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Item 1. Financial Statements

2023-08-14 compared with 2023-05-03 · 457 added, 169 removed, 555 unchanged (53% of the section changed)

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2023

June 30, 2023

December 31, 2022

92 unchanged sentences

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

- 0 - shares outstanding at March 31, 2023 (unaudited) and December 31, 2022, respectively

- 0 - shares outstanding at June 30, 2023 (unaudited) and December 31, 2022, respectively

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

28,466,150 and 27,044,900 issued, and 26,514,903 and 25,097,963 outstanding at March 31, 2023 (unaudited) and December 31, 2022, respectively

28,462,606 and 27,044,900 issued, and 26,362,870 and 25,097,963 outstanding at June 30, 2023 (unaudited) and December 31, 2022, respectively

196,888  

4 unchanged sentences

Treasury stock, at cost;

1,951,247 and 1,946,937 shares at March 31, 2023 (unaudited) and December 31, 2022, respectively

2,099,736 and 1,946,937 shares at June 30, 2023 (unaudited) and December 31, 2022, respectively

( 3,924,225 )  

14 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

$ 21,261,706  

$ 16,215,686  

$ 42,707,950  

$ 34,327,029  

Cost of services

16,250,988  

12,955,782  

32,795,417  

27,557,996  

5,010,718  

3,259,904  

9,912,533  

6,769,033  

Selling, general and administrative:

Stock-based compensation

577,869  

473,701  

1,082,443  

1,024,383  

Other SG&A expenses

3,854,022  

3,848,696  

7,727,241  

7,643,842  

Depreciation and amortization

522,999  

807,934  

1,041,028  

1,522,869  

Total selling, general and administrative expenses

Operating (loss)

4,954,890  

5,130,331  

9,850,712  

10,191,094  

Operating income (loss)

55,828  

( 1,870,427 )  

61,821  

( 3,422,061 )

Other income and (expense):

Interest income

218,844  

311,772  

Interest expense

( 533 )  

( 1,084 )  

( 1,195 )  

Other income and (expense), net

218,311  

310,577  

Income (Loss) before income taxes

274,139  

( 1,870,345 )  

372,398  

( 3,422,615 )

Income tax expense

69,098  

70,000  

152,524  

140,000  

Net Income (Loss)

$ 205,041  

$ ( 1,940,345 )  

$ 219,874  

$ ( 3,562,615 )

Income (Loss) Per Share

Basic income (loss) per common share:

$ 0.01  

$ ( 0.10 )  

$ 0.01  

Diluted income (loss) per common share:

$ 0.01  

$ ( 0.10 )  

$ 0.01  

Weighted average common shares outstanding

20,128,429  

20,316,572  

20,125,440  

20,298,573  

26,413,329  

20,316,572  

26,410,340  

20,298,573  

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

Operating activities:

Net income (loss)

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

$ 219,874  

$ ( 3,562,615 )

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

605,095  

586,936  

435,933  

935,933  

Stock-based compensation

1,082,443  

1,024,383  

Amortization of warrant costs

17,970  

Non-cash revenue from returned common stock

( 156,162 )  

Changes in current assets and current liabilities:

Accounts receivable

( 850,132 )  

1,125,416  

Prepaid expenses and other

( 176,728 )  

Operating lease right-of-use assets

114,956  

25,185  

Accounts payable and accrued expenses

136,401  

Operating lease liabilities

( 134,979 )  

289,502  

Prepaid card load obligations

26,227,715  

( 21,486,085 )

Merchant reserves

231,539  

433,920  

Customer deposits

107,021  

Deferred revenue

Net cash (used) by operating activities

Net cash provided (used) by operating activities

27,770,210  

( 22,112,887 )

Investing activities:

Purchases of property and equipment

( 388,628 )  

Net cash (used) by investing activities

( 388,628 )  

Financing activities:

Payments on equipment loan

( 28,215 )  

Purchases of treasury stock

( 19,036 )  

Net cash (used) by financing activities

( 47,251 )  

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

27,334,331  

( 23,098,404 )

Cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves, beginning of period

32,343,501  

51,591,560  

Cash, Cash Equivalents, Prepaid Card Load Assets, Customer Deposits and Merchant Reserves, End of Period

$ 59,677,832  

$ 28,493,156  

Supplemental disclosure of cash flow information:

Cash paid during the period for:

Non-cash transactions:

$ 1,195  

$ 2,301  

312,158  

Non-cash financing activities:

Issuance of deferred stock compensation

2,478,506  

12,330  

See accompanying notes to the condensed interim consolidated financial statements.

3 unchanged sentences

Balance at December 31, 2022

27,044,900  

$ 195,471  

$ 94,048,603  

$ ( 3,749,027 )  

$ ( 5,697,900 )  

$ ( 70,863,049 )  

$ 13,934,098  

Issuance of common stock under equity incentive plan

1,421,250  

2,638,529  

( 2,444,054 )  

195,896  

Deferred compensation amortization

308,676  

Purchase of treasury stock costs

Net income for the period

( 8,529 )  

Net income for the period

14,833  

Balance at March 31, 2023

28,466,150  

$ 196,892  

$ 96,687,132  

$ ( 3,757,556 )  

$ ( 7,833,278 )  

$ ( 70,848,216 )  

$ 14,444,974  

Issuance of common stock under equity incentive plan

111,456  

354,199  

( 34,452 )  

319,858  

Reversal of deferred compensation amortization that did not vest

( 115,000 )  

( 115 )  

( 188,088 )  

103,091  

Deferred compensation amortization

343,123  

Purchase of treasury stock costs

( 10,507 )  

Non-cash return of common stock

( 156,162 )  

Net income for the period

205,041  

Balance at June 30, 2023

28,462,606  

$ 196,888  

$ 96,853,243  

$ ( 3,924,225 )  

$ ( 7,421,516 )  

$ ( 70,643,175 )  

$ 15,061,215  

Balance at December 31, 2021

26,807,145  

$ 195,235  

$ 93,100,129  

$ ( 2,404,458 )  

$ ( 6,842,195 )  

$ ( 65,379,805 )  

$ 18,668,906  

Issuance of common stock under equity incentive plan

61,600  

267,856  

( 12,330 )  

255,588  

Warrant compensation costs

Deferred compensation amortization

295,092  

Purchase of treasury stock costs

( 66,494 )  

Net (loss) for the period

( 1,622,270 )  

Balance at March 31, 2022

26,868,745  

$ 195,297  

$ 93,376,970  

$ ( 2,470,952 )  

$ ( 6,559,433 )  

$ ( 67,002,075 )  

$ 17,539,807  

Issuance of common stock under equity incentive plan

54,233  

258,636  

258,688  

Warrant compensation costs

Reversal of deferred compensation amortization that did not vest

( 85,000 )  

( 85 )  

( 176,465 )  

97,621  

Deferred compensation amortization

293,942  

Purchase of treasury stock costs

( 480,095 )  

Net (loss) for the period

( 1,940,345 )  

Balance at June 30, 2022

26,837,978  

$ 195,264  

$ 93,468,126  

$ ( 2,951,047 )  

$ ( 6,167,870 )  

$ ( 68,942,420 )  

$ 15,602,053  

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

2 unchanged sentences

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

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

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.

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

Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles ("GAAP") have been omitted pursuant to such rules and regulations.

In the opinion of management, the accompanying interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature considered necessary to present fairly the Company's financial position, results of operations and cash flows for such periods.

The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's annual report on Form 10 -K for the year ended December 

31, 2022, as filed with the Securities and Exchange Commission on March 8, 2023.

Results of operations for interim periods are not necessarily indicative of results that may be expected for any other interim periods or the full fiscal year. References in this quarterly report to "the quarter" or the "first quarter" mean the three month period ended March 31, 2023 

or 2022  , as the case may be.

10 -K for the year ended 

December 

2022,  as filed with the Commission on 

March 8, 2023, and as amended by Form 10 -K/A Amendment No.

1 filed with the Commission on May 1, 2023 ( together, the "2022 Annual Report"). Results of operations for interim periods are 

not  necessarily indicative of results that 

be expected for any other interim periods or the full fiscal year. References in this quarterly report to "the quarter" or the "second quarter" mean the 

three  month period ended 

June 30, 2023 

2022, as the case may be and unless otherwise noted.

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.

 The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

19 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

ACH and complementary service revenue

1 unchanged sentence

$ 3,899,612  

$ 7,419,879  

$ 7,742,928  

Credit card revenue

1 unchanged sentence

6,885,697  

14,455,782  

13,653,919  

Prepaid card services revenue

1 unchanged sentence

1,388,110  

10,024,872  

4,156,557  

Output solutions revenue

1 unchanged sentence

4,042,267  

10,807,417  

8,773,625  

Total revenue

1 unchanged sentence

$ 16,215,686  

$ 42,707,950  

$ 34,327,029  

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.

 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.

 Settlement processing assets and obligations represent intermediary balances arising in our settlement process for merchants.

Prepaid Card Load Assets:

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

These prepaid card load assets are carried on the Company's balance sheet with a corresponding liability.

Customer Deposits:

The Company holds customer deposits primarily for postage expenses to ensure the Company is not out of pocket for amounts billed daily by the USPS. These customer deposits are carried on the Company's balance sheet with a corresponding liability.

 The Company holds customer deposits primarily for postage expenses to ensure the Company is 

not  out of pocket for amounts billed daily by the USPS. These customer deposits are carried on the Company's balance sheet with a corresponding liability.

Merchant Reserves:

The Company has merchant reserve requirements associated with Automated Clearing House, or ACH, transactions.

The merchant reserve assets are carried on the Company's balance sheet with a corresponding liability.

Merchant reserves are set for each merchant and funds are collected and held as collateral to minimize contingent liabilities associated with any losses that may occur.

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

Merchant reserves are set for each merchant and funds are collected and held as collateral to minimize contingent liabilities associated with any losses that 

While this cash is 

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

The reconciliation of cash and cash equivalents to cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves is as follows for each period presented:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

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

2 unchanged sentences

$ 7,590,951  

$ 5,709,117  

$ 7,255,321  

Prepaid card load assets

1 unchanged sentence

28,846,980  

20,170,761  

36,590,893  

Customer deposits

1 unchanged sentence

1,391,465  

1,554,122  

1,364,193  

Merchant reserves

3 unchanged sentences

6,381,153  

$ 31,896,457  

$ 44,215,549  

$ 32,343,501  

$ 51,591,560  

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

2 unchanged sentences

$ 5,102,061  

$ 6,575,124  

$ 5,102,061  

Prepaid card load assets

1 unchanged sentence

15,104,808  

46,398,476  

15,104,808  

Customer deposits

1 unchanged sentence

1,471,214  

1,563,192  

1,471,214  

Merchant reserves

3 unchanged sentences

6,815,073  

$ 59,677,832  

$ 28,493,156  

$ 59,677,832  

$ 28,493,156  

Allowance for Estimated Losses:

The Company maintains an allowance for estimated doubtful accounts receivable resulting from the inability or failure of the Company’s customers to make required payments.

The Company determines the allowance for estimated doubtful accounts receivable losses based on an account-by-account review, taking into consideration such factors as the age of the outstanding balance, historical pattern of collections, and financial condition of the customer.

During the 

three months ended March 31, 2023  and the year ended 

December 31, 2022 , there were no losses due to bad debt.

six months ended June 30, 2023 and the year ended 

December 31, 2022, there were 

no  losses due to bad debt.

In the past, losses incurred by the Company due to bad debts were within its expectations.

If the financial conditions of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make contractual payments, additional losses may be incurred in future periods.

If the financial conditions of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make contractual payments, additional losses 

be incurred in future periods.

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

The allowance for estimated doubtful accounts was $ 319,000  at March 31, 2023 and December 31, 2022 .

The allowance for estimated doubtful accounts was $ 319,000  at June 30, 2023 and December 31, 2022 .

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

At March 31, 2023  and December 31, 2022, inventory consisted primarily of printing and paper supplies used for Output Solutions.

At June 30, 2023  and December 31, 2022, inventory consisted primarily of printing and paper supplies used for Output Solutions.

Accounting for Internal Use Software:

The Company capitalizes the costs associated with software being developed or obtained for internal use when both the preliminary project stage is completed, and it is probable that computer software being developed will be completed and placed-in service.

The Company capitalizes the costs associated with software being developed or obtained for internal use when both the preliminary project stage is completed and it is probable that computer software being developed will be completed and placed in service.

Capitalized costs include only (i) external direct costs of materials and services consumed in developing or obtaining internal-use software, (ii) payroll and other related costs for employees who are directly associated with and who devote time to the internal-use software project, and (iii) interest costs incurred, when material, while developing internal-use software.

The Company ceases capitalization of such costs no later than the point at which the project is substantially complete and ready for its intended purpose.

During the three  months ended March 31, 2023 and March 31, 2022 , the Company capitalized $ 207,732 and $ 136,864 , respectively.

During the six  months ended June 30, 2023 and June 30, 2022 , the Company capitalized software costs of $ 378,197 and $ 246,210 , respectively.

Valuation of Long-Lived and Intangible Assets:

1 unchanged sentence

Factors considered important, which could trigger an impairment review, include the following:

significant under performance relative to historical or projected future cash flows;

significant underperformance relative to historical or projected future cash flows;

significant changes in the manner of use of the assets or the strategy of the overall business;

3 unchanged sentences

No impairment losses were recorded in 2022  or during the 

three months ended March 31, 2023 .

six months ended June 30, 2023 .

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

6 unchanged sentences

This reserve amount is subject to the risk that actual losses may be greater than the Company’s estimates.

In the quarter ended March 31, 2023, we incurred $ 833,485 in merchant processing losses as a result of fraudulent activity and identity fraud from multiple merchants, of which $ 755,494 was deducted from our reserve for processing losses.

We do not expect similar processing losses in the immediate future;

however, in the quarter, we are replenishing our reserve for processing losses by the amount of $ 200,000 in the event that future losses are incurred. Estimates for processing losses are variable based on the volume of transactions processed and could increase or decrease accordingly.

At March 31, 2023 and December 31, 2022 , the Company’s reserve for processing losses was $ 386,789  and $ 755,494  respectively.

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

At June 30, 2023 and December 31, 2022 , the Company’s reserve for processing losses was $ 769,789  and $ 755,494 , respectively.

Legal Proceedings:

1 unchanged sentence

While the Company believes that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is or could become involved in litigation will not have a material adverse effect on its business, financial condition or results of operations.

Recently Adopted Accounting Pronouncements :

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2016 - 13, Financial Instruments - Credit Losses (Topic 326 ), to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. 

To achieve this objective, the amendments in Topic 326 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Topic 326 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for smaller reporting companies. The Company adopted the amendments effective January 1, 2023, and it has not had a material impact on its financial position and the results of its operations.

Recently Adopted  

Accounting Pronouncements :

June 2016, 

the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 

2016 - 13,  

Financial Instruments - Credit Losses  (Topic 

326 ), to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. 

To achieve this objective, the amendments in Topic 

326  replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Topic 

326  is effective for fiscal years beginning after 

December 15, 2022, 

including interim periods within those fiscal years for smaller reporting companies. The Company adopted the amendments effective 

January 1, 2023, 

and it has 

not  had a material impact on its financial position and the results of its operations.

The Company will continue to monitor the adoption of this amendment in order to evaluate if it has any material effect on its financial position and results of operations.

1 unchanged sentence

The Company leases facilities and office equipment under various operating leases, which generally are expected to be renewed or replaced by other leases.

For each of the three months ended March 31, 2023  and 2022 , operating lease expenses totaled $ 179,901  and $ 120,151 , respectively.

For each of the three months ended June 30, 2023  and 2022 , operating lease expenses totaled $ 257,038  and $ 239,105 , respectively.

Accrued Expenses

Accrued expenses consisted of the following balances:

March 31, 2023

June 30, 2023

December 31, 2022

21 unchanged sentences

Monthly principal and interest payments are required in the amount of $ 4,902 .

Payments for the 

three months ended March 31, 2023  and 

2022 were $ 13,488 .

Principal payments for the three months ended 

June 30, 2023  and 

2022 were $ 14,171  and $ 13,622 , respectively.

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 which were subject to the following vesting schedule:

On August 21, 2018, the Company issued University FanCards, LLC warrants to purchase 150,000 shares of the Company's common stock, which were subject to the following vesting schedule:

30,000 warrants vested upon the date on which the first financial transaction was processed, which occurred on October 5, 2018;

5 unchanged sentences

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;

(i) the fair value of the underlying stock was $ 0.94 per share for the 30,000 warrants and $ 0.90 per share for the 120,000 warrants;

(ii) the risk-free interest rate is 2.77%;

3 unchanged sentences

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

The reduction of revenues as a result of this amortization recorded for the three months ended March 31, 2023 and 2022 was $ 0 and $ 8,985 respectively.

As of July 31, 2022, the remaining, unvested warrants expired, and the Company is no longer recording a reduction of revenues associated with the amortization of their fair value.

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

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

On September 1, 2021, the Company issued 19,950  shares of our common stock to University FanCards, LLC in a cashless exercise at $ 5.97 per share in exchange for 30,000 warrants exercised by FanCards, LLC.

The reduction of revenues as a result of this amortization recorded for the six months ended June 30, 2023 and 2022 was $ 0 and $ 17,970 , respectively.

On July 31, 2022, the remaining, unvested warrants expired, and the Company is no longer recording a reduction of revenues associated with the amortization of their fair value.

On December 

15, 2020, the Company issued warrants to purchase 945,599  shares of the Company's common stock with an exercise price of $ 4.23 per share to Information Management Solutions, LLC. The Management Solutions' warrants vest annually over 3 years in three equal tranches beginning on December 15, 2021 

15, 2020, the Company issued warrants to purchase 945,599  shares of the Company's common stock with an exercise price of $ 4.23 per share to Information Management Solutions, LLC ("Management Solutions"). The Management Solutions' warrants vest annually over 3 years in three equal tranches beginning on December 15, 2021 

and become fully vested on December 15, 2023.

1 unchanged sentence

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 is being recorded as an increase in the customer list asset and has a term of five years from time of vesting.

The incremental depreciation expense associated with the fair value of the warrants in the three months ended 

March 31, 2023 and 2022  was $ 27,614 .

(i) the fair value of the underlying stock was $0.58 per share;

(ii) the risk-free interest rate was 0.09%;

(iii) the contractual life was 5 years;

(iv) the dividend yield was 0%;

and (v) the volatility was 

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

The amortization of these warrants, which is included in the total amortization expense of the customer list intangible asset, totaled $ 55,228 in the six months ended 

June 30, 2023 and 2022 .

Net Income (Loss) Per Share

2 unchanged sentences

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 months ended March 31, 2023 and March 31, 2022 .

Three Months Ended March 31,

three and six months ended June 30, 2023 and June 30, 2022 .

Three Months Ended June 30,

Six Months Ended June 30,

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

$ 205,041  

$ ( 1,940,345 )  

$ 219,874  

$ ( 3,562,615 )

2 unchanged sentences

20,316,572  

20,125,440  

20,298,573  

Effect of dilutive securities

6,284,900  

Denominator for diluted earnings per share, adjust weighted average shares and assumed conversion

1 unchanged sentence

20,316,572  

26,410,340  

20,298,573  

Basic income (loss) per common share

$ 0.01  

$ ( 0.10 )  

$ 0.01  

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

$ 0.01  

The awards and options to purchase shares of common stock that were outstanding at March 31, 2023 and March 31, 2022 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

$ ( 0.10 )  

$ 0.01  

The awards and options to purchase shares of common stock that were outstanding at June 30, 2023 and June 30, 2022 that were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive, are as follows:

Six Months Ended June 30,

Anti-dilutive awards and options

5,159,902  

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.

1 unchanged sentence

Predicting the ability to realize these assets in future periods requires judgment by management.

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.

GAAP prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return.

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

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December 31, 2022 , the Company had available net operating loss carryforwards of approximately $ 23.9 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 generated during or prior to 2017 are available to offset taxable income of future periods and expire 20 years after the loss was generated. 

Net operating loss carryforwards totaling $ 9.1 million expired in 

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

The schedule below outlines when the Company's net operating losses for 2017 and prior years were generated and the year they 

1,621,096  

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Related Party Transactions

During the three months ended March 31, 2023 and 

March 31, 2022 , the Company purchased a total of $ 1,835 and $ 19,929 , respectively, of corporate imprinted sportswear and caps from Angry Pug Sportswear.

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

During the six months ended June 30, 2023 and 

June 30, 2022 , the Company purchased a total of $ 18,148 and $ 19,929 , respectively, of corporate imprinted sportswear, promotional items, and caps from Angry Pug Sportswear.

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

Directors and Officers

January 6, 2022 ,  the Company repurchased 

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

11,361  shares of the Company's common stock for $ 47,930  in a private transaction at the closing price on 

January 6, 2022 

of $ 4.21  per share from Tom Jewell, the Company's Chief Financial Officer, to cover his share of taxes in the vesting of stock compensation issued via a 

of $ 4.21  per share from Tom Jewell, the Company's Chief Financial Officer, to cover his share of taxes in the vesting of stock compensation issued as 

3 -year vesting restricted stock units ("RSUs").

On February 8, 2022, the Company granted 1,000 RSUs with a 3 -year vesting period to Houston Frost as a performance bonus at an issue price of $ 3.32 per share.

On June 26, 2022, the Company granted 66,667 RSUs with a 3 -year vesting period to Elizabeth Michelle Miller for joining the Board of Directors at an issue price of $ 2.28 per share.

Effective on 

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10 % of the actual cash commissions paid to salespersons under direct management of Mr.

Carter to be paid quarterly;

and the payment of a 

Carter, to be paid quarterly, and the payment of a 

one -time signing bonus of $ 40,000 . 

The Company granted 

On February 8, 2023, the Company granted 

1,403,000  shares of restricted common stock with a 

10 -year vesting period and 

273,000  restricted stock units (RSUs) with a 

3 -year vesting period to employees and Directors as a performance bonus on February 8, 2023 

at an issue price of $ 1.75  per share.

273,000 RSUs with a 

3 -year vesting period to employees and Directors as a performance bonus at an issue price of $ 1.75  per share.

Executive officers and Directors included in the 

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Executive officers included in the RSU grant were Louis Hoch ( 33,000  RSUs), Tom Jewell ( 21,000  RSUs), Greg Carter ( 12,000  RSUs) and Houston Frost ( 12,000  RSUs).

The Company granted 

On March 16, 2023, the Company granted 

69,000  RSUs with a 

3 -year vesting period to Directors as a performance bonus on March 16, 2023 

at an issue price of $ 1.60 per share.

3 -year vesting period to Directors as a performance bonus at an issue price of $ 1.60 per share.

Directors included in the RSU grant were Blaise Bender ( 21,000  RSUs), Brad Rollins ( 21,000  RSUs), Ernesto Beyer ( 21,000  RSUs) and Michelle Miller ( 6,000  RSUs).

The ongoing COVID- 19  pandemic has had a notable impact on general economic conditions including, but 

The COVID- 19  pandemic has had and continues to have a notable impact on general economic conditions including, but 

not  limited to, the temporary closures of many businesses, “shelter in place”

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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 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.

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 reopened, 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 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. 

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While these efforts have been successful thus far, 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, we do not believe that the Company has been adversely impacted to the same 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.

The impacts and recovery from the COVID- 19  pandemic are still a work in process. To date, we do 

not  believe that the Company has been adversely impacted to the same 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 July 12, 2023, the Company convened its 2023 annual meeting of stockholders at which stockholders approved the proposed 2023 Employee Stock Purchase Plan, or ESPP, which gives certain employees of the Company (including certain employees of subsidiaries) an opportunity to purchase shares of the Company's common stock through the ESPP.

The offering of the securities was registered under the Securities Act of 1933, as amended, through the filing of a registration statement on Form S- 8 with the Commission on July 24, 2023.

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

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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 this report on Form 10-K and other reports we file with the Securities and Exchange Commission.

Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in the 2022 Annual Report and other reports we file with the Commission.

Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made.

We do not intend to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law.

This discussion and analysis should be read in conjunction with the unaudited interim condensed consolidated financial statements and the notes thereto included in this report, and our annual report on Form 10-K for the fiscal year ended December 31, 2022, filed on March 8, 2023, including the audited consolidated financial statements and the notes contained therein.

was founded under the name Billserv Com, Inc.

This discussion and analysis should be read in conjunction with the unaudited interim condensed consolidated financial statements and the notes thereto included in this report, and the 2022 Annual Report, including the audited consolidated financial statements and the notes contained therein.

(collectively with its subsidiaries, "we," "our," "us," the "Company" or "Usio") was founded under the name Billserv Com, Inc.

in July 1998 and incorporated in the State of Nevada.

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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.

We believe that the number of credit card transactions processed, ACH transaction counts, prepaid card volumes and total card volumes are the most critical measures to gauge the state of our business.

During the first quarter of 2023, the number of credit card transactions processed by us increased by 24% versus the first quarter of 2022. The volume of credit card dollars processed during the first quarter of 2023 increased by 8% compared to the same time period in 2022.

Both the number of credit card transactions and dollars processed by us during the three months ended March 31, 2023 were the highest in our history. The continued growth in credit card metrics was primarily attributable to our PayFac strategy to drive increased penetration across multiple industries including healthcare and legal. 

ACH (eCheck) transaction counts during the first quarter of 2023 decreased by 25% compared to the first quarter of 2022.

Returned check transactions processed during the first quarter of 2023 decreased by 8% compared to the first quarter of 2022. Electronic check dollars processed during the first quarter of 2023 decreased by 54% compared to the first quarter of 2022.

The decreases in eCheck transactions, returns, and electronic check dollar volumes processed were primarily attributable to our withdrawal from the cryptocurrency space following the filing for bankruptcy protection by Voyager Digital on July 6, 2022 and the subsequent decline in processing and revenues in our ACH and complimentary services revenue line of business.

Prepaid card load volumes processed during the first quarter of 2023 decreased by 19% compared to the first quarter of 2022.

Prepaid card transaction counts processed during the first quarter of 2023 decreased by 46% compared to the first quarter of 2022.

Prepaid card purchase volume during the first quarter of 2023 decreased by 10% compared to the first quarter of 2022. This decrease occurred primarily due to the continued wind down of 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 remains involved with guaranteed income and government assistance programs, is expanding its footprint in the corporate expense and healthcare markets, and has established a relationship with MoviePass.

Total dollar volumes processed across all business lines in the first quarter of 2023 were $1.2 billion compared to $2.2 billion processed in the first quarter of 2022 primarily as a result of the decrease in cryptocurrency activity and the winding down of COVID-19 government assistance programs.

We believe that the number of credit card transactions processed, ACH transaction counts, prepaid card volumes and total dollar volumes are the most critical measures to gauge the state of our business.

During the second quarter of 2023, the number of credit card transactions processed by us increased by 15% versus the second quarter of 2022. The volume of credit card dollars processed during the second quarter of 2023 increased by 2% compared to the same time period in 2022.

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

ACH (eCheck) transaction counts during the second quarter of 2023 decreased by 31% compared to the second quarter of 2022.

Returned check transactions processed during the second quarter of 2023 decreased by 17% compared to the second quarter of 2022. Electronic check dollars processed during the second quarter of 2023 decreased by 55% compared to the second quarter of 2022.

Prepaid card load volumes processed during the second quarter of 2023 increased by 48% compared to the second quarter of 2022.

Prepaid card transaction counts processed during the second quarter of 2023 decreased by 9% compared to the second quarter of 2022.

Prepaid card purchase volume during the second quarter of 2023 increased by 51% compared to the second quarter of 2022. This increase occurred primarily due to the continued traction, and implementation of new guaranteed income and government assistance programs, and expansion in the corporate expense and healthcare markets.

Total dollar volumes processed across all business lines in the second quarter of 2023 were $1.3 billion compared to $2.4 billion processed in the second quarter of 2022, with such decrease primarily a result of the decrease in cryptocurrency activity and the winding down of COVID-19 government assistance programs.

Material Trends and Uncertainties

On July 6, 2022, our largest cryptocurrency customer, Voyager Digital, filed for bankruptcy protection and the cryptocurrency landscape encountered significant distress during 2022. Due to this bankruptcy, we lost a significant customer, and have pulled out of the cryptocurrency space, resulting in a meaningful loss of revenue and downturn in our ACH and complementary services business segment, which contributed substantial gross profit to the Company.

Our lost revenue in the ACH and complementary services business was approximately $0.8 million in 2022 and $0.5 million in the quarter ended March 31, 2023.

We continue to closely monitor the cryptocurrency environment, and the unique risks associated with cryptocurrencies, including technological, legal, and regulatory risks alongside the potentially consequential upsides associated with re-entering the market and offering our services.

Our lost revenue in the ACH and complementary services business was approximately $3 million in 2022 and $1 million in the quarter ended June 30, 2023.

We continue to closely monitor the cryptocurrency environment, and the unique risks associated with cryptocurrencies, including technological, legal, and regulatory risks along with the potentially significant revenue opportunities associated with re-entering the market and offering our services.

On August 16, 2022, President Biden signed the Inflation Reduction Act, or IRA, which implemented a 1% excise tax on certain corporate stock repurchases.

On May 13, 2022, the Board of Directors authorized a renewal of the buy-back program, with a limit up to $4 million of the Company's common stock with a three year duration.

As of December 31, 2022 the Company had repurchased $1.3 million of stock as part of its buy back program, of which $1.1 million qualifies under the IRA's 1% excise tax. Should the company opt to continue the repurchase of its securities on the open market, and the IRA remain in effect, we may qualify for this tax in 2023, and future years.

In March 31, 2023 the Company purchased $8,494 of stock as part of it's stock buy back program that may become eligible for the IRA's 1% excise tax, if the Company meets the IRA's 1% excise tax repurchase minimum of $1 million in stock buy backs.

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”

On May 13, 2022, our Board of Directors authorized a renewal of the Company's stock buyback program (the "buyback program"), with a repurchase limit equal to $4 million of the Company's common stock and a three year duration.

As of December 31, 2022, the Company had repurchased $1.3 million of stock as part of the buyback program, of which $1.1 million is subject to the IRA's 1% excise tax. Should the Company continue the repurchase of its securities on the open market, and the IRA remain in effect, we may be subject to this tax in 2023 and future years.

As of June 30, 2023, the Company had repurchased $19,036 of stock as part of the buyback program, which may become subject to the IRA's 1% excise tax if the Company meets or exceeds the IRA's 1% excise tax repurchase minimum of $1 million in stock buy backs.

The COVID-19 pandemic has had and continues to have 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.

There remain many uncertainties as a result of the pandemic. Economic uncertainties, including those related to COVID-19, could continue to impact our operations.

Any potential incremental financial impact is unknown at this time.

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, 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 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.

In April and May of 2020, the Company's business was adversely affected as doctor's offices, dental offices, veterinarian's offices were ordered closed in connection with curbing the spread of the pandemic. As these offices reopened, these businesses quickly recovered and returned to levels higher than pre-COVID.

In addition, non-bank consumer lending merchants were adversely affected by COVID relief payments made during the pandemic and a pause placed on the collection of past due amounts. The level of activity for consumer lending merchants continues to recover to pre-COVID levels. The Company has recorded an increase in revenues in its prepaid business line since 2021, as it was able to work in conjunction with major cities across the U.S.

While the general activity of COVID related disbursement programs has largely declined, we currently recognize revenues associated with these programs, and expect to continue recognizing revenues through 2023 and the start of 2024.

While the general activity of COVID-related disbursement programs has largely declined, we currently recognize revenues associated with these programs and expect to continue recognizing such revenues through the remainder of 2023 and the start of 2024.

Since 2020, the Company has 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.

While these efforts have been successful thus far, if the Company cannot continue to acquire sufficient inventory stock, existing revenues, margins and growth of Output Solutions  may be impacted.

While these efforts have been successful thus far, if the Company cannot continue to acquire sufficient inventory stock, existing revenues, margins and growth of Output Solutions may be impacted.

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.

Critical Accounting Policies and Estimates

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

generally accepted accounting principles.

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

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

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Actual results could differ from these estimates under different assumptions or conditions.

We consider these accounting policies to be critical because the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for 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.

We consider these accounting policies to be critical because the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for such highly uncertain matters or due to the susceptibility of such matters to change or because the impact of the estimates and assumptions on financial condition or operating performance is material.

For a summary of Critical Accounting Policies, please refer to the Notes to Interim Condensed Consolidated Financial Statements, Note 1, Basis of Presentation.

Reserve for Processing Losses

We establish allowances for negative customer balances and estimated transaction losses arising from processing customer transactions, such as chargebacks for unauthorized credit card use and merchant-related chargebacks due to non-delivery or unsatisfactory delivery of purchased items, account takeovers, Automated Clearing House returns, and insolvency.

Additions to the allowance are reflected in our cost of services on our consolidated statements of income (loss). The allowances are based on known facts and circumstances, internal factors including experience with similar cases, historical trends involving collection and write-off patterns, and the mix of transaction and loss types, as well as current and projected factors such as the types of transactions processed and nature of the merchant relationship with its consumers and the Company with its prepaid card holders.

Determining appropriate current expected transactional losses is an inherently uncertain process, and final losses may vary from our current estimates.

We regularly review and update our allowance estimates as new facts become known, and event occur that may impact the settlement or recovery of losses.

In the quarter ended March 31, 2023, we incurred $833,485 in merchant processing losses as a result of fraudulent activity and identify fraud from multiple merchants, of which $755,494 was taken to our reserve for processing losses.

We do not expect similar processing losses in the immediate future, however in the quarter, we are replenishing our reserve for processing losses by the amount of $200,000 for a total balance of $386,789 in the event that future losses are incurred.

We regularly review and update our allowance estimates as new facts become known and events occur that may impact the settlement or recovery of losses.

In the quarter ended March 31, 2023, we incurred $833,485 in merchant processing losses as a result of fraudulent activity and identity fraud from multiple merchants, of which $755,494 was taken from our reserve for processing losses.

We do not expect similar processing losses in the immediate future;

however, in the second quarter of 2023, we replenished our reserve for processing losses by the amount of $383,000, for a total balance of $769,789 as of June 30, 2023, to be used if future losses are incurred.

The allowances are maintained at a level we deem appropriate to adequately provide for current expected losses at the balance sheet date.

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To the extent deferred tax assets are not expected to be realized, we record a valuation allowance.

We recognize and measure uncertain tax positions in accordance with U.S.

GAAP, pursuant to which we only recognize the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities.

We recognize and measure uncertain tax positions in accordance with GAAP, pursuant to which we only recognize the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities.

As with all businesses, the Company’s tax returns are subject to periodic examination.

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Revenue Recognition

Application of the accounting principles in U.S.

GAAP related to the measurement and recognition of revenue requires us to make judgments and estimates.

Application of the accounting principles in GAAP related to the measurement and recognition of revenue requires us to make judgments and estimates.

Complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting.

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Key Business Metric - Non-GAAP Financial Measures

This filing includes the following non-GAAP financial measures as defined in Regulation G of the Securities Exchange Act of 1934, as amended; EBITDA, adjusted EBITDA, adjusted EBITDA margins and adjusted operating cash flows.

This filing includes the following non-GAAP financial measures as defined in Regulation G of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); EBITDA, adjusted EBITDA, adjusted EBITDA margins and adjusted operating cash flows.

The Company reports its financial results in compliance with GAAP, but believes that also discussing non-GAAP financial measures provides investors with financial measures the Company uses in the management of its business.

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Management believes EBITDA, adjusted EBITDA, adjusted EBITDA margins and adjusted operating cash flows are helpful to investors in evaluating the Company's operating performance because non-cash costs and other items that management believes are not indicative of its results of operations are excluded. 

We reported adjusted EBITDA of  $1.0 million for the quarter ended March 31, 2023, as compared to an adjusted EBITDA loss of $0.3 for the same period in the prior year.

We reported adjusted EBITDA of $1.2 million for the quarter ended June 30, 2023, as compared to an adjusted EBITDA loss of $0.6 for the same period in the prior year.

The increase in adjusted EBITDA in the 2023 quarter was attributable to minimal increases in SG&A combined with strong revenue growth and increased profit margins.

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EBITDA to Adjusted EBITDA;

and Revenues to Adjusted EBITDA margins for the three months ended March 31, 2023 and 2022.

Three Months Ended March 31,

and Revenues to Adjusted EBITDA margins for the three months ended June 30, 2023 and 2022.

Three Months Ended June 30,

Six Months Ended June 30,

Reconciliation from Operating income (Loss) to Adjusted EBITDA:

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Adjusted EBITDA margins

We reported cash provided by adjusted operating cash flows of $1.3 million for the three months ended March 31, 2023 (after adjusting for the impact of operating lease right-of-use assets, operating lease liabilities, prepaid card load obligations, customer deposits, and merchant reserves), as compared to $0.5 million provided in the three months ended March 31, 2022. 

We reported cash provided by adjusted operating cash flows of $1.3 million for the six months ended June 30, 2023 (after adjusting for the impact of operating lease right-of-use assets, operating lease liabilities, prepaid card load obligations, customer deposits, and merchant reserves), as compared to $1.2 million used in the six months ended June 30, 2022.

Operating lease right-of-use assets, operating lease liabilities, prepaid card load obligations, customer deposits and merchant reserves are deducted from operating cash flow, as these metrics do not serve in providing a clear picture of the true operational cash used or provided in a given time period.

These adjustments to net cash (used) by operating activities do not include any recurring expense items which are included in the calculation of operating income (loss), and only include changes in our assets and liabilities accounts on the balance sheet. The Company believes Non-GAAP adjusted operating cash flow to be a more accurate indicator of cash contributions that can be used to sustain current and future business operations. The increase in adjusted operating cash flows in the 2023 quarter compared to the 2022 quarter was primarily attributable to an increase the Company's net income, due to strong growth in revenue with improved profit margins, alongside relatively flat increases in SG&A.

The following table is a reconciliation of operating cash flow (used) to adjusted operating cash flow (used) for the three months ended March 31, 2023 and 2022.

March 31, 2023

March 31, 2022

These adjustments to net cash provided (used) by operating activities do not include any recurring expense items which are included in the calculation of operating income (loss), and only include changes in our assets and liabilities accounts on the balance sheet. The Company believes non-GAAP adjusted operating cash flow to be a more accurate indicator of cash contributions that can be used to sustain current and future business operations. The increase in adjusted operating cash flows in the 2023 quarter compared to the 2022 quarter was primarily attributable to an increase the Company's net income, due to strong growth in revenue with improved profit margins, alongside relatively flat increases in SG&A.

The following table is a reconciliation of operating cash flow provided (used) to adjusted operating cash flow provided (used) for the six months ended June 30, 2023 and 2022.

Six Months Ended June 30,

Reconciliation from net cash provided (used) by operating activities to non-GAAP Adjusted Operating Cash Flow (used):

Net cash (used) by operating activities

Net cash provided (used) by operating activities

Operating cash flow (used) adjustments:

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Operating lease liabilities

Total adjustments to net cash (used) by operating activities

Adjusted operating cash flows (used)

Total adjustments to net cash provided (used) by operating activities

Adjusted operating cash flows provided (used)

Use of Non-GAAP Financial Measures

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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 program management and processing of prepaid debit cards. With the acquisition of the assets of IMS in December 2020, we began to offer additional output solution services relating to electronic bill presentment, document composition, document decomposition and printing and mailing services serving hundreds of customers representing a wide range of industry verticals, including utilities and financial institutions.

Three Months Ended March 31,

Three Months Ended June 30,

ACH and complementary service revenue

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Total Revenue

Consolidated Revenue for the quarter ended March 31, 2023 increased by 18% to $21.4 million, as compared to $18.1 million for the quarter ended March 31, 2022 due to continued traction and growth in our Prepaid and Output Solutions lines of business, despite declines in our ACH and complimentary services business sectors.

These declines were a result of our ACH business withdrawing from the cryptocurrency industry subsequent to the bankruptcy of Voyager Digital. ACH activity was substantially higher in the quarter ended March 31, 2022 as compared to the same quarter ended 

March 31, 2023 as a result of our exit from the cryptocurrency industry following the bankruptcy of Voyager Digital.

Six Months Ended June 30,

ACH and complementary service revenue

Credit card revenue

Prepaid card services revenue

Output Solutions revenue

Total Revenue

Consolidated revenue for the quarter ended June 30, 2023 increased by 31% to $21.3 million, as compared to $16.2 million for the quarter ended June 30, 2022, due to continued traction and growth in our prepaid card and Output Solutions lines of business, with modest growth in our ACH and credit card lines of business. 

Consolidated revenue for the six months ended June 30, 2022 increased by 24% to $42.7 million, as compared to $34.3 million for the six months ended June 30, 2022, primarily as a result of strong growth in our prepaid card and Output Solutions lines of business.

Declines in ACH revenues were primarily the result of the Company's withdrawal from the crypto market in July of 2022.

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 $1.9 million, or 13%, to $16.5 million for the quarter ended March 31, 2023, as compared to $14.6 million for the same period in the prior year due to increased revenue growth. 

Cost of services increased by $3.3 million, or 25%, to $16.3 million for the quarter ended June 30, 2023, as compared to $13.0 million for the same period in the prior year, due to increased revenue growth. 

Cost of services increased by $5.2 million, or 19%, to $32.8 million for the six months ended June 30, 2023, as compared to $27.6 million for the same period in the prior year, due to increased revenue growth. 

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

Gross profit increased by 40% to $4.9 million for the quarter ended March 31, 2023, as compared to $3.5 million for the same period in the prior year.

Similarly, the gross margin percentage was 22.9% for the quarter ended March 31, 2023 as compared to 19.4% in the prior year period.

The increase in gross profit and margin percentage in the quarter ended March 31, 2023, as compared to the same period during the prior year, was primarily attributable to improved profitability metrics across all business lines, driven by more favorable pricing in the quarter.

Gross profit increased by 54% to $5.0 million for the quarter ended June 30, 2023, as compared to $3.3 million for the same period in the prior year.

Similarly, gross margin percentage was 23.6% for the quarter ended June 30, 2023 as compared to 20.1% in the prior year period.

The increase in gross profit and gross margin percentage in the quarter ended June 30, 2023, as compared to the same period during the prior year, was primarily attributable to strong revenue growth and improved profitability metrics across all business lines, driven by more favorable pricing in the quarter.

Gross profit increased by 46% to $9.9 million for the six months ended June 30, 2023, as compared to $6.8 million for the same period in the prior year.

Similarly, gross margin percentage was 23.2% for the six months ended June 30, 2023 as compared to 19.7% in the prior year period.

The increase in gross profit and gross margin percentage in the six months ended June 30, 2023, as compared to the same period during the prior year, was primarily attributable to strong revenue growth and improved profitability metrics across all business lines, driven by more favorable pricing on the year.

Stock-based Compensation

Stock-based compensation expenses were $0.5 million for the quarter ended March 31, 2023 as compared to $0.6 million for the quarter ended March 31, 2022, a marginal decrease of 8.4% due to the vesting and forfeiture of various equity grants over the year.

Stock-based compensation expenses were $0.6 million for the quarter ended June 30, 2023 as compared to $0.5 million for the quarter ended June 30, 2022, an increase of 22.0% due to stock grants made to retain and attract employees.

Stock-based compensation expenses were $1.1 million for the six months ended June 30, 2023 as compared to $1.0 million for the six months ended June 30, 2022, a marginal increase of 5.7% due to stock grants made to retain and attract employees.

Other Selling, General and Administrative Expenses

Other selling, general and administrative expenses (other SG&A) were $3.9 million for the quarter ended March 31, 2023 as compared to $3.8 million in the prior year, a 2% increase. The increase in other SG&A for the quarter ended March 31, 2023 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 support our current growth.

These investments include enhanced security and IT infrastructure, as well as staffing and employee retention. 

Other selling, general and administrative expenses (other SG&A) were $3.9 million for the quarter ended June 30, 2023 as compared to $3.8 million in the prior year quarter. The nominal increase in other SG&A for the quarter ended June 30, 2023 reflects a flattening of expenses and slowed investment in our business units as they achieve further scale.

Other selling, general and administrative expenses (other SG&A) were $7.7 million for the six months ended June 30, 2023 as compared to $7.6 million in the prior year six-month period, a 1% increase. The nominal increase in other SG&A for the six months ended June 30, 2022 reflects a flattening of expenses and slowed investment in our business units as they achieve further scale.

Depreciation and Amortization  

Depreciation and amortization expense consist of the reduction in value of our tangible and intangible assets over their useful life.

Depreciation and amortization expense consists of the reduction in value of our tangible and intangible assets over their useful life.

These assets include property, plant, and equipment, along with intangible assets acquired through acquisition, or developed as internal use software.

Depreciation and amortization totaled $0.5 million and $0.7 million for the quarters ended March 31, 2023 and March 31, 2022, respectively.

Depreciation and amortization expense decreased in the quarter due to the completed amortization of intangible assets, reducing overall depreciation and amortization expenses versus the same period a year ago. 

Depreciation and amortization expense totaled $0.5 million and $0.8 million for the quarters ended June 30, 2023 and 2022, respectively.

The decrease in depreciation and amortization expense was due to the completed amortization of intangible assets, reducing overall depreciation and amortization expense versus the same period a year ago. 

Depreciation and amortization expense totaled $1.0 million and $1.5 million for the six months ended June 30, 2023 and 2022, respectively.

Other Income (Expense)

Other income and expense, net was $92,266 for the quarter ended March 31, 2023 compared to $636 for the quarter ended March 31, 2022.

Other income (expense), net was $218,311 for the quarter ended June 30, 2023 compared to $82 for the quarter ended June 30, 2022.

Higher interest-bearing merchant reserves and interest rates drove the increased interest income.

Other income (expense), net was $310,577 for the six months ended June 30, 2023 compared to $554 for the six months ended June 30, 2022.

Higher interest-bearing merchant reserves and interest rates drove the increased interest income.

Net Income (Loss)

We reported a net income of $0.0 million for the quarter ended March 31, 2023, as compared to a net loss of $1.6 million for the same period in the prior year. The decrease in net loss in the current quarter was attributable to increases in revenue combined with increased profit margins.

We reported net income of $0.2 million for the quarter ended June 30, 2023, as compared to a net loss of $1.9 million for the same period in the prior year. The increase in net income was attributable to increases in revenue combined with increased profit margins.

We reported net income of $0.2 million for the six months ended June 30, 2023, as compared to a net loss of $3.6 million for the same period in the prior year. The increase in net income was attributable to increases in revenue combined with increased profit margins.

We may incur future operating losses.

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Our primary sources of liquidity are available cash and cash equivalents and cash flows provided by operations.

As of March 31, 2023, we had cash and cash equivalents of 

$6.8 million.

For the three months ended March 31, 2023, cash used by operations was $0.2 million.

As of June 30, 2023, we had cash and cash equivalents of $6.6 million.

For the six months ended June 30, 2023, cash provided by operations was $27.8 million.

We expect available cash and cash equivalents and internally generated funds to be sufficient to support working capital needs, capital expenditures (including acquisitions), and our debt service obligations.

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These assets and liabilities include our accounts receivable, prepaid expenses, operating lease right-of-use assets, inventory, other assets, accounts payable and accrued expenses, operating lease liabilities, prepaid card load obligations, merchant reserves, customer deposits, and deferred revenues.

We reported a net loss of $0.0 million for the quarter ended March 31, 2023.

At March 31, 2023, we had an accumulated deficit of $70.8 million.

Additionally, we had working capital of $6.6 million and $5.8 million at March 31, 2023 and December 31, 2022, respectively.

We reported net income of $0.2 million for the quarter ended June 30, 2023.

At June 30, 2023, we had an accumulated deficit of $70.6 million.

Additionally, we had working capital of $7.5 million and $5.8 million at June 30, 2023 and December 31, 2022, respectively.

From time to time we have sold shares of our common stock in order to provide us liquidity.

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The gross proceeds to us from the private offering were $1,000,000.

We have also sold securities in public offerings from time to time.

On May 9, 2023, Voyager Digital returned 142,857 shares of common stock, valued at a price of $1.09 per share, in a non-cash transaction to satisfy payment obligations related to the wind down of their payment disbursement needs following their bankruptcy.

This transaction was recognized as revenue for services rendered and as shares returned to treasury stock in the quarter ended June 30, 2023. We have also sold securities in public offerings from time to time.

For example, in September 2020, we sold 4,705,883 shares of our common stock and received net proceeds of approximately $8 million.

We cannot assure you that we will be able to sell shares of our equity securities on terms acceptable to us or at all in the future.

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, 2023 was $0.2 million, as compared to net cash used by operating activities of $7.2 million for the three months ended March 31, 2022.

Excluding merchant reserves, prepaid card load assets, customer deposits and lease right of use assets and liabilities, our cash provided by operating activities was $1.3 million as compared to cash provided by operating activities of $0.5 million for the three months ended March 31, 2023 and March 31, 2022, respectively.

This increase in cash provided by operating activities was primarily attributable to an increase the Company's net income, due to strong growth in revenue with improved profit margins, alongside relatively flat increases in SG&A. We continue to invest resources and infrastructure in our business to achieve scale across all business lines.

Net cash used by investing activities was $217,735 as compared to cash used by investing activities of $72,069 for the three months ended March 31, 2023 and March 31, 2022, respectively.

Net cash provided by operating activities, including merchant reserve funds, prepaid card load assets, customer deposits and net operating lease assets for the six months ended June 30, 2023 was $27.8 million, as compared to net cash used by operating activities of $22.1 million for the six months ended June 30, 2022.

The increase in cash provided by operating activities was due to the increase in prepaid card load obligations versus the same period last year.

Excluding merchant reserves, prepaid card load assets, customer deposits and lease right of use assets and liabilities, our cash provided by operating activities was $1.3 million as compared to cash provided by operating activities of $1.2 million for the six months ended June 30, 2023 and 2022, respectively.

This increase in cash provided by operating activities was primarily attributable to an increase in the Company's net income, due to strong growth in revenue with improved profit margins, alongside relatively flat increases in SG&A. We continue to invest resources and infrastructure in our business to achieve scale across all business lines.

Net cash used by investing activities was $388,628 as compared to cash used by investing activities of $411,818 for the six months ended June 30, 2023 and 2022, respectively.

The primary drivers of our investing activities were capital expenditures associated with capitalized software development costs and other capital investments associated with growing our business lines and associated employee counts.

The decrease in cash used by investing activities was primarily attributable to the reduced amount of fixed asset purchases relative to the same period a year ago.

Net cash used by financing activities for the three months ended March 31, 2023 was $22,017 and net cash used by financing activities for the three months ended March 31, 2022 was $79,982, respectively.

The decrease in cash used by financing activities was due to the Company's stock buyback program, and increased quantity of treasury stock purchased in 2022.

Net cash used by financing activities for the six months ended June 30, 2023 was $47,251 and net cash used by financing activities for the six months ended June 30, 2022 was $573,699.

The decrease in cash used by financing activities was due to the Company's stock buyback program and the increased quantity of treasury stock purchased in 2022.

Off-Balance Sheet Arrangements

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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