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What changed in Usio, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Usio, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+264 added−291 removedSource: 10-K (2024-03-27) vs 10-K (2023-03-08)

Top changes in Usio, Inc.'s 2023 10-K

264 paragraphs added · 291 removed · 184 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeSource: 2021 Federal Reserve Payments Study The growth of electronic commerce has made the acceptance of card-based and other electronic forms of payment a necessity for businesses, both large and small, in order to remain competitive.
Biggest changeThe growth of electronic commerce has made the acceptance of card-based and other electronic forms of payment a necessity for businesses, both large and small, in order to remain competitive. • The value of core noncash payments in the United States grew 9.5% per year since 2018, faster than in any previous FRPS measurement period since 2000. • The number of core non-cash payments, comprising debit card, credit card, ACH, and check payments, reached 204.5 billion in 2021, an increase of 30.7 billion from 2018.
Sales and Marketing We market and sell 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.
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.
Customers Our customers are 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.
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.
These merchant customers operate in a variety of predominately retail industries and are under contract with us to exclusively use the services that we provide to them. Recent areas of customer focus have included system integrators, churches, charitable organizations, medical and dental clinics, doctor's offices, property management and homeowner associations, hospitality firms and municipalities.
These merchant customers operate in a variety of predominately retail industries and are under contract with us to exclusively use the services that we provide to them. Recent areas of customer focus have included system integrators, law firms, churches, charitable organizations, medical and dental clinics, doctor's offices, property management and homeowner associations, hospitality firms and municipalities.
Certain of our services are also subject to rules set by various payment networks, such as Visa and Mastercard. 10 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. 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.
Following the completion of the Singular Payments acquisition, we launched our payment facilitation, PayFac, platform called "PayFac-in-a-Box" in late 2018 targeting partnership opportunities with app and software developers in bill-centric verticals, such as legal, healthcare, property management, utilities and insurance.
Following the completion of the Singular Payments acquisition in 2017, we launched our payment facilitation, or PayFac, platform called "PayFac-in-a-Box" in late 2018 targeting partnership opportunities with app and software developers in bill-centric verticals, such as legal, healthcare, property management, utilities and insurance.
These agreements may be terminated by the processor if we materially breach the agreements and we do not cure the breach within 30 days, or if we enter bankruptcy or file for bankruptcy. We also maintain a bank sponsorship agreement with Sunrise Banks, N.A. and Metropolitan Commercial Bank for our prepaid card programs.
These agreements may be terminated by the processor if we materially breach the agreements and we do not cure the breach within 30 days, or if we enter bankruptcy or file for bankruptcy. We also maintain a bank sponsorship agreement with Sunrise Banks, N.A. for our prepaid card programs.
We also 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.
Louis and Wells Fargo Bank have, respectively, sponsored us under the designations Third Party Processor, or TPP, and Independent Sales Organization, or ISO, with the Visa card association, and under the designations Third Party Servicer, or TPS, and Merchant Service Provider, or MSP, with the Mastercard card association.
Louis and Fifth Third Bank have, respectively, sponsored us under the designations Third Party Processor, or TPP, and Independent Sales Organization, or ISO, with the Visa card association, and under the designations Third Party Servicer, or TPS, and Merchant Service Provider, or MSP, with the Mastercard card association.
For the ODFI portion of our ACH business, we have entered into agreements with the Fifth Third Bank, North American Banking Company, or NABC, Evolve Bank & Trust, Metropolitan Commercial Bank and TransPecos Banks. We are financially liable for all fees, fines, chargebacks, and losses related to our ACH processing merchant customers.
For the ODFI portion of our ACH business, we have entered into agreements with the North American Banking Company, or NABC, Metropolitan Commercial Bank and TransPecos Banks. We are financially liable for all fees, fines, chargebacks, and losses related to our ACH processing merchant customers.
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 Wells Fargo Bank, sponsor us for membership in the Visa, Mastercard, American Express, and Discover card associations and settle card transactions for our merchants.
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.
For example, our capabilities allow merchants to convert a paper check to an e-check or receive card authorization at the point-of-sale, allow our merchants’ respective customer service representatives to take e-check or card payments from their consumers by telephone, and to enable their consumers to make e-check or card payments directly through the use of a website or by calling an interactive voice response telephone system. 4 Table of Contents FiCentive, Inc.
For example, our capabilities allow merchants to convert a paper check to an e-check or receive card authorization at the point-of-sale, allow our merchants’ respective customer service representatives to take e-check or card payments from their consumers by telephone, and enable their consumers to make e-check or card payments directly through the use of a website or by calling an interactive voice response telephone system.
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.
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
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.
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.
The added value of offering our integration partners access to credit card, debit card, ACH and prepaid card issuance capabilities through a single vendor partner relationship in face-to-face, mobile and virtual payment acceptance environments provides a true single channel commerce experience through an application programming interface, API.
The added value of offering our integration partners access to real-time merchant enrollment, credit card, debit card, ACH and prepaid card issuance capabilities through a single vendor partner relationship in face-to-face, mobile and virtual payment acceptance environments provides a true single channel commerce experience through an application programming interface, or API. Prepaid and Incentive Card Services.
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. Employees As of December 31, 2022, we had 117 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, 2023, we had 126 full-time employees. We are not a party to any collective bargaining agreements.
Output Solutions : On December 15, 2020, we acquired the assets of IMS and 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, we acquired new customers and their sales force.
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.
ITEM 1. BUSINESS. General Usio, Inc. 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.
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.
In our over 20-year history, we have created a loyal customer base that relies on us for our convenient, secure, innovative and adaptive services and technology, and we have built long-standing and valuable relationships with premier banking institutions such as Fifth-Third Bank, Sunrise Bank, and Wells Fargo Bank.
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.
We also believe our customized technology solutions and high level of service provide a competitive advantage, particularly for smaller businesses that do not have large internal technology capabilities or the ability to comply with payment security regulations.
We also believe our customized technology solutions and high level of service provide a competitive advantage, particularly for smaller businesses that do not have large internal technology capabilities or the ability to comply with payment security regulations, saving our customers time and money, while offering a broad range of diverse payment options.
Usio Card : Through our December 2014 acquisition of the assets of Akimbo Financial, Inc., we also added a highly talented technical staff of industry subject matter experts and an innovative cardholder service platform including cardholder web and mobile applications.
Through our December 2014 acquisition of the assets of Akimbo Financial, Inc., we added a highly talented technical staff of industry subject matter experts and an innovative cardholder service platform including cardholder web and mobile applications and launched what is now our UsioCard business.
We make available on our 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.
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.
In January 2018, our old 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 have resumed processing PINless debit transactions and subsequently secured a sponsoring relationship in 2021 with CBW Bank.
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.
Over the same period, the value of remote payments increased 14.4%, compared to in-person payments, which increased 4.0%. • Chip authenticated payments accounted for more than half of the value of in-person general-purpose card payments in 2018, compared with 2.0% in 2015. • From 2019 to 2020 innovative payment methods grew in popularity, such as contactless card, digital wallet, and P2P payments. 5 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.
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.
Through our Akimbo Now technology we offer a comprehensive money disbursement platform that allows businesses to pay their contractors, employees, or other recipients by choosing between a prepaid debit Mastercard, real-time deposit to a checking account, traditional ACH, direct deposit or paper check.
This comprehensive money disbursement platform allows businesses to pay their contractors, employees, or other recipients by choosing among a prepaid debit Mastercard, real-time deposit to a checking account, traditional ACH, direct deposit or paper check.
We estimate our potential loss for chargebacks by performing a historical analysis of our charge-back loss experience with similar merchants and considering other factors that could affect that experience in the future, such as the types of card transactions processed and nature of the merchant relationship with their consumers. 8 Table of Contents We are currently sponsored by Evolve Bank & Trust and CBW Bank to access certain regional debit networks.
We estimate our potential loss for chargebacks by performing a historical analysis of our charge-back loss experience with similar merchants and considering other factors that could affect that experience in the future, such as the types of card transactions processed and nature of the merchant relationship with their consumers.
Furthermore, we believe we present a competitive distinction through our internal technology to provide a single integrated payment warehouse that consolidates, processes, tracks and reports all payments regardless of payment source or channel.
We believe this allows us to satisfy the market demands for risk management, and service reliability. Furthermore, we believe we present a competitive distinction through our internal technology to provide a single integrated payment warehouse that consolidates, processes, tracks and reports all payments regardless of payment source or channel.
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 11% to 5,601 customers at December 31, 2022 from 5,039 customers at December 31, 2021. Our customers are geographically dispersed throughout the United States.
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.
With 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.
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.
The banking sponsor and each of the regional debit networks have the ability to terminate our access or anyone of our merchant’s access to process payments without notice. If either case occurs, our revenue could be negatively affected.
We may also require cash deposits and other types of collateral from certain merchants to mitigate any such risk. The banking sponsor and each of the regional debit networks have the ability to terminate our access or anyone of our merchant’s access to process payments without notice. If either case occurs, our revenue could be negatively affected.
No customer accounted for more than 10% of revenues in 2022 or 2021. 9 Table of Contents 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.
As of May 2018, we are required to collect and verify beneficial owners holding equal to or greater than 25% equity interest based on rules promulgated by FinCEN. 11 Table of Contents We are also subject to certain economic and trade sanctions programs that are administered by the Treasury Department’s Office of Foreign Assets Control, or OFAC, that prohibit or restrict transactions to or from or dealings with specified countries, their governments and, in certain circumstances, their nationals, narcotics traffickers, and terrorists or terrorist organizations.
We are also subject to certain economic and trade sanctions programs that are administered by the Treasury Department’s Office of Foreign Assets Control, or OFAC, that prohibit or restrict transactions to or from or dealings with specified countries, their governments and, in certain circumstances, their nationals, narcotics traffickers, and terrorists or terrorist organizations.
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.
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.
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 work from home mandates.
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.
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. Regional networks are not affiliated with major credit card associations and operate independently.
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.
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.
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.
According to the triennial 2019 Federal Reserve Payments Study, or FRPS, as updated through January 14, 2022, the estimated number of non-cash payments continue to increase at accelerated rates.
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.
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. More consumers are beginning to use card-based and other electronic payment methods for purchases at an earlier age.
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.
Our prepaid card offerings are competitive due to our proprietary systems and our ability to create and establish corporate-branded card programs in shorter time frames than our competitors. We also believe that our ten plus years of prepaid industry experience in processing and managing prepaid card programs is a competitive advantage over many of our competitors.
We also believe that our ten plus years of prepaid industry experience in processing and managing prepaid card programs is a competitive advantage over many of our competitors. We believe our connectivity and the ability to process via the contact-less networks of Apple Pay®, Samsung Pay™ and Google Pay™ are also competitive advantages.
E-checks are processed using the ACH network. We are one of ten companies that hold the prestigious NACHA certification for Third-Party Senders and were the second company to receive the certification and are the most tenured to hold the certification. Our card-based processing services enable merchants to process both traditional card-present, tap-and-pay, or "swipe" transactions, as well as card-not-present transactions.
E-checks are processed using the ACH network. We are one of nine companies that hold the prestigious NACHA certification for Third-Party Senders and were the second company to receive the certification and are the most tenured to hold the certification. Our payment acceptance services are delivered in a variety of forms and situations.
Relationships with Sponsors and Processors We have agreements with several processors that provide to us, on a non-exclusive basis, 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. 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.
We provide prepaid card issuance services for corporate clients and consumers through our wholly owned subsidiary, FiCentive, Inc. We develop and manage a variety of Mastercard-branded prepaid card program types, including consumer reloadable, consumer gift, incentive, promotional, general and government disbursement and corporate expense cards.
As part of our Prepaid card-based processing services, we develop and manage a variety of Mastercard-branded prepaid card program types, including consumer reloadable, consumer gift, incentive, promotional, general and government disbursement and corporate expense cards. We also offer prepaid cards to consumers for use as a tool to stay on budget, manage allowances and share money with family and friends.
Through our sponsorship with Evolve Bank & Trust 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. We may also require cash deposits and other types of collateral from certain merchants to mitigate any such risk.
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.
Census Bureau, estimated retail e-commerce sales for 2022 were estimated at $1,034.1 billion, an increase of approximately 7.7% from 2021. 6 Table of Contents Products and Services All of our service offerings are supported by our systems’ infrastructure that integrates certain proprietary components with processing systems outsourced to third-party providers to offer our customers a flexible and secure payment process.
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.
A traditional card-present transaction occurs whenever a card holder physically presents a credit or debit card to a merchant at the point-of-sale. A card-not-present transaction occurs whenever the customer does not physically present a payment card at the point-of-sale and may occur over the Internet, mail, fax or telephone.
A card-not-present transaction occurs whenever the customer does not physically present a payment card at the point-of-sale and may occur over the Internet, mail, or telephone. A tap-and-pay transaction occurs whenever a consumer taps their phone on a physical terminal utilizing third party wallet services like Apple Pay®, Samsung Pay™ and Google Pay™. Payment Facilitation.
Note: All estimates are on a triennial basis. Card payments are also estimated for 2016 and 2017. 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 displayed for 2000 and 2003 because only EBT was collected.
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.
This product offering provides an outsourced solution for document design, print and electronic delivery to potential customers and entities looking to reduce postage costs and increase efficiencies. Usio, Inc. We provide integrated electronic payment processing services to merchants and businesses, including credit and debit card-based processing services and transaction processing via the ACH network.
This product offering provides an outsourced solution for document design, print, and electronic delivery to potential customers and entities looking to reduce postage costs and increase efficiencies. This acquisition increased our ability to grow new revenue streams and allowed us to reenter the electronic bill presentment and payment revenue stream.
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.
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.
Information contained on our websites do not constitute part of, and are not incorporated by reference into, this annual report. Industry Background 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 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.
Through the Singular Payments acquisition, we also acquired an existing portfolio of customers with a significant revenue stream and a talented sales force with significant experience in the credit card industry. We also market and sell our prepaid card program directly to government entities, corporations and to consumers through the Internet.
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.
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Our telephone number is (210) 249-4100. We provide integrated payment processing services to merchants and businesses, including all types of Automated Clearing House, or ACH, processing, credit, prepaid card and debit card-based processing services. We offer customizable prepaid cards companies use for expense management, incentives, refunds, claims and disbursements, unique forms of compensation like per diems, and more.
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ITEM 1. BUSINESS. General As a cloud-based, Fintech payment processor, we serve multiple industry verticals with technology that facilitates payment acceptance and funds disbursement in a single, full-stack ecosystem. We provide payment acceptance through multiple payment methods including: payment facilitation, prepaid card and electronic billing products and services to businesses, merchants and consumers.
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We also offer prepaid cards to consumers for use as a tool to stay on budget, manage allowances and share money with family and friends. Usio's Card platform supports Apple Pay®, Samsung Pay™ and Google Pay™. Our PIN-less debit product allows merchants to debit and credit accounts in real-time.
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We seek to grow our business both organically through the continued development and enhancement of our products and services and through acquisitions of new products and services. We will continue to look for opportunities (both internally and externally) to enhance our offerings to meet customer demands as they arise.
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A tap-and-pay transaction occurs whenever a consumer taps their phone on a physical terminal utilizing third party wallet services like Apple Pay®, Samsung Pay™ and Google Pay™. Our strategy is to drive growth through a leveraged, one to many, distribution model in the software development marketplace.
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Since 1998, Usio has entered a number of market verticals within the payments industry in order to satisfy the growing payment needs of consumers and merchants across the United States.
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Our electronic payment processing may take place in a variety of forms and situations.
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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.
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We bought an existing portfolio of customers with a significant revenue stream. This acquisition increased our ability to grow new revenue streams and allows us to reenter the electronic bill presentment and payment revenue stream.
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These supplementary product options offer customers access to faster and more convenient payment options and tools to improve operating efficiencies.
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The success of this new business line will continue to depend on our ability to realize the anticipated growth opportunities and we cannot provide any assurance that we will be able to realize these opportunities. Our websites are www.usio.com, www.payfacinabox.com, www.ficentive.com, www.akimbocard.com, and www.usiooutput.com.
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Further, our credit card payment offering was expanded in 2017 with the development of Payment Facilitation, or PayFac, that utilizes our unique technology that allows for instant enrollment of merchants and combined our suite of payment options into an integrated platform for merchants and customers to utilize.
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The FRPS reflects the effects of the COVID-19 pandemic. • The number of core non-cash payments, comprising debit card, credit card, ACH, and check payments, reached 174.2 billion in 2018, an increase of 30.6 billion from 2015.
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Through our innovative Prepaid Debit Card platform, we offer a variety of prepaid card products such as reloadable, incentive, promotional and corporate card programs.
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The value of these payments totaled $97.04 trillion in 2018, an increase of $10.25 trillion from 2015. • ACH payments exhibited accelerating growth, increasing 6.0% by number and 7.2% by value from 2015 to 2018. During the COVID-19 pandemic the share of ACH grew even further, outpacing card and check who declined in value from 2019 to 2020.
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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.
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From 2019 to 2020, ACH grew by 1.38% by number and 2.45% by value. • In 2018, for the first time, the number of ACH payments (16.6 billion) exceeded the number of check payments (14.5 billion). In 2000, in contrast, the number of ACH payments was 2.1 billion compared to 42.6 billion check payments.
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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.
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In 2020, card payments were the most used method of noncash payments by number, exceeding ACH and check, whereas by value, ACH exceeded card and check. • Card payments continued to show robust growth from 2015 to 2018, collectively increasing 8.9% per year by number and 8.6% by value up from the 6.8% yearly rate of increase in the 2012 to 2015.
Added
With the growing need for faster payment methods, we continue to invest in technology that can help us further expand our suite of payment technology. With the rise of Real Time Payments, or RTP, we began expansion into this market vertical in 2023, which serves as an alternative to ACH payments.
Removed
The total number of card payments declined from 2019 to 2020 for the first time since the number of card payments has been recorded by the FRPS., driven by a decline of in-person card payments.
Added
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.
Removed
Some of the decline of in-person card payments was offset by remote payments late in 2020. • From 2015 to 2018, total card payments - the sum of credit card, non-prepaid debit card and prepaid debit card payments - increased 29.7 billion to reach 131.2 billion payments by number and increased $1.56 trillion to reach $7.08 trillion by value in 2018. • Within card payments, there was a surge in prepaid and non-prepaid debit card payments by number relative to credit card payments from 2015 to 2018, a change from previous reporting periods.
Added
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.
Removed
Prepaid debit card payments had the highest growth rate, by number, at 10.5%, compared with 8.7% for non-prepaid debit card payments and 9.3% for credit card payments from 2015 to 2018. • Remote payments continued to grow as a share of total general-purpose card payments.
Added
Similarly, our PINless debit product allows merchants to debit and credit accounts in real-time. Card-Based Services. Our card-based processing services enable merchants to process both traditional card-present, tap-and-pay, or "swipe" transactions, as well as card-not-present transactions. A traditional card-present transaction occurs whenever a card holder physically presents a credit or debit card to a merchant at the point-of-sale.
Removed
The number of remote payments increased 20.5% from 2015 to 2018, compared with in-person payments, which grew 5.8%.
Added
As a result of this acquisition, through our subsidiary, FiCentive, Inc., we offer customizable prepaid cards which companies use for expense management, incentives, refunds, claims and disbursements, as well as unique forms of compensation such as per diem payments, government disbursements, and similar payments.
Removed
We utilize secure sockets layer architecture so that connections and information are secure from outside inspection. We also use 128-bit encryption for all electronic transactions that we process to make information unreadable as it passes over the Internet.
Added
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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf 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, we may have to find a new third-party processing provider, which could increase our costs. Substantially all of the card-based transactions we process involve the use of Visa, Mastercard or Discover credit cards.
Biggest changeFailure 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.
Registration as a prepaid processor is dependent upon us being sponsored by member clearing banks. If our sponsor banks should stop providing sponsorship for us, we would need to find another financial institution to provide those services or we would need to be a member, either of which could prove to be difficult and/or more expensive.
Registration as a prepaid processor is dependent upon our being sponsored by member clearing banks. If our sponsor bank should stop providing sponsorship for us, we would need to find another financial institution to provide those services or we would need to be a member, either of which could prove to be difficult and/or more expensive.
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. 18 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. 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.
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. 20 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. 16 Table of Contents GENERAL RISK FACTORS Market conditions could negatively impact our business, results of operations, cash flows and financial condition.
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 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. 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.
The establishment of the federal Consumer Financial Protection Bureau, or CFPB, will likely expose us to increased regulatory oversight and possibly more burdensome regulation that could have an adverse impact on our revenue and profits. On October 5, 2016, the CFPB issued a final rule to regulate certain prepaid accounts, or the Prepaid Account Rule.
The establishment of the federal Consumer Financial Protection Bureau, or CFPB, will likely expose us to increased regulatory oversight and possibly more burdensome regulation that could have an adverse impact on our revenue and profits. For example, on October 5, 2016, the CFPB issued a final rule to regulate certain prepaid accounts, or the Prepaid Account Rule.
Further, all stock options issued to the executive and all restricted stock granted to executive shall continue on their established vesting schedule. In the case of termination of the agreement due to disability without death, we will be liable for separation payments, equaling an amount of disability benefits constituting base salary for 3 years.
Further, all stock options issued to the executive and all restricted stock granted to executive shall continue on their established vesting schedule. In the case of termination of the agreement due to disability without death, we will be liable for separation payments, equaling an amount of disability benefits constituting base salary for three years.
As of December 31, 2022, 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, 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.
In our capacity as an agent for Sunrise Banks, N.A. and Metropolitan Commercial Bank, the issuing banks for our prepaid card programs and in our capacity as an agent for Fifth Third Bank, Metropolitan Commercial Bank, NABC and TransPecos Bank, the sponsoring banks for our ACH services, we are required to comply with these rules.
In our capacity as an agent for Sunrise Banks, N.A., the issuing bank for our prepaid card programs and in our capacity as an agent for Metropolitan Commercial Bank, NABC and TransPecos Bank, the sponsoring banks for our ACH services, we are required to comply with these rules.
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. 12 Table of Contents RISKS RELATED TO OUR BUSINESS Loss of key resellers could reduce our revenue growth.
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.
If we must cease or reduce our operating activities, you may lose your entire investment. 13 Table of Contents Unauthorized disclosure of cardholder data, whether through breach of our computer systems or otherwise, could expose us to liability and protracted and costly litigation.
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.
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 $1.9 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 $2.4 million for the agreement with Mr. Hoch.
We estimate the cash disbursement over time to be $1.9 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 $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.
In order to provide processing services for our Mastercard prepaid card program, we must be either a member of a payment network or be registered as a prepaid processor of Mastercard. Sunrise Banks, N.A. and Metropolitan Commercial Bank have sponsored us under the designations Third Party Servicer, or TPS, and Merchant Service Provider, or MSP, with the Mastercard card association.
In order to provide processing services for our Mastercard prepaid card program, we must be either a member of a payment network or be registered as a prepaid processor of Mastercard. Sunrise Banks, N.A. has sponsored us under the designations Third Party Servicer, or TPS, and Merchant Service Provider, or MSP, with the Mastercard card association.
We estimate the cash disbursements over time to be $3.1 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 $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.
Any failure, real or perceived, by us to comply with evolving regulatory requirements, interpretations, or orders, other local, state, federal, or international privacy, data protection, information security, or consumer protection-related laws and regulations, could cause our customers unease and materially and adversely affect our business.
Any failure, real or perceived, by us to comply with evolving regulatory requirements, interpretations, or orders, other local, state, federal, or international privacy, data protection, information security, or consumer protection-related laws and regulations, could cause our customers unease and materially and adversely affect our business. We depend on Louis A.
We reported a net loss of $5.5 million and $0.3 million for the years ended December 31, 2022 and December 31, 2021, respectively. Including these results, we have an accumulated deficit of $70.9 million at December 31, 2022. Our future operating results are not certain and we may incur future operating losses.
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 pay volume-based fees to Metropolitan Commercial Bank, Fifth Third Bank, and NABC for debit and credit transactions processed each month, and pay fees for other transactions such as returns and notices of change to bank accounts. These fees are part of our agreed-upon cost structures with the banks.
We pay volume-based fees to TransPecos Bank, and NABC for debit and credit transactions processed each month, and pay fees for other transactions such as returns and notices of change to bank accounts. These fees are part of our agreed-upon cost structures with the banks.
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 3, 2023.
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.
These factors include, among other things: • changes in interest rates and credit spreads; • the availability of credit, including the price, terms, and conditions under which it can be obtained; • slower growth or recession or reduced consumer spending; • inflation; • competition; • the impact of COVID-19 generally and on the economy and the capital markets, including the measures taken by governmental authorities to address it; • the actual and perceived state of the economy and public capital markets generally; • amendments or repeals of legislation, or changes in regulations or regulatory interpretations thereof, and transitions of government, including uncertainty regarding any of the foregoing; and • the rise of international conflicts.
These factors include, among other things: • changes in interest rates and credit spreads; • the availability of credit, including the price, terms, and conditions under which it can be obtained; • slower growth or recession or reduced consumer spending; • inflation; • competition; • the actual and perceived state of the economy and public capital markets generally; • amendments or repeals of legislation, or changes in regulations or regulatory interpretations thereof, and transitions of government, including uncertainty regarding any of the foregoing; and • the rise of international conflicts.
However, 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 $0.7 million for the year ended December 31, 2022.
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.
If the Federal Reserve rules were to introduce restrictions or modify access to the Automated Clearing House, our business could be materially adversely affected. Further, if either, two or all four of Fifth Third Bank, Metropolitan Commercial Bank, and NABC were to cancel our respective contract with the bank, our business could be materially affected.
If the Federal Reserve rules were to introduce restrictions or modify access to the Automated Clearing House, our business could be materially adversely affected. Further, if one or all of Metropolitan Commercial Bank, TransPecos Bank, or NABC were to cancel our respective contract with the bank, our business could be materially affected.
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. Since 2014, we have completed a total of four acquisitions.
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.
In order to provide payment-processing services for Visa, Mastercard and Discover transactions, we must be sponsored by a financial institution that is a principal member of the respective Visa, Mastercard and Discover card associations. Both Central Bank of St.
Substantially all of the card-based transactions we process involve the use of Visa, Mastercard or Discover credit cards. In order to provide payment-processing services for Visa, Mastercard and Discover transactions, we must be sponsored by a financial institution that is a principal member of the respective Visa, Mastercard and Discover card associations. Both Central Bank of St.
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.
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.
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.
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.
The terms of the agreement prohibit the executive from competing with us for a period of two years from the executive’s date of termination. Our business may not be successful if, for any reason, Mr. Hoch ceases to be active in our management.
The terms of the agreement prohibit the executive from competing with us for a period of two years from the executive’s date of termination. Our business may not be successful if, for any reason, Mr. Hoch ceases to be active in our management. Risks associated with reduced levels of consumer spending could adversely affect our revenues and earnings.
As of March 3, 2023, we had 26,392,315 shares of Common Stock outstanding of which 4,986,167 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 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”).
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.
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.
Louis, Wells Fargo Bank, CBW Bank or Evolve Bank & Trust fail to comply with the applicable requirements of the Visa, Mastercard, and Discover card associations, Visa, Mastercard or Discover could suspend or terminate the registration of our third-party processing provider. Also, our contracts with both of these third parties are subject to cancellation upon limited notice by either party.
Louis, Wells Fargo Bank, TransPecos Bank, CBW Bank or Evolve Bank & Trust fail to comply with the applicable requirements of the Visa, Mastercard, and Discover card associations, Visa, Mastercard or Discover could suspend or terminate the registration of our third-party processing provider.
Compliance with these obligations may 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. 16 Table of Contents We are subject to the privacy requirements of the California Consumer Privacy Act.
Compliance with these obligations may 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.
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.
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 efforts to expand our product portfolio and market reach, including through acquisitions, may not succeed and may reduce our revenue growth and we may not achieve or maintain profitability.
Our efforts to expand our product portfolio and market reach, including through acquisitions, may not succeed and may reduce our revenue growth and we may not achieve or maintain profitability. Since 2014, we have completed a total of four acquisitions which have allowed us to expand our product offerings.
The market for our common stock is highly volatile. In 2022, our stock price fluctuated between $1.22 and $4.58.
The market for our common stock is highly volatile. In 2023, our stock price fluctuated between $1.45 and $2.36.
A general reduction in consumer spending in the United States or in any other country where we do business could adversely affect our revenues and earnings. Fraud by merchants or others could have an adverse effect on our operating results and financial condition.
A general reduction in consumer spending in the United States or in any other country where we do business could adversely affect our revenues and earnings.
The California Consumer Privacy Act of 2018, or CCPA, went into effect on January 1, 2020. The CCPA imposes expansive data privacy and data protection requirements for the data of California residents, and provides for significant penalties for non-compliance.
The CCPA imposes expansive data privacy and data protection requirements for the data of California residents, and provides for significant penalties for non-compliance.
We have potential liability for fraudulent bankcard, ACH and prepaid card transactions or credits initiated by merchants or others.
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.
An ODFI is a participating financial institution that must abide by the provisions of the ACH Operating Rules and Guidelines. Through our relationships with Fifth Third Bank, Metropolitan Commercial Bank, and NABC, we process payment transactions on behalf of our customers and their consumers by submitting payment instructions in a prescribed ACH format.
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.
At December 31, 2022 we had $5.7 million of cash and cash equivalents, and for the year ended December 31, 2022, we used $17.0 million in operating activities.
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.
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. 15 Table of Contents State and federal legislatures and regulatory authorities have become increasingly focused upon the regulation of the financial services industry and continue to adopt new legislation which could result in significant changes in the regulatory landscape for financial institutions, which could include our bank sponsors, and other financial services companies, such as our Company.
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.
Our success depends on our ability to develop new and enhanced services and related products that meet ever changing customer needs. 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.
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.
In the case of a lack of market demand for our Common Stock, the trading price of our Common Stock could decline significantly and rapidly after our listing. Your percentage of ownership in our Common Stock may be diluted in the future.
In the case of a lack of market demand for our Common Stock, the trading price of our Common Stock could decline significantly and rapidly after our listing. Our directors and officers have substantial control over us.
The amount of dilution due to future equity-based compensation issued to our employees and other additional issuances could be substantial. 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.
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.
Although a large portion of fraudulent activity is addressed through the charge-back systems and procedures maintained by the card association networks, we are often responsible for other losses due to merchant and cardholder fraud. No system or procedures established to detect and reduce the impact of fraud are entirely effective.
Our prepaid cards expose us to threats involving the misuse of such cards, collusion, fraud, identity theft and systemic attacks on our systems. Although a large portion of fraudulent activity is addressed through the charge-back systems and procedures maintained by the card association networks, we are often responsible for other losses due to merchant and cardholder fraud.
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.
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.
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.
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.
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.
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.
We may need to raise additional capital to pursue product development initiatives and to penetrate additional markets for the sale of our products in the future. We believe that we have access to capital resources through possible public or private equity offerings, debt financings, corporate collaborations or other means.
We may need to raise additional capital to pursue product development initiatives and to penetrate additional markets for the sale of our products in the future.
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.
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 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. We depend on Louis A.
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 we are unable to obtain additional funds on terms favorable to us, we may be required to cease or reduce our operating activities.
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.
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 and computer capabilities.
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.
Even if we do bring such services, products or technologies to market, they may not become commercially successful. Additionally, services, products or technologies developed by others may render our services and related products noncompetitive or obsolete.
We may not successfully identify new service opportunities and develop and introduce new and enhanced services and related products to market in a timely manner. Even if we do bring such services, products or technologies to market, they may not become commercially successful.
If we are unable, for technological or other reasons, to develop and introduce new services and products in a timely manner in response to changing market conditions or customer requirements, our business may fail. 14 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.
Additionally, services, products or technologies developed by others may render our services and related products noncompetitive or obsolete. If we are unable, for technological or other reasons, to develop and introduce new services and products in a timely manner in response to changing market conditions or customer requirements, our business may fail.
Compliance with these obligations may 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. Our card programs are subject to strict regulation under federal law regarding anti-money laundering and anti-terrorist financing.
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.
We are subject to risks and write-offs resulting from fraudulent activities and losses from overdrawn cardholder accounts that could adversely impact our financial performance and results of operations. Our prepaid cards expose us to threats involving the misuse of such cards, collusion, fraud, identity theft and systemic attacks on our systems.
Please also refer to "General Risk Factors" in this Item 1A in this Annual Report on Form 10-K We are subject to risks and write-offs resulting from fraudulent activities and losses from overdrawn cardholder accounts that could adversely impact our financial performance and results of operations.
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. If we do not adapt to rapid technological change, our business may fail.
We perform the majority of our disaster recovery operations ourselves, though we utilize select third parties for some aspects of recovery.
We have contractual relationships with Fifth Third Bank, 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.
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.
Refer to Item 7, under the subsection "Key Business Metrics - Non-GAAP Financial Measures" for our reconciliation of operating cash flows to adjusted operating cash flows. 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.
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.
We recorded fraud losses of $299,162 and $136,608, respectively, in 2022 and 2021. We experienced an increase in fraudulent accounts in 2022 as a result of massively expanding prepaid growth. 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.
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%.
If we become subject to and fail to comply with regulations, requirements, prohibitions or other obligations applicable to us, we could face regulatory or other enforcement actions and potential fines and other consequences. If our software fails, and we need to repair or replace it, or we become subject to warranty claims, our costs could increase.
If our software fails, and we need to repair or replace it, or we become subject to warranty claims, our costs could increase. Our software products could contain errors or “bugs” that could adversely affect the performance of services or damage a user’s data.
Removed
We may be liable for employment taxes for vesting equity awards granted to employees in the past. In the past we have granted equity awards, including restricted stock awards, to certain of our employees, including to our executive officers and directors. Upon vesting of these awards, we are liable for employment withholding taxes payable in cash.
Added
An important component of our business involves the receipt and storage of information about our cardholders and banking information.
Removed
Some of these amounts may be substantial which may impact our business and results of operations. We may not realize the opportunities from our acquisition of IMS.
Added
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.
Removed
On December 15, 2020, we entered into an asset purchase agreement to purchase substantially all the assets of IMS, a Texas limited liability company in the business of electronic bill presentment, document composition, document decomposition and printing and mailing services serving hundreds of customers representing a wide range of industry verticals, including utilities and financial institutions.
Added
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.
Removed
Through the acquisition, we acquired new customers and their sales force. We bought an existing portfolio of customers with a significant revenue stream. This acquisition increased our ability to grow new revenue streams and allows us to reenter the electronic bill presentment and payment revenue stream.
Added
Also, our contracts with both of these third parties are subject to cancellation upon limited notice by either party.
Removed
The success of the IMS acquisition will continue to depend on our ability to realize the anticipated growth opportunities. We cannot assure you that we will be able to realize the anticipated growth opportunities. If cryptocurrency rules and regulations increase or the interest in trading in cryptocurrencies subsides, our revenues could decrease.
Added
We believe that we have access to capital resources through possible public or private equity offerings, debt financings, corporate collaborations or other means but we cannot assure you that we will be able to complete such a financing on terms acceptable to us or at all.
Removed
Various governmental and regulatory bodies, including legislative and executive bodies, in the United States may adopt new laws and regulations, or new interpretations of existing laws and regulations may be issued by such bodies or the judiciary, which may adversely impact the development of the crypto economy as a whole or our customers who operate in the crypto economy.
Added
State and federal legislatures and regulatory authorities have become increasingly focused upon the regulation of the financial services industry and continue to adopt new legislation which could result in significant changes in the regulatory landscape for financial institutions, which could include our bank sponsors, and other financial services companies, such as our Company.
Removed
Such legal and regulatory rules could have adverse effects on the crypto economy, in particular by changing how our customers operate their business, how their products and services are regulated, and what products or services they and or their competitors can offer, requiring changes to their compliance and risk mitigation measures, imposing new licensing requirements, or imposing a total ban on certain crypto asset transactions, as has occurred in certain jurisdictions in the past.
Added
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. 12 Table of Content Our card programs are subject to strict regulation under federal law regarding anti-money laundering and anti-terrorist financing.
Removed
These regulatory concerns could affect our customers in the crypto industry coupled with a subsiding of interest or enthusiasm for the crypto industry could adversely impact our payment processing volumes and revenues. For example, on July 6, 2022, our largest cryptocurrency customer filed for bankruptcy protection and the cryptocurrency landscape encountered significant distress during 2022.
Added
In addition, the loss of our Chairman or Chief Executive Officer may adversely affect our business and results of operations. 13 Table of Contents We are subject to the privacy requirements of the California Consumer Privacy Act. The California Consumer Privacy Act of 2018, or CCPA, went into effect on January 1, 2020.
Removed
This resulted in a meaningful loss of revenue and downturn in our ACH and complementary services business segment of approximately $0.8 million in 2022.
Added
The amount of dilution due to future equity-based compensation issued to our employees and other additional issuances could be substantial. Pursuant to our 2015 Equity Incentive Plan (the “2015 Plan”), our management is authorized to grant stock options to our employees, directors and consultants. There are 5,000,000 shares of Common Stock reserved for issuance under the 2015 Plan.
Removed
Further, the rapidly evolving regulatory landscape with respect to cryptocurrency may subject us to inquiries or investigations from regulators and governmental authorities, require us to make product changes, restrict or discontinue product offerings, and implement additional and potentially costly controls.

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Item 2. Properties

Properties — owned and leased real estate

8 edited+1 added−1 removed1 unchanged
Biggest changeRental expense for the year ended December 31, 2022 and 2021 was $46,658 and $34,125 respectively. 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.
Biggest changeThe 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.
We will not be entering 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.
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 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, 2022 and 2021 was $112,504 and $107,647 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.
Annual rents during the lease term will range from $117,000 to $232,000. Rental expense under the lease was $150,129 and $143,149 for the years ended December 31, 2022 and 2021, respectively. We also entered into a lease in Nashville, Tennessee commencing on March 1, 2018 for our Nashville based sales organization.
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.
The lease is for a period of 62 months and expires 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, 2022 and 2021 were $102,976 and $85,122, respectively.
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 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.
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.
The incremental annual rent during the lease term ranges from $135,874 to $145,816. Rental expense for the year ended December 31, 2022 was $75,269 We believe that our existing and new properties will be adequate to meet our needs through December 31, 2023.
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.
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. The incremental space leased is 2,734 square feet. The incremental annual rent during the lease term ranges from $56,047 to $60,148.
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.
Removed
On January 1, 2021, we entered into a lease in Austin, Texas commencing on January 1, 2021 for our Austin technology organization. The lease is for a period of 25 months and expires on January 31, 2023. The space leased is 1,890 square feet. Rental expense for the year ended December 31, 2022 and 2021 was $83,610 and $81,353 respectively.
Added
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.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

9 edited+12 added−0 removed2 unchanged
Biggest changeWe demanded the missing customer lists, but they have yet to be provided to us per the agreement. In our counterclaims and third-party petition, we assert causes of action for fraud, breach of contract and conversion. At this time, the parties are engaging in written discovery and working on scheduling the depositions of the parties.
Biggest changeIn our counterclaims and third-party petition, we assert causes of action for fraud, breach of contract and conversion.
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 plaintiff’s allegations. On October 5, 2021, we filed a counterclaim and third-party petition.
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.
Section 2.1(b)(x) of the agreement provides that the purchased assets includes “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 asset 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 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.
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 exist and that they were purchased by Usio.
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.
Yet, KDHM, and third-party defendants its principals Henry Minten and Thomas Dowe, affirmatively represented and warranted in section 3.1(e) of the agreement that “[the]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 these deposits were not conveyed to us as required by the 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 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.
However, despite a written representation that these funds would be returned, KDHM and its principal have held these funds hostage.
However, despite a written representation that these funds would be returned, KDHM and its principals have held these funds hostage.
Therein, we allege that neither KDHM nor its principals disclosed that KDHM was not accounting for the customer deposits in accordance with Generally Accepted Accounting Principles.
Therein, we allege that neither KDHM nor its principals disclosed that KDHM was not accounting for the customer deposits in accordance with GAAP.
ITEM 3. LEGAL PROCEEDINGS. KDHM, LLC On September 1, 2021, KDHM, LLC sued PDS Acquisition Corp, now known as Usio Output Solutions, Inc., in the District Court of Bexar County, Texas claiming a breach of the asset purchase agreement executed by the parties on December 14, 2020.
KDHM, LLC On September 1, 2021, KDHM, LLC, an entity owned by the former owners of IMS, sued PDS Acquisition Corp, now known as Usio Output Solutions, Inc., in the 73rd District Court of Bexar County, Texas claiming a breach of the asset purchase agreement executed by the parties on December 14, 2020.
We consider the risk of loss as remote related to this lawsuit. Aside from these proceedings above, the Company may be involved in legal matters arising in the ordinary course of business from time to time.
OTHER PROCEEDINGS Aside from these proceedings, the Company may be involved in legal matters arising in the ordinary course of business from time to time.
Added
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.
Added
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.
Added
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.
Added
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
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.
Added
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.
Added
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
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.
Added
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.
Added
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.
Added
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.
Added
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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+0 added−12 removed5 unchanged
Biggest changeThe following table shows our fourth quarter of 2022 stock purchases under the buyback plan as of December 31, 2022: (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, 2022 to October 31, 2022 184,019 $ 1.71 1,537,928 $ 2,861,854 November 1, 2022 to November 30, 2022 54,606 $ 2.24 1,592,534 $ 2,739,288 December 1, 2022 to December 31, 2022 4,722 $ 2.03 1,597,256 $ 2,729,688 Total 243,347 $ 2,729,688 On January 6, 2022, we repurchased 11,361 shares for $47,930 in a private transaction at the closing price on January 6, 2022 of $4.21 per share from Tom Jewell, the Company's Chief Financial Officer, to cover his share of taxes.
Biggest changeThe 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]
As of March 3, 2023, there were 3,548 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 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.
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 3, 2023, 26,392,315 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 22, 2024, 26,342,459 shares of our common stock were issued and outstanding.
Securities Authorized for Issuance under Equity Compensation Plans The information required to be disclosed by Item 201(d) of Regulation S-K, “Securities Authorized for Issuance Under Equity Compensation Plans,” is incorporated herein by reference. Refer to Item 12 of Part III of this annual report on Form 10-K for additional information.
Securities Authorized for Issuance under Equity Compensation Plans The information required to be disclosed by Item 201(d) of Regulation S-K, “Securities Authorized for Issuance Under Equity Compensation Plans,” is incorporated herein by reference.
All of the warrants described above and the shares of common stock issued upon exercise of the warrants were issued pursuant to the exemption set forth in Section 4(a)(2) of the Securities Act of 1933, as amended. 22 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. 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.
Removed
Sales of Unregistered Securities On August 21, 2018, the Company issued University Fancards, LLC a warrant to purchase 150,000 shares of the Company's common stock. 30,000 warrants vested immediately upon the date on which the first financial transaction was processed on a card account issued under the prepaid agreement, which occurred on October 5, 2018. 120,000 warrants vest annually over 4 years in 30,000 warrant increments beginning on July 31, 2019 and becoming fully vested on July 31, 2022.
Removed
The exercise price for the 30,000 warrants that vested immediately on October 5, 2018 was $1.80 per share. The exercise price for the remaining 120,000 warrants will be the lesser of $2.00 per share or one hundred and twenty percent (120%) of the market price of the Company's common stock on the vesting date of the warrant.
Removed
The warrants were valued using the Black-Scholes option pricing model.
Removed
Assumptions used were as follows: (i) the fair value of the underlying stock was $0.94 for the 30,000 warrants and $0.90 for the 120,000 warrants; (ii) the risk-free interest rate is 2.77%; (iii) the contractual life is 5 years; (iv) the dividend yield of 0%; and (v) the volatility is 64.6%.
Removed
The fair value of the warrants amounted to $135,764 and will be amortized over the life of the warrants as a reduction of revenues. The reduction of revenues recorded for the year ended December 31, 2022 and 2021 was $20,963 and $35,940 respectively.
Removed
On August 12, 2020, the Company issued 27,051 shares of common stock to University FanCards, LLC in a cashless exercise at $3.46 per share in exchange for 60,000 warrants exercised by FanCards, LLC.
Removed
On February 5, 2021, the Company issued 19,795 shares of common stock to University FanCards, LLC in a cashless exercise at $5.88 per share in exchange for 30,000 warrants exercised by FanCards, LLC.
Removed
On September 1, 2021, the Company issued 19,950 shares of common stock to University FanCards, LLC in a cashless exercise at $5.97 per share in exchange for 30,000 warrants exercised by FanCards, LLC.
Removed
On December 15, 2020, the Company issued warrants to purchase 945,599 unregistered warrants to purchase shares of Usio, Inc. for 945,599 shares of our common stock, with an exercise price of $4.23 to IMS. The warrants were valued using the Black-Scholes option pricing model.
Removed
Assumptions used were as follows: (i) the fair value of the underlying stock was $0.58; (ii) the risk-free interest rate is 0.09%; (iii) the contractual life is 5 years; (iv) the dividend yield of 0%; and (v) the volatility is 59.9%.
Removed
The fair value of the warrants amounted to $552,283 and will be recorded as an increase in the customer list asset and have a term of five years from time of vest.
Removed
On October 4, 2022, we repurchased 26,234 shares for $42,761 in a private transaction at the closing price on October 4, 2022 of $1.63 per share from Louis Hoch, the Company's Chairman, President, Chief Executive Officer and Chief Operating Officer, to cover his share of taxes. ITEM 6. [RESERVED]

Item 7. Management's Discussion & Analysis

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

50 edited+19 added−19 removed39 unchanged
Biggest changeResults 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. 24 Table of Contents With the acquisition of the assets of IMS in December 2020, we 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.
Biggest changeEBITDA, 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.
The Company believes Non-GAAP adjusted operating cash flow to be a more accurate indicator of cash contributions that can be used to sustain current and future business operations.
The 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.
You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in this report on Form 10-K and other reports we file with the Securities and Exchange Commission.
You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in this annual report on Form 10-K and other reports we file with the Securities and Exchange Commission.
In our over 20-year history, we have created a loyal customer base that relies on us for our convenient, secure, innovative and adaptive services and technology, and we have built long-standing and valuable relationships with premier banking institutions such as Fifth-Third Bank, Sunrise Bank, and Wells Fargo Bank.
In our over 25-year history, we have created a loyal customer base that relies on us for our convenient, secure, innovative and adaptive services and technology, and we have built long-standing and valuable relationships with premier banking institutions such as Fifth-Third Bank, Sunrise Bank, and Wells Fargo Bank.
Operating lease right-of-use assets, operating lease liabilities, prepaid card load obligations, customer deposits and merchant reserves are deducted from operating cash flow, as these metrics do not serve in providing a clear picture of the true operational cash used or provided in a given time period.
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 these metrics do not serve in providing a clear picture of the true operational cash used or provided in a given time period.
The allowances are maintained at a level we deem appropriate to adequately provide for current expected losses at the balance sheet date. Reserve for Doubtful Accounts We establish an allowance for accounts receivable, which represents our estimate of current expected allowances for doubtful accounts. This evaluation process is subject to numerous estimates and judgements.
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.
This discussion and analysis should be read in conjunction with the audited consolidated financial statements and the notes thereto included in this report. 23 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. 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.
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 $5.5 million and $0.3 million for the years ended December 31, 2022 and December 31, 2021, 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. 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.
Operating lease right-of-use assets, operating lease liabilities, prepaid card load obligations, customer deposits and merchant reserves are deducted from operating cash flow, as these metrics do not serve in providing a clear picture of the true operational cash used or provided in a given time period.
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.
Should the company opt to continue the repurchase of its securities on the open market, and the IRA remain in effect, we may continue to qualify for this tax in 2023, 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 2024, and future years.
We reported an adjusted EBITDA of $1.0 million for the quarter ended December 31, 2022, as compared to an adjusted EBITDA of $1.3 million for the same period in the prior year. The decrease in adjusted EBITDA in the current quarter was attributable to increases in SG&A combined with reduced profit margins.
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.
With the acquisition of the assets of Information Management Solutions, LLC, or IMS, in December 2020, we now 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 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.
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 generated by adjusted operating activities was $0.7 million for the year ended December 31, 2022 and net cash provided by adjusted operating activities was $2.6 million for the year ended December 31, 2021.
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.
Cash from operating activities is dependent on our net income (loss), less depreciation, amortization, bad debt, deferred federal income tax, non-cash stock-based compensation, the amortization of warrant costs, and net of the changes in our operating assets and liabilities.
Cash from operating activities is dependent on our net income (loss), less depreciation, amortization, credit losses, deferred federal income tax, non-cash stock-based compensation, the amortization of warrant costs, and net of the changes in our operating assets and liabilities.
For the year ended December 31, 2022 net cash used by operating activities was $17.0 million and for the year ended December 31, 2021, cash provided by operations was $29.8 million. We expect available cash and cash equivalents and internally generated funds to be sufficient to support working capital needs, capital expenditures (including acquisitions), and our debt service obligations.
For the year ended December 31, 2023 net cash provided by operating activities was $14.9 million and for the year ended December 31, 2022, cash used by operations was $17.0 million. We expect available cash and cash equivalents and internally generated funds to be sufficient to support working capital needs, capital expenditures (including acquisitions), and our debt service obligations.
We 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 $54.8 million and $46.3 million for 2022 and 2021, 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 $64.0 million and $54.8 million for 2023 and 2022, respectively.
On an ongoing basis, we evaluate our estimates, including those related to the reported amounts of revenues and expenses, bad debt, investments, intangible assets, income taxes, contingencies and litigation.
On an ongoing basis, we evaluate our estimates, including those related to the reported amounts of revenues and expenses, credit losses, investments, intangible assets, income taxes, contingencies and litigation.
Key drivers of the revenue growth include our Prepaid business line associated with sustained, and growing relationships with major cities in the U.S. facilitating disbursements to individuals and families in need of financial assistance.
Key drivers of the revenue growth include growth in our Prepaid business line as a result of sustained and growing relationships with major cities in the U.S. by facilitating disbursements to individuals and families in need of financial assistance.
Our strategy is to drive growth through a leveraged, one to many, distribution model in the software development marketplace. Following the completion of the Singular Payments acquisition, we launched our payment facilitation, PayFac, platform called "PayFac-in-a-Box" in late 2018 targeting partnership opportunities with app and software developers in bill-centric verticals, such as legal, healthcare, property management, utilities and insurance.
We also offer payment facilitation, or PayFac services through a leveraged, one to many, distribution model. Following the completion of the Singular Payments acquisition, we launched our payment facilitation, PayFac, platform called "PayFac-in-a-Box" in late 2018 targeting partnership opportunities with app and software developers in bill-centric verticals, such as legal, healthcare, property management, utilities and insurance.
Net cash used by investing activities was $0.8 million for 2022 and $1.3 million in 2021. The decrease in investing activities was due to reduced expenditures on the purchase of property and equipment. Net cash used from financing activities for 2022 was $1.4 million compared to net cash provided from financing activities of $0.9 million for 2021.
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.
Stock-based Compensation Stock-based compensation expense increased to $2.1 million in 2022 from $1.5 million in 2021. Our stock-based compensation expenses for 2022 and 2021 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 November 18, 2021 employee stock grant.
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.
Cash Flows Net cash used by operating activities totaled $17.0 million for 2022 as compared to net cash provided by operating activities of $29.8 million in 2021.
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.
This growth was bolstered by gains in our Output solutions business line, thanks to the capitalization of strong cross-selling efforts and execution on our well-developed pipeline of new business opportunities, along with growth in our Payfac business line due to continued traction with ISVs.
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.
We will continue to invest in our sales force and technology platforms to drive revenue growth. In particular, we are focused on growing our ACH merchants, adding new software integrators, growing our electronic bill presentment, document composition, document decomposition, printing and mailing services business while providing incremental services to existing merchants.
In particular, we are focused on growing our ACH merchants, adding new software integrators, growing our electronic bill presentment, document composition, document decomposition, printing and mailing services business while also providing incremental services to existing merchants.
The decrease in net cash generated by adjusted operating activities in 2022 (after adjusting for the impact of operating lease right-of-use assets, operating lease liabilities, prepaid card load obligations and merchant reserves) was primarily attributable to increases in our net loss related to increased SG&A and reduced gross profits.
The increase in net cash generated by adjusted operating activities in 2023 (after adjusting for the impact of operating lease right-of-use assets, operating lease liabilities, prepaid card load obligations and merchant reserves) was primarily attributable to decreases in our net loss related to increased interest income, revenue, and gross profit growth.
We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings, and available tax planning strategies.
We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings, and available tax planning strategies. These rely heavily on estimates that are based on a number of factors, including historical data, and business forecasts.
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.
On June 26, 2019, we changed our corporate name from Payment Data Systems, Inc. to Usio, Inc. Our principal offices are located at 3611 Paesanos Parkway, Suite 300, San Antonio, TX 78231. Our telephone number is (210) 249-4100. We serve multiple industry verticals with technology that facilitates payment acceptance and funds disbursement in a single, full-stack ecosystem.
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, 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.
December 31, 2022 December 31, 2021 Reconciliation from net cash provided (used) by operating activities to Non-GAAP Adjusted Operating Cash Flow (used): Net cash provided (used) by operating activities $ (17,036,477 ) $ 29,784,917 Operating cash flow (used) adjustments: Prepaid card load obligations 16,420,132 (28,980,651 ) Customer deposits (189,929 ) (58,897 ) Merchant reserves 1,471,652 1,884,402 Operating lease right-of-use assets (6,630 ) 130,847 Operating lease liabilities 24,052 (137,522 ) Total adjustments to net cash provided (used) by operating activities $ 17,719,277 $ (27,161,821 ) Adjusted operating cash flows (used) $ 682,800 $ 2,623,096 Use of Non-GAAP Financial Measures EBITDA, adjusted EBITDA, adjusted EBITDA margins and adjusted operating cash flow should be considered in addition to, not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.
December 31, 2023 December 31, 2022 Reconciliation from Operating Cash Flow (used) to Non-GAAP Adjusted Operating Cash Flow (used): Net cash provided (used) by operating activities $ 14,915,902 $ (17,036,477 ) Operating cash flow (used) adjustments: Prepaid card load obligations (11,408,212 ) 16,420,132 Customer deposits (311,609 ) (189,929 ) Merchant reserves (400,594 ) 1,471,652 Operating lease right-of-use assets (374,701 ) (6,630 ) Operating lease liabilities 403,506 24,052 Total adjustment of cash provided (used) by operating activities $ (12,091,610 ) $ 17,719,277 Adjusted operating cash flows (used) $ 2,824,292 $ 682,800 Use of Non-GAAP Financial Measures EBITDA, adjusted EBITDA, adjusted EBITDA margins and adjusted operating cash flow should be considered in addition to, not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.
These rely heavily on estimates that are based on a number of factors, including historical data, and business forecasts. to the extent deferred tax assets are not expected to be realized, we record a valuation allowance. We recognize and measure uncertain tax positions in accordance with U.S.
To the extent deferred tax assets are not expected to be realized, we record a valuation allowance. We recognize and measure uncertain tax positions in accordance with U.S.
We reported an adjusted EBITDA loss of $0.4 million for the twelve months ended December 31, 2022, as compared to an adjusted EBITDA of $4.0 million for the same period in the prior year. The decrease in adjusted EBITDA in the current year was attributable to increases in SG&A combined with reduced profit margins.
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.
Our ACH and complementary services revenues were down slightly on the year, due to our exit from crypto following the loss of one of our largest customers, but its impact was minimized due to growth in our ACH return volume, and ancillary ACH services, such as RCC.
Our ACH and complementary services revenues were up slightly on the year, after recovering from our exit from crypto following the loss of one of our largest customers, thanks to net new customer relationships and growth in our ancillary ACH services, such as RCC.
Please refer to Note 8 for incremental information regarding this stock grant. Other Selling, General and Administrative Expenses Other selling, general and administrative expenses, or SG&A, increased to $15.0 million in 2022 from $11.7 million in 2021.
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 assets and liabilities include our accounts receivable, prepaid expenses, operating lease right-of-use assets, inventory, other assets, accounts payable and accrued expenses, operating lease liabilities, prepaid card load obligations, merchant reserves, customer deposits, and deferred revenues. We reported a net loss of $5.5 million and $0.3 million for the years ended December 31, 2022 and 2021, respectively.
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.
Three Months Ended (unaudited) Twelve Months Ended December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021 Reconciliation from Operating (Loss) to Adjusted EBITDA: Operating (Loss) $ (90,814 ) $ (1,497 ) $ (5,214,430 ) $ (155,381 ) Depreciation and amortization 571,650 759,407 2,735,118 2,643,675 EBITDA 480,836 757,910 (2,479,312 ) 2,488,294 Non-cash stock-based compensation expense, net 531,666 501,409 2,072,041 1,489,976 Adjusted EBITDA $ 1,012,502 $ 1,259,319 $ (407,271 ) $ 3,978,270 Calculation of Adjusted EBITDA margins: Revenues $ 18,705,496 $ 17,426,465 $ 69,428,285 $ 61,942,316 Adjusted EBITDA 1,012,502 1,259,319 (407,271 ) 3,978,270 Adjusted EBITDA margins 5.4 % 7.2 % (0.6 )% 6.4 % We reported cash provided by adjusted operating cash flows of $0.7 million for the twelve months ended December 31, 2022 (after adjusting for the impact of operating lease right-of-use assets, operating lease liabilities, prepaid card load obligations, customer deposits, and merchant reserves), as compared to $2.6 million provided in the twelve months ended December 31, 2021.
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.
We did not conduct any offerings of securities in 2022. 26 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 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.
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 $2.7 million in 2022 as compared to $2.6 million in 2021. The increase of $0.09 million, or 3.5%, was primarily attributable to the depreciation of incremental intangible assets.
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.
At December 31, 2022, we had $5.7 million of cash and cash equivalents, as compared to $7.3 million of cash and cash equivalents at December 31, 2021. The decrease was primarily as a result of our repurchasing approximately $1.1 million of our stock during 2022.
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.
In addition, we offer customizable prepaid cards which companies use for expense management, incentives, refunds, claims and disbursements, as well as unique forms of compensation such as per diem payments, government disbursements, and similar payments. We also offer prepaid cards to consumers for use as a tool to stay on budget, manage allowances and share money with family and friends.
We provide payment acceptance, card-based processing, prepaid card, payment facilitation and electronic billing products and services to businesses, merchants and consumers. In addition, we offer customizable prepaid cards which companies use for expense management, incentives, refunds, claims and disbursements, as well as unique forms of compensation such as per diem payments, government disbursements, and similar payments.
The following table is a reconciliation of Net Loss to EBITDA for the three and twelve months ended December 31, 2022 and 2021.
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.
Gross Profit Gross profit is the net profit after deducting the cost of services. Gross profits were $14.6 million and $15.6 million for 2022 and 2021, respectively. Gross profit decreased by $1.0 million, or 7%, in 2022 as compared to 2021.
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.
The decrease in adjusted operating cash flows in the current year compared to the year prior was attributable to an increase the Company's net loss, due to increases in SG&A combined with reduced profit margins. The following table is a reconciliation from operating cash flow (used) to adjusted operating cash flow (used) for the twelve months ended December 31, 2022.
The increase in adjusted operating cash flows in the current year compared to the year prior was attributable to a decrease in the Company's net loss, due to revenue growth driving gross profit increases, at a rate that exceeded our SG&A increase versus the prior year.
Our UsioCard platform supports Apple Pay®, Samsung Pay™ and Google Pay™. Our PIN-less debit product allows merchants to debit and credit accounts in real-time.
We also offer prepaid cards to consumers for use as a tool to stay on budget, manage allowances and share money with family and friends. Our UsioCard platform supports Apple Pay®, Samsung Pay™ and Google Pay™. Our PINless debit product allows merchants to debit and credit accounts in real-time.
Both the credit card dollars and transactions processed represent all-time records for the Company. Prepaid card load volume increased by 14% and transaction volume increased by 39%. Material Trends and Uncertainties On July 6, 2022, our largest cryptocurrency customer, Voyager Digital filed for bankruptcy protection and the cryptocurrency landscape encountered marked distress during 2022.
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%.
Net Income (Loss) We reported a net loss of $5.5 million and $0.3 million for the years ended December 31, 2022 and December 31, 2021, respectively. The increase in net loss was primarily related to our decreased gross profits generated by a shifting business mix, alongside increases in SG&A expenses versus the prior year.
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.
Three Months Ended December 31, 2022 2021 $ Change % Change ACH and complementary service revenue $ 3,796,884 $ 4,618,891 $ (822,007 ) (18 )% Credit card revenue 6,625,637 6,383,450 242,187 4 % Prepaid card services revenue 3,384,242 2,573,887 810,355 31 % Output solutions revenue 4,898,733 3,850,237 1,048,496 27 % Total Revenue $ 18,705,496 $ 17,426,465 $ 1,279,031 7 % Year Ended December 31, 2022 2021 $ Change % Change ACH and complementary service revenue $ 14,782,606 $ 15,432,787 $ (650,181 ) (4 )% Credit card revenue 27,121,621 25,174,579 1,947,042 8 % Prepaid card services revenue 9,117,670 6,542,651 2,575,019 39 % Output solutions revenue 18,406,388 14,792,299 3,614,089 24 % Total Revenue $ 69,428,285 $ 61,942,316 $ 7,485,969 12 % Total revenues for 2022 increased by 12% to $69.4 million from $61.9 million in 2021.
Three Months Ended December 31, 2023 2022 $ Change % Change ACH and complementary service revenue $ 3,940,961 $ 3,796,884 $ 144,077 4 % Credit card revenue 6,851,743 6,625,637 226,106 3 % Prepaid card services revenue 4,019,266 3,384,242 635,024 19 % Output solutions revenue 4,550,748 4,898,733 (347,985 ) (7 )% Total Revenue $ 19,362,718 $ 18,705,496 $ 657,222 4 % Year Ended December 31, 2023 2022 $ Change % Change ACH and complementary service revenue $ 14,888,973 $ 14,782,606 $ 106,367 1 % Credit card revenue 28,476,591 27,121,621 1,354,970 5 % Prepaid card services revenue 18,729,350 9,117,670 9,611,680 105 % Output solutions revenue 20,496,195 18,406,388 2,089,807 11 % Total Revenue $ 82,591,109 $ 69,428,285 $ 13,162,824 19 % Total revenues for 2023 increased by 19% to $82.6 million from $69.4 million in 2022.
We continue to closely monitor the cryptocurrency environment, and the unique risks associated with cryptocurrencies, including technological, legal, and regulatory risks alongside the potentially consequential upsides associated with re-entering the market and offering our services. On August 16, 2022, President Biden signed the Inflation Reduction Act, or IRA, which implemented a 1% excise tax on certain corporate stock repurchases.
Material Trends and Uncertainties On August 16, 2022, President Biden signed the Inflation Reduction Act, or IRA, which implemented a 1% excise tax on certain corporate stock repurchases, when repurchases of stock on an established securities market exceed $1 million in a tax year.
Federal income tax benefit in 2022 was $0, and $110,000 in 2021. The income tax expense represents amounts incurred under the Texas margin tax and Tennessee franchise tax. Net income tax expense reported was $280,000 in 2022, and $279,861 in 2020.
Other income (expense) was $44,798 for 2023, as compared to expense of $4,051 for 2022. 21 Table of Contents Income Taxes Income tax expense was $292,524 in 2023 and $280,000 in 2022. The income tax expense represents amounts incurred under the Texas margin tax and Tennessee franchise tax.
Additionally, we reported working capital of $5.8 million and $8.8 million at December 31, 2022 and 2021, respectively. From time to time we have sold shares of our common stock in order to provide us liquidity.
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 had an accumulated deficit of $70.9 million at December 31, 2022. In 2022, we processed $7.2 billion for all payment types, which was down 24% from the prior year volume of $9.5 billion total dollars processed due to our exit from the crypto space. Total transactions processed were up 16% to a record 40.8 million.
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.
Removed
We provide integrated payment processing services to merchants and businesses, including all types of Automated Clearing House, or ACH, processing, credit, prepaid card and debit card-based processing services and statement preparation, presentment and mailing services.
Added
We will continue to invest in our sales force and technology platforms to drive revenue growth, and assess the needs of the market to both enhance and maintain our existing product set, alongside the incorporation of new features and payment processing products.
Removed
ACH or electronic check transaction processing volumes for 2022 decreased by 6% compared to 2021. Returned check transactions increased by 31% in 2022 compared to 2021. Credit card dollars processed in 2022 increased by 10% compared to 2021 and credit card transactions processed for 2022 increased by 44% compared to 2021.
Added
We had an accumulated deficit of $71.3 million at December 31, 2023.
Removed
Due to this bankruptcy, we lost a significant customer, and have pulled out of the cryptocurrency space, resulting in a meaningful loss of revenue and downturn in our ACH and complementary services business segment, which contributes substantial gross profit to the Company. Our lost revenue in the ACH and complementary services business was approximately $0.8 million in 2022.
Added
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.
Removed
As of December 31, 2022 the Company has repurchased $1.3 million of stock as part of its buy back program, of which $1.1 million qualifies under the IRA's 1% excise tax.
Added
The broader implications of the macroeconomic environment, including uncertainty around recent international conflicts including the Russia and Ukraine conflict, supply chain shortages, a recession globally or in markets in which we operate, higher inflation rates, higher interest rates, and other related global economic conditions, remain unknown.
Removed
The ongoing COVID-19 pandemic has had a notable impact on general economic conditions, including but not limited to the temporary closures of many businesses, “shelter in place” and other governmental regulations, reduced consumer spending due to both job losses and other effects attributable to the COVID-19 pandemic. There remain many uncertainties as a result of the pandemic.
Added
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.
Removed
As a result of the spread of COVID-19, economic uncertainties could continue to impact our operations. Any potential incremental financial impact is unknown at this time. During 2020 and 2021, the government issued several rounds of COVID-19 relief and stimulus payments and other programs to stimulate economic activity and facilitate an economic recovery.
Added
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.
Removed
In April and May of 2020, the Company's business was adversely affected as doctor's offices, dental offices, veterinarian offices and non-bank consumer lending accounts were ordered closed in connection with curbing the spread of the pandemic. As these doctors, dental and veterinarian offices re-opened, these businesses quickly recovered and returned to levels higher than pre-COVID.
Added
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.
Removed
Consumer lending merchants were adversely affected by COVID relief payments made during the pandemic and a pause placed on past due amounts owed. The level of activity for consumer lending merchants continues to recover to pre-COVID levels.
Added
While we recognized high levels of growth in 2023, a significant portion of this growth was due to the Prepaid card business benefitting from outsized growth in 2022 and 2023 as a result of large incentive programs brought on by the Covid-19 pandemic.
Removed
The Company recorded an increase in revenues in its prepaid business line, as it was able to work in conjunction with major cities across the U.S. to use its prepaid debit cards to facilitate the transfer of money via its debit cards from city foundations to the local residents in need of financial assistance.
Added
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.
Removed
The efforts have included the disbursement of funds to encourage vaccinations. Since 2020, the Company has experienced some difficulty in recruiting and retaining certain categories of employees due to limited labor availability. The Company continues to monitor labor availability and is taking necessary steps to retain employees and recruit employees to fill open positions.
Added
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.
Removed
Due to the COVID-19 pandemic and global economic challenges, supply chain issues have resulted in a reduced supply, and growing demand of paper and paper products utilized in our Output Solutions line of business. Sourcing inventory remains a key challenge to execute jobs and projects with existing and new customers.
Added
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.
Removed
While these efforts have been successful thus far, if the Company cannot continue to acquire sufficient inventory stock, the successful completion, margins, and growth of Output Solutions may be impacted. The impacts and recovery from the COVID-19 pandemic are still a work in process.
Added
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.
Removed
To date, the Company has not been adversely impacted in the magnitude that other payment processors were, as our customer base had limited exposure to retail facing businesses. Within that framework, the Company will continue to monitor the overall impact on its operations and take necessary steps to ensure the safety of its employees and the well-being of its customers.
Added
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.
Removed
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.
Added
The decrease in net loss was primarily related to our strong revenue growth driving increased gross profits versus the prior year, at a rate that outpaced our increased in SG&A alongside significant improvements in interest income.
Removed
Cost of services expenses increased by $8.5 million, or 18%, in 2022 as compared to 2021 primarily due to increased transaction costs associated with our revenue growth. The cost of services growth outpaced our revenue growth largely due to a shift in business mix over the year.
Added
To the extent we require other sources of capital, we may seek a commercial line of credit or sell debt or equity securities, although we may not be able to complete any financing on terms acceptable to us, if at all.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeITEM 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. 27 Table of Contents
Biggest changeITEM 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

Other USIO 10-K year-over-year comparisons