses | $ 4,150,298 | $ 3,721,108 |
Note 4 - Equipment Loan (Details Textual) - USD ($) |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Mar. 20, 2021 |
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Repayments of Long-Term Debt | $ 42,527 | $ 40,872 | |||
| Debit Arrangement to Finance Purchase of Output Solutions Sorter [Member] | |||||
| Debt Instrument, Face Amount | $ 165,996 | ||||
| Debt Instrument, Term (Month) | 36 months | ||||
| Debt Instrument, Interest Rate, Stated Percentage | 3.95% | ||||
| Debt Instrument, Periodic Payment, Total | $ 4,902 | ||||
| Repayments of Long-Term Debt | $ 14,312 | $ 13,762 | |||
Note 6 - Net (Loss) Per Share - Earnings Per Share Reconciliation (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Numerator for basic and diluted (loss) per share, net (loss) available to common shareholders | $ (720,913) | $ (1,769,770) | $ (501,039) | $ (5,332,385) |
| Denominator: | ||||
| Basic (in shares) | 20,098,244 | 20,371,654 | 20,101,686 | 20,322,934 |
| Effect of dilutive securities (in shares) | 0 | 0 | 0 | 0 |
| Denominator for diluted earnings per share, adjust weighted average shares and assumed conversion (in shares) | 20,098,244 | 20,371,654 | 20,101,686 | 20,322,934 |
| Basic (loss) per common share (in dollars per share) | $ (0.04) | $ (0.09) | $ (0.02) | $ (0.26) |
| Diluted (loss) per common share and common share equivalent (in dollars per share) | $ (0.04) | $ (0.09) | $ (0.02) | $ (0.26) |
Note 6 - Net (Loss) Per Share - Anti-dilutive Securities (Details) - shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Anti-dilutive awards and options (in shares) | 6,284,900 | 4,902,002 |
Note 7 - Income Taxes (Details Textual) - USD ($) $ in Millions |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Deferred Tax Assets, Net of Valuation Allowance | $ 1.5 | |
| Deferred Tax Assets, Valuation Allowance | $ 4.6 | |
| Operating Loss Carryforwards | $ 23.9 | |
| Tax Year 2022 [Member] | ||
| Operating Loss Carryforwards | $ 9.1 |
Note 7 - Income Taxes - Schedule of Net Operating Losses (Details) - USD ($) |
12 Months Ended | 168 Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2013 |
Dec. 31, 2010 |
Dec. 31, 2009 |
Dec. 31, 2008 |
Dec. 31, 2007 |
Dec. 31, 2006 |
Dec. 31, 2005 |
Dec. 31, 2004 |
Dec. 31, 2017 |
|
| NOL | $ 1,267,336 | $ 474,465 | $ 504,862 | $ 429,827 | $ 835,322 | $ 918,960 | $ 1,740,724 | $ 1,350,961 | $ 1,788,157 | $ 1,621,096 | $ 10,931,710 |
Note 9 - Subsequent Events (Details Textual) - Subsequent Event [Member] |
Oct. 01, 2023
USD ($)
|
|---|---|
| Debt Instrument, Face Amount | $ 811,819 |
| Debt Instrument, Term (Month) | 66 months |
| Debt Instrument, Interest Rate, Stated Percentage | 6.75% |
| Debt Instrument, Periodic Payment, Total | $ 16,017 |