Usio, Inc. 10-Q

Item 1. Financial Statements.   USIO, INC. CONDENSED CONSOLIDATED BALANCE SHEETS       September 30, 2021     December 31, 2020       (Unaudited)           Assets                 Current assets:                 Cash and cash equivalents   $ 5,939,834     $ 5,011,132   Accounts receivable, net     4,187,253       2,863,638   Settlement processing assets     36,492,916       43,558,442   Prepaid card load assets     15,084,868       7,610,242   Customer deposits     1,505,324       1,305,296   Inventory     221,675       176,466   Prepaid expenses and other     247,046       301,755   Current assets before merchant reserves     63,678,916       60,826,971   Merchant reserves     7,261,153       8,265,555   Total current assets     70,940,069       69,092,526                     Property and equipment, net     3,625,050       3,105,926                     Other assets:                 Intangibles, net     4,631,861       6,035,761   Deferred tax asset, net     1,394,000       1,394,000   Operating lease right-of-use assets     2,921,129       2,671,266   Other assets     345,078       368,078   Total other assets     9,292,068       10,469,105                     Total assets   $ 83,857,187     $ 82,667,557                     Liabilities and stockholders’ equity                 Current liabilities:                 Accounts payable   $ 1,334,579     $ 851,349   Accrued expenses     1,746,226       1,463,944   Operating lease liabilities, current portion     494,983       346,913   Equipment loan, current portion     54,217       —   Settlement processing obligations     36,492,916       43,558,442   Prepaid card load obligations     15,084,868       7,610,242   Customer deposits     1,505,324       1,305,296   Deferred revenues     30,882       66,572   Current liabilities before merchant reserve obligations     56,743,995       55,202,758   Merchant reserve obligations     7,261,153       8,265,555   Total current liabilities     64,005,148       63,468,313                     Non-current liabilities:                 Equipment loan, non-current portion     85,333       —   Operating lease liabilities, non-current portion     2,606,709       2,495,883   Total liabilities     66,697,190       65,964,196                     Stockholders’ equity:                 Preferred stock, $0.01 par value, 10,000,000 shares authorized; - 0 - shares outstanding at September 30, 2021 (unaudited) and December 31, 2020, respectively     —       —   Common stock, $0.001 par value, 200,000,000 shares authorized; 26,289,288 and 26,260,776 issued, and 24,962,750 and 24,974,995 outstanding at September 30, 2021 (unaudited) and December 31, 2020, respectively     194,746       194,692   Additional paid-in capital     89,702,612       89,659,433   Treasury stock, at cost; 1,326,538 and 1,285,781 shares at September 30, 2021 (unaudited) and December 31, 2020, respectively     ( 2,364,071 )     ( 2,165,721 ) Deferred compensation     ( 4,954,584 )     ( 5,926,872 ) Accumulated deficit     ( 65,418,706 )     ( 65,058,171 ) Total stockholders’ equity     17,159,997       16,703,361                     Total liabilities and stockholders’ equity   $ 83,857,187     $ 82,667,557       See the accompanying notes to the condensed interim consolidated financial statements.   1 Table of Contents     USIO, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)       Three Months Ended September 30,     Nine Months Ended September 30,       2021     2020     2021     2020                                     Revenues   $ 15,821,070     $ 8,137,077     $ 44,515,761     $ 22,869,309   Cost of services     11,787,439       6,414,807       33,447,448       17,933,089   Gross profit     4,033,631       1,722,270       11,068,313       4,936,220                                     Selling, general and administrative:                                 Stock-based compensation     343,567       267,223       988,567       903,326   Other SG&A expenses     2,844,205       1,976,191       8,349,452       5,955,221   Depreciation and amortization     634,912       390,216       1,884,268       1,160,255   Total selling, general and administrative expenses     3,822,684       2,633,630       11,222,287       8,018,802                                     Operating income (loss)     210,947       ( 911,360 )     ( 153,974 )     ( 3,082,582 )                                   Other income and (expense):                                 Interest income     1,767       10,157       6,403       22,800   Other income (expense)     ( 1,480 )     186       ( 2,964 )     912   Other income and (expense), net     287       10,343       3,439       23,712                                     Income (loss) before income taxes     211,234       ( 901,017 )     ( 150,535 )     ( 3,058,870 ) Income tax expense     70,000       35,000       210,000       325                                     Net income (loss)   $ 141,234     $ ( 936,017 )   $ ( 360,535 )   $ ( 3,059,195 )                                   Basic income (loss) per common share:   $ 0.01     $ ( 0.06 )   $ ( 0.02 )   $ ( 0.22 ) Diluted income (loss) per common share:   $ 0.01     $ ( 0.06 )   $ ( 0.02 )   $ ( 0.22 ) Weighted average common shares outstanding                                 Basic     20,033,515       15,474,171       19,986,279       13,924,803   Diluted     24,935,517       15,474,171       19,986,279       13,924,803     See the accompanying notes to the condensed interim consolidated financial statements.      2 Table of Contents     USIO, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)       Nine Months Ended September 30,       2021     2020   Operating activities:                 Net (loss)   $ ( 360,535 )   $ ( 3,059,195 ) Adjustments to reconcile net (loss) to net cash provided by operating activities:                 Depreciation     480,368       410,254   Amortization     1,403,900       750,001   Bad debt     87,190       —   Non-cash stock-based compensation     988,567       903,326   Amortization of warrant costs     26,955       26,958   Changes in current assets and current liabilities:                 Accounts receivable     ( 1,410,805 )     54,631   Prepaid expenses and other     54,709       ( 1,534 ) Operating lease right-of-use assets     ( 249,863 )     172,166   Other assets     23,000       ( 18,363 ) Inventory     ( 45,209 )     —   Accounts payable and accrued expenses     765,512       ( 71,309 ) Operating lease liabilities     258,896       ( 168,458 ) Prepaid card load obligations     7,474,626       7,378,146   Merchant reserves     ( 1,004,402 )     ( 1,782,500 ) Customer deposits     200,028       —   Deferred revenue     ( 35,690 )     ( 39,705 ) Net cash provided by operating activities     8,657,247       4,554,418                     Investing activities:                 Purchases of property and equipment     ( 999,493 )     ( 582,347 ) Net cash (used) by investing activities     ( 999,493 )     ( 582,347 )                   Financing activities:                 Proceeds from PPP Loan Program     —       813,500   Proceeds from public offering, net of expenses     —       7,257,925   Proceeds from private offering     —       3,000,000   Proceeds from equipment loan     165,996       —   Payments on equipment loan     ( 26,446 )     —   Purchases of treasury stock     ( 198,350 )     ( 180,311 ) Net cash (used) provided by financing activities     ( 58,800 )     10,891,114                     Change in cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves     7,598,954       14,863,185   Cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves, beginning of period     22,192,225       12,682,918                     Cash, Cash Equivalents, Prepaid Card Load Assets, Customer Deposits and Merchant Reserves, End of Period   $ 29,791,179     $ 27,546,103                     Supplemental disclosure of cash flow information:                 Cash paid during the period for:                 Interest   $ 2,964     $ —   Income taxes     92,850       93,525   Non-cash transactions:                 Issuance of deferred stock compensation     —       1,559,520     See accompanying notes to the condensed interim consolidated financial statements.   3 Table of Contents     USIO, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)       Common Stock     Additional Paid- In     Treasury     Deferred     Accumulated     Total Stockholders'       Shares     Amount     Capital     Stock     Compensation     Deficit     Equity                                                             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       51       120,484       —       —       —       120,535   Warrant compensation costs     —       —       8,985       —       —       —       8,985   Cashless warrant exercise     19,795       19       ( 19 )     —       —       —       —   Reversal of deferred compensation amortization that did not vest     ( 17,111 )     ( 17 )     ( 48,599 )     —       5,994       —       ( 42,622 ) Deferred compensation amortization     —       —       —       —       249,801       —       249,801   Purchase of treasury stock costs     —       —       —       ( 49,454 )     —       —       ( 49,454 ) Net (loss) for the period     —       —       —       —       —       ( 720,252 )     ( 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       61       150,481       —       —       —       150,542   Warrant compensation costs     —       —       8,985       —       —       —       8,985   Reversal of deferred compensation amortization that did not vest     ( 115,000 )     ( 115 )     ( 237,085 )     —       158,096       —       ( 79,104 ) Deferred compensation amortization     —       —       —       —       245,847       —       245,847   Purchase of treasury stock costs     —       —       —       ( 29,810 )     —       —       ( 29,810 ) Net income for the period     —       —       —       —       —       218,483       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                                                             Issuance of common stock under equity incentive plan     49,322       76       108,146       —       20,785       —       129,007   Warrant compensation costs     —       —       8,985       —       —       —       8,985   Cashless warrant exercise     19,950       20       ( 20 )     —       —       —       —   Reversal of deferred compensation amortization that did not vest     ( 41,000 )     ( 41 )     ( 77,164 )     —       52,434       —       ( 24,771 ) Deferred compensation amortization     —       —       —       —       239,331       —       239,331   Purchase of treasury stock costs     —       —       —       ( 119,086 )     —       —       ( 119,086 ) Net income for the period     —       —       —       —       —       141,234       141,234                                                             Balance at September 30, 2021     26,289,288     $ 194,746     $ 89,702,612     $ ( 2,364,071 )   $ ( 4,954,584 )   $ ( 65,418,706 )   $ 17,159,997                                                             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       51       59,440       —       —       —       59,491   Warrant compensation costs     —       —       8,985       —       —       —       8,985   Deferred compensation amortization     —       —       —       —       228,219       —       228,219   Purchase of treasury stock costs     —       —       —       ( 26,629 )     —       —       ( 26,629 ) Net (loss) for the period     —       —       —       —       —       ( 835,009 )     ( 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       1,500       1,641,304       —       ( 1,559,520 )     —       83,284   Warrant compensation cost     —       —       8,988       —       —       —       8,988   Deferred compensation amortization     —       —       —       —       267,207       —       267,207   Purchase of treasury stock     —       —       —       ( 55,819 )     —       —       ( 55,819 ) Net (loss) for the period     —       —       —       —       —       ( 1,288,169 )     ( 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                                                             Issuance of common stock under equity incentive plan     32,323       32       149,961       —       —       —       149,993   Warrant compensation cost     —       —       8,985       —       —       —       8,985   Cashless warrant exercise     27,051       27       ( 27 )     —       —       —       —   Reversal of deferred compensation amortization that did not vest     ( 450,000 )     ( 450 )     ( 791,550 )     —       594,900       —       ( 197,100 ) Issuance of common stock, public offering     4,705,883       4,705       7,253,220       —       —       —       7,257,925   Issuance of common stock, private offering     1,796,407       1,797       2,998,203       —       —       —       3,000,000   Deferred compensation amortization     —       —       —       —       312,232       —       312,232   Purchase of treasury stock     —       —       —       ( 97,863 )     —       —       ( 97,863 ) Net (loss) for the period     —       —       —       —       —       ( 936,017 )     ( 936,017 )                                                           Balance at September 30, 2020     25,887,785     $ 194,318     $ 88,392,782     $ ( 2,065,763 )   $ ( 5,793,116 )   $ ( 65,211,183 )   $ 15,517,038     The accompanying notes are an integral part of these consolidated financial statements.   4 Table of Contents   USIO, INC. 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 (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. 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.   Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 and bill preparation, presentment and mailing 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.  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 revenues by source:       Three Months Ended September 30,     Nine Months Ended September 30,       2021     2020     2021     2020                                     ACH and complementary service revenue   $ 3,733,453     $ 2,063,458     $ 10,813,806     $ 6,080,449   Credit card revenue     6,509,344       5,076,591       18,791,129       14,647,448   Prepaid card services revenue     2,004,657       997,028       3,968,764       2,141,412   Output solutions revenue     3,573,616       —       10,942,062       —   Total revenue   $ 15,821,070     $ 8,137,077     $ 44,515,761     $ 22,869,309     Deferred Revenues: The Company records deferred revenues when it receives payments in advance of transferring control of promised goods or services to a customer. The advance consideration received from a customer is deferred until the Company provides the customer that product or service. The deferred revenues totaled $ 30,882  and $ 66,572  at September 30, 2021 and December 31, 2020 , respectively.   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.   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.  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 ("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. 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 its fiduciary standing with the Company's member sponsors and is in accordance with the guidelines set by the card networks.   5 Table of Contents   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.   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:       Nine Months Ended September 30,       2021     2020                     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   Total   $ 22,192,225     $ 12,682,918                     Ending cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves:                 Cash and cash equivalents   $ 5,939,834     $ 11,405,119   Prepaid card load assets     15,084,868       7,906,580   Customer deposits     1,505,324       —   Merchant reserves     7,261,153       8,234,404   Total   $ 29,791,179     $ 27,546,103     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 $ 261,500  and $ 205,522  at September 30, 2021 and December 31, 2020 , respectively.   Inventory : Inventory is stated at the lower of cost or net realizable value. At September 30, 2021  and December 31, 2020, 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. In the nine  months ended September 30, 2021 and September 30, 2020 , the Company capitalized $ 561,177  and $ 492,294 , 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 under performance 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 2020  or during the  nine months ended September 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.   6 Table of Contents   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. 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 September 30, 2021 and December 31, 2020 , the Company’s reserve for processing losses was $ 608,149  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.  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.   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. Acquisition of Information Management Solutions, LLC.   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 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:       Estimated Fair     Estimated Useful       Value     Life (in years)                     Accounts receivable   $ 683,736           Inventory     168,138           Fixed assets     1,211,225       5   Prepaid expenses     29,849           Other assets     7,408           Customer list     3,807,052       5   Total Cash Consideration   $ 5,907,408                             Customer list   $ 552,283           Total Warrant Consideration   $ 552,283                             Total Purchase Price   $ 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.   7 Table of Contents     Note 3.   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 quarters ended September 30, 2021  and 2020 , operating lease expenses totaled $ 117,689  and $ 58,039 , respectively.  For the nine months ended September 31, 2021  and 2020 , operating lease expenses totaled $ 338,355  and $ 186,731 , respectively.     Operating lease liabilities as of September 30, 2021 will require the following payments:   2021 (excluding the nine months ended September 30, 2021)   $ 154,018   2022     621,802   2023     554,916   2024     518,935   2025     414,138   Thereafter     1,331,219   Total minimum lease payments     3,595,028   Less imputed interest     ( 493,336 ) Total lease liabilities   $ 3,101,692       Note 4. Accrued Expenses   Accrued expenses consisted of the following balances:       September 30, 2021     December 31, 2020                     Accrued commissions   $ 699,942     $ 373,154   Reserve for merchant losses     608,149       515,199   Other accrued expenses     80,935       225,412   Accrued taxes     270,136       132,363   Accrued salaries     87,064       217,816   Total accrued expenses   $ 1,746,226     $ 1,463,944         Note 5. 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. The repayment amount is for 36  months at $ 4,902 per month. Annual payments are $ 58,821 . The financing is at an interest rate of 3.95 %.  Current year payments on the Equipment Loan were $ 26,446 .     Note 6. Stockholders' Equity   Stock Warrants : On August 21, 2018, the Company issued University FanCards, LLC a warrant to purchase 150,000 shares of the Company's common stock. 30,000 warrants vested immediately upon the date on which the first financial transaction was processed on a card account issued under the prepaid agreement, which occurred on October 5, 2018. 120,000 warrants vest annually over 4 years in 30,000 warrant increments beginning on July 31, 2019 and becoming fully vested on July 31, 2022. The exercise price for the 30,000 warrants that vested immediately on October 5, 2018 was $ 1.80 per share. The exercise price for the remaining 120,000 warrants will be 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. 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 for the 30,000 warrants and $ 0.90 for the 120,000 warrants; (ii) the risk-free interest rate is 2.77%; (iii) the contractual life is 5 years; (iv) the dividend yield is 0%; and (v) the volatility is 64.6 %. 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 nine months ended September 30, 2021 and 2020 was $ 26,955 .   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 September 1, 2021, the Company issued 19,950  shares of common stock to University FanCards, LLC in a cashless exercise at $ 5.97 per common share in exchange for 30,000 warrants exercised by FanCards, LLC.   8 Table of Contents   On December  15, 2020, the Company issued to Information Management Solutions, LLC warrants to purchase 945,599 unregistered 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. Assumptions used were as follows: (i) the fair value of the underlying stock was $0.58; (ii) the risk-free interest rate is 0.09%; (iii) the contractual life is 5 years; (iv) the dividend yield of 0%; 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. 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.     Note 7. 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 income (loss) for the  three and nine months ended September 30, 2021 and September 30, 2020 .       Three Months Ended September 30,     Nine Months Ended September 30,       2021     2020     2021     2020   Numerator:                                 Numerator for basic and diluted income (loss) per share, net income (loss) available to common shareholders   $ 141,234     $ ( 936,017 )   $ ( 360,535 )   $ ( 3,059,195 ) Denominator:                                 Denominator for basic (loss) per share, weighted average shares outstanding     20,033,515       15,474,171       19,986,279       13,924,803   Effect of dilutive securities     4,902,002       —       —       —   Denominator for diluted earnings per share, adjust weighted average shares and assumed conversion     24,935,517       15,474,171       19,986,279       13,924,803   Basic income (loss) per common share   $ 0.01     $ ( 0.06 )   $ ( 0.02 )   $ ( 0.22 ) Diluted income (loss) per common share and common share equivalent   $ 0.01     $ ( 0.06 )   $ ( 0.02 )   $ ( 0.22 )   The awards and options to purchase shares of common stock that were outstanding at September 30, 2021 and September 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:       Nine Months Ended September 30,       2021     2020   Anti-dilutive awards and options     4,902,002       5,467,780     9 Table of Contents     Note 8. 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. U.S. 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. 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. 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.     Note 9. Related Party Transactions   Louis Hoch   During the nine months ended September 30, 2021 and the year ended December 31, 2020 , the Company purchased a total of $ 3,957  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   On January 6, 2021, the Company repurchased 11,860 shares of common stock at a closing price of $ 3.25 per share from Tom Jewell, the Company's Chief Financial Officer to cover taxes due.   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.   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).   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.     Note 10. COVID- 19   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 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 Company has recently experienced some difficulty in recruiting and retaining certain categories of employees due to limited resource availability.  The Company continues to monitor resource availability and is taking necessary steps to retain employees and recruit employees to fill open positions.   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.     10 Table of Contents       Note 11. Subsequent Events   On October 19, 2021, the Company entered into a lease amendment to the existing lease in San Antonio, Texas commencing on December 1, 2021 and expiring on September 24, 2024 running concurrently with the existing lease.  The incremental space lease is 6,628 square feet.   The incremental annual rent during the lease term ranges from $ 135,874 to $ 145,816 .     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 "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.   Name Change   Effective on June 26, 2019, we changed our corporate name from Payment Data Systems, Inc. to Usio, Inc.   Overview   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 third quarter of 2021, the amount of credit card transactions processed increased by 76% versus the third quarter of 2020.  The volume of credit card dollars processed during the third quarter of 2021 increased by 43% 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 third quarter of 2021 increased by 86% compared to the third quarter of 2020. Returned check transactions processed during the third quarter of 2021 increased by 100% compared to the third quarter of 2020.  Electronic check dollars processed during the third quarter of 2021 increased by 100% compared to the third 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 third quarter of 2021 increased by 2% compared to the third quarter of 2020. Prepaid card transaction counts processed during the third quarter of 2021 increased by 115% compared to the third quarter of 2020. Prepaid card purchase volume during the third quarter of 2021 increased by 18% compared to the third quarter of 2020. These increases occurred primarily due to the continued associations with many government assistance programs including organizations such as New York City Economic Development Corporation, City of Houston, Harris County, TX, Open Society International (City of Baltimore), and Greater Washington Community Foundation (Washington DC) with their vaccine incentive and cash disbursement programs.  We also continue to support numerous guaranteed income programs including the Arlington Community Foundation, E.A.T (Equity and Transformation) Chicago, and Hudson UP, the City of Denver's Basic Income Project.   Total dollar volumes processed for the third quarter of 2021 were $2.1 billion compared to $852 million processed in the third 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.   11 Table of Contents   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 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 September 30,       2021     2020     $ Change     % Change                                     ACH and complementary service revenue   $ 3,733,453     $ 2,063,458     $ 1,669,995       80.9 % Credit card revenue     6,509,344       5,076,591       1,432,753       28.2 % Prepaid card services revenue     2,004,657       997,028       1,007,629       101.1 % Output solutions revenue     3,573,616       —       3,573,616       100.0 % Total Revenue   $ 15,821,070     $ 8,137,077     $ 7,683,993       94.4 %       Nine Months Ended September 30,       2021     2020     $ Change     % Change                                     ACH and complementary service revenue   $ 10,813,806     $ 6,080,449     $ 4,733,357       77.8 % Credit card revenue     18,791,129       14,647,448       4,143,681       28.3 % Prepaid card services revenue     3,968,764       2,141,412       1,827,352       85.3 % Output solutions revenue     10,942,062       —       10,942,062       100.0 % Total Revenue   $ 44,515,761     $ 22,869,309     $ 21,646,452       94.7 %   Revenues for the quarter ended September 30, 2021 increased by 94.4% to $15.8 million, as compared to $8.1 million for the quarter ended September 30, 2020. Excluding the impact of the Output Solutions revenues, the organic growth was 51% 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 third quarter we saw continued growth in our ACH and complementary service category from strong transaction growth in our cryptocurrency and FinTech lending businesses.    For the nine months ended September 30, 2021, revenues increased by 95% to $44.5 million, as compared to $22.9 million for the nine months ended September 30, 2020. Excluding the impact of the Output Solutions revenues, the organic growth was 47% 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 84% to $11.8 million for the quarter ended September 30, 2021, as compared to $6.4 million for the same period in the prior year. Cost of services increased by $15.5 million, or 87% to $33.4 million for the nine months ended September 30, 2021, as compared to $17.9 million for the same period in the prior year. The increases in the quarter and nine-month period ended September 30, 2021, 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   Gross profit is the net profit existing after the cost of services.   Gross profits increased by 134% to $4.0 million for the quarter ended September 30, 2021, as compared to $1.7 million for the same period in the prior year. Gross profits for the nine months ended September 30, 2021 increased by 124% to $11.1 million as compared to $4.9 million for the same period in the prior year.  The increase in gross profit for the quarter and nine months ended September 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 25.5% for the quarter ended September 30, 2021 as compared to  21.2%  in the prior year period.  The gross margin percentage was 24.9% for the nine months ended  September 30, 2021 as compared to  21.6% in the prior year period. The increase in gross margin percentage in the quarter and nine months ended September 30, 2021, as compared to the same periods in the prior year, are attributable to product mix shifts to higher profit transactions plus overall margin improvements.   Stock-based Compensation   Stock-based compensation expenses were $343,567 for the quarter ended September 30, 2021 as compared to $267,223 for the quarter ended September 30, 2020, an increase of 28.6%.  The prior year period was lower than normal due the reversal of stock compensation expense due to stock cancellations.  Stock compensation expense for the nine months ended September 30, 2021 was $988,567 as compared to $903,326 for the nine months ended September 30, 2020, an increase of 9.4%.   12 Table of Contents   Other Selling, General and Administrative Expenses   Other selling, general and administrative expenses (other SG&A) were $2.8 million for the quarter ended September 30, 2021 as compared to $2.0 million in the prior year, a 44% increase versus the prior year period.  Other SG&A expenses for the nine months ended September 30, 2021 increased to $8.3 million from $6.0 million, a 40% increase.  The increase in other SG&A for the quarter and nine months ended September 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 September 30, 2021 and September 30, 2020, respectively and $1.9 million and $1.2 million for the nine months ended September 30, 2021 and September 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 $287 for the quarter ended September 30, 2021 compared to other income of $10,343 for the quarter ended September 30, 2020.  For the nine months ended September 30, 2021 and September 30, 2020, respectively, other income and expense, net was $3,439 and $23,712, 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 $0.1 million for the quarter ended September 30, 2021, as compared to a net loss of $0.9 million for the same period in the prior year.  We reported a net loss of $0.4 million for the nine months ended September 30, 2021 compared to a net loss of $3.1 million for the same period in the prior year.  The net income improvement in the current quarter and the nine 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 September 30, 2021, we had $5.9 million of cash and cash equivalents, as compared to $5.0 million of cash and cash equivalents at December 31, 2020.   We received funding under the Paycheck Protection Program, or PPP, as part of the Coronas Aid, Relief and Economic Security Act, or CARES Act, administered by the U.S. Small Business Administration.  We received total proceeds of $813,500 bearing interest at a rate of 1% per annum with a maturity date of April 15, 2022.  We used the proceeds for payroll costs and other permitted expenses.  Under the terms of the PPP, the principal could be forgiven if the loan proceeds were used for qualifying expenses as described in the CARES act, such as for payroll costs, benefits, rents and utilities.  The Company's loan forgiveness was approved in full by the U.S. Small Business Administration on December 14, 2020 and was accounted for as income in 2020 under FASB ASC 470.    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 $0.1 million for the quarter ended September 30, 2021 and a net loss of $0.4 million for the nine months ended September 30, 2021. At September 30, 2021, we had an accumulated deficit of $65.4 million. Additionally, we had working capital of $6.9 million and $5.6 million at September 30, 2021 and December 31, 2020, respectively.   Cash Flows   Net cash provided by operating activities, including merchant reserve funds, prepaid card load assets, customer deposits and net operating lease assets was $8.7 million and $4.6 million for the nine months ended September 30, 2021 and September 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 $2.0 million and cash used by operating activities was $1.0 million for the nine months ended September 30, 2021 and September 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 $999,493 and $582,347 for the nine months ended September 30, 2021 and September 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.   13 Table of Contents   Net cash used by financing activities for the nine months ended September 30, 2021  was $58,800 and net cash provided by financing activities for the nine months ended September 30, 2020 was $10,891,114, respectively.  The 2021 cash used by financing activities was  net proceeds from our equipment loan offset by treasury stock transactions.  The 2020 net funds provided by financing activities was the net proceeds from our public and private stock offerings plus proceeds from our PPP loan.   Material Trends and Uncertainties   Please refer of our Covid-19 risks described in Note 10 to our financial statements.   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.