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Item 1. Financial Statements

2021-08-12 compared with 2021-05-13 · 501 added, 145 removed, 257 unchanged (72% of the section changed)

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2021

June 30, 2021

December 31, 2020

1 unchanged sentence

Cash and cash equivalents

$ 5,614,702  

$ 5,011,132  

Accounts receivable, net

3,160,449  

2,863,638  

Settlement processing assets

35,515,375  

43,558,442  

Prepaid card load assets

9,157,519  

7,610,242  

Customer deposits

1,410,607  

1,305,296  

214,918  

176,466  

Prepaid expenses and other

432,417  

301,755  

Current assets before merchant reserves

55,505,987  

60,826,971  

Merchant reserves

8,101,153  

8,265,555  

Total current assets

63,607,140  

69,092,526  

Property and equipment, net

3,326,356  

3,105,926  

Other assets:

Intangibles, net

5,099,828  

6,035,761  

Deferred tax asset

1,394,000  

Operating lease right-of-use assets

3,038,920  

2,671,266  

413,961  

368,078  

Total other assets

Liabilities and stockholders ’ equity

9,946,709  

10,469,105  

$ 76,880,205  

$ 82,667,557  

Liabilities and stockholders’

Current liabilities:

Accounts payable

$ 645,224  

$ 851,349  

Accrued expenses

1,847,384  

1,463,944  

Operating lease liabilities, current portion

487,410  

346,913  

Equipment loan, current portion

53,673  

Settlement processing obligations

35,515,375  

43,558,442  

Prepaid card load obligations

9,157,519  

7,610,242  

Customer deposits

1,410,607  

1,305,296  

Deferred revenues

44,118  

66,572  

Current liabilities before merchant reserve obligations

49,161,310  

55,202,758  

Merchant reserve obligations

8,101,153  

8,265,555  

Total current liabilities

57,262,463  

63,468,313  

Non-current liabilities:

Equipment loan, non-current portion

99,102  

Operating lease liabilities, non-current portion

2,733,343  

2,495,883  

Total liabilities

Stockholders’ equity:

60,094,908  

65,964,196  

Stockholders’

Preferred stock, $ 0.01 par value, 10,000,000 shares authorized;

-0- shares outstanding at March 31, 2021 (unaudited) and December 31, 2020, respectively

- 0 - shares outstanding at June 30, 2021 (unaudited) and December 31, 2020, respectively

Common stock, $ 0.001 par value, 200,000,000 shares authorized;

26,314,460 and 26,260,776 issued, and 25,013,557 and 24,974,995 outstanding at March 31, 2021 (unaudited) and December 31, 2020, respectively

26,261,016 and 26,260,776 issued, and 24,954,529 and 24,974,995 outstanding at June 30, 2021 (unaudited) and December 31, 2020, respectively

194,691  

194,692  

Additional paid-in capital

89,662,665  

89,659,433  

Treasury stock, at cost;

1,300,903 and 1,285,781 shares at March 31, 2021 (unaudited) and December 31, 2020, respectively

1,306,487 and 1,285,781 shares at June 30, 2021 (unaudited) and December 31, 2020, respectively

( 2,244,985 )  

( 2,165,721 )

Deferred compensation

( 5,267,134 )  

( 5,926,872 )

Accumulated deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

( 65,559,940 )  

( 65,058,171 )

Total stockholders’

16,785,297  

16,703,361  

Total liabilities and stockholders’

$ 76,880,205  

$ 82,667,557  

See the accompanying notes to the condensed interim consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of services

4 unchanged sentences

Total selling, general and administrative expenses

Operating (loss)

Operating income (loss)

Other income and (expense):

2 unchanged sentences

Other income and (expense), net

(Loss) before income taxes

Income tax expense

Basic (loss) per common share:

Diluted (loss) per common share:

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Basic income (loss) per common share:

Diluted income (loss) per common share:

Weighted average common shares outstanding

See the accompanying notes to the condensed interim consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

Operating activities:

Adjustments to reconcile net (loss) to net cash provided (used) by operating activities:

Adjustments to reconcile net (loss) to net cash provided by operating activities:

Non-cash stock-based compensation

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Deferred revenue

Net cash provided (used) by operating activities

Net cash provided by operating activities

Investing activities:

Purchases of property and equipment

Net cash provided by investing activities

Net cash used by investing activities

Financing activities:

Proceeds from PPP Loan Program

Proceeds from equipment loan

Payments on equipment loan

Purchases of treasury stock

Net cash provided (used) by financing activities

Net cash provided by financing activities

Change in cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves

10 unchanged sentences

Balance at December 31, 2020

26,260,776  

$ 194,692  

$ 89,659,433  

$ ( 2,165,721 )  

$ ( 5,926,872 )  

$ ( 65,058,171 )  

$ 16,703,361  

Issuance of common stock under equity incentive plan

51,000  

120,484  

120,535  

Warrant compensation costs

Cashless warrant exercise

19,795  

( 19 )  

Reversal of deferred compensation amortization that did not vest

( 17,111 )  

( 17 )  

( 48,599 )  

Deferred compensation amortization

249,801  

Purchase of treasury stock costs

( 49,454 )  

Net (loss) for the period

( 720,252 )  

Balance at March 31, 2021

26,314,460  

$ 194,745  

$ 89,740,284  

$ ( 2,215,175 )  

$ ( 5,671,077 )  

$ ( 65,778,423 )  

$ 16,270,354  

Issuance of common stock under equity incentive plan

61,556  

150,481  

150,542  

Warrant compensation costs

Reversal of deferred compensation amortization that did not vest

( 115,000 )  

( 115 )  

( 237,085 )  

158,096  

Deferred compensation amortization

245,847  

Purchase of treasury stock costs

( 29,810 )  

Net income for the period

218,483  

Balance at June 30, 2021

26,261,016  

$ 194,691  

$ 89,662,665  

$ ( 2,244,985 )  

$ ( 5,267,134 )  

$ ( 65,559,940 )  

$ 16,785,297  

Balance at December 31, 2019

18,224,577  

$ 186,656  

$ 77,055,273  

$ ( 1,885,452 )  

$ ( 5,636,154 )  

$ ( 62,151,988 )  

$ 7,568,335  

Issuance of common stock under equity incentive plan

51,000  

59,440  

59,491  

Warrant compensation costs

Deferred compensation amortization

228,219  

Purchase of treasury stock costs

( 26,629 )  

Net (loss) for the period

( 835,009 )  

Balance at March 31, 2020

18,275,577  

$ 186,707  

$ 77,123,698  

$ ( 1,912,081 )  

$ ( 5,407,935 )  

$ ( 62,986,997 )  

$ 7,003,392  

Issuance of common stock under equity incentive plan

1,500,544  

1,641,304  

(1,559,520 )  

83,284  

Warrant compensation cost

Deferred compensation amortization

267,207  

Purchase of treasury stock

( 55,819 )  

Net (loss) for the period

( 1,288,169 )  

Balance at June 30, 2020

19,776,121  

$ 188,207  

$ 78,773,990  

$ ( 1,967,900 )  

$ ( 6,700,248 )  

$ ( 64,275,166 )  

$ 6,018,883  

The accompanying notes are an integral part of these consolidated financial statements.

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The accompanying unaudited interim condensed consolidated financial statements of Usio, Inc.

and its subsidiaries (the “Company”) have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles 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, 2020, as filed with the Securities and Exchange Commission on March 30, 2021.

31, 2020, as filed with the Securities and Exchange Commission on March 30, 2021.

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.

13 unchanged sentences

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.

Usio Output Solutions, Inc.

1 unchanged sentence

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 payment processing service revenues by source:

Three Months Ended March 31,

The following table presents the Company's revenues by source:

Three Months Ended June 30,

Six Months Ended June 30,

ACH and complementary service revenue

$ 4,001,897  

$ 1,779,245  

$ 7,080,353  

$ 4,016,991  

Credit card revenue

6,558,076  

4,588,199  

12,281,785  

9,570,857  

Prepaid card services revenue

1,077,531  

593,109  

1,964,107  

1,144,384  

Output solutions revenue

3,595,637  

7,368,446  

Total revenue

$ 15,233,141  

$ 6,960,553  

$ 28,694,691  

$ 14,732,232  

Deferred Revenues:

1 unchanged sentence

The advance consideration received from a customer is deferred until the Company provides the customer that product or service.

The deferred revenues totaled $57,353 and $66,572 at March 31, 2021 and December 31, 2020 , respectively.

The deferred revenues totaled $ 44,118  and $ 66,572  at June 30, 2021 and December 31, 2020 , respectively.

Cash and Cash Equivalents:

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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 United States Postal Service.

The Company holds customer deposits primarily for postage expenses to ensure the Company is not out of pocket for amounts billed daily by the United States Postal Service. 

These customer deposits are carried on the Company's balance sheet with a corresponding liability.

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Funds are collected from each merchant and held as collateral to minimize contingent liabilities associated with any losses that may occur under the merchant agreement.

While this cash is not restricted in its use, the Company believes that designating this cash to collateralize Merchant Reserves strengthens our fiduciary standing with the Company's member sponsors and is in accordance with the guidelines set by the card networks.

While this cash is not restricted in its use, the Company believes that designating this cash to collateralize Merchant Reserves strengthens its fiduciary standing with the Company's member sponsors and is in accordance with the guidelines set by the card networks.

Prepaid Card Load Assets:

The Company maintains pre-funding accounts for its customers to facilitate prepaid card loads as initiated by the customer.

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.

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 March 31,

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:

Six Months Ended June 30,

Beginning cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves:

Cash and cash equivalents

$ 5,011,132  

$ 2,137,580  

Prepaid card load assets

7,610,242  

528,434  

Customer deposits

1,305,296  

Merchant reserves

8,265,555  

10,016,904  

$ 22,192,225  

$ 12,682,918  

Ending cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves:

Cash and cash equivalents

$ 5,614,702  

$ 1,793,252  

Prepaid card load assets

9,157,519  

19,281,293  

Customer deposits

1,410,607  

Merchant reserves

8,101,153  

8,430,339  

$ 24,283,981  

$ 29,504,884  

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.

Past losses incurred by the Company due to bad debts have been 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 allowances might be required.

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 $205,000 and $205,522 at March 31, 2021 and December 31, 2020 , respectively.

The allowance for estimated doubtful accounts was $ 260,712  and $ 205,522  at June 30, 2021 and December 31, 2020 , respectively.

Inventory is stated at the lower of cost or net realizable value.

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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.

In the three months ended March 31, 2021 and March 31, 2020 , the Company capitalized $187,914 and $135,419 , respectively.

In the six  months ended June 30, 2021 and June 30, 2020 , the Company capitalized $ 388,349  and $ 313,983 , respectively.

Valuation of Long-Lived and Intangible Assets:

4 unchanged sentences

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 2020 or during the three months ended March 31, 2021 .

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 2020  or during the 

six months ended June 30, 2021 .

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.

Reserve for Processing Losses: 

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.

The Company has not incurred any significant processing losses to date.

Estimates for processing losses are variable based on the volume of transactions processed and could increase or decrease accordingly.

At March 31, 2021 and December 31, 2020 , the Company’s reserve for processing losses was $548,199 and $515,199 respectively.

At June 30, 2021 and December 31, 2020 , the Company’s reserve for processing losses was $ 575,149  and $ 515,199  respectively.

Legal Proceedings:

T he 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.

New 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 25, 2022, including interim periods within those fiscal years for smaller reporting companies.

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. 

Topic 326 is effective for fiscal years beginning after December 25, 2022, including interim periods within those fiscal years for smaller reporting companies. 

The Company does not expect the adoption of the amendments in ASU 2016 - 13 to have a significant effect on its financial position and the results of its operations when such amendment is adopted.

2 unchanged sentences

On December 15, 2020, the Company entered into an asset purchase agreement to purchase substantially all the assets of Information Management Solutions, LLC ("IMS"), a Texas limited liability company in the business of 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.

The total purchase price consideration consisted of a cash payment of $5,907,408 at closing and warrant considerations valued at $552,283.

The warrants were comprised of 945,599 unregistered warrants to purchase shares of common stock of Usio, Inc., or 945,599 shares of common stock, $0.001 par value per share, with an exercise price of $4.23 per share.

The final number of warrants was determined by dividing $2,000,000 by the 5-day weighted average closing price for the four trading days preceding the closing date and the closing day, or $2.115 per share.

The exercise price of the warrants was determined by multiplying the 5-day weighted average closing price by the number 2.

The warrants vest in three equal installments on the first, second and third anniversary of the closing date and have a term of five years from vest.

The total purchase price consideration consisted of a cash payment of $ 5,907,408 at closing and warrant considerations valued at $ 552,283 . 

The warrants were comprised of 945,599 unregistered warrants to purchase shares of common stock of the Company, or 945,599 shares of common stock, $ 0.001 par value per share, with an exercise price of $ 4.23 per share.

The final number of warrants was determined by dividing $ 2,000,000 by the 5 -day weighted average closing price for the four trading days preceding the closing date and the closing day, or $ 2.115 per share. 

The exercise price of the warrants was determined by multiplying the 5 -day weighted average closing price by the number 2 . 

 The warrants vest in three equal installments on the first, second and third anniversary of the closing date and have a term of five years from vest.

The purchase price was allocated to the net assets acquired based upon their estimated fair values as follows:

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Accounts receivable

$ 683,736  

168,138  

1,211,225  

Prepaid expenses

29,849  

Customer list

3,807,052  

Total Cash Consideration

$ 5,907,408  

Customer list

$ 552,283  

Total Warrant Consideration

$ 552,283  

Total Purchase Price

The 2020 consolidated statement of operations included one month of IMS operations, which was approximately $1.2 million of revenue and $0.6 million of gross profit.

$ 6,459,691  

Unaudited Pro Forma Information

The unaudited proforma results including the effects of the IMS acquisition as if it had been consummated on January 1, 2019 were included in a Form 8 -K/A filed on March 3, 2021 and summarized in the Form 10 -K filed on March 30, 2021.

  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 the quarter ended March 31, 2021 and 2020 , operating lease expenses totaled $104,131 and $68,086 , respectively.

Operating lease liabilities as of March 31, 2021 will require the following payments:

For the quarters ended June 30, 2021  and 2020 , operating lease expenses totaled $ 116,535  and $ 61,049 , respectively.  For the six months ended June 30, 2021  and 2020 , operating lease expenses totaled $ 220,666  and $ 128,693 , respectively.  

Operating lease liabilities as of June 30, 2021 will require the following payments:

$ 306,708  

621,802  

554,916  

518,935  

414,138  

1,331,219  

Total minimum lease payments

3,747,718  

Less imputed interest

Total lease liabilities

$ 3,220,753  

Accrued Expenses

Accrued expenses consisted of the following balances:

March 31, 2021

June 30, 2021

December 31, 2020

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Equipment Loan

On March 20, 2021, the Company entered into a debit arrangement to finance $165,996 for the purchase of an Output Solutions sorter.

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.

The repayment amount is for 36 months at $4,902 per month.

The repayment amount is for 36  months at $ 4,902 per month.

Annual payments are $ 58,821 .

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The fair value of the warrants was $ 135,764 which will be amortized over the life of the warrants as a reduction of revenues.

The reduction of revenues recorded for the three months ended March 31, 2021 and 2020 was $8,985 .

The reduction of revenues recorded for the six months ended June 30, 2021 and 2020 was $ 17,970 .

On August 12, 2020, the Company issued 27,051 shares of common stock to University FanCards, LLC in a cashless exercise at $ 3.46 per common share in exchange for 60,000 warrants exercised by FanCards, LLC.

On February 5, 2021, the Company issued 19,795 shares of common stock to University FanCards, LLC in a cashless exercise at $5.88 per common share in exchange for 30,000 warrants exercised by FanCards, LLC.

On December 15, 2020, the Company issued to Information Management Solutions, LLC warrants to purchase 945,599 unregistered warrants to purchase shares of Usio, Inc.

or 945,599 shares of common stock, $0.001 par value per share, with an exercise price of $4.23.

On February 5, 2021, the Company issued 19,795  shares of common stock to University FanCards, LLC in a cashless exercise at $ 5.88  per common share in exchange for 30,000 warrants exercised by FanCards, LLC.

On December 

15, 2020, the Company issued to Information Management Solutions, LLC warrants to purchase 945,599 unregistered warrants to purchase shares of Usio, Inc.

or 945,599 shares of common stock, $ 0.001 par value per share, with an exercise price of $ 4.23 . 

The warrants were valued using the Black-Scholes option pricing model.

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and (v) the volatility is 59.9 %.

The fair value of the warrants amounted to $552,283 and will be recorded as an increase in the customer list asset and have a term of five years from time of vest.

Equity Transactions :

On April 1, 2020, the Company granted 1,444,000 shares of common stock with a 10-year vesting period and 103,000 restricted stock units (RSUs) with a 3-year vesting period to employees and Directors as a performance bonus at an issue price of $1.08 per share.

The fair value of the warrants amounted to $ 552,283  and will be recorded as an increase in the customer list asset and have a term of five years from time of vest.

Equity Transactions : On April 1, 2020, the Company granted 1,444,000 shares of common stock with a 10 -year vesting period and 103,000 restricted stock units (RSUs) with a 3 -year vesting period to employees and Directors as a performance bonus at an issue price of $ 1.08 per share.

Executive officers and Directors included in the grant were Louis Hoch ( 300,000 shares), Tom Jewell ( 200,000 shares), Blaise Bender ( 10,000 RSUs) and Brad Rollins ( 30,000 RSUs).

On July 1, 2020, Topline Capital Partners, LP purchased 1,796,407 unregistered shares of common stock at an offering price of $1.67 per share in a private offering.

The gross proceeds to the Company from the private offering were $3.0 million.

On September 25, 2020, the Company entered into a placement agency agreement with Ladenburg Thalmann & Company Inc.

for the issuance and sale of an aggregate of 4,705,883 shares of common stock at an offering price of $1.70 per share in a public offering.

The Company agreed to pay Ladenburg a cash fee of equal to $0.12325 per share of common stock sold in the offering as well as legal fees and expenses of up to $100,000.

The net proceeds to the Company from the public offering were $7.4 million, after deducting the offering expenses and fees payable by the Company.

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.

On July 1, 2020, Topline Capital Partners, LP purchased 1,796,407 unregistered shares of common stock at an offering price of $ 1.67  per share in a private offering.

The gross proceeds to the Company from the private offering were $ 3.0  million.

On September 

25, 2020, the Company entered into a placement agency agreement with Ladenburg Thalmann & Company Inc.

for the issuance and sale of an aggregate of 4,705,883 shares of common stock at an offering price of $ 1.70  per share in a public offering.

The Company agreed to pay Ladenburg a cash fee of equal to $ 0.12325  per share of common stock sold in the offering as well as legal fees and expenses of up to $ 100,000 .

The net proceeds to the Company from the public offering were $ 7.4  million, after deducting the offering expenses and fees payable by the Company.

Net Income (Loss) Per Share

Basic income (loss) per share (EPS) was computed by dividing net income (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 months ended March 31, 2021 and March 31, 2020 .

Three Months Ended March 31,

Numerator for basic and diluted (loss) per share, net (loss) available to common shareholders

Denominator for basic (loss) per share, weighted average shares outstanding

The following is a reconciliation of the numerators and the denominators of the basic and diluted per share computations for net income (loss) for the 

three and six months ended June 30, 2021 and June 30, 2020 .

Three Months Ended June 30,

Six Months Ended June 30,

Numerator for basic and diluted income (loss) per share, net income (loss) available to common shareholders

$ 218,483  

$ ( 1,288,169 )  

$ ( 501,769 )  

$ ( 2,123,178 )

Denominator for basic income (loss) per share, weighted average shares outstanding

19,993,387  

13,173,009  

19,962,661  

13,150,119  

Effect of dilutive securities

4,969,002  

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 March 31, 2021 and March 31, 2020 that were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive, are as follows:

Three Months Ended March 31,

24,962,389  

13,173,009  

19,962,661  

13,150,119  

Basic income (loss) per common share

$ 0.01  

$ ( 0.10 )  

$ ( 0.03 )  

Diluted income (loss) per common share and common share equivalent

$ 0.01  

$ ( 0.10 )  

$ ( 0.03 )  

The awards and options to purchase shares of common stock that were outstanding at June 30, 2021 and June 30, 2020 that were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive, are as follows:

Six Months Ended June 30,

Anti-dilutive awards and options

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.

4,969,002  

5,467,780  

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.

1 unchanged sentence

generally accepted accounting principles prescribe 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 should be recognized.

The Company has recognized a deferred tax asset of approximately $1.4 million and has recorded a valuation allowance of approximately $7.5 million against the other deferred tax assets.

Income tax benefits that meet the “more likely than not”

recognition threshold should be recognized.

The Company has recognized a deferred tax asset of approximately $ 1.4 million and has recorded a valuation allowance of approximately $ 7.5  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, 2020 , the Company had available net operating loss carryforwards of approximately $39.4 million.

December 31, 2020 , the Company had available net operating loss carryforwards of approximately $ 39.4  million.

Net operating loss carryforwards prior to 2017 are available to offset taxable income of future periods and begin to expire in 2021.

Effective for tax years ending in 2018, net operating losses can be carried forward to future years indefinitely.

Approximately $0.5 million of the total net operating loss carryforward is subject to an IRS Section 382 limitation from 1999.

Management is not aware of any tax positions that would have a significant impact on the Company’s financial position.

Approximately $ 0.5  million of the total net operating loss carryforward is subject to an IRS Section 382 limitation from 1999.

Management is not aware of any tax positions that would have a significant impact on the Company’s financial position.

Related Party Transactions

During the three months ended March 31, 2021 and the year ended December 31, 2020 , the Company purchased a total of $0 and $9,886, respectively, of corporate imprinted sportswear and caps from Angry Pug Sportswear.

Louis Hoch, the Company’s President and Chief Executive Officer, is a 50% owner of Angry Pug Sportswear.

During the six months ended June 30, 2021 and the year ended December 31, 2020 , the Company purchased a total of $ 2,890  and $ 9,886 , respectively, of corporate imprinted sportswear and caps from Angry Pug Sportswear.

Louis Hoch, the Company’s President and Chief Executive Officer, is a 50 % owner of Angry Pug Sportswear.

Directors and Officers

1 unchanged sentence

On January 6, 2020, the Company repurchased 11,860 shares of common stock at a closing price of $ 1.74 per share from Tom Jewell, the Company's Chief Financial Officer to cover taxes due.

The Company granted 1,444,000 shares of common stock with a 10-year vesting period and 103,000 restricted stock units (RSUs) with a 3-year vesting period to employees and Directors as a performance bonus on April 1, 2020 at an issue price of $1.08 per share.

On April 1, 2021, the Company granted 1,444,000 shares of common stock with a 10 -year vesting period and 103,000 restricted stock units (RSUs) with a 3 -year vesting period to employees and Directors as a performance bonus at an issue price of $ 1.08 per share.

Executive officers and Directors included in the grant were Louis Hoch ( 300,000 shares), Tom Jewell ( 200,000 shares), Blaise Bender ( 10,000 RSUs) and Brad Rollins ( 30,000 RSUs).

As approved by the Company's Compensation Committee, on November 1, 2020, the Company issued 136,891 shares of common stock to Mr.

Louis Hoch, the Company's Chief Executive Officer, valued at $216,000 at the closing price of $1.5779 per share from October 15, 2020 in satisfaction of the terms of the additional bonus of the employment agreement.

As part of the transaction, on November 1, 2020, the Company repurchased 54,756 shares from Mr.

On November 1, 2020, as approved by the Company's Compensation Committee, the Company issued 136,891 shares of common stock to Mr.

Louis Hoch, the Company's Chief Executive Officer, valued at $ 216,000 at the closing price of $ 1.5779 per share from October 15, 2020 in satisfaction of the terms of the additional bonus of his employment agreement.

As part of the transaction, on November 1, 2020, the Company repurchased 54,756 shares from Mr.

Hoch to cover withholding taxes due.

The ongoing COVID-19 pandemic has had a notable impact on general economic conditions, including but not limited to the temporary closures of many businesses, “shelter in place” and other governmental regulations, reduced consumer spending due to both job losses and other effects attributable to the COVID-19 pandemic.

There remain many uncertainties as a result of the pandemic.

As a result of the spread of COVID-19, economic uncertainties could continue to impact our operations.

The ongoing COVID- 19 pandemic has had a notable impact on general economic conditions, including but not limited to the temporary closures of many businesses, “shelter in place”

and other governmental regulations, reduced consumer spending due to both job losses and other effects attributable to the COVID- 19 pandemic.

There remain many uncertainties as a result of the pandemic.  As a result of the spread of COVID- 19, economic uncertainties could continue to impact our operations.

Any potential incremental financial impact is unknown at this time.

At this time, most states are reducing mandated operating restrictions and efforts are underway to provide vaccinations to as many people as possible.

During 2020 and 2021, the U.S.

government issued several rounds of COVID-19 relief and stimulus payments and other programs to stimulate economic activity and facilitate an economic recovery.

The Company's business was initially adversely affected as doctor's offices, dental offices, veterinarian offices and non-bank consumer lending accounts were ordered closed in connection with curbing the spread of the pandemic.

As these doctors, dental and veterinarian offices re-opened, these businesses quickly recovered and returned to levels higher than pre-COVID.

Consumer lending merchants were adversely affected by COVID relief payments made during the pandemic and the pause placed on past due amounts owed.

The level of activity for consumer lending merchants has not returned to pre-COVID levels.

The Company received an increase in revenues in its prepaid business line, as the Company was able to work in conjunction with major cities across the U.S.

to use the Company's prepaid debit cards to facilitate the transfer of money via debit cards from city foundations to the local residents in need of financial assistance.

The impacts and recovery from the COVID-19 pandemic are still a work in process.

The Company was not impacted in the magnitude of other payment processors as its customer base had limited exposure to retail facing businesses.

Within that framework, the Company will continue to monitor the overall impact on its operations and take necessary steps to ensure the safety of its employees and the well-being of its customers.

Legal Proceedings

Vaden Landers

On January 19, 2021, the Company initiated a lawsuit in Bexar County, Texas against its former Chief Revenue Officer, Vaden Landers.

In the lawsuit, which is styled:

Vaden Landers , Cause No.

2021CI01069, 407th Judicial District Court, Bexar County, Texas, the Company alleges that Mr.

Landers violated the provisions of his employment agreement dated September 1, 2017 - specifically that Mr.

Landers violated his non-compete obligations.

The state court lawsuit only seeks injunctive relief against Mr.

The Company also instituted an action before the American Arbitration Association on February 2, 2021.

Landers initially refused to participate in the arbitration proceeding.

After hearings in Bexar County state court proceeding, all of the parties' claims, excluding Mr.

Lander's claims for defamation and tortious interference with contract, were ordered to be heard by the American Arbitration Association.

The Company denies Mr.

Landers’ allegations and does not believe that his counterclaims have any merit.

On or about April 27, 2021, Mr.

Landers filed his Answering Statement and Counterclaim against Usio in the arbitration proceeding.

Landers alleged a variety of defenses to the Company's claim that Mr.

Landers violated the non-compete provisions of his Employment Agreement.

Landers also asserts a counterclaim for a declaratory judgment finding the non-compete provisions are unenforceable.

Landers further alleges that the Company breached the terms of his Employment Agreement because Mr.

Landers' resignation was for Good Reason thus entitling Mr.

Landers to deferred compensation.

The Company denies Mr.

Landers' allegations.

Through its investigation, the Company has learned that Mr.

Landers committed other violations of his employment agreement and intends to pursue those claims in arbitration.

Both the state court litigation and the arbitration are in their initial stages.

The Company recently served Mr.

Landers with a request for production of documents in the Bexar County state court proceeding, but Mr.

Landers has not responded at this time.

Aside from the proceedings above, the Company may be involved in legal matters arising in the ordinary course of business from time to time.

At this time, certain states are considering reinstatement of select mandated operating restrictions and continued efforts are underway to provide vaccinations to as many people as possible.

During 2020 and 2021, the government issued several rounds of COVID- 19 relief and stimulus payments and other programs to stimulate economic activity and facilitate an economic recovery.  

In April and May of 2020, our business was adversely affected as doctor's offices, dental offices, veterinarian offices and non-bank consumer lending accounts were ordered closed in connection with curbing the spread of the pandemic. 

 As these doctors, dental and veterinarian offices re-opened, these businesses quickly recovered and returned to levels higher than pre-COVID. 

 Consumer lending merchants were adversely affected by COVID relief payments made during the pandemic and a pause placed on past due amounts owed. 

 The level of activity for consumer lending merchants has somewhat returned to pre-COVID levels. 

We received an increase in revenues in our prepaid business line, as we were able to work in conjunction with major cities across the U.S.

to use our prepaid debit cards to facilitate the transfer of money via our debit cards from city foundations to the local residents in need of financial assistance. 

The efforts have included the disbursement of funds to encourage vaccinations. 

The impacts and recovery from the COVID- 19 pandemic are still a work in process. 

To date, we have not been adversely impacted in the magnitude that other payment processors were, as our customer base had limited exposure to retail facing businesses. 

 Within that framework, we will continue to monitor the overall impact on our operations and take necessary steps to ensure the safety of our employees and the well-being of our customers.

Subsequent Events

On April 18, 2021, the Company's Compensation Committee approved an amendment to the employment agreement with Louis Hoch, the Company's Chief Executive Officer.

Under the terms of the amendment, Mr.

Hoch's annual base salary increases from $350,000 to $566,000 beginning April 18, 2021.

Hoch's entitlement to an annual bonus of $216,000 per year was cancelled as a result of the base salary increase.

The Compensation Committee also approved a change of the term of the employment agreement of Tom Jewell, the Company's Chief Financial Officer, from one to two years with a renewal of one-year increments.

The committee further approved the payout of one additional year of Mr.

Jewell's base salary upon a change of control in addition to what he was already entitled to under the employment agreement.

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 "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 our annual report on Form 10-K and other reports we file with the Securities and Exchange 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 our annual report on Form 10-K for the fiscal year ended December 31, 2020, filed on March 30, 2021, including the audited consolidated financial statements and the notes contained therein.

Effective on June 26, 2019, we changed our corporate name from Payment Data Systems, Inc.

to Usio, Inc.

We provide integrated electronic payment processing services to merchants and businesses, including all types of Automated Clearing House, or ACH processing, credit card, PINless debit, prepaid card and debit card-based processing services.

Through Akimbo, under the domain name www.akimbocard.com, we offer MasterCard prepaid cards to consumers for use as a tool to stay on budget, to manage allowances, and to share money with family and friends.

We have further developed our Akimbo platform to include Akimbo Now for businesses, Akimbo Gift for consumers and support for Apple Pay®, Android Pay™

and Samsung Pay™. 

With the acquisition of the assets of IMS in December 2020, we now offer additional services relating to electronic bill presentment, document composition, document decomposition and printing and mailing services.

During the second quarter of 2021, the amount of credit card transactions processed increased by 100% versus the second quarter of 2020. 

The volume of credit card dollars processed during the second quarter of 2021 increased by 55% compared to the same time period in 2020.

Both credit card transactions processed and dollars processed were the highest in our history. 

The continued growth in credit card metrics was primarily attributable to our PayFac growth initiatives driving increased penetration across multiple industries including healthcare and legal. 

ACH (eCheck) transaction counts during the second quarter of 2021 increased by 155% compared to the second quarter of 2020.

Returned check transactions processed during the second quarter of 2021 increased by 133% compared to the second quarter of 2020. 

Electronic check dollars processed during the second quarter of 2021 increased by 133% compared to the second quarter of 2020.

The increases in eCheck transactions, returned check transactions and electronic check dollar volumes processed were primarily attributable to higher activity levels primarily in the cryptocurrency and FinTech lending industries. 

Prepaid card load volumes processed during the second quarter of 2021 increased by 65% compared to the second quarter of 2020.

Prepaid card transaction counts processed during the second quarter of 2021 increased by 63% compared to the second quarter of 2020.

These increases occurred primarily due to the continued associations with many government assistance programs including organizations such as Greater Washington Community Foundation (Washington DC Program), United Way of Central and Northeastern Connecticut, Mayor's Fund for Los Angeles, New York Immigration Coalition, One Fair Wage, Inc., Dorcas International of Rhode Island, National Domestic Workers Alliance, Alliance for Open Society International (City of Baltimore) and Compton Community Development Corporation (Compton Pledge Guaranteed Income Program).

Total dollar volumes processed for the second quarter of 2021 were $2.730 billion compared to $694 million processed in the second quarter of 2020.

Critical Accounting Policies

Our management’s discussion and analysis of our financial condition and results of operations is based upon our interim condensed consolidated financial statements, which have been prepared in accordance with U.S.

generally accepted accounting principles.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues 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, and 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 the accounting policies described in Note 1 to the Notes to the Interim Condensed Consolidated Financial Statements 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 highly uncertain matters or 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.

Results of Operations

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 the program management and processing of prepaid debit cards.  With the acquisition of the assets of IMS in December 2020, we now offer additional services relating to electronic bill presentment, document composition, document decomposition and printing and mailing services through our Output Solutions entity.

Three Months Ended June 30,

ACH and complementary service revenue

Credit card revenue

Prepaid card services revenue

Output solutions revenue

Total Revenue

Six Months Ended June 30,

ACH and complementary service revenue

Credit card revenue

Prepaid card services revenue

Output solutions revenue

Total Revenue

Revenues for the quarter ended June 30, 2021 increased by 118.8% to $15.2 million, as compared to $7.0 million for the quarter ended June 30, 2020.

Excluding the impact of the Output Solutions revenues, the organic growth was 67% versus the same period last year.

The revenue increases were across all business lines including incremental revenues from our Output Solutions plus double-digit gains in our other business lines as referenced above. 

During the second quarter we saw a continued rebound in our ACH and complementary service category from strong transaction growth in our cryptocurrency and FinTech lending businesses. 

For the six months ended June 30, 2021, revenues increased by 94.8% to $28.7 million, as compared to $14.7 million for the six months ended June 30, 2020.

Excluding the impact of the Output Solutions revenues, the organic growth was 45% versus the same period last year.

The revenue increases were across all business lines including incremental revenues from our Output Solutions plus double-digit gains in our other business lines as referenced above.  

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 or 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 $5.4 million, or 96% to $11.1 million for the quarter ended June 30, 2021, as compared to $5.7 million for the same period in the prior year.

Cost of services increased by $10.1 million, or 88% to $21.7 million for the six months ended June 30, 2020, as compared to $11.5 million for the same period in the prior year.

The increases in the quarter and six-month period ended June 30, 2020, as compared to the same period in the prior year, were primarily due to the increased costs associated with higher revenues plus incremental costs associated with the Output Solutions business.

Gross profit is the net profit existing after the cost of services.

Gross profits increased by 221% to $4.1 million for the quarter ended June 30, 2021, as compared to $1.3 million for the same period in the prior year.

Gross profits for the six months ended June 30, 2020 increased by 119% to $7.0 million as compared to $3.2 million for the same period in the prior year. 

The increase in gross profit for the quarter and six months ended June 30, 2021, as compared to the same period in the prior year, was primarily a result of incremental profits from our existing business lines plus the incremental profits of our Output Solutions business.  The gross margin percentage was 27.1% for the quarter ended June 30, 2021 as compared to 

in the prior year period. 

The gross margin percentage was 24.5% for the six months ended  June 30, 2021 as compared to 

21.8% in the prior year period.

The increase in gross margin percentage in the quarter and six months ended June 30, 2021, as compared to the same periods in the prior year, are attributable to product mix shifts to higher profit transactions.

Stock-based Compensation

Stock-based compensation expenses were $317,285 for the quarter ended June 30, 2021 as compared to $348,393 for the quarter ended June 30, 2020 

and $317,285 for the six months ended June 30, 2021 as compared to $348,393 for the quarter ended June 30, 2020, both relatively unchanged versus the prior year periods.

Other Selling, General and Administrative Expenses

Other selling, general and administrative expenses (SG&A) were $2.8 million for the quarter ended June 30, 2021 as compared to $1.9 million in the prior year, a 53% increase versus the prior year period. 

Other SG&A expenses for the six months ended June 30, 2021 increased to $5.5 million from $4.0 million, a 38% increase. 

The increase in other SG&A for the quarter and six months ended June 30, 2021 reflects the incremental costs associated with our Output Solutions business and our continued investment in our prepaid and PayFac growth initiatives.  

Depreciation and Amortization  

Depreciation and amortization totaled $0.6 million and $0.4 million for the quarters ended June 30, 2021 and June 30, 2020, respectively and $1.2 million and $0.8 million for the six month ended June 30, 2021 and June 30, 2020, respectively. 

The incremental expense was primarily associated with the amortization of the IMS customer list asset.

Other Income (Expense)

Other income and expense, net was $685 for the quarter ended June 30, 2021 compared to other income of $1,525 for the quarter ended June 30, 2020. 

For the six months ended June 30, 2021 and June 30, 2020, respectively, other income and expense, net was $3,152 and $13,369, respectively. 

Lower interest-bearing merchant reserves and lower interest rates drove the lower interest income and reflects interest expense associated with our equipment loan.

Net Income (Loss)

We reported net income of $0.2 million for the quarter ended June 30, 2021, as compared to a net loss of $1.3 million for the same period in the prior year.  We reported a net loss of $0.5 million for the period ended June 30, 2021 compared to a net loss of $2.1 million for the same period in the prior year. 

The net income improvement in the current quarter and the six month periods was attributable to increases in revenues and profits of the entity.

We may incur future operating losses.

To maintain, grow and sustain 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.

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 the organization allowing expansion of our payment processing and mail and printing capabilities without significantly increasing our operating costs.

Liquidity and Capital Resources

At June 30, 2021, we had $5.6 million of cash and cash equivalents, as compared to $5.0 million of cash and cash equivalents at December 31, 2020.

On July 1, 2020, Topline Capital Partners, LP purchased 1,796,407 unregistered shares of common stock at an offering price of $1.67 per share in a private offering.

The gross proceeds to us from the private offering were $3.0 million.

On September 25, 2020, we entered into a placement agency agreement with Ladenburg Thalmann & Company Inc.

for the issuance and sale of an aggregate of 4,705,883 shares of common stock at an offering price of $1.70 per share in a public offering.

We agreed to pay Ladenburg a cash fee of equal to $0.12325 per share of common stock sold in the offering as well as legal fees and expenses of up to $100,000.

The net proceeds to the Company from the public offering were $7.4 million, after deducting the offering expenses and fees payable by the Company.

We reported a net income of $0.2 million for the quarter ended June 30, 2021 and a net loss of $0.5 million for the six months ended June 30, 2021.

At June 30, 2021, we had an accumulated deficit of $65.6 million.

Additionally, we had working capital of $6.3 million and $5.6 million at June 30, 2021 and December 31, 2020, respectively.

Net cash provided by operating activities, including merchant reserve funds, prepaid card load assets, customer deposits and net operating lease assets was $2.6 million and $16.4 million for the six months ended June 30, 2021 and June 30, 2020, respectively.

Excluding merchant reserves, prepaid card load assets, customer deposits and lease right-of-use assets and liabilities, our cash provided by operating activities was $1.1 million and cash used by operating activities was $0.7 million for the six months ended June 30, 2021 and June 30, 2020, respectively.

We continue to invest resources and infrastructure in our business to achieve scale across all business lines.

Net cash used by investing activities was $533,854 and $334,688 for the six months ended June 30, 2021 and June 30, 2020, 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.

Net cash provided from financing activities for the six months ended June 30, 2021 and June 30, 2020 was $73,511 and $731,052, respectively. 

The 2021 cash provided from financing activities was primarily a result of proceeds from our equipment loan. 

The 2020 net funds provided from financing activities was the proceeds of our PPP loan.

Material Trends and Uncertainties

The ongoing COVID-19 pandemic has had a notable impact on general economic conditions, including but not limited to the temporary closures of many businesses, “shelter in place”

and other governmental regulations, reduced consumer spending due to both job losses and other effects attributable to the COVID-19 pandemic.

There remain many uncertainties as a result of the pandemic.  As a result of the spread of COVID-19, economic uncertainties could continue to impact our operations.

Any potential incremental financial impact is unknown at this time.

At this time, certain states are considering reinstatement of select mandated operating restrictions and continued efforts are underway to provide vaccinations to as many people as possible.

During 2020 and 2021, the government issued several rounds of COVID-19 relief and stimulus payments and other programs to stimulate economic activity and facilitate an economic recovery.  

In April and May 2020, our business was initially adversely affected as doctor's offices, dental offices, veterinarian offices and non-bank consumer lending accounts were ordered closed in connection with curbing the spread of the pandemic. 

 As these doctors, dental and veterinarian offices re-opened, these businesses quickly recovered and returned to levels higher than pre-COVID. 

 Consumer lending merchants were adversely affected by COVID relief payments made during the pandemic and a pause placed on past due amounts owed. 

 The level of activity for consumer lending merchants has somewhat returned to pre-COVID levels. 

We received an increase in revenues in our prepaid business line, as we were able to work in conjunction with major cities across the U.S.

to use our prepaid debit cards to facilitate the transfer of money via our debit cards from city foundations to the local residents in need of financial assistance. 

The efforts have included the disbursement of funds to encourage vaccinations. 

The impacts and recovery from the COVID-19 pandemic are still a work in process. 

To date, we have not been adversely impacted in the magnitude that other payment processors were, as our customer base had limited exposure to retail facing businesses. 

 Within that framework, we will continue to monitor the overall impact on our operations and take necessary steps to ensure the safety of our employees and the well-being of our customers.

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.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements