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Item 1. Financial Statements

2022-05-11 compared with 2021-11-10 · 152 added, 413 removed, 430 unchanged (57% of the section changed)

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2021

March 31, 2022

December 31, 2021

62 unchanged sentences

55,303  

54,760  

Settlement processing obligations

9 unchanged sentences

17,647  

66,572  

Current liabilities before merchant reserve obligations

10 unchanged sentences

57,403  

71,434  

Operating lease liabilities, non-current portion

6 unchanged sentences

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

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

- 0 - shares outstanding at March 31, 2022 (unaudited) and December 31, 2021, 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

26,868,745 and 26,807,145 issued, and 25,517,835 and 25,473,453 outstanding at March 31, 2022 (unaudited) and December 31, 2021, respectively

195,297  

4 unchanged sentences

Treasury stock, at cost;

1,326,538 and 1,285,781 shares at September 30, 2021 (unaudited) and December 31, 2020, respectively

1,350,910 and 1,333,692 shares at March 31, 2022 (unaudited) and December 31, 2021, respectively

( 2,470,952 )  

14 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Cost of services

4 unchanged sentences

Total selling, general and administrative expenses

Operating income (loss)

Operating (loss)

Other income and (expense):

Interest income

Other income (expense)

Interest expense

Other income and (expense), net

Income (loss) before income taxes

(Loss) before income taxes

Income tax expense

Net income (loss)

Basic income (loss) per common share:

Diluted income (loss) per common share:

Basic (loss) per common share:

Diluted (loss) per common share:

Weighted average common shares outstanding

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

Operating activities:

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

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

Non-cash stock-based compensation

10 unchanged sentences

Deferred revenue

Net cash provided by operating activities

Net cash provided (used) by operating activities

Investing activities:

2 unchanged sentences

Financing activities:

Proceeds from PPP Loan Program

Proceeds from public offering, net of expenses

Proceeds from private offering

Proceeds from equipment loan

14 unchanged sentences

Balance at December 31, 2021

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, 2022

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, 2020

Issuance of common stock under equity incentive plan

49,322  

108,146  

20,785  

129,007  

Warrant compensation costs

Cashless warrant exercise

19,950  

( 20 )  

Reversal of deferred compensation amortization that did not vest

( 41,000 )  

( 41 )  

( 77,164 )  

52,434  

Deferred compensation amortization

239,331  

Purchase of treasury stock costs

( 119,086 )  

Net income for the period

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  

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, 2021

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  

Issuance of common stock under equity incentive plan

32,323  

149,961  

149,993  

Warrant compensation cost

Cashless warrant exercise

27,051  

( 27 )  

Reversal of deferred compensation amortization that did not vest

( 450,000 )  

( 450 )  

( 791,550 )  

594,900  

Issuance of common stock, public offering

4,705,883  

7,253,220  

7,257,925  

Issuance of common stock, private offering

1,796,407  

2,998,203  

3,000,000  

Deferred compensation amortization

312,232  

Purchase of treasury stock

( 97,863 )  

Net (loss) for the period

( 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.

13 unchanged sentences

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.

Revenue consists primarily of fees generated through the electronic processing of payment transactions and related services. Revenue is recognized during the period in which the transactions are processed or when the related services are performed.

The Company complies with ASC 

606 - 10  and reports revenues at gross as a principal versus net as an agent.

Although some of the Company's processing agreements vary with respect to specific credit risks, the Company has determined for each agreement it is acting in the principal role.

Merchants may be charged for these processing services at a bundled rate based on a percentage of the dollar amount of each transaction and, in some instances, additional fees are charged for each transaction.

Certain merchant customers are charged a flat fee per transaction, while others may also be charged miscellaneous fees, including fees for chargebacks or returns, monthly minimums, and other miscellaneous services.

Revenues derived from electronic processing of credit, debit, and prepaid card transactions that are authorized and captured through third -party networks are reported gross of amounts paid to sponsor banks as well as interchange and assessments paid to credit card associations.

Certain card distributors remit payment of fees earned 45 days after the end of the processing period.

Prepaid card distributors have payment terms of 30 days following the end of the month.

Sales taxes billed are reported directly as a liability to the taxing authority and are not included in revenue. 

Merchants 

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 

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.

2 unchanged sentences

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

ACH and complementary service revenue

1 unchanged sentence

$ 3,078,456  

$ 10,813,806  

$ 6,080,449  

Credit card revenue

1 unchanged sentence

5,723,709  

18,791,129  

14,647,448  

Prepaid card services revenue

1 unchanged sentence

886,576  

3,968,764  

2,141,412  

Output solutions revenue

4 unchanged sentences

$ 13,461,550  

$ 44,515,761  

$ 22,869,309  

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 $ 30,882  and $ 66,572  at September 30, 2021 and December 31, 2020 , respectively.

The deferred revenues totaled $ 4,412  and $ 17,647  at March 31, 2022 and December 31, 2021 , respectively.

Cash and Cash Equivalents:

16 unchanged sentences

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,

Three Months Ended March 31,

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

7 unchanged sentences

1,364,193  

1,305,296  

Merchant reserves

12 unchanged sentences

1,391,465  

1,357,242  

Merchant reserves

9 unchanged sentences

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.

The allowance for estimated doubtful accounts was $ 319,000  at March 31, 2022 and December 31, 2021 .

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.

At March 31, 2022  and December 31, 2021, inventory consisted primarily of printing and paper supplies used for Output solutions.

Accounting for Internal Use Software:

2 unchanged sentences

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.

In the three  months ended March 31, 2022 and March 31, 2021 , the Company capitalized $ 136,864 and $ 187,914 , respectively.

Valuation of Long-Lived and Intangible Assets:

7 unchanged sentences

No impairment losses were recorded in 2021  or during the 

nine months ended September 30, 2021 .

three months ended March 31, 2022 .

Management is not aware of any impairment changes that may currently be required;

8 unchanged sentences

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.

At March 31, 2022 and December 31, 2021 , the Company’s reserve for processing losses was $ 656,494  and $ 623,494  respectively.

Legal Proceedings:

8 unchanged sentences

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.

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

Life (in years)

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

$ 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 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  

621,802  

554,916  

518,935  

414,138  

1,331,219  

Total minimum lease payments

3,595,028  

Less imputed interest

Total lease liabilities

$ 3,101,692  

For the quarters ended March 31, 2022  and 2021 , operating lease expenses totaled $ 120,151  and $ 104,131 , respectively.

Accrued Expenses

Accrued expenses consisted of the following balances:

September 30, 2021

March 31, 2022

December 31, 2021

Accrued commissions

$ 699,942  

$ 373,154  

Reserve for merchant losses

608,149  

515,199  

Reserve for processing losses

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  

Equipment Loan

4 unchanged sentences

The financing is at an interest rate of 3.95 %. 

Current year payments on the Equipment Loan were $ 26,446 .

Current period payments on the equipment loan were $ 13,488 .

Stockholders' Equity

13 unchanged sentences

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 .

The reduction of revenues recorded for the three months ended March 31, 2022 and 2021 was $ 8,985 .

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.

4 unchanged sentences

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

945,599 warrants vest annually over 3 years in three equal tranches beginning on December 15, 2021 

and becoming fully vested on December 15, 2023.

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

6 unchanged sentences

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 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.

Net (Loss) Per Share

Basic (loss) per share (EPS) was computed by dividing net (loss) by the weighted average number of shares of common stock outstanding during the period.

Diluted EPS differs from basic EPS due to the assumed conversion of potentially dilutive awards and options that were outstanding during the period.

The following is a reconciliation of the numerators and the denominators of the basic and diluted per share computations for net 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,

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 )

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, 2022 and March 31, 2021 .

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

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 )  

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

$ 0.01  

$ ( 0.06 )  

$ ( 0.02 )  

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,

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, 2022 and March 31, 2021 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,

Anti-dilutive awards and options

4,902,002  

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.

4 unchanged sentences

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 has recognized a net deferred tax asset of approximately $ 1.5 million and has recorded a valuation allowance of approximately $ 5.2  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.

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.

December 31, 2021 , the Company had available net operating loss carryforwards of approximately $ 29.5 million.

Net operating loss carryforwards prior to 2017 are available to offset taxable income of future periods and expire 20 years after the loss was generated. 

Net operating loss carryforwards totaling $ 10.7 million expired in 

The schedule below outlines when the Company's pre- 2017  net operating losses were generated and the year they 

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

2018  and later total $ 9,413,692 .

The below table outlines our net operating losses generated in 

2018  and after.

Total loss carryforwards

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 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.

During the three months ended March 31, 2022 and the year ended December 31, 2021 , the Company purchased a total of $ 19,929 and $ 4,009 , 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.

January 6, 2022 ,  the Company repurchased 

11,361  shares for $ 47,930  in a private transaction at the closing price on 

January 6, 2022 

of $ 4.21  per share from Tom Jewell, the Company's Chief Financial Officer, to cover his share of taxes.

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.

The Company granted 

319,900  shares of common stock with a 

10 -year vesting period and 

141,900  restricted stock units (RSUs) with a 

3 -year vesting period to employees and Directors as a performance bonus on 

November 18, 2021 

at an issue price of $ 6.39  per share.

Executive officers and Directors included in the 

10 -year grant were Louis Hoch ( 100,000  shares), Tom Jewell ( 50,000  shares), Greg Carter ( 30,000  shares) and Houston Frost ( 25,000  shares).

Executive officers and Directors included in the RSU grant were Louis Hoch ( 30,000  shares), Tom Jewell ( 21,000  shares), Greg Carter ( 9,000  shares) Houston Frost ( 6,000  shares), Blaise Bender ( 12,000  RSUs), Brad Rollins ( 12,000  RSUs) and Ernesto Beyer ( 12,000  RSUs).

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.

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, 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. 

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.  

2020,  the Company's 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 level of activity for consumer lending merchants continues to recover to pre-COVID levels. 

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

to use its prepaid debit cards to facilitate the transfer of money via its 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.

The Company has recently experienced some difficulty in recruiting and retaining certain categories of employees due to limited labor availability. 

The Company continues to monitor labor availability and is taking necessary steps to retain employees and recruit employees to fill open positions.

Due to the COVID- 19  pandemic and global economic challenges, supply chain issues have resulted in a reduced supply, and growing demand of paper and paper products utilized in our Output Solutions line of business. Sourcing inventory remains a key challenge to execute jobs and projects with existing and new customers.

If the Company cannot continue to acquire sufficient inventory stock, the successful completion, margins, and growth of Output Solutions 

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

To date, the Company has 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, 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.

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 .

October 19, 2021 ,  the Company entered into a lease amendment to the existing lease in San Antonio, Texas commencing on April 1, 2022 

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 .

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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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 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.

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

We offer customizable prepaid cards companies use for expense management, incentives, refunds, claims and disbursements, unique forms of compensation like per diems, government disbursements, and more.

We also offer prepaid cards to consumers for use as a tool to stay on budget, manage allowances and share money with family and friends.

UsioCard platform supports Apple Pay®, Samsung Pay™

and Google Pay™.

Our PIN-less debit product allows merchants to debit and credit accounts in real-time.

In our over 20-year history, we have created a loyal customer base that relies on us for our convenient, secure, innovative and adaptive services and technology, and we have built long-standing and valuable relationships with premier banking institutions such as Fifth-Third Bank, Sunrise Bank, and Wells Fargo Bank.

During the first quarter of 2022, the amount of credit card transactions processed increased by 48% versus the first quarter of 2021. 

The volume of credit card dollars processed during the first quarter of 2022 increased by 21% compared to the same time period in 2021.

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.

ACH (eCheck) transaction counts during the first quarter of 2022 increased by 21% compared to the first quarter of 2021.

Returned check transactions processed during the first quarter of 2022 increased by 32% compared to the first quarter of 2021. 

Electronic check dollars processed during the first quarter of 2022 increased by 32% compared to the first quarter of 2021.

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. 

Prepaid card load volumes processed during the first quarter of 2022 increased by 134% compared to the first quarter of 2021.

Prepaid card transaction counts processed during the first quarter of 2022 increased by 270% compared to the first quarter of 2021.

Prepaid card purchase volume during the first quarter of 2022 increased by 139% compared to the first quarter of 2021. 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.

Total dollar volumes processed for the first quarter of 2022 were $2.2 billion compared to $1,860 million processed in the first quarter of 2021.

Revenues for the quarter ended March 31, 2022 increased by 35% to $18.1 million, as compared to $13.5 million for the quarter ended March 31, 2021 due to continued traction and growth in our prepaid and PayFac lines of business.

Accordingly, cost of services increased by $4.0 million, or 38% to $14.6 million for the quarter ended March 31, 2022, as compared to $10.6 million for the same period in the prior year. Gross profits increased by 21% to $3.5 million for the quarter ended March 31, 2022, as compared to $2.9 million for the same period in the prior year, however the gross margin percentage was 19.4% for the quarter ended March 31, 2022 as compared to 21.6% in the prior year period.

The decrease in gross margin percentage in the quarter ended March 31, 2022, as compared to the same period a prior year ago, is attributable to increased revenue growth from business lines with lower profit margins.

We reported a net loss of $1.6 million for the quarter ended March 31, 2022, as compared to a net loss of $0.7 million for the same period in the prior year. The increase reflects continued investments in our ACH, PayFac, Prepaid and Output Solutions business lines, a substantial portion of which represents an investment in strengthening our infrastructure to not only support our current growth, but specifically to assure we can provide the service levels in customer support for the anticipated new cardholders.

Included in first quarter selling, general and administrative expenses include approximately $200,000 of one-time non-recurring items.

Critical Accounting Policies

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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,

ACH and complementary service revenue

Credit card revenue

Prepaid card services revenue

Output solutions revenue

Total Revenue

Nine Months Ended September 30,

Three Months Ended March 31,

ACH and complementary service revenue

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Total Revenue

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.  

Revenues for the quarter ended March 31, 2022 increased by 35% to $18.1 million, as compared to $13.5 million for the quarter ended March 31, 2021.

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

Cost of Services

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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.

Cost of services increased by $4.0 million, or 38%, to $14.6 million for the quarter ended March 31, 2022, as compared to $10.6 million for the same period in the prior year. 

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 

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.

Gross profits increased by 21% to $3.5 million for the quarter ended March 31, 2022, as compared to $2.9 million for the same period in the prior year.

The increase in gross profit for the quarter ended March 31, 2022, as compared to the same period in the prior year, was primarily a result of incremental profits from our existing business lines.  The gross margin percentage was 19.4% for the quarter ended March 31, 2022 as compared to 21.6% in the prior year period.

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%.

Stock-based compensation expenses were $550,682 for the quarter ended March 31, 2022 as compared to $327,715 for the quarter ended March 31, 2021, an increase of 68.0%. 

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.  

Other selling, general and administrative expenses (other SG&A) were $3.8 million for the quarter ended March 31, 2022 as compared to $2.7 million in the prior year, a 43% increase versus the prior year period. The increase in other SG&A for the quarter ended March 31, 2022 reflects the incremental costs associated with 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.

Depreciation and amortization totaled $0.7 million and $0.6 million for the quarters ended March 31, 2022 and March 31, 2021, respectively. 

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.

Other income and expense, net was ($636) for the quarter ended March 31, 2022 compared to $2,467 for the quarter ended March 31, 2021. Lower interest-bearing merchant reserves and lower interest rates drove the lower interest income as well as 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 reported a net loss of $1.6 million for the quarter ended March 31, 2022, as compared to a net loss of $0.7 million for the same period in the prior year. The increase in net loss in the current quarter was attributable to increases in SG&A combined with reduced profit margins.

We may incur future operating losses.

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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.

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.

At March 31, 2022, we had $7.6 million of cash and cash equivalents, as compared to $7.3 million of cash and cash equivalents at December 31, 2021.

We reported a net loss of $1.6 million for the quarter ended March 31, 2022.

At March 31, 2022, we had an accumulated deficit of $67.0 million.

Additionally, we had working capital of $8.3 million and $8.8 million at March 31, 2022 and December 31, 2021, respectively.

Net cash used by operating activities, including merchant reserve funds, prepaid card load assets, customer deposits and net operating lease assets for the three months ended March 31, 2022 was $7.2 million, and net cash provided for the three months ended March 31, 2021 was $10.5 million.

Excluding merchant reserves, prepaid card load assets, customer deposits and lease right-of-use assets and liabilities, our cash provided by operating activities was $0.5 million and cash used by operating activities was $0.6 million for the three months ended March 31, 2022 and March 31, 2021, 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.

Net cash used by investing activities was $72,069 and $274,467 for the three months ended March 31, 2022 and March 31, 2021, 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 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.

Net cash used by financing activities for the three months ended March 31, 2022 

was $79,982 and net cash provided by financing activities for the three months ended March 31, 2021 was $116,542, respectively. 

The 2021 cash provided by financing activities was from net proceeds from our equipment loan offset by treasury stock transactions. 

Material Trends and Uncertainties

Please refer of our Covid-19 risks described in Note 10 to our financial statements.

Please refer to Note 9 of our financial statements included in this report that describe certain risks in connection with the Covid-19 pandemic.

Off-Balance Sheet Arrangements

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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