Usio(USIO) - 2020 Q4 - Annual Report

PART I Business Usio, Inc. offers integrated electronic payment processing services, including ACH, credit, debit, and prepaid card solutions, expanded by strategic acquisitions - Usio provides a comprehensive suite of payment services, including ACH, credit/debit card processing, and customizable prepaid cards for corporate and consumer use[15] - In December 2020, Usio acquired Information Management Solutions (IMS), expanding its portfolio with electronic bill presentment and printing/mailing services[17][24] - The company's 'PayFac-in-a-Box' platform enables software developers to monetize payments, offering various card and ACH issuance via a single API[20] Growth in U.S. Non-Cash Payments (2015-2018) | Payment Type | Metric | 2015 | 2018 | Growth | | :--- | :--- | :--- | :--- | :--- | | Core Non-Cash Payments | Number (billions) | 143.6 | 174.2 | +30.6 billion | | Core Non-Cash Payments | Value (trillions) | $86.79 | $97.04 | +$10.25 trillion | | ACH Payments | Annual Growth (Number) | - | - | 6.0% | | Card Payments | Annual Growth (Number) | - | - | 8.9% | | Prepaid Debit Cards | Annual Growth (Number) | - | - | 10.5% | - Merchant customer accounts grew by 30% in 2020, from 3,830 at the end of 2019 to 4,984 at the end of 2020, demonstrating significant expansion[53] - No single customer accounted for more than 10% of revenues in either 2020 or 2019, indicating a diversified customer base[54] Risk Factors The company faces business, industry, and stock-related risks, including COVID-19 impacts, regulatory changes, and stock volatility - The COVID-19 pandemic created economic uncertainty, initially affecting transaction volumes, though some segments recovered and the prepaid business benefited from relief fund disbursements[80][82] - The company has a history of substantial losses, reporting a net loss of $2.9 million in 2020 and $5.1 million in 2019, with an accumulated deficit of $65.1 million as of December 31, 2020[95] - Usio's operations are highly dependent on relationships with third-party processors and sponsor banks to access ACH and card networks, posing service disruption risks if partners fail to comply with rules[93][94] - The business is subject to extensive and complex regulations, including the Dodd-Frank Act, CARD Act, anti-money laundering laws, and consumer protection rules, which could increase compliance costs and operational risks[100][101][107][108] - The company's common stock is volatile, with prices fluctuating between $0.75 and $3.72 in 2020, and is subject to SEC 'penny stock' rules which can limit liquidity[144][145] Properties Usio, Inc. leases multiple office and operational spaces across San Antonio, Nashville, and Austin, with various lease expiration dates Leased Properties Overview | Location | Purpose | Lease Expiration | Square Footage | | :--- | :--- | :--- | :--- | | San Antonio, TX | Headquarters | July 2024 | 6,000 - 10,535 | | Nashville, TN | Sales Organization | April 2023 | 3,794 | | San Antonio, TX | Output Solutions | September 2024 | 22,400 | | Austin, TX | Technology Org. | January 2023 | 1,890 | | San Antonio, TX | HQ Expansion | September 2024 | 2,734 | Legal Proceedings The company is involved in legal matters, including a defaulted note receivable and a lawsuit against a former officer for non-compete violations - The company has a loss reserve of $145,000 as of December 31, 2020, for a defaulted note receivable from C2Go, Inc., reflecting the unlikelihood of recovery[156] - In January 2021, Usio sued its former Chief Revenue Officer, Vaden Landers, for violating his non-compete obligations, with Mr. Landers filing counterclaims for damages exceeding $1,000,000[157][158] Mine Safety Disclosures This item is not applicable to the company - Not applicable[162] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Usio's common stock trades on Nasdaq, with no dividends paid, and a share repurchase program in place - The company's common stock is listed on the Nasdaq Capital Market under the ticker symbol 'USIO'[164] - The company has never declared or paid dividends and has no plans to do so in the foreseeable future[166] - A share buyback program was renewed in November 2019, with $1,120,409 available for repurchases as of December 31, 2020[173] Selected Financial Data As a smaller reporting company, Usio, Inc. is not required to provide selected financial data - The company is a smaller reporting company and is not required to provide selected financial data[176] Management's Discussion and Analysis of Financial Condition and Results of Operations Usio's 2020 revenue grew 14.4% to $32.3 million, narrowing net loss to $2.9 million, and improving liquidity Revenue by Segment (FY 2020 vs. FY 2019) | Revenue Segment | 2020 | 2019 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | ACH and complementary service | $8,471,705 | $9,343,974 | $(872,269) | (9.3)% | | Credit card | $19,453,501 | $17,329,322 | $2,124,179 | 12.3% | | Prepaid card services | $3,166,580 | $1,527,239 | $1,639,341 | 107.3% | | Output solutions | $1,160,037 | $0 | $1,160,037 | 100.0% | | Total Revenue | $32,251,823 | $28,200,535 | $4,051,288 | 14.4% | Key Profitability Metrics (FY 2020 vs. FY 2019) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Gross Profit | $7.4 million | $5.9 million | | Net Loss | $(2.9) million | $(5.1) million | - The company's liquidity position improved significantly, with cash and cash equivalents increasing to $5.0 million at year-end 2020 from $2.1 million at year-end 2019[202] - Financing activities in 2020 provided $10.0 million in cash, primarily from a $3.0 million private offering and $7.4 million in net proceeds from a public offering[204][205][209] - The company received an $813,500 PPP loan which was fully forgiven in December 2020, contributing to other income[199][203] - The COVID-19 pandemic had a mixed impact, adversely affecting consumer lending merchants but creating new opportunities in the prepaid business for disbursing financial assistance[218] Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Usio, Inc. is not required to provide market risk disclosures - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[228] Financial Statements and Supplementary Data Audited financial statements show total assets grew to $82.7 million, equity doubled, and net loss narrowed to $2.9 million - The independent auditor, ADKF, P.C., issued an unqualified opinion that the consolidated financial statements present fairly, in all material respects, the financial position of the company[232] - Critical audit matters identified were the valuation of intangible assets (customer lists) and the valuation allowance for deferred tax assets due to significant management judgments involved[236][238][240] Consolidated Balance Sheet Summary (as of Dec 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Total Assets | $82,667,557 | $61,560,179 | | Total Liabilities | $65,964,196 | $53,991,844 | | Total Stockholders' Equity | $16,703,361 | $7,568,335 | Consolidated Statement of Operations Summary (Year Ended Dec 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Revenues | $32,251,823 | $28,200,535 | | Gross Profit | $7,375,893 | $5,949,210 | | Net Loss | $(2,906,183) | $(5,115,747) | | Basic & Diluted Loss Per Share | $(0.19) | $(0.39) | - In December 2020, the company acquired Information Management Solutions, LLC (IMS) for $5.9 million in cash and warrants valued at $552,283, adding $4.4 million in customer list intangible assets[288][290] - The company has net operating loss carryforwards of approximately $39.4 million, but a valuation allowance has been provided, reducing the net deferred tax asset to $1.4 million due to uncertainty of realization[277][323] Changes In and Disagreements with Accountants on Accounting and Financial Disclosure No changes in or disagreements with accountants on accounting and financial disclosure were reported - None reported[353] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - Management concluded that as of December 31, 2020, the company's disclosure controls and procedures were effective[354] - Management concluded that as of December 31, 2020, the company's internal control over financial reporting was effective[355] Other Information No other information is reported for this item - None[358] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[360] Executive Compensation Executive compensation information is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[365] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership and equity compensation plan details are incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[366] Certain Relationships and Related Transactions, and Director Independence Related party transactions and director independence information is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[367] Principal Accounting Fees and Services Principal accounting fees and services information is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[368] PART IV Exhibits, Financial Statement Schedules This section lists consolidated financial statements and provides a comprehensive index of all exhibits filed with the Form 10-K - The consolidated financial statements are filed in Part II, Item 8 of the report[370] - All financial statement schedules have been omitted because they are not required or applicable[371] - A detailed list of exhibits is provided, including articles of incorporation, bylaws, employment agreements, acquisition agreements, and various certifications[373] Form 10-K Summary No Form 10-K summary is provided - None[380]