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Item 1. Financial Statements

2024-05-15 compared with 2023-11-08 · 274 added, 651 removed, 168 unchanged (85% of the section changed)

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2023

March 31, 2024

December 31, 2023

1 unchanged sentence

Cash and cash equivalents

$ 7,396,285  

$ 5,709,117  

$ 7,053,812 $ 7,155,687

Accounts receivable, net

5,203,618  

4,371,640  

4,862,227 5,564,138

Settlement processing assets

41,765,059  

49,737,068  

41,030,860 44,899,603

Prepaid card load assets

58,839,602  

20,170,761  

28,698,878 31,578,973

Customer deposits

1,578,498  

1,554,122  

400,839  

507,355  

1,808,263 1,865,731

429,577 422,808

Prepaid expenses and other

740,208  

450,389  

687,415 444,071

Current assets before merchant reserves

115,924,109  

82,500,452  

84,571,032 91,931,011

Merchant reserves

5,336,545  

4,909,501  

5,322,095 5,310,095

Total current assets

121,260,654  

87,409,953  

89,893,127 97,241,106

Property and equipment, net

2,904,564  

3,222,816  

3,478,654 3,660,092

Other assets:

Intangibles, net

1,971,460  

2,625,360  

1,535,366 1,753,333

Deferred tax asset, net

1,504,000  

1,504,000 1,504,000

Operating lease right-of-use assets

2,551,443  

2,795,483  

355,357  

2,318,388 2,420,782

335,357 355,357

Total other assets

6,382,260  

7,280,200  

$ 130,547,478  

$ 97,912,969  

Liabilities and stockholders’

5,693,111 6,033,472

$ 99,064,892 $ 106,934,670

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$ 1,274,681  

$ 858,622  

$ 896,293 $ 1,031,141

Accrued expenses

4,150,298  

3,721,108  

2,778,067 3,801,278

Operating lease liabilities, current portion

795,928  

617,319  

490,184 633,616

Equipment loan, current portion

28,896  

56,429  

180,906 107,270

Settlement processing obligations

41,765,059  

49,737,068  

41,030,860 44,899,603

Prepaid card load obligations

58,839,602  

20,170,761  

28,698,878 31,578,973

Customer deposits

1,578,498  

1,554,122  

1,808,263 1,865,731

Current liabilities before merchant reserve obligations

108,432,962  

76,715,429  

75,883,451 83,917,612

Merchant reserve obligations

5,336,545  

4,909,501  

5,322,095 5,310,095

Total current liabilities

113,769,507  

81,624,930  

81,205,546 89,227,707

Non-current liabilities:

Equipment loan, non-current portion

14,994  

Operating lease liabilities, non-current portion

1,892,785  

2,338,947  

Equipment loan, net of current portion

630,913 718,980

Operating lease liabilities, net of current portion

1,955,333 1,919,144

Total liabilities

115,662,292  

83,978,871  

Stockholders’

83,791,792 91,865,831

Commitments and contingencies

Stockholders’ equity:

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

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

- 0 - shares outstanding at March 31, 2024 (unaudited) and December 31, 2023, respectively

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

28,506,406 and 27,044,900 issued, and 26,377,589 and 25,097,963 outstanding at September 30, 2023 (unaudited) and December 31, 2022, respectively

196,932  

195,471  

28,779,206 and 28,661,406 issued, and 26,412,259 and 26,332,523 outstanding at March 31, 2024 (unaudited) and December 31, 2023, respectively

197,194 197,087

Additional paid-in capital

97,105,455  

94,048,603  

97,632,948 97,479,830

Treasury stock, at cost;

2,128,537 and 1,946,937 shares at September 30, 2023 (unaudited) and December 31, 2022, respectively

( 3,974,156 )  

2,366,947 and 2,339,083 shares at March 31, 2024 (unaudited) and December 31, 2023, respectively

( 4,406,973 ) ( 4,362,150 )

Deferred compensation

( 7,078,957 )  

( 6,561,728 ) ( 6,907,775 )

Accumulated deficit

( 71,364,088 )  

( 71,588,341 ) ( 71,338,153 )

Total stockholders’

14,885,186  

13,934,098  

Total liabilities and stockholders’

$ 130,547,478  

$ 97,912,969  

Total stockholders’ equity

15,273,100 15,068,839

Total liabilities and stockholders’ equity

$ 99,064,892 $ 106,934,670

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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

$ 20,321,615 $ 21,446,244

Cost of services

Selling, general and administrative:

16,116,691 16,544,429

4,204,924 4,901,815

Selling, general and administrative expenses:

Stock-based compensation

Other SG&A expenses

499,273 504,574

4,060,225 3,873,219

Depreciation and amortization

Total selling, general and administrative expenses

Operating (loss)

576,154 518,029

Total selling, general and administrative

5,135,652 4,895,822

Operating income (loss)

( 930,728 ) 5,993

Other income and (expense):

Interest income

764,125 92,928

Interest expense

Other income and (expense), net

(Loss) before income taxes

( 13,585 ) ( 662 )

Other income, net

750,540 92,266

Income (Loss) before income tax expense

( 180,188 ) 98,259

Income tax expense

(Loss) Per Share

Basic (loss) per common share:

Diluted (loss) per common share:

70,000 83,426

Net income (Loss)

$ ( 250,188 ) $ 14,833

Income (Loss) Per Share

Basic income (loss) per common share:

$ ( 0.01 ) $ 0.00

Diluted income (loss) per common share:

$ ( 0.01 ) $ 0.00

Weighted average common shares outstanding

Basic - common stock

19,990,862 20,122,972

Basic - restricted stock awards

6,384,900 6,385,900

Weighted average shares used to compute basic earnings per share

26,375,762 26,508,872

26,375,762 27,454,471

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

Operating activities:

$ ( 501,039 )  

$ ( 250,188 ) $ 14,833

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

905,701  

842,901  

653,900  

1,320,567  

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

358,187 300,061

217,967 217,968

Employee stock-based compensation

1,644,658  

1,540,375  

Vendor stock-based compensation

32,600  

Amortization of warrant costs

20,965  

Non-cash revenue from return of treasury stock

( 156,162 )  

499,273 504,574

Changes in current assets and current liabilities:

Accounts receivable

( 831,978 )  

1,410,411  

701,911 ( 846,609 )

Prepaid expenses and other

( 289,819 )  

( 243,344 ) ( 10,616 )

Operating lease right-of-use assets

244,040  

106,516  

14,100  

102,394 ( 31,459 )

( 6,769 ) 12,898

Accounts payable and accrued expenses

845,249  

( 1,158,059 ) 1,128,251

Operating lease liabilities

( 267,553 )  

138,361  

( 107,243 ) 4,548

Prepaid card load obligations

38,668,841  

( 2,880,095 ) ( 1,357,807 )

Merchant reserves

427,044  

12,000 ( 164,886 )

Customer deposits

24,376  

221,393  

Deferred revenue

Net cash provided (used) by operating activities

41,506,374  

( 57,468 ) 20,953

Net cash (used in) operating activities

( 2,791,434 ) ( 207,292 )

Investing activities:

Purchases of property and equipment

( 587,451 )  

Net cash (used) by investing activities

( 587,451 )  

( 176,750 ) ( 217,735 )

Net cash (used in) investing activities

( 176,750 ) ( 217,735 )

Financing activities:

Payments on equipment loan

( 42,527 )  

( 14,431 ) ( 13,488 )

Purchases of treasury stock

( 68,967 )  

Net cash (used) by financing activities

( 111,494 )  

( 44,823 ) ( 8,529 )

Net cash (used in) financing activities

( 59,254 ) ( 22,017 )

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

40,807,429  

( 3,027,438 ) ( 447,044 )

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

32,343,501  

51,591,560  

45,910,486 32,343,501

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

$ 73,150,930  

$ 27,171,849  

$ 42,883,048 $ 31,896,457

Supplemental disclosure of cash flow information:

Cash paid during the period for:

$ 1,588  

$ 3,244  

312,158  

$ 13,585 $ 662

Non-cash financing activity:

Issuance of deferred stock compensation

2,478,506  

166,330  

See accompanying notes to the condensed interim consolidated financial statements.

3 unchanged sentences

Balance at December 31, 2023

Issuance of common stock under equity incentive plan

Deferred compensation amortization

Purchase of treasury stock costs

Net income for the period

Balance at March 31, 2023

Issuance of common stock under equity incentive plan

Reversal of deferred compensation amortization that did not vest

Deferred compensation amortization

Purchase of treasury stock costs

Non-cash return of treasury stock

Net income for the period

Balance at June 30, 2023

28,671,606 $ 197,087 $ 97,479,830 $ ( 4,362,150 ) $ ( 6,907,775 ) $ ( 71,338,153 ) $ 15,068,839

Issuance of common stock under equity incentive plan

107,600 107 153,118 — — — 153,226

Deferred compensation amortization

— — — — 346,047 — 346,047

Purchase of treasury stock costs

— — — ( 44,823 ) — — ( 44,823 )

Net (loss) for the period

Balance at September 30, 2023

— — — — — ( 250,188 ) ( 250,188 )

Balance at March 31, 2024

28,779,206 $ 197,194 $ 97,632,948 $ ( 4,406,973 ) $ ( 6,561,728 ) $ ( 71,588,341 ) $ 15,273,100

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

Warrant compensation costs

1,421,250 1,421 2,638,529 — ( 2,444,054 ) — 195,896

Deferred compensation amortization

— — — — 308,676 — 308,676

Purchase of treasury stock costs

Net (loss) for the period

— — — ( 8,529 ) — — ( 8,529 )

Net income for the period

— — — — — 14,833 14,833

Balance at March 31, 2023

Issuance of common stock under equity incentive plan

Warrant compensation costs

Reversal of deferred compensation amortization that did not vest

Deferred compensation amortization

Purchase of treasury stock costs

Net (loss) for the period

Balance at June 30, 2022

Issuance of common stock under equity incentive plan

Warrant compensation cost

Reversal of deferred compensation amortization that did not vest

Deferred compensation amortization

Purchase of treasury stock

Net (loss) for the period

Balance at September 30, 2022

28,466,150 $ 196,892 $ 96,687,132 $ ( 3,757,556 ) $ ( 7,833,278 ) $ ( 70,848,216 ) $ 14,444,974

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 (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.

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 "third quarter" mean the 

three  month period ended 

September 30, 2023 

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

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" or the "SEC").

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 unaudited 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, 2023, as filed with the Commission on March 27, 2024 ( the "2023 Annual Report").

Results of operations for interim periods are not necessarily indicative of results that may be expected for any other interim periods or the full fiscal year.

References in this quarterly report to "the quarter" or the "first quarter" mean the three month period ended March 31, 2024 or 2023, as the case may be and unless otherwise noted.

Use of Estimates:

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

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

Actual results could differ from those estimates.

Revenue Recognition:

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

The Company complies with ASC 

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

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

Merchants 

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.

Our subsidiary, Usio Output Solutions, Inc., provides bill preparation, presentment, and mailing services.

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 that for each agreement it is acting in the principal role.

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

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

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

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

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

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

Usio Output Solutions, Inc.

("Output Solutions"), a wholly-owned subsidiary of Usio, Inc., provides bill preparation, presentment and mailing services.

Revenue from Output Solutions is recognized when the related services are performed for printing and delivered to USPS for postage.

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

Three Months Ended September 30,

Nine Months Ended September 30,

ACH and complementary service revenue

$ 3,528,133  

$ 3,242,794  

$ 10,948,012  

$ 10,985,722  

Credit card revenue

7,169,066  

6,842,065  

21,624,848  

20,495,984  

Prepaid card services revenue

4,685,212  

1,576,871  

14,710,084  

5,733,428  

Output solutions revenue

5,138,030  

4,734,030  

15,945,447  

13,507,655  

Three Months Ended March 31,

ACH and complementary services

$ 3,881,734 $ 3,340,722

7,560,734 7,339,898

Prepaid card services

3,341,224 4,807,404

Output Solutions

5,537,923 5,958,220

Total revenue

$ 20,520,441  

$ 16,395,760  

$ 63,228,391  

$ 50,722,789  

$ 20,321,615 $ 21,446,244

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.

Prepaid Card Load Assets:

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

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

Prepaid Card Load Assets and Obligations:

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

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

As the prepaid business line continues to expand, card load assets will rise as funds are sent from clients to the Company.

As clients begin to load cash onto cards, the balance of both the prepaid card asset and corresponding liability decrease.

As these balances decrease, the Company recognizes processing revenue and cardholder fees.

As the prepaid business line continues to expand, card load assets will increase as funds are sent from customers to the Company.

As customers begin to load cash onto cards, the balance of both the prepaid card asset and corresponding liability decrease.

As these balances decrease, the Company recognizes processing revenue and cardholder fees.

Customer Deposits:

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

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

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 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 

While this cash is 

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

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

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

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

Three Months Ended March 31,

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

Cash and cash equivalents

$ 6,575,124  

$ 5,102,061  

$ 5,709,117  

$ 7,255,321  

$ 7,155,687 $ 5,709,117

Prepaid card load assets

46,398,476  

15,104,808  

20,170,761  

36,590,893  

31,578,973 20,170,761

Customer deposits

1,563,192  

1,471,214  

1,554,122  

1,364,193  

1,865,731 1,554,122

Merchant reserves

5,141,040  

6,815,073  

4,909,501  

6,381,153  

$ 59,677,832  

$ 28,493,156  

$ 32,343,501  

$ 51,591,560  

5,310,095 4,909,501

$ 45,910,486 $ 32,343,501

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

Cash and cash equivalents

$ 7,396,285  

$ 4,613,123  

$ 7,396,285  

$ 4,613,123  

$ 7,053,812 $ 6,763,813

Prepaid card load assets

58,839,602  

15,318,411  

58,839,602  

15,318,411  

28,698,878 18,812,954

Customer deposits

1,578,498  

1,585,586  

1,578,498  

1,585,586  

1,808,263 1,575,075

Merchant reserves

5,336,545  

5,654,729  

5,336,545  

5,654,729  

$ 73,150,930  

$ 27,171,849  

$ 73,150,930  

$ 27,171,849  

Allowance for Estimated Losses:

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

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

During the 

nine months ended September 30, 2023 and the year ended 

December 31, 2022, there were 

no  losses due to bad debt.

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

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

be incurred in future periods.

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

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

5,322,095 4,744,615

$ 42,883,048 $ 31,896,457

Accounts Receivable/Allowance for Estimated Credit Losses:

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

The Company determines the allowance 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, 2024 and the year ended December 31, 2023, there were no credit losses incurred.

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

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

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

The allowance for credit losses was $ 319,000 at March 31, 2024 and December 31, 2023 .

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

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

At March 31, 2024 and December 31, 2023 , 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 nine  months ended September 30, 2023 and September 30, 2022 , the Company capitalized software costs of $ 513,593 and $ 438,128 , respectively.

During the three months ended March 31, 2024 and March 31, 2023 , the Company capitalized software costs of $ 115,473 and $ 207,732 , respectively.

Valuation of Long-Lived and Intangible Assets:

4 unchanged sentences

and significant negative industry trends.

When management determines that the carrying value of long-lived and intangible assets may not be recoverable, impairment is measured as the excess of the assets’

carrying value over the estimated fair value.

No impairment losses were recorded in 2022  or during the 

nine months ended September 30, 2023 .

When management determines that the carrying value of long-lived and intangible assets may not be recoverable, impairment is measured as the excess of the assets’ carrying value over the estimated fair value.

No impairment losses were recorded in 2023 or during the three months ended March 31, 2024 .

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

however, the Company cannot predict the occurrence of events that might adversely affect the reported values in the future.

Reserve for Processing Losses: 

If, due to insolvency or bankruptcy of one of the Company’s merchant customers, or for any other reason, the Company is not able to collect amounts from its credit card, ACH or prepaid customers that have been properly "charged back" by the customer, or if a prepaid cardholder incurs a negative balance, the Company must bear the credit risk for the full amount of the transaction.

Reserve for Processing Losses:

The Company may require cash deposits and other types of collateral from certain merchants to minimize any such risks.

In addition, the Company utilizes multiple systems and procedures to manage merchant risk.

ACH, prepaid and credit card merchant processing loss reserves are primarily determined by performing a historical analysis of the Company’s loss experience, considering other factors that could affect that experience in the future, such as the types of transactions processed and nature of the merchant relationship with its consumers and the Company’s relationship with the Company’s prepaid card holders.

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

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

At September 30, 2023 and December 31, 2022 , the Company’s reserve for processing losses was $ 793,528  and $ 755,494 , respectively.

At March 31, 2024 and December 31, 2023 , the Company’s reserve for processing losses was $ 859,528 and $ 826,528 , respectively, carried on the Company's balance sheet as an accrued expense.

Legal Proceedings:

The Company may be involved in legal matters arising in the ordinary course of business from time to time.

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

Recently Adopted  

Accounting Pronouncements :

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.

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.

In addition to the legal proceedings disclosed in this quarterly report, the Company may be involved in legal matters arising in the ordinary course of business from time to time.

Litigation is subject to inherent uncertainties, and an adverse result in the legal proceedings disclosed in this quarterly report or other matters that may arise from time to time may harm our business.

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

We adopted this guidance effective January 1, 2023 on a prospective basis.

Our financial statements were not materially impacted upon adoption.

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

For each of the three months ended September 30, 2023  and 2022 , operating lease expenses totaled $ 132,574  and $ 152,401 , respectively.

For each of the three months ended March 31, 2024 and 2023 , operating lease expenses totaled $ 132,574 and $ 179,901 , respectively.

Accrued Expenses

Accrued expenses consisted of the following balances:

September 30, 2023

March 31, 2024

December 31, 2023

Accrued commissions

$ 725,258 $ 2,433,353

Reserve for processing losses

859,528 826,528

Other accrued expenses

593,255 246,444

Accrued taxes

377,740 294,953

Accrued salaries

Total accrued expenses

$ 2,778,067 $ 3,801,278

Equipment Loan

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

The loan is for a period of 36 months with a maturity date of March 20, 2024 and annual interest of 3.95 %.

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

Principal payments for the three months ended 

September 30, 2023  and 

2022 were $ 14,312 and $ 13,762 , respectively, and are reflected on the Company's Condensed Consolidated Statement of Cash Flows.

The loan was for a period of 36 months with a maturity date of March 20, 2024 and annual interest of 3.95 %.

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

Principal payments for the three months ended March 31, 2024 and 2023 were $ 14,312 and $ 13,488 , respectively, and are reflected on the Company's Condensed Consolidated Statement of Cash Flows.

This loan was paid in full on its maturity date.

On October 1, 2023 , the Company entered into a debt arrangement to finance $ 811,819 for the purchase of an Output Solutions folder and inserter.

The loan is for a period of 66 months with a maturity date of April 5, 2029 and annual interest of 6.75 %.

Monthly principal and interest payments are required in the amount of $ 16,017 , with interest only payments required for the first 6 months of the loan term.

Total interest and principal payments on this folder and inserter equipment loan were $ 13,481 for the first quarter of 2024.

Stockholders' Equity

Stock Warrants :

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

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

and (ii) 

120,000 warrants vested annually over 4 years in 30,000 warrant increments beginning on July 31, 2019 and ending on July 31, 2022.

The exercise price for the initial 30,000 warrants was $ 1.80 per share.

The exercise price for the remaining 120,000 warrants was the lesser of $ 2.00 per share or one hundred and twenty percent ( 120 %) of the market price of the Company's common stock on the vesting date of the warrant.

At the time of issuance, the warrants were valued using the Black-Scholes option pricing model.

Assumptions used were as follows:

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

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

(iii) the contractual life is 5 years;

(iv) the dividend yield is 0%;

and (v) the volatility is 64.6 %.

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

The reduction of revenues as a result of this amortization recorded for the nine months ended September 30, 2023 and 2022 was $ 0 and $ 20,965 , respectively.

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

On December 

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

and a term of five years in three equal tranches beginning on December 15, 2021 

and become fully vested on December 15, 2023.

On December 15, 2020, the Company issued warrants to purchase 945,599 shares of the Company's common stock with an initial exercise price of $ 4.23 per share, subject to adjustment as provided in the warrant agreement governing the warrants, to Information Management Solutions, LLC ("Management Solutions").

Management Solutions' warrants vest and become exercisable annually over three years in three equal tranches beginning on December 15, 2021 and become fully vested on December 15, 2023.

Each warrant is exercisable for a period of five years beginning on the date it vests.

At the time of issuance, these warrants were valued using the Black-Scholes option pricing model.

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(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 $ 82,842 in the nine months ended 

September 30, 2023 and 2022 .

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.

and (v) the volatility was 59.9%.

The fair value of the warrants amounted to $ 552,283 and was recorded as an increase in the customer list asset and a corresponding amount to additional paid in capital.

The amortization of these warrants, which is included in the total amortization expense of the customer list intangible asset, totaled $ 27,614 in each of the three months ended March 31, 2024 and 2023 .

Net (Loss) Per Share

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

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

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

three and nine months ended September 30, 2023 and September 30, 2022 .

Three Months Ended September 30,

Nine Months Ended September 30,

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

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

Unvested restricted stock awards have the right to receive nonforfeitable dividends on the same basis as common shares;

therefore, unvested restricted stock is considered a participating security for the purpose of calculating EPS.

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, 2024 and March 31, 2023 .

Three Months Ended March 31,

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

$ ( 250,188 ) $ 14,833

19,990,862 20,122,972

Restricted stock awards

6,384,900 6,385,900

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

26,375,762 26,508,872

Effect of dilutive securities

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

Basic (loss) per common share

Diluted (loss) per common share and common share equivalent

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

Nine Months Ended September 30,

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

26,375,762 27,454,471

Basic income (loss) per common share

$ ( 0.01 ) $ 0.00

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

$ ( 0.01 ) $ 0.00

The awards and options to purchase shares of common stock that were outstanding at March 31, 2024 and March 31, 2023 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

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.

945,599 945,599

Deferred tax assets and liabilities are recorded based on the difference between financial reporting and tax basis of assets and liabilities and are measured by the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.

Deferred tax assets are computed with the presumption that they will be realizable in future periods when taxable income is generated.

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

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

recognition threshold are recognized.

The Company has recognized a net deferred tax asset of approximately $ 1.5 million and has recorded a valuation allowance of approximately $ 4.6 million against the other deferred tax assets.

Income tax benefits that meet the “more likely than not” recognition threshold are recognized.

The Company has recognized a deferred tax asset of approximately $ 1.5 million recorded net of a valuation allowance of approximately $ 6.1 million.

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, 2022 , the Company had available net operating loss carryforwards of approximately $ 23.9 million.

At December 31, 2023 , the Company had available net operating loss carryforwards of approximately $ 23.3 million.

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

Net operating loss carryforwards generated after 2017 do not expire.

Net operating loss carryforwards totaling $ 9.1 million expired in 

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

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

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

$ 1,768,851 2025

1,350,961 2026

1,740,724 2027

1,267,336 2037

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, 2023 and 

September 30, 2022 , the Company purchased a total of $ 3,483 and $ 22,478 , respectively, of corporate imprinted sportswear, promotional items, and caps from Angry Pug Sportswear.

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

During the three months ended March 31, 2024 and March 31, 2023 , the Company purchased a total of $ 0 and $ 1,835 , 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 of the Company's common stock for $ 47,930  in a private transaction at the closing price on 

January 6, 2022 

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

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

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

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

Effective on 

February 17, 2023 ,  the Company entered into an employment agreement with Greg Carter, the Company’s Executive Vice President, Payment Acceptance.

On February 24, 2024, we repurchased 2,075 shares of our common stock for $ 3,258 in a private transaction based on the $ 1.57 per share closing price on February 24, 2024 from Tom Jewell, the Company's former Chief Financial Officer, to cover his share of taxes in connection with equity grants.

On February 24, 2024, we repurchased 4,911 shares of our common stock for $ 7,710 in a private transaction based on the $ 1.57 per share closing price on February 24, 2024 from Louis Hoch, the Company's Chairman, President, Chief Executive Officer and Chief Operating Officer, to cover his share of taxes in connection with equity grants.

On November 18, 2023, we repurchased 2,619 shares of our common stock for $ 4,452 in a private transaction based on the $ 1.70 per share closing price on November 18, 2023 from Tom Jewell, the Company's former Chief Financial Officer, to cover his share of taxes in connection with equity grants.

On November 18, 2023, we repurchased 3,927 shares of our common stock for $ 6,675 in a private transaction based on the $ 1.70 per share closing price on November 18, 2023 from Louis Hoch, the Company's Chairman, President, Chief Executive Officer and Chief Operating Officer, to cover his share of taxes in connection with equity grants.

Effective on February 17, 2023, the Company entered into an employment agreement with Greg Carter, the Company’s Executive Vice President, Payment Acceptance.

Under the terms of this agreement, Mr.

Carter receives an annual salary of 

$250,000,  Override/Commissions of 

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

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

one -time signing bonus of $ 40,000 . 

On February 8, 2023, the Company granted 

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

10 -year vesting period and 

273,000 RSUs with a 

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

Executive officers and Directors included in the 

10 -year restricted stock grant were Louis Hoch ( 330,000  shares), Tom Jewell ( 200,000  shares), Greg Carter ( 100,000  shares) and Houston Frost ( 100,000  shares).

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

On March 16, 2023, the Company granted an additional 69,000  RSUs with a 

three -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).

Subsequent Events

On October 1, 2023, the Company entered into a debt arrangement to finance $ 811,819 for the purchase of an Output Solutions folder and inserter.

The loan is for a period of 66 months with a maturity date of April 5, 2029 and annual interest of 6.75 %.

Monthly principal and interest payments are required in the amount of $ 16,017 .

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

FORWARD-LOOKING STATEMENTS DISCLAIMER

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties.

If used in this report, the words "will," "anticipate," "believe," "estimate," "intend," and other words or phrases of similar import are intended to identify forward-looking statements.

You should not place undue reliance on these forward-looking statements.

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

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

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

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

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

in July 1998 and incorporated in the State of Nevada.

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

to Usio, Inc.

Our principal offices are located at 3611 Paesanos Parkway, Suite 300, San Antonio, TX 78231.

Our telephone number is (210) 249-4100. 

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

In addition, we offer customizable prepaid cards which businesses use for expense management, incentives, refunds, claims and disbursements, as well as unique forms of compensation such as per diem payments, government disbursements, and similar payments.

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

Our UsioCard platform supports Apple Pay®, Samsung Pay™

and Google Pay™.

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

In our over 25-year history, we have created a loyal customer base that relies on us for our convenient, secure, innovative and adaptive services and technology, and we have built long-standing and valuable relationships with premier banking institutions such as Fifth-Third Bank, Sunrise Bank, and Wells Fargo Bank.

Our strategy is to drive growth through a leveraged, one to many, distribution model in the software development marketplace.

Following the completion of the Singular Payments acquisition, we launched our payment facilitation, PayFac, platform called "PayFac-in-a-Box" in late 2018 targeting partnership opportunities with app and software developers in bill-centric verticals, such as legal, healthcare, property management, utilities and insurance.

The PayFac-in-a-Box platform 'integration layer' offers a simple integration experience for technology companies who are looking to monetize payments within an existing base of downstream clients.

We believe that the added value of offering our integration partners access to credit card, debit card, ACH and prepaid card issuance capabilities through a single vendor partner relationship in face-to-face, mobile and virtual payment acceptance environments provides a true single channel commerce experience through an application programming interface, API.

With the acquisition of the assets of Information Management Solutions, LLC, or IMS, in December 2020, we began to offer additional services relating to electronic bill presentment, document composition, document decomposition and printing and mailing services serving hundreds of customers representing a wide range of industry verticals, including utilities and financial institutions through our wholly-owned subsidiary, Usio Output Solutions, Inc., or Output Solutions.  This product offering provides an outsourced solution for document design, print and electronic delivery to potential customers and entities looking to reduce postage costs and increase efficiencies.

Summary of Results

We believe that our success will continue to depend in large part on our ability to (a) grow revenues, (b) manage our operating expenses, (c) add quality customers to our client base, (d) meet evolving customer requirements, (e) adapt to technological changes in an emerging market, and (f) assimilate current and future acquisitions of companies and customer portfolios.

We will continue to invest in our sales force and technology platforms to drive revenue growth.

In particular, we are focused on growing our ACH merchants, adding new software integrators, growing our electronic bill presentment, document composition, document decomposition, printing and mailing services business while providing incremental services to existing merchants.

In addition to our near-term growth opportunities, we are focused on leveraging and optimizing the infrastructure of our business allowing expansion of our payment processing and mail and printing capabilities without significantly increasing our operating costs.

Total company revenues continue to grow, and net new client implementations and onboards occur regularly due to our ability to address the needs of our market.

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

During the third quarter of 2023, the number of credit card transactions processed by us increased by 2% versus the third quarter of 2022. The volume of credit card dollars processed during the third quarter of 2023 increased by 5% compared to the same time period in 2022.

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

ACH (eCheck) transaction counts during the third quarter of 2023 decreased by 21% compared to the third quarter of 2022.

Returned check transactions processed during the third quarter of 2023 decreased by 31% compared to the third quarter of 2022. Electronic check dollars processed during the third quarter of 2023 decreased by 11% compared to the third quarter of 2022.

The decreases in eCheck transactions, returns, and electronic check dollar volumes processed were primarily attributable to a softer market for our customers, resulting in less ACH traffic.

Prepaid card load volumes processed during the third quarter of 2023 increased by 239% compared to the third quarter of 2022.

Prepaid card transaction counts processed during the third quarter of 2023 increased by 23% compared to the third quarter of 2022.

Prepaid card purchase volume during the third quarter of 2023 increased by 152% compared to the third quarter of 2022. This increase occurred primarily due to the continued traction with, and implementation of, guaranteed income and government assistance programs alongside expansion in the corporate expense and healthcare markets.

Total dollar volumes processed across all business lines in the third quarter of 2023 were $1.4 billion compared to $1.4 billion processed in the third quarter of 2022, flat over the prior year quarter.

Material Trends and Uncertainties

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

Our lost revenue in the ACH and complementary services business was approximately $3 million in third and fourth quarter of 2022 and $2 million in the first and second quarter of 2023.

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

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

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

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

As of September 30, 2023 the Company had repurchased $69,589 of stock as part of the buyback program, which may become subject to the IRA's 1% excise tax if the Company meets or exceeds the IRA's 1% excise tax repurchase minimum of $1 million in stock buy backs.

As the Federal Reserve works to fight economic inflation, the federal funds rate has experienced rapid growth in the past twelve months.

This has resulted in the Company receiving more favorable interest rates on it's current cash balances, amounting to $512,089 in interest income in the three months ending September 30, 2023, and $823,861 in the nine months ended September 30, 2023.

Should the Federal Reserve begin lowering the federal funds rate in the future, this incremental source of income would decline.

We continue to work closely with our bank partners, to ensure we effectively manage our cash balances, and monitor the Federal Reserves monetary policy decisions.

Critical Accounting Policies and Estimates

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

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

On an ongoing basis, we evaluate our estimates, including those related to the reported amounts of revenues and expenses, bad debt, investments, intangible assets, income taxes, contingencies and litigation.

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

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

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

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

Reserve for Processing Losses

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

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

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

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

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

This loss has been included in our results of operations for the nine months ended September 30, 2023.

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

Currently, our reserve for processing losses is $793,528 as of September 30, 2023, to be used if future losses are incurred.

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

Reserve for Doubtful Accounts

We establish an allowance for accounts receivable, which represents our estimate of current expected allowances for doubtful accounts.

This evaluation process is subject to numerous estimates and judgements.

This allowance is primarily based on expectations of unrecoverable receivables based on historical losses, as well as forecasted trends in customer instability, and general market conditions.

The Company reviews this allowance quarterly on an account-by-account basis. Projected loss rates, inclusive of historical loss data and macroeconomic factors, are applied to the principal amount of our merchant and consumer receivables.

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

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

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

Accounting for Income Taxes

Our annual tax rate is based on our income, statutory tax rates, and tax planning opportunities available to us.

Tax laws are complex and subject to different interpretations by the taxpayer and respective government taxing authority.

Significant judgement is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties.

We review our tax positions yearly and adjust the balances as new information becomes available. 

Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in future years.

Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards.

We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings, and available tax planning strategies.

These rely heavily on estimates that are based on a number of factors, including historical data, and business forecasts.

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

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

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

The Company’s federal returns for the past four years remain open to examination.

The Company is subject to the Texas margin tax and Tennessee franchise tax.

Management is not aware of any tax positions that would have a significant impact on its financial position.

Revenue Recognition

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

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

Specifically, the determination of whether we are a principal to a transaction (gross revenue) or an agent (net revenue) can require considerable judgment.

Further, we provide incentive payments to consumers and merchants.

Evaluating whether these incentives are a payment to a customer, or consideration payable on behalf of a customer, requires judgment by management.

Incentives determined to be made to a customer, or payable on behalf of a customer, are recorded as a reduction to gross revenue.

Changes in judgments with respect to these assumptions and estimates could impact the amount of revenue recognized.

Key Business Metrics - Non-GAAP Financial Measures

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

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

The Company defines EBITDA as operating income (loss), before interest, taxes, depreciation and amortization of intangibles.

The Company defines adjusted EBITDA as EBITDA, as defined above, plus non-cash stock option costs and certain non-recurring items, such as costs related to acquisitions.

The Company defines adjusted EBITDA margins as adjusted EBITDA, as defined above, divided by total revenues.

The Company defines adjusted operating cash flow as net cash provided (used) by operating activities, less changes in prepaid card load obligations, customer deposits, merchant reserves and net operating lease assets and obligations.

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

These measures may not be comparable to similarly titled measures reported by other companies.

Management uses EBITDA, adjusted EBITDA, adjusted EBITDA margins and adjusted operating cash flows as key indicators of the Company's operating performance and ability to fund acquisitions, capital expenditures and other investments and, in the absence of refinancing options, to repay debt obligations. 

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

We reported an adjusted EBITDA loss of $0.1 million for the quarter ended September 30, 2023, as compared to an adjusted EBITDA loss of $0.5 million for the same period in the prior year.

The increase in adjusted EBITDA in the 2023 quarter was attributable to strong revenue growth and increased profit margins versus the prior year period.

The following tables set forth reconciliations of Operating Income (Loss) to EBITDA;

EBITDA to Adjusted EBITDA;

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

Three Months Ended September 30,

Nine Months Ended September 30,

Reconciliation from Operating (Loss) to Adjusted EBITDA:

Operating (Loss)

Depreciation and amortization

Non-cash stock-based compensation expense, net

Adjusted EBITDA

Calculation of Adjusted EBITDA margins:

Adjusted EBITDA

Adjusted EBITDA margins

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

September 30, 2023

September 30, 2022

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

Net cash provided (used) by operating activities

Operating cash flow (used) adjustments:

Prepaid card load obligations

Customer deposits

Merchant reserves

Operating lease right-of-use assets

Operating lease liabilities

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

Adjusted operating cash flows provided (used)

We reported cash provided by adjusted operating cash flows of $2.4 million for the nine months ended September 30, 2023 (after adjusting for the impact of operating lease right-of-use assets, operating lease liabilities, prepaid card load obligations, customer deposits, and merchant reserves), as compared to $1.1 million used in the nine months ended September 30, 2022.

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

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

Use of Non-GAAP Financial Measures

EBITDA, adjusted EBITDA, adjusted EBITDA margins and adjusted operating cash flows should be considered in addition to, not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. They are not measurements of our financial performance under GAAP and should not be considered as alternatives to revenue, net income (loss), or cash provided (used) by operating activities, as applicable, or any other performance measures derived in accordance with GAAP and may not be comparable to other similarly titled measures of other businesses.

EBITDA, adjusted EBITDA, adjusted EBITDA margins and adjusted operating cash flows have limitations as analytical tools and you should not consider these non-GAAP measures in isolation or as a substitute for analysis of our operating results as reported under GAAP.

Results of Operations

Our revenues are principally derived from providing integrated electronic payment services to merchants and businesses, including credit and debit card-based processing services and transaction processing via the Automated Clearing House, or ACH, network and program management and processing of prepaid debit cards. With the acquisition of the assets of IMS in December 2020, we began to offer additional output solution services relating to electronic bill presentment, document composition, document decomposition and printing and mailing services serving hundreds of customers representing a wide range of industry verticals, including utilities and financial institutions.

Three Months Ended September 30,

ACH and complementary service revenue

Credit card revenue

Prepaid card services revenue

Output solutions revenue

Total Revenue

Nine Months Ended September 30,

ACH and complementary service revenue

Credit card revenue

Prepaid card services revenue

Output solutions revenue

Total Revenue

Consolidated revenue for the quarter ended September 30, 2023 increased by 25% to $20.5 million, as compared to $16.4 million for the quarter ended September 30, 2022 due to continued traction and growth in our prepaid card and Output Solutions lines of business, with modest growth in our ACH and credit card lines of business, as our Payfac strategy continues to be implemented, and ACH now compares more favorably to fiscal quarters following our exit from the crypto space in July of 2022, resulting in a return of positive quarterly growth metrics.

Consolidated revenue for the nine months ended September 30, 2022 increased by 25% to $63.2 million, as compared to $50.7 million for the nine months ended September 30, 2022 primarily as a result of strong growth in our prepaid card and Output Solutions lines of business as a result of new client implementation and the execution and expansion of existing customer contracts.

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

Cost of Services

Cost of services includes the cost of personnel dedicated to the creation and maintenance of connections to third-party payment processors and the fees paid to such third-party providers for electronic payment processing services.

Through our contractual relationships with our payment processors and sponsoring banks, we process ACH and debit, credit and prepaid card transactions on behalf of our customers and their consumers.

We pay volume-based fees for debit, credit, ACH and prepaid transactions initiated through these processors or sponsoring banks, and pay fees for other transactions such as returns, notices of change to bank accounts and file transmission.

Cost of service fees also include fees paid to referral agents and partners.

Cost of services increased by $3.1 million, or 23%, to $16.3 million for the quarter ended September 30, 2023, as compared to $13.3 million for the same period in the prior year, due to increased revenue growth driving similar increases to our processing, banking and transactional expenses. 

Cost of services increased by $8.3 million, or 20%, to $49.1 million for the nine months ended September 30, 2023, as compared to $40.8 million for the same period in the prior year, due to increased revenue growth driving similar increases to our processing, banking and transactional expenses. 

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

Gross profit increased by 34% to $4.2 million for the quarter ended September 30, 2023, as compared to $3.1 million for the same period in the prior year.

Similarly, gross margin percentage of revenue was 20.4% for the quarter ended September 30, 2023 as compared to 19.1% in the prior year period.

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

Gross profit increased by 42% to $14.1 million for the nine months ended September 30, 2023, as compared to $9.9 million for the same period in the prior year.

Similarly, gross margin percentage was 22.3% for the nine months ended September 30, 2023 as compared to 19.5% in the prior year period.

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

Stock-based Compensation

Stock-based compensation expenses were $0.6 million for the quarter ended September 30, 2023 as compared to $0.5 million for the quarter ended September 30, 2022, an increase of 15.3% due to stock grants made to retain and attract employees.

Stock-based compensation expenses were $1.7 million for the nine months ended September 30, 2023 as compared to $1.5 million for the nine months ended September 30, 2022, a marginal increase of 8.9% due to stock grants made to retain and attract employees.

Other Selling, General and Administrative Expenses

Other selling, general and administrative expenses, or other SG&A, were $4.3 million for the quarter ended September 30, 2023 as compared to $3.7 million in the prior year quarter. The increase in other SG&A for the quarter ended September 30, 2023 reflects the occurrence of some one-time expenses related to professional services and marketing initiatives alongside increased travel to sales-related events during the quarter.

Other SG&A expenses are expected to reduce in subsequent quarters.

Other selling, general and administrative expenses, or other SG&A, were $12.0 million for the nine months ended September 30, 2023 as compared to $11.3 million in the prior year nine-month period, a 6% increase. The increase in other SG&A for the nine months ended September 30, 2022 reflects the occurrence of some one-time expenses related to professional services and marketing initiatives alongside increased travel to sales-related events during the quarter ended September 30, 2023.

Other SG&A expenses are expected to reduce in subsequent quarters.

Depreciation and Amortization  

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

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

Depreciation and amortization expense totaled $0.5 million and $0.6 million for the quarters ended September 30, 2023 and 2022, respectively.

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

Depreciation and amortization expense totaled $1.6 million and $2.2 million for the nine months ended September 30, 2023 and 2022, respectively.

Other Income (Expense)

Other income (expense), net was $561,696 for the quarter ended September 30, 2023 compared to $1,785 for the quarter ended September 30, 2022.

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

Other income (expense), net was $872,273 for the nine months ended September 30, 2023 compared to $1,231 for the nine months ended September 30, 2022.

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

Net Income (Loss)

We reported a net loss of $0.7 million for the quarter ended September 30, 2023, as compared to a net loss of $1.8 million for the same period in the prior year. The increase in net income was attributable to increases in revenue combined with increased profit margins.

We reported a net loss of $0.5 million for the nine months ended September 30, 2023, as compared to a net loss of $5.3 million for the same period in the prior year. The increase in net income was attributable to increases in revenue combined with increased profit margins.

We may incur future operating losses.

To maintain, grow and achieve profitability, we must, among other things, continue to incrementally grow and maintain our customer base, sell our ACH, credit card, prepaid product offerings and Output Solutions offerings to existing and new customers, implement successful marketing strategies, maintain and upgrade our technology and transaction-processing systems, provide superior customer service, respond to competitive developments, attract, retain and motivate personnel, and respond to unforeseen industry developments among other factors.

Liquidity and Capital Resources

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

As of September 30, 2023, we had cash and cash equivalents of $7.4 million.

For the nine months ended September 30, 2023, cash provided by operations was $41.5 million.

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

We believe we have sufficient liquidity to operate for at least the next 12 months from the date of filing this report.

Cash from operating activities is dependent on our net income (loss), less depreciation, amortization, bad debt, deferred federal income tax, non-cash stock-based compensation, the amortization of warrant costs, and net of the changes in our operating assets and liabilities.

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

We reported a net loss of $0.7 million for the quarter ended September 30, 2023.

At September 30, 2023, we had an accumulated deficit of $71.4 million.

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

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

For example, on November 19, 2021, Voyager Digital purchased 142,857 unregistered shares of common stock at a price of $7.00 per share in a private offering.

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

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

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

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

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

Net cash provided by operating activities, including merchant reserve funds, prepaid card load assets, customer deposits and net operating lease assets for the nine months ended September 30, 2023 was $41.5 million, as compared to net cash used by operating activities of $22.8 million for the nine months ended September 30, 2022.

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

Excluding merchant reserves, prepaid card load assets, customer deposits and lease right of use assets and liabilities, our cash provided by operating activities was $2.4 million as compared to cash used by operating activities of $1.1 million for the nine months ended September 30, 2023 and 2022, respectively.

The Company believes non-GAAP adjusted operating cash flow to be a more accurate indicator of cash contributions that can be used to sustain current and future business operations.

For more information relating to this Non-GAAP financial measure, including a reconciliation from net cash provided (used) by operating activities to Non-GAAP adjusted Operating Cash Flow (used), please see "Key Business Metrics - Non-GAAP Financial Measures" in this Report.

This increase in cash provided by operating activities was primarily attributable to a decrease in the Company's net loss, due to strong growth in revenue with improved profit margins, alongside nominal increases in SG&A. We continue to invest resources in the infrastructure of our business such as the retention, and acquisition of employees, sales-related travel, and marketing efforts to achieve scale across all business lines.

Net cash used by investing activities was $587,451 as compared to cash used by investing activities of $642,764 for the nine months ended September 30, 2023 and 2022, respectively.

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

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

Net cash used by financing activities for the nine months ended September 30, 2023 was $111,494 and net cash used by financing activities for the nine months ended September 30, 2022 was $935,513.

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

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.

Carter will receive an annual salary of $250,000, Override/Commissions of 10 % of the actual cash commissions paid to salespersons under direct management of Mr.

Carter, to be paid quarterly, and the payment of a one -time signing bonus of $ 40,000 .

On February 8, 2023, the Company granted 1,403,000 shares of restricted common stock with a 10 -year vesting period and 273,000 restricted stock units ("RSUs") with a 3 -year vesting period to employees and Directors as a performance bonus at an issue price of $ 1.75 per share.

RSUs vest in equal tranches over their 3 -year vesting period, while 10 -year grants are cliff vesting, and vest in full at the conclusion of their 10 -year vesting period.

Upon vesting, employees and Directors will receive issued shares.

Executive officers and Directors included in the 10 -year restricted stock grant were Louis Hoch ( 330,000 shares), Tom Jewell ( 200,000 shares), Greg Carter ( 100,000 shares) and Houston Frost ( 100,000 shares).

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

On March 16, 2023, the Company granted 69,000 RSUs with a 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).

On November 30, 2023, Tom Jewell, the Senior Vice President, Chief Financial Officer, and principal financial and accounting officer of the Company, notified the Company of his intention to retire.

On December 11, 2023, Mr.

Jewell entered into a Separation and Mutual Release of Claims Agreement (“Separation Agreement”) with the Company.

Pursuant to the Separation Agreement, Mr.

Jewell will be paid installment payments equal to his current base salary until and including April 18, 2024.

Additionally, Mr.

Jewell will be permitted to retain any unvested Company stock options or other equity awards, which shall vest in accordance with the applicable schedules.

Jewell will also receive all employee benefits including, but not limited to, health, dental, vision and life insurances that he was receiving prior to his execution of the Agreement until April 18, 2024.

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