UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2021.
☐ TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from ______ to ________
Commission File No. 000-30152
USIO, INC.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
98-0190072
(I.R.S. Employer Identification No.)
3611 Paesanos Parkway, Suite 300, San Antonio, TX
(Address of principal executive offices)
78231
(Zip Code)
Registrant’s telephone number, including area code (210) 249-4100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, par value $0.001 per
share
Trading symbol(s)
Name on each exchange on which
registered
USIO
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. ☐Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit such files). ☒Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated
filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Non-accelerated filer ☒
Accelerated filer ☐
Smaller reporting company ☒
Emerging Growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30, 2021, was
$101,250,000 based on 15,802,451 shares of the registrant’s common stock held by non-affiliates on June 30, 2021 at
the closing price of $6.40 per share as reported on the Nasdaq Global Market. For purposes of this computation, all
officers, directors and 10% beneficial owners of the registrant are deemed to be affiliates.
As of March 10, 2022, the number of outstanding shares of the registrant's common stock was 25,533,013.
DOCUMENTS INCORPORATED BY REFERENCE: Items 10 (as to directors and Section 16(a) Beneficial
Ownership Reporting Compliance), 11, 12, 13 and 14 of Part III will incorporate by reference information from the
registrant’s proxy statement to be filed with the Securities and Exchange Commission in connection with the solicitation
of proxies for the registrant’s 2022 Annual Meeting of Stockholders.
Usio, Inc.
FORM 10-K
For the Year Ended December 31, 2021
INDEX
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
PART I
Business.
Risk Factors.
Properties.
Legal Proceedings.
Mine Safety Disclosures (Not applicable).
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Selected Financial Data.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
Quantitative and Qualitative Disclosures about Market Risk.
Financial Statements and Supplementary Data.
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
Controls and Procedures.
Other Information.
PART III
Directors, Executive Officers and Corporate Governance.
Executive Compensation.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Certain Relationships and Related Transactions, and Director Independence.
Principal Accounting Fees and Services.
Exhibits, Financial Statement Schedules.
Form 10-K Summary.
Signatures.
PART IV
Page
1
11
24
25
26
27
28
28
34
F-1
36
36
36
36
37
37
37
37
37
42
42
FACTORS THAT MAY AFFECT FUTURE RESULTS
This Annual Report on Form 10-K and the documents incorporated herein by reference contain certain forward-looking
statements as defined under the federal securities laws. Specifically, all statements other than statements of historical
facts included in this Annual Report on Form 10-K regarding our financial performance, business strategy and plans
and objectives of management for future operations and any other future events are forward-looking statements and
based on our beliefs and assumptions. If used in this report, the words "anticipate," "believe," "estimate," "expect,"
"intend," and words or phrases of similar import are intended to identify forward-looking statements. Such statements
reflect our current view with respect to future events and are subject to certain risks, uncertainties, and assumptions,
including, but without limitation, those risks and uncertainties contained in the Risk Factors section of this Annual
Report on Form 10-K and our other filings made with the SEC. Although we believe that our expectations are reasonable,
we can give no assurance that such expectations will prove to be correct. Based upon changing conditions, any one or
more of these events described herein as anticipated, believed, estimated, expected or intended may not occur. All prior
and subsequent written and oral forward-looking statements attributable to our Company or persons acting on our
behalf are expressly qualified in their entirety by this cautionary statement. We do not intend to update any of the
forward-looking statements after the date of this Annual Report to conform these statements to actual results or to
changes in our expectations, except as required by law.
(This page intentionally left blank)
ITEM 1. BUSINESS.
General
PART I
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. Our telephone number is (210) 249-4100. Our website
is located at www.usio.com. Information contained on our website does not constitute part of this report.
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. 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 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. 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.
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.
With the acquisition of the assets of Information Management Solutions, LLC 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. 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. The ACH network is a
nationwide electronic funds transfer system that is regulated by the Federal Reserve and the National Automatic Clearing
House Association, or NACHA, the electronic payments association, and provides for the clearing of electronic payments
between participating financial institutions. Our ACH processing services enable merchants or businesses to both disburse
and collect funds electronically using e-checks instead of traditional paper checks. An e-check is an electronic debit to a
bank checking account that is initiated at the point-of-sale, on the Internet, over the telephone, or via a bill payment sent
through the mail via a physical check. 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. 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 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. Following the completion of the Singular Payments acquisition, we launched our payment facilitation,
PayFac, platform called "PayFac-in-a-Box" in late 2018 targeting partnership opportunities with app and software
developers in bill-centric verticals, such as legal, healthcare, property management, utilities and insurance. The PayFac-
in-a-Box platform 'integration layer' offers a simple integration experience for technology companies who are looking
to monetize payments within an existing base of downstream clients. The added value of offering our integration partners
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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.
Our electronic payment processing may take place in a variety of forms and situations. 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.
FiCentive, Inc. 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.
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. These cardholder web and mobile applications have been fully integrated into
FiCentive’s prepaid card core processor, and now support all program types and brands offered by FiCentive and its
clients.
Output Solutions: On December 15, 2020, we acquired the assets of Information Management Solutions, LLC
("IMS") 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. 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. The first full year
of operations from the Output Solutions unit achieved $14.8 million in top line revenue in 2021, exceeding expectations.
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. Information contained on our websites does not constitute part of 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. 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. 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. 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. 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.
In 2020, card payments were the most used method of noncash payments by number, exceeding ACH and check,
whereas by value, ACH exceeds 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. 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. Some of the decline of in-person card payments was offset by remote
payments late in 2020.
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- Since 2015, 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. 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. The number of remote
payments increased 20.5% from 2015 to 2018, compared with in-person payments, which grew 5.8%. 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.
-
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.
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 (EBT) versions. Estimates for prepaid debit card payments are not displayed for 2000 and 2003 because only EBT was
collected.
Source: 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. 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. 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. As younger consumers comprise an
increasing percentage of the population and as they enter the work force, we expect purchases using electronic payment
methods will become a larger percentage of total consumer spending. We believe the increasing usage of smart phones
as an instrument of payment will also create further opportunities for us in the future. We also believe that contact-less
payments like Apple Pay®, Samsung Pay™ and Google Pay™ will increase payment processing opportunities for us.
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Increased Electronic Payment Acceptance by Small Businesses
Small businesses are a vital component of the U.S. economy and are expected to contribute to the increased use of
electronic payment methods. The lower costs associated with electronic payment methods are making these services
more affordable to a larger segment of the small business market. In addition, we believe these businesses are
experiencing increased pressure to accept electronic payment methods in order to remain competitive and to meet
consumer expectations. As a result, many of these small businesses are seeking to provide customers with the ability to
pay for merchandise and services using electronic payment methods, including those in industries that have historically
accepted cash and checks as the only forms of payment for their merchandise and services.
Growth in Online Transactions
Market researchers expect continued growth in card-not-present transactions due to the steady growth of the internet and
electronic commerce. According to the U.S. Census Bureau, estimated retail e-commerce sales for 2021 were estimated
at $870.7 billion, an increase of approximately 10% from 2020.
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. 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. Our systems’ infrastructure allows us to work with our customers to build a customized
electronic payment service offering tailored to the customer's specific needs. We have designed and implemented our
integrated payment systems to function as gateways between our customers and our third-party processing providers.
Our systems provide for interfaces with our customers through which payment data is captured electronically and
transferred through the connections we have with our processing providers. Our systems also provide a data warehousing
capability so that all payment data related to a customer can be stored in one place to facilitate efficient data retrieval
and analysis. All confidential data stored within and outside the data warehouse is fully encrypted. We outsource parts
of our card-based transaction processing to third-party providers. Our card-based processing system can connect and
communicate with all of the major card-based processors in the United States.
Payment Processing. The components of our service offerings include all forms of ACH transaction processing, such as
Represented Check, which is a consumer non-sufficient funds check that is presented for payment electronically rather
than through the paper check collection system, and Accounts Receivable Check Conversion, which is a consumer paper
check payment that is converted into an e-check. Our customers can initiate ACH transactions directly using an online
terminal accessible through a website or we can initiate ACH transactions on their behalf.
Our service offering also includes merchant account services for the processing of card-based transactions through the
VISA, Mastercard, American Express, Discover, and JCB networks, including online terminal services accessed through
a website or retail services accessed via a physical terminal. We offer a proprietary web-based customer service
application that combines both ACH and card processing capabilities that allows companies to process one-time and
recurring payments via e-checks or credit cards at the request of their consumers. In addition, we offer an Interactive
Voice Response telephone system to companies that accept payments directly from consumers over the telephone using
e-checks or credit cards.
Significant innovations to our payment systems have included launching a client facing web application that allows
customers to more easily manage their payments; an Apple® iOS Software Development Kit, or SDK, that enables
developers to easily integrate payment acceptance into their applications; and PINless debit service that allows merchants
to debit and credit accounts in real time.
In 2019, our platform expanded to include remotely created check, or RCC, processing. An RCC is a digital image of a
paper item originated with proper authorization from consumer checking account information held on file, but without
the consumer's original signature. Our RCC gateway allows our merchants to automate billing, payment acceptance and
customer management. In addition, it provides visibility into the status of payments and accelerates cash flow. Merchants
and lenders with high return rates can utilize remotely created checks as an ACH alternative. It reduces the chances of
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fraud by validating account information upfront and is compliant with the Uniform Commercial Code, Regulation CC,
Regulation J and the Check 21 Act.
In 2021 and into early 2022, we transitioned from a traditional data center to a cloud provider. This transition provides
greater speed and capacity, allowing us to process transactions faster per second. We continue to develop process
improvements with a focus on new tools designed to grow sales while improving our internal reporting capabilities. On
the client facing front, we continue to develop enhancements to our hosted payment pages, enrollment and onboarding
tools for resellers and monthly reporting and new transaction reporting.
Largely due to our NACHA certification and significant volume of transactions, we obtained a sponsoring bank and
implemented a direct connection into the Fed ACH system and the sole use of a bank routing number. Through this
direct connection terminal, we control the entire data flow. This connection allows us to lower overall processing costs,
offer later cut off times, speed up the boarding process for merchants, and increase oversight into our ACH processing
traffic.
We will continue to enhance our service offerings to meet customer demands as they arise.
Prepaid and Incentive Card Issuance. We also provide a variety of prepaid and incentive card issuance services and
operate a prepaid core processing platform. We are a program manager and have card issuance agreements with Sunrise
Banks, N.A. and Metropolitan Commercial Bank. We develop and manage a variety of prepaid card program types,
including consumer reloadable, consumer gift, incentive, promotional, general disbursement and corporate expense
cards, primarily on behalf of our corporate clients and government entities. We exclusively issue Mastercard branded
cards currently, but our platform also supports the issuance of Visa and Discover branded card programs. In addition,
we design, develop and operate feature-rich cardholder web and mobile applications. These web and mobile applications
can be branded and customized by corporate clients. In addition, our clients can also brand or white-label physical cards
and card package materials, as well as digital cards stored in popular mobile wallets. Clients can order and load virtual
and physical cards in bulk using a batch processing system available 24 hours a day, 7 days a week through the web or
secure file transfer protocol, FTP. There are also more than 75 API endpoints available for direct client integrations. In
addition to providing card issuance and money disbursement solutions to corporate clients, we issue general purpose
consumer reloadable cards direct to consumers under the Akimbo and Stream card brands. These consumer card
programs work as bank account alternatives or companion cards used for household budgets and allowances. Our card
issuance platform is integrated to Mastercard’s Digital Enablement Services, or MDES, enabling full control of card
provisioning to all popular mobile wallets, including Apple Pay®, Google Pay™ and Samsung Pay™. This integration
has allowed our platform to offer several unique features to both cardholders and our corporate clients, including in-app
provisioning, customized mobile wallet branding, and the real-time delivery of and access to the digital card prior to the
receipt of the corresponding physical card. In general, our proprietary, full-stack card issuance and processing platform
provides us with several competitive advantages as compared to other program managers and prepaid card providers.
Our platform offers several features unavailable with nearly any other prepaid card processors. In addition, the platform
and the current size of our organization enables us to prototype and deploy custom solutions much quicker than the
competition. This is highlighted by the fact that several large / Fortune 500 tech, municipalities, and payments companies
currently use our platform for research and developments purposes.
Output Solutions. With the acquisition of the assets of Information Management Solutions, LLC 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. 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. We provide full color digital printing services, producing statements, checks,
notices, postcards, envelopes, newsletters, and other items. We utilize the latest technology inkjet printers and print 2-
up on rolls of paper that are over 17 miles long, producing up to 58,800 full-color images per hour. In 2021 we became
a seamless mailer with the USPS. This allows us to drop mailings 24 hours a day, 2 days per week.
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. In order to provide payment
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processing services for ACH transactions, we must maintain a relationship with an Originating Depository Financial
Institution, or ODFI, in the ACH network because we are not a bank and therefore, we are not eligible to be an ODFI.
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. We may
also require cash deposits and other types of collateral from certain merchants to mitigate any such risk. Similarly, 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.
Central Bank of St. 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.
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. 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. We are liable for any card-associated losses for cards
that we issue that might incur a negative balance and we are liable for card association fines, fees and chargebacks.
Under our processing agreement with TriSource Solutions and Vantiv, we are financially liable for all fees, fines,
chargebacks and losses related to our card processing merchant customers. Under our processing agreement with Global
Payments, Inc., we are not financially liable for all fees, chargebacks and losses related to our card processing merchant
customers, but we are liable for potential card association fines. If, due to insolvency or bankruptcy of our merchant
customers, or for another reason, we are unable to collect from our merchant customers amounts that have been refunded
to the cardholders because the cardholders properly initiated a charge-back transaction to reverse the credit card charges,
we must bear the credit risk for the full amount of the card holder transaction. We utilize a number of systems and
procedures to evaluate and manage merchant risk, such as obtaining approval of prospective merchants from our
processor and sponsor bank, setting transaction limits and monitoring account activity. We may also require cash deposits
and other types of collateral from certain merchants to mitigate any such risk. We maintain a reserve for losses resulting
from card processing and related chargebacks. 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.
We are currently sponsored by Evolve Bank & Trust and CBW Bank 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. Regional networks are not affiliated with major credit
card associations and operate independently. 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. 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. 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.
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 determine the allowance based on an account-by-account
review, taking into consideration such factors as the age of the outstanding receivable, historical pattern of collections
and financial condition of the customer. We closely monitor extensions of credit and if the financial condition of our
customers were to deteriorate, resulting in an impairment of their ability to make contractual payments, additional
allowances may be required.
Sales and Marketing
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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. Our direct sales efforts are coordinated by two sales executives and supported by other employees who
function in sales capacities. Our primary market focus is on companies generating high volumes of electronic payment
transactions. We tailor our sales efforts to reach this market by pre-qualifying prospective sales leads through direct
contact or market research. Our sales personnel typically initiate contact with prospective customers that we identify as
meeting our targeted customer profile.
On September 1, 2017, we acquired Singular Payments, LLC. Singular Payments was a credit card processing
Independent Sales Organization, or ISO, comprised primarily of highly driven sales leaders and industry leaders.
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. A major initiative will be the packaging and cross selling of our platform of payment options across our
portfolio of merchants. As a part of this major initiative, we will continue to analyze our sales and marketing efforts to
optimize productivity, increase sales force effectiveness, broaden our reach through reseller initiatives and advantageous
alliances and effectively optimize sales and marketing expenses while meeting our revenue and profit objectives.
With the acquisition of the assets of Information Management Solutions, LLC 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 the acquisition, we acquired new customers and their sales force and the ability to
cross-sell existing service offerings to IMS customers and new Output Solutions services to existing Usio customers.
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. 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. 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 1% to 5,039 customers at December 31, 2021 from 4,984 customers at December 31, 2020. Our customers are
geographically dispersed throughout the United States.
No customer accounted for more than 10% of revenues in 2021 or 2020.
Competition
The payment processing industry is highly competitive. Many small and large companies compete with us in providing
payment processing services and related services to a wide range of merchants. There are a number of large transaction
processors, including Fiserv, Inc., Elavon Inc., WorldPay, Stripe and Square that serve a broad market spectrum from
large to small merchants and provide banking, automatic teller machine, and other payment-related services and systems
in addition to card-based payment processing. There are also a large number of smaller transaction processors that
provide various services to small and medium- sized merchants. Many of our competitors have substantially greater
capital resources than us and operate as subsidiaries of financial or bank holding companies, which may allow them on
a consolidated basis to own and conduct depository and other banking activities that we do not have the regulatory
authority to own or conduct. We believe that the principal competitive factors in our market include:
• quality of service;
• reliability of service;
• ability to evaluate, undertake and manage risk;
• ability to offer customized technology solutions;
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• speed in implementing payment processes;
• price and other financial terms; and
• multi-channel payment capability.
We believe that our specific focus on providing integrated payment processing solutions to merchants, in addition to our
keen understanding of the needs and risks associated with providing payment processing services electronically, gives
us a competitive advantage over other competitors, which have a narrower market perspective, and over competitors of
a similar or smaller size that may lack our experience and expertise in the electronic payments industry. 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
also believe our customized technology solutions and high level of service provides a competitive advantage, particularly
for smaller businesses that do not have large internal technology capabilities or the ability to comply with payment
security regulations.
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 believe our connectivity and the ability to process via the contact-less networks of Apple Pay®,
Samsung Pay™ and Google Pay™ are competitive advantages. We also believe that the Akimbo mobile application
technology and advanced card holder websites provide a competitive advantage in securing both consumers and business
clients that have a need for a card program for their customer base. 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.
Trademarks and Domain Names
We own federally registered trademarks on the marks “Usio,” “Payment Data Systems, Inc.,” “Akimbo,” “FiCentive
Innovations in Prepaid Card Solutions,” “Don’t change your bank, just your card” and “ZBILL” and their respective
designs.
Some
www.akimbocard.com, and www.usiooutput.com.
our material websites
of
are www.usio.com, www.payfacinabox.com, www.ficentive.com,
We rely on a combination of copyright, trademark and trade secret laws, employee and third-party nondisclosure
agreements, and other intellectual property protection methods to protect our services and related products.
Patents
On January 11, 2008, we executed an agreement to sell selected patents and patent applications, including U.S. Patent
No. 7,021,530, to PCT Software Data, LLC for net proceeds of approximately $750,000. The patents and patent
applications sold relate to bill payments made with debit and stored value cards. We retained a worldwide, non-exclusive
license under the patents for use with all current and future customers.
Government Regulation
Our industry is highly regulated. Any new, or changes made to, U.S. federal, state and local laws, regulations, card
network rules or other industry standards affecting our business may require significant development efforts or have an
unfavorable impact to our financial results. Failure to comply with these laws and regulations may result in the
suspension or revocation of licenses or registrations, the limitation, suspension or termination of services and/or the
imposition of civil and criminal penalties, including fines. Certain of our services are also subject to rules set by various
payment networks, such as Visa and Mastercard.
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. The
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Dodd-Frank Act regulates the fees charged or received by issuers for processing debit transactions and the transaction
routing options available to merchants. The Dodd-Frank Act also established the Consumer Financial Protection Bureau
(CFPB) to regulate consumer financial services, including many services offered to our customers. These rules clarify
the regulatory prepaid landscape for consumer access to disclosures, fees and statements, error resolution, limited
liability and overdrafts. Additionally, the Durbin Amendment to the Dodd-Frank Act provided that interchange fees that
a card issuer or payment network receives or charges for debit transactions will now be regulated by the Federal Reserve
and must be “reasonable and proportional” to the cost incurred by the card issuer in authorizing, clearing and settling the
transaction. In addition, the Durbin Amendment contains prohibitions on network exclusivity and merchant routing
restrictions.
The Dodd-Frank Act caused interchange fees to be lowered on large bank-issued debit cards. The lowered interchange
fees had a mild negative impact on our revenues and increased our earnings due to the fact that we were able to keep our
prices constant with our merchants. If our competitors start to pass the extra margin into savings to their merchants, we
may be forced to follow their actions and become exposed to lower earnings on the debit card transactions for large
banks.
CARD Act
As an agent of, and third-party service provider to, our issuing banks, we are subject to indirect regulation and direct
audit and examination by the Office of Thrift Supervision, the Office of the Comptroller of the Currency, the Board of
Governors of the Federal Reserve System, or FRB, and the Federal Deposit Insurance Corporation.
On March 23, 2010, the FRB issued a final rule implementing Title IV of the Credit Card Accountability, Responsibility,
and Disclosure Act of 2009, or CARD Act, which imposes requirements relating to disclosures, fees and expiration dates
that are generally applicable to gift certificates, store gift cards and general-use prepaid cards. We believe that our general
purpose re-loadable prepaid cards, and the maintenance fees charged on our general purpose re-loadable cards, are
exempt from the requirements under this rule, as they fall within an express exclusion for cards which are re-loadable
and not marketed or labeled as a gift card or gift certificate. However, this exclusion is not available if the issuer, the
retailer selling the card to a consumer or the program manager, promotes, even if occasionally, the use of the card as a
gift card or gift certificate. As a result, we provide retailers with instructions and policies regarding the display and
promotion of our general purpose re-loadable cards. However, it is possible that despite our instructions and policies to
the contrary, a retailer engaged in offering our general purpose re-loadable cards to consumers could take an action with
respect to one or more of the cards that would cause each similar card to be viewed as being marketed or labeled as a
gift card, such as by placing our general purpose re-loadable cards on a display which prominently features the
availability of gift cards and does not separate or otherwise distinguish our general purpose re-loadable cards from the
gift cards. In such event, it is possible that such general purpose re-loadable cards would lose their eligibility for such
exclusion to the CARD Act and its requirements, and therefore we could be deemed to be in violation of the CARD Act
and the rule, which could result in the imposition of fines, the suspension of our ability to offer our general purpose re-
loadable cards, civil liability, criminal liability, and the inability of our issuing banks to apply certain fees to our general
purpose re-loadable cards, each of which would likely have a material adverse impact on our revenues.
In 2014, we resumed issuing gift cards. Any gift cards we issue will be governed by the CARD Act and other various
regulations. 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.
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. The BSA, among other things, requires
money services businesses to develop and implement risk-based anti-money laundering programs, report large cash
transactions and suspicious activity and maintain transaction records. On September 29, 2017, the Financial Crimes
Enforcement Network, or FinCEN, amended the Customer Due Diligence Rule, or CDD Rule, requiring the collection
and verification of beneficial owners holding equal to or greater than 25% equity interest. The CDD Rule states that sole
proprietorships-individual or spousal-and unincorporated associations are not legal entity customers as defined by the
Rule, even though such businesses may file with the Secretary of State in order to register a trade name or establish a
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tax account. This is because neither a sole proprietorship nor an unincorporated association is a separate legal entity from
the associated individual(s), and therefore beneficial ownership is not inherently obscured. The CDD Rule does not rely
on the tax-exempt status of an entity as described in the Internal Revenue Code “IRC”. All nonprofit entities-whether or
not tax-exempt-that are established as a nonprofit, or non-stock corporation, or similar entity that has been validly
organized with the proper State authority are excluded from the ownership/equity prong of the requirement because
nonprofit entities generally do not have ownership interests. 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.
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.
Similar anti-money laundering, counter terrorist financing and proceeds of crime laws apply to movements of currency
and payments through electronic transactions and to dealings with persons specified on lists maintained by organizations
similar to OFAC in several other countries and which may impose specific data retention obligations or prohibitions on
intermediaries in the payment process.
Prepaid Services
Prepaid card programs managed by us are subject to various federal and state laws and regulations, which may include
laws and regulations related to consumer and data protection, licensing, consumer disclosures, escheat, anti-money
laundering, banking, trade practices and competition and wage and employment. As regulations evolve, or change, we
may be required to obtain state licenses to expand our distribution network for prepaid cards, which licenses we may not
be able to obtain. Furthermore, the CARD Act and the Federal Reserve’s Regulation E impose requirements on general-
use prepaid cards, store gift cards and electronic gift certificates. These laws and regulations are evolving, unclear and
sometimes inconsistent and subject to judicial and regulatory challenge and interpretation, and therefore the extent to
which these laws and rules have application to, and their impact on, us, financial institutions, merchants or others is in
flux. At this time, we are unable to determine the impact that the clarification of these laws and their future
interpretations, as well as new laws, may have on us, financial institutions, merchants or others in a number of
jurisdictions. Prepaid services may also be subject to the rules and regulations of Visa®, Mastercard® and other payment
networks with which we and the card issuers do business. The programs in place to process these products generally
may be modified by the payment networks at their discretion and such modifications could also impact us, financial
institutions, merchants and others.
Employees
As of December 31, 2021, we had 108 full-time employees. We are not a party to any collective bargaining agreements.
We believe that our relations with our employees are very good.
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Available Information
Our website is located at www.usio.com. 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 website and the information contained therein or connected thereto are not
intended to be incorporated into this annual report on Form 10-K.
You may also read and copy any materials we file with 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
http://www.sec.gov.
ITEM 1A. RISK FACTORS.
An investment in our common stock involves a high degree of risk. You should carefully consider the following risk
factors and other information included in this annual report on Form 10-K. 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.
Our reseller sales channel, which purchases and resells our end-to-end services to its own portfolio of merchant
customers, is a strong contributor to our revenue growth. If a reseller switches to another transaction processor, shuts
down, becomes insolvent, or enters the processing business themselves, we may no longer receive new merchant referrals
from the reseller, and we risk losing existing merchants that were originally enrolled by the reseller, all of which could
negatively affect our revenues and earnings.
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.
We acquired the assets of Information Management Solutions, LLC, 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 institution on December 15, 2020. We also continue to
invest in our established business lines and new markets, such as our payment facilitation, prepaid card business, or
cryptocurrencies. While we have grown the proportion of revenue from these newer products and services and we intend
to continue to broaden the scope of products and services we offer, we may not be successful in maintaining or growing
our current revenue streams or deriving any significant new revenue streams from these products and services. Failure
to successfully broaden the scope of products and services that are attractive may inhibit our growth and harm our
business. Furthermore, we expect to continue to expand our markets in the future, and we may have limited or no
experience in such newer markets. We cannot assure you that any of our products or services will be widely accepted in
any market or that they will continue to grow in revenue. Our offerings may present new and difficult technological,
operational, regulatory, risks, and other challenges, and if we experience service disruptions, failures, or other issues,
our business may be materially and adversely affected. Our expansion into newer markets may not lead to growth and
may require significant management time and attention, and we may not be able to recoup our investments in a timely
manner or at all. If any of this were to occur, it could damage our reputation, limit our growth, and materially and
adversely affect our business.
We may need additional financing in the future. We may be unable to obtain additional financing or if we obtain
financing it may not be on terms favorable to us. You may lose your entire investment.
Based on our current plans, we believe our existing cash and cash equivalents will be sufficient to fund our operating
expense and capital requirements for at least 12 months, although we may need funds in the future. If our capital
resources are insufficient to meet future capital requirements, we will have to raise additional funds. If we are unable to
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obtain additional funds on terms favorable to us, we may be required to cease or reduce our operating activities. If we
must cease or reduce our operating activities, you may lose your entire investment.
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. 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 Information Management Solutions, LLC.
On December 15, 2020, we entered into an asset purchase agreement to purchase substantially all the assets of
Information Management Solutions, LLC, 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. 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. 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 our security applications are breached by cyberattacks or are not adequate to address changing market conditions
and customer concerns, we may incur significant losses and be unable to sell our services.
Unauthorized parties have attempted, and we expect that they will continue to attempt, to gain access to our systems or
facilities through various means, including, but not limited to, hacking into our systems or facilities or those of our
customers, partners, or vendors, and attempting to fraudulently induce users of our systems, including employees and
customers, into disclosing user names, passwords, payment information, or other sensitive information used to gain
access to such systems or facilities. This information may in turn be used to access our customers’ personal or proprietary
information and payment data that are stored on or accessible through our information technology systems and those of
third parties with whom we partner. Numerous and evolving cybersecurity threats, including advanced and persisting
cyberattacks, cyberextortion, distributed denial-of-service attacks, ransomware, spear phishing and social engineering
schemes, the introduction of computer viruses or other malware, and the physical destruction of all or portions of our
information technology and infrastructure and those of third parties with whom we partner could compromise the
confidentiality, availability, and integrity of the data in our systems. We may experience in the future, breaches of our
security measures due to human error, malfeasance, insider threats, system errors or vulnerabilities, or other
irregularities.
Any cyberattacks or data security breaches affecting our information technology or infrastructure or of our customers,
partners, or vendors could have negative effects. For example, on December 25, 2021, we detected a ransomware attack
that accessed and encrypted a small portion of our information technology systems. The unauthorized access included
the download of non-payment processing related data files from our externally hosted Office 365 environment which is
separate from our payment processing environment. Throughout the incident, we remained operational. Promptly upon
the detection of the event, we launched an investigation, notified law enforcement and our insurance carrier, and engaged
legal counsel, computer forensic firms and other incident response professionals. We also implemented a series of
containment and remediation measures to address this situation and reinforce the security of our information technology
systems. At this time, we restored our systems and resumed normal operations to the extent they were impaired due to
the incident. We are continuing to assess all actions that we will take to improve our existing systems. This cyber event
had no material impact on the business, and no cardholder, or payments related data was compromised. Our direct losses
associated with the cyber incident and its response will largely be covered by our cybersecurity insurance, except for a
deductible. Based on the information currently available to us, we do not believe that the December 2021 ransomware
attack will have a material impact on our business, results of operations or financial condition, but no assurances can be
given as we continue to assess the full impact from the incident, including costs, expenses and insurance coverage.
Our use of applications designed for premium data security and integrity to process electronic transactions may not be
sufficient to address changing market conditions or the security and privacy concerns of existing and potential customers.
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If our security applications are breached and sensitive data is lost or stolen, we could incur significant costs to not only
assess and repair any damage to our systems, but also to reimburse customers for losses that occur from the fraudulent
use of the data. We may also be subject to fines and penalties from the credit card associations or regulatory agencies in
the event of the loss of confidential account information. Our insurance policies may not be adequate to compensate us
for the potential costs and other losses arising from cybersecurity-related disruptions, failures, attacks or breaches. In
addition, such insurance may not be available to us in the future on economically reasonable terms, or at all. Further,
adverse publicity raising concerns about the safety or privacy of electronic transactions, or widely reported breaches of
our or another provider's security, have the potential to undermine consumer confidence in the technology and could
have a materially adverse effect on our business.
Unauthorized disclosure of cardholder data, whether through breach of our computer systems or otherwise, could
expose us to liability and protracted and costly litigation.
We collect and store personal identifiable information about our cardholders, including names, addresses, social security
numbers, driver’s license numbers and account numbers, and maintain a database of cardholder data relating to specific
transactions, including account numbers, in order to process transactions and prevent fraud. As a result, we are required
to comply with the privacy provisions of the Gramm-Leach-Bliley Act, various other federal and state privacy statutes
and regulations, and the Payment Card Industry Data Security Standard, each of which is subject to change at any time.
Compliance with these requirements is often difficult and costly, and our failure, or our distributors’ failure, to comply
may result in significant fines or civil penalties, regulatory enforcement action, liability to our issuing banks and
termination of our agreements with one or more of our issuing banks, each of which could have a material adverse effect
on our financial position and/or operations. In addition, a significant breach could result in our Company being prohibited
from processing transactions for any of the relevant card associations or network organizations, including Visa,
Mastercard, American Express, Discover or regional debit networks, which would also have a significant material
adverse impact on our financial position and/or operations.
Furthermore, if our computer systems are breached by unauthorized users, we may be subject to liability, including
claims for unauthorized purchases with misappropriated bank card information, impersonation or similar fraud claims.
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.
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. We have multiple programs and processes in place to detect and respond to data security incidents;
however, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems
change frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques
or implement adequate preventive measures. In addition, hardware, software, or applications we develop or procure from
third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise
information security. Unauthorized parties may also attempt to gain access to our systems or facilities, or those of third
parties with whom we do business, through fraud, trickery, or other forms of deceiving our vendors, contractors, and
employees. If we, our customers, or our vendors experience significant data security breaches or fail to detect and
appropriately respond to significant data security breaches, we could be exposed to government enforcement actions and
private litigation. In addition, our cardholders and customers could lose confidence in our ability to protect their
information, which could cause them to discontinue using our services.
Business interruptions or systems failures may impair the availability of our websites, applications, products or services,
or otherwise harm our business.
Our systems and operations and those of our service providers and partners have experienced from time to time, and
may experience in the future, business interruptions or degradation because of distributed denial-of-service and other
cyberattacks, insider threats, hardware and software defects or malfunctions, human error, earthquakes, hurricanes,
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floods, fires, and other natural disasters, public health crises (including pandemics), power losses, disruptions in
telecommunications services, fraud, military or political conflicts, terrorist attacks, computer viruses or other malware,
or other events. A catastrophic event that results in a disruption or failure of our systems or operations could result in
significant losses and require substantial recovery time and significant expenditures to resume or maintain operations,
which could have a material adverse impact on our business, financial condition, and results of operations. Additionally,
some of our systems, including those of companies we have acquired, are not fully redundant, and our disaster recovery
planning may not be sufficient for all possible outcomes or events. As a provider of payments solutions, we are subject
to heightened scrutiny by regulators that may require specific business continuity, resiliency and disaster recovery plans,
and rigorous testing of such plans, which may be costly and time-consuming to implement, and may divert our resources
from other business priorities.
We have experienced, and expect to continue to experience, system failures, cyberattacks, unplanned outages, and other
events or conditions from time to time that have and may interrupt the availability, or reduce or adversely affect the
speed or functionality, of our products and services. These events could result in future losses of revenue. A prolonged
interruption in the availability or reduction in the availability, speed, or functionality of our products and services could
materially harm our business. Frequent or persistent interruptions in our services could permanently harm our
relationship with our customers and partners and our reputation. Moreover, if any system failure or similar event results
in damage to our customers or their business partners, they could seek significant compensation or contractual penalties
from us for their losses, and those claims, even if unsuccessful, would likely be time-consuming and costly for us to
address, and could have other consequences described in this “Risk Factors” section under the caption “If our security
applications are breached by cyberattacks or are not adequate to address changing market conditions and customer
concerns, we may incur significant losses and be unable to sell our services.”
We have undertaken and continue to undertake certain system upgrades and re-platforming efforts designed to improve
the availability, reliability, resiliency, and speed of our platform. These efforts are costly and time-consuming, involve
significant technical risk, and may divert our resources from new features and products, and there can be no guarantee
that these efforts will be effective. Frequent or persistent site interruptions could lead to regulatory scrutiny, significant
fines and penalties, and mandatory and costly changes to our business practices, and ultimately could cause us to lose
existing licenses that we need to operate or prevent or delay us from obtaining additional licenses that may be required
for our business.
We also rely on facilities, components, applications, and services supplied by third parties, including data center facilities
and cloud data storage and processing services. From time to time, we have experienced interruptions in the provision
of such facilities and services provided by these third parties. If these third parties experience operational interference or
disruptions (including a cybersecurity incident), breach their agreements with us, or fail to perform their obligations and
meet our expectations, our operations could be disrupted or otherwise negatively affected, which could result in customer
dissatisfaction, regulatory scrutiny, and damage to our reputation and brands, and materially and adversely affect our
business. While we maintain insurance policies intended to offset the financial impact we may experience from these
risks, our coverage may be insufficient to compensate us for all losses caused by interruptions in our service as a result
of systems failures and similar events.
In addition, any failure to successfully implement new information systems and technologies, or improvements or
upgrades to existing information systems and technologies in a timely manner could have an adverse impact on our
business, internal controls (including internal controls over financial reporting), results of operations, and financial
condition.
If cryptocurrency rules and regulations increase or the interest in trading in cryptocurrencies subsides, our revenues
could decrease.
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. 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
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certain jurisdictions in the past. 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.
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. 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.
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 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.
We depend on the efficient and uninterrupted operation of our computer network systems, software, data center and
telecommunications networks, as well as the systems and services of third parties. Our systems and operations or those
of our third-party providers could be exposed to damage or interruption from, among other things, fire, natural disaster,
power loss, telecommunications failure, terrorist acts, war, unauthorized entry, human error, and computer viruses or
other defects. Defects in our systems or those of third parties, errors or delays in the processing of payment transactions,
telecommunications failures or other difficulties could result in loss of revenue, loss of merchants, loss of merchant and
cardholder data, harm to our business or reputation, exposure to fraud losses or other liabilities, negative publicity,
additional operating and development costs, and/or diversion of technical and other resources. 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.
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. 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. In many instances, new and enhanced services, products and technologies are in the emerging
stages of development and marketing are subject to the risks inherent in the development and marketing of new software,
services and products. We may not successfully identify new service opportunities, develop and bring 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. 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.
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 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. An Originating Depository Financial
Institution is a participating financial institution that must abide by the provisions of the ACH Operating Rules and
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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. 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. 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. 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 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.
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. Louis and Wells Fargo Bank have 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. We have
agreements with TriSource Solutions, LLC, Card Connect / First Data Merchant Services Corp. and Global Payments
Inc. through which their member banks, Central Bank of St. Louis and Wells Fargo Bank, sponsor us for membership in
the Visa and Mastercard card associations, and settle card transactions for our merchants. If our third-party processing
provider, TriSource Solutions, Card Connect or Global Payments, or our bank sponsors, Central Bank of St. 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. The cancellation of either contract, termination of their registration or any changes in the Visa,
Mastercard or Discover rules that would impair the registration of our third-party processing provider could require us
to stop providing such payment processing services if we are unable to enter into a similar agreement with another
provider or sponsor at similar costs and upon similar contractual terms. Additionally, changing our bank sponsor could
adversely affect our relationship with our merchants if the new sponsor provides inferior service or charges higher costs.
We may not be able to obtain and maintain sufficient insurance coverage.
We insure against a majority of business risks, including liability for cyber incidents, and for director and officer
liability. D&O and cyber insurance especially are becoming increasingly challenging to purchase and maintain due to
market factors. Premiums and deductibles have been increasing, sometimes dramatically, and some insurers are cutting
back on the number of companies they insure, causing the supply of insurance to lag behind demand. As a result of
these factors, we may not be able to maintain such insurance on acceptable terms or be able to secure coverage and the
coverage of our existing insurance may not be sufficient to offset existing or future claims. A successful claim against
us with respect to uninsured liabilities or in excess of insurance coverage could have a material adverse effect on our
business, financial condition, and results of operations.
We have incurred substantial losses in the past and may incur additional losses in the future.
We reported a net loss of $0.3 million and $2.9 million for the years ended December 31, 2021 and December 31, 2020,
respectively. Including these results, we have an accumulated deficit of $65.4 million at December 31, 2021. Our future
operating results are not certain and we may incur future operating losses.
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. If we are unable to secure additional
capital, we may be required to curtail our research and development initiatives and take additional measures to reduce
costs in order to conserve our cash in amounts sufficient to sustain operations and meet our obligations. These measures
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could cause significant delays in our efforts to expand our product offerings and customer base in the United States,
which are critical to the realization of our business plan and to future operations.
We have recorded significant deferred tax assets, and we might never realize their full value, which would result in a
charge against our earnings.
As of December 31, 2021, 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. A charge against our earnings would result if, based on the available
evidence, it is more likely than not that some portion of the deferred tax asset will not be realized beyond our existing
valuation allowance. This could be caused by, among other things, deterioration in performance, adverse market
conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of or affect
the solutions sold by our business and a variety of other factors.
If a deferred tax asset net of our valuation allowance was determined to be not realizable in a future period, the charge
to earnings would be recognized as an expense in our results of operations in the period the determination is made.
Additionally, if we are unable to utilize our deferred tax assets, our cash flow available to fund operations could be
adversely affected.
Depending on future circumstances, it is possible that we might never realize the full value of our deferred tax assets.
Any future impairment charges related to a significant portion of our deferred tax assets would have an adverse effect
on our financial condition and results of operations.
Our prepaid card revenues from the sale of services to merchants that accept Mastercard cards are dependent upon
our continued Mastercard registration and financial institution sponsorship and, in some cases, continued
participation in certain payment networks.
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. 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. If we are unable to find a replacement financial institution to provide sponsorship
or become a member of the association, we may no longer be able to provide prepaid processing services to our
Mastercard customers, which would negatively impact our revenues and earnings.
If we fail to comply with the applicable requirements of the respective card networks, they could seek to fine us, suspend
us or terminate our registrations.
In order to provide our transaction processing services, we are registered with Visa, Mastercard and Discover as service
providers and transaction processors for member institutions and with other networks. As such, we are subject to card
association and network rules that could subject us to a variety of fines or penalties that may be levied by the card
networks for certain acts or omissions. The rules of the card networks are set by their boards, which may be influenced
by banks that own their stock and, in the case of Discover by the card’s issuers, and some of those banks and issuers are
our competitors with respect to these processing services. The termination of our registrations or our status as a service
provider or transaction processor, or any changes in card association or other network rules or standards, including
interpretation and implementation of the rules or standards, that increase the cost of doing business or limit our ability
to provide transaction processing services to our customers, could have a material adverse effect on our business,
operating results and financial condition. If a merchant or one of our resellers fails to comply with the applicable
requirements of the card associations and networks, it could be subject to a variety of fines or penalties that may be
levied by the card associations or networks. If we cannot collect such amounts from the applicable merchant or one of
our resellers, we could end up bearing such fines or penalties, resulting in lower earnings for us.
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Market conditions could negatively impact our business, results of operations, cash flows and financial condition.
The market in which we operate is affected by a number of factors that are largely beyond our control but can nonetheless
have a potentially significant, negative impact on us. 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.
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.
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.
As an agent of, and third-party service provider to, our issuing banks, we are subject to indirect regulation and direct
audit and examination by the Office of Thrift Supervision, the Office of the Comptroller of the Currency, the Board of
Governors of the Federal Reserve System, or the FRB, and the Federal Deposit Insurance Corporation.
On March 23, 2010, the FRB issued a final rule implementing Title IV of the Credit Card Accountability, Responsibility,
and Disclosure Act of 2009, or CARD Act, which imposes requirements relating to disclosures, fees and expiration dates
that are generally applicable to gift certificates, store gift cards and general-use prepaid cards. We believe that our
general-purpose re-loadable prepaid cards, and the maintenance fees charged on our general-purpose re-loadable cards,
are exempt from the requirements under this rule, as they fall within an express exclusion for cards which are re-loadable
and not marketed or labeled as a gift card or gift certificate. However, this exclusion is not available if the issuer, the
retailer selling the card to a consumer or the program manager, promotes, even if occasionally, the use of the card as a
gift card or gift certificate. As a result, we provide retailers with specific instructions and policies regarding the display
and promotion of our general-purpose re-loadable cards. However, it is possible that despite our instructions and policies
to the contrary, a retailer engaged in offering our general-purpose re-loadable cards to consumers could take an action
with respect to one or more of the cards that would cause each similar card to be viewed as being marketed or labeled as
a gift card, such as by placing our general-purpose re-loadable cards on a display which prominently features the
availability of gift cards and does not separate or otherwise distinguish our general purpose re-loadable cards from the
gift cards. In such event, it is possible that such general-purpose re-loadable cards would lose their eligibility for such
exclusion to the CARD Act and its requirements, and therefore could be deemed to be in violation of the CARD Act and
the rule, which could result in the imposition of fines, the suspension of our ability to offer our general-purpose re-
loadable cards, civil liability, criminal liability, and the inability of our issuing banks to apply certain fees to our general-
purpose re-loadable cards, each of which would likely have a material adverse impact on our revenues.
In 2014, we resumed issuing gift cards. Any gift cards we issue will be governed by the CARD act and other various
regulations. 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.
As the laws applicable to our business, and those of our distributors and issuing banks, change frequently, are often
unclear and may differ or conflict between jurisdictions, ensuring compliance has become more difficult and costly. 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
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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.
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.
If our merchants or ISOs incur fines or penalties that we cannot collect from them, we could end up bearing the cost of
fines or penalties.
In order to provide our transaction processing services, we are registered with Visa, Mastercard and Discover as service
providers and transaction processors for member institutions and with other networks. As such, we are subject to card
association and network rules that could subject us to a variety of fines or penalties that may be levied by the card
networks for certain acts or omissions. The rules of the card networks are set by their boards, which may be influenced
by banks that own their stock and, in the case of Discover by the card’s issuers, and some of those banks and issuers are
our competitors with respect to these processing services. The termination of our registrations or our status as a service
provider or transaction processor, or any changes in card association or other network rules or standards, including
interpretation and implementation of the rules or standards, that increase the cost of doing business or limit our ability
to provide transaction processing services to our customers, could have a material adverse effect on our business,
operating results and financial condition. If a merchant or one of our resellers fails to comply with the applicable
requirements of the card associations and networks, it could be subject to a variety of fines or penalties that may be
levied by the card associations or networks. If we cannot collect such amounts from the applicable merchant or one of
our resellers, we could end up bearing such fines or penalties, resulting in lower earnings for us.
If we fail to comply with complex and expanding consumer protection regulations, our business could be adversely
affected.
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 Prepaid Account Rule mandates, among other things, extensive pre-purchase and post-purchase disclosures,
expanded electronic billing statements, adherence to certain overdraft regulations for prepaid accounts that permit
negative balances, and public posting of account agreements and submission to the CFPB which will then publish them
on its website. The Prepaid Account Rule took effect on April 1, 2019, subject to certain exceptions. On January 25,
2018, the CFPB announced certain changes to the Prepaid Account Rule, including allowing the error resolution and
liability limitations protections to apply prospectively, after a consumer’s identity has been verified, and providing more
flexibility to credit cards linked to digital wallets. On February 27, 2019, the CFPB also announced a streamline
electronic submission system, or Collect, for prepaid account issuers to submit their prepaid account agreements,
including fee information, to the CFPB. All prepaid account agreements offered as of April 1, 2019 must be uploaded to
Collect by May 1, 2019. Thereafter, prepaid account issuers must make a submission to the CFPB within 30 days after
a new agreement is offered, a previously submitted agreement is amended, or a previously submitted agreement is no
longer offered. 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. Failure to comply with such laws, or abuse of our card programs for purposes of money laundering or
terrorist financing, could have a material adverse impact on our business.
Provisions of the USA PATRIOT Act, the Bank Secrecy Act and other federal law impose substantial regulation of
financial institutions designed to prevent use of financial services for purposes of money laundering or terrorist financing.
Increasing regulatory scrutiny of our industry with respect to money laundering and terrorist financing matters could
result in more aggressive enforcement of such laws or more onerous regulation, which could have a material adverse
impact on our business. In addition, abuse of our prepaid card programs for purposes of money laundering or terrorist
financing, notwithstanding our efforts to prevent such abuse through our regulatory compliance and risk management
programs, could cause reputational risk or other harm that would have a material adverse impact on our business.
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Effective September 27, 2011, the Financial Crimes Enforcement Network of the U.S. Department of the Treasury, or
FinCEN, issued a final rule regarding the applicability of the Bank Secrecy Act’s anti-money laundering provisions to
prepaid products and other matters related to the regulation of money services businesses. This rule created additional
obligations for entities, including our distributors, engaged in the provision and sale of certain prepaid products,
including our prepaid debit cards, such as the obligation for sellers of prepaid debit cards to obtain identification
information from the purchaser at the point-of-sale. 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.
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. 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 underwent multiple amendments prior to coming into effect and while
enforcement actions may not be brought by the California attorney general until July 1, 2020 it remains unclear how
various provisions of the CCPA will be interpreted and enforced. Further, on November 3, 2020, the California voters
passed the California Privacy Rights and Enforcement Act, or CPRA, which replaces the CCPA effective January 1,
2023. The CPRA alters the scope of covered businesses, adds a new category of sensitive personal information and
grants certain consumer rights, such as a right to opt out and a right to delete. The effects of this legislation potentially
are far-reaching, however, and may require us to modify our data processing practices and policies and to incur
substantial costs and expenses in an effort to achieve compliance. The CCPA and the CPRA impose obligations that are
new and burdensome, and we may face challenges in addressing their requirements and making necessary changes to
our policies and practices and may incur significant expenses in an effort to do so. 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 will be liable for separation payments in case of change in control, termination without cause, non-renewal of the
agreement, death, or disability under the respective employment agreements with our Chairman, Mr. Long and our
President, Chief Executive Officer, and Chief Operating Officer, Mr. Hoch, which could have an adverse effect on our
cash position and on our financial results.
Pursuant to our respective employment agreements, as amended, with Michael Long, Chairman, and Louis Hoch,
President, Chief Executive Officer, and Chief Operating Officer, in the event of change in control, termination without
cause, termination by employee, or non-renewal of the employment agreement, we will be liable for separation payments,
equaling an amount of (a) 2.95 times the respective base salary and bonus payments, plus (b) a pro rata portion of the
respective annual bonus based on the number of days elapsed in the year prior, plus (c) 2.0 times the respective base
salary for non-competition, and (d) continuing other benefits. We estimate the cash disbursements over time to be $1.5
to $3.0 million each for the respective agreements with Mr. Long and 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. The deferred compensation does not include amounts paid
or accrued to executive for bonuses or bonus compensation, benefits or equity awards. Unpaid and unearned bonus
compensation or bonus deferred compensation is forfeited. No deferred compensation will be due as long as we and/or
an insurance company continues to pay executive’s base salary, minus any monthly base salary already paid to the
executive prior to his death pursuant to the executive’s disability, to the executive’s estate for a period of up to 36 months.
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 $0.75 and $1.7 million each for the respective agreements with Mr. Long and Mr. Hoch.
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. We estimate the cash disbursement over
time to be $0.75 to $1.7 million for each for the respective agreements with Mr. Long and Mr. Hoch. Unpaid and
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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. No further
compensation will be due for compliance with the agreements’ non-compete, non-solicitation and disparagement clauses.
Depending on when such an event might occur, it could have a substantial adverse effect on our operating capital and
cash on hand. 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. Hoch, our President, Chief Executive and Chief Operating Officer, and if he ceased to be active
in our management, our business may not be successful.
Our success depends to a significant degree upon the continued contributions of our key management, marketing, service
and related product development and operational personnel, including our President and Chief Executive and Chief
Operating Officer, Louis A. Hoch. We entered into an employment agreement with Mr. Hoch in February 2007 and
update his agreement as changes are required. 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.
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.
In order for us to successfully compete and grow, we must attract, recruit, retain and develop the necessary personnel
who can provide the needed expertise and skills across the spectrum of our intellectual capital needs. 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.
If we fail to consistently source inventory for our Output Solutions line of business, our financial condition and results
of operations may be adversely affected.
Due to the COVID-19 pandemic, 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. If we cannot continue to acquire sufficient inventory stock,
the successful completion, margins, and growth of the Output Solutions may be impacted.
Risks associated with reduced levels of consumer spending could adversely affect our revenues and earnings.
Significant portions of our revenue and earnings are derived from fees from processing consumer ACH, prepaid, credit,
and debit card transactions. We are exposed to general economic conditions that affect consumer confidence, consumer
spending, consumer discretionary income or changes in consumer purchasing habits. 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.
We have potential liability for fraudulent bankcard, ACH and prepaid card transactions or credits initiated by merchants
or others. Examples of merchant fraud include when a merchant knowingly uses a stolen or counterfeit bankcard, card
number or bank account to record a false sales transaction, processes an invalid bankcard, or intentionally fails to deliver
the merchandise or services sold in an otherwise valid transaction. Criminals are using increasingly sophisticated
methods to engage in illegal activities such as counterfeit and fraud. While we have systems and procedures designed to
detect and reduce the impact of fraud, we cannot assure the effectiveness of these measures. It is possible that incidents
of fraud could increase in the future. Failure to effectively manage risk and prevent fraud would increase our chargebacks
liability or cause us to incur other liabilities, including regulatory and association fines, penalties and harm to our
reputation. Increases in chargebacks or other liabilities could have an adverse effect on our operating results and financial
condition.
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Increases in credit card network fees may result in the loss of customers or a reduction in our earnings.
From time to time, the card networks, including Visa, Mastercard, and Discover, increase the fees (interchange and
assessment fees) that they charge processors such as us. We may attempt to pass these increases along to our merchant
customers, but this strategy might result in the loss of those customers to our competitors who do not pass along the
increases. If competitive practices prevent our passing along such increased fees to our merchant customers in the future,
we may have to absorb all or a portion of such increases thereby increasing our operating costs and reducing our earnings.
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. 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.
We recorded fraud losses of $136,608 and $116,613, respectively, in 2021 and 2020. We experienced an increase in
fraudulent accounts in 2021 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.
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 generally decline authorization attempts for amounts
that exceed the available balance in a prepaid cardholders account, the application of the card association networks’ rules
and regulations, the timing of the settlement of transactions and the assessment of subscription, maintenance or other
fees can, among other things, result in overdrawn card accounts. As of December 31, 2021, our prepaid cardholders’
overdrawn account balances totaled $56,922.
Although we maintain reserves for fraud and other losses, our exposure to these types of risks may exceed our reserve
levels for a variety of reasons, including our failure to predict the actual recovery rate, failure to effectively manage risk
and failure to prevent fraud. 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.
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.
Our success partially depends upon our ability to identify and acquire undervalued businesses and merchant portfolios
within our industry. Although we believe that there are companies and portfolios available for potential acquisition that
might offer attractive business opportunities, we may not be able to make any acquisitions, and if we do make
acquisitions, they may not be profitable. As a result, our business may not grow and regain profitability.
If we do not manage our credit risks related to our merchant accounts, we may incur significant losses.
We rely on the Federal Reserve’s Automated Clearing House system for electronic fund transfers and the Visa,
Mastercard and Discover associations for settlement of payments by credit or debit card on behalf of our merchant
customers. In our use of these established payment clearance systems, we generally bear the credit risks arising from
returned transactions caused by insufficient funds, stop payment orders, closed accounts, frozen accounts, unauthorized
use, disputes, customer chargebacks, theft or fraud. Consequently, we assume the credit risk of merchant disputes, fraud,
insolvency or bankruptcy in the event we attempt to recover funds related to such transactions from our customers. We
have not experienced a significant increase in the rate of returned transactions or incurred any losses with respect to such
transactions. We utilize a number of systems and procedures to manage and limit credit risks, but if these actions are not
successful in managing such risks, we may incur significant losses.
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We have adopted certain measures that may make it more difficult for a third party to acquire control of our Company.
Our Board of Director members are classified into three classes of directors serving staggered three-year terms. Such
classification of the Board of Directors expands the time required to change the composition of the majority of directors
and may discourage a proxy contest or other takeover bid for our company.
RISKS RELATED TO OUR INDUSTRY
The electronic commerce market is evolving and if it does not grow, we may not be able to sell sufficient services to
make our business viable.
The electronic commerce market is a service industry that continues to grow significantly. If the electronic commerce
market fails to grow or grows slower than anticipated, or if we, despite an investment of significant resources, are unable
to adapt to meet changing customer requirements or technological changes in this emerging market, or if our services
and related products do not maintain a proportionate degree of acceptance in this growing market, our business may not
grow and could even fail. Additionally, the security and privacy concerns of existing and potential customers may inhibit
the growth of the electronic commerce market in general, and our customer base and revenues, in particular. Similar to
the emergence of the credit card and automatic teller machine industries, we and other organizations serving the
electronic commerce market must educate users that electronic transactions use encryption technology and other
electronic security measures that make electronic transactions more secure than paper-based transactions.
Changes in regulation of electronic commerce and related financial services industries could increase our costs and
limit our business opportunities.
We believe that we are not required to be licensed by the Office of the Comptroller of the Currency, the Federal Reserve
Board, or other federal or state agencies that regulate or monitor banks or other types of providers of electronic commerce
services. It is possible that a federal or state agency will attempt to regulate providers of electronic commerce services,
which could impede our ability to do business in the regulator's jurisdiction. Our business has also been affected by anti-
terrorism legislation, such as the USA PATRIOT Act. Banking-related provisions of the USA PATRIOT Act have been
implemented as additions to the banking rules regarding monetary instrument sales record keeping requirements and
tracking of cash movements. 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. We are also required to implement a Customer Identification Program and establish an Anti-Money
Laundering program and to report any suspected money laundering to the appropriate agencies. Our compliance with
such regulations increases our responsibilities and costs associated with the administration of our debit card programs.
We are also subject to various laws and regulations relating to commercial transactions, such as the Uniform Commercial
Code, and may be subject to the electronic funds transfer rules embodied in Regulation E, promulgated by the Federal
Reserve Board. Given the expansion of the electronic commerce market, the Federal Reserve Board might revise
Regulation E or adopt new rules for electronic funds transfer affecting users other than consumers. Because of growth
in the electronic commerce market, Congress has held hearings on whether to regulate providers of services and
transactions in the electronic commerce market. It is possible that Congress or individual states could enact laws
regulating the electronic commerce market. If enacted, such laws, rules and regulations could be imposed on our business
and industry and could increase our costs or limit our business opportunities.
If we cannot compete successfully in our industry, we could lose market share and our costs could increase.
Portions of the electronic commerce market are becoming increasingly competitive. We expect to face growing
competition in all areas of the electronic payment processing market. New companies could emerge and compete for
merchants of all sizes. We expect competition to increase from both established and emerging companies and that such
increased competition could lower our market share and increase our costs. Moreover, our current and potential
competitors, many of whom have greater financial, technical, marketing and other resources than us, may respond more
quickly than us to new or emerging technologies or could expand to compete directly against us in any or all of our target
markets. Accordingly, it is possible that current or potential competitors could rapidly acquire market share. 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.
Page | 23
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 market for our common stock is highly volatile. In 2021, our stock price fluctuated between $2.61 and $8.62. The
trading price of our common stock could be subject to wide fluctuations in response to, among other things, quarterly
variations in operating and financial results, announcements of technological innovations or new products by our
competitors or us, changes in prices of our products and services or our competitors' products and services, changes in
product mix, or changes in our revenue and revenue growth rates.
“Penny stock” rules may make buying or selling our securities difficult which may make our stock less liquid and make
it harder for investors to buy and sell our shares.
Trading in our securities is subject to the SEC’s “penny stock” rules, and it is anticipated that trading in our securities
will continue to be subject to the penny stock rules for the foreseeable future. The SEC has adopted regulations that
generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to
certain exceptions. These rules require that any broker-dealer who recommends our securities to persons other than prior
customers and accredited investors must, prior to the sale, make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to execute the transaction. Unless an exception is available, the
regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must
disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the
securities they offer. The additional burdens imposed upon broker-dealers by these requirements may discourage broker-
dealers from recommending transactions in our securities, which could severely limit the liquidity of our securities and
consequently adversely affect the market price for our securities.
If security or industry analysts publish reports that are interpreted negatively by the investment community, publish
negative research reports about our business, cease coverage of our company or fail to regularly publish reports or us,
our share price could decline.
The trading for our common stock depends, to some extent, on the research and reports that security or industry analyst
publish about us, our business, our market and our competitors. We do not have any control over these analysts or the
information contained in their reports. If one or more analysts publish reports that are interpreted negatively by the
investment community or have a negative tone about our business, financial or operating performance or industry, our
share price could decline. In addition, if a majority of our analysts cease coverage of our company or fail to regularly
publish reports on us, we could lose visibility in the financial markets, which could cause our share price to decline.
Additional stock issuances could result in significant dilution to our stockholders.
We may issue additional equity securities to raise capital, make acquisitions or for a variety of other purposes. Any such
stock issuances will result in dilution to existing holders of our stock. We rely on equity-based compensation as an
important tool in recruiting and retaining employees. The amount of dilution due to future equity-based compensation
issued to our employees and other additional issuances could be substantial.
ITEM 2. PROPERTIES.
We entered into a lease in San Antonio, Texas commencing on May 1, 2018 for our headquarters and operations. The
lease is for a period of 75 months and expires on July 31, 2024. The space leased ranges from 6,000 square feet to 10,535
square feet. Annual rents during the lease term will range from $117,000 to $232,000. Rental expense under the lease
was $143,149 and $136,713 for the years ended December 31, 2021 and 2020, 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,
2021 and 2020 were $85,122 and $81,474, respectively.
Page | 24
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 year ended December 31, 2021 was $107,647.
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, 2021 was $81,353.
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. Rental expense
for the year ended December 31, 2021 was $34,125.
On October 19, 2021, the Company entered into a lease amendment to the existing lease in San Antonio, Texas
commencing at a date to be determined 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.
We believe that our existing and new properties will be adequate to meet our needs through December 31, 2022.
ITEM 3. LEGAL PROCEEDINGS.
Vaden Landers
On January 19, 2021, we initiated a lawsuit in Bexar County, Texas against our former Chief Revenue Officer, Vaden
Landers. In the lawsuit, which is styled: Usio, Inc. v. Vaden Landers, Cause No. 2021CI01069, 407th Judicial District
Court, Bexar County, Texas, we allege that Mr. Landers violated the provisions of his employment agreement dated
September 1, 2017 - specifically his non-compete obligations. The state court lawsuit only seeks injunctive relief against
Landers. We also instituted an action before the American Arbitration Association on February 2, 2021.
Mr. Landers initially refused to participate in the arbitration proceeding. After hearings in Bexar County state court
proceeding, all of the parties' claims, excluding Mr. Lander's claims for defamation and tortious interference with
contract, were ordered to be heard by the American Arbitration Association. We deny Mr. Landers’ allegations and do
not believe that his counterclaims have any merit.
On or about April 27, 2021, Mr. Landers filed his answering statement and counterclaim against us in the arbitration
proceeding. Therein, Mr. Landers alleged a variety of defenses to our claim that Landers violated the non-compete
provisions of his employment agreement. Mr. Landers also asserted a counterclaim for a declaratory judgment finding
the non-compete provisions are unenforceable. Mr. Landers further alleged that we breached the terms of his
employment agreement because Mr. Landers' resignation was for good reason thus entitling Mr. Landers to deferred
compensation. We deny Mr. Landers' allegations.
Through our investigation, we have learned that Mr. Landers committed other violations of his employment agreement
and we intend to pursue those claims in arbitration. Both the state court litigation and the arbitration are in their initial
stages. We have obtained certain documents from Mr. Landers in the state court proceeding.
In the arbitration, the parties have both submitted motions to the arbitration panel on the initial legal question of whether
the non-compete is enforceable. On September 16, 2021, the arbitration panel ruled the non-competition provisions in
Mr. Landers' employment agreement were enforceable. The panel reserved ruling on the scope of the restrictions
contained therein pending discovery. The arbitration panel held that the non-compete provisions need to be reformed to
more specifically set forth the competition restrictions applicable to Mr. Landers.
On February 7, 2022, we and Mr. Landers, resolved the state court litigation pending in San Antonio, Bexar County,
Texas and the separate litigation pending before the American Arbitration Association, both of which related to certain
Page | 25
conduct by Mr. Landers both prior to and after his resignation. Pursuant to the settlement agreement, Landers paid us
$13,742.50, which represents one-half of our costs incurred in the arbitration proceedings. In exchange for this payment,
both parties dismissed their respective claims with prejudice without the admission of any liability.
KDHM, LLC
On September 1, 2021, KDHM, LLC sued PDS Acquisition Corp, now known as Usio Output Solutions, Inc., claiming
a breach of the asset purchase agreement executed by the parties on December 14, 2020. The lawsuit alleges that due to
a mistake, accident, or inadvertence, certain customer deposits in the amount of $317,000 were improperly transferred
to us.
We believe that plaintiff's claims in the lawsuit have no merit and contradict the express terms of the asset purchase
agreement. 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. 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. 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 “[t]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, 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. However, despite a written representation that these funds would be returned, KDHM and its
principal have held these funds hostage. 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. We 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 have not engaged in any written discovery or depositions and no trial date has been set.
We consider the risk of loss as remote related to this lawsuit.
Aside from these proceedings described above, we may be involved in legal matters arising in the ordinary course of
business from time to time. While we believe that such matters are currently not material, there can be no assurance that
matters arising in the ordinary course of business for which we are or could become involved in litigation will not have
a material adverse effect on our business, financial condition or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
Page | 26
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
On June 15, 2021, our common stock was uplisted and is now listed on the Nasdaq Global Market® Exchange under the
ticker symbol "USIO". 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 10, 2022, 25,533,013 shares of our common stock were issued and outstanding. As of March 10, 2022, there
were 143 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.
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.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
Since September 30, 2021, we issued the following unregistered securities.
On November 19, 2021, we issued 142,857 shares of common stock valued at $7.00 per share to Voyager Digital
Holdings, Inc in a private placement.
We relied on the Section 4(a)(2) exemption from securities registration under the federal securities laws for transactions
not involving any public offering. No advertising or general solicitation was employed in offering the securities. The
securities were issued to an accredited investor. The securities were offered for investment purposes only and not for the
purpose of resale or distribution. The transfer thereof was appropriately restricted by us.
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. On
January 9, 2018, the Board of Directors added an additional $2 million to the buyback plan. The program began on
November 16, 2016 and ended on September 29, 2019. At September 29, 2019 when the program ended, $1,419,701
was available under the repurchase plan. The program was used for purchases of stock from employees and directors;
and for open-market purchases through a broker. On November 7, 2019, the Board of Directors approved the renewal of
the share buyback program. The Board approved a limit of $1,420,000 which was rolled over from the prior buyback
program with a three-year duration. The new buyback program terminates on the earliest of September 30, 2022, the
date all funds have been exhausted, or the date the Board of Directors, at its sole discretion, terminates or suspends the
program. The Board of Directors ratified share purchases between September 29, 2019 and November 7, 2019 and such
share repurchases count against the newly approved dollar limit. $ 881,662 were available at December 31, 2021 under
this program. The following table shows our recent stock purchases under the buyback plan as of December 31, 2021:
Page | 27
(c)
Total number
of shares
(or units)
purchased as
part of
publicly
announced
plans or
(b)
Average
price paid
per share
(or unit) programs
(d)
Maximum
number (or
approximate
dollar
value) of
shares (or
units) that
may yet be
purchased
under the
plans or
programs
(a)
Total
number of
shares (or
units)
Period
purchased
October 1, 2021 to October 31, 2021
November 1, 2021 to November 30, 2021
December 1, 2021 to December 31, 2021
Total
1,186 $
979 $
4,989 $
7,154
6.01
7.42
5.21
978,251 $
979,230 $
984,219 $
$
914,992
907,654
881,662
881,662
On January 6, 2020, we repurchased 11,860 shares for $20,636 in a private transaction at the closing price on January 6,
2020 of $1.74 per share from Tom Jewell, the Company's Chief Financial Officer, to cover his share of taxes.
On November 1, 2020, we repurchased 54,756 shares for $86,399 in a private transaction at the closing price of $1.5779
on October 15, 2020 per share from Louis Hoch, the Company's Chief Executive Officer to cover his share of his taxes.
On January 6, 2021, we repurchased 11,860 shares for $38,545 in a private transaction at the closing price on January 6,
2021 of $3.25 per share from Tom Jewell, the Company's Chief Financial Officer, to cover his share of taxes.
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.
ITEM 6. SELECTED FINANCIAL DATA.
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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction
with our consolidated financial statements and notes thereto, and other financial information included elsewhere in this
annual report on Form 10-K. This report contains forward-looking statements. When used in this report, the words
“anticipates,” “suggests,” “estimates,” “plans,” “projects,” “continue,” “ongoing,” “potential,” “expect,”
“predict,” “believe,” “intend,” “may,” “will,” “should,” “could,” “would,” “proposal,” and similar expressions are
intended to identify forward-looking statements. Actual results in future periods may differ materially from those
expressed or implied in such forward-looking statements as a result of a number of factors, including, but not limited to,
the risks discussed under the heading "Risk Factors" in this annual report on and elsewhere in this annual report on
Form 10-K.
Overview
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
Page | 28
located at 3611 Paesanos Parkway, Suite 300, San Antonio, TX 78231. Our telephone number is (210) 249-4100. Our
website is located at www.usio.com. Information contained on our website does not constitute part of this prospectus.
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.
We offer customizable prepaid cards companies use for expense management, incentives, refunds, claims and
disbursements, unique forms of compensation like per diems, government disbursements, and more. 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. UsioCard platform supports Apple Pay®, Samsung Pay™ and Google Pay™. Our PIN-less debit product allows
merchants to debit and credit accounts in real-time. In our over 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.
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.
With the acquisition of the assets of Information Management Solutions, LLC 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 the acquisition, we acquired new customers and their sales force.
We reported a net loss of $0.3 million and $2.9 million for the years ended December 31, 2021 and December 31, 2020,
respectively. We have an accumulated deficit of $65.4 million at December 31, 2021.
In 2021, we processed $9.5 billion for all payment types, which was up 184% from the prior year volume of $3.34 billion
total dollars processed. Total transactions processed were up 94% to a record 35.3 million. ACH or electronic check
transaction processing volumes for 2021 increased by 93% compared to 2020. Returned check transactions increased by
81% in 2021 compared to 2020. Credit card dollars processed in 2021 increased by 42% compared to 2020 and credit
card transactions processed for 2021 increased by 76% compared to 2020. Both the credit card dollars and transactions
processed represent all-time records for the Company. Prepaid card load volume increased by 32% and transaction
volume increased by 135%.
To become and sustain profitability, we must, among other things, continue to grow our top line revenues, grow and
maintain our customer base, enhance and continue to refine existing and new successful marketing strategies, continue
to maintain and upgrade our technology and transaction processing systems, provide superior customer service, respond
to competitive developments, attract, retain and motivate qualified personnel, and respond to unforeseen industry
developments and other factors.
We believe that our success will depend in large part on our ability to (a) aggressively drive top line growth, (b) add
talented sales people, (c) add quality customers, (d) meet evolving customer requirements, (e) adapt to technological
changes in an ever changing market, (f) be opportunistic in identifying and acquiring portfolios that expand or
complement our existing customer base and (g) effectively manage our operating expenses as we aggressively scale the
business. Our near-term objectives will be focused on aggressively driving top line growth and identifying and acquiring
portfolios and or companies that complement and support our growth strategy. We will continuously assess the ability
of our employees and other resources to achieve our targeted growth and continuously enhance our technology platform
to drive our competitive advantage.
Page | 29
Critical Accounting Policies
General
Our management’s discussion and analysis of financial condition and results of operations is based upon our consolidated
financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The
preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing
basis, we evaluate our estimates, including those related to the reported amounts of revenues and expenses, bad debt,
investments, intangible assets, income taxes, contingencies and litigation. We base our estimates on historical experience
and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results could differ from these estimates under different assumptions or conditions. We consider these
accounting policies to be critical because the nature of the estimates or assumptions is material due to the levels of
subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to
change or because the impact of the estimates and assumptions on financial condition or operating performance is
material.
For a summary of critical accounting policies, please refer to the Notes to Consolidated Financial Statements, Note 1.
Description of Business and Summary of Significant Accounting Policies.
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.
With the acquisition of the assets of Information Management Solutions, LLC 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.
ACH and complementary service revenue
Credit card revenue
Prepaid card services revenue
Output solutions revenue
Total Revenue
ACH and complementary service revenue
Credit card revenue
Prepaid card services revenue
Output solutions revenue
Total Revenue
Three Months Ended December 31,
2021
2020
$ Change % Change
$ 4,618,891 $ 2,391,256 $ 2,227,635
6,383,450 4,806,053 1,577,397
2,573,887 1,025,168 1,548,719
3,850,237 1,160,037 2,690,200
$ 17,426,465 $ 9,382,514 $ 8,043,951
93 %
33 %
151 %
232 %
86 %
Year Ended December 31,
2021
2020
$ Change % Change
$ 15,432,787 $ 8,471,705 $ 6,961,082
25,174,579 19,453,501 5,721,078
6,542,651 3,166,580 3,376,071
14,792,299 1,160,037 13,632,262
$ 61,942,316 $ 32,251,823 $ 29,690,493
82 %
29 %
107 %
1,175 %
92 %
Page | 30
Total revenues for 2021 increased by 92% to $61.9 million from $32.3 million in 2020. Key drivers of the revenue
growth include our ACH and complementary service revenues, as a result of strong relationships with cryptocurrency
brokers and fintech micro-lending. This growth was bolstered by gains in our Payfac business line due to continued
traction with ISVs, and 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. 2021 also marked the
first full year of revenue from the Output Solutions line of business, acquired in December 2020.
Operating Expenses
Cost of services includes the cost of personnel dedicated to the creation and maintenance of connections to third-party
payment processors and the fees paid to such third-party providers for electronic payment processing services. Through
our contractual relationships with our payment processors and sponsoring banks, we process ACH and debit, credit or
prepaid card transactions on behalf of our customers and their consumers. We pay volume-based fees for debit, credit,
ACH and prepaid transactions initiated through these processors or sponsoring banks, and pay fees for other transactions
such as returns, notices of change to bank accounts and file transmission. Cost of services expense was $46.3 million
and $24.9 million for 2021 and 2020, respectively. Cost of services expenses increased by $21.4 million, or 86%, in
2021 as compared to 2020 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 profits were $15.6 million and $7.4 million for
2021 and 2020, respectively. Gross profit increased by $8.3 million, or 112%, in 2021 as compared to 2020. The key
drivers of the profit growth were incremental profits associated with revenue growth in our ACH, Output Solutions,
Prepaid, and Credit Card portfolios.
Stock-based Compensation
Stock-based compensation expense remained flat at $1.5 million in 2021 and 2020. Our stock-based compensation
expenses for 2021 and 2020 represented the amortization of deferred compensation expenses related to incentive stock
grants to employees, officers and directors.
Other Selling, General and Administrative Expenses
Other selling, general and administrative expenses increased to $11.7 million in 2021 from $8.1 million in 2020. The
increase of $3.5 million, or 43% represented continued investments in people and related expenses associated primarily
with our support of payment facilitation and prepaid growth initiatives.
Depreciation and Amortization
Depreciation and amortization expense increased to $2.6 million in 2021 as compared to $1.5 million in 2020. The
increase of $1.1 million, or 74%, was primarily attributable to the depreciation of the Output Solutions acquisition.
Other Income
Interest income decreased to $7,643 in 2021 from $59,392 in 2020 due to lower interest-bearing cash balances. Other
income (expense) was $279 for 2021, as compared to expense of $902 for 2020.
Income Taxes
Income tax expense was $279,861 in 2021 and $23,109 in 2020. Federal income tax benefit in 2021 was $110,000, and
$94,948 in 2020. The income tax expense represents amounts incurred under the Texas margin tax and Tennessee
franchise tax offset by refunds of federal taxes paid.
Net income tax expense reported was $169,861 in 2021, and $23,109 in 2020.
Page | 31
Net Income (Loss)
We reported a net loss of $0.3 million and $2.9 million for the years ended December 31, 2021 and December 31, 2020,
respectively. The reduction in net loss was primarily related to our increased gross profits generated by our growing lines
of business.
Liquidity and Capital Resources
At December 31, 2021, we had $7.3 million of cash and cash equivalents, as compared to $5.0 million of cash and cash
equivalents at December 31, 2020.
We reported a net loss of $0.3 million and $2.9 million for the years ended December 31, 2021 and 2020,
respectively. Additionally, we reported working capital of $8.8 million and $5.6 million at December 31, 2021 and
2020, respectively.
On November 19, 2021, Voyager Digital purchased 142,857 unregistered shares of common stock at an offering price
of $7.00 per share in a private offering. The gross proceeds to us from the private offering were $1,000,000.
In 2020 received funding under the Paycheck Protection Program (PPP) as part of the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act), administered by the U.S. Small Business Administration. Under the terms of the
Note, we received total proceeds of $813,500 bearing interest at a rate of 1% per annum with a maturity date of April
15, 2022. In addition, principal and interest payments will be deferred for the first ten months of the loan. The loan is
subject to the terms and conditions applicable to loans administered by the U.S. Small Business Administration under
the CARES Act. We used the proceeds for payroll costs and other permitted expenses. Under the terms of the PPP, the
principal may be forgiven if the loan proceeds are used for qualifying expenses as described in the CARES act, such as
payroll costs, benefits, rent and utilities. Our loan forgiveness was approved in full by the U.S. Small Business
Administration on December 14, 2020.
On September 25, 2020, we entered into a placement agency agreement with Ladenburg Thalmann & Company Inc. for
the issuance and sale of an aggregate of 4,705,883 shares of common stock at an offering price of $1.70 per share in a
public offering. We agreed to pay Ladenburg a cash fee of equal to $0.12325 per share of common stock sold in the
offering as well as legal fees and expenses of up to $100,000. The net proceeds to us from the public offering were $7.4
million, after deducting the offering expenses and fees payable by us.
On July 1, 2020, Topline Capital Partners, LP purchased 1,796,407 unregistered shares of common stock at an offering
price of $1.67 per share in a private offering. The gross proceeds to us from the private offering were $3.0 million.
Cash Flows
Net cash provided by operating activities totaled $29.8 million for 2021 as compared to net cash provided by operating
activities of $6.3 million in 2020. 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 operating activities was $2.6 million for the year ended December 31, 2021 and net cash used by operating activities
$0.4 million for the year ended December 31, 2020. The increase in net cash generated by operating activities in 2021
was primarily attributable to increases in our Prepaid card load obligations and lack of incremental customer deposits in
our Output Solutions business.
Net cash used by investing activities was $1.3 million for 2021 and $6.8 million in 2020. The decrease in investing
activities is due to 2020's inclusion of a cash payment to Information Managements Solutions, LLC for $5.9 million
associated with our acquisition and capitalization of internal-use software projects and other capital expenditures.
Net cash provided from financing activities for 2021 was $0.9 million compared to cash from financing activities of
$10.0 million for 2020.
The 2021 cash provided by financing activities was the result of:
Page | 32
On November 19, 2021, Voyager Digital purchased 142,857 unregistered shares of common stock at an offering price
of $7.00 per share in a private offering. The gross proceeds to us from the private offering were $1,000,000.
On March 20, 2021, the Company entered into a debt arrangement to finance $165,996 for the purchase of an Output
Solutions sorter. Net Proceeds from the equipment loan totaled $126,194 to the Company.
A decrease in cash provided by financing activities includes treasury stock purchases of $238,737.
The 2020 cash provided by financing activities was the result of:
$10.0 million of proceeds from financing activities included $813,500 from PPP Loan proceeds, gross proceeds of $3.0
million from a private offering with Topline Capital Partners, LP and net proceeds of $7.4 million from Ladenburg,
Thalmann & Company, Inc. from a public offering and net of forgiveness of the PPP Loan in the amount of $813,500
and treasury stock purchases of $280,269.
We received funding under the Paycheck Protection Program (PPP) as part of the Coronavirus Aid, Relief, and Economic
Security Act (CARES Act), administered by the U.S. Small Business Administration. Under the terms of the Note,
we received total proceeds of $813,500 bearing interest at a rate of 1% per annum with a maturity date of April 15, 2022.
In addition, principal and interest payments will be deferred for the first ten months of the loan. The loan is subject to
the terms and conditions applicable to loans administered by the U.S. Small Business Administration under the CARES
Act. We used the proceeds for payroll costs and other permitted expenses. Under the terms of the PPP, the principal may
be forgiven if the loan proceeds are used for qualifying expenses as described in the CARES act, such as payroll costs,
benefits, rent and utilities. Our loan forgiveness was approved in full by the U.S. Small Business Administration on
December 14, 2020.
On July 1, 2020, Topline Capital Partners, LP purchased 1,796,407 unregistered shares of common stock at an offering
price of $1.67 per share in a private offering. The gross proceeds to us from the private offering were $3.0 million.
On September 25, 2020, we entered into a placement agency agreement with Ladenburg Thalmann & Company Inc. for
the issuance and sale of an aggregate of 4,705,883 shares of common stock at an offering price of $1.70 per share in a
public offering. We agreed to pay Ladenburg a cash fee of equal to $0.12325 per share of common stock sold in the
offering as well as legal fees and expenses of up to $100,000. The net proceeds to us from the public offering were $7.4
million, after deducting the offering expenses and fees payable by us.
A decrease in cash provided by financing activities includes treasury stock purchases of $280,269.
Material Trends and Uncertainties
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. 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.
In April and May of 2020, our business was adversely affected as doctor's offices, dental offices, veterinarian offices
and non-bank consumer lending accounts were ordered closed in connection with curbing the spread of the
pandemic. As these doctors, dental and veterinarian offices re-opened, these businesses quickly recovered and returned
to levels higher than pre-COVID. Consumer lending merchants were adversely affected by COVID relief payments
made during the pandemic and a pause placed on past due amounts owed. The level of activity for consumer lending
merchants has somewhat returned to pre-COVID levels. We received an increase in revenues in our prepaid business
line, as we were able to work in conjunction with major cities across the U.S. to use our prepaid debit cards to facilitate
the transfer of money via our debit cards from city foundations to the local residents in need of financial assistance. The
efforts have included the disbursement of funds to encourage vaccinations.
Page | 33
The Company has recently experienced some difficulty in recruiting and retaining certain categories of employees due
to limited resource availability. The Company continues to monitor resource availability and is taking necessary steps
to retain employees and recruit employees to fill open positions.
Due to the COVID-19 pandemic, 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. If we cannot continue to acquire sufficient inventory stock,
the successful completion, margins, and growth of the Output Solutions may be impacted.
The impacts and recovery from the COVID-19 pandemic are still a work in process. To date, we have 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, we will continue to monitor the overall impact on our operations and take necessary
steps to ensure the safety of our employees and the well-being of our customers.
Warrants
On August 21, 2018, we issued to University Fancards, LLC warrants to purchase 150,000 shares of our 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. 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 120% of the market price of our common stock on
the vesting date of the warrant.
On August 12, 2020, we issued 27,051 shares of common stock to University FanCards, LLC in a cashless exercise at
$3.46 per common share in exchange for 60,000 warrants exercised by FanCards, LLC.
On February 5, 2021, we issued 19,795 shares of common stock to University FanCards, LLC in a cashless exercise at
$5.88 per common share in exchange for 30,000 warrants exercised by FanCards, LLC.
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 common share in exchange for 30,000 warrants exercised by FanCards, LLC.
On December 15, 2020, we issued to Information Management Solutions, LLC warrants to purchase 945,599 shares of
our common stock, $0.001 par value per share, with an exercise price of $4.23 per share. The warrants were valued
using the Black-Scholes option pricing model. Assumptions used were as follows: (i) the fair value of the underlying
stock was $0.58; (ii) the risk-free interest rate is 0.09%; (iii) the contractual life is 5 years; (iv) the dividend yield of 0%;
and (v) the volatility is 59.9%. The fair value of the warrants amounted to $552,283 and is recorded as an increase in the
customer list asset and have a term of five years from time of vest.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K,
we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested
by this Item.
Page | 34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Operations for the years ended December 31, 2021 and 2020
Consolidated Statement of Changes in Stockholders’ Equity for the years ended December 31, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020
Notes to Consolidated Financial Statements
F-2
F-4
F-6
F-7
F-8
F-9
Page | F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Usio, Inc. and Subsidiaries
San Antonio, Texas
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Usio, Inc. and Subsidiaries (collectively referred to
as the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, changes
in stockholders’ equity and cash flows, for each of the two years in the period ended December 31, 2021, and the related
notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and
2020 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31,
2021 in conformity with accounting principles generally accepted in the United States of America.
Basis of Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. As a part of our audits, we are required to obtain an understanding of internal
control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate
to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially
challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they
relate.
Page | F-2
Intangible Assets – Customer Lists
Description of the Matter
As of December 31, 2021, the Company had intangible assets relating to acquired customer lists which are recorded at
their cost basis net of accumulated amortization. On at least an annual basis, the company performs an analysis of the
carrying value of these customer lists to evaluate the assets for impairment. The customer list is amortized over a five-
year term and no impairment has been recognized on the customer list portfolios since their acquisition. We identified
the customer list valuation as a critical audit matter because of the significant estimates and forward-looking assumptions
used which could be affected by future economic and market conditions.
How We Addressed the Matter in Our Audit
To test the fair value of the Company's customer list intangible assets, our audit procedures included, among others,
evaluating the Company's valuation model, evaluating the method and significant assumptions used, and testing the
completeness and accuracy of the underlying data supporting the significant assumptions and estimates. We also
evaluated whether the key factors considered in the evaluation were consistent with evidence obtained in other areas of
the audit.
Deferred Tax Assets – Valuation Allowance
Description of the Matter
The Company recognizes deferred tax assets to the extent that it is expected that these assets are more likely than not to
be realized. The Company evaluates the realizability of the deferred tax assets, and to the extent that the Company
estimates that it is more likely than not that a benefit will not be realized, the carrying amount of the deferred tax assets
is reduced with a valuation allowance. We identified the valuation of deferred tax assets as a critical audit matter because
of the significant judgments made by management in projecting future taxable income.
How We Addressed the Matter in Our Audit
Our audit procedures related to projected future taxable income and the determination of whether it is more likely than
not that the deferred tax assets will be realized included the evaluation of the reasonableness of management’s projected
future taxable income. We compared the estimates to historical earnings and evaluated the inputs and assumptions used
by management for developing future forecasts.
/s/ ADKF, P.C.
ADKF, P.C.
San Antonio, Texas United States
March 17, 2022
PCAOB ID 297
We have served as the Company's auditor since 2004.
Page | F-3
USIO, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
Cash and cash equivalents
Accounts receivable, net
Settlement processing assets
Prepaid card load assets
Customer deposits
Inventory
Prepaid expenses and other
Current assets before merchant reserves
Merchant reserves
Total current assets
Property and equipment, net
Other assets:
Intangibles, net
Deferred tax asset
Operating lease right-of-use assets
Other assets
Total other assets
December 31,
2021
December 31,
2020
$
7,255,321 $
4,979,493
63,824,646
36,590,893
1,364,193
434,532
426,963
114,876,041
6,381,153
121,257,194
5,011,132
2,863,638
43,558,442
7,610,242
1,305,296
176,466
301,755
60,826,971
8,265,555
69,092,526
3,607,157
3,105,926
4,163,894
1,504,000
2,802,113
345,357
8,815,364
6,035,761
1,394,000
2,671,266
368,078
10,469,105
Total Assets
$ 133,679,715 $
82,667,557
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
Accrued expenses
Operating lease liabilities, current portion
Equipment loan, current portion
Settlement processing obligations
Prepaid card load obligations
Customer deposits
Deferred revenues
Current liabilities before merchant reserve obligations
Merchant reserve obligations
Total current liabilities
Non-current liabilities:
Equipment loan, non-current portion
Operating lease liabilities, non-current portion
Total liabilities
Stockholders' Equity:
$
1,400,100 $
2,325,665
504,027
54,760
63,824,646
36,590,893
1,364,193
17,647
106,081,931
6,381,153
112,463,084
851,349
1,463,944
346,913
—
43,558,442
7,610,242
1,305,296
66,572
55,202,758
8,265,555
63,468,313
71,434
2,476,291
115,010,809
—
2,495,883
65,964,196
Preferred stock, $0.01 par value, 10,000,000 shares authorized; -0- shares issued
and outstanding in 2021 and 2020
—
—
Page | F-4
Common stock, $0.001 par value, 200,000,000 shares authorized; 26,807,145 and
26,260,776 issued and 25,473,453 and 24,974,995 outstanding in 2021 and 2020
(see Note 11)
Additional paid-in capital
Treasury stock, at cost; 1,333,692 and 1,285,781 shares in 2021 and 2020 (see
Note 11)
Deferred compensation
Accumulated deficit
Total stockholders' equity
195,235
93,100,129
194,692
89,659,433
(2,404,458 )
(6,842,195 )
(65,379,805 )
18,668,906
(2,165,721 )
(5,926,872 )
(65,058,171 )
16,703,361
Total Liabilities and Stockholders' Equity
$ 133,679,715 $
82,667,557
The accompanying notes are an integral part of these consolidated financial statements.
Page | F-5
USIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenues
Cost of services
Gross profit
Selling, general and administrative:
Stock-based compensation
Other expenses
Depreciation and Amortization
Total operating expenses
Operating (loss)
Other income:
Interest income
PPP Loan forgiveness
Other income (expense)
Interest expense
Other income and (expense), net
(Loss) before income taxes
Federal income tax (benefit)
State income tax expense
Income taxes
Net (Loss)
(Loss) Per Share
Basic (loss) per common share:
Diluted (loss) per common share:
Weighted average common shares outstanding (see Note 12)
Basic
Diluted
December 31,
2021
December 31,
2020
$
61,942,316 $
46,309,706
15,632,610
32,251,823
24,875,930
7,375,893
1,489,976
11,654,340
2,643,675
15,787,991
1,475,328
8,139,219
1,518,214
11,132,761
(155,381 )
(3,756,868 )
7,643
—
279
(4,314 )
3,608
59,392
813,500
—
902
873,794
(151,773 )
(2,883,074 )
(110,000 )
279,861
169,861
(94,948 )
118,057
23,109
$
(321,634 ) $
(2,906,183 )
$
$
(0.02 ) $
(0.02 ) $
(0.19 )
(0.19 )
20,028,850
20,028,850
15,428,798
15,428,798
The accompanying notes are an integral part of these consolidated financial statements.
Page | F-6
USIO, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock
Additional
Paid - In
Amount Capital
Shares
Treasury Deferred
Stock
Accumulated Stockholders'
Total
Compensation Deficit
Equity
Balance at December 31, 2019
18,224,577 $ 186,656 $ 77,055,273 $ (1,885,452 ) $
(5,636,154 ) $ (62,151,988 ) $ 7,568,335
Issuance of common stock under
equity incentive plan
Warrant compensation cost
Cashless warrant exercise
Reversal of deferred
compensation amortization that
did not vest
Issuance of common stock, public
offering
Issuance of common stock,
private offering
Deferred compensation
amortization
Purchase of treasury stock
Net (loss) for the year
1,956,858
—
27,051
1,958 2,556,087
588,224
-27
—
27
—
—
—
(1,937,620 )
-
—
—
—
—
620,425
588,224
—
(450,000 )
(450 )
(791,550 )
—
594,900
—
(197,100 )
4,705,883
1,796,407
4,705 7,253,222
1,796 2,998,204
—
—
—
—
— 7,257,927
— 3,000,000
—
—
—
—
—
—
—
—
—
—
(280,269 )
—
— 1,052,002
1,052,002
—
(280,269 )
—
— (2,906,183 ) (2,906,183 )
Balance at December 31, 2020
26,260,776 $ 194,692 $ 89,659,433 $ (2,165,721 ) $
(5,926,872 ) $ (65,058,171 ) $ 16,703,361
Issuance of common stock under
equity incentive plan
Warrant compensation cost
Cashless warrant exercise
Reversal of deferred
compensation amortization that
did not vest
Issuance of common stock,
private offering
Deferred compensation
amortization
Purchase of treasury stock
Net (loss) for the year
536,878
—
39,745
535 2,750,204
35,940
(39 )
—
39
—
—
—
(2,168,347 )
—
—
—
—
—
582,392
35,940
—
(173,111 )
(173 )
(345,267 )
—
241,295
—
(104,145 )
142,857
142
999,858
—
—
— 1,000,000
—
—
—
—
—
—
—
—
—
—
(238,737 )
—
1,011,729
—
—
— 1,011,729
(238,737 )
—
(321,634 )
(321,634 )
Balance at December 31, 2021
26,807,145 $ 195,235 $ 93,100,129 $ (2,404,458 ) $
(6,842,195 ) $ (65,379,805 ) $ 18,668,906
The accompanying notes are an integral part of these consolidated financial statements.
Page | F-7
USIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating Activities
Net (loss)
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Depreciation
Amortization
Bad Debt
Deferred federal income tax
Non-cash stock-based compensation
Amortization of warrant costs
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other
Operating lease right-of-use assets
Other assets
Inventory
Accounts payable and accrued expenses
Operating lease liabilities
Prepaid card load obligations
Merchant reserves
Customer deposits
Deferred revenue
Net cash provided by operating activities
Investing Activities
Purchases of property and equipment
Purchase of Information Management Solutions, LLC (IMS)
Net cash (used) by investing activities
Financing Activities
Proceeds from PPP Loan Program
Forgiveness of PPP Loan
Proceeds from equipment loan
Payments on equipment loan
Proceeds from public offering, net of expenses
Proceeds from private offering
Purchases of treasury stock
Net cash provided by financing activities
Change in cash, cash equivalents, prepaid card loads, customer deposits and merchant
reserves
Cash, cash equivalents, prepaid card loads, customer deposits and merchant reserves,
beginning of year
December 31,
2021
December 31,
2020
$
(321,634 ) $
(2,906,183 )
771,808
1,871,867
151,951
(110,000 )
1,489,976
35,940
(2,267,806 )
(125,208 )
(130,847 )
22,721
(258,066 )
1,410,472
137,522
28,980,651
(1,884,402 )
58,897
(48,925 )
29,784,917
518,214
1,000,000
96,000
—
1,475,328
35,943
(1,001,901 )
(80,923 )
(190,364 )
35,977
(8,328 )
534,893
206,999
7,081,808
(1,751,349 )
1,305,296
(56,957 )
6,294,453
(1,273,039 )
—
(1,273,039 )
(855,394 )
(5,907,408 )
(6,762,802 )
—
—
165,996
(39,802 )
—
1,000,000
(238,737 )
887,457
813,500
(813,500 )
—
—
7,257,925
3,000,000
(280,269 )
9,977,656
29,399,335
9,509,307
22,192,225
12,682,918
Cash, Cash Equivalents, Prepaid Card Load Assets, Customer Deposits and Merchant
Reserves, End of Year
$
51,591,560 $
22,192,225
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest
Income taxes
Non-cash transactions:
$
4,314 $
116,204
—
93,525
Issuance of stock warrants in exchange for purchase of IMS
Issuance of deferred stock compensation
—
2,164,361
The accompanying notes are an integral part of these consolidated financial statements.
552,283
1,937,620
Page | F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Note 1. Description of Business and Summary of Significant Accounting Policies
Organization: Usio, Inc., along with its subsidiaries, FiCentive, Inc., a Nevada corporation, and Zbill, Inc., a Nevada
corporation, provides integrated electronic payment services, including credit and debit card-based processing services
and transaction processing via the Automated Clearing House, or ACH network to billers and retailers. The company
also has an additional wholly-owned subsidiary, Usio Output Solutions, Inc., which is the entity for the Output Solutions
such as www.usio.com,
operations.
the Company operates various product websites,
www.ficentive.com,
www.singularpayments.com,
www.akimbocard.com, and www.usiooutput.com.
www.singularbillpay.com,
www.payfacinabox.com,
In addition,
Principles of Consolidation and Basis of Presentation: The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All significant inter-company accounts and transactions
have been eliminated in consolidation.
Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition: Revenue consists primarily of fees generated through the electronic processing of payment
transactions and related services. Revenue is recognized during the period in which the transactions are processed or
when the related services are performed. The Company complies with ASC 606-10 and reports revenues at gross as a
principal versus net as an agent. Although some of the Company's processing agreements vary with respect to specific
credit risks, the Company has determined for each agreement it is acting in the principal role. Merchants may be charged
for these processing services at a bundled rate based on a percentage of the dollar amount of each transaction and, in
some instances, additional fees are charged for each transaction. Certain merchant customers are charged a flat fee per
transaction, while others may also be charged miscellaneous fees, including fees for chargebacks or returns, monthly
minimums, and other miscellaneous services. Revenues derived from electronic processing of credit, debit, and prepaid
card transactions that are authorized and captured through third-party networks are reported gross of amounts paid to
sponsor banks as well as interchange and assessments paid to credit card associations. Certain card distributors remit
payment of fees earned 45 days after the end of the processing period. Prepaid card distributors have payment terms of
30 days following the end of the month. Sales taxes billed are reported directly as a liability to the taxing authority and
are not included in revenue. Usio Output Solutions, Inc. provides bill preparation, presentment and mailing services.
Revenue from Output Solutions is recognized when the related services are performed for printing and delivered to USPS
for postage.
Year Ended December 31,
2021
2020
$ Change % Change
ACH and complementary service revenue
Credit card revenue
Prepaid card services revenue
Output solutions revenue
Total Revenue
$ 15,432,787 $ 8,471,705 $ 6,961,082
25,174,579 19,453,501 5,721,078
6,542,651 3,166,580 3,376,071
14,792,299 1,160,037 13,632,262
$ 61,942,316 $ 32,251,823 $ 29,690,493
82 %
29 %
107 %
1,175 %
92 %
Deferred Revenues: The Company records deferred revenues when it receives payments or issues invoices in advance
of transferring control of promised goods or services to a customer. The advance consideration received from a customer
is deferred until the Company provides the customer that product or service. At December 31, 2021 and 2020, the
deferred revenues totaled $17,647 and $66,572 respectively.
The deferred revenue balances are as follows:
Page | F-9
2021
2020
Deferred revenues, beginning of period
Deferred revenues, end of period
Revenue recognized in the period from amounts included in deferred revenues
at the beginning of the period
$
$
66,572 $
17,647
123,529
66,572
48,925 $
56,957
Cash and Cash Equivalents: Cash and cash equivalents includes cash and other money market instruments. The
Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents.
Settlement Processing Assets and Obligations: Settlement processing assets and obligations represent intermediary
balances arising in our settlement process for merchants.
Prepaid Card Load Assets: The Company maintains pre-funding accounts for its customers to facilitate prepaid card
loads as initiated by our customer. These prepaid card load assets are carried on the Company's balance sheet with a
corresponding liability.
Customer Deposits: The Company holds customer deposits primarily for postage expenses to ensure the Company is not
out of pocket for amounts billed daily by the United States Postal Service. These customer deposits are carried on the
Company's balance sheet with a corresponding liability.
Merchant Reserves: The Company has merchant reserve requirements associated with Automated Clearing House, or
ACH transactions. The merchant reserve assets are carried on the Company's balance sheet with a corresponding liability.
Merchant Reserves are set for each merchant. Funds are collected from each merchant and held as collateral to minimize
contingent liabilities associated with any losses that may occur under the merchant agreement. While this cash is not
restricted in its use, the Company believes that designating this cash to collateralize Merchant Reserves strengthens its
fiduciary standing with the Company's member sponsors and is in accordance with the guidelines set by the card
networks.
The reconciliation of cash and cash equivalents to cash, cash equivalents, prepaid card load assets, customer deposits
and merchant reserves is as follows for each period presented:
Beginning cash, cash equivalents, prepaid card load assets, customer deposits
and merchant reserves:
Cash and cash equivalents
Prepaid card load assets
Customer deposits
Merchant reserves
Total
Ending cash, cash equivalents, prepaid card load assets, customer deposits and
merchant reserves:
Cash and cash equivalents
Prepaid card load assets
Customer deposits
Merchant reserves
Total
December 31,
2021
December 31,
2020
$
$
$
$
5,011,132 $
7,610,242
1,305,296
8,265,555
22,192,225 $
2,137,580
528,434
—
10,016,904
12,682,918
7,255,321 $
36,590,893
1,364,193
6,381,153
51,591,560 $
5,011,132
7,610,242
1,305,296
8,265,555
22,192,225
Accounts Receivable/Allowance for Estimated Losses: Accounts receivable are reported as outstanding principal net of
an allowance for doubtful accounts of $319,000 and $205,522 at December 31, 2021 and 2020, respectively.
Page | F-10
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability or failure
of its customers to make required payments. The Company determines the allowance based on an account-by-account
review, taking into consideration such factors as the age of the outstanding balance, historical pattern of collections and
financial condition of the customer. Past losses incurred by the Company due to bad debts have been within its
expectations. If the financial condition of its customers deteriorates, resulting in an impairment of their ability to make
contractual payments, additional allowances might be required. Estimates for bad debt losses are variable based on the
volume of transactions processed and could increase or decrease accordingly. The Company normally does not charge
interest on accounts receivable.
Inventory: Inventory is stated at the lower of cost or net realizable value. At December 31, 2021 and 2020, inventory
consisted primarily of printing and paper supplies used for Output solutions.
Property and Equipment: Property and equipment are stated at cost. Depreciation and amortization are computed on a
straight-line method over the estimated useful lives of the related assets, ranging from three to ten years. Leasehold
improvements are amortized over the lesser of the estimated useful lives or remaining lease period. Expenditures for
maintenance and repairs are charged to expense as incurred.
Accounting for Internal Use Software: The Company capitalizes the costs associated with software developed and / or
software obtained for internal use. The software is capitalized when both the preliminary project stage is complete, and
the software being developed is placed-in service. Capitalized costs include only (i) external direct costs of materials
and services consumed in developing or obtaining internal-use software, (ii) payroll and other related costs for employees
who are directly associated with and who devote time to the internal-use software project, and (iii) interest costs incurred,
when material, while developing internal-use software. The Company ceases capitalization of such costs no later than
the point at which the project is substantially complete and ready for its intended purpose. For the years ended December
31, 2021 and December 31, 2020, the Company capitalized $735,813 and $759,923, respectively.
Concentration of Credit Risk: Financial instruments that potentially expose the Company to credit risk consist of cash
and cash equivalents, and accounts receivable. The Company is exposed to credit risk on its cash and cash equivalents
in the event of default by the financial institutions to the extent account balances exceed the amount insured by the FDIC,
which is $250,000. Accounts receivables potentially subject the Company to concentrations of credit risk. The
Company’s customer base operates in a variety of industries and is geographically dispersed. The Company closely
monitors extensions of credit. Estimated credit losses have been recorded in the consolidated financial statements. Recent
credit losses have been within management's expectations. No customer accounted for more than 10% of revenues in
2021 or 2020.
Fair Value of Financial Instruments: Cash and cash equivalents, accounts receivable, accounts payable, accrued
liabilities and short-term borrowings are reflected in the accompanying consolidated financial statements at cost, which
approximates fair value because of the short-term maturity of these instruments.
Impairment of Long-Lived Assets and Intangible Assets: The Company reviews periodically, on at least an annual basis,
the carrying value of its long-lived assets and intangible assets and whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. To the extent the fair value of a long-lived asset, determined based upon
the estimated future cash inflows attributable to the asset, less estimated future cash outflows, is less than the carrying
amount, an impairment loss is recognized.
Reserve for Processing Losses: If, due to insolvency or bankruptcy of one of the Company’s merchant customers, or for
any other reason, the Company is not able to collect amounts from its card processing, credit card, ACH or merchant
prepaid customers that have been properly "charged back" by the customer or if a prepaid cardholder incurs a negative
balance, the Company must bear the credit risk for the full amount of the transaction. The Company may require cash
deposits and other types of collateral from certain merchants to minimize any such risk. In addition, the Company utilizes
a number of systems and procedures to manage merchant risk. ACH, prepaid and credit card merchant processing loss
reserves are primarily determined by performing a historical analysis of our loss experience and considering other factors
that could affect that experience in the future, such as the types of transactions processed and nature of the merchant
relationship with its consumers and the Company with its prepaid card holders. This reserve amount is subject to the risk
that actual losses may be greater than our estimates. The Company has not incurred any significant processing losses to
date. Estimates for processing losses vary based on the volume of transactions processed and could increase or decrease
Page | F-11
accordingly. The Company evaluates its risk for such transactions and estimates its potential processing losses based
primarily on historical experience and other relevant factors. At December 31, 2021 and 2020, respectively, the
Company’s reserve for processing losses was $623,494 and $515,199, respectively.
Advertising Costs: Advertising is expensed as incurred. The Company incurred approximately $179,000 and $59,000 in
advertising costs in 2021 and 2020, respectively.
Income Taxes: Deferred tax assets and liabilities are recorded based on difference between financial reporting and tax
basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when
the differences are expected to reverse. Deferred tax assets are computed with the presumption that they will be realizable
in future periods when taxable income is generated. Predicting the ability to realize these assets in future periods requires
a great deal of judgment by management. U.S. generally accepted accounting principles prescribe a recognition threshold
and measurement attribute for a tax position taken or expected to be taken in a tax return. Income tax benefits that meet
the “more likely than not” recognition threshold should be recognized. Goodwill is amortized over 15 years for tax
purposes.
As with all businesses, the Company’s tax returns are subject to periodic examination. The Company’s federal returns
for the past four years remain open to examination. The Company is subject to the Texas margin tax and Tennessee
franchise tax. Management is not aware of any tax positions that would have a significant impact on its financial position.
The Company has approximately $29.5 million of net operating loss carryforwards available to offset future taxable
income. However, the Company cannot predict with reasonable certainty whether all of the available net operating loss
carryforwards will be realized in future periods. Accordingly, a valuation allowance has been provided to increase the
net deferred tax assets to $1.5 million. Management considered the realizability of this asset in light of historical
operating results and forecasted results, and elected to decrease the valuation allowance by $110,000 during 2021. The
valuation allowance is reviewed annually at year-end by management.
Stock-Based Compensation: The Company recognizes as compensation expense all share-based payment awards made
to employees and directors, including grants of stock options and warrants, based on estimated fair values. Fair value is
generally determined based on the closing price of the Company’s common stock on the date of grant.
401(k) Plan: The Company has a defined contribution plan, or 401(k) Plan, pursuant to Section 401(k) of the Internal
Revenue Code. All eligible full and part-time employees of the Company who meet certain age requirements may
participate in the 401(k) Plan. Participants may contribute between 1% and 15% of their pre-tax compensation, but not
in excess of the maximum allowable under the Code. The 401(k) Plan allows for discretionary and matching
contributions by the Company. In 2021, the Company matched 100% of employee contributions up to 3% and 50% of
the employee contribution over 3% with a maximum employer contribution of 5%. The Company made matching
contributions of $212,870 and $152,835 in 2021 and 2020, respectively.
Earnings (Loss) Per Share: Basic and diluted (loss) per common share are calculated by dividing earnings by the
weighted average number of common shares outstanding during the period.
New Accounting Pronouncements: In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326), to provide financial statement
users with more decision-useful information about the expected credit losses on financial instruments and other
commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the
amendments in Topic 326 replace the incurred loss impairment methodology in current GAAP with a methodology that
reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information
to inform credit loss estimates. Topic 326 is effective for fiscal years beginning after December 25, 2022, including
interim periods within those fiscal years for smaller reporting companies. The Company does not expect the adoption
of the amendments in ASU 2016-13 to have a significant effect on its financial position and the results of its operations
when such amendment is adopted.
Accounting standards that have been issued or proposed by the FASB, the SEC or other standard setting bodies that do
not require adoption until a future date are not expected to have a material impact on the consolidated financial statements
upon adoption.
Page | F-12
Reclassification of Prior Year Presentation: Certain prior year amounts have been reclassified for consistency with the
current period presentation. These reclassifications had no effect on the reported results of operations. A reclassification
has been made to the Statement of Cash Flows for the year ended December 31, 2020 to identify Bad Debt totaling
$96,000 previously reported in accounts receivable. A reclassification has been made to the Statement of Operations for
the year ended December 31, 2020 to identify a federal income tax benefit totaling $94,948. This change in classification
does not affect previously reported total cash flows in the Statement of Cash Flows or income in the Statement of
Operations.
Note 2. Acquisition of Information Management Solutions, LLC
On December 15, 2020, the Company entered into an asset purchase agreement to purchase substantially all the assets
of Information Management Solutions, LLC ("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. The total purchase
price consideration consisted of a cash payment of $5,907,408 at closing and warrant considerations valued at
$552,283. The warrants were comprised of 945,599 unregistered warrants to purchase shares of common stock of Usio,
Inc., or 945,599 shares of common stock, $0.001 par value per share, with an exercise price of $4.23 per share.
The final number of warrants was determined by dividing $2,000,000 by the 5-day weighted average closing price for
the four trading days preceding the closing date and the closing day, or $2.115 per share. The exercise price of the
warrants was determined by multiplying the 5-day weighted average closing price by the number 2. The warrants vest
in three equal installments on the first, second and third anniversary of the closing date and have a term of five years
from vest.
The purchase price was allocated to the net assets acquired based upon their estimated fair values as follows:
Accounts receivable
Inventory
Fixed assets
Prepaid expenses
Other assets
Customer list
Total Cash Consideration
Customer list
Total Warrant Consideration
Total Purchase Price
Estimated Fair
Value
Estimated
Useful
Life (in years)
5
5
$
$
$
$
$
683,736
168,138
1,211,225
29,849
7,408
3,807,052
5,907,408
552,283
552,283
6,459,691
The 2020 consolidated statement of operations includes 1 month of IMS operations, which was approximately
$1.2 million of revenue. The first full year of operations from the Output Solutions unit exceeded our expectations,
achieving $14.8 million in top line revenue for The Company in 2021, exceeding expectations.
Unaudited Pro Forma Information
The Company estimates that the revenues and net income for the periods below that would have been reported if the
IMS acquisition would have taken place on the first day of the Company's 2019 calendar year would be as follows and
includes pro-forma adjustments to normalize results in line with future operating performance:
Page | F-13
Revenues
Gross Profit
Net (Loss)
Income per share:
Basic
Diluted
2020
45,184,678 $
9,251,517
(3,127,387 )
2019
41,809,997
8,099,868
(4,909,074 )
(0.17 ) $
(0.17 ) $
(0.28 )
(0.28 )
$
$
$
Amounts set forth above are not necessarily indicative of the results that would have been obtained had the IMS
acquisition had taken place on the first day of the Company's 2019 calendar year or of the results that may be achieved
by the combined enterprise in the future.
Note 3. Property and Equipment
Property and equipment consisted of the following at December 31:
Software
Equipment
Furniture and fixtures
Leasehold improvements
Total property and equipment
Less: accumulated depreciation
Net property and equipment
Note 4. Intangibles
Akimbo Financial, Inc. Acquisition (2015)
2021
6,455,040 $
2,418,421
732,153
192,692
9,798,306
(6,191,149 )
3,607,157 $
2020
5,724,971
2,137,364
492,347
170,583
8,525,265
(5,419,339 )
3,105,926
$
$
On December 22, 2014, we acquired substantially all of the assets of Akimbo Financial, Inc. The intangibles acquired
in the acquisition consist of the customer list and contracts at cost of $396,824 (net of accumulated amortization of
$396,824 at December 31, 2021) and goodwill of $9,759. The intangible asset was fully amortized as of December 31,
2017. The fair value of the customer list and contracts was calculated using the net present value of the projected gross
profit to be generated by the customer list over a period of 36 months beginning in January 2015 and was amortized over
3 years at $163,139 annually.
Goodwill was determined based on the purchase price paid over the assets acquired and has an indefinite life, which is
tested for impairment annually.
Singular Payments, LLC Acquisition (2017)
On September 1, 2017, we acquired all of the membership interest of Singular Payments, LLC. The intangibles acquired
in such acquisition consist of customer list assets of $5,000,000 at cost (net of accumulated amortization of $4,333,333
at December 31, 2021). The fair value of the customer list was calculated using the net present value of the projected
gross profit to be generated by the customer list over 60 months beginning in September 2017 and ending in August
2022. Amortization expense in 2021 and 2020 was $1,000,000. Annual amortization expense will be $666,667 in the
year 2022.
Information Management Solutions, LLC Acquisition (2020)
On December 15, 2020, we acquired substantially all of assets of Information Management Solutions, LLC. The
intangibles acquired in such acquisition consist of customer list assets of $4,359,335 at cost (net of accumulated
amortization of $871,867 at December 31, 2021). The fair value of the customer list was calculated using the net present
Page | F-14
value of the projected gross profit to be generated by the customer list over 60 months beginning in January 2021 and
ending in December 2025. Annual amortization expense will be $871,867 per year through the year 2025.
Note 5. Valuation Accounts
Valuation and allowance accounts included the following at December 31:
Net
Charged
to
Costs and
Balance
Beginning
of
Year
Expenses Transfers
Net Write-
Off
Balance
End
of
Year
$ 205,522 $ 151,951 $
132,000
515,199
— $
—
(38,473 ) $ 319,000
623,494
(23,705 )
$ 123,165 $
506,153
96,000 $
132,000
— $
—
(13,643 ) $ 205,522
515,199
(122,954 )
2021
Allowance for doubtful accounts
Reserve for processing losses
2020
Allowance for doubtful accounts
Reserve for processing losses
Note 6. Loans
Equipment Loan
On March 20, 2021, the Company entered into a debt arrangement to finance $165,996 for the purchase of an Output
Solutions sorter. The loan is for a period of 36 months with a maturity date of March 20, 2024. The repayment amount
is for 36 months at $4,902 per month. Annual payments are $58,821. The financing is at an interest rate of
3.95%. Current year payments on the Equipment Loan were $26,446.
PPP Loan
The Company received funding under the Paycheck Protection Program (PPP) as part of the Coronavirus Aid, Relief,
and Economic Security Act (CARES Act), administered by the U.S. Small Business Administration. Under the terms of
the Note, the Company received total proceeds of $813,500 bearing interest at a rate of 1% per annum with a maturity
date of April 15, 2022. In addition, principal and interest payments will be deferred for the first ten months of the loan.
The loan is subject to the terms and conditions applicable to loans administered by the U.S. Small Business
Administration under the CARES Act. The Company used the proceeds for payroll costs and other permitted expenses.
Under the terms of the PPP, the principal may be forgiven if the loan proceeds are used for qualifying expenses as
described in the CARES act, such as payroll costs, benefits, rent and utilities.
The Company's loan forgiveness was approved in full by the U.S. Small Business Administration on December 14, 2020
and is accounted for as income in 2020 under FASB ASC 470.
Note 7. Accrued Expenses
Accrued expenses consisted of the following balances at December 31:
Accrued commissions
Reserve for processing losses
Other accrued expenses
Accrued taxes
2021
2020
$
879,120 $
623,494
226,888
298,168
373,154
515,199
225,412
132,363
Page | F-15
Accrued salaries
Total accrued expenses
Note 8. Operating Leases
297,995
2,325,665 $
217,816
1,463,944
$
The Company leases approximately 10,535 square feet of office space for its San Antonio, TX executive offices and
operations. Rental expense under the operating lease was $143,149 and $136,713 for the years ended December 31, 2021
and 2020, respectively. The lease expires on July 31, 2024.
The Company leases approximately 3,794 square feet of office space for its Nashville, Tennessee sales offices and
operations. Rental expense under the operating lease was $85,122 and $81,474 for the years ended December 31, 2021
and 2020, respectively. The lease expires on April 30, 2023.
The Company assumed a lease in San Antonio, Texas as a part of the Information Management Solutions, LLC
acquisition for its Output Solutions employees and warehouse operations. The lease 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 year ended December 31, 2021 was $107,647.
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, 2021 was $81,353.
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. Rental expense
for the year ended December 31, 2021 was $34,125.
On October 19, 2021, the Company entered into a lease amendment to the existing lease in San Antonio, Texas
commencing at a date to be determined 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.
The Company has various copier equipment with leases that have not expired. Rental expense under the operating lease
was $12,729 and $25,000 for the years ended December 31, 2021 and 2020, respectively.
The weighted average remaining lease term is 5.27 years. The weighted average discount rate is 4.17%
The Company recognized total operating lease expense of approximately $591,000 and $360,000 for the years ended
December 31, 2021 and 2020, respectively. In 2021, the operating lease expense of $591,000 consisted of $457,000 of
fixed operating expense and $134,000 of interest expense.
The maturities of lease liabilities are as follows at December 31, 2021:
Year ended December 31,
2022
2023
2024
2025
2026
Thereafter
Total minimum lease payments
Less imputed interest
Total lease liabilities
$
$
621,802
554,916
518,935
414,138
414,138
917,081
3,441,010
(460,692 )
2,980,318
Page | F-16
Note 9. Related Party Transactions
Louis Hoch
During the year ended December 31, 2021 and 2020, the Company purchased $4,009 and $9,886, respectively, of
corporate imprinted sportswear, promotional items and caps from Angry Pug Sportswear. Louis Hoch, President and
Chief Executive Officer is a 50% owner of Angry Pug Sportswear.
As approved by the Company's Compensation Committee, on November 1, 2020, the Company issued 136,891 shares
of common stock to Mr. Louis Hoch, the Company's Chief Executive Officer, valued at $216,000 at the closing price of
$1.5779 per share from October 15, 2020 in satisfaction of the terms of the additional bonus of the employment
agreement. As part of the transaction, on November 1, 2020, the Company repurchased 54,756 shares at the closing price
of $1.5779 on October 15, 2020 from Mr. Hoch to cover withholding taxes due.
Tom Jewell
On January 6, 2020, the Company repurchased 11,860 shares of common stock for $20,636 at the closing price on
January 6, 2020 from Tom Jewell, the Company's Chief Financial Officer to cover taxes.
On January 6, 2021, the Company repurchased 11,860 shares for $38,545 in a private transaction at the closing price on
January 6, 2021 of $3.25 per share from Tom Jewell, the Company's Chief Financial Officer, to cover his share of taxes.
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.
Officers and Directors
The Company granted 1,444,000 shares of common stock with a 10-year vesting period and 103,000 restricted stock
units (RSUs) with a 3-year vesting period to employees and Directors as a performance bonus on April 1, 2020 at an
issue price of $1.08 per share. Executive officers and Directors included in the grant were Louis Hoch (300,000 shares),
Tom Jewell (200,000 shares), Houston Frost (150,000 shares), Blaise Bender (10,000 RSUs), and Brad Rollins (30,000
RSUs).
The Company granted 319,900 shares of common stock with a 10-year vesting period and 141,900 restricted stock units
(RSUs) with a 3-year vesting period to employees and Directors as a performance bonus on November 18, 2021 at an
issue price of $6.39 per share. Executive officers and Directors included in the 10-year grant were Louis Hoch (100,000
shares), Tom Jewell (50,000 shares), Greg Carter (30,000 shares) and Houston Frost (25,000 shares). Executive officers
and Directors included in the RSU grant were Louis Hoch (30,000 shares), Tom Jewell (21,000 shares), Greg Carter
(9,000 shares) Houston Frost (6,000 shares), Blaise Bender (12,000 RSUs), Brad Rollins (12,000 RSUs) and Ernesto
Beyer (12,000 RSUs).
Note 10. Income Taxes
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s deferred tax asset are as follows at December 31:
Deferred tax assets:
Net operating loss carryforwards
Depreciation and amortization
Non-cash compensation
Other
Valuation Allowance
2021
2020
$
5,942,000 $
999,000
(326,000 )
101,000
(5,212,000 )
8,277,000
827,000
(225,000 )
49,000
(7,534,000 )
Page | F-17
Deferred tax asset
$
1,504,000 $
1,394,000
Management has reviewed its net deferred asset position, and due to the history of operating losses has determined that
the application of a valuation allowance at December 31, 2021 and 2020 is warranted. If applicable, the Company would
recognize interest expense and penalties related to uncertain tax positions in interest expense. As of December 31, 2021,
the Company had not accrued any interest or penalties related to uncertain tax provisions.
The Company has net operating loss carryforwards for tax purposes of approximately $29.5 million. Net operating loss
carryforwards prior to 2017 are available to offset taxable income of future periods and expire 20 years after the loss
was generated. The Net operating loss carryforward that expired in 2021 was in the amount of $10.7 million. The
schedule below outlines when our pre-2017 net operating losses were generated and the year they may expire.
Expiration
Tax Year End
2002
2004
2005
2006
2007
2008
2009
2010
2013
2016
2017
Total
$
$
NOL
9,109,774
1,621,096
1,788,157
1,350,961
1,740,724
918,960
835,322
429,827
504,862
474,465
1,267,336
20,041,484
2022
2024
2025
2026
2027
2028
2029
2030
2033
2036
2037
Effective for tax years ending in 2018 or later, net operating losses cannot be carried back but can be carried forward to
future tax years indefinitely, subject to annual limitations for utilization. Net operating losses generated in 2018 and later
total $9,413,692. The below table outlines our net operating losses generated in 2018 and after.
Tax Year End
2018
2019
2020
Total
Total loss carryforwards
NOL
4,410,916
2,730,461
2,272,315
9,413,692
29,455,176
$
$
$
The tax provision for federal and state income tax is as follows for the years ended December 31:
Current provision:
Federal
State
Deferred provision:
Federal expense (benefit)
Expense for income taxes
2021
2020
$
— $
279,861
279,861
(94,948 )
118,057
23,109
(110,000 )
—
$
169,861 $
23,109
The reconciliation of federal income tax computed at the U.S. federal statutory tax rates to total income tax expense is
as follows for the years ended December 31:
Page | F-18
Income tax (benefit) at 21%
Change in valuation allowance
Permanent and other differences
Federal income tax (benefit)
State taxes
Income tax expense
2021
2020
$
(67,543 ) $
(2,322,000 )
2,389,543
(110,000 )
279,861
(610,000 )
(2,470,000 )
3,080,000
(94,948)
118,057
$
169,861 $
23,109
Note 11. Stock Options, Incentive Plans, Stock Awards, and Employee Benefit Plan
Stock Option Plans: The Company’s 2015 Equity Incentive Plan provides for the grant of incentive stock options as
defined in Section 422 of the Internal Revenue Code and the grant of Stock Options, Restricted Stock, Restricted Stock
Units, Performance Awards, or other Awards to employees, non-employee directors, and consultants. The Board of
Directors has authorized 5,000,000 shares of common capital stock for issuance under the 2015 Equity Incentive Plan,
including automatic increases provided for in the 2015 Equity Incentive Plan through fiscal year 2025. The number of
shares of common stock reserved for issuance under the 2015 Equity Incentive Plan will automatically increase, with no
further action by the stockholders, on the first business day of each fiscal year during the term of the 2015 Equity
Incentive Plan, beginning January 1, 2016, in an amount equal to 5% of the issued and outstanding shares of common
stock on the last day of the immediately preceding year, or such lesser amount if so determined by the Board or the Plan
Administrator. During 2021, the Company granted 339,900 shares of stock to several employees as incentive
compensation or new-hire bonuses. During 2021, the Company granted 237,900 restricted stock units to employees and
directors as a new hire bonus or as incentive compensation.
Treasury Stock: The Company purchased 48,814 shares of common stock with a value of $238,737 to cover the
employee's share of tax liabilities related to the vesting of commons stock and restricted stock units in 2021.
Stock Awards: The Company has granted restricted stock awards to its employees at different periods from 2005 through
2020. The majority of the shares granted to those employees vest 10 years from the grant date and are forfeited in the
event that the recipient’s employment relationship with the Company is terminated prior to vesting.
During 2021, a portion of the restricted stock awards were granted, but not issued and are not listed as outstanding in
the financial statements for 2021.
Stock-based compensation expense related to stock and restricted stock awards was $1,489,976 for 2021 and
$1,475,328 for 2020.
A summary of stock awards outstanding and 2021 activities are as follows:
Weighted
Average
Stock Awards
Outstanding, December 31, 2020
Granted
Vested
Forfeited
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Contractual
Remaining
Life
Value
Shares
5,101,113 $
339,900
26,000
173,111
1.96
6.37
—
—
Outstanding, December 31, 2021
5,241,902 $
2.25
5.74 $
2.11
Expected to Vest after December 31, 2021
5,241,902 $
2.25
5.74 $
2.11
Page | F-19
As of December 31, 2021, there was $6,842,195 of unrecognized compensation costs related to the un-vested share-
based compensation arrangements granted. The cost is expected to be recognized over the weighted average remaining
contractual life of 5.74 years.
The aggregate intrinsic value represents the difference between the weighted average exercise price and the closing price
of the Company’s stock on December 31, 2021, or $4.36.
Employee Stock Purchase Plan: The Company established the 1999 Employee Stock Purchase Plan (“ESPP”) under the
requirements of Section 423 of the Internal Revenue Code to allow eligible employees to purchase the Company’s
common stock at regular intervals. Participating employees may purchase common stock through voluntary payroll
deductions at the end of each participation period at a purchase price equal to 85% of the lower of the fair market value
of the common stock at the beginning or the end of the participation period. The Company issued -0- shares from the
ESPP in 2021 and 2020, respectively. The ESPP is no longer active.
Stock Warrants: On August 21, 2018, the Company issued University Fancards, LLC a warrant to purchase 150,000
shares of the Company's common stock. 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. 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. The warrants were valued using the Black-Scholes option pricing model. Assumptions used were as follows:
(i) the fair value of the underlying stock was $0.94 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%. 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, 2021 and 2020 was $35,940
and $35,943 respectively.
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.
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.
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.
On December 15, 2020, the Company issued to Information Management Solutions, LLC warrants to purchase 945,599
unregistered warrants to purchase shares of Usio, Inc. or 945,599 shares of our common stock, $0.001 par value per
share, with an exercise price of $4.23. The warrants were valued using the Black-Scholes option pricing model.
Assumptions used were as follows: (i) the fair value of the underlying stock was $0.58; (ii) the risk-free interest rate is
0.09%; (iii) the contractual life is 5 years; (iv) the dividend yield of 0%; and (v) the volatility is 59.9%. The fair value of
the warrants amounted to $552,283 and will be recorded as an increase in the customer list asset and have a term of five
years from time of vest.
Note 12. Net (Loss) per Share
Basic (loss) per share (EPS) was computed by dividing net income by the weighted average number of shares of common
stock outstanding during the period. Diluted EPS differs from basic EPS due to the assumed conversion of potentially
dilutive options that were outstanding during the period. The following is a reconciliation of the numerators and the
denominators of the basic and diluted per share computations for net (loss).
Numerator:
2021
2020
Page | F-20
Numerator for basic and diluted earnings per share, net (loss) available to common
shareholders
Denominator:
Denominator for basic (loss) per share, weighted average shares outstanding
Effect of dilutive securities-stock options and restricted awards
Denominator for diluted (loss) per share, adjusted weighted average shares and
assumed conversion
Basic (loss) per common share
Diluted (loss) per common share and common share equivalent
$
(321,634 ) $
(2,906,183 )
20,028,850
—
15,428,798
—
20,028,850
(0.02 ) $
(0.02 ) $
15,428,798
(0.19 )
(0.19 )
$
$
The awards and options to purchase shares of common stock that were outstanding at December 31, 2021 and 2020 that
were not included in the computation of diluted (loss) per share because the effect would have been anti-dilutive, are as
follows:
Anti-dilutive awards and options
Note 13. Concentration of Credit Risk and Significant Customers
Year Ended
December 31,
2021
5,241,902
2020
5,101,113
The Company has no significant off-balance sheet or concentrations of credit risk such as foreign exchange contracts,
option contracts or other foreign hedging arrangements. The Company currently maintains the majority of its cash and
cash equivalent balance with one financial institution. No customers account for more than 10% of the revenues of the
company.
Note 14. Legal Proceedings
Vaden Landers
On January 19, 2021, we initiated a lawsuit in Bexar County, Texas against our former Chief Revenue Officer, Vaden
Landers. In the lawsuit, which is styled: Usio, Inc. v. Vaden Landers, Cause No. 2021CI01069, 407th Judicial District
Court, Bexar County, Texas, we allege that Mr. Landers violated the provisions of his employment agreement dated
September 1, 2017 - specifically his non-compete obligations. The state court lawsuit only seeks injunctive relief against
Landers. We also instituted an action before the American Arbitration Association on February 2, 2021.
Mr. Landers initially refused to participate in the arbitration proceeding. After hearings in Bexar County state court
proceeding, all of the parties' claims, excluding Mr. Lander's claims for defamation and tortious interference with
contract, were ordered to be heard by the American Arbitration Association. We deny Mr. Landers’ allegations and do
not believe that his counterclaims have any merit.
On or about April 27, 2021, Mr. Landers filed his answering statement and counterclaim against us in the arbitration
proceeding. Therein, Mr. Landers alleged a variety of defenses to our claim that Landers violated the non-compete
provisions of his employment agreement. Mr. Landers also asserted a counterclaim for a declaratory judgment finding
the non-compete provisions are unenforceable. Mr. Landers further alleged that we breached the terms of his
employment agreement because Mr. Landers' resignation was for good reason thus entitling Mr. Landers to deferred
compensation. We deny Mr. Landers' allegations.
Through our investigation, we have learned that Mr. Landers committed other violations of his employment agreement
and we intend to pursue those claims in arbitration. Both the state court litigation and the arbitration are in their initial
stages. We have obtained certain documents from Mr. Landers in the state court proceeding.
In the arbitration, the parties have both submitted motions to the arbitration panel on the initial legal question of whether
the non-compete is enforceable. On September 16, 2021, the arbitration panel ruled the non-competition provisions in
Mr. Landers' employment agreement were enforceable. The panel reserved ruling on the scope of the restrictions
Page | F-21
contained therein pending discovery. The arbitration panel held that the non-compete provisions need to be reformed to
more specifically set forth the competition restrictions applicable to Mr. Landers.
On February 7, 2022, we and Mr. Landers, resolved the state court litigation pending in San Antonio, Bexar County,
Texas and the separate litigation pending before the American Arbitration Association, both of which related to certain
conduct by Mr. Landers both prior to and after his resignation. Pursuant to the settlement agreement, Landers paid us
$13,742.50, which represents one-half of our costs incurred in the arbitration proceedings. In exchange for this payment,
both parties dismissed their respective claims with prejudice without the admission of any liability.
KDHM, LLC
On September 1, 2021, KDHM, LLC sued PDS Acquisition Corp, now known as Usio Output Solutions, Inc., claiming
a breach of the asset purchase agreement executed by the parties on December 14, 2020. The lawsuit alleges that due to
a mistake, accident, or inadvertence, certain customer deposits in the amount of $317,000 were improperly transferred
to us.
We believe that plaintiff's claims in the lawsuit have no merit and contradict the express terms of the asset purchase
agreement. 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. 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. 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 “[t]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, 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. However, despite a written representation that these funds would be returned, KDHM and its
principal have held these funds hostage. 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. We 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.
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. While we believe that such matters are currently not material, there can be no assurance that
matters arising in the ordinary course of business for which we are or could become involved in litigation will not have
a material adverse effect on our business, financial condition or results of operations.
Note 15. COVID-19
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. 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.
Page | F-22
During 2020 and 2021, the government issued several rounds of COVID-19 relief and stimulus payments and other
programs to stimulate economic activity and facilitate an economic recovery.
In April and May of 2020, our business was adversely affected as doctor's offices, dental offices, veterinarian offices
and non-bank consumer lending accounts were ordered closed in connection with curbing the spread of the
pandemic. As these doctors, dental and veterinarian offices re-opened, these businesses quickly recovered and returned
to levels higher than pre-COVID. Consumer lending merchants were adversely affected by COVID relief payments
made during the pandemic and a pause placed on past due amounts owed. The level of activity for consumer lending
merchants has somewhat returned to pre-COVID levels. We received an increase in revenues in our prepaid business
line, as we were able to work in conjunction with major cities across the U.S. to use our prepaid debit cards to facilitate
the transfer of money via our debit cards from city foundations to the local residents in need of financial assistance. The
efforts have included the disbursement of funds to encourage vaccinations.
The Company has recently experienced some difficulty in recruiting and retaining certain categories of employees due
to limited resource availability. The Company continues to monitor resource availability and is taking necessary steps
to retain employees and recruit employees to fill open positions.
Due to the COVID-19 pandemic, 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. If we cannot continue to acquire sufficient inventory stock,
the successful completion, margins, and growth of the Output Solutions may be impacted.
The impacts and recovery from the COVID-19 pandemic are still a work in process. To date, we have 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, we will continue to monitor the overall impact on our operations and take necessary
steps to ensure the safety of our employees and the well-being of our customers.
Note 16. Cyber Event
On December 25, 2021, the Company detected a ransomware attack that accessed and encrypted a small portion of its
information technology systems. The unauthorized access included the download of non-payment processing related
data files from an externally hosted Office 365 environment which is separate from the Company's payment processing
environment. Throughout the incident, the Company remained operational. Promptly upon the detection of the event,
the Company launched an investigation, notified law enforcement, its insurance carrier, and engaged legal counsel,
computer forensic firms and other incident response professionals. The Company also implemented a series of
containment and remediation measures to address this situation and reinforce the security of our information technology
systems.
This cyber event had no material impact on the business, and no cardholder, or payments related data was compromised.
The Company has undertaken and continues to undertake certain system upgrades and re-platforming efforts designed
to improve the security, availability, reliability, resiliency, and speed of its information technology systems in order to
prevent and mitigate such events in the future.
Note 17. Subsequent Events
On January 6, 2022, the Company 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.
On October 19, 2021, the Company entered into a lease amendment to the existing lease in San Antonio, Texas
commencing at a date to be determined in 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.
Page | F-23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management evaluated, with the participation of our Chief Executive Officer and, our Chief Financial Officer, the
effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended, or the Exchange Act as of the end of the period covered by this Annual Report on
Form 10-K. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our
disclosure controls and procedures as of December 31, 2021 are effective to ensure that information we are required to
disclose in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management,
including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions
regarding required reasonable assurance that such information is accumulated and communicated to our management.
Our disclosure controls and procedures are designed to provide reasonable assurance that such information is
accumulated and communicated to our management. Our disclosure controls and procedures include components of our
internal control over financial reporting. Management's assessment of the effectiveness of our internal control over
financial reporting is expressed at the level of reasonable assurance that the control system, no matter how well designed
and operated, can provide only reasonable, but not absolute, assurance that the control system's objectives will be met.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for our Company. Internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. Our management
conducted an assessment of the effectiveness of our internal controls over financial reporting as of December 31, 2021
based on criteria established in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this assessment, our management concluded that, as of
December 31, 2021, our internal control over financial reporting was effective.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the year ended December 31,
2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item is incorporated by reference to the definitive proxy statement for our 2022 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of our
fiscal year ended December 31, 2021, or the 2022 Proxy Statement.
Item 405 of Regulation S-K requires the disclosure of, based upon our review of the forms submitted to us during and
with respect to our most recent fiscal year, any known failure by any director, officer, or beneficial owner of more than
ten percent of any class of our securities, or any other person subject to Section 16 of the Exchange Act, or reporting
Page | 36
person, to file timely a report required by Section 16(a) of the Exchange Act. This disclosure is contained in the section
entitled “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2022 Proxy Statement.
Code of Ethics
We have adopted a Code of Ethics that applies to our principal executive officer, principal financial officer, principal
accounting officer or controller, and persons performing similar functions. Our code of ethics was filed as Exhibit 14.1
to our quarterly report on Form 10-Q for the quarter ended June 30, 2015 on August 14, 2015. We will provide a copy
of our code of ethics to any person without charge, upon request. Requests should be addressed to: Usio, Inc., Attn:
Investor Relations Department, 3611 Paesanos Parkway, Suite 300, San Antonio, Texas 78231.
Procedure for Nominating Directors
We have not made any material changes to the procedures by which security holders may recommend nominees to our
Board of Directors.
We consider recommendations for director candidates from our directors, officers, employees, stockholders, customers
and vendors. Stockholders wishing to nominate individuals to serve as directors may submit such nominations, along
with a nominee's qualifications, to our Board of Directors at Usio, Inc., 3611 Paesanos Parkway, Suite 300, San Antonio,
Texas, 78231, and the Board of Directors will consider such nominee. The Board of Directors selects the director
candidates slated for election. We have a designated Nominations and Corporate Governance Committee, which reviews
and make recommendations to the Board of Directors with respect to proposed director candidates.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the 2022 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to the 2022 Proxy Statement.
The information required to be disclosed by Item 201(d) of Regulation S-K, “Securities Authorized for Issuance Under
Equity Compensation Plans,” appears under the caption “Equity Compensation Plan Information” in the 2022 Proxy
Statement and such information is incorporated by reference into this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item is incorporated by reference to the 2022 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is incorporated by reference to the 2022 Proxy Statement.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) Consolidated Financial Statements.
PART IV
The following documents are filed in Part II, Item 8 of this annual report on Form 10-K:
Report of Independent Registered Public Accounting Firm
Page | 37
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Operations for the years ended December 31, 2021 and 2020
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended
December 31, 2021 and 2020 Consolidated Statements of Cash Flows for the years ended
December 31, 2021 and 2020 Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules.
All financial statement schedules have been omitted as they are not required, not applicable, or the required
information is otherwise included.
(a)(3) Exhibits
Exhibit
Number
Description
3.1
3.2
3.3
3.4
3.5
3.6
10.1
10.2
10.3
10.4
10.5
Amended and Restated Articles of Incorporation (included as exhibit 3.1 to the Form 10-KSB filed March
31, 2006, and incorporated herein by reference).
Amendment to the Amended and Restated Articles of Incorporation (included as exhibit A to the Schedule
14C filed April 18, 2007, and incorporated herein by reference).
Certificate of Change Filed Pursuant to NRS 78.209 (included as exhibit 3.1 to the Form 8-K filed July 23,
2015, and incorporated herein by reference).
Certificate of Amendment of Restated Articles of Incorporation of Usio, Inc., as amended, effective June 26,
2019 (included as exhibit 3.1 to the Form 8-K filed July 1, 2019, and incorporated herein by reference).
Amended and Restated By-laws (included as exhibit 3.2 to the Form 10-KSB filed March 31, 2006, and
incorporated herein by reference).
Amendment to the Amended and Restated By-laws (included as exhibit A to Schedule 14C filed
April18,2007, and incorporated herein by reference).
Employment Agreement between the Company and Michael R. Long, dated February 27, 2007 (included as
exhibit 10.1 to the Form 8-K filed March 2, 2007, and incorporated herein by reference).
Employment Agreement between the Company and Louis A. Hoch, dated February 27, 2007 (included
exhibit 10.2 to the Form 8-K filed March 2, 2007, and incorporated herein by reference).
First Amendment to Employment Agreement between the Company and Michael R. Long, dated November
12, 2009 (included as exhibit 10.15 to the Form 10-Q filed November 16, 2009, and incorporated herein by
reference).
First Amendment to Employment Agreement between the Company and Louis A. Hoch, dated November
12, 2009 (included as exhibit 10.16 to the Form 10-Q filed November 16, 2009, and incorporated herein by
reference).
Second Amendment to Employment Agreement between the Company and Michael R. Long, dated April
12, 2010 (included as exhibit 10.16 to the Form 10-K filed April 15, 2010, and incorporated herein by
reference).
Page | 38
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
Second Amendment to Employment Agreement between the Company and Louis A. Hoch, dated April 12,
2010 (included as exhibit 10.17 to the Form 10-K filed April 15, 2010, and incorporated herein by
reference).
Bank Sponsorship Agreement between the Company and University National Bank, dated August 29, 2011
(included as exhibit 10.18 to the Form 10-K filed April 3, 2012, and incorporated herein by reference).
Third Amendment to Employment Agreement between the Company and Michael R. Long, dated January
14, 2011 (included as exhibit 10.19 to the Form 10-K filed April 3, 2012, and incorporated herein by
reference).
Third Amendment to Employment Agreement between the Company and Louis A. Hoch, dated January 14,
2011 (included as exhibit 10.20 to the Form 10-K filed April 3, 2012, and incorporated herein by reference).
Fourth Amendment to Employment Agreement between the Company and Michael R. Long, dated July 2,
2012 (included as exhibit 10.18 to the Form 10-Q filed August 20, 2012, and incorporated herein by
reference).
Fourth Amendment to Employment Agreement between the Company and Louis A. Hoch, dated July 2,
2012 (included as exhibit 10.19 to the Form 10-Q filed August 20, 2012, and incorporated herein by
reference).
Asset Purchase Agreement between the Company and Akimbo Financial, Inc., dated December 22, 2014
(included as exhibit 10.1 to the Form 8-K filed December 24, 2014, and incorporated herein by reference).
Bank Sponsorship Agreement between the Company and Metropolitan Commercial Bank, dated December
11, 2014 (included as exhibit 10.26 to the Form 10-K filed March 30, 2015, and incorporated herein by
reference).
Fifth Amendment to Employment Agreement between the Company and Michael R. Long, dated August 3,
2016 (included as exhibit 10.1 to the Form 8-K filed August 9, 2016, and incorporated herein by reference).
Fifth Amendment to Employment Agreement between the Company and Louis A. Hoch, dated August 3,
2016 (included as exhibit 10.2 to the Form 8-K filed August 9, 2016, and incorporated herein by reference).
Sixth Amendment to Employment Agreement between the Company and Michael R. Long, dated
September 8, 2016 (included as exhibit 10.1 to the Form 8-K filed September 14, 2016, and incorporated
herein by reference).
Sixth Amendment to Employment Agreement between the Company and Louis A. Hoch, dated September
8, 2016 (included as exhibit 10.2 to the Form 8-K filed September 14, 2016, and incorporated herein by
reference).
Employment Agreement between the Company and Tom Jewell, dated January 6, 2017 (included as exhibit
10.1 to the Form 8-K filed January 6, 2017, and incorporated herein by reference).
Independent Director Agreement between the Company and Brad Rollins, dated May 5, 2017 (included as
exhibit 10.1 to the Form 8-K, filed May 11, 2017, and incorporated herein by reference).
10.20†
Membership Interest Purchase Agreement among the Company, Singular Payments, LLC and Vaden
Landers, dated September 1, 2017 (included as exhibit 10.1 to the Form 8-K, filed September 8, 2017, and
incorporated herein by reference).
Page | 39
10.21
10.22
10.23
10.24
10.25
10.26+
10.27
10.28
10.29
10.30
10.31
10.32+
10.33+
10.34
10.35
First Amendment to Employment Agreement between the Company and Tom Jewell, dated November 27,
2017 (included as exhibit 10.1 to the Form 8-K, filed November 28, 2017, and incorporated herein by
reference).
Lease Agreement between the Company and Blauners Paesanos Parkway LP, dated February 9, 2018
(included as exhibit 10.43 to the Form 10-K filed March 30, 2018, and incorporated herein by reference).
Lease Agreement between the Company and RP Circle 1 Building, LLC, dated December 11, 2017
(included as exhibit 10.44 to the Form 10-K filed March 30, 2018, and incorporated herein by reference).
Second Amendment to Employment Agreement between the Company and Tom Jewell, dated November
28, 2018 (included as exhibit 10.1 go the Form 8-K filed November 28, 2018, and incorporated herein by
reference).
Independent Director Agreement between the Company and Blaise Bender, dated April 1, 2019
(included as exhibit 10.2 to the Form 8-K filed April 3, 2019, and incorporated herein by reference).
Securities Purchase Agreement between Company and Topline Capital Partners, L.P. dated July 1, 2020
(included as exhibit 10.1 and incorporated by reference)
2015 Equity Incentive Plan (included as Appendix B to the Definitive Proxy Statement on Schedule 14A
filed on June 5, 2015 and incorporated herein by reference)
Warrant Agreement between the Company and University FanCards, LLC dated August 21, 2018 (included
as exhibit 10.41 to the form 10-Q filed on November 12, 2020, and incorporated by reference)
Independent Director Agreement dated August 29,2020, by and between the Company and Ernesto Beyer
(included as exhibit 10.1 to the Form 8-K filed on August 31, 2020, and incorporated by reference)
Underwriting Agreement between the Company and Ladenburg Thalmann &Co., Inc. as representative,
dated September 23, 2020 (included as exhibit 1.1 to the Form 8-K filed on September 25, 2020, and
incorporated herein by reference)
Third Amendment to the Employment Agreement between the Company and Tom Jewell, effective October
12, 2020 (included as exhibit 10.1 to the Form 8-K filed on October 28, 2020, and incorporated herein by
reference)
Asset Purchase Agreement between the Company and Information Management Solutions, LLC dated
December 15, 2020 (included as exhibit 10.2 to the Form 8-K filed on December 18, 2020, and
incorporated herein by reference)
Warrant Agreement between the Company and Information Management Solutions, LLC dated December
15, 2020, (included as exhibit 10.2 to the Form 8-K filed on December 18, 2020, and incorporated herein
by reference)
Lease agreement between Information Management Systems, LLC and Industrial Properties Corp. dated
June 16, 2011 (included as exhibit 10.40 to the Form 10-K filed on March 30, 2021, and incorporated
herein by reference).
First amendment to lease between Information Management Systems, LLC and Industrial Properties Corp.
dated April 4, 2013 (included as exhibit 10.41 to the Form 10-K filed on March 30, 2021, and incorporated
herein by reference).
Page | 40
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
14.1
16.1
21.1
23.1
31.1
31.2
32.1
Second amendment to lease between Information Management Systems, LLC and Industrial Properties
Corp. dated March 5, 2018 (included as exhibit 10.42 to the Form 10-K filed on March 30, 2021, and
incorporated herein by reference).
Third amendment to lease between the Company as successor to Information Management Systems, LLC
and ICON IPC TX Property Owner Pool 6 West/Southwest, LLC, dated December 22, 2020 (included as
exhibit 10.43 to the Form 10-K filed on March 30, 2021, and incorporated herein by reference).
Lease agreement between the Company and Smartyfi, LLC for Austin offices dated January 1, 2021
(included as exhibit 10.44 to the Form 10-K filed on March 30, 2021, and incorporated herein by
reference).
First amendment to lease between the Company and Paesanos Office Building, LLC for San Antonio
offices dated March 15, 2021 (included as exhibit 10.45 to the Form 10-K filed on March 30, 2021, and
incorporated herein by reference).
Seventh Amendment to Employment Agreement between the Company and Louis A. Hoch, dated April 18,
2021 (included as exhibit 10.1 to the Form 8-K filed on April 21, 2021, and incorporated herein by
reference).
Fourth Amendment to Employment Agreement between the Company and Tom Jewell, dated April 18,
2021 (included as exhibit 10.2 to the Form 8-K filed on April 21, 2021, and incorporated herein by
reference).
Second Amendment to Lease agreement between the Company and Paesanos Office Building, LLC for San
Antonio offices, dated October 19, 2021 (included as exhibit 10.43 to the Form 10-Q filed on November 10,
2021, and incorporated herein by reference).
Securities Purchase Agreement between the Company and Voyager Digital Holdings, Inc. dated November
19, 2021 (included as exhibit 10.1 to the Form 8-K filed on November 23, 2021, and incorporated herein by
reference).
Fifth Amendment to the Employment Agreement between the Company and Tom Jewell, dated November
22, 2021 (included as exhibit 10.2 to the Form 8-K filed on November 23, 2021, and incorporated herein by
reference).
Code of Ethics (included as exhibit 14.1 to the Form 10-Q filed August 14, 2015, and incorporated herein
by reference).
Letter from Ernst and Young LLP to the Securities and Exchange Commission dated February 10, 2004
(included as exhibit 16 to the Form 8-K filed February 11, 2004, and incorporated herein by reference).
Subsidiaries of the Company (filed herewith).
Consent of ADKF, P.C. (filed herewith).
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith).
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith).
Certification of the Chief Executive Officer and the /Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
Page | 41
101.INS
Inline XBRL Instance Document (filed herewith).
101.SCH
Inline XBRL Taxonomy Extension Schema Document (filed herewith).
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith).
101.PRE
Inline XBRL Taxonomy Presentation Linkbase Document (filed herewith).
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
†
+
Confidential treatment has been granted for portions of this agreement.
The schedules to the exhibit have been omitted from this filing pursuant to Item 601(a)(5) of Regulation S-
K. The Company will furnish copies of any such schedules to the SEC upon request.
Copies of the above exhibits not contained herein are available to any stockholder, upon written request to: Chief
Financial Officer, Usio, Inc., 3611 Paesanos Parkway, Suite 300, San Antonio, TX 78231.
ITEM 16. FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 17, 2022
By:
Usio, Inc.
Date: March 17, 2022
By:
Louis A. Hoch
Chief Executive Officer
(Principal Executive Officer)
Tom Jewell
Chief Financial Officer
(Principal Financial and Accounting Officer)
Page | 42
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: March 17, 2022
Date: March 17, 2022
Date: March 17, 2022
Date: March 17, 2022
Date: March 17, 2022
Date: March 17, 2022
By:
By:
By:
By:
By:
By:
Michael R. Long
Chairman of the Board
Tom Jewell
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Louis A. Hoch
President, Chief Executive Officer,
and Director (Principal Executive
Officer)
Blaise Bender
Director
Ernesto Beyer
Director
Bradley Rollins
Director
Page | 43
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BR917313-0422-10K