What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-06 compared with 2024-08-14 · 117 added, 86 removed, 258 unchanged (44% of the section changed)

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For example, our capabilities allow merchants to convert a paper check to an e-check or receive card authorization at the point-of-sale, allow our merchants’ respective customer service representatives to take e-check or card payments from their consumers by telephone, and enable their consumers to make e-check or card payments directly through the use of a website or by calling an interactive voice response telephone system.

Similarly, our PINless debit product allows merchants to debit and credit accounts in real-time.

Similarly, our PINless debit product allows merchants to debit and credit accounts in real-time utilizing the debit card networks.

Card-Based Services.

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Through our December 2014 acquisition of the assets of Akimbo Financial, Inc., we added a highly talented technical staff of industry subject matter experts and an innovative cardholder service platform including cardholder web and mobile applications and launched what is now our UsioCard business.

As a result of this acquisition, through our subsidiary, FiCentive, Inc., we offer customizable prepaid cards which companies 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.

As a result of this acquisition, through our subsidiary, FiCentive, Inc., we offer customizable prepaid cards which customers 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.

This comprehensive money disbursement platform allows businesses to pay their contractors, employees, or other recipients by choosing among a prepaid debit Mastercard, real-time deposit to a checking account, traditional ACH, direct deposit or paper check.

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This growth assists us in maintaining our diversified offerings, and remain relevant by developing payment platforms that address the current needs of our marketplace.

In the second quarter of 2024, our revenues decreased 6% to $20.1 million, as compared to $21.4 million for the quarter ended June 30, 2023 due primarily to lower breakage revenues from our prepaid card line of business as the COVID incentive programs continue to wind down.

In the third quarter of 2024, our revenues increased 2% to $21.3 million, as compared to $21.0 million for the quarter ended September 30, 2023, due primarily to strong growth in our ACH and complimentary services line of business, helping to offset lower breakage revenues from our prepaid card line of business as the COVID incentive programs continued to wind down.

These programs represented significant revenues in 2023, and were expected to decline in 2024 as they were wound down.

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Carefully evaluating our existing SG&A expenses, and balancing them against the need for client implementation, support, and our technology staff to drive product innovation, will guide our operational strategies while maintaining a focus on efficiencies and profitability.

Other SG&A expenses in the quarter increased nominally by $0.1 million, to $4.0 million as compared to $3.9 million in the prior year quarter.

Similarly, for the six months ended June 30, 2024, SG&A expenses were up $0.3 million, reflecting the occurrence of some one-time expenses related to marketing initiatives and increased travel to sales-related events during the first quarter of 2024, alongside increases in salary and employee benefit expenses.

We believe these operating expenses will be nominally higher versus the prior year to support the anticipated acceleration in revenue growth.

Other SG&A expenses in the quarter decreased by $0.2 million, to $4.1 million as compared to $4.3 million in the prior year quarter.

For the nine months ended September 30, 2024, SG&A expenses were relatively flat, reflecting the incurrence of some one-time expenses related to marketing initiatives and increased travel to sales-related events during the first quarter of 2024, alongside increases in salary and employee benefit expenses.

However improved expense management, alongside workforce efficiencies due to new equipment in our Output Solutions line of business contributed to lower SG&A expenses in the third quarter.

While we anticipate slightly increased SG&A expense sequentially in the fourth quarter of 2024, we expect year over year SG&A to remain relatively flat.

For more information, see "-Results of Operations - Other Selling, General and Administrative Expenses" below.

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We believe by regularly attending payments focused conferences, webinars, and training sessions, alongside our consistent communication with customers and clients, enables us to be informed of the most current, and future, applications and evolutions of financial technologies.

This allows us to implement new feature functionality to existing products, and introduce new payment methods.

We believe that this allows us to implement new feature functionality to existing products, and introduce new payment methods.

This has led to our evolution from being an EBPP provider at the Company's founding, to the diverse payment provider we are today, with offerings such as ACH processing, PINless debit, prepaid card issuance, and credit card processing, especially in the digital marketplace, to match the need for diversified payment options in an increasingly ecommerce driven world.

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While there are many components to the revenues of our business units that could impact revenue growth or decline, these processing metrics offer an indication to the current health of our overall company and success in our strategies to grow the business.

During the second quarter of 2024, the number of credit card transactions processed by us increased by 19% versus the second quarter of 2023.

The volume of credit card dollars processed during the second quarter of 2024 increased by 10% compared to the same time period in 2023.

During the third quarter of 2024, the number of credit card transactions processed by us increased by 22% versus the third quarter of 2023.

The volume of credit card dollars processed during the third quarter of 2024 increased by 7% compared to the same time period in 2023.

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 2024 increased by 10% compared to the second quarter of 2023.

Returned check transactions processed during the second quarter of 2024 increased by 13% compared to the second quarter of 2023.

Electronic check dollars processed during the second quarter of 2024 increased by 36% compared to the second quarter of 2023.

ACH (eCheck) transaction counts during the third quarter of 2024 increased by 25% compared to the third quarter of 2023.

Returned check transactions processed during the third quarter of 2024 increased by 18% compared to the third quarter of 2023.

Electronic check dollars processed during the third quarter of 2024 increased by 61% compared to the third quarter of 2023.

The increases in eCheck transactions, returns, and electronic check dollar volumes processed were primarily attributable to traction in our ACH sales efforts driving new merchant onboarding and processing.

Prepaid card load volumes processed during the second quarter of 2024 increased by 55% compared to the second quarter of 2023.

Prepaid card transaction counts processed during the second quarter of 2024 increased by 58% compared to the second quarter of 2023.

Prepaid card purchase volume during the second quarter of 2024 increased by 39% compared to the second quarter of 2023.

Prepaid card load volumes processed during the third quarter of 2024 increased by 21% compared to the third quarter of 2023.

Prepaid card transaction counts processed during the third quarter of 2024 increased by 56% compared to the third quarter of 2023.

Prepaid card purchase volume during the third quarter of 2024 increased by 23% compared to the third quarter of 2023.

This increase occurred primarily due to the continued traction with, and implementation of, corporate expense and healthcare markets, alongside guaranteed income and government assistance programs.

Total dollar volumes processed across all business lines in the second quarter of 2024 were $1.7 billion compared to $1.3 billion processed in the second quarter of 2023, up 29% over the prior year quarter, attributable to processing volume growth across all of our business lines.

Total dollar volumes processed across all business lines in the third quarter of 2024 were $2.0 billion compared to $1.4 billion processed in the third quarter of 2023, up 46% over the prior year quarter, attributable to processing volume growth across all of our business lines.

Material Trends and Uncertainties

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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 2024 and future years.

As of June 30, 2024 the Company had repurchased $149,769 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.

During the nine months ended September 30, 2024, the Company had repurchased $393,766 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 broader implications of the macroeconomic environment, including uncertainty around recent international conflicts including the Russia - Ukraine and Israel - Hamas conflicts, supply chain shortages, a recession globally or in markets in which we operate, higher inflation rates, higher interest rates, and other related global economic conditions, remain unknown.

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If these conditions continue or worsen, they could adversely impact our future financial and operating results.

As the Federal Reserve has worked to fight economic inflation, the federal funds rate has experienced rapid growth from the beginning of 2022 into the third quarter of 2023, and has remained flat since then.

This has resulted in the Company's receiving more favorable interest rates on its current cash balances, amounting to $1,435,398 in interest earnings in the six months ended June 30, 2024.

Of this interest, $1,212,774 was recognized as revenue in the respective business lines for which the cash balances are held, and $222,624 as interest income.

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

As the Federal Reserve has worked to fight economic inflation, the federal funds rate has experienced rapid growth from the beginning of 2022 into the third quarter of 2023, and remained flat until September 2024 when the federal funds rate was lowered.

This resulted in the Company's receiving more favorable interest rates on its current cash balances, amounting to $0.9 million in interest earnings in the nine months ended September 30, 2024.

Of this interest, $1.8 million was recognized as revenue in the respective business lines for which the cash balances are held, and $348,188 as interest income.

In September 2024, the Federal Reserve lowered the federal funds rate 0.50% which has resulted in lower interest earnings on our interest bearing cash accounts.

Should the Federal Reserve continue 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 Reserve's monetary policy decisions.

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While we recognized high levels of growth in 2023, a significant portion of this growth was due to the Prepaid card business benefitting from outsized growth in 2022 and 2023 as a result of large incentive programs brought on by the Covid-19 pandemic.

Those programs have begun winding down, requiring new card programs and clients being brought on to replace prior revenues.

Those programs have been winding down in 2024, requiring new card programs and clients being brought on to replace prior revenues.

While we expect growth to continue, it is possible that we may not see similar rates of expansion moving forward.

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Subsequent to the first quarter of 2023, we have not had, and do not expect to have in the immediate future, similar processing losses, although there can be no assurance that such losses will not occur.

Our reserve for processing losses was $892,528 as of June 30, 2024, to be used if future losses are incurred.

Our reserve for processing losses was $925,528 as of September 30, 2024, 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, and are recorded on the Company's balance sheet as an accrued expense.

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As there is no authoritative guidance under GAAP for accounting for grants to for-profit business entities, the Company accounts for the grant by analogy to Accounting Standards Codification 450-30 – Gain Contingencies (“ASC 450-30”).

During the three months ended June 30, 2024, the Company recorded an employee retention credit of $0.3 million upon confirmation of eligibility for the employee retention credit.

During the three and nine months ended September 30, 2024, the Company recorded an employee retention credit of $0.0 and $0.3 million respectively upon confirmation of eligibility for the employee retention credit.

The employee retention credit is recorded in other income in the consolidated statement of operations.

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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 adjusted EBITDA of $0.8 million for the quarter ended June 30, 2024, as compared to adjusted EBITDA of $1.3 million for the same period in the prior year.

The decrease in adjusted EBITDA in the 2024 quarter was attributable to lower revenues as breakage from the COVID related incentive programs within our Prepaid card business wind down, alongside decreased profit margins, as a result of those high margin breakage revenues declining, versus the prior year period.

We reported adjusted EBITDA of $1.6 million for the six months ended June 30, 2024, as compared to adjusted EBITDA of $2.4 million for the six months ended June 30, 2023.

The decrease in adjusted EBITDA was attributable to lower revenues as breakage from the COVID related incentive programs within our Prepaid card business wind down, versus the prior year period.

Management 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 adjusted EBITDA of $0.8 million for the quarter ended September 30, 2024, as compared to adjusted EBITDA of $0.4 million for the same period in the prior year.

The increase in adjusted EBITDA in the 2024 quarter was attributable to increased revenues, primarily from our ACH and complimentary services line of business, and a decrease in SG&A expenses, versus the prior year period.

We reported adjusted EBITDA of $2.4 million for the nine months ended September 30, 2024, as compared to adjusted EBITDA of $2.8 million for the nine months ended September 30, 2023.

The decrease in adjusted EBITDA was attributable to lower revenues as breakage from the COVID related incentive programs within our Prepaid card business decreased, 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 and six months ended June 30, 2024 and 2023.

Three Months Ended June 30,

Six Months Ended June 30,

and Revenues to Adjusted EBITDA margins for the three and nine months ended September 30, 2024 and 2023.

Three Months Ended September 30,

Nine Months Ended September 30,

Reconciliation from Operating income (Loss) to Adjusted EBITDA:

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Adjusted EBITDA margins

The following table is a reconciliation of net cash flow provided by (used in) operating activities to adjusted operating cash flows for the six months ended June 30, 2024 and 2023.

June 30, 2024

June 30, 2023

The following table is a reconciliation of net cash flow provided by (used in) operating activities to adjusted operating cash flows for the nine months ended September 30, 2024 and 2023.

September 30, 2024

September 30, 2023

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

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Adjusted operating cash flows provided

We reported cash provided by adjusted operating cash flows of $1.0 million for the six months ended June 30, 2024 (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 $1.3 million provided in the six months ended June 30, 2023.

We reported cash provided by adjusted operating cash flows of $2.4 million for the nine months ended September 30, 2024 (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 $2.4 million provided in the nine months ended September 30, 2023.

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 we believe that these metrics do not serve in providing a clear picture of the true operational cash used or provided in a given time period.

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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 decrease in adjusted operating cash flows for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily attributable to an increase the Company's net loss, due to lower revenues and profit margins, alongside nominal increases in selling, general and administrative expense ("SG&A").

The decrease in adjusted operating cash flows for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was nominal, but primarily attributable to an increase in the Company's net operating loss, due to lower revenues, alongside minor increases in selling, general and administrative expense ("SG&A").

Use of Non-GAAP Financial Measures

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Our revenue is 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.

In addition, through Output Solutions services we provide 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.

In addition, through Output Solutions we provide 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.

We also earn revenue from interest and fees earned on certain assets underlying the associated customer balances.

Customer balances on which the Company earns interest revenue include balances from our ACH and complementary services, prepaid card services, and Output Solutions business lines.

Three Months Ended June 30,

Three Months Ended September 30,

ACH and complementary services

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Total Revenue

Six Months Ended June 30,

Nine Months Ended September 30,

ACH and complementary services

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Total Revenue

Consolidated revenue for the quarter ended June 30, 2024 decreased by 6% to $20.1 million, as compared to $21.4 million for the quarter ended June 30, 2023 due primarily to lower breakage revenues from our prepaid card line of business as COVID incentive programs continue to wind down.

The ACH and complementary services, and Output Solutions lines of business were also down 5% and 3%, respectively, as a result of slightly reduced recurring customer billing in the quarter.

There was modest growth in our credit card line of business, as the growth related to our Payfac strategy continues to be implemented outpacing the attrition in our legacy credit card line of business.

Interest revenues on underlying customer assets recognized in the quarter ended June 30, 2024 were $0.6 million compared to interest revenues of $0.2 million in the quarter ended June 30, 2023 primarily due to higher interest rates.

Consolidated revenue for the six months ended June 30, 2024 decreased by 4% to $41.1 million, as compared to $43.0 million for the six months ended June 30, 2023 due primarily to lower breakage revenues from our prepaid card line of business as COVID incentive programs continue to wind down.

The Output Solutions line of business was also down 5%, as a result of challenging comparables to the prior year period which included higher levels of one time revenues related to printing government tax forms and voter cards.

There was growth in our ACH and credit card lines of business, as the growth related to our Payfac strategy continues to be implemented, outpacing the attrition in our legacy credit card books of business, 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 reflecting our efforts to add net new customers and processing volumes.

Interest revenues recognized in the six months ended June 30, 2024 were $1.2 million compared to interest revenues of $0.2 million in the six months ended June 30, 2023 primarily due to higher interest rates.

Consolidated revenue for the quarter ended September 30, 2024 increased by 2% to $21.3 million, as compared to $21.0 million for the quarter ended September 30, 2023 due primarily to the 22% growth in our ACH and complimentary services business line, countering the lower breakage revenues from our prepaid card line of business, which declined 14% year over year, as COVID incentive programs continued to wind down.

ACH and complementary services revenue growth was primarily attributable to an increase in ACH check dollar volume of 61%, an increase in transactions of 25%,and an increase in returned check transactions of 18%.

Our ACH business also benefited from an increase in revenue from ancillary product offerings, such as RCC and PINless debit.

Our Output Solutions lines of business were also up 2% in the quarter due to the addition of net new recurring billing.

Growth figures were hindered, however, due to the prior year period containing some one-time revenues.

Our credit card revenues were flat, due primarily to faster than expected attrition from our legacy credit card base;

however we've experienced continued success in our PayFac division, where revenues were up 27%.

As our PayFac book of business now matches our legacy credit card processing in total revenue contribution, the impact of its growth is anticipated to be more apparent in overall credit card processing growth figures.

Interest revenues on underlying customer assets recognized in the quarter ended September 30, 2024 were $0.6 million compared to interest revenues of $0.5 million in the quarter ended September 30, 2023 primarily due to higher interest rates and interest bearing cash deposits.

Consolidated revenue for the nine months ended September 30, 2024 decreased by 2% to $62.4 million, as compared to $63.9 million for the nine months ended September 30, 2023 due primarily to lower breakage revenues from our prepaid card line of business, which declined 25% year over year, as COVID incentive programs continued to wind down.

The Output Solutions line of business was also down 3%, as a result of challenging comparables to the prior year period which included higher levels of one time revenues related to printing government tax forms and voter cards, alongside a large check disbursement program in the third quarter of 2023.

Our ACH and complimentary services line of business grew by approximately 10% during the nine-month period of 2024, reflecting our efforts to add net new customers and processing volumes.

ACH check dollar volume increased by 41%, transactions increased by 13%, and return check transactions by 13%.

Growth was further complimented by our ancillary products such as Remote Check Creation (RCC) and PINless debit, which each exhibited strong growth during the nine months ended September 30, 2024.

Our credit card revenues were flat during the nine-month period, due primarily to faster than expected attrition from our legacy credit card base;

however we've experienced continued success in our PayFac division, where revenues were up 19% during the nine months ended September 30, 2024.

Interest revenues recognized in the nine months ended September 30, 2024 were $1.8 million compared to interest revenues of $0.7 million in the nine months ended September 30, 2023 primarily due to higher interest rates and interest bearing cash deposits.

Cost of Services

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

Cost of services decreased by $1.0 million, or 6%, to $15.3 million for the quarter ended June 30, 2024, as compared to $16.3 million for the same period in the prior year, due to lower revenues driving similar declines in our processing, banking and transactional expenses.

Cost of services decreased by $1.4 million, or 4%, to $31.4 million for the six months ended June 30, 2024, as compared to $32.8 million for the same period in the prior year, due to lower revenues driving similar declines in our processing, banking and transactional expenses.

Cost of services increased by $0.1 million, or 1%, to $16.4 million for the quarter ended September 30, 2024, as compared to $16.3 million for the same period in the prior year, due to increased revenues driving similar increases in our processing, banking and transactional expenses.

Cost of services decreased by $1.3 million, or 3%, to $47.8 million for the nine months ended September 30, 2024, as compared to $49.1 million for the same period in the prior year, due to lower revenues driving similar declines in our processing, banking and transactional expenses.

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

Gross profit decreased by 7% to $4.8 million for the quarter ended June 30, 2024, as compared to $5.2 million for the same period in the prior year.

Similarly, gross margin percentage of revenue was 23.9% for the quarter ended June 30, 2024 as compared to 24.2% in the prior year period.

The decrease in gross profit, and gross margin percentage in the quarter ended June 30, 2024, as compared to the same period during the prior year was primarily attributable to lower revenues and profitability from our Output solutions line of business.

Gross profit decreased by 5% to $9.7 million for the six months ended June 30, 2024, as compared to $10.2 million for the same period in the prior year.

Similarly, gross margin percentage of revenue was 23.5% for the six months ended June 30, 2024 as compared to 23.6% in the prior year period.

The decrease in gross profit and gross margin percentage in the six months ended June 30, 2024, as compared to the same period during the prior year, was primarily attributable to lower revenues and gross profit from our Output solutions line of business, alongside reduced margins from our Prepaid card services business line in the first quarter of 2024 prior to improvement in the second quarter of 2024.

Gross profit increased by 5% to $4.9 million for the quarter ended September 30, 2024, as compared to $4.7 million for the same period in the prior year.

Gross profit percentage of revenue was 23.0% for the quarter ended September 30, 2024, up slightly from 22.2% in the prior year period.

The increase in gross profit in the quarter ended September 30, 2024, as compared to the same period during the prior year, was primarily attributable to higher total revenues, in addition to improved margins.

The increase in gross profit percentage of revenue was due to the decrease in lower margin prepaid revenues that were present in the second half of 2023 as a result of Covid incentive programs, alongside some realized efficiencies and profitability in our Output Solutions line of business from the acquisition of new equipment in 2024.

Gross profit decreased by 2% to $14.5 million for the nine months ended September 30, 2024, as compared to $14.8 million for the same period in the prior year.

Gross profit percentage of revenue was 23.3% for the nine months ended September 30, 2024 as compared to 23.2% in the prior year period, effectively flat.

The decrease in gross profit in the nine months ended September 30, 2024, as compared to the same period during the prior year, was primarily attributable to lower revenues and corresponding gross profits from our Prepaid and Output solutions line of business, alongside reduced margins from our Prepaid card services business line associated with the Covid incentive program revenues in the first quarter of 2024 prior to improvement in the second and third quarters of 2024 as revenue attributable to the Covid incentive program declined.

Stock-based Compensation

Stock-based compensation expenses were $0.5 million for the quarter ended June 30, 2024 as compared to $0.6 million for the quarter ended June 30, 2023, nominally lower versus the prior year period due to the completed amortization of previously issued stock based compensation.

Stock-based compensation expenses were $1.0 million for the six months ended June 30, 2024 as compared to $1.1 million for the six months ended June 30, 2023, nominally lower versus the prior year period due to the completed amortization of previously issued stock based compensation.

Stock-based compensation expenses were $0.6 million for the quarter ended September 30, 2024 as compared to $0.6 million for the quarter ended September 30, 2023, with minor decreases versus the prior year period due to completed amortization of previously issued stock based awards.

Stock-based compensation expenses were $1.5 million for the nine months ended September 30, 2024 as compared to $1.7 million for the nine months ended September 30, 2023, the decrease was due to the completed amortization of previously issued stock based awards.

Other Selling, General and Administrative Expenses

Other SG&A expenses were $4.0 million for the quarter ended June 30, 2024 as compared to $3.9 million in the prior year quarter.

The modest increase in other SG&A for the quarter ended June 30, 2024 reflects moderate increases due to salary and employee benefit increases.

Other SG&A expenses were $8.1 million for the six months ended June 30, 2024 as compared to $7.7 million in the prior year quarter.

The increase in other SG&A expenses for the six months ended June 30, 2024 reflects the occurrence of some one-time expenses related to marketing initiatives, and increased travel to sales-related events during the first quarter of 2024, alongside moderate increases in salary and employee benefit expenses.

Other SG&A expenses were $4.1 million for the quarter ended September 30, 2024 as compared to $4.3 million in the prior year quarter.

The decrease in other SG&A for the quarter ended September 30, 2024 reflects realized efficiencies in our workforce, driven by enhancements in equipment from our Output Solutions line of business reducing labor costs, alongside strategic spend management in our other lines of business, as we focus on improving profitability.

Further, the quarter ended September 30, 2023 included some one time expenses related to professional fees and marketing events, that were not incurred in the third quarter of 2024.

Other SG&A expenses were $12.2 million for the nine months ended September 30, 2024 as compared to $12.0 million in the prior year period.

The minor increase in other SG&A expenses for the nine months ended September 30, 2024 reflects the occurrence of some one-time expenses related to marketing initiatives, and increased travel to sales-related events during the first quarter of 2024, alongside moderate increases in salary and employee benefit expenses offset by realized efficiencies in our workforce, driven by enhancements in equipment from our Output Solutions line of business reducing labor costs, alongside strategic spend management in our other lines of business, as we focus on improving profitability.

Depreciation and Amortization

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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 $0.5 million for the quarters ended June 30, 2024 and 2023, respectively.

Depreciation and amortization expense was effectively flat versus the same period a year ago as the amortization of net new intangible assets and completed amortization of prior intangible assets were essentially equal, resulting in effectively no change from the current to prior year period.

Depreciation and amortization expense totaled $1.1 million and $1.0 million for the six months ended June 30, 2024 and 2023, respectively.

Depreciation and amortization expense totaled $0.6 million and $0.5 million for the quarters ended September 30, 2024 and 2023, respectively.

The increase in depreciation and amortization expense was due to the amortization of intangible assets, specifically related to capitalized labor for our internal use software, increasing overall depreciation and amortization expense versus the same period a year ago, countered in part by the completed amortization of intangible assets.

Other income, net was $0.4 million for the quarter ended June 30, 2024 compared to $0.0 million for the quarter ended June 30, 2023.

This increase was the result of an increase in interest-bearing assets and higher interest rates which drove the increased interest income alongside the receipt of an employee retention tax credit issued under the CARES Act, and extended by the ARPA, receivable in the quarter ended June 30, 2024.

Other income, net was $0.5 million for the six months ended June 30, 2024 compared to $0.1 million for the six months ended June 30, 2023.

Depreciation and amortization expense totaled $1.7 million and $1.6 million for the nine months ended September 30, 2024 and 2023, respectively.

Other income, net was $0.1 million for the quarter ended September 30, 2024 compared to $0.1 million for the quarter ended September 30, 2023.

This increase was the result of an increase in interest-bearing assets and higher interest rates which drove the increased interest income.

Other income, net was $0.6 million for the nine months ended September 30, 2024 compared to $0.2 million for the nine months ended September 30, 2023.

Federal income tax benefit was $3,186,053 in the three months ended September 30, 2024, and $0 in the three months ended September 30, 2023.

The federal income tax benefit was a result of an increase to our deferred tax asset following a review of the realizability of our prior valuation allowance and deferred tax asset.

The Company projects that future revenue growth will continue to outpace growth in expenses, resulting in continued taxable income in the future.

State income tax expense in the three months ended September 30, 2024 and 2023 was $70,000 and $70,000, respectively.

Federal income tax benefit was $3,186,053 in the nine months ended September 30, 2024 and $0 in the nine months ended September 30, 2023.

The federal income tax benefit was a result of an increase to our deferred tax asset following a review of the realizability of our prior valuation allowance and deferred tax asset, and determination that the Company will have taxable income in the future.

State income tax expense in the nine months ended September 30, 2024 and 2023 was $210,000 and $222,524 respectively.

The Company has recognized a deferred tax asset of approximately $4.7 million recorded net of a valuation allowance of approximately $2.9 million at September 30, 2024, The net income tax benefit reported was $3,116,053 at September 30, 2024 and net income tax expense was $70,000 for the three months ended September 30, 2023.

The increase in net income tax benefit was due to the increase of our deferred tax asset as a result of decreasing our valuation allowance by approximately $3.2 million during the quarter ended September 30, 2024.

The decrease was the result of management's considering the realizability of this net operating loss carry forward in light of historical operating results and forecasted results.

The Company projects that future revenue growth will continue to outpace growth in expenses, resulting in continued taxable income in the future.

For more information, please refer to Notes to Interim Condensed Consolidated Financial Statements, Note 7.

Income Taxes.

The net income tax benefit reported was $2,976,053 for the nine months ended September 30, 2024 and net income tax expense was $222,524 for the nine months ended September 30, 2023.

The increase in net income tax benefit was due to the increased of our deferred tax asset as a result of decreasing our valuation allowance by approximately $3.2 million during the quarter ended September 30, 2024.

The decrease was the result of management's considering the realizability of this asset in light of historical operating results and forecasted results.

For more information, please refer to Notes to Interim Condensed Consolidated Financial Statements, Note 7.

Income Taxes.

Net Income (Loss)

We reported a net income of $0.1 million for the quarter ended June 30, 2024, as compared to net income of $0.2 million for the same period in the prior year.

The decrease in net income was attributable to a decrease in revenue combined with slightly increased SG&A.

We reported a net loss of $0.2 million for the six months ended June 30, 2024, as compared to net income of $0.2 million for the same period in the prior year.

The decrease in net income was attributable to a decrease in revenue combined with decreased profit margins, and slightly increased SG&A.

We reported net income of $2.9 million for the quarter ended September 30, 2024, as compared to a net loss of $0.7 million for the same period in the prior year.

The increase in net income was driven primarily by the federal income tax benefit, as a result of the decrease in our valuation allowance, described above, combined with increased revenues, slightly increased gross profit margins, and reduced SG&A.

We reported net income of $2.7 million for the nine months ended September 30, 2024, as compared to a net loss of $0.5 million for the same period in the prior year.

The increase in net income was driven primarily by the federal income tax benefit, as a result of the decrease in our valuation allowance, described above, combined with reduced SG&A.

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 June 30, 2024, we had cash and cash equivalents of $7.5 million.

For the six months ended June 30, 2024, cash used in operations was $3.1 million.

As of September 30, 2024, we had cash and cash equivalents of $8.4 million.

For the nine months ended September 30, 2024, cash used in operations was $7.6 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, credit losses, 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.

Cash from operating activities is dependent on our net income (loss), less depreciation, amortization, credit losses, deferred federal income tax, non-cash stock-based compensation, the amortization of intangible assets, 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 income of $0.1 million for the quarter ended June 30, 2024.

At June 30, 2024, we had an accumulated deficit of $71.5 million.

Additionally, we had working capital of $9.4 million and $8.0 million at June 30, 2024 and December 31, 2023, respectively.

We reported net income of $2.7 million for the nine months ended September 30, 2024.

At September 30, 2024, we had an accumulated deficit of $68.7 million.

Additionally, we had working capital of $9.6 million and $8.0 million at September 30, 2024 and December 31, 2023, respectively.

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

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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 in operating activities, including merchant reserve funds, prepaid card load assets, customer deposits and net operating lease assets for the six months ended June 30, 2024 was $3.1 million, as compared to net cash provided by operating activities of $27.8 million for the six months ended June 30, 2023.

Net cash used in operating activities, including merchant reserve funds, prepaid card load assets, customer deposits and net operating lease assets for the nine months ended September 30, 2024 was $7.6 million, as compared to net cash provided by operating activities of $41.5 million for the nine months ended September 30, 2023.

The increase in cash used in operating activities was due to the larger decrease in prepaid card load obligations versus the same period last year, alongside lower accounts payable and accrued expenses.

Excluding merchant reserves, prepaid card load assets, customer deposits and lease right of use assets and liabilities, our cash provided by operating activities was $1.0 million for the six months ended June 30, 2024 as compared to cash used in operating activities of $1.3 million for the six months ended June 30, 2023.

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 for the nine months ended September 30, 2024 as compared to cash used in operating activities of $2.4 million for the nine months ended September 30, 2023.

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

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

Operating cash flow for the six months ended June 30, 2024 was approximately $1.0 million, a decrease of approximately $0.3 million from the six months ended June 30, 2023.

This decrease was primarily attributable to an increase in the Company's net loss, due to lower revenues and profit margins, alongside nominal increases in SG&A, and the decrease in our accrued expenses.

Adjusted operating cash flow for the nine months ended September 30, 2024 was approximately $2.4 million, relatively flat versus the nine months ended September 30, 2023.

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 in investing activities was $0.5 million for the six months ended June 30, 2024 as compared to cash used in investing activities of $0.4 million for the six months ended June 30, 2023.

Net cash used in investing activities was $0.7 million for the nine months ended September 30, 2024 as compared to cash used in investing activities of $0.6 million for the nine months ended September 30, 2023.

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 increase in cash used in investing activities was primarily attributable to the increased amount of fixed asset purchases relative to the same period a year ago.

Net cash used in financing activities for the six months ended June 30, 2024 was $0.2 million and net cash used in financing activities for the six months ended June 30, 2023 was $0.05 million.

The increase in cash used in investing activities was primarily attributable to the increased amount of fixed asset purchases and capitalization of internal use software relative to the same period a year ago.

Net cash used in financing activities for the nine months ended September 30, 2024 was $0.4 million and net cash used in financing activities for the nine months ended September 30, 2023 was $0.1 million.

The increase in cash used in financing activities was primarily attributable to the increased quantity of stock re-purchases relative to the same period a year ago.

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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 2. Management’s Discussion and Analysis