UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2018~~2019

[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________.

Commission File Number:000-30152

~~PAYMENT DATA SYSTEMS,~~USIO, INC.

(Exact name of registrant as specified in its charter)



Nevada		98-0190072
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



3611 Paesanos Parkway, Suite 300, San Antonio, TX		78231
(Address of principal executive offices)		(Zip Code)

(210) 249-4100

(Registrant’s telephone number, including area code)

(Former name, former address and former calendar year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, par value $0.001 per share	USIO	The Nasdaq Stock Market LLC

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. [X] 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). [X] 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 [_]	Accelerated filer [_]
Non-accelerated filer [X]	Smaller reporting company [X]
	Emerging Growth Company [_]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[_] Yes [X] No

~~Indicate the number of shares of each of the issuer’s classes of common stock, as of the latest practicable date:~~

On November 9, ~~2018,~~2019, the number of outstanding shares of the issuer's common stock, par value $0.001 per share, was ~~15,943,624.~~

16,906,853.

~~PAYMENT DATA SYSTEMS,~~USIO, INC.

INDEX



		Page
PART I – FINANCIAL INFORMATION		1

Item 1.	Financial Statements (Unaudited).	1

	Condensed Consolidated Balance Sheets as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018	0

	Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, ~~2018~~2019 and ~~2017~~2018	2

	Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, ~~2018~~2019 and ~~2017~~2018	3

	Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months ended September 30, 2019 and 2018	5

	Notes to Condensed Consolidated Financial Statements	58

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	1317

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	1721

Item 4.	Controls and Procedures.	1721

PART II – OTHER INFORMATION		1821

Item 1.	Legal Proceedings.	1821

Item 1A.	Risk Factors.	1822

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	1923

Item 3.	Defaults Upon Senior Securities.	1923

Item 4.	Mine Safety Disclosures (Not applicable).	1923

Item 5.	Other Information.	1923

Item 6.	Exhibits.	2024

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

~~PAYMENT DATA SYSTEMS,~~USIO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
	(Unaudited)				(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	2,716,316	$	4,800,554	$	2,636,378	$	2,159,698
Accounts receivable, net	1,147,482		969,674		1,158,851		1,214,355
Settlement processing assets	34,767,837		38,027,984		38,494,805		44,139,861
Prepaid card load assets					725,333		535,479
Prepaid expenses and other	179,330		176,945		212,952		101,722
Notes receivable, net	72,500		150,000		108,750		108,750
Current assets before merchant reserves	38,883,465		44,125,157		43,337,069		48,259,865
Merchant reserves	13,602,562		14,977,468		10,201,904		12,645,803
Total current assets	52,486,027		59,102,625		53,538,973		60,905,668

Property and equipment, net	2,050,221		2,105,186		1,743,771		1,932,660

Other assets:
Intangibles, net	3,926,426		4,676,427		2,926,427		3,676,427
Deferred tax asset	1,394,000		1,394,000		1,394,000		1,394,000
Operating lease right-of-use assets					2,547,803		—
Other assets	303,759		157,565		333,422		306,757
Total other assets	5,624,185		6,227,992		7,201,652		5,377,184

Total assets	$	60,160,433	$	67,435,803	$	62,484,396	$	68,215,512

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	251,906	$	300,736	$	240,724	$	308,178
Accrued expenses	1,217,307		1,006,262		1,214,888		852,717
Operating lease liabilities, current portion					248,056		—
Settlement processing obligations	34,767,837		38,027,984		38,494,805		44,139,861
Prepaid card load obligations					725,333		535,479
Deferred revenues	35,000		—		136,765		20,000
Current liabilities before merchant reserve obligations	36,272,050		39,334,982		41,060,571		45,856,235
Merchant reserve obligations	13,602,562		14,977,468		10,201,904		12,645,803
Total current liabilities	49,874,612		54,312,450		51,262,475		58,502,038

Non-current liabilities:
Operating lease liabilities, non-current portion					2,452,686		—
Deferred rent	58,457		—		—		79,748
Total liabilities	49,933,069		54,312,450		53,715,161		58,581,786

Stockholders’ equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; -0- shares outstanding at September 30, 2018 (unaudited) and December 31, 2017, respectively	—		—
Common stock, $0.001 par value, 200,000,000 shares authorized; 17,020,180 and 16,874,235 issued, and 15,943,624 and 16,201,634 outstanding at September 30, 2018 (unaudited) and December 31, 2017, respectively	185,447		186,299




Stockholders’ equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; -0- shares outstanding at September 30, 2019 (unaudited) and December 31, 2018, respectively							—				—
Common stock, $0.001 par value, 200,000,000 shares authorized; 18,011,077 and 17,129,680 issued, and 16,901,039 and 16,043,630 outstanding at September 30, 2019 (unaudited) and December 31, 2018, respectively							186,442				185,561
Additional paid-in capital	74,371,930			74,041,083			76,658,269				74,568,627
Treasury stock, at cost; 1,076,556 and 672,601 shares at September 30, 2018 (unaudited) and December 31, 2017, respectively	(1,797,442		)	(831,059		)
Treasury stock, at cost; 1,110,038 and 1,086,050 shares at September 30, 2019 (unaudited) and December 31, 2018, respectively							(1,866,130		)		(1,813,546		)
Deferred compensation	(6,372,735		)	(7,012,544		)	(5,585,571		)		(6,270,675		)
Accumulated deficit	(56,159,836		)	(53,260,426		)	(60,623,775		)		(57,036,241		)
Total stockholders’ equity	10,227,364			13,123,353			8,769,235			��	9,633,726

Total liabilities and stockholders’ equity	$	60,160,433		$	67,435,803		$	62,484,396			$	68,215,512

See the accompanying notes to the condensed interim consolidated financial statements.

~~PAYMENT DATA SYSTEMS,~~USIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018

Revenues	$	6,473,743		$	3,588,853		$	18,601,283		$	8,950,038		$	7,087,732		$	6,473,743		$	20,833,143		$	18,601,283
Cost of services	5,014,603			2,764,236			14,551,621			6,486,587			5,539,314			5,014,603			16,383,149			14,551,621
Gross profit	1,459,140			824,617			4,049,662			2,463,451			1,548,418			1,459,140			4,449,994			4,049,662

Selling, general and administrative:
Stock-based compensation	289,038			230,206			961,893			655,885			315,259			289,038			954,770			961,893
Other expenses	1,519,793			1,172,021			4,613,720			2,800,033			1,969,877			1,519,793			5,602,171			4,613,720
Depreciation and amortization	473,225			314,789			1,389,164			770,607			491,749			473,225			1,475,291			1,389,164
Total selling, general and administrative expenses	2,282,056			1,717,016			6,964,777			4,226,525			2,776,885			2,282,056			8,032,232			6,964,777

Operating (loss)	(822,916		)	(892,399		)	(2,915,115		)	(1,763,074		)	(1,228,467		)	(822,916		)	(3,582,238		)	(2,915,115		)

Other income and (expense):
Interest income	23,327			16,381			50,244			88,927			20,781			23,327			66,475			50,244
Other income (expense)	1,423			993			(539		)	(121		)	608			1,423			185			(539		)
Other income and (expense), net	24,750			17,374			49,705			88,806			21,389			24,750			66,660			49,705

(Loss) before income taxes	(798,166		)	(875,025		)	(2,865,410		)	(1,674,268		)	(1,207,078		)	(798,166		)	(3,515,578		)	(2,865,410		)
Income taxes	15,000			15,000			34,000			36,677			31,956			15,000			71,956			34,000

Net (loss)	$	(813,166	)	$	(890,025	)	$	(2,899,410	)	$	(1,710,945	)	$	(1,239,034	)	$	(813,166	)	$	(3,587,534	)	$	(2,899,410	)

Basic (loss) per common share:	$	(0.07	)	$	(0.10	)	$	(0.24	)	$	(0.20	)	$	(0.09	)	$	(0.07	)	$	(0.28	)	$	(0.24	)
Diluted (loss) per common share:	$	(0.07	)	$	(0.10	)	$	(0.24	)	$	(0.20	)	$	(0.09	)	$	(0.07	)	$	(0.28	)	$	(0.24	)
Weighted average common shares outstanding
Basic	12,145,323			8,954,831			12,098,828			8,637,169			13,054,962			12,145,323			12,906,206			12,098,828
Diluted	12,145,323			8,954,831			12,098,828			8,637,169			13,054,962			12,145,323			12,906,206			12,098,828

See the accompanying notes to the condensed interim consolidated financial statements.

~~PAYMENT DATA SYSTEMS,~~USIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2019			2018
Operating activities:
Net (loss)	$	(2,899,410	)	$	(1,710,945	)	$	(3,587,534	)	$	(2,899,410	)
Adjustments to reconcile net (loss) to net cash (used) by operating activities:
Depreciation	639,164			564,920			725,291			639,164
Amortization	750,000			205,687			750,000			750,000
Provision for loss on note receivable	72,500			—			—			72,500
Bad debt expense	—			71,667
Stock based compensation	961,893			655,885
Non-cash stock based compensation							954,770			961,893
Issuance of stock to consultant for services	7,911			15,400			—			7,911
Amortization of warrant costs							26,955			—
Changes in current assets and current liabilities:
Accounts receivable	(177,808		)	30,733			55,504			(177,808		)
Prepaid expenses and other	(2,385		)	(84,783		)	(111,230		)	(2,385		)
Operating lease right-of-use assets							(2,547,803		)	—
Other assets	(146,194		)	64,440			(26,665		)	(146,194		)
Accounts payable and accrued expenses	162,215			220,100			294,717			(45,444		)
Operating lease liabilities							2,700,742			—
Prepaid card load obligations							189,854			207,659
Merchant reserves	(1,374,906		)	(894,741		)	(2,443,899		)	(1,374,906		)
Deferred revenue	35,000			—			116,765			35,000
Deferred rent	58,457			—			(79,748		)	58,457
Net cash (used) by operating activities	(1,913,563		)	(861,637		)	(2,982,281		)	(1,913,563		)

Investing activities:
Purchases of property and equipment	(584,198		)	(344,611		)	(536,405		)	(584,198		)
Purchase of Singular Payments, LLC	—			(900,000		)
Notes receivable	5,000			(600,000		)	—			5,000
Net cash (used) by investing activities	(579,198		)	(1,844,611		)	(536,405		)	(579,198		)

Financing activities:
Proceeds from public offering, net of expenses							1,793,905			—
Purchases of treasury stock	(966,383		)	(109,382		)	(52,584		)	(966,383		)
Net cash (used) by financing activities	(966,383		)	(109,382		)
Net cash provided (used) by financing activities							1,741,321			(966,383		)

Change in cash, cash equivalents and merchant reserves	(3,459,144		)	(2,815,630		)
Cash, cash equivalents and merchant reserves, beginning of period	19,778,022			19,924,379
Change in cash, cash equivalents, prepaid card load assets and merchant reserves							(1,777,365		)	(3,459,144		)
Cash, cash equivalents, prepaid card load assets and merchant reserves, beginning of period							15,340,980			19,778,022

Cash, cash equivalents and merchant reserves, end of period	$	16,318,878		$	17,108,749
Cash, Cash Equivalents, Prepaid Card Load Assets and Merchant Reserves, End of Period							$	13,563,615		$	16,318,878

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	—			—
Income taxes	$	49,000		$	21,677
Non-cash transactions:
Issuance of common stock in exchange for purchase of Singular Payments, LLC	—			3,500,000



~~Forgiveness of note receivable in exchange for purchase of Singular Payments, LLC~~	—	~~600,000~~
~~Issuance of deferred compensation to Vaden Landers~~	—	~~630,000~~



Interest	$	—	$	—
Income taxes	82,206		49,000

See accompanying notes to the condensed interim consolidated financial statements.

~~PAYMENT DATA SYSTEMS,~~

USIO, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY



						Additional Paid - In Capital			Treasury Stock			Deferred Compensation			Accumulated Deficit			Total Stockholders' Equity
	Common Stock
	Shares		Amount

Balance at December 31, 2018	17,129,680		$	185,561		$	74,568,627		$	(1,813,546	)	$	(6,270,675	)	$	(57,036,241	)	$	9,633,726

Issuance of common stock, public offering	769,230		769			1,793,136			—			—			—			1,793,905
Issuance of common stock under equity incentive plan	62,222		62			58,551			—			—			—			58,613
Warrant compensation costs	—		—			8,985			—			—			—			8,985
Deferred compensation amortization	—		—			—			—			224,795			—			224,795
Purchase of treasury stock	—		—			—			(21,822		)	—			—			(21,822		)
Net (loss) for the period	—		—			—			—			—			(1,072,889		)	(1,072,889		)

Balance at March 31, 2019	17,961,132		$	186,392		$	76,429,299		$	(1,835,368	)	$	(6,045,880	)	$	(58,109,130	)	$	10,625,313

Issuance of common stock under equity incentive plan	53,445		53			133,462			—			—			—			133,515
Warrant compensation cost	—		—			8,985			—			—			—			8,985
Deferred compensation amortization	—		—			—			—			222,585			—			222,585
Reversal of deferred compensation that did not vest	(6,000	)	(6		)	(13,254		)	—			13,260			—			—
Purchase of treasury stock	—		—			—			(28,693		)	—			—			(28,693		)
Net (loss) for the period	—		—			—			—			—			(1,275,611		)	(1,275,611		)

Balance at June 30, 2019	18,008,577		$	186,439		$	76,558,492		$	(1,864,061	)	$	(5,810,035	)	$	(59,384,741	)	$	9,686,094

Issuance of common stock under equity incentive plan	2,500		3			92,483			—			—			—			92,486
Warrant compensation cost	—		—			8,985			—			—			—			8,985
Deferred compensation amortization	—		—			—			—			224,464			—			224,464
Reversal of deferred compensation that did not vest	—		—			(1,691		)	—			—			—			(1,691		)
Purchase of treasury stock	—		—			—			(2,069		)	—			—			(2,069		)



Net (loss) for the period	—		—			—			—			—			(1,239,034		)	(1,239,034		)

Balance at September 30, 2019	18,011,077		$	186,442		$	76,658,269		$	(1,866,130	)	$	(5,585,571	)	$	(60,623,775	)	$	8,769,235



Balance at December 31, 2017	16,874,235		$	186,299		$	74,041,083		$	(831,059	)	$	(7,012,544	)	$	(53,260,426	)	$	13,123,353
Issuance of common stock under equity incentive plan	68,889		69			147,231			—			—			—			147,300
Deferred compensation amortization	—		—			—			—			227,078			—			227,078
Purchase of treasury stock	—		—			—			(956,134		)	—			—			(956,134		)
Net (loss) for the period	—		—			—			—			—			(1,050,806		)	(1,050,806		)

Balance at March 31, 2018	16,943,124		$	186,368		$	74,188,314		$	(1,787,193	)	$	(6,785,466	)	$	(54,311,232	)	$	11,490,791

Issuance of common stock under equity incentive plan	28,223		28			74,319			—			—			—			74,347
Issuance of common stock, employees, restricted	100,000		100			179,900			—			(180,000		)	—			—
Issuance of common stock, restricted	5,000		5			7,906			—			—			—			7,911
Deferred compensation amortization	—		—			—			—			229,655			—			229,655
Reversal of deferred compensation that did not vest	(6,667	)	(1,000		)	(16,000		)	—			11,475			—			(5,525		)
Purchase of treasury stock	—		—			—			(2,942		)	—			—			(2,942		)
Net (loss) for the period	—		—			—			—			—			(1,035,438		)	(1,035,438		)

Balance at June 30, 2018	17,069,680		$	185,501		$	74,434,439		$	(1,790,135	)	$	(6,724,336	)	$	(55,346,670	)	$	10,758,799

Issuance of common stock under equity incentive plan	10,500		11			70,021			—			—			—			70,032
Deferred compensation amortization	—		—			—			—			219,006			—			219,006
Reversal of deferred compensation that did not vest	(60,000	)	(65		)	(132,530		)	—			132,595			—			—
Purchase of treasury stock	—		—			—			(7,307		)	—			—			(7,307		)
Net (loss) for the period	—		—			—			—			—			(813,166		)	(813,166		)

Balance at September 30, 2018	17,020,180		$	185,447		$	74,371,930		$	(1,797,442	)	$	(6,372,735	)	$	(56,159,836	)	$	10,227,364

The accompanying notes are an integral part of these consolidated financial statements.

USIO, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements of ~~Payment Data Systems,~~Usio, Inc. and its subsidiaries (the “Company”) have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles have been omitted pursuant to such rules and regulations. In the opinion of management, the accompanying interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature considered necessary to present fairly the Company's financial position, results of operations and cash flows for such periods. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, ~~2017,~~2018, as filed with the Securities and Exchange Commission on March ~~30, 2018.~~27, 2019. Results of operations for interim periods are not necessarily indicative of results that may be expected for any other interim periods or the full fiscal year.

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, and~~services. Revenue is recognized ~~as revenue~~ 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 asat 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. Sales taxes billed are reported directly as a liability to the taxing authority and are not included in revenue.

Deferred Revenues: The Company records deferred revenues when it receives payments 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. The deferred revenues totaled $136,765 and $20,000 at September 30, 2019 and December 31, 2018, respectively.

Cash and Cash ~~Equivalents~~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.

Merchant ~~Reserves~~Reserves: : The Company has merchant reserve requirements associated with Automated Clearing House ("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 our fiduciary standing with the Company's member sponsors and is in accordance with the guidelines set by the card networks.

Prepaid Card Load Assets: The Company maintains pre-funding accounts for our 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.

The reconciliation of cash and cash equivalents to cash, cash equivalents, prepaid card load assets and merchant reserves is as follows for each period presented:


	September 30, 2018		September 30, 2017		September 30, 2019		September 30, 2018

Beginning cash, cash equivalents and merchant reserves:
Beginning cash, cash equivalents, prepaid card load assets and merchant reserves:
Cash and cash equivalents	$	4,800,554	$	4,120,738	$	2,159,698	$	4,611,877
Prepaid card load assets					535,479		188,677
Merchant reserves	14,977,468		15,803,641		12,645,803		14,977,468
Total	$	19,778,022	$	19,924,379	$	15,340,980	$	19,778,022

Ending cash, cash equivalents and merchant reserves:
Ending cash, cash equivalents, prepaid card load assets and merchant reserves:
Cash and cash equivalents	$	2,716,316	$	2,199,849	$	2,636,378	2,319,980
Prepaid card load assets					725,333		396,336
Merchant reserves	13,602,562		14,908,900		10,201,904		13,602,562
Total	$	16,318,878	$	17,108,749	$	13,563,615	$	16,318,878

Allowance for Estimated Losses:The Company maintains an allowance for estimated doubtful accounts receivable resulting from the inability or failure of the Company’s customers to make required payments. The Company determines the allowance for estimated doubtful accounts receivable losses 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 conditions of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make contractual payments, additional allowances might be required. Estimates for doubtful account losses are variable based on the volume of transactions processed and could increase or decrease accordingly. ~~At September 30, 2018 and December 31, 2017, the Company’s~~The allowance for estimated doubtful accounts was ~~$58,731~~$58,500 and ~~$61,223,~~$55,212 at September 30, 2019 and December 31, 2018, respectively.

Accounting for Internal Use Software: The Company capitalizes the costs associated with software being developed or obtained for internal use when both the preliminary project stage is completed, and it is probable that computer software being developed will be completed and 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. In the ~~nine~~three months ended September 30, ~~2018~~2019 and September 30, ~~2017,~~2018, the Company capitalized ~~$163,888~~$147,459 and ~~$243,039,~~$163,888, respectively of such costs.

Valuation of Long-Lived and Intangible Assets: The Company assesses the impairment of long-lived and intangible assets at least annually, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important, which could trigger an impairment review, include the following: significant under performance relative to historical or projected future cash flows; significant changes in the manner of use of the assets or the strategy of the overall business; and significant negative industry trends. When management determines that the carrying value of long-lived and intangible assets may not be recoverable, impairment is measured as the excess of the assets’ carrying value over the estimated fair value. No impairment losses were recorded in ~~2017~~2018 or during the three and nine months ended September 30, ~~2018.~~2019. Management is not aware of any impairment changes that may currently be required; however, the Company cannot predict the occurrence of events that might adversely affect the reported values in the future.

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 credit card, ACH or 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.~~risks. In addition, the Company utilizes ~~a number of~~multiple 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 the Company’s 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’s relationship with the Company’s prepaid card holders. This reserve amount is subject to the risk that actual losses may be greater than the Company’s estimates. The Company has not incurred any significant processing losses to date. Estimates for processing losses are variable based on the volume of

transactions processed and could increase or decrease accordingly. At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company’s reserve for processing losses was ~~$313,614~~$475,302 and ~~$172,832,~~$374,153, respectively.

Recently Adopted Accounting Pronouncements:

In May 2014, the Financial Accounting Standards Board, ~~(FASB)~~or FASB, issued ASU 2014-09,, Revenue from Contracts with Customers (Topic 606)and a subsequent amendment to the standard in March 2016, ASU 2016-08, Revenue from Contracts with Customers, Principal versus Agent Consideration (Reporting Revenue Gross versus Net).. The original standard provides guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendment to the standard clarifies implementation guidance on principal versus agent considerations. Adoption of the new standards is effective for reporting periods beginning after December 15, 2017, with early adoption not permitted. The Company has ~~evaluated the potential impact that the adoption of this standard will have on its financial position, results of operations, and related disclosures, and has~~ adopted the provisions of this new standard beginning January 1, 2018. The Company functions as the merchant of record and has primary responsibility for providing end-to-end payment processing services for its clients. The ~~Company's clients~~customers of the Company contract with the Company for all credit card processing ~~services~~services: including transaction authorization, settlement, dispute resolution, security and risk management solutions, reporting and other value-added services. As such, the Company is the primary ~~obliger~~obligor in these transactions and is solely responsible for all processing costs, including interchange fees. Further, the Company sets prices as it deems reasonable for each merchant. The gross fees the Company collects are intended to cover the interchange, assessments and other processing fees and include the Company's margin on transactions processed. For these reasons, the Company is the principal ~~obliger~~obligor in the contractual relationship with its customers and ~~therefor,~~therefore, the Company records its revenues, including interchange and assessments on a gross basis. The Company's existing revenue recognition process ~~will remain~~remains intact, and the Company will continue to record revenues at the gross amount billed due to the Company's primary responsibility for providing end-to-end payment processing services for its clients.

In November 2016, the FASB issued ASU 2016-18,, Statement of CashFlows (Topic 230) Restricted Cash, which requires that the reconciliation of the beginning of period and ~~the~~ end of period amounts shown in the statement of cash flows include restricted cash and restricted cash equivalents. If restricted cash is presented separately from cash and cash equivalents on the balance sheet, companies ~~will be required~~arerequired to reconcile the amounts presented on the statement of cash flows to the amounts on the balance sheet. This guidance is required to be applied retrospectively and is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. As required, the Company applied the provisions of ASU 2016-18 as of January 1, 2018. As a result, the change in restricted cash has been included in the change in cash, cash equivalents, prepaid card load assets and merchant ~~reserves and the prior period reported information has been recast to reflect the new presentation.~~reserves.

~~New Accounting Pronouncements:~~

Operating Leases Right-of use Assets and Operating Lease Liabilities: In February 2016, the FASB issued, ~~Leases~~"Leases (Topic 842),." ~~which is intended~~This update requires that a lessee recognize in the statement of financial position a liability to ~~increase the transparency and comparability among organizations by recognizing~~make lease ~~assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee will be required to recognize on the balance sheet an asset (right to use)~~payments and a ~~liability (lease obligation)~~right-of-use asset representing its right to use the underlying asset for the lease term. For leases with terms of ~~more than~~ 12 ~~months. Accounting~~months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities. Similar to previous guidance, the update continues to differentiate between finance leases and operating leases, however this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. The updated guidance leaves the accounting for leases by lessors ~~will remain~~ largely unchanged from ~~current U.S. generally accepted~~existing GAAP. The guidance became effective for the Company on January 1, 2019. As a lessee, this standard primarily impacted the Company's accounting ~~principles.~~ for leased facilities and office equipment, for which the Company recognized right of use assets of $2,688,412 and a corresponding lease liability of $2,775,259 on the Company's consolidated balance sheet on January 1, 2019.

The Company adopted these provisions on January 1, 2019 using the optional transition method that permits the Company to apply the new disclosure requirements in 2019 and continue to present comparative period information as required under FASB ASC Topic 840, "Leases." The Company did not have a cumulative-effect adjustment to the opening balance of retained earnings at the date of adoption. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed it to exclude leases with an initial term of 12 months or less from the right-of-use assets and liabilities. Adoption of the standards had no impact on the Company's results of operations or liquidity.

If the Company determines that an arrangement is ~~effective for this~~or contains a lease, the Company recognizes a right-of-use (ROU) asset and lease liability at the commencement date of the lease. ROU assets represent the Company's right to use an underlying asset for the ~~fiscal year beginning after December 15, 2018,~~lease term and ~~interim periods within those years, with early adoption permitted. Management does~~lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company's leases do not ~~expect~~provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that ~~adopting this standard~~it will ~~have~~exercise that option. Lease expenses for lease payments are recognized on a ~~significant impact on its consolidated financial statements and related disclosures.~~straight-line basis over the lease term.

In June 2018, the FASB issued ASU 2018-07,, Compensation - Stock Compensationwhich expands the scope of current guidance to include all share-based payment arrangements related to the acquisition of goods or services from both non-employees and employees. The guidance is effective for the Company infor all fiscal years beginning after December 15, 2018. The Company ~~is currently evaluating~~adopted the ~~impact of this~~new standard on ~~its~~January 1, 2019. The adoption of the new standard did not result in a change to the previously presented financial statements.

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 ~~if any.~~upon adoption.

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 Consolidated Balance Sheet for the year ended December 31, 2018 to identify prepaid card load assets totaling $535,479, previously reported in cash and cash equivalents, and the related prepaid card load obligations previously reported in accrued expenses. This change in classification does not affect previously reported total assets and liabilities in the Consolidated Balance Sheet, results of operations in the Consolidated Income Statement, and cash activities in the Consolidated Statement of Cash Flows for the year ended December 31, 2018.

Note 2. ~~Acquisition of Singular Payments, LLC~~

On September 1, 2017, the Company entered into a membership interest purchase agreement with Singular Payments, LLC (“Singular Payments”), a Florida limited liability company in the business of credit card processing, pursuant to which the Company agreed to purchase all of the membership interest in Singular Payments, LLC. The aggregate purchase price was $5,000,000 and consisted of a cash payment of $1,500,000 at closing, minus the balance on the outstanding note receivable of $600,000 and subject to adjustment based on net working capital, and $3,500,000 in shares of common stock, or 1,515,152 shares of the Company's common stock, $0.001 par value per share, valued at $2.31 per share. Such shares are unregistered and subject to a lock-up agreement of 24 months.Leases

The ~~final number of shares issued,~~Company leases facilities and office equipment under various operating leases, which generally are expected to be renewed or replaced by other leases. For the ~~related value per each such share, was determined using the volume-weighted average daily closing price~~three and nine month periods ended September 30, 2019, operating lease expenses totaled $119,435 and $342,392, compared to $123,115 and $318,069 for the ~~shares of common stock for the five business days immediately preceding~~three and nine month periods ended September ~~1, 2017, or $2.31.~~30, 2018, respectively.

~~The purchase price was allocated to the net assets acquired based upon their estimated fair values~~Maturities of lease liabilities are as ~~follows:~~

follows at September 30, 2019.

Estimated Fair Value Estimated Useful Life
Customer list $ 5,000,000
5 years
Total $ 5,000,000



	September 30, 2019
	Operating Leases
2019 (Remaining 3 months)	$	95,276
2020	356,184
2021	343,424
2022	351,334
2023	357,695
Thereafter	1,825,929
Total minimum lease payments	3,329,842
Less imputed interest	(629,100		)
Total lease liabilities	$	2,700,742

The unaudited proforma results including the effects of the Singular Payments acquisition as if it had been consummated on January 1, 2016 were included in a Form 8-K/A filed November 17, 2017 and summarized in the Form 10-K filed March 30, 2018.

Note 3. ~~Notes~~Note Receivable

Under a loan and security agreement dated February 2, 2016, the ~~Company's wholly-owned subsidiary FiCentive, Inc.~~Company loaned athe principal amount of $200,000 to C2Go, Inc. with an interest rate of 10% per annum for a term of 18 months. The loan was secured by a first lien on all assets of C2Go. C2Go defaulted under the note by failing to repay the loan plus interest on August 2, 2017. ~~A lawsuit filed by FiCentive is pending in Bexar County, San Antonio, Texas.~~ On December 7, 2017, the Company entered into a note purchase and settlement agreement with C2Go and Mercury Investment Partners LLC. Pursuant to the note purchase and settlement agreement, Mercury Investment Partners agreed to purchase the note and the rights secured by the security agreement with all rights and obligations and to pay to ~~FiCentive~~ a sum of $200,000 in three installments. The first installment of $50,000 was paid on December 7, 2017. The second installment of $50,000 was due on April 30, 2018, and the remaining amount of $100,000 was due on October 31, 2018. In return, ~~FiCentive~~the Company agreed to waive all interest due and payable under the terms of the C2Go loan. Mercury Investment Partners has not paid the amount due on April 30, 2018 or the amount due on October 31, 2018. ~~FiCentive has~~The Company issued a letter of default. ~~FiCentive~~The Company agreed to extend the due date of the $50,000 payment due April 30, 2018 to May 16, 2018. $5,000 of the $50,000 due ~~May 16, 2018~~ was received on July 5, 2018. On or about August 14, 2018, a notice of default was sent to Mercury Investment Partners. Mercury Investment Partners did not respond to the letter or make payment in full to ~~FiCentive.~~the Company. On September 4, 2018, ~~FiCentive~~the Company filed suit against Mercury Investment Partners in Bexar County District ~~Court~~Court. The default judgment against Mercury Investment Partners was granted on December 21, 2018. The Company retained the services of legal counsel to represent the Company in collecting on the judgment. Counsel has domesticated the Texas judgment and ~~litigation~~the Company was issued a lien on a property owned by Mercury that is ~~continuing.~~ valued over $1.0 million by the court. The Company is unsure if any equity exists which would allow the Company to potentially recover the funds owed. On or about June 7, 2019, Mercury Investment Partners was served a subpoena to produce certain documents on July 3, 2019 in Colorado. A representative of Mercury Investment Partners did not appear in court on the assigned date and time. Subsequently, Mercury placed the property up for sale though Mercury is aware the Company has a valid lien in place on the property.

There are no assurances that the Company will be able to recover the remaining $145,000 principal ~~due~~ and there are no assurances there will be any assets for the Company ~~will be able~~ to recover ~~any value~~ from its lien on all the assets of C2Go if payment in full of the obligation is not made. Due to the uncertainty of the situation and the “more likely than not” recognition threshold, ~~as of September 30, 2018,~~ the Company recorded a $72,500 loss reserve on the note receivable ~~of $72,500 as of~~for the periods from June 30, 2018 ~~and the reserve remains unchanged as of~~through September 30, 2018.

~~On March 7, 2017,~~ Given the Company agreed to provide $500,000 to Singular Payments, LLC, a Florida limited liability company, under a secured line of credit promissory note. Interest on the note did not accrue until the earlier of August 31, 2017, the date of closing and funding the Company’s proposed acquisition of Singular Payments or the termination of a non-binding letter of intent regarding the proposed acquisition, or until such mutually agreed upon extended date. The loan was increased to $600,000 on August 2, 2017. The Singular Payments, LLC acquisition closed on September 1, 2017. The note receivable was applied to the cash purchase price as partgranting of the ~~purchase agreement.~~default judgment in Texas and the steps underway by legal counsel in Colorado, the loss reserve was reduced to $36,250 from December 31, 2018 through September 30, 2019, reflecting a "more likely than not" recognition threshold.

Note 4. Accrued Expenses

Accrued expenses consisted of the following balances:


	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018

Accrued commissions	$	57,224	$	331,214	$	387,767	$	243,317
Reserve for merchant losses	313,614		172,832		475,302		374,153
Other accrued expenses	658,670		387,882		72,965		582,720
Accrued taxes	34,689		45,129		75,841		80,888
Accrued salaries	153,110		69,205		203,013		107,118
Total accrued expenses	$	1,217,307	$	1,006,262	$	1,214,888	$	1,388,196

Note ~~5 -Stockholders'~~5. Stockholders' Equity

~~Common~~ Stock ~~Purchase Warrants:~~ Warrants: On August 21, 2018, the Company ~~entered into a warrant agreement with~~issued University Fancards, LLC in conjunction with a Prepaid Card Marketing and Processing Agreement (the "Prepaid Agreement"). On the date the first financial transaction is processed on a card issued (the "Issue Date") under the Prepaid agreement, the Company issued Fancards a warrant to purchase ~~an aggregate of up to~~ 150,000 shares of the Company's common stock. ~~Warrants to purchase~~ 30,000 ~~shares~~warrants vested immediately upon the date on which the ~~Issue Date. The additional~~first financial transaction was processed on a card account issued under the prepaid agreement, which occurred on October 5, 2018. 120,000 warrants will vest annually over 4 years in 30,000 ~~share~~warrant increments beginning on July 31, 2019 ~~July 31, 2020, July 31, 2021~~ and becoming fully vested on July 31, 2022. The ~~strike~~exercise price for the 30,000 warrants ~~will be~~that vested immediately on October 5, 2018 was $1.80 per ~~share when the warrants vest on the Issue Date.~~share. The ~~strike~~exercise price for the remaining 120,000 warrants will be the lesser of $2.00 per share or ~~120%~~one hundred and twenty percent (120%) of the market price of the Company's common stock on the vesting date of the warrant.

~~As of September 30, 2018,~~ The warrants were valued using the ~~first financial transaction had not been processed on a card issued under the Prepaid Agreement. The Company will estimate~~Black-Scholes option pricing model. Assumptions used were as follows: (i) the fair value of the ~~warrant as~~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 is 0%; and (v) the volatility is 64.6%. The fair value of the ~~Issue Date based upon~~warrants was $135,764 which will be amortized over the life of the warrants as a ~~Black-Sholes valuation.~~reduction of revenues. The reduction of revenues recorded for the three and nine months ended September 30, 2019 was $8,985 and $26,955, respectively.

On February 14, 2019, the Company entered into a placement agency agreement with Maxim Group LLC for the issuance and sale of an aggregate of 769,230 shares of common stock at an offering price of $2.60 per share in a public offering. The Company agreed to pay Maxim a cash fee of equal to 6% of the aggregate gross proceeds raised in the offering as well as legal fees and expenses of up to $40,000. The net proceeds to us from the public offering were $1.8 million, after deducting the offering expenses and fees payable by us. The Company is using the net proceeds for general corporate purposes and working capital.

Note 6. Net (Loss) Per Share

Basic (loss) per share (EPS) was computed by dividing net (loss) 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 awards and 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) for the three and nine months ended September 30, ~~2018~~2019 and September 30, ~~2017.~~2018.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019		2018
Numerator:
Numerator for basic and diluted (loss) per share, net income (loss) available to common shareholders	$	(813,166	)	$	(890,025	)	(2,899,410		)	(1,710,945		)
Numerator for basic and diluted (loss) per share, net (loss) available to common shareholders													(1,239,034		)	(813,166		)	(3,587,534	)	(2,899,410	)
Denominator:
Denominator for basic (loss) per share, weighted average shares outstanding	12,145,323			8,954,831			12,098,828			8,637,169			13,054,962			12,145,323			12,906,206		12,098,828
Effect of dilutive securities	—			—			—			—			—			—			—		—
Denominator for diluted earnings per share, adjust weighted average shares and assumed conversion	12,145,323			8,954,831			12,098,828			8,637,169			13,054,962			12,145,323			12,906,206		12,098,828
Basic (loss) per common share	$	(0.07	)	$	(0.10	)	$	(0.24	)	$	(0.20	)	$	(0.09	)	$	(0.07	)	(0.28	)	(0.24	)
Diluted (loss) per common share and common share equivalent	$	(0.07	)	$	(0.10	)	$	(0.24	)	$	(0.20	)	$	(0.09	)	$	(0.07	)	(0.28	)	(0.24	)

The awards and options to purchase shares of common stock that were outstanding at September 30, ~~2018~~2019 and September 30, ~~2017~~2018 that were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive, are as follows:

Nine Months Ended September 30,
2018 2017
Anti-dilutive awards and options 3,848,336
3,433,543



	Nine Months Ended September 30,
	2019	2018
Anti-dilutive awards and options	3,872,386	3,846,141

Note 7. Income Taxes

Deferred tax assets and liabilities are recorded based on the difference between financial reporting and tax basis of assets and liabilities, and are measured by 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 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.

The Company has recognized a deferred tax asset of approximately $1.4 million and has recorded a valuation allowance of approximately ~~$8.2~~$8.9 million to reduce the other deferred tax assets. The Company reviews the assessment of the deferred tax asset and valuation allowance on an annual basis or more often when events indicate that a change to the valuation allowance may be warranted.

At December 31, ~~2017,~~2018, the Company had available net operating loss carryforwards of approximately ~~$41.3~~$45.3 million, which expire beginning in the year ~~2021.~~2022. Approximately $0.1 million of the total net operating loss carryforward is subject to an IRS Section 382 limitation from 1999.

Management is not aware of any tax positions that would have a significant impact on the Company’s financial position.

Note 8. Related Party Transactions

Louis Hoch

During the nine months ended September 30, ~~2018~~2019 and the year ended December 31, ~~2017,~~2018, the Company purchased a total of ~~$8,633~~$11,700 and ~~$1,826,~~$9,476, respectively, of corporate imprinted sportswear and caps from Angry Pug Sportswear. Louis Hoch, the Company’s President and Chief Executive Officer, is a 50% owner of Angry Pug Sportswear.

Miguel Chapa and Louis Hoch

During the nine months ended September 30, ~~2018~~2019 and the year ended December 31, ~~2017,~~2018, the Company received ~~$21,745~~$7,057 and ~~$29,555,~~$26,709, respectively, in revenue from Lush Rooftop. Miguel Chapa, a member of the Company’s Board of Directors, is an owner of Lush Rooftop. Louis Hoch, the Company’s President and Chief Executive Officer, is also a minority owner inof Lush Rooftop.

During the nine months ended September 30, 2019 and the year ended December 31, 2018, the Company received $19,904 and $4,525, respectively, in revenue from BLVD Bar and Lounge. Miguel Chapa, a member of the Company's Board of Directors, is an owner in BLVD Bar and Lounge. Louis Hoch, the Company’s President and Chief Executive Officer, is also an owner of BLVD Bar and Lounge.

Directors and Officers

On January 6, 2019, the Company repurchased 11,860 shares of common stock at a closing price of $1.84 per share from Tom Jewell, the Company's Chief Financial Officer to cover taxes due.

On January 8, 2018 and January 9, 2018, the Company repurchased 397,845 shares of common stock for $956,128 in a series of private transaction at the closing prices on January 8, 2018 and January 9, 2018 from officers, employees and director's to cover the respective employees', officers' and directors' share of taxes for shares that vested on that day, as approved by the Audit Committee and the Board of Directors on the same day, with the respective officers and directors recusing themselves. In particular, the Company repurchased the following shares from Named Executive Officers and directors:

Michael Long (Chairman of the Board): 158,476 shares valued at $2.40 per share or total of $380,342;

Louis Hoch (President and Chief Executive Officer): 158,476 shares valued at $2.40 per share or total of $380,342; and

Tom Jewell (Chief Financial Officer): 13,060 shares valued at $2.50 per share or total of $32,650.

Note 9. Legal Proceedings

Under a loan and security agreement dated February 2, 2016, the ~~Company's wholly-owned subsidiary FiCentive, Inc.~~Company loaned a principal amount of $200,000 to C2Go, Inc. with an interest rate of 10% per annum for a term of 18 months. The loan was secured by a first lien on all assets of C2Go. C2Go defaulted under the note by failing to repay the loan plus interest on August 2, 2017. ~~A lawsuit filed by FiCentive is pending in Bexar County, San Antonio, Texas.~~ On December 7, 2017, the Company entered into a note purchase and settlement agreement with C2Go and Mercury Investment Partners LLC. Pursuant to the note purchase and settlement agreement, Mercury Investment Partners agreed to purchase the note and the rights secured by the security agreement with all rights and obligations and to pay to ~~FiCentive~~us a sum of $200,000 in three installments. The first installment of $50,000 was paid on December 7, 2017. The second installment of $50,000 was due on April 30, 2018, and the remaining amount of $100,000 was due on October 31, 2018. In return, ~~FiCentive~~the Company agreed to waive all interest due and payable under the terms of the C2Go loan. Mercury Investment Partners has not paid the amount due April 30, 2018 or the amount due on October 31, 2018. ~~FiCentive has~~The Company issued a letter of default. ~~FiCentive~~The Company agreed to extend the due date of the $50,000 payment due April 30, 2018 to May 16, 2018. $5,000 of the $50,000 due was received on July 5, 2018. On or about August 14, 2018, a notice of default was sent to Mercury Investment Partners. Mercury Investment Partners did not respond to the letter or make payment in ~~full to FiCentive.~~full. On September 4, 2018, FiCentive filed suit against Mercury Investment Partners in Bexar County District ~~Court~~Court. The court granted a default judgment against Mercury Investment Partners on December 21, 2018. Counsel has domesticated the Texas judgment and ~~litigation~~the Company was issued a lien on a property owned by Mercury that is ~~continuing.~~ valued over $1.0 million by the court. The Company is unsure if any equity exists which would allow the Company to potentially recover the funds owed. On or about June 7, 2019, Mercury Investment Partners was served a subpoena to produce certain documents on July 3, 2019 in Colorado. A representative of Mercury Investment Partners did not appear in court on the assigned date and time. Subsequently, Mercury placed the property up for sale though Mercury is aware the Company has a valid lien in place on the property.

There are no assurances that the Company will be able to recover the remaining $145,000 principal, and there are no assurances there will be any assets for the Company to recover from ~~its~~our lien on all the assets of C2Go if payment in full of the obligation is not made. Due to the uncertainty of the situation and the “more likely than not” recognition threshold, ~~as of September 30, 2018,~~ the Company ~~has~~ recorded a $72,500 loss reserve on the note receivable ~~of $72,500 as of~~from June 30, 2018 ~~and the reserve remains unchanged as of~~through September 30, 2018. Given the granting of the default judgment in Texas and the steps underway by legal counsel to domesticate the Texas judgment, the loss reserve has been reduced to $36,250 from December 31, 2018 through September 30, 2019 reflecting a "more likely than not" recognition threshold.

Aside from the lawsuit described above, the Company may be involved in legal matters arising in the ordinary course of business from time to time. While the Company believes that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is or could become involved in litigation will not have a material adverse effect on its business, financial condition or results of operations.

Note 10: Subsequent Event

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.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

FORWARD-LOOKING STATEMENTS DISCLAIMER

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. If used in this report, the words "anticipate," "believe," "estimate," "intend," and other words or phrases of similar import are intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in our annual report on Form 10-K and other reports we file with the Securities and Exchange Commission. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made. We do not intend to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law.

This discussion and analysis should be read in conjunction with the unaudited interim condensed consolidated financial statements and the notes thereto included in this report, and our annual report on Form 10-K for the fiscal year ended December 31, ~~2017,~~2018, filed on March ~~30, 2018,~~27, 2019, including the audited consolidated financial statements and the notes contained therein.

Name Change

Effective on June 26, 2019 we changed our corporate name from Payment Data Systems, Inc. to Usio, Inc.

Overview

We provide integrated electronic payment processing services to merchants and businesses, including all types of Automated Clearing House, or ACH, processing, credit, PINless debit, prepaid card and debit card-based processing services. Through Akimbo, under the domain name www.akimbocard.com, we offer MasterCard prepaid cards to consumers for use as a tool to stay on budget, to manage allowances, and to share money with family and friends. We have further developed our Akimbo platform to include Akimbo Now for businesses, Akimbo Gift for consumers and support for Apple Pay®, Android Pay™ and Samsung Pay™.

On September 1, 2017, we closed the acquisition of Singular Payments, LLC. Singular Payments is a Fintech payments provider that relies upon innovative technology to process payments for merchants in healthcare and other niche markets nationwide. Singular Payments is primarily focused on custom software integrations of their flat rate payment processing offerings and their proprietary, simple to use electronic bill payment presentment and payment platform which allows merchants to streamline the costly and labor-intensive process of invoicing and collections.

During the third quarter of ~~2018,~~2019, the volume of credit card transactions processed increased by ~~109%~~8% versus the third quarter of ~~2017.~~2018. The amount of credit card dollars processed during the third quarter of ~~2018~~2019 increased by ~~112%~~12% compared to the same time period in ~~2017. The growth in both the number of transactions~~2018. Both credit card dollars processed, and credit card transaction counts were the ~~dollar amounts processed is~~highest in our history with the increase primarily attributable to the success of our growth initiatives, particularly our card processing with the Integrated Payments (Payment Facilitation) segment due to increased penetration of the ~~acquisition of Singular Payments on September 1, 2017.~~healthcare industry.

ACH (eCheck) transaction volumes during the third quarter of ~~2018~~2019 increased by ~~28%~~4% compared to the third quarter of ~~2017.~~2018. Returned check transactions processed during the third quarter of ~~2018 increased 34%~~2019 decreased 9% compared to the third quarter of ~~2017.~~2018.

Prepaid card load volume during the third quarter of 2019 increased by 100% compared to the third quarter of 2018. Prepaid card transaction volumes during the third quarter of 2019 increased by 106% compared to the third quarter of 2018.

Total dollars processed for the third quarter of ~~2018~~2019 exceeded ~~$885~~$915 million compared to ~~$704~~$885 million in the third quarter of ~~2017.~~2018.

We reported a net loss of $1.2 million and $3.6 million for the three and nine months ended September 30, 2019 compared to a net loss of $0.8 million and $2.9 million for the three and nine months ended September 30, ~~2018 compared to a net loss of $0.9 million and $1.7 million for the three and nine months ended September 30, 2017.~~2018.

For the fourth quarter of 2018, we anticipate continued revenue increases in our ACH and returned check revenues versus the comparable period in the prior year. We also expect to report revenue increases versus the comparable prior year period due to growth in our Integrated Payments and Prepaid business lines versus the fourth quarter of 2017. We expect to see increases in the number of contracted merchant customers, for whom we provide processing for credit and debit card transactions, and we expect to add new clients from our sales pipeline, which we believe will create increased transaction volumes. We believe our prepaid credit card transactions should continue to gain traction.

We may incur future operating losses. To regain and sustain profitability, we must, among other things, incrementally grow and maintain our customer base, sell our ACH, credit card and prepaid product offerings to existing and new customers, implement successful marketing strategies, maintain and upgrade our technology and transaction-processing systems, provide superior

customer service, respond to competitive developments, attract, retain and motivate personnel, and respond to unforeseen industry developments ~~and~~among other factors.

We believe that our success will depend in large part on our ability to (a) grow revenues, (b) ~~effectively~~ manage our operating expenses, (c) add quality customers to our client base, (d) meet evolving customer requirements, (e) adapt to technological changes

in an emerging market, and (f) ~~properly~~ assimilate current and future acquisitions of companies and customer portfolios. ~~The acquisition of Singular Payments and their~~We continue to invest in our sales force ~~continues~~ to ~~complement our existing resources. The acquisition leverages our existing customer and service offerings providing a near-term impact on revenues and profits. We~~drive revenue growth. In particular, we are focused on growing our ACH merchants, adding new software integrators and providing incremental services to existing merchants. In addition to our near term growth opportunities, we are focused on leveraging and optimizing the infrastructure of the organization allowing expansion of our payment processing capabilities without significantly increasing our operating costs.

Critical Accounting Policies

Our management’s discussion and analysis of our financial condition and results of operations is based upon our interim condensed 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, revenues 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, and 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 the accounting policies described in Note 1 to the Notes to the Interim Condensed Consolidated Financial Statements 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 Interim Condensed Consolidated Financial Statements, Note 1, Basis of Presentation.

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 and the program management and processing of prepaid debit cards. ~~We also operate an online payment processing service for consumers under the domain name www.billx.com and sell this service as a private-label application to resellers.~~

Revenues for the quarter ended September 30, ~~2018~~2019 increased ~~80%~~9.5% to ~~$6.5~~$7.1 million, as compared to ~~$3.6~~$6.5 million for the quarter ended September 30, ~~2017.~~2018. Revenues for the nine months ended September 30, ~~2018~~2019 increased ~~108%~~12.0% to ~~$18.6~~$20.8 million as compared to ~~$9.0~~$18.6 million for the nine months ended September 30, ~~2017.~~2018. The ~~increase for the quarter~~revenue increases came from our ACH, credit card and nine months ended September 30, 2018 versus the same period in 2017 was due to 17.9% and 9.2% organic growth (excluding Singular Payments' results) for the three and nine months ended September 30, 2018, and the growth from the acquired business of Singular Payments, LLC on September 1, 2017.prepaid portfolios.

Cost of Services

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 ~~are able to~~ 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 service fees also include fees paid to referral agents and partners.

Cost of services increased ~~81%~~10.5% to ~~$5.0~~$5.5 million for the quarter ended September 30, ~~2018,~~2019, as compared to ~~$2.8~~$5.0 million for the same period in the prior year. Cost of services increased ~~124%~~12.6% to $16.4 million for the nine months ended September 30, 2019 as compared to $14.6 million for the nine months ended September 30, ~~2018, as compared to $6.5 million for the same period~~2018. The increases in the ~~prior year. The increase for the quarter~~three and nine ~~months~~month periods ended September 30, ~~2018,~~2019, as compared to the same ~~period~~periods in the prior year, ~~was~~were primarily due to the ~~increase in the volume of~~increased credit card ~~processing transactions associated~~and prepaid transaction costs and higher referral fee arrangements with ~~the business acquired from Singular Payments plus organic growth in the other lines of our business.~~agents and partners..

Gross Profit

Gross profit is the net profit existing after the cost of services. Gross profits increased ~~77%~~6.1% to ~~$1.5~~$1.55 million for the quarter ended September 30, ~~2018,~~2019, as compared to ~~$0.8~~$1.46 million for the same period in the prior year. Gross ~~profits~~profit increased ~~64%~~9.9% to $4.4 million for the nine months ended September 30, 2019 as compared to $4.0 million for the nine months ended September 30, ~~2018, as compared to $2.5 million~~2018. The increases in gross profit for the ~~same period in the prior year. The increase for the quarter~~three and nine months ended September 30, ~~2018,~~2019, as compared to the same ~~period~~periods in the prior year, was ~~due to organic growth plus the gross profits associated with the credit card portfolio acquired through Singular Payments on September 1, 2017.~~

primarily driven by gains in profitability in from our higher margin ACH business.

Stock-based Compensation

Stock-based compensation expenses were ~~$0.3 million~~relatively unchanged at $315,259 and ~~$0.2 million~~$289,038 for the quarters ended September 30, 2019 and 2018, respectively and ~~2017, respectively. Stock-based compensation expenses were $1.0 million~~$954,770 and ~~$0.7 million~~$961,893 for the nine months ended September 30, 2019 and 2018, ~~and 2017,~~ respectively. The year over year increases in stock-based compensation expense were due to the incremental expenses recorded for financial statement purposes associated with the stock grants issued in November 2017.

Other Selling, General and Administrative Expenses

Other selling, general and administrative expenses increased ~~by 30%~~29.6% to ~~$1.5~~$2.0 million for the quarter ended September 30, ~~2018,~~2019, as compared to ~~$1.2~~$1.5 million for the same period in the prior year. Other selling, general and administrative expenses increased ~~by 65%~~21.4% to ~~$4.6~~$5.6 million for the nine months ended September 30, ~~2018,~~2019, as compared to ~~$2.8~~$4.6 million for the same period in the prior ~~comparative period.~~year. The increase in other selling, general and administrative expenses for the three ~~months~~ and nine months ended September 30, ~~2018,~~2019, as compared to the same period in the prior year, was primarily attributable to ~~the~~ incremental ~~employee salaries~~investments in our Prepaid and ~~other employee related expenses associated with the Singular Payments acquisition.~~PayFac integrated payments growth initiatives.

Depreciation and Amortization

Depreciation and amortization totaled $0.5 million for the ~~quarter~~quarters ended September 30, 2019 and September 30, 2018 ~~compared to depreciation~~ and ~~amortization of $0.3~~$1.5 million ~~for the same period in 2017. Depreciation~~ and ~~amortization totaled~~ $1.4 million for the nine months ended September 30, 2019 and September 30, 2018, ~~compared to~~respectively. The major driver of depreciation and amortization expenses are the amortization of ~~$0.8 million for~~intangibles related to the ~~same period~~acquisition of the prepaid business in ~~2017. Increased amortization expense was primarily associated with~~December 2014 and the 2017 acquisition of Singular ~~Payments acquisition in September 2017.~~Payments.

Other Income (Expense)

Other income ~~(expense)~~ was $21,389 for the quarter ended September 30, 2019 compared to other income of $24,750 for the quarter ended September 30, 2018 ~~compared to income of $17,374 for the quarter ended September 30, 2017, respectively. Other income (expense) was~~and $66,660 and $49,705 for the nine months ended September 30, 2019 and September 30, 2018, respectively.

Net Loss

We reported a net loss of $1,239,034 for the quarter ended September 30, 2019, as compared to ~~income~~a net loss of ~~$88,806~~$813,166 for the same period in the prior year and a net loss of $3,587,534 and $2,899,410 for the nine months ended September 30, ~~2017,~~2019 and September 30, 2018, respectively.

~~Net Loss~~

Liquidity and Capital Resources

At September 30, 2019, we had $2.6 million of cash and cash equivalents, as compared to $2.2 million of cash and cash equivalents at December 31, 2018.

On February 14, 2019, we entered into a placement agency agreement with Maxim Group LLC with respect to the issuance and sale of an aggregate of 769,230 shares of common stock at an offering price of $2.60 per share in a public offering. We agreed to pay Maxim a cash fee of equal to 6% of the aggregate gross proceeds raised in the offering and legal fees and expenses of up to $40,000. The net proceeds to us from the public offering were $1.8 million, after deducting the offering expenses and fees payable by us. We are using the net proceeds for general corporate purposes and working capital.

Cash Flows

We reported a net loss of $1.2 million for the quarter ended September 30, 2019 and a net loss of $0.8 million for the quarter ended September 30, ~~2018, as compared to~~2018. We reported a net loss of ~~$0.9~~$3.6 million for the ~~same period in the prior year~~nine months ended September 30, 2019 and a net loss of $2.9 million for the nine months ended September 30, 2018, as compared to a net loss of $1.7 million for the same period in the prior year. The key drivers in the decrease in profitability include continuing resource investments in developing our technology and sales efforts designed to grow and expand our capabilities across our ACH, Integrated Payments and Prepaid businesses. Our reported net loss of $0.8 million for the quarter ended September 30, 2018 decreased $0.2 million or 21% versus our reported net loss of $1.0 million for the quarter ended June 30, 2018.

~~Liquidity and Capital Resources~~

At September 30, ~~2018,~~2019, we had $2.7 million of cash and cash equivalents, as compared to $4.8 million of cash and cash equivalents at December 31, 2017. The decrease in cash for the nine months ended September 30, 2018 was primarily due to $0.6 million of net funds used by operations for the period (excluding $1.3 million of merchant reserve requirements) and $1.0 million of treasury stock purchases to cover employee taxes associated with the January 9, 2018 stock vesting and $0.6 million of capital expenditures. We saw the results of our focused efforts to drive gross profits and optimize expenditures to achieve positive cash flow from operating activities and intend to drive improved results going forward.

~~Cash Flows~~

We reported a net loss of $0.8 million for the quarter ended September 30, 2018 and a net loss of $0.9 million for the quarter ended September 30, 2017 and a net loss of $2.9 million for the nine months ended September 30, 2018 and a net loss of $1.7 million for the nine months ended September 30, 2017. At September 30, 2018, we have an accumulated deficit of ~~$56.2~~$60.6 million. Additionally, we had working capital of ~~$2.6~~$2.3 million and ~~$4.8~~$2.4 million at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Net cash used by operating activities including merchant reserve funds, prepaid card load assets and net lease assets (only in 2019) was $3.0 million and $1.9 million for the quarter ended September 30, 2019 and ~~$0.9 million~~September 30, 2018, respectively. Excluding merchant reserves, prepaid card load assets and lease right-of-use assets and liabilities, our cash used by operating activities was $881,175 and $746,316 for the nine months ended September 30, ~~2018~~2019 and September 30, ~~2017,~~2018, respectively. Excluding merchant reserves, our cash used by operating activities was $0.6 million and cash provided by operations of $33,104 for the nine months ended September 30, 2018 and September 30, 2017, respectively. The increase in net cash used by operating activities for the nine months ended September 30, 2018 as compared to the same period in the prior year was attributable to a higher operating loss.

~~Our legacy business is profitable. While focusing our efforts on achieving positive cash flows from operations and driving revenue growth, we~~We continue to invest resources and infrastructure in our ~~Prepaid~~prepaid and ~~Integrated Payments~~PayFac integrated payments growth initiatives to achieve scale in these business lines.

Net cash used by investing activities was ~~$0.6 million~~$536,405 and $579,198 for the nine months ended September 30, 2019 and September 30, 2018, asrespectively. The primary drivers of the capital expenditures were development costs associated with internal use software capitalization.

Net cash generated from financing activities for the nine months ended September 30, 2019 was $1.7 million compared to net cash used by ~~investing~~financing activities of ~~$1.8~~$1.0 million for the ~~same period~~nine months ended September 30, 2018. The 2019 net cash provided by financing activities was primarily the result of a public offering which raised $1.8 million in net proceeds in February 2019. In 2018, the ~~prior year. The investing~~net cash used by financing activities represents purchases of certain shares of common stock owned by officers, employees and directors to offset taxes owed primarily related to ~~normal asset~~the vesting of a 10-year stock grant issued in 2008 that vested January 9,

2018. We do not have another large stock grant vesting until October 2022. Until that time, we anticipate that purchases ~~plus expenditures associated with the establishment~~ of ~~two new offices in San Antonio, Texas and Memphis, Tennessee~~stock as a ~~result~~part of ~~lease expirations. Prior year investing activities included costs associated with~~our buyback program will be limited to the ~~acquisition~~vesting of ~~Singular Payments on September 1, 2017.~~restricted stock units and will be of a smaller magnitude than the treasury stock purchase in 2018.

Off-Balance Sheet Arrangements

We currently 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 3. 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.

Item 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive and Chief Financial Officers, 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 (the “Exchange Act”)) as of the end of the period covered by this quarterly report on Form 10-Q. Based on that evaluation, our Chief Executive and Chief Financial Officers concluded that our disclosure controls and procedures as of September 30, ~~2018~~2019 were 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 and Chief Financial Officers, as appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance that such information is accumulated and communicated to our management. Our evaluation of disclosure controls and procedures included an evaluation of certain 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.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the quarter ended September 30, ~~2018~~2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

Under a loan and security agreement dated February 2, 2016, the ~~Company's wholly-owned subsidiary FiCentive, Inc.~~Company loaned a principal amount of $200,000 to C2Go, Inc. with an interest rate of 10% per annum for a term of 18 months. The loan was secured by a first lien on all assets of C2Go. C2Go defaulted under the note by failing to repay the loan plus interest on August 2, 2017. ~~A lawsuit filed by FiCentive is pending in Bexar County, San Antonio, Texas.~~ On December 7, 2017, the Company entered into a note purchase and settlement agreement with C2Go and Mercury Investment Partners LLC. Pursuant to the note purchase and settlement agreement, Mercury Investment Partners agreed to purchase the note and the rights secured by the security agreement with all rights and obligations and to pay to ~~FiCentive~~the Company a sum of $200,000 in three installments. The first installment of $50,000 was paid on December 7, 2017. The second installment of $50,000 was due on April 30, 2018, and the remaining amount of $100,000 was due on October 31, 2018. In return, ~~FiCentive~~the Company agreed to waive all interest due and payable under the terms of the C2Go loan. Mercury Investment Partners has not paid the amount due April 30, 2018 or the amount due on October 31, 2018. ~~FiCentive has~~the Company issued a letter of default. ~~FiCentive~~The Company agreed to extend the due date of the $50,000 payment due April 30, 2018 to May 16, 2018. $5,000 of the $50,000 due was received on July 5, 2018. On or about August 14, 2018, a notice of default was sent to Mercury Investment Partners. Mercury Investment Partners did not respond to the letter or make payment in full to ~~FiCentive.~~the Company. On September 4, 2018, ~~FiCentive~~the Company filed suit against Mercury Investment Partners in Bexar County District ~~Court~~Court.

The default judgment against Mercury Investment Partners was granted on December 21, 2018. The Company retained the services of legal counsel to represent the Company in collecting on the judgment. Counsel has domesticated the Texas judgment and the ~~litigation~~Company was issued a lien on a property owned by Mercury that is ~~continuing.~~ valued over $1.0 million by the court. We are unsure if any equity exists for us which would allow the Company to potentially recover the funds owed. On or about June 7, 2019, Mercury Investment Partners was served a subpoena to produce certain documents on July 3, 2019 in Colorado. A representative of Mercury Investment Partners did not appear in court on the assigned date and time. Subsequently, Mercury placed the property up for sale though Mercury is aware that we have a valid lien in place on the property.

There are no assurances that the Company will be able to recover the remaining $145,000 principal and there are no assurances that there will be any assets for the Company to recover from its lien on all the assets of C2Go if payment in full of the obligation is not made. Due to the uncertainty of the situation and the “more likely than not” recognition threshold, ~~as of September 30, 2018,~~ the Company ~~has~~ recorded a $72,500 loss reserve on the note receivable ~~of $72,500 as of~~from June 30, 2018 ~~and the reserve remains unchanged as of~~through September 30, 2018.

Given the granting of the default judgment in Texas and the steps underway by legal counsel to domesticate the Texas judgment, the loss reserve has been reduced to $36,250 from December 31, 2018 through September 30, 2019 reflecting a "more likely than not" recognition threshold.

Aside from the lawsuits 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 1A. RISK FACTORS.

There have been no material changes from risk factors previously disclosed in our annual report on Form 10-K for the fiscal year ended December 31, ~~2017,~~2018, as filed with the Securities and Exchange Commission on March ~~30, 2018.~~27, 2019.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Recent Sales of Unregistered Securities

~~There were no issuances of~~We did not issue any unregistered equity securities during the quarter ended September 30, ~~2018.~~2019.

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~~shares 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 funds available at December 31, ~~2017~~2018 were ~~$455,030 and after the increase were $2,455,030. At September 30, 2018, $1,488,388 is available under the repurchase plan.~~$1,472,284. The program began on November 16, 2016 and ~~will be~~was available until all funds are exhausted, or September 29, 2019, unless terminated earlier by us. At September 29, 2019 when the program ended, $1,419,701 was available under the repurchase plan. The program ~~may be~~was used for ~~purchases~~the purchase of stock from employees and directors; and for open-market purchases through a broker. During the three months ended September 30, ~~2018,~~2019, we made the following stock repurchases:


Period	(a) Total number of shares (or units) purchased		(b) Average price paid per share (or unit)		(c) Total number of shares (or units) purchased as part of publicly announced plans or 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) purchased		(b) Average price paid per share (or unit)		(c) Total number of shares (or units) purchased as part of publicly announced plans or programs		(d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
July 1 - July 31, 2018		4,088	$	1.72		726,931	$	1,488,664
August 1 - August 31, 2018		149	$	1.85		727,080	$	1,488,388
August 1 - August 31, 2019										742	$	2.79		760,562	$	1,419,701
Total		4,237								742					$	1,419,701

Subsequent Event

On January 6, 2019, we repurchased 11,860 shares of common stock at a closing price on January 6, 2019 of $1.84 per share from Tom Jewell, our Chief Financial Officer to cover taxes due.

On January 8, 2018 and January 9, 2018, we repurchased 397,845 shares of common stock for $956,128 in a series of private ~~transaction~~transactions at the closing prices on January 8 and January 9, 2018 from employees to cover the respective employee's share of taxes for shares that vested on that day, as approved by our Audit Committee and Board of Directors on the same day, with the respective directors recusing themselves. The share buyback included share purchases from Michael Long, Chairman of the Board, ($380,342), Louis Hoch, President and Chief Executive Officer, ($380,342), and Tom Jewell, Chief Financial Officer, ($32,650), as approved by the Audit Committee of the Board of Directors and the Board of Directors as of January 9, 2018.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. MINE SAFETY DISCLOSURES.

Not applicable.

Item 5. OTHER INFORMATION.

None.

Item 6. Exhibits.



Exhibit
Number		Description

3.1		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).

3.2		Amendment to Restated Articles of Incorporation (included as exhibit A to the Schedule 14C filed April 18, 2007, and incorporated herein by reference).

3.3		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).

3.4		Articles 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).

3.5		Amended and Restated By-laws (included as exhibit 3.2 to the Form 10-KSB filed March 31, 2006, and incorporated herein by reference).

10.1		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).

10.2		Employment Agreement between the Company and Louis A. Hoch, dated February 27, 2007 (included as exhibit 10.2 to the Form 8-K filed March 2, 2007, and incorporated herein by reference).

10.3		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).

10.4		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).

10.5		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).

10.6		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).

10.7		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).

10.8		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).

10.9		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).

10.10		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).

10.11		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).



10.12		Asset Purchase Agreement, dated December 22, 2014, by and between Akimbo Financial, Inc. and Payment Data Systems, Inc. (included as exhibit 10.1 to the Form 8-K filed December 24, 2014, and incorporated herein by reference).



10.13		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).

10.14		Independent Director Agreement, dated April 24, 2015, by and between Payment Data Systems, Inc. and Miguel A. Chapa (included as exhibit 10.29 to the Form 10-Q filed August 14, 2015, and incorporated herein by reference).

10.15		Loan and Security Agreement, dated February 2, 2016, by and between C2Go, Inc., as Debtor and FiCentive, Inc., as Lender (included as exhibit 10.1 to the Form 8-K filed February 8, 2016, and incorporated herein by reference).

10.16†		Prepaid Card Marketing and Processing Agreement, dated February 2, 2016, by and between FiCentive, Inc. and C2Go, Inc. (included as exhibit 10.2 to the Form 8-K filed February 8, 2016, and incorporated herein by reference).

10.17		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).

10.18		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).

10.19		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).

10.20		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).

10.21		Employment agreement between Tom Jewell and Payment Data Systems, Inc., dated January 6, 2017 (included as exhibit 10.1 to the Form 8-K filed January 6, 2017, and incorporated herein by reference).

10.22		Line of Credit Promissory Note, dated March 7, 2017, by and between Singular Payments, LLC, as Borrower and Payment Data Systems, Inc., as Lender (included as exhibit 10.1 to the Form 8-K filed March 13, 2017, and incorporated herein by reference).

10.23		Security Agreement, dated March 7, 2017, by and between Singular Payments, LLC, as Debtor and Payment Data Systems, Inc., as Secured Party (included as exhibit 10.2 to the Form 8-K filed March 13, 2017, and incorporated herein by reference).

10.24		Membership Interest Pledge Agreement, dated March 7, 2017, by and between Vaden Landers as Pledgor and Payment Data Systems, Inc. (included as exhibit 10.3 to the Form 8-K filed March 13, 2017, and incorporated herein by reference).

10.25		Guaranty Agreement, dated March 7, 2017, by and between Vaden Landers as Guarantor and Payment Data Systems, Inc. (included as exhibit 10.4 to the Form 8-K filed March 13, 2017, and incorporated herein by reference).

10.26		Independent Director Agreement, dated November 11, 2016, by and between Payment Data Systems, Inc. and Steve Huffman (included as exhibit 10.41 to the Form 10-K, filed April 6, 2017, and incorporated herein by reference).

10.27		Independent Director Agreement, dated May 5, 2017, by and between Payment Data Systems, Inc. and Brad Rollins (included as exhibit 10.1 to the Form 8-K, filed May 11, 2017, and incorporated herein by reference).

10.28		Amendment No. 1 to Line of Credit Promissory Note, dated June 6, 2017, by and between Payment Data Systems, Inc. and Singular Payments, LLC (included as exhibit 10.1 to the Form 8-K, filed June 8, 2017, and incorporated herein by reference).




10.29		First Amended and Restated Line of Credit Promissory Note, dated August 2, 2017, by and between Payment Data Systems, Inc. and Singular Payments, LLC (included as exhibit 10.1 to the Form 8-K, filed August 7, 2017, and incorporated herein by reference).



10.30†		Membership Interest Purchase Agreement, dated September 1, 2017, by and among Payment Data Systems, Inc., Singular Payments, LLC and Vaden Landers (included as exhibit 10.1 to the Form 8-K, filed September 8, 2017, and incorporated herein by reference).

10.31		Employment Agreement, dated September 1, 2017, by and between Payment Data Systems, Inc. and Vaden Landers (included as exhibit 10.2 to the Form 8-K, filed September 8, 2017, and incorporated herein by reference).

10.32		First Amendment to Employment Agreement, dated November 27, 2017, by and between Payment Data Systems, Inc. and Tom Jewell (included as exhibit 10.1 to the Form 8-K, filed November 28, 2017, and incorporated herein by reference).

10.33		Placement Agency Agreement, dated December 21, 2017, by and between Payment Data Systems, Inc. and Maxim Group, LLC (included as exhibit 10.1 to the Form 8-K, filed December 22, 2017, and incorporated herein by reference).

10.34		Share Purchase Agreement, dated December 21, 2017, by and among Payment Data Systems, Inc., CVI Investments, Inc., Hudson Bay Maser Fund Ltd., Special Situations Fund III QP, L.P., Special Situations Private Equity Fund, L.P. and Special Situations Cayman Fund, L.P. (included as exhibit 10.2 to the Form 8-K, filed December 22, 2017, and incorporated herein by reference).

10.35		Settlement Agreement, dated December 7, 2017, by and among C2Go. Inc., FiCentive, Inc. and Mercury Investment Partners LLC (included as exhibit 10.42 to the Form 10-K, filed March 30, 2018, and incorporated herein by reference).

10.36		Lease Agreement dated February 9, 2018 between Payment Data Systems, Inc. and Blauners Paesanos Parkway LP (included as exhibit 10.43 to the Form 10-K, filed March 30, 2018, and incorporated herein by reference).

10.37		Lease Agreement between Payment Data Systems, Inc. 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).

10.38		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).

10.39		Placement Agency Agreement between the Company and Maxim Group, LLC, dated February 12, 2019 (included as exhibit 10.1 to the Form 8-K filed February 13, 2019, and incorporated herein by reference).

10.40		Share Purchase Agreement among the Company, Sabby Healthcare Master Fund, Ltd. and Sabby Volatility Warrant Master Fund, Ltd., dated February 12, 2019 (included as exhibit 10.2 to the Form 8-K filed February 13, 2019, and incorporated herein by reference).

10.41		Independent Director Agreement dated April 1, 2019, by and between Payment Data Systems, Inc. and Blaise Bender (included as exhibit 10.2 to the Form 8-K filed April 3, 2019, and incorporated herein by reference).

14.1		Code of Ethics (included as exhibit 14.1 to the Form 10-K filed March 30, 2004, and incorporated herein by reference).

16.1		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).

31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).




31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1		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).

101.INS		XBRL Instance Document (filed herewith).

101.SCH		XBRL Taxonomy Extension Schema Document (filed herewith).

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).

101.LAB		XBRL Taxonomy Extension Label Linkbase Document (filed herewith).

101.PRE		XBRL Taxonomy Presentation Linkbase Document (filed herewith).

†		Confidential treatment has been granted for portions of this agreement.

SIGNATURES

Pursuant to the requirements 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.



	~~PAYMENT DATA SYSTEMS,~~USIO, INC


Date: November 14, ~~2018~~2019	By:	/s/ Louis A. Hoch
		Louis A. Hoch
		Chief Executive Officer
		(Principal Executive Officer)

Date: November 14, ~~2018~~2019	By:	/s/ Tom Jewell
		Tom Jewell
		Chief Financial Officer
		(Principal Accounting Officer)

2428



	Estimated Fair Value		Estimated Useful Life
Customer list	$	5,000,000	5 years
Total	$	5,000,000