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Usio, Inc.

Usio, Inc.USIOEarnings & Financial Report

Nasdaq · Financials · Functions Related To Depository Banking, NEC

Usio, Inc. is an American financial technology company headquartered in San Antonio, Texas. It provides integrated electronic payment services, including ACH processing, credit card and debit card acceptance, payment facilitation for software platforms, prepaid card issuing and a document print and mail operation.

What changed in Usio, Inc.'s 10-K — 2023 vs 2024

Top changes in Usio, Inc.'s 2024 10-K

334 paragraphs added · 274 removed · 194 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

53 edited+25 added−22 removed63 unchanged
We are currently sponsored by Evolve Bank & Trust, TransPecos Bank and CBW Bank in order to access certain regional debit networks. Through these sponsorships, we created a new service in late 2016 to provide both the issuance of real time credits and debits to a debit card holder via a regional network without using a PIN.
We are currently sponsored by Evolve Bank & Trust and TransPecos Bank in order to access certain regional debit networks. Through these sponsorships, we created a new service in late 2016 to provide both the issuance of real time credits and debits to a debit card holder via a regional network without using a PIN.
We have an agreement with TriSource Solutions, LLC and an agreement with Global Payments, Inc. through which their member banks, Central Bank of St. Louis and Fifth Third Bank, sponsor us for membership in the Visa, Mastercard, American Express, and Discover card associations and settle card transactions for our merchants.
We also have an agreement with TriSource Solutions, LLC and an agreement with Global Payments, Inc. through which their member banks, Central Bank of St. Louis and Fifth Third Bank, sponsor us for membership in the Visa, Mastercard, American Express, and Discover card associations and settle card transactions for our merchants.
Credit card payments include general-purpose and private-label versions. Prepaid debit card payments include general-purpose, private-label, and electronic benefits transfer, or EBT, versions. Estimates for prepaid debit card payments are not available for 2000 or 2003. The points mark years for which data were collected and estimates were produced. Lines connecting the points are linear interpolations.
Prepaid debit card payments include general-purpose, private-label, and electronic benefits transfer, or EBT, versions. Estimates for prepaid debit card payments are not available for 2000 or 2003. The points mark years for which data were collected and estimates were produced. Lines connecting the points are linear interpolations.
We extend merchant services across major card networks (VISA, Mastercard, American Express, Discover, JCB), supported by online and physical terminal access. Our proprietary platform merges ACH and card processing capabilities, enabling businesses to handle both e-checks and card payments efficiently.
We extend merchant services across major card networks (VISA, Mastercard, American Express, Discover), supported by online and physical terminal access. Our proprietary platform merges ACH and card processing capabilities, enabling businesses to handle both e-checks and card payments efficiently.
Regional networks are not affiliated with major credit card associations and operate independently. Through our sponsorships with Evolve Bank & Trust, TransPecos Bank and CBW Bank, we are financially liable for all fees, fines, chargebacks and losses related to our PINless debit card processing for our merchant customers.
Regional networks are not affiliated with major credit card associations and operate independently. Through our sponsorships with Evolve Bank & Trust, and TransPecos Bank, we are financially liable for all fees, fines, chargebacks and losses related to our PINless debit card processing for our merchant customers.
In such event, it is possible that such general purpose re-loadable cards would lose their eligibility for such exclusion to the CARD Act and its requirements, and therefore we could be deemed to be in violation of the CARD Act and the rule, which could result in the imposition of fines, the suspension of our ability to offer our general purpose re-loadable cards, civil liability, criminal liability, and the inability of our issuing banks to apply certain fees to our general purpose re-loadable cards, each of which would likely have a material adverse impact on our revenues.
In such event, it is possible that such general purpose re-loadable cards would lose their eligibility for such exemption to the CARD Act and its requirements, and therefore we could be deemed to be in violation of the CARD Act and the rule, which could result in the imposition of fines, the suspension of our ability to offer our general purpose re-loadable cards, civil liability, criminal liability, and the inability of our issuing banks to apply certain fees to our general purpose re-loadable cards, each of which would likely have a material adverse impact on our revenues.
Our UsioCard platform supports Apple Pay®, Samsung Pay™ and Google Pay™. In our over 20+year history, we have created a loyal customer base that relies on us for our convenient, secure, innovative and adaptive services and technology, and we have built long-standing and valuable relationships with premier banking institutions such as Fifth Third Bank, Sunrise Bank, TransPecos and others.
Our UsioCard platform supports Apple Pay®, Samsung Pay™ and Google Pay™. 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, TransPecos and others.
We provide integrated electronic payment processing services to merchants and businesses, including credit, and debit card-based processing services and electronic funds transfer via the ACH network.
Payment Acceptance. We provide integrated electronic payment processing services to merchants and businesses, including credit, and debit card-based processing services and electronic funds transfer via the ACH network.
You may also read and copy any materials we file with or furnish to the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at https://www.sec.gov. 8 Table of Contents
You may also read and copy any materials we file with or furnish to the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at https://www.sec.gov. 10 Table of Contents
Our Consumer Choice product developed and debuted in 2022 that provides flexible ways to initiate a variety of payment distributions through a multitude of payment methods including physical prepaid and virtual cards, ACH, paper checks, real-time PINless debit and others. This offering allows us a superior opportunity to increase our cross-selling efforts through all of our payment methods.
Our Consumer Choice product, developed and introduced in 2022, provides flexible ways to initiate a variety of payment distributions through a multitude of payment methods including physical prepaid and virtual cards, ACH, paper checks, real-time PINless debit and others. This offering allows us a superior opportunity to increase our cross-selling efforts through all of our payment methods.
Beginning with our Electronic Bill Presentment and Payment, or EBPP, product that launched the Company, we entered into the electronic funds transfer space through the ACH network, developing ancillary and complementary products such as PINless debit in 2016, and Remotely Created Checks, or RCC, account validation, and account inquiry in 2019.
Beginning with our Electronic Bill Presentment and Payment, or EBPP, product that launched the Company, we entered into the electronic funds transfer space through the Automated Clearing House, or ACH, network, developing ancillary and complementary products such as PINless debit in 2016, and Remotely Created Checks, or RCC, account validation, and account inquiry in 2019.
Our service offerings encompass a broad spectrum of ACH transaction processing, including innovative solutions like Represented Check and Check Conversion for electronic payment facilitation. Clients have the flexibility to initiate transactions via our online portal or leverage our expertise for transaction processing on their behalf via a robust API set.
Our service offerings encompass a broad spectrum of ACH transaction processing, including innovative solutions such as Represented Check and Check Conversion for electronic payment facilitation. Clients have the flexibility to initiate transactions via our online portal or leverage our expertise for transaction processing on their behalf via a robust API set.
We also believe that contact-less payments like Apple Pay®, Samsung Pay™ and Google Pay™ will increase payment processing opportunities for us. Increased Electronic Payment Acceptance by Small Businesses Small businesses are a vital component of the U.S. economy and are expected to contribute to the increased use of electronic payment methods.
We also believe that contact-less payments such as Apple Pay®, Samsung Pay™ and Google Pay™ will increase payment processing opportunities for us. Increased Electronic Payment Acceptance by Small Businesses Small businesses are a vital component of the U.S. economy and are expected to contribute to the increased use of electronic payment methods.
Source: 2022 Federal Reserve Payments Study 3 Table of Contents We believe that the electronic payment processing industry will continue to benefit from the following trends: Favorable Demographics As consumers age, we expect that they will continue to use the payment technology to which they have grown accustomed.
Source: 2022 Federal Reserve Payments Study & 2023 annual Supplement. 3 Table of Contents We believe that the electronic payment processing industry will continue to benefit from the following trends: Favorable Demographics As consumers age, we expect that they will continue to use the payment technology to which they have grown accustomed.
As well, we continue to enhance our existing product offerings, with improvements in reporting, data management, fraud and risk monitoring, ease of access, and accelerations in client onboarding and implementation times. With our transition to a cloud-based platform, our speed, security, and scalability in payment processing is further expanded, allowing us to seamlessly grow as the market demands. Payment Acceptance.
As well, we continue to enhance our existing product offerings, with improvements in reporting, data management, fraud and risk monitoring, ease of access, and accelerations in client onboarding and implementation times. With our transition to a cloud-based platform, our speed, security, and scalability in payment processing has been further expanded, allowing us to seamlessly grow as the market demands.
Securities and Exchange Commission. Interested persons can view such materials without charge under the "Investor Relations" section and then by clicking "Financials" on the Company's website, www.usio.com.
Interested persons can view such materials without charge under the "Investor Relations" section and then by clicking "Financials" on the Company's website, www.usio.com.
Most of our merchant customers have signed long-term contracts, generally with three-year terms, that provide for volume-based transaction fees. Our merchant accounts increased 12% to 6,281 customers at December 31, 2023 from 5,601 customers at December 31, 2022. Our customers are geographically dispersed throughout the United States. No customer accounted for more than 10% of revenues in 2023 or 2022.
Most of our merchant customers have signed long-term contracts, generally with three-year terms, that provide for volume-based transaction fees. Our merchant accounts increased 20% to 7,549 customers at December 31, 2024 from 6,281 customers at December 31, 2023. Our customers are geographically dispersed throughout the United States. No customer accounted for more than 10% of revenues in 2024 or 2023.
We are liable for any card-associated losses for cards that we issue that might incur a negative balance and we are liable for card association fines, fees and chargebacks. Under our processing agreement with TriSource Solutions and Vantiv, we are financially liable for all fees, fines, chargebacks and losses related to our card processing merchant customers.
We are liable for any card-associated losses for cards that we issue that might incur a negative balance and we are liable for card association fines, fees and chargebacks. Under our processing agreements with TriSource Solutions and Global Payments, Inc., we are financially liable for all fees, fines, chargebacks and losses related to our card processing merchant customers.
Our sales personnel typically initiate contact with prospective customers that we identify as meeting our targeted customer profile. We also market and sell our prepaid card program directly to government entities, corporations and to consumers through the Internet. A major initiative will be the packaging and cross selling of our platform of payment options across our portfolio of merchants.
Our sales personnel typically initiate contact with prospective customers that we identify as meeting our targeted customer profile. We also market and sell our prepaid card program directly to government entities, corporations and to consumers through the Internet. We have recently undertaken a major initiative to package and cross-sell of our platform of payment options across our portfolio of merchants.
In January 2018, our previous sponsor, Pueblo Bank and Trust, terminated their relationship with our gateway provider and as a result we stopped processing PINless debit transactions for a short period of time.
In January 2018, our previous sponsor, Pueblo Bank and Trust, terminated their relationship with our gateway provider and as a result we stopped processing PINless debit transactions for a short period of time. We secured a relationship with Evolve Bank & Trust and resumed processing PINless debit transactions and subsequently secured a sponsoring relationship with TransPecos bank in 2023.
Following the acquisition of Information Management Solutions, LLC, or IMS, we've enhanced and expanded our services to include electronic bill presentment and comprehensive document management solutions, catering to a wide array of industries.
Following the acquisition of substantially all of the assets of IMS, we've enhanced and expanded our services to include electronic bill presentment and comprehensive document management solutions, catering to a wide array of industries.
Electronic Billing. On December 15, 2020, we entered into the business of electronic bill presentment, document composition, document decomposition and printing and mailing services serving hundreds of customers representing a wide range of industry verticals, including utilities and financial institutions through the acquisition of IMS.
Electronic and Paper Billing. On December 15, 2020, we entered into the business of electronic bill presentment, document composition, document decomposition and printing and mailing services serving hundreds of customers representing a wide range of industry verticals, including utilities and financial institutions, through the acquisition of substantially all of the assets of Information Management Solutions, LLC, or IMS.
In 2014, we resumed issuing gift cards. Any gift cards we issue will be governed by the CARD Act and other various regulations.
Any gift cards we issue will be governed by the CARD Act and other various regulations.
Our corporate website is located at www.usio.com. We make available on this website, free of charge, copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as applicable and as soon as reasonably practicable after we electronically file or furnish such materials to the U.S.
We make available on this website, free of charge, copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as applicable and as soon as reasonably practicable after we electronically file or furnish such materials to the U.S. Securities and Exchange Commission.
Census Bureau, estimated retail e-commerce sales for 2023 were estimated at $1,118.7 billion, an increase of approximately 7.6% from 2022. 4 Table of Contents Products and Services Our suite of payment solutions is driven by a sophisticated infrastructure that merges our own technology with strategic alliances, offering secure, scalable, and resilient payment processing services.
Census Bureau, estimated retail e-commerce sales for 2024 were estimated at $1,192.6 billion, an increase of approximately 8.1% from 2023, and e-commerce sales in 2024 accounted for 16.1% of total sales, compared to 15.3% in 2023. 4 Table of Contents Products and Services Our suite of payment solutions is driven by a sophisticated infrastructure that merges our own technology with strategic alliances, offering secure, scalable, and resilient payment processing services.
Figure 2 (below) illustrates the overall growth in key cash metrics since the Federal Reserve Payments Study was first reported for the year 2000 and reflects the acceleration of growth in recent years. Note: All estimates are on a triennial basis, except that card payments were also estimated for 2016, 2017, 2019, and 2020.
Figure 2 (below) illustrates the overall growth in key cash metrics since the Federal Reserve Payments Study was first reported for the year 2000 and reflects the acceleration of growth in recent years. Note: All estimates are on a triennial basis, except that card payments were estimated for every year since 2015. Credit card payments include general-purpose and private-label versions.
The inclusion of these website addresses in this Annual Report do not include or incorporate by reference the information on or accessible through these websites, and the information contained on or accessible through these websites should not be considered as part of this annual report on Form 10-K.
Some of our material websites are www.usio.com, www.payfacinabox.com, www.ficentive.com, www.akimbocard.com, and www.usiooutput.com. The inclusion of these website addresses in this Annual Report do not include or incorporate by reference the information on or accessible through these websites, and the information contained on or accessible through these websites should not be considered as part of this Annual Report on Form 10-K.
We have incurred and expect to continue to incur costs to maintain or achieve compliance with environmental, health and safety laws and regulations. To date, these costs have not been material to the Company. Human Capital Resources As of December 31, 2023, we had 126 full-time employees. We are not a party to any collective bargaining agreements.
We have incurred and expect to continue to incur costs to maintain or achieve compliance with environmental, health and safety laws and regulations. To date, these costs have not been material to the Company. Human Capital Resources As of December 31, 2024, we had 107 full-time employees, and four part-time employees.
There are a number of large transaction processors, including Fiserv, Inc., Elavon Inc., WorldPay, Stripe and Square that serve a broad market spectrum from large to small merchants and provide banking, automatic teller machine, and other payment-related services and systems in addition to card-based payment processing.
(formerly known as Square), that serve a broad market spectrum from large to small merchants and provide banking, automatic teller machine, and other payment-related services and systems in addition to card-based payment processing. There are also a large number of smaller transaction processors that provide various services to small and medium- sized merchants.
Competition The payment processing industry is highly competitive. Many small and large companies compete with us in providing payment processing services and related services to a wide range of merchants.
Competition The payment processing industry is highly competitive. Many small and large companies compete with us in providing payment processing services and related services to a wide range of merchants. There are a number of large transaction processors, including Fiserv, Inc., Elavon Inc., WorldPay, Stripe and Block, Inc.
On March 23, 2010, the FRB issued a final rule implementing Title IV of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009, or CARD Act, which imposes requirements relating to disclosures, fees and expiration dates that are generally applicable to gift certificates, store gift cards and general-use prepaid cards.
The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (“CARD Act”) imposes requirements relating to disclosures, fees and expiration dates that are generally applicable to gift certificates, store gift cards and general-use prepaid cards.
Amounts due from customers may be deemed uncollectible because of merchant disputes, fraud, insolvency or bankruptcy. We determine the allowance based on an account-by-account review, taking into consideration such factors as the age of the outstanding receivable, historical pattern of collections and financial condition of the customer.
We determine the allowance based on an account-by-account review, taking into consideration such factors as the age of the outstanding receivable, historical pattern of collections and financial condition of the customer.
The expansion of our platform and the transition to cloud-based infrastructure underscore our commitment to speed, security, and scalability in payment processing. Our direct Fed ACH system integration, facilitated by NACHA certification, exemplifies our efforts to optimize processing efficiency, reduce costs, and enhance merchant services. Prepaid and Incentive Card Services .
Our direct Fed ACH system integration, facilitated by our NACHA certification, exemplifies our efforts to optimize processing efficiency, reduce costs, and enhance merchant services. Prepaid and Incentive Card Services .
We also 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. This service, which we began with the acquisition of IMS in December 2020, allows us to cross-sell existing service offerings to our customers.
We also 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.
Available Information 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.
During 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. Our corporate website is located at www.usio.com.
More consumers are beginning to use card-based and other electronic payment methods for purchases at an earlier age. These consumers have witnessed the wide adoption of card products, technology innovations such as mobile phone payment applications, widespread adoption of the internet and a significant increase in card not present transactions and on-line shopping during COVID-19.
These consumers have witnessed the wide adoption of card products, technology innovations such as mobile phone payment applications, widespread adoption of the internet and a significant increase in card not present transactions and on-line shopping during COVID-19, that subsequently remained at levels higher than pre 2020.
The value of these payments totaled $128.51 trillion in 2021, an increase of $31.47 trillion from 2018, more than twice the rate of increase in the previous three-year period (2015 to 2018). • ACH payments exhibited accelerating growth, increasing 8.3% per year by number and 12.7% per year by value from 2018 to 2021, and accounted for more than 90% of the rise in non-cash payments. • In 2021 ACH transfers grew to $91.85 trillion, representing 72% of core non-cash payments value. • Card payments continued to show robust growth from 2018 to 2021, collectively increasing 6.2% per year by number and 10% by value up from the 8.6% yearly rate of increase in the 2015 to 2018. • From 2015 to 2018, total card payments - the sum of credit card, non-prepaid debit card and prepaid debit card payments - increased 25.9 billion to reach 157 billion payments by number and increased $2.35 trillion to reach $9.43 trillion by value in 2018. • Within card payments, prepaid debit card payments had the highest growth rate in 2021 over 2018, by value, at 20.6%, compared with 13.7% per year for non-prepaid debit card payments and 7% for credit card payments. • Remote payments, by the end of 2020, represented 37.65% of the total number of card payments, having increased 7.2 billion by number and $37 billion in value over 2020.
The value of these payments totaled $128.51 trillion in 2021, an increase of $31.47 trillion from 2018, more than twice the rate of increase in the previous three-year period (2015 to 2018). • ACH payments exhibited accelerating growth, increasing 8.3% per year by number and 12.7% per year by value from 2018 to 2021, and accounted for more than 90% of the rise in non-cash payments. • In 2021 ACH transfers grew to $91.85 trillion, representing 72% of core non-cash payments value. • For calendar year 2022, general-purpose (GP) card payments reached 153.3 billion transactions and $9.76 trillion in value. • From 2021 to 2022, GP card payments grew 6.0% by number and 10.5% by value, effectively continuing the growth trajectory from 2018 to 2021, where they grew 6.5% and 10.3% by year, respectively. • In 2022, remote payments represented 36.2% of the total number of card payments, down slightly versus the 37.7% of total card payments at the end of 2020.
Any violations with our gift card issuance could result in the imposition of fines, the suspension of our ability to offer our gift cards, civil liability, criminal liability, and the inability of our issuing banks to apply certain fees to our gift cards, each of which would likely have a material adverse impact on our revenues. 7 Table of Contents Anti-Money Laundering and Counter Terrorist Regulation Our business is subject to U.S. federal anti-money laundering laws and regulations, including the Bank Secrecy Act (BSA), as amended by the USA PATRIOT Act of 2001, or collectively, the BSA.
Any violations with our gift card issuance could result in the imposition of fines, the suspension of our ability to offer our gift cards, civil liability, criminal liability, and the inability of our issuing banks to apply certain fees to our gift cards, each of which would likely have a material adverse impact on our revenues.
Combined with our printing and mailing services, through the acquisition of IMS in December of 2020, we can satisfy the diverse requirements of customer needs with physical and virtual document creation and distribution, including traditional paper checks.
Through our innovative Prepaid Debit Card platform, we offer a variety of prepaid card products such as reloadable, incentive, promotional and corporate card programs. Combined with our printing and mailing services, we can satisfy the diverse requirements of customer needs with physical and virtual document creation and distribution, including traditional paper checks.
We believe all of our employees should be treated with respect and equality, regardless of gender, ethnicity, sexual orientation, gender identity, religious beliefs or other characteristics. Inclusion and diversity remain a common thread in all of our human resource practices so that we can attract, develop and retain the best talent for our workforce.
We believe that our business is strengthened by a diverse workforce that reflects the communities in which we operate. We believe all of our employees should be treated with respect and equality, regardless of gender, ethnicity, sexual orientation, gender identity, religious beliefs or other characteristics.
Sales and Marketing We sell and market our ACH products and services primarily through non-exclusive resellers that act as an external sales force, with minimal direct investment in sales infrastructure and management, as well as direct contact by our sales personnel.
We closely monitor extensions of credit and if the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make contractual payments, additional allowances may be required. 6 Table of Contents Sales and Marketing We sell and market our ACH products and services primarily through non-exclusive resellers that act as an external sales force, with minimal direct investment in sales infrastructure and management, as well as direct contact by our sales personnel.
Finally, we believe we hold a significant competitive advantage over potential entrants into the prepaid industry as a result of the significant barrier in obtaining bank sponsorships for prepaid card program management and an even higher barrier for performing prepaid card processing.
Finally, we believe we hold a significant competitive advantage over potential entrants into the prepaid industry as a result of the significant barrier in obtaining bank sponsorships for prepaid card program management and an even higher barrier for performing prepaid card processing. 7 Table of Contents Trademarks and Domain Names We own federally registered trademarks on the marks “Usio,” “Payment Data Systems, Inc.,” “Akimbo,” “FiCentive Innovations in Prepaid Card Solutions,” “Don’t change your bank, just your card” and “ZBILL” and their respective designs.
According to the triennial 2022 Federal Reserve Payments Study, or FRPS, as updated through July 27, 2023, the estimated number of non-cash payments continue to increase at accelerated rates. The FRPS reflects the effects of the COVID-19 pandemic which resulted in an increase of non-paper payments by 24% from 2019 through the end of 2020.
According to the triennial 2022 Federal Reserve Payments Study, or FRPS, as updated through July 27, 2023, with supplementary reporting on Cards and Alternative Payments in 2021 and 2022 released in November 2024, the estimated number of non-cash payments continue to increase at accelerated rates.
Certain of our services are also subject to rules set by various payment networks, such as Visa and Mastercard. 6 Table of Contents The Dodd-Frank Act President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, into law on July 21, 2010. The Dodd-Frank Act caused significant structural reforms to the financial services industry.
Certain of our services are also subject to rules set by various payment networks, such as Visa and Mastercard. 8 Table of Contents The Dodd-Frank Act The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") effected and required significant changes to United States financial regulations, include regulations addressing fees charged or received by issuers for processing debit transactions and the transaction routing options available to merchants.
We believe that our relations with our employees are good. Growth and Development. Our strategy to develop and retain the best talent includes an emphasis on employee training and development. We promote our core values of ownership, innovation, camaraderie, service, authenticity and trust as an organization and offer awards to colleagues who exemplify these qualities.
We are not a party to any collective bargaining agreements. We believe that our relations with our employees are good. Growth and Development. Our strategy to develop and retain the best talent includes an emphasis on employee training and development.
Output Solutions provides printing and mailing services to utilities, healthcare providers, credit unions, banks, governmental agencies, and manufacturing and other customers that have high volume billing and printing needs. 5 Table of Contents Relationships with Sponsors and Processors We have agreements with several processors that provide us, on a non-exclusive basis,with transaction processing and transmittal, transaction authorization and data capture, and access to various reporting tools.
Output Solutions provides printing and mailing services to utilities, healthcare providers, credit unions, banks, governmental agencies, and manufacturing and other customers that have high volume billing and printing needs.
The success of this new business line depends on our ability to realize the anticipated growth opportunities; we cannot provide any assurance that we will be able to realize these opportunities. 1 Table of Contents Industry Background and Trends In the United States, the use of non-paper-based forms of payment, such as credit and debit cards, has risen steadily over the past several years.
The success of this business line depends on our ability to realize the anticipated growth opportunities; we cannot provide any assurance that we will be able to realize these opportunities.
We secured a relationship with Evolve Bank & Trust and resumed processing PINless debit transactions and subsequently secured a sponsoring relationship with CBW Bank in 2021 and TransPecos bank in 2023. We maintain an allowance for estimated losses resulting from the inability or failure of our merchant customers to make required payments for fees charged by us.
We maintain an allowance for estimated losses resulting from the inability or failure of our merchant customers to make required payments for fees charged by us. Amounts due from customers may be deemed uncollectible because of merchant disputes, fraud, insolvency or bankruptcy.
The Dodd-Frank Act regulates the fees charged or received by issuers for processing debit transactions and the transaction routing options available to merchants. The Dodd-Frank Act also established the Consumer Financial Protection Bureau or CFPB to regulate consumer financial services, including many services offered to our customers.
The Dodd-Frank Act also established the Consumer Financial Protection Bureau (“CFPB”) to regulate consumer financial services, including many services offered by our customers. The CFPB is responsible for enforcing and writing rules regarding consumer access to disclosures, fees and statements, error resolution, limited liability and overdrafts when using prepaid cards.
We require a mandatory online training curriculum for our employees that includes annual anti-harassment and anti-discrimination training. Inclusion and Diversity. Our inclusion and diversity program focuses on our employees, workplace and community. We believe that our business is strengthened by a diverse workforce that reflects the communities in which we operate.
We promote our core values of ownership, innovation, camaraderie, service, authenticity and trust as an organization and offer awards to colleagues who exemplify these qualities. We require a mandatory online training curriculum for our employees that includes annual anti-harassment and anti-discrimination training. Inclusion and Diversity. Our inclusion and diversity program focuses on our employees, workplace and community.
Customers Our customers are consumers, merchants, and businesses that use our Automated Clearing House and/or card-based processing services in order to provide their consumers with the ability to pay for goods and services without having to use cash or a paper check.
Elements of this strategy include: • unified onboarding process that allows every client boarded to have access to all of our various payment methods; • consolidated sales and customer support teams that can better cross-sell and integrate clients across all of our services; • improved reporting and customer management with the development of a new customer management platform that encompasses all of our business lines; • enhanced security and fraud protection through the development of new fraud detection tools, and a unified risk and compliance team; Customers Our customers are consumers, merchants, and businesses that use our Automated Clearing House and/or card-based processing services in order to provide their consumers with the ability to pay for goods and services without having to use cash or a paper check.
Environmental Laws We are subject to a variety of federal, state, local and foreign environmental, health and safety laws and regulations governing, among other things, the generation, storage, handling, use and transportation of hazardous materials; the emission and discharge of hazardous materials into the environment; and the health and safety of our employees.
Any actual or perceived failure to comply with legal and regulatory requirements may result in, among other things, revocation of required licenses or registrations, loss of approved status, private litigation, including class action litigation, consent decrees and injunctions, regulatory or governmental investigations, administrative enforcement actions, sanctions, civil and criminal liability, damages, fines, penalties, adverse publicity, reputational damage and constraints on our ability to continue to operate. 9 Table of Contents Environmental Laws We are subject to a variety of federal, state, local and foreign environmental, health and safety laws and regulations governing, among other things, the generation, storage, handling, use and transportation of hazardous materials; the emission and discharge of hazardous materials into the environment; and the health and safety of our employees.
As a result, e-commerce comprised more than two-thirds of remote card payments by number, and 59.16% by value. • Chip authenticated payments accounted for 75.2% of in-person general-purpose card payments in 2020, compared with 2.0% in 2015, and grew 22.6% by number from 2018 to 2020. • From 2019 to 2020 innovative payment methods grew in popularity, such as contactless card, digital wallet, and P2P payments. 2 Table of Contents Figure 1 (below) illustrates the overall growth in key non-cash metrics since the Federal Reserve Payments Study was first reported for the year 2000 and reflects the acceleration of growth in recent years.
This decline representing the recovery from the COVID-19 pandemic. • Chip authenticated payments accounted for 87.5% of in-person GP card payments in 2022, compared to 75.2% in 2020, while 29.1% used chip and PIN, and 19.7% were contactless. • From 2015 to 2018, total card payments - the sum of credit card, non-prepaid debit card and prepaid debit card payments - increased 25.9 billion to reach 157 billion payments by number and increased $2.35 trillion to reach $9.43 trillion by value in 2018. • In 2022, private-label (PL) card payments, including PL credit cards, PL prepaid cards, and electronic benefits transfer (EBT) cards, totaled 12.8 billion transactions and $0.64 trillion in value, down 2.1% and 18.1% respectively from 2021. • Within card payments, prepaid debit card payments had the highest growth rate in 2021 over 2018, by value, at 20.6%, compared with 13.7% per year for non-prepaid debit card payments and 7% for credit card payments. • Mobile wallet payments continued to exhibit strong growth, reaching 14.4 billion transactions in 2022, up from 2.9 billion in 2018. 2 Table of Contents Figure 1 (below) illustrates the overall growth in key non-cash metrics since the Federal Reserve Payments Study was first reported for the year 2000 and reflects the acceleration of growth in recent years.
Removed
Through our innovative Prepaid Debit Card platform, we offer a variety of prepaid card products such as reloadable, incentive, promotional and corporate card programs.
Added
Since the acquisition of substantially all of the assets of IMS, we have invested in new equipment to enhance the capacity and speed of the business unit, such as a new inserter and folder, on October 1, 2023, that was implemented over the course of 2024.
Removed
Under our processing agreement with Global Payments, Inc., we are not financially liable for all fees, chargebacks and losses related to our card processing merchant customers, but we are liable for potential card association fines.
Added
Further, in December 2024, we partnered with an outsourced presorting company, that we believe will help lower costs of postage and labor, while increasing the speed of our mail delivery services. 1 Table of Contents Industry Background and Trends In the United States, the use of non-paper-based forms of payment, such as credit and debit cards, has risen steadily over the past several years.
Removed
We closely monitor extensions of credit and if the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make contractual payments, additional allowances may be required.
Added
The FRPS reflects the effects of the COVID-19 pandemic which resulted in an increase of non-paper payments by 24% from 2019 through the end of 2020, and subsequent growth and recovery.
Removed
There are also a large number of smaller transaction processors that provide various services to small and medium- sized merchants.
Added
More consumers are beginning to use card-based and other electronic payment methods for purchases at an earlier age.
Removed
Trademarks and Domain Names We own federally registered trademarks on the marks “Usio,” “Payment Data Systems, Inc.,” “Akimbo,” “FiCentive Innovations in Prepaid Card Solutions,” “Don’t change your bank, just your card” and “ZBILL” and their respective designs. Some of our material websites are www.usio.com, www.payfacinabox.com, www.ficentive.com, www.akimbocard.com, and www.usiooutput.com.
Added
Simultaneously, we offer a variety of supplementary service products for the payment acceptance space, such as PINless debit, and RTP which offer faster means of fund disbursement to address the growing desire of near instant fund transfers. The expansion of our platform and the transition to cloud-based infrastructure underscore our commitment to speed, security, and scalability in payment processing.
Removed
These rules clarify the prepaid regulatory landscape for consumer access to disclosures, fees and statements, error resolution, limited liability and overdrafts.
Added
Since the acquisition of substantially all of the assets of IMS, we have invested in new equipment to enhance the capacity and speed of the business unit, such as a new inserter and folder, on October 1, 2023, that was implemented over the course of 2024.
Removed
Additionally, the Durbin Amendment to the Dodd-Frank Act provided that interchange fees that a card issuer or payment network receives or charges for debit transactions will now be regulated by the Federal Reserve and must be “reasonable and proportional” to the cost incurred by the card issuer in authorizing, clearing and settling the transaction.
Added
Further, in December 2024, we partnered with an outsourced presorting company, that we believe will help lower costs of postage and labor, while increasing the speed of our mail delivery services. 5 Table of Contents Relationships with Sponsors and Processors We have agreements with several processors that provide us, on a non-exclusive basis, with transaction processing and transmittal, transaction authorization and data capture, and access to various reporting tools.
Removed
In addition, the Durbin Amendment contains prohibitions on network exclusivity and merchant routing restrictions. The Dodd-Frank Act caused interchange fees to be lowered on large bank-issued debit cards. The lowered interchange fees had a mild negative impact on our revenues and increased our earnings due to the fact that we were able to keep our prices constant with our merchants.
Added
This service, which we began with the acquisition of substantially all of the assets of IMS in December 2020, allows us to cross-sell existing service offerings to our customers.
Removed
If our competitors start to pass the extra margin into savings to their merchants, we may be forced to follow their actions and become exposed to lower earnings on the debit card transactions for large banks.
Added
Since December 2024, we have pursued the “One Usio” strategy in order to increase the integration of all of our various product offerings so that we approach the market as a unified force with a portfolio of capabilities that can meet our customer’s various electronic payment and associated needs.
Removed
The BSA, among other things, requires money services businesses to develop and implement risk-based anti-money laundering programs, report large cash transactions and suspicious activity and maintain transaction records.
Added
This strategy is designed to sell multiple, complementary Usio products to an increasing number of clients who benefit from the synergies and efficiencies that arise from consolidating their relationship.
Removed
On September 29, 2017, the Financial Crimes Enforcement Network, or FinCEN, amended the Customer Due Diligence Rule, or CDD Rule, requiring the collection and verification of beneficial owners holding equal to or greater than 25% equity interest.
Added
Data Privacy Laws Our billers, financial institutions, partners and their consumers, store personal and business information, financial information and other sensitive information on our platform.
Removed
The CDD Rule states that sole proprietorships-individual or spousal-and unincorporated associations are not legal entity customers as defined by the Rule, even though such businesses may file with the Secretary of State in order to register a trade name or establish a tax account.
Added
In addition, we receive, store, handle, transmit, use and otherwise process personal and business information and other data from and about actual and prospective billers, financial institutions and partners, as well as our employees and service providers.
Removed
This is because neither a sole proprietorship nor an unincorporated association is a separate legal entity from the associated individual(s), and therefore beneficial ownership is not inherently obscured. The CDD Rule does not rely on the tax-exempt status of an entity as described in the Internal Revenue Code “IRC”.
Added
As a result, we and our handling of data are subject to a variety of laws, rules and regulations relating to privacy, data protection and information security, including regulation by various governmental authorities, such as the U.S. Federal Trade Commission, or FTC, and various state, local and foreign agencies.
Removed
All nonprofit entities-whether or not tax-exempt-that are established as a nonprofit, or non-stock corporation, or similar entity that has been validly organized with the proper State authority are excluded from the ownership/equity prong of the requirement because nonprofit entities generally do not have ownership interests.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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If a deferred tax asset net of our valuation allowance was determined to be not realizable in a future period, the charge to earnings would be recognized as an expense in our results of operations in the period the determination is made.
If a deferred tax asset net of our valuation allowance was determined to be not realizable in a future period, a charge to earnings would be recognized as an expense in our results of operations in the period the determination is made.
As an agent of, and third-party service provider to, our issuing banks, we are subject to indirect regulation and direct audit and examination by the Office of Thrift Supervision, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, or the FRB, and the Federal Deposit Insurance Corporation.
As an agent of, and third-party service provider to, our issuing banks, we are subject to indirect regulation and direct audit and examination by the Office of Thrift Supervision, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, or FRB, and the Federal Deposit Insurance Corporation.
In 2014, we resumed issuing gift cards. Any gift cards we issue will be governed by the CARD act and other various regulations.
We resumed issuing gift cards in 2014. Any gift cards we issue will be governed by the CARD Act and other various regulations.
However, this exclusion is not available if the issuer, the retailer selling the card to a consumer or the program manager, promotes, even if occasionally, the use of the card as a gift card or gift certificate. As a result, we provide retailers with specific instructions and policies regarding the display and promotion of our general-purpose re-loadable cards.
However, this exclusion is not available if the issuer, the retailer selling the card to a consumer or the program manager, promotes, even if occasionally, the use of the card as a gift card or gift certificate. As a result, we provide retailers with instructions and policies regarding the display and promotion of our general purpose re-loadable cards.
Accordingly, our business, results of operations and financial condition could be materially and adversely affected to the extent that we incur losses resulting from overdrawn cardholder accounts and fraudulent activity that exceed our designated reserves or if we determine that it is necessary to increase our reserves substantially in order to address any increased recovery risk. 14 Table of Contents Our business strategy includes identifying businesses and assets to acquire, and if we cannot integrate acquisitions into our company successfully, we may have limited growth.
Accordingly, our business, results of operations and financial condition could be materially and adversely affected to the extent that we incur losses resulting from overdrawn cardholder accounts and fraudulent activity that exceed our designated reserves or if we determine that it is necessary to increase our reserves substantially in order to address any increased recovery risk. 17 Table of Contents Our business strategy includes identifying businesses and assets to acquire, and if we cannot integrate acquisitions into our company successfully, we may have limited growth.
Pursuant to our employment agreement, as amended, with Louis Hoch, Chairman, President, Chief Executive Officer, and Chief Operating Officer, in the event of change in control, termination without cause, termination by employee, or non-renewal of the employment agreement, we will be liable for separation payments, equaling an amount of (a) 2.95 times the respective base salary and bonus payments, plus (b) a pro rata portion of the respective annual bonus based on the number of days elapsed in the year prior, plus (c) 2.0 times the respective base salary for non-competition, and (d) continuing other benefits.
Pursuant to our employment agreement, as amended, with Louis Hoch, Chairman, President, Chief Executive Officer, and Chief Operating Officer, in the event of change in control, termination by the Company without cause, termination by employee for good reason, or non-renewal of the employment agreement, we will be liable for separation payments, equaling an amount of (a) 2.95 times the respective base salary and bonus payments, plus (b) a pro rata portion of the respective annual bonus based on the number of days elapsed in the year prior, plus (c) 2.0 times the respective base salary for non-competition, and (d) continuing other benefits.
Compliance with these requirements is often difficult and costly, and our failure, or our distributors’ failure, to comply may result in significant fines or civil penalties, regulatory enforcement action, liability to our issuing banks and termination of our agreements with one or more of our issuing banks, each of which could have a material adverse effect on our financial position and/or operations.
Compliance with these requirements is often difficult and costly, and our failure, or our resellers' failure, to comply may result in significant fines or civil penalties, regulatory enforcement action, liability to our issuing banks and termination of our agreements with one or more of our issuing banks, each of which could have a material adverse effect on our financial position and/or operations.
In such event, it is possible that such general-purpose re-loadable cards would lose their eligibility for such exclusion to the CARD Act and its requirements, and therefore could be deemed to be in violation of the CARD Act and the rule, which could result in the imposition of fines, the suspension of our ability to offer our general-purpose re-loadable cards, civil liability, criminal liability, and the inability of our issuing banks to apply certain fees to our general-purpose re-loadable cards, each of which would likely have a material adverse impact on our revenues.
In such event, it is possible that such general purpose re-loadable cards would lose their eligibility for such exemption to the CARD Act and its requirements, and therefore we could be deemed to be in violation of the CARD Act and the rule, which could result in the imposition of fines, the suspension of our ability to offer our general purpose re-loadable cards, civil liability, criminal liability, and the inability of our issuing banks to apply certain fees to our general purpose re-loadable cards, each of which would likely have a material adverse impact on our revenues.
For example, we acquired the assets of IMS, a business of electronic bill presentment, document composition, document decomposition and printing and mailing services serving hundreds of customers representing a wide range of industry verticals, including utilities and financial institutions on December 15, 2020.
For example, we acquired substantially all of the assets of IMS, a business of electronic bill presentment, document composition, document decomposition and printing and mailing services serving hundreds of customers representing a wide range of industry verticals, including utilities and financial institutions on December 15, 2020.
This rule created additional obligations for entities, including our distributors, engaged in the provision and sale of certain prepaid products, including our prepaid debit cards, such as the obligation for sellers of prepaid debit cards to obtain identification information from the purchaser at the point-of-sale.
This rule created additional obligations for entities, including our resellers, engaged in the provision and sale of certain prepaid products, including our prepaid debit cards, such as the obligation for sellers of prepaid debit cards to obtain identification information from the purchaser at the point-of-sale.
If these continuing payments cease before 36 months, we will have to pay the executive’s estate the deferred compensation minus any base salary payments within 30 days of the cessation. We estimate the cash disbursements over time to be approximately $2.4 million for the agreement with Mr. Hoch.
If these continuing payments cease before 36 months, we will have to pay the executive’s estate the deferred compensation minus any base salary payments within 30 days of the cessation. We estimate the cash disbursements over time to be approximately $3.5 million for the agreement with Mr. Hoch.
We estimate the cash disbursement over time to be $2.4 million for the agreement with Mr. Hoch. Unpaid and unearned bonus compensation or bonus deferred compensation is forfeited. Further, all stock options issued to the executive and all restricted stock granted to executive shall continue on their established vesting schedule.
We estimate the cash disbursement over time to be $3.5 million for the agreement with Mr. Hoch. Unpaid and unearned bonus compensation or bonus deferred compensation is forfeited. Further, all stock options issued to the executive and all restricted stock granted to executive shall continue on their established vesting schedule.
We believe that we are not required to be licensed by the Office of the Comptroller of the Currency, the Federal Reserve Board, or other federal or state agencies that regulate or monitor banks or other types of providers of electronic commerce services.
We believe that we are not required to be licensed by the Office of the Comptroller of the Currency, the Federal Reserve Board, or other federal or state agencies that regulate or monitor banks, financial institutions, or other providers of electronic commerce services.
Additionally, changing our bank sponsor could adversely affect our relationship with our merchants if the new sponsor provides inferior service or charges higher costs. We may not be able to obtain and maintain sufficient insurance coverage. We insure against a majority of business risks, including liability for cyber incidents, and for director and officer liability.
Additionally, changing our bank sponsor could adversely affect our relationship with our merchants if the new sponsor provides inferior service or charges higher costs. 14 Table of Contents We may not be able to obtain and maintain sufficient insurance coverage. We insure against a majority of business risks, including liability for cyber incidents, and for director and officer liability ("D&O").
Additionally, the number of shares of our Common Stock reserved for issuance under our 2015 Plan automatically increases on January 1 of each year, beginning on January 1, 2022, and continuing through and including January 1, 2031, by 5% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year (determined on an as-converted to voting common stock basis, without regard to any limitations on the conversion of the non-voting common stock), or a lesser number of shares determined by our board of directors.
Additionally, the number of shares of our Common Stock reserved for issuance under our 2015 Plan automatically increases on January 1 of each year, beginning on January 1, 2016, and continuing through and including July 2, 2025, by 5% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year (determined on an as-converted to voting common stock basis, without regard to any limitations on the conversion of the non-voting common stock), or a lesser number of shares determined by our board of directors.
We estimate the cash disbursements over time to be $4.0 million for the agreement with Mr. Hoch. In the case of termination of the agreement due to death of the executive, we will be liable for separation payments, equaling an amount of 2.95 times the respective base salary.
We estimate the cash disbursements over time to be $5.9 million for the agreement with Mr. Hoch. In the case of termination of the agreement due to death of the executive, we will be liable for separation payments, equaling an amount of 2.95 times the respective base salary.
We reported a net loss of $0.5 million and $5.5 million for the years ended December 31, 2023 and December 31, 2022, respectively. Including these results, we have an accumulated deficit of $71.3 million at December 31, 2023. Our future operating results are not certain and we may incur future operating losses.
We reported net income of $3.3 million and a net loss of $0.5 million for the years ended December 31, 2024 and December 31, 2023, respectively. Including these results, we have an accumulated deficit of $68.0 million at December 31, 2024. Our future operating results are not certain and we may incur future operating losses.
Provisions of the USA PATRIOT Act, the Bank Secrecy Act and other federal law impose substantial regulation of financial institutions designed to prevent use of financial services for purposes of money laundering or terrorist financing.
Provisions of the USA PATRIOT Act, the BSA and other federal law require substantial regulation of financial institutions designed to prevent use of financial services for purposes of money laundering or terrorist financing.
Our directors and executive officers, together with their affiliates and related persons, beneficially owned, in the aggregate, approximately 19% of our outstanding Common Stock as of March 22, 2024.
Our directors and executive officers, together with their affiliates and related persons, beneficially owned, in the aggregate, approximately 18% of our outstanding Common Stock as of March 21, 2025.
As of December 31, 2023, we had deferred tax assets of $1.5 million. Realization of our deferred tax assets is dependent upon our generating sufficient taxable income in future years to realize the tax benefit from those assets. Deferred tax assets are reviewed at least annually for realizability.
As of December 31, 2024, we have net deferred tax assets of $4.7 million. Realization of our deferred tax assets is dependent upon our generating sufficient taxable income in future years to realize the tax benefit from those assets. Deferred tax assets are reviewed at least annually for realizability.
In addition, abuse of our prepaid card programs for purposes of money laundering or terrorist financing, notwithstanding our efforts to prevent such abuse through our regulatory compliance and risk management programs, could cause reputational risk or other harm that would have a material adverse impact on our business. Effective September 27, 2011, the Financial Crimes Enforcement Network of the U.S.
In addition, abuse of our prepaid card programs for purposes of money laundering or terrorist financing, notwithstanding our efforts to prevent such abuse through our regulatory compliance and risk management programs, could cause reputational risk or other harm that would have a material adverse impact on our business.
We could also be subject to liability for claims relating to misuse of personal information, such as unauthorized marketing purposes, or failure to comply with laws governing notification of such breaches. These claims also could result in protracted and costly litigation.
We could also be subject to liability for claims relating to misuse of personal information, such as unauthorized marketing purposes, or failure to comply with laws governing notification of such breaches. These claims also could result in protracted and costly litigation. In addition, we could be subject to penalties or sanctions from the relevant card associations or network organizations.
Portions of the electronic commerce market are becoming increasingly competitive. We expect to face growing competition in all areas of the electronic payment processing market. New companies could emerge and compete for merchants of all sizes.
If we cannot compete successfully in our industry, we could lose market share and our costs could increase. Portions of the electronic commerce market are becoming increasingly competitive. We expect to face growing competition in all areas of the electronic payment processing market. New companies could emerge and compete for merchants of all sizes.
Our Board may determine from time to time that we need to raise additional capital by issuing Common Stock or other equity securities. Except as otherwise described in this Annual Report, we are not restricted from issuing additional securities, including securities that are convertible into or exchangeable for, or that represent the right to receive, shares of our Common Stock.
Except as otherwise described in this Annual Report, we are not restricted from issuing additional securities, including securities that are convertible into or exchangeable for, or that represent the right to receive, shares of our Common Stock.
As of March 22, 2024, we had 26,342,459 shares of Common Stock outstanding of which 4,992,659 shares were held by affiliates. All of the shares of Common Stock held by affiliates are restricted or control securities under Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”).
As of March 21, 2025, we had 26,514,356 shares of Common Stock outstanding of which 4,748,457 shares were held by affiliates. All of the shares of Common Stock held by affiliates are restricted or control securities under Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”).
Department of the Treasury, or FinCEN, issued a final rule regarding the applicability of the Bank Secrecy Act’s anti-money laundering provisions to prepaid products and other matters related to the regulation of money services businesses.
In 2011, the Financial Crimes Enforcement Network, or FinCEN, issued its final rule regarding the applicability of the Bank Secrecy Act’s anti-money laundering provisions to prepaid products and other matters related to the regulation of money services businesses.
Despite the existence of various security precautions, our computer infrastructure may also be vulnerable to viruses or similar disruptive problems caused by our customers or third parties gaining access to our processing system.
We have not experienced a significant increase in software errors or warranty claims. Despite the existence of various security precautions, our computer infrastructure may also be vulnerable to viruses or similar disruptive problems caused by our customers or third parties gaining access to our processing system.
If we are unable to find a replacement financial institution to provide sponsorship or become a member of the association, we may no longer be able to provide prepaid processing services to our Mastercard customers, which would negatively impact our revenues and earnings.
If we are unable to find a replacement financial institution to provide sponsorship or become a member of the association, we may no longer be able to provide prepaid processing services to our Mastercard customers, which would negatively impact our revenues and earnings. 15 Table of Contents If our software fails, and we need to repair or replace it, or we become subject to warranty claims, our costs could increase.
On March 23, 2010, the FRB issued a final rule implementing Title IV of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009, or CARD Act, which imposes requirements relating to disclosures, fees and expiration dates that are generally applicable to gift certificates, store gift cards and general-use prepaid cards.
The Credit Card Accountability, Responsibility, and Disclosure Act of 2009, or CARD Act imposes requirements relating to disclosures, fees and expiration dates that are generally applicable to gift certificates, store gift cards and general-use prepaid cards.
Failure to effectively manage risk and prevent fraud would increase our chargebacks liability or cause us to incur other liabilities, including regulatory and association fines, penalties and harm to our reputation. Increases in chargebacks or other liabilities could have an adverse effect on our operating results and financial condition.
Failure to effectively manage risk and prevent fraud would increase our chargebacks liability or cause us to incur other liabilities, including regulatory and association fines, penalties and harm to our reputation.
The market for our common stock is highly volatile. In 2023, our stock price fluctuated between $1.45 and $2.36.
The market for our common stock is highly volatile. In 2024 our stock price fluctuated between $1.28 and $1.93.
A deterioration in macroeconomic conditions could continue to increase the risk of lower consumer spending, merchant and consumer bankruptcy, insolvency, business failure, higher credit losses, or other business interruption, which may adversely impact our business. If these conditions continue or worsen, they could adversely impact our future financial and operating results. ITEM 1B. UNRESOLVED STAFF COMMENTS. Not Applicable.
A deterioration in macroeconomic conditions could continue to increase the risk of lower consumer spending, merchant and consumer bankruptcy, insolvency, business failure, higher credit losses, or other business interruption, which may adversely impact our business.
Failure to retain or attract key personnel and skill sets could have a material adverse effect on our business, financial condition and results of operations. 10 Table of Content If our third-party card processing providers or our bank sponsors fail to comply with the applicable requirements of Visa, Mastercard and Discover credit card associations or if our current processors cancel or fail to renew our contracts, we may have to find a new third-party processing provider, which could increase our costs.
If our third-party card processing providers or our bank sponsors fail to comply with the applicable requirements of Visa, Mastercard and Discover credit card associations or if our current processors cancel or fail to renew our contracts, we may have to find a new third-party processing provider, which could increase our costs.
Through our relationships with Metropolitan Commercial Bank, TransPecos Bank, and NABC, we process payment transactions on behalf of our customers and their consumers by submitting payment instructions in a prescribed ACH format.
An ODFI is a participating financial institution that must abide by the provisions of the ACH Operating Rules and Guidelines. Through our relationships with Metropolitan Commercial Bank, TransPecos Bank, and NABC, we process payment transactions on behalf of our customers and their consumers by submitting payment instructions in a prescribed ACH format.
We attempt to limit our potential liability for warranty claims through technical audits and limitation-of-liability provisions in our customer agreements; however, these measures may not be effective in limiting our exposure to warranty claims. We have not experienced a significant increase in software errors or warranty claims.
Our software products could contain errors or “bugs” that could adversely affect the performance of services or damage a user’s data. We attempt to limit our potential liability for warranty claims through technical audits and limitation-of-liability provisions in our customer agreements; however, these measures may not be effective in limiting our exposure to warranty claims.
These stockholders have the ability to substantially control our operations and direct our policies including the outcome of matters submitted to our stockholders for approval, such as the election of directors and any acquisition or merger, consolidation or sale of all or substantially all of our assets. 16 Table of Contents GENERAL RISK FACTORS Market conditions could negatively impact our business, results of operations, cash flows and financial condition.
These stockholders have the ability to substantially control our operations and direct our policies including the outcome of matters submitted to our stockholders for approval, such as the election of directors and any acquisition or merger, consolidation or sale of all or substantially all of our assets.
In addition, any failure to successfully implement new information systems and technologies, or improvements or upgrades to existing information systems and technologies in a timely manner could have an adverse impact on our business, internal controls (including internal controls over financial reporting), results of operations, and financial condition.
In addition, any failure to successfully implement new information systems and technologies, or improvements or upgrades to existing information systems and technologies in a timely manner could have an adverse impact on our business, internal controls (including internal controls over financial reporting), results of operations, and financial condition. 13 Table of Contents We rely on our relationship with the Automated Clearing House network, and if the Federal Reserve rules were to change, our business could be adversely affected.
If we must cease or reduce our operating activities, you may lose your entire investment. Unauthorized disclosure of cardholder data, whether through breach of our computer systems or otherwise, could expose us to liability and protracted and costly litigation.
Unauthorized disclosure of cardholder data, whether through breach of our computer systems or otherwise, could expose us to liability and protracted and costly litigation.
Fraud by merchants or others could have an adverse effect on our operating results and financial condition. We have potential liability for fraudulent bankcard, ACH and prepaid card transactions or credits initiated by merchants or others.
We have potential liability for fraudulent bankcard, ACH and prepaid card transactions or credits initiated by merchants or others.
However, the market for our services is characterized by rapidly changing technology, evolving industry standards, emerging competition and frequent new and enhanced software, service and related product introductions. In addition, the software market is subject to rapid and substantial technological change.
Our success depends on our ability to develop new and enhanced services and related products that meet ever changing customer needs and industry standards. However, the market for our services is characterized by rapidly changing technology, evolving industry standards, emerging competition and frequent new and enhanced software, service and related product introductions.
To remain successful, we must respond to new developments in hardware and semiconductor technology, operating systems, programming technology and computer capabilities. In many instances, new and enhanced services, products and technologies are in the emerging stages of development and marketing and are subject to the risks inherent in the development and marketing of new software, services and products.
In many instances, new and enhanced services, products and technologies are in the emerging stages of development and marketing and are subject to the risks inherent in the development and marketing of new software, services and products.
We perform the majority of our disaster recovery operations ourselves, though we utilize select third parties for some aspects of recovery.
We perform the majority of our disaster recovery operations ourselves, though we utilize select third parties for some aspects of recovery. To the extent we outsource our disaster recovery, we are at risk of the vendor’s unresponsiveness in the event of breakdowns in our systems.
We are also subject to various laws and regulations relating to commercial transactions, such as the Uniform Commercial Code, and may be subject to the electronic funds transfer rules embodied in Regulation E, promulgated by the Federal Reserve Board.
We are also subject to various laws and regulations relating to commercial transactions, such as the Uniform Commercial Code, and may be subject to the electronic funds transfer rules embodied in Regulation E. Because of growth in the electronic commerce market, Congress has held hearings on whether to regulate providers of services and transactions in the electronic commerce market.
The market for qualified personnel is highly competitive and we may not be successful in recruiting qualified personnel for needed skill sets or replacing current personnel who leave us.
The market for qualified personnel is highly competitive and we may not be successful in recruiting qualified personnel for needed skill sets or replacing current personnel who leave us. Failure to retain or attract key personnel and skill sets could have a material adverse effect on our business, financial condition and results of operations.
Although we actively devote efforts to effectively manage risk and prevent fraud, we could nevertheless experience future increases in fraud losses over our historical experience. Our prepaid cardholders can in some circumstances incur charges in excess of the funds available in their accounts and are liable for the resulting overdrawn account balance.
Our prepaid cardholders can in some circumstances incur charges in excess of the funds available in their accounts and are liable for the resulting overdrawn account balance.
In addition, we could be subject to penalties or sanctions from the relevant card associations or network organizations. 9 Table of Contents If our efforts to protect the security of information about our customers, cardholders and vendors are unsuccessful, we may face additional costly government enforcement actions and private litigation, and our sales and reputation could suffer.
If our efforts to protect the security of information about our customers, cardholders and vendors are unsuccessful, we may face additional costly government enforcement actions and private litigation, and our sales and reputation could suffer. An important component of our business involves the receipt and storage of information about our cardholders and banking information.
As of December 31, 2023, no shares of our Common Stock had been purchased pursuant to the ESPP. Unless our board of directors elects not to increase the number of shares available for future grant pursuant to our 2015 Plan and ESPP each year, our stockholders may experience additional dilution, which could cause our stock price to fall.
Unless our board of directors elects not to increase the number of shares available for future grant pursuant to our 2015 Plan and ESPP each year, our stockholders may experience additional dilution, which could cause our stock price to fall. 24 Table of Contents We may issue additional equity securities, or engage in other transactions that could dilute our book value or affect the priority of our Common Stock, which may adversely affect the market price of our Common Stock.
RISKS RELATED TO OUR INDUSTRY The electronic commerce market is evolving and if it does not grow, we may not be able to sell sufficient services to make our business viable. The electronic commerce market is a service industry that continues to grow significantly.
If these conditions continue or worsen, they could adversely impact our future financial and operating results. 18 Table of Contents RISKS RELATED TO OUR INDUSTRY The electronic commerce market is evolving and if it does not grow, we may not be able to sell sufficient services to make our business viable.
No system or procedures established to detect and reduce the impact of fraud are entirely effective. We recorded fraud losses of $573,281 and $299,162, respectively, in 2023 and 2022. We experienced an increase in fraudulent accounts in 2023 as a result of growth in our prepaid card business of 105%.
No system or procedures established to detect and reduce the impact of fraud are entirely effective. We recorded fraud losses of $311,306 and $573,281, respectively, in 2024 and 2023.
At this time, we believe we could find and enter into additional agreements with other bank sponsors on similar contractual terms, but no assurances can be made. If we lose key personnel or we are unable to attract, recruit, retain and develop qualified employees, our business, financial condition and results of operations may be adversely affected.
If we lose key personnel or we are unable to attract, recruit, retain and develop qualified employees, our business, financial condition and results of operations may be adversely affected.
As of December 31, 2023, we had granted awards under the 2015 Plan for 7,889,455 shares of Common Stock and have 5,510,845 shares still reserved. In addition, pursuant to our 2023 Employee Stock Purchase Plan (“ESPP”), we have reserved 2,500,000 shares of Common Stock.
In addition, pursuant to our 2023 Employee Stock Purchase Plan (“ESPP”), we have reserved 2,500,000 shares of Common Stock.
If our security applications are breached by cyberattacks or are not adequate to address changing market conditions and customer concerns, we may incur significant losses and be unable to sell our services.
If any of the following risks actually occur, our business, financial condition or results of operations could be materially and adversely affected, and you may lose some or all of your investment. 11 Table of Contents RISKS RELATED TO OUR BUSINESS If our security applications are breached by cyberattacks or are not adequate to address changing market conditions and customer concerns, we may incur significant losses and be unable to sell our services.
If we cannot collect such amounts from the applicable merchant or one of our resellers, we could end up bearing such fines or penalties, resulting in lower earnings for us. If we fail to comply with complex and expanding consumer protection regulations, our business could be adversely affected.
If we cannot collect such amounts from the applicable merchant or one of our resellers, we could end up bearing such fines or penalties, resulting in lower earnings for us. Fraud by merchants or others could have an adverse effect on our operating results and financial condition.
We utilize a number of systems and procedures to manage and limit credit risks, but if these actions are not successful in managing such risks, we may incur significant losses. We have adopted certain measures that may make it more difficult for a third party to acquire control of our Company.
We utilize a number of systems and procedures to manage and limit credit risks, but if these actions are not successful in managing such risks, we may incur significant losses. Market conditions could negatively impact our business, results of operations, cash flows and financial condition.
If our capital resources are insufficient to meet future capital requirements, we will have to raise additional funds by selling assets, borrowing money from a third party, or by selling debt or equity securities. If we are unable to obtain additional funds on terms favorable to us, we may be required to cease or reduce our operating activities.
At December 31, 2024 we had $8.1 million of cash and cash equivalents, and for the year ended December 31, 2024, operating activities provided $2.9 million. If our capital resources are insufficient to meet future capital requirements, we will have to raise additional funds by selling assets, borrowing money from a third party, or by selling debt or equity securities.
Our Board of Director members are classified into three classes of directors serving staggered three-year terms. Such classification of the Board of Directors expands the time required to change the composition of the majority of directors and may discourage a proxy contest or other takeover bid for our company.
Such classification of the Board of Directors expands the time required to change the composition of the majority of directors and may discourage a proxy contest or other takeover bid for our company. These provisions in our bylaws could make it more difficult for a third party to acquire us without the approval of our board.
It is possible that a federal or state agency will attempt to regulate providers of electronic commerce services, which could impede our ability to do business in the regulator's jurisdiction. Our business has also been affected by anti-terrorism legislation, such as the USA PATRIOT Act.
It is possible that a federal or state agency will attempt to expand their regulation of providers of electronic commerce services, which could require us to develop a licensing strategy to do business in the regulator's jurisdiction.
We may issue additional equity securities, or engage in other transactions that could dilute our book value or affect the priority of our Common Stock, which may adversely affect the market price of our Common Stock. Our articles of incorporation allow our Board to issue up to 200,000,000 shares of Common Stock.
Our articles of incorporation allow our Board to issue up to 200,000,000 shares of Common Stock. Our Board may determine from time to time that we need to raise additional capital by issuing Common Stock or other equity securities.
If our cash position is not sufficient, we may need to raise additional cash which could involve selling equity securities which would dilute our shareholders.
If our cash position is not sufficient, we may need to raise additional cash which could involve selling equity securities which would dilute our shareholders. In addition, the loss of our Chairman or Chief Executive Officer may adversely affect our business and results of operations. 16 Table of Contents We depend on Louis A.
We may not be able to compete against current or future competitors successfully. Additionally, competitive pressures may increase our costs, which could lower our earnings, if any. 15 Table of Contents RISKS RELATED TO OUR COMMON STOCK Our stock price is volatile, and you may not be able to sell your shares at a price higher than what you paid.
We may not be able to compete against current or future competitors successfully. Additionally, competitive pressures may increase our costs, which could lower our earnings, if any. 19 Table of Contents RISKS RELATED TO REGULATION Payments and other financial services-related regulations and oversight are material to our business and any failure by us to comply could materially harm our business.
Any failure, or perceived failure, by us, our issuing banks or our distributors to comply with all applicable statutes and regulations could result in fines, penalties, regulatory enforcement actions, civil liability, criminal liability, and/or limitations on our ability to operate our business, each of which could significantly harm our reputation and have a material adverse impact on our business, results of operations and financial condition.
Failure to comply with any of these laws or regulations could result in litigation, enforcement actions, damages, fines, penalties or adverse publicity and reputational damage, any of which could have a material adverse effect on our business, operating results and financial condition.
The ACH network is a nationwide batch-oriented electronic funds transfer system that provides for the interbank clearing of electronic payments for participating financial institutions. An ODFI is a participating financial institution that must abide by the provisions of the ACH Operating Rules and Guidelines.
We have contractual relationships with North American Banking Company, or NABC, Metropolitan Commercial Bank, and TransPecos Bank, which are Originating Depository Financial Institutions, or ODFI, in the ACH network. The ACH network is a nationwide batch-oriented electronic funds transfer system that provides for the interbank clearing of electronic payments for participating financial institutions.
Compliance with existing and new obligations as result of further expanding consumer protections regulations, could result in increased compliance costs for us, our issuing banks and our distributors, and may therefore have a negative impact on the profitability of our business. 11 Table of Conte We are subject to extensive and complex federal and state regulation and new regulations and/or changes to existing regulations could adversely affect our business.
Compliance with existing and new obligations as result of further expanding consumer protections regulations like the Prepaid Account Rule, could result in increased compliance costs for us, and our issuing banks and resellers.
We rely on our reseller sales channel, which purchases and resells our end-to-end services to its own portfolio of merchant customers. This channel is a strong contributor to our revenue growth.
At this time, we believe we could find and enter into additional agreements with other bank sponsors on similar contractual terms, but no assurances can be made. Loss of key resellers could reduce our revenue growth. We rely on our reseller sales channel, which purchases and resells our end-to-end services to its own portfolio of merchant customers.
It is possible that Congress or individual states could enact laws regulating the electronic commerce market. If enacted, such laws, rules and regulations could be imposed on our business and industry and could increase our costs or limit our business opportunities. If we cannot compete successfully in our industry, we could lose market share and our costs could increase.
It is possible that Congress or individual states could enact laws regulating the electronic commerce market.
If we do not adapt to rapid technological change, including as a result of artificial intelligence, our business may fail. Our success depends on our ability to develop new and enhanced services and related products that meet ever changing customer needs and industry standards.
Increases in chargebacks or other liabilities could have an adverse effect on our operating results and financial condition. 12 Table of Contents If we do not adapt to rapid technological change, including as a result of artificial intelligence, our business may fail.
The effects of this legislation potentially are far-reaching, however, and may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to achieve compliance.
The interpretation and enforcement of the CCPA, as well as other rules promulgated by the CPPA, is in nascent stages, and further regulatory guidance may require us to modify our data collection or processing practices and policies and to incur substantial costs and expenses in an effort to comply and increase our potential exposure to regulatory enforcement and sanctions and litigation.
Removed
If any of the following risks actually occur, our business, financial condition or results of operations could be materially and adversely affected, and you may lose some or all of your investment. RISKS RELATED TO OUR BUSINESS Loss of key resellers could reduce our revenue growth.
Added
In addition, the software market is subject to rapid and substantial technological change. To remain successful, we must respond to new developments in hardware and semiconductor technology, operating systems, programming technology computer capabilities and the growing use of artificial intelligence, or AI and machine learning. Generative AI has become more publicly available and enterprise adoption of generative AI has grown.
Removed
At December 31, 2023 we had $7.2 million of cash and cash equivalents, and for the year ended December 31, 2023, operating activities provided $14.9 million.
Added
We have not incorporated AI features into our products and technologies and our success will depend in part on our ability to do so. Incorporating generative AI into our products will require a significant investment by us which could have a material adverse effect on our results of operations and financial condition.
Removed
After adjusting for the impact of operating lease right-of-use assets, operating lease liabilities, prepaid card load obligations and merchant reserves included in the statement of cash flows, net cash provided by adjusted operating activities, was $2.8 million for the year ended December 31, 2023.
Added
Growing use of artificial intelligence has challenges that, if not properly managed could result in harm to our brand, reputation, business or customers, and adversely affect our results of operations. The use of AI presents risks. AI algorithms may be flawed, and datasets may be insufficient.
Removed
Adjusted operating cash flow is viewed by the company as a superior indicator 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.
Added
Inappropriate or controversial data practices by us or others could impair the acceptance of AI solutions or subject us to lawsuits and regulatory investigations. These deficiencies could undermine the decisions, predictions or analysis AI applications produce, subjecting us to competitive harm, legal liability and brand or reputational harm.
Removed
Refer to Item 7, under the subsection "Management's Discussion and Analysis of Financial Condition and Results of Operations - Key Business Metrics - Non-GAAP Financial Measures" for our reconciliation of operating cash flows to adjusted operating cash flows.
Added
In addition, the use of AI may increase cybersecurity risks, privacy risks, and operational and technological risks. The technologies underlying AI and their use cases are rapidly developing, and it is not possible to predict all of the legal, operational or technological risks related to the use of AI.
Removed
An important component of our business involves the receipt and storage of information about our cardholders and banking information.
Added
Moreover, how AI is used is the subject of evolving review by various U.S. regulatory agencies, including the SEC and the FTC. It is possible that governments may also seek to regulate, limit, or block the use of AI or otherwise impose other restrictions that may hinder the usability or effectiveness of our products and services.
Removed
We rely on our relationship with the Automated Clearing House network, and if the Federal Reserve rules were to change, our business could be adversely affected. We have contractual relationships with North American Banking Company, or NABC, Metropolitan Commercial Bank, and TransPecos Bank, which are Originating Depository Financial Institutions, or ODFI, in the ACH network.

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Item 2. Properties

Properties — owned and leased real estate

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The space leased is 1,890 square feet. Rental expense for the year ended December 31, 2023 and 2022 was $79,467 and $83,610 respectively. On March 15, 2021, we entered into a lease amendment to our existing lease in San Antonio, Texas commencing April 1, 2021 and expiring on September 30, 2024 running concurrently with the existing lease.
Rental expense under the operating lease was $165,817 and $157,682 for the years ended December 31, 2024 and 2023, respectively. On March 15, 2021, we entered into a lease amendment to our existing lease in San Antonio, Texas commencing April 1, 2021.
On October 19, 2021, the Company entered into a lease amendment to the existing lease in San Antonio, Texas commencing on April 1, 2022 and expiring on September 24, 2024 running concurrently with the existing lease. The incremental space lease is 6,628 square feet. The incremental annual rent during the lease term ranges from $135,874 to $145,816.
Rental expense for the years ended December 31, 2024 and 2023 was $49,653 and $48,113, respectively. On October 19, 2021, the Company entered into a lease amendment to the existing lease in San Antonio, Texas commencing April 1, 2022. The lease expires on December 31, 2025. The incremental space lease is 6,628 square feet.
Rental expense for the year ended December 31, 2023 and 2022 was $104,375 and $75,269 respectively. We believe that our existing and new properties will be adequate to meet our needs through December 31, 2024.
We believe that our existing and new properties will be adequate to meet our needs through December 31, 2025. 27 Table of Contents
On January 1, 2021, we entered into a lease in Austin, Texas commencing on January 1, 2021 for our Austin technology organization. On January 26, 2023, the Company entered into a lease amendment commencing on February 1, 2023, extending the term of the existing lease for a period of 23 months and expiring on January 31, 2025.
Rental expense for the years ended December 31, 2024 and 2023 was $135,489 and $117,836, respectively. On January 1, 2021, we entered into a lease in Austin, Texas commencing on January 1, 2021 for our Austin technology organization.
We did not enter into a lease extension, or new lease agreement in Nashville, Tennessee upon the expiration of this current lease agreement. On December 15, 2020, we assumed a lease in San Antonio, Texas as a part of the Information Management Solutions, LLC acquisition for our employees and warehouse operations.
The Company assumed a lease in San Antonio, Texas as a part of the Information Management Solutions, LLC acquisition for its Output Solutions employees and warehouse operations. The lease had a remaining life of 45 months and expired on September 30, 2024.
The incremental space leased is 2,734 square feet. The incremental annual rent during the lease term ranges from $56,047 to $60,148. Rental expense for the year ended December 31, 2023 and 2022 was $48,113 and $46,658 respectively.
The incremental annual rent during the lease term ranges from $144,000 to $156,000. Rental expense for the years ended December 31, 2024 and 2023 was $109,355 and $75,269, respectively. The Company leased approximately 3,794 square feet of office space for its Nashville, Tennessee sales offices and operations.
ITEM 2. PROPERTIES. We entered into a lease in San Antonio, Texas commencing on May 1, 2018 for our headquarters and operations. The lease is for a period of 75 months and expires on July 31, 2024. The space leased ranges from 6,000 square feet to 10,535 square feet.
ITEM 2. PROPERTIES. The Company leases approximately 10,535 square feet of office space for its San Antonio, TX executive offices and operations. On October 19, 2021 we renewed our lease, to run concurrently with our additional leased space in the same building. The lease expires on December 31, 2025.
The lease is for a period of 62 months and expiring on April 30, 2023. The space leased is 3,794 square feet. Annual rents during the lease term range from $117,000 to $122,000. Rental expense for the years ended December 31, 2023 and 2022 were $36,995 and $102,976, respectively.
On January 31, 2024, the Company entered into a lease amendment commencing on February 1, 2024, extending the term of the existing lease for a period of 24 months and expiring on January 31, 2027. The space leased is 1,890 square feet. Rental expense for the years ended December 31, 2024 and 2023 was $83,610 and $79,467, respectively.
The lease has a remaining life of 45 months and expires on September 30, 2024. The space leased is 22,400 square feet. Annual rents during the lease term range from $123,554 to $133,703. Rental expense for the years ended December 31, 2023 and 2022 was $117,836 and $112,504 respectively.
On September 16, 2024 the Company entered into a lease amendment commencing on October 1, 2024, extending the term of the existing lease for a period of 60 months, expiring on September 30, 2029. The space leased is 22,400 square feet. Annual rents during the lease term range from $174,000 to $225,000.
Removed
Annual rents during the lease term will range from $117,000 to $232,000. Rental expense under the lease was $157,682 and $150,129 for the years ended December 31, 2023 and 2022, respectively. We also entered into a lease in Nashville, Tennessee commencing on March 1, 2018 for our Nashville based sales organization.
Added
On October 19, 2021 we renewed our lease, to run concurrently with our additional leased space in the same building. The lease expires on December 31, 2025. The incremental space leased is 2,734 square feet. The incremental annual rent during the lease term ranges from $57,000 to $60,000.
Added
Rental expense under the operating lease was $0 and $36,995 for the years ended December 31, 2024 and 2023, respectively. The lease expired on April 30, 2023. We did not enter into a lease extension, or new lease agreement in Nashville, Tennessee upon the expiration of the lease agreement.
Added
The Company has various copier equipment with leases that have not expired. Rental expense under the operating leases was $8,921 and $6,546 for the years ended December 31, 2024 and 2023, respectively. The weighted average remaining lease term is 3.49 years.
Added
The weighted average discount rate is 4.42% The Company recognized total operating lease expense of approximately $660,000 and $674,000 for the years ended December 31, 2024 and 2023, respectively. In 2024, the operating lease expense of $660,000 consisted of $544,000 of fixed operating expense and $116,000 of interest expense.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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ITEM 3. LEGAL PROCEEDINGS. BEN KAUDER, NINA PIOLETTI, & TRIPLE PAY PLAY, INC. In 2017, USIO acquired Singular Payments, Inc. (“Singular”), another payment processing company with offices in Nashville, Tennessee and St. Augustine, Florida. Ben Kauder and Nina Pioletti were executives of Singular; after the acquisition, USIO hired them as executive-level employees.
ITEM 3. LEGAL PROCEEDINGS. BEN KAUDER, NINA PIOLETTI, & TRIPLE PAY PLAY, INC. In 2017, Usio acquired Singular Payments, Inc. (“Singular”), another payment processing company with offices in Nashville, Tennessee and St. Augustine, Florida. Ben Kauder and Nina Pioletti were executives of Singular and, after the acquisition, Usio hired them as executive-level employees.
Usio has requested a reconsideration of the motion, as it does not consider that deposits are only owed to KDHM if they were earned and offset against accounts receivable. On March 4, 2024, the court held a hearing on KDHM’s Supplemental Rule 166(G) Motion; the court granted the motion in favor of KDHM.
Usio has requested a reconsideration of the motion, as it does not consider that deposits are only owed to KDHM if they were earned and offset against accounts receivable. On March 4, 2024, the court held a hearing on KDHM’s Supplemental Rule 166(G) Motion and the court granted the motion in favor of KDHM.
Section 2.1(b)(x) of the asset purchase agreement provides that the purchased assets include “All of Seller’s deposits from its customer, including without limitation, those customer deposits listed on Schedule 2.1(b)(xi) of the Disclosure Schedules.” Finally, we discovered that KDHM did not provide us with all customer lists, which are identified as purchased assets under the agreement.
Section 2.1(b)(x) of the asset purchase agreement provides that the purchased assets include “All of Seller’s deposits from its customers, including without limitation, those customer deposits listed on Schedule 2.1(b)(xi) of the Disclosure Schedules.” Finally, we discovered that KDHM did not provide us with all customer lists, which are identified as purchased assets under the agreement.
As a result of this post-sale dispute, we discovered that KDHM, LLC and its principals made certain misrepresentations and breached the terms of the asset purchase agreement. On September 28, 2021, we filed an answer generally denying the plaintiff’s allegations. On October 5, 2021, we filed a counterclaim and third-party petition.
As a result of this post-sale dispute, we subsequently discovered that KDHM, LLC and its principals made certain misrepresentations and breached the terms of the asset purchase agreement. On September 28, 2021, we filed an answer generally denying the plaintiff’s allegations. On October 5, 2021, we filed a counterclaim and third-party petition.
KDHM and third-party defendants, its principals Henry Minten and Thomas Dowe, affirmatively represented and warranted in section 3.1(e) of the asset purchase agreement that “[t]he Annual Financial Statements and the Interim Financial Statements have been prepared from the books and records of Seller in accordance with GAAP applied on a consistent basis.” We also discovered that KDHM by and through its principals failed to disclose that $305,000 in additional customer deposits existed and that these deposits were not conveyed to us as required by the asset purchase agreement.
KDHM and third-party defendants, its principals Henry Minten and Thomas Dowe, affirmatively represented and warranted in section 3.1(e) of the asset purchase agreement that “[t]he Annual Financial Statements and the Interim Financial Statements have been prepared from the books and records of Seller in accordance with GAAP applied on a consistent basis.” We subsequently discovered that KDHM by and through its principals failed to disclose that $305,000 in additional customer deposits existed and that these deposits were not conveyed to us as required by the asset purchase agreement.
On or about June 21, 2023, USIO filed suit against Ben Kauder, Nina Pioletti and Triple Pay Play for breach of contract and misappropriation of trade secrets and unfair business competition. On July 6, 2023, Ben Kauder, Nina Pioletti and Triple Pay Play filed a Motion to Dismiss for Lack of Jurisdiction. The motion was granted.
On or about June 21, 2023, Usio filed suit against Kauder, Pioletti and Triple Pay Play for breach of contract and misappropriation of trade secrets and unfair business competition. On July 6, 2023, Kauder, Pioletti and Triple Pay Play filed a Motion to Dismiss for Lack of Jurisdiction. The motion was granted.
On August 18, 2023, the judge granted a summary motion entitling KDHM to deposits for customer accounts that were printed and mailed prior to the acquisition, and Usio Output Solutions, Inc. was entitled to deposits for accounts that were not yet printed and printed but not yet mailed prior to the acquisition.
On August 18, 2023, the judge granted a summary motion entitling KDHM to deposits for customer accounts that were printed and mailed prior to the acquisition, and Output Solutions was entitled to deposits for accounts that were not yet printed and printed but not yet mailed prior to the acquisition.
USIO hired Kauder to serve as Senior Vice President of Integrated Payments, and Pioletti was hired to serve as Director of Sales. As a condition of employment, Kauder and Pioletti agreed to be bound by certain USIO policies, including as it relates to preserving the confidentiality of USIO’s proprietary information.
Usio hired Kauder to serve as Senior Vice President of Integrated Payments, and Pioletti was hired to serve as Director of Sales. As a condition of employment, Kauder and Pioletti agreed to be bound by certain Usio policies, including as related to preserving the confidentiality of Usio’s proprietary information.
KDHM, Minten and Dowe provided us with fraudulent and misleading profit and loss statements that did not disclose these additional customer deposits. KDHM and the defendants do not dispute that these additional customer deposits existed and that they were purchased by Usio.
We believe that KDHM, Minten and Dowe provided us with fraudulent and misleading financial statements that did not disclose these additional customer deposits. KDHM and the defendants do not dispute that these additional customer deposits existed and that they were purchased by Usio.
As USIO executives, Kauder and Pioletti were afforded access to and contributed to the development of USIO’s trade secrets and other proprietary information not generally known by the public at large, including but not limited to financial information, marketing plans, cost and operational/strategic plans, and sales presentations.
As Usio executives, Kauder and Pioletti were afforded access to and contributed to the development of Usio’s trade secrets and other proprietary information not generally known by the public at large, including but not limited to, financial information, marketing plans, cost and operational/strategic plans, and sales presentations. In May 2021, Kauder resigned from Usio followed by Pioletti in July 2022.
The lawsuit alleges that due to a mistake, accident, or inadvertence, certain customer deposits in the amount of $317,000 were improperly transferred to us. We believe that plaintiff's claims in the lawsuit have no merit and contradict the express terms of the asset purchase agreement.
The lawsuit alleges that due to a mistake, accident, or inadvertence, certain customer deposits in the amount of $317,000 were improperly transferred to us. We believe that plaintiff's claims contradict the express terms of the asset purchase agreement, and we intend to continue to vigorously defend this matter.
However, USIO believes the court erred in granting the motion and ultimately filed a motion for reconsideration on March 19, 2024. Usio’s Motion for Reconsideration of Order Granting Plaintiff’s Supplemental Rule 166(g) Motion is set to be heard on March 28, 2024.
However, Usio believes the court erred in granting the motion and filed a motion for reconsideration on March 19, 2024. On March 28, 2024, the court heard Usio’s Motion for Reconsideration of Order Granting Plaintiff’s Supplemental Rule 166(g). On May 2, 2024, the court denied Usio’s motion.
Upon information and belief, Kauder and Pioletti were working to form Triple Pay Play while employed by USIO, during USIO business hours, and while using USIO resources and USIO property.
Thereafter, Kauder and Pioletti formed Triple Pay Play, another payment processing company which directly competes with Usio. Upon information and belief, Kauder and Pioletti were working to form Triple Pay Play while employed by Usio, during Usio business hours, and while using Usio resources and Usio property.
In early March of 2024, USIO filed a Motion to Dismiss for improper venue and failure to state a claim. The motion is set to be heard in May of 2024.
On November 13, 2023, GBC filed lawsuit against Usio, alleging violations of the NACHA rules in the State of Rhode Island Kent Superior Court. In early March 2024, Usio filed a Motion to Dismiss for improper venue and failure to state a claim.
Pursuant to the terms of the Agreement, USIO effectively terminated the Agreement with GBC on October 31, 2023, by providing Greenwich with a 30-days written notice as required by the Agreement. On November 13, 2023, GBC filed lawsuit against USIO, alleging violations of the NACHA rules.
GREENWICH BUSINESS CAPITAL, LLC On or about September 25, 2019, Usio and Greenwich Business Capital LLC, or GBC, entered into an Agreement for payment processing services. Usio effectively terminated the agreement with GBC on October 31, 2023, by providing GBC with the requisite 30-days written notice.
Removed
In May 2021, Kauder resigned from USIO followed by Pioletti in July of 2022. Thereafter, Kauder and Pioletti formed Triple Pay Play, another payment processing company which competes with the same services as USIO.
Added
Subsequently, in February 2024, Usio refiled its case in Tennessee, where Kauder, Pioletti, and Triple Pay Play reside. On May 3, 2024, Kauder, Pioletti and Triple Pay Play filed a Motion to Dismiss Usio’s Complaint; this motion was heard August 5, 2024.
Removed
Subsequently, in February of 2024, USIO refiled its case in Tennessee, where Kauder, Nina, and Triple Pay Play reside. Currently, this case is in the early-stage discovery. GREENWICH BUSINESS CAPITAL, LLC On or about September 25, 2019, Usio, Inc., (USIO) and Greenwich Business Capital LLC (“GBC”), entered into an Agreement for payment processing services (the “Agreement”).
Added
On March 14, 2025 the motion was denied, with future proceedings to continue at a date yet to be determined. We have not recorded a contingency in relation to this case, as we consider the risk of loss remote as related to this lawsuit.
Removed
In our counterclaims and third-party petition, we assert causes of action for fraud, breach of contract and conversion.
Added
On May 20, 2024, Usio’s Motion to Dismiss was heard in the State of Rhode Island Kent Superior Court. On December 6, 2024, the Judge ruled in favor of Usio and dismissed the case. We did not record a contingency in relation to this case.
Added
On July 12, 2024, we filed an appeal on the lower court's decision, which is pending review. As part of the July 12, 2024 appeal, Usio was required to obtain a bond in the amount of $474,229.
Added
Please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" for a description of certain financing arrangements we established in connection with this bond. We have not recorded a contingency in relation to this case, as we consider the risk of loss remote as related to this lawsuit.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Refer to Item 12 of Part III of this annual report on Form 10-K for additional information. 18 Table of Contents Purchases of Equity Securities by the Issuer and Affiliated Purchasers On November 2, 2016, we announced that our Board of Directors authorized the repurchase of up to $1 million of our common stock from time to time on the open market, in block transactions, or in privately negotiated transactions.
Refer to Item 12 of Part III of this annual report on Form 10-K for additional information. 29 Table of Contents Purchases of Equity Securities by the Issuer and Affiliated Purchasers On November 2, 2016, we announced that our Board of Directors authorized the repurchase of up to $1 million of our common stock from time to time on the open market, in block transactions, or in privately negotiated transactions.
As of March 22, 2024, there were 3,377 stockholders of record of our common stock. Dividends We have never declared or paid cash or stock dividends, and we have no plans to pay any such dividends in the foreseeable future. Instead, we intend to reinvest our earnings, if any.
As of March 21, 2025, there were 3,518 stockholders of record of our common stock. Dividends We have never declared or paid cash or stock dividends, and we have no plans to pay any such dividends in the foreseeable future. Instead, we intend to reinvest our earnings, if any.
Prior to that change our common stock had been listed on the Nasdaq Capital Markets Exchange under the ticker symbol “PYDS” since August 11, 2015, and "USIO" since June 26, 2019. Holders On March 22, 2024, 26,342,459 shares of our common stock were issued and outstanding.
Prior to that change our common stock had been listed on the Nasdaq Capital Markets Exchange under the ticker symbol “PYDS” since August 11, 2015, and "USIO" since June 26, 2019. Holders On March 21, 2025, 26,514,356 shares of our common stock were issued and outstanding.
On May 13, 2022, the Board of Directors authorized a renewal of the buy-back program, with a limit up to $4 million of the Company's common stock with a three year duration.
On May 13, 2022, and again on March 24, 2025, the Board of Directors authorized a renewal of the buy-back program, with a limit up to $4 million of the Company's common stock with a three year duration or the date the Board of Directors, at its sole discretion, terminates or suspends the program.
The following table shows our fourth quarter of 2023 stock purchases under the buyback plan as of December 31, 2023: (d) (c) Maximum number (or Total number of shares approximate dollar (a) (or units) purchased as value) of shares (or Total number of (b) part of publicly units) that may yet be shares (or units) Average price paid announced plans or purchased under the Period purchased per share (or unit) programs plans or programs October 1, 2023 to October 31, 2023 346 $ 2.02 346 $ 2,659,425 November 1, 2023 to November 30, 2023 11,753 $ 1.71 11,753 $ 2,639,381 December 1, 2023 to December 31, 2023 198,447 $ 1.85 198,447 $ 2,271,392 Total 210,546 $ 2,271,392 ITEM 6. [RESERVED]
The following table shows our fourth quarter of 2024 stock purchases under the buyback plan as of December 31, 2024: (d) (c) Maximum number (or Total number of shares approximate dollar (a) (or units) purchased as value) of shares (or Total number of (b) part of publicly units) that may yet be shares (or units) Average price paid announced plans or purchased under the Period purchased per share (or unit) programs plans or programs October 1, 2024 to October 31, 2024 80,236 $ 1.43 80,236 $ 1,762,938 November 1, 2024 to November 30, 2024 156,368 $ 1.51 156,368 1,527,492 December 1, 2024 to December 31, 2024 461,949 $ 1.44 461,949 862,951 Total 698,553 ITEM 6. [RESERVED]
The new buyback program terminates on the earliest of May 15, 2025, the date the funds are exhausted, or the date the Board of Directors, at its sole discretion, terminates or suspends the program. The program is used for the purchase of stock from employees and directors, and for open-market purchases through a broker.
The program is used for the purchase of stock from employees and directors, and for open-market purchases through a broker.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Management believes EBITDA, adjusted EBITDA, adjusted EBITDA margins and adjusted operating cash flows are helpful to investors in evaluating the Company's operating performance because non-cash costs and other items that management believes are not indicative of its results of operations are excluded.
Management believes that EBITDA, adjusted EBITDA, and adjusted EBITDA margins 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.
As a result of the acquisition of the assets of Information Management Solutions, LLC, or IMS, in December 2020, we also 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.
As a result of the acquisition of substantially all of the assets of Information Management Solutions, LLC, or IMS, in December 2020, we also 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 discussion and analysis should be read in conjunction with the audited consolidated financial statements and the notes thereto included in this report. 19 Table of Contents Overview Usio, Inc. was founded under the name Billserv Com, Inc. in July 1998 and incorporated in the State of Nevada.
This discussion and analysis should be read in conjunction with the audited consolidated financial statements and the notes thereto included in this report. 30 Table of Contents Overview Usio, Inc. was founded under the name Billserv Com, Inc. in July 1998 and incorporated in the State of Nevada.
EBITDA, adjusted EBITDA, adjusted EBITDA margins and adjusted operating cash flow 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. 20 Table of Contents Results of Operations Revenues Our revenues are principally derived from providing integrated electronic payment services to merchants and businesses, including credit and debit card-based processing services and transaction processing via the Automated Clearing House, or ACH, network, the program management and processing of prepaid debit cards, and we also now 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.
EBITDA, adjusted EBITDA, and adjusted EBITDA margins 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. 31 Table of Contents Results of Operations Revenues Our revenues are principally derived from providing integrated electronic payment services to merchants and businesses, including credit and debit card-based processing services and transaction processing via the Automated Clearing House, or ACH, network, the program management and processing of prepaid debit cards, and we also 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.
Should the Company opt to continue the repurchase of its securities on the open market, and the IRA remain in effect, we may qualify for this tax in 2024, and future years.
Should the Company opt to continue the repurchase of its securities on the open market, and the IRA remain in effect, we may qualify for this tax in 2025, and future years.
We reported an adjusted EBITDA of $0.3 million for the quarter ended December 31, 2023, as compared to an adjusted EBITDA of $1.0 million for the same period in the prior year. The decrease in adjusted EBITDA in the 2023 quarter was attributable to increases in SG&A combined with reduced profit margins.
We reported adjusted EBITDA of $0.5 million for the quarter ended December 31, 2024, as compared to an adjusted EBITDA of $1.1 million for the same period in the prior year. The decrease in adjusted EBITDA in the 2024 quarter was attributable to increases in SG&A combined with reduced profit margins.
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.
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, merchant reserves, customer deposits, and deferred revenues.
The loan is for a period of 36 months with a maturity date of March 20, 2024. The repayment amount is for 36 months at $4,902 per month. Annual payments are $58,821. The financing is at an interest rate of 3.95%. Payments in 2023 on this equipment loan were $54,634.
The loan is for a period of 36 months with a maturity date of March 20, 2024. The repayment amount is for 36 months at $4,902 per month. Annual payments are $58,821. The financing is at an interest rate of 3.95%. Payments in 2024 on this equipment loan were $14,536.
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 services expense was $64.0 million and $54.8 million for 2023 and 2022, respectively.
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 services expense was $63.3 million and $64.0 million for 2024 and 2023, respectively.
They are not measurements of our financial performance under GAAP and should not be considered as alternatives to revenue, net income, 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.
They are not measurements of our financial performance under GAAP and should not be considered as alternatives to revenue, or net income, 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.
For example, on November 19, 2021, Voyager Digital purchased 142,857 unregistered shares of common stock at an offering price of $7.00 per share in a private offering. The gross proceeds to us from the private offering were $1,000,000. We have also sold securities in public offerings from time to time.
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 an offering price of $7.00 per share in a private offering. The gross proceeds to us from the private offering were $1,000,000.
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.
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 in the future we will be able to sell shares of our equity securities on terms acceptable to us or at all.
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 U.S.
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.
Those programs have begun winding down, 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.
Those programs were wound down and completed during 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.
We reported a net loss of $0.5 million and $5.5 million for the years ended December 31, 2023 and 2022, respectively. Additionally, we reported working capital of $8.0 million and $5.8 million at December 31, 2023 and 2022, respectively.
We reported net income of $3.3 million and a net loss $0.5 million for the years ended December 31, 2024 and 2023, respectively. Additionally, we reported working capital of $10.2 million and $8.0 million at December 31, 2024 and 2023, respectively.
The decrease in cash used by financing activities was primarily attributable to a reduction in stock repurchases in 2023, a decrease of approximately $0.9 million over 2022. 22 Table of Contents Off-Balance Sheet Arrangements We 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.
The increase in cash used by financing activities was primarily attributable to changes in the balance of our assets held for customers related to their payment processing, and in increase of treasury stock repurchases in 2024 by approximately $1.0 million over 2023. 33 Table of Contents Off-Balance Sheet Arrangements We 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.
In addition to our near-term growth opportunities, we are focused on leveraging and optimizing the infrastructure of the organization allowing expansion of our payment processing and mail and printing capabilities without significantly increasing our operating costs. We reported a net loss of $0.5 million and $5.5 million for the years ended December 31, 2023 and December 31, 2022, respectively.
In addition to our near-term growth opportunities, we are focused on leveraging and optimizing the infrastructure of the organization allowing expansion of our payment processing and mail and printing capabilities without significantly increasing our operating costs.
Changes in these factors are difficult to predict, and a change in one factor could affect other factors, which could result in adverse effects to our business, results of operations, financial condition, and cash flows. Due to the higher interest rates set by the Federal Reserve, the Company was able to increase interest income in 2023.
Changes in these factors are difficult to predict, and a change in one factor could affect other factors, which could result in adverse effects to our business, results of operations, financial condition, and cash flows.
Net cash used by investing activities was $0.8 million for 2023 and $0.8 million in 2022. The decrease in investing activities was due to reduced expenditures on the purchase of property and equipment. Net cash used by financing activities for 2023 was $0.5 million compared to net cash used by financing activities of $1.4 million for 2022.
Net cash used by investing activities was $0.9 million for 2024 and $0.8 million in 2023. The minor increase in investing activities was due to increased expenditures in property and equipment. Net cash used by financing activities for 2024 was $5.1 million compared to net cash provided by financing activities of $6.1 million for 2023.
Net income tax expense reported was $292,524 in 2023, and $280,000 in 2022. Net Income (Loss) We reported a net loss of $0.5 million and $5.5 million for the years ended December 31, 2023 and December 31, 2022, respectively.
We reported a net income of $3.3 million and a net loss of $0.5 million for the years ended December 31, 2024 and December 31, 2023, respectively.
Cost of services expenses increased by $9.2 million, or 17%, in 2023 as compared to 2022 primarily due to increased transaction costs associated with our revenue growth. Gross Profit Gross profit is the net profit after deducting the cost of services. Gross profit was $18.6 million and $14.6 million for 2023 and 2022, respectively.
Cost of services expenses decreased by $0.7 million, or 1%, in 2024 as compared to 2023 primarily due to decreased transaction costs associated with our lower revenues. Gross Profit Gross profit is the net profit after deducting the cost of services. Gross profit was $19.6 million and $20.1 million for 2024 and 2023, respectively.
At December 31, 2023, we had $7.2 million of cash and cash equivalents, as compared to $5.7 million of cash and cash equivalents at December 31, 2022. The increase was primarily a result of the decrease in net loss, combined with reduced stock repurchases in 2023 versus 2022.
At December 31, 2024, we had $8.1 million of cash and cash equivalents, as compared to $7.2 million of cash and cash equivalents at December 31, 2023. The increase was primarily a result of the increase in net income.
Depreciation and Amortization Depreciation and amortization expense consist 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 decreased to $2.1 million in 2023 as compared to $2.7 million in 2022.
These assets include property, plant, and equipment, along with intangible assets acquired through acquisition, or developed as internal use software. Depreciation and amortization expense increased to $2.3 million in 2024 as compared to $2.1 million in 2023.
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.
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.
The Company reports its financial results in compliance with GAAP, but believes that also discussing non-GAAP financial measures provides investors with financial measures it 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 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 based compensation 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.
Payments on this equipment loan were $9,894. We cannot assure you that such financing may be available to us on terms acceptable to us, or at all, in the future. From time to time we have sold shares of our common stock in order to provide us liquidity.
Payments on this equipment loan were $146,074. We cannot assure you that such financing may be available to us on terms acceptable to us, or at all, in the future.
On May 13 2022, the Board of Directors authorized a renewal of the buy-back program, with a limit up to $4 million of the Company's common stock with a three year duration. In the year ended December 31, 2023, the Company had repurchased $0.5 million of stock as part of its buyback program.
On May 13, 2022, and again on March 24, 2025, the Board of Directors authorized a renewal of the buy-back program, with a limit up to $4 million of the Company's common stock with a three year duration.
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.
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 reported an adjusted EBITDA of $2.4 million for the twelve months ended December 31, 2023, as compared to an adjusted EBITDA loss of $0.4 million for the same period in the prior year.
We reported adjusted EBITDA of $2.9 million for the twelve months ended December 31, 2024, as compared to an adjusted EBITDA of $3.9 million for the same period in the prior year. The decrease in adjusted EBITDA in 2024 was attributable to slightly lower revenues and profit margins, alongside increases in SG&A.
The following table is a reconciliation from operating cash flow (used) to adjusted operating cash flow (used) for the twelve months ended December 31, 2023.
The following table is a reconciliation of Net Loss to EBITDA for the three and twelve months ended December 31, 2024 and 2023.
Stock-based Compensation Stock-based compensation expense increased marginally to $2.2 million in 2023 from $2.1 million in 2022. Our stock-based compensation expenses for 2023 and 2022 represented the amortization of deferred compensation expenses related to incentive stock grants to employees, officers and directors. The increase in stock-based compensation is primarily attributable to our February 8, 2023 employee stock grant.
Our stock-based compensation expenses for 2024 and 2023 represented the amortization of deferred compensation expenses related to incentive stock grants to employees, officers and directors. The decrease in stock-based compensation is primarily attributable to various three year RSUs and 10 year grants fully vesting during 2024.
We believe we have sufficient liquidity to operate for at least the next 12 months from the date of filing this report.
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 Flows Net cash provided by operating activities totaled $14.9 million for 2023 as compared to net cash used by operating activities of $17.0 million in 2022.
Cash Flows Net cash provided by operating activities totaled $2.9 million for 2024 as compared to net cash provided by operating activities of $3.5 million in 2023. The decrease in cash provided by operating activities was driven primarily by increases in prepaid expenses, and decreases in merchant reserves.
This growth was bolstered by gains in our Output solutions business line, thanks to our ability to capitalize on strong cross-selling efforts and execution on our well-developed pipeline of new business opportunities, along with growth in credit card revenues due to our PayFac business line's continued traction with independent software vendors, or ISVs.
This was due to new processing equipment being acquired in October 2023 for Output Solutions, and our PayFac business line's continued traction with independent software vendors, or ISVs. The growth in our Payfac business line was 22%, countering the attrition in our legacy credit card portfolios, and now represents over 50% of total credit card processing revenues.
The increase of $1.2 million, or 8%, represented continued investments in the Company's security and IT infrastructure to strengthen the Company's defense from cybersecurity risks. Further investments were made to increase our customer success, implementations of merchant onboarding processes, and partner and client integrations strategy to sustain existing operations and future growth, as well as staffing and employee retention.
Further investments were made to increase our customer success, implementations of merchant onboarding processes, and partner and client integrations strategy to sustain existing operations and future growth. Depreciation and Amortization Depreciation and amortization expense consist of the reduction in value of our tangible and intangible assets over their useful life.
We had an accumulated deficit of $71.3 million at December 31, 2023.
We reported net income of $3.3 million and a net loss of $0.5 million for the years ended December 31, 2024 and December 31, 2023, respectively. We had an accumulated deficit of $68.0 million at December 31, 2024.
After adjusting for the impact of operating lease right-of-use assets, operating lease liabilities, prepaid card load obligations and merchant reserves included in the statement of cash flows, net cash provided by adjusted operating activities was $2.8 million for the year ended December 31, 2023 and net cash provided by adjusted operating activities was $0.7 million for the year ended December 31, 2022.
For the year ended December 31, 2024 net cash provided by operating activities was $2.9 million and for the year ended December 31, 2023, cash provided by operations was $3.5 million due primarily to the increase of prepaid expenses and decrease in merchant reserves.
Please refer to Note 8 to our Consolidated Financial Statements included elsewhere in this annual report for incremental information regarding these stock grants. Other Selling, General and Administrative Expenses Other selling, general and administrative expenses, or SG&A, increased to $16.2 million in 2023 from $15.0 million in 2022.
These vesting offset the increase in stock-based compensation expense related to our June 21, 2024 stock grants. Please refer to Notes 8 and 10 to our Consolidated Financial Statements included elsewhere in this annual report for incremental information regarding these stock grants.
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 non-GAAP financial measures, EBITDA, adjusted EBITDA, adjusted EBITDA margins and adjusted operating cash flows, as defined in Regulation G of the Securities and Exchange Act of 1934, as amended.
Key Business Metrics - Non-GAAP Financial Measures This report includes the following non-GAAP financial measures as defined in Regulation G adopted by the Commission: EBITDA, adjusted EBITDA, and adjusted EBITDA margins.
The decrease of $0.6 million, or 24%, was primarily attributable to the completed depreciation of customer list assets from our 2017 acquisition of Singular Payments. Other Income Interest income increased to $1.7 million in 2023 from $15,237 in 2022 due to higher interest-bearing cash balances.
The increase of $0.2 million, or 9%, was primarily attributable to our continued investment in our internal use software, which is continually being developed to offer new or improved consumer offerings. Other Income Interest income increased to $0.5 million in 2024 from $0.2 million in 2023 due to higher interest-bearing cash balances.
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.
ACH, prepaid and credit card merchant processing loss reserves are primarily determined by performing a historical analysis of our loss experience and 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 with its prepaid card holders.
Credit card dollars processed in 2023 increased by 6% compared to 2022 and credit card transactions processed for 2023 increased by 9% compared to 2022. Both the credit card dollars and transactions processed represent all-time records for the Company. Prepaid card load volume increased by 76% and transaction volume increased by 52%.
Both the credit card dollars and transactions processed represent all-time records for the Company. Prepaid card load volume increased by 34.8% and transaction volume increased by 45.1%. These improved transactional metrics helped offset the significantly reduced revenues as part of the anticipated wind down of our COVID incentive card programs at the start of 2024.
Gross profit increased by $4.0 million, or 27%, in 2023 as compared to 2022. The key drivers of the increased gross profit were attributable to strong revenue growth, and improved gross margin percentages due to improved profitability across our business lines with increased scale.
Gross profit decreased by $0.5 million, or 2%, in 2024 as compared to 2023. The key drivers of the decreased gross profit were attributable to slightly lower revenues, though gross margin percentages were also down slightly from 23.9% in 2023 to 23.7% in 2024 resulting in lower total gross profits.
Removed
In 2023, we processed $5.3 billion for all payment types, which was down 26% from the prior year volume of $7.2 billion total dollars processed due to our exit from the crypto space and attrition in legacy credit card processing portfolios driven by challenges competing in the Independent Sales Organization, or ISO, market while we focus on our PayFac distributed sales force and Independent Software Vendor, or ISV, market.
Added
In 2024, we processed $7.1 billion for all payment types, which was up 33% from the prior year volume of $5.3 billion total dollars processed due to strong growth in our ACH and complimentary services business unit via organic growth and net new customer acquisitions.
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We believe this strategy will drive superior results over time. Total transactions processed were down 9% to 37.2 million. ACH or electronic check transactions processed for 2023 decreased by 20% compared to 2022. Returned check transactions decreased by 15% in 2023 compared to 2022.
Added
In addition, success in our PayFac platform drove growth, and exceeded the attrition in our legacy credit card processing portfolios by focusing on our distributed sales force and Independent Software Vendor, or ISV, market. We believe this strategy will continue to drive superior results over time. Total transactions processed were up 26% to 46.9 million.
Removed
As interest rates fluctuate depending on the Federal Reserve's target rates to combat inflation and unemployment, we may not be able to recognize similar levels of interest income in the future. The Company continues to invest in growth initiatives to drive increased revenues, and profitability metrics. However, sustaining growth at existing rates may not occur.
Added
ACH or electronic check transactions processed for 2024 increased by 18.5% compared to 2023. Returned check transactions increased by 17.1% in 2024 compared to 2023. Credit card dollars processed in 2024 increased by 9.9% compared to 2023 and credit card transactions processed for 2024 increased by 23.8% compared to 2023.
Removed
Reserve for Processing Losses We establish allowances for negative customer balances and estimated transaction losses arising from processing customer transactions, such as chargebacks for unauthorized credit card use and merchant-related chargebacks due to non-delivery or unsatisfactory delivery of purchased items, account takeovers, Automated Clearing House returns, and insolvency.
Added
These incentive programs contributed approximately $12.1 million in prepaid card services revenue during 2023 that needed to be replaced in 2024.
Removed
Additions to the allowance are reflected in our cost of services on our consolidated statements of income (loss).
Added
Our processing metrics help reflect the improved organic growth and sales activity that took place in the year as part of our initiative to minimize the impact of these expired programs, while also indicating a positive sign for continued growth in the future.
Removed
Determining appropriate current expected transactional losses is an inherently uncertain process, and final losses may vary from our current estimates. We regularly review and update our allowance estimates as new facts become known, and event occur that may impact the settlement or recovery of losses.
Added
In the year ended December 31, 2024, the Company had repurchased approximately $1.4 million of stock as part of its buyback program for which the Company may be required to pay approximately $14,000 in excise tax.
Removed
The allowances are maintained at a level we deem appropriate to adequately provide for current expected losses at the balance sheet date. Reserve for Expected Credit Losses We establish an allowance for accounts receivable, which represents our estimate of current expected allowances for credit losses. This evaluation process is subject to numerous estimates and judgements.
Added
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.
Removed
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.
Added
This resulted in the Company's receiving more favorable interest rates on its current cash balances, amounting to $2.8 million in interest earnings in 2024. Of this interest, $2.3 million was recognized as revenue in the respective business lines for which the cash balances are held, and $0.5 million as interest income.
Removed
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.
Added
In September 2024, the Federal Reserve lowered the federal funds rate 0.50%, followed by a further 0.25% decline in each of November and December 2024. 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.
Removed
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.
Added
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. The Company continues to invest in growth initiatives to drive increased revenues, and profitability metrics. Such initiatives include our "One Usio" strategy, designed to unify our brand, sales approach, and payments offerings.
Removed
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.
Added
Through this strategy, we are developing enhanced client onboarding features, superior customer management, improved reporting and fraud monitoring, alongside a consolidated sales and marketing team to better cross-sell our various payment methods and ancillary services.
Removed
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. Incentives determined to be made to a customer, or payable on behalf of a customer, are recorded as a reduction to gross revenue.
Added
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 card processing, credit card, ACH or merchant 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.
Removed
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 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.
Added
The Company may require cash deposits and other types of collateral from certain merchants to minimize any such risk. In addition, the Company utilizes a number of systems and procedures to manage merchant risk.
Removed
These measures may not be comparable to similarly titled measures reported by other companies. Management uses EBITDA, adjusted EBITDA, and adjusted operating cash flows as 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.
Added
This reserve amount is subject to the risk that actual losses may be greater than our estimates. The Company has not incurred any significant processing losses to date. Estimates for processing losses vary based on the volume of transactions processed and could increase or decrease accordingly.
Removed
The increase in adjusted EBITDA in 2023 was attributable to strong revenue growth contributing to increased gross profit versus the prior year, that outpaced our growth in SG&A. The following table is a reconciliation of Net Loss to EBITDA for the three and twelve months ended December 31, 2023 and 2022.
Added
The Company evaluates its risk for such transactions and estimates its potential processing losses based primarily on historical experience and other relevant factors. At December 31, 2024 and 2023, respectively, the Company’s reserve for processing losses was $897,116 and $826,528, respectively.
Removed
Three Months Ended (unaudited) Twelve Months Ended December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022 Reconciliation from Operating Income/(Loss) to Adjusted EBITDA: Operating Income/(Loss) $ (771,712 ) $ (90,814 ) $ (1,922,500 ) $ (5,214,430 ) Depreciation and amortization 521,932 571,650 2,081,533 2,735,118 EBITDA (249,780 ) 480,836 159,033 (2,479,312 ) Non-cash stock-based compensation expense, net 545,711 531,666 2,222,969 2,072,041 Adjusted EBITDA $ 295,931 $ 1,012,502 $ 2,382,002 $ (407,271 ) Calculation of Adjusted EBITDA margins: Revenues $ 19,362,718 $ 18,705,496 $ 82,591,109 $ 69,428,285 Adjusted EBITDA 295,931 1,012,502 2,382,002 (407,271 ) Adjusted EBITDA margins 1.5 % 5.4 % 2.9 % (0.6 )% We reported cash provided by adjusted operating cash flows of $2.8 million for the twelve months ended December 31, 2023 (after adjusting for the impact of operating lease right-of-use assets, operating lease liabilities, prepaid card load obligations, customer deposits, and merchant reserves), as compared to $0.7 million provided during the twelve months ended December 31, 2022.
Added
Accounts Receivable/Allowance for Estimated Credit Losses Accounts receivable are reported as outstanding principal net of an allowance for expected credit losses of $324,000 at December 31, 2024 and 2023. The Company maintains an allowance for credit losses for estimated losses resulting from the inability or failure of its customers to make required payments.
Removed
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.
Added
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. Past losses incurred by the Company due to credit losses have been within its expectations.
Removed
These adjustments to net cash provided (used) by operating activities are not inclusive of 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.
Added
If the financial condition of its customers deteriorates, resulting in an impairment of their ability to make contractual payments, additional allowances might be required. Estimates for credit losses are variable based on the volume of transactions processed and could increase or decrease accordingly. The Company normally does not charge interest on accounts receivable.
Removed
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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ITEM 7A. 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. 23 Table of Contents
ITEM 7A. 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. 34 Table of Contents

Other USIO 10-K year-over-year comparisons