United eSystems, Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - United eSystems, Inc.	Financial_Report.xls
EX-32.1 - CERTIFICATION - United eSystems, Inc.	ex32-1_0911.htm
EX-32.2 - CERTIFICATION - United eSystems, Inc.	ex32-2_0911.htm
EX-31.2 - CERTIFICATION - United eSystems, Inc.	ex31-2_0911.htm
EX-31.1 - CERTIFICATION - United eSystems, Inc.	ex31-1_0911.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-49745

UNITED ESYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Nevada		91-2150635
(State or other jurisdiction		(IRS Employer Identification No.)
of incorporation or organization)

2150 North Hwy 190

Covington, LA 70433

228-832-1597

(Address and telephone number of principal executive offices and principal place of business)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer	¨		Accelerated filer	¨
Non-accelerated filer	¨		Smaller reporting company	x

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

Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date: As of November 21, 2011, 4,192,145 shares of the registrant’s common stock, $0.001 par value, were issued and outstanding.

UNITED ESYSTEMS, INC.

FORM 10-Q

September 30, 2011

INDEX

Part I – Financial Information		Page

Item 1.	Financial Statements	4

	Consolidated Balance Sheets	4

	Consolidated Statements of Operations	5

	Consolidated Statements of Changes in Stockholders’ Equity	6

	Consolidated Statements of Cash Flows	7

	Notes to Consolidated Financial Statements	8 – 14

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative And Qualitative Disclosures About Market Risk	22

Item 4.	Controls And Procedures	22

Part II – Other Information

Item 1.	Legal Proceedings	23

Item 1A.	Risk Factors	23

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23

Item 3.	Defaults Upon Senior Securities	23

Item 4.	[Removed and Reserved]	23

Item 5.	Other Information	23

Item 6.	Exhibits	23

	Signatures	25

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CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 about United eSystems, Inc. (the “Company”) and our subsidiaries, United Check Services, L.L.C. (United) and Netcom Data Southern Corp. (NDS), that are subject to risks and uncertainties. Forward-looking statements include information concerning future financial performance, business strategy, projected plans and objectives. Statements preceded by, followed by or that otherwise include the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “may increase,” “may fluctuate” and similar expressions of future or conditional verbs such as “will,” “should,” “would,” and “could” are generally forward-looking in nature and not historical facts. Actual results may differ materially from those projected, implied, anticipated or expected in the forward-looking statements. Readers of this quarterly report should not rely solely on the forward-looking statements and should consider all uncertainties and risks throughout this report. The statements are representative only as of the date they are made. The Company, United, and NDS (sometimes referred to herein on a consolidated basis as the Company, we, us, or similar phrasing) undertakes no obligation to update any forward-looking statement.

These forward-looking statements, implicitly and explicitly, include the assumptions underlying the statements and other information with respect to the Company’s beliefs, plans, objectives, goals, expectations, anticipations, estimates, financial condition, results of operations, future performance and business, including management’s expectations and estimates with respect to revenues, expenses, return on equity, return on assets, efficiency ratio, asset quality and other financial data and capital and performance ratios.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, these statements involve risks and uncertainties that are subject to change based on various important factors, some of which are beyond the control of the Company. The following factors, among others, could cause the Company’s results or financial performance to differ materially from its goals, plans, objectives, intentions, expectations and other forward-looking statements:

general economic and industry conditions;

our capital requirements and dependence on the sale of our equity securities;

the liquidity of the Company’s common stock will be affected by the lack of a trading market;

intense industry competition;

fluctuations in the prevailing industry prices of check processing services;

shortages in availability of qualified personnel;

legal and financial implications of unexpected catastrophic events;

regulatory or legislative changes effecting check processing operations; and

reliance on, and the ability to attract, key personnel.

For a discussion of these and other risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in Item 1A of the Company’s 2010 Annual Report filed on Form 10-K with the SEC, which is available on the SEC’s website at www.sec.gov. All forward-looking statements are qualified in their entirety by this cautionary statement, and the Company undertakes no obligation to revise or update this Quarterly Report on Form 10-Q to reflect events or circumstances after the date hereof. New factors emerge from time to time, and it is not possible for us to predict which factors, if any, will arise. In addition, the Company cannot assess the impact of each factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UNITED ESYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS	September 30, 2011 (Unaudited)			December 31, 2010 (Audited)

CURRENT ASSETS
Cash and Cash Equivalents	$	108,478		$	137,732
Restricted Cash		195,795			406,594
Trade Receivables, net		41,494			66,838
Deferred Tax Asset, current		--			--
Prepaid Interest		251,665			20,000
Prepaid Expenses		29,334			11,877

Total Current Assets		626,766			643,041

PROPERTY AND EQUIPMENT, NET		12,946			26,369

OTHER ASSETS
Intangible Assets, net		3,993,295			4,465,934
Deferred Tax Asset, Non-current		--			--
Other		63,815			63,315

Total Assets	$	4,696,822		$	5,198,659

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
ACH Settlements Payable	$	175,690		$	378,988
Current Portion Long-Term Debt		657,466			867,484
Accounts Payable and Accrued Liabilities		309,004			54,325
Customers’ Deposits		20,105			27,605

Total Current Liabilities		1,162,265			1,328,402

LONG TERM LIABILITIES
Notes Payable		3,016,529			3,221,841
Deferred Tax Liabilities, non-current		3,051			3,051

Total Liabilities		4,181,845			4,553,294

STOCKHOLDERS’ EQUITY
Common Stock - $.001 Par Value; 75,000,000 Shares Authorized, 4,192,145 and 3,944,513 shares Issued and Outstanding at September 30, 2011 and December 31, 2010		39,710			39,445
Additional Paid-In Capital		2,273,746			1,743,761
Retained Earnings		(1,798,479	)		(1,137,841	)

Total Stockholders’ Equity		514,977			645,365

Total Liabilities and Stockholders’ Equity	$	4,696,822		$	5,198,659

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

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UNITED ESYSTEMS, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

		Three Months Ended September 30,						Nine Months Ended September 30,
		2011			2010			2011			2010
Revenues
ACH Services	$	107,382		$	355,259		$	294,745		$	969,485
Verification Services		3,089			50			16,420			29,717
Credit Card Services		422,869			402,915			1,282,518			1,170,079
Total Revenues		533,340			758,224			1,593,683			2,169,281

Cost of Revenues		207,108			268,549			589,064			729,562

Gross Profit		326,232			489,675			1,004,619			1,439,719

Expenses:
Operating
Personnel costs		44,185			37,375			129,157			107,675
Travel expense		3,304			10,392			23,115			36,187
Amortization expense		149,858			152,208			476,600			450,744
Commissions and fees expense		17,406			27,219			53,956			110,650
Other		58,565			63,610			196,412			183,181
Total Operating Expenses		273,318			290,804			879,240			888,437


Selling, General & Administrative
Personnel costs		122,702			123,070			377,691			382,456
Legal and accounting expenses		14,267			14,984			72,150			70,925
Marketing		5,613			6,729			19,954			19,058
Other		7,559			950			10,825			4,625
Total Selling, General & Administrative		150,141			145,733			480,620			477,064

Total Expenses		423,459			436,537			1,359,860			1,365,501

(Loss) Income from operations		(97,227	)		53,138			(355,241	)		74,218

Other Income (expense):
Interest Income		3			3			26			468
Interest Expense		(104,748	)		(140,692	)		(305,423	)		(450,103	)

Net Loss before income taxes		(207,972	)		(87,551	)		(660,638	)		(375,417	)

Income tax benefit (expense)		--			(284,262	)		--			(240,784	)

Net Loss	$	(201,972	)	$	(371,813	)	$	(660,638	)	$	(616,201	)

Net Loss per Share	$	(.05	)	$	(.01	)	$	(.16	)	$	(.02	)

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

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UNITED ESYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(unaudited)

	Common Stock				Additional Paid-In		Retained			Total Stockholders’
	Shares		Amount		Capital		Earnings			Equity

Balance at January 1, 2010		3,427,263	$	34,272	$	847,339	$	(179,075	)	$	702,536

Private Placement Equity Offering		507,250		5,073		893,522		-			898,595

Employees’ Exercise of stock options		10,000		10		2,990		-			300

Net Loss		-		-		-		(616,201	)		(616,201	)

Balance at September 30, 2010		3,944,513	$	39,355	$	1,743,851	$	(795,276	)	$	987,930



Balance at January 1, 2011		3,944,513	$	39,445	$	1,743,761	$	(1,137,841	)	$	645,365

Stock Issued to Employees		6,375		6		12,744		-			12,750

Shares issued in conjunction with reverse stock split		7		-		-		-			-

Proceeds from stock issued		8,750		9		17,491		-			17,500

Stock Issued to reduce notes payable		250,000		250		499,750		-			500,000

Net Loss		-		-		-		(660,638	)		(660,638	)

Balance at September 30, 2011		4,209,645	$	39,710	$	2,273,746	$	(1,798,479	)	$	514,977

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

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UNITED ESYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

		Nine Months Ended September 30,
		2011			2010

CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(660,638	)	$	(616,201	)
Adjustments to Reconcile Net Loss to Net
Cash Provided by Operating Activities
Depreciation and Amortization		490,663			477,720
Decrease in Trade Receivables		25,344			38,797
Increase in Prepaid Expenses		(17,457	)		(2,300	)
Compensation expense related to employee stock issued		12,752
Decrease in Prepaid Interest		8,335			78,000
Decrease (Increase) in Restricted Cash		210,799			(35,219	)
Increase in Deferred Tax Asset		--			240,785
(Decrease) Increase in ACH Settlements Payable		(203,298	)		19,219
Increase (Decrease) in Accounts Payable and accrued liabilities		254,679			(60,297	)
(Decrease) Increase in Customer Deposits		(7,500	)		16,000
Net Cash Provided by Operating Activities		113,679			156,504

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Property and Equipment		(640	)		(5,005	)
Acquisition of portfolio assets		(3,960	)		(94,080	)
Cash paid for other assets		(500	)		--
Net Cash Used in Investing Activities		(5,100	)		(99,085	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net Proceeds from restricted stock		17,500			898,595
Proceeds from notes payable		213,500			94,000
Stock issued to reduce notes payable		240,000			--
Proceeds from Employee Exercise of Stock Options		--			3,000
Principal paid on notes payable		(608,833	)		(1,017,229	)
Net Cash Used In Financing Activities		(137,833	)		(21,634	)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(29,254	)		35,785

CASH AND CASH EQUIVALENTS – BEGINNING OF PERIOD		137,732			228,213
CASH AND CASH EQUIVALENTS – END OF PERIOD	$	108,478		$	263,998

SUPPLEMENTAL DISCLOSURES
Cash Paid During the Period for Interest	$	200,675		$	372,103
Cash Paid During the Period for Taxes	$	--		$	15,000
NON-CASH TRANSACTIONS
Exchange of 250,000 shares of common stock for debt	$	240,000		$	--

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

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UNITED ESYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — PLAN OF REORGANIZATION AND CONTRIBUTION AGREEMENT

On March 30, 2005, Riverbend Telecom, Inc. (Riverbend) entered into an Agreement and Plan of Reorganization (the “Spin-Off Agreement”) between Riverbend and Riverbend Holdings, Inc. (Holdings), its wholly-owned subsidiary, pursuant to which Riverbend transferred all of its assets, liabilities and other obligations to Holdings in consideration for Holdings common stock. In addition, Riverbend distributed all of Holdings common stock to the then-existing four Riverbend stockholders (the “Spin-Off”), on a pro rata basis, one share of Holdings common stock for each Riverbend share held by the stockholders. Holdings was formed for the purpose of effecting the reorganization of Riverbend and the subsequent distribution of all of the Holdings common stock to Riverbend’s current stockholders. Holdings had previously filed a Form 10-SB with the Securities and Exchange Commission regarding its common stock under Section 12(g) of the Securities Exchange Act of 1934.

Upon consummation of the Spin-Off, Riverbend completed the contribution transaction with United Check Services, L.L.C. (United), a Louisiana limited liability company, according to the terms of a Contribution Agreement entered into on July 14, 2004, as amended by a Letter Agreement dated August 5, 2004 (collectively, the “Contribution Agreement”). Pursuant to the Contribution Agreement, the equity owners of United contributed all of their limited liability membership interests in United to Riverbend in exchange for 15,315,000 shares of Riverbend’s common stock. As a result of this transaction, United became a wholly-owned subsidiary of Riverbend, and the members of United became the majority stockholders of Riverbend, and the transaction was accounted for as a reverse acquisition. As a result of the Spin-Off, the current telecommunications business of Riverbend is now carried on by Holdings, and the automated clearing house services business of United is now carried on by Riverbend, through its 100% ownership interest of United.

On June 13, 2005, Riverbend effected a name change from Riverbend Telecom, Inc. to United eSystems, Inc. to better reflect the change in business operations as a result of the consummation of the Plan of Reorganization and the Contribution.

NOTE 2 — NATURE OF RECENT ACQUISITON AND PORTFOLIO ASSET PURCHASES

Acquisition of Netcom Data Southern Corp.

On August 22, 2008, United eSystems, Inc. (“eSystems”, “Company”) entered into a Stock Purchase Agreement (“Agreement”) with Netcom Data Southern Corp. (“NDS”), in which eSystems acquired all of the common stock of NDS. The transaction was reported on Form 8-K on August 28, 2008, and the details of the transaction together with agreement between eSystems and NDS are included therein.

The Company entered into the transaction as means to diversify its electronic payments business. Prior to the transaction, the majority of the Company’s revenue was derived from providing ACH payment services for business merchants. For 2010 and 2009, the Company’s gross revenues were approximately 43% and 30%, respectively, from its ACH payments business, and 57% and 64%, respectively, from credit card merchant processing services which are provided through contracts that NDS has with several sponsor banks in the United States. The Board of Directors and management believe that the acquisition of NDS provides the opportunity to improve operating results and the possibility of creating future value.

Pursuant to the Agreement, the Company acquired all of the outstanding stock of NDS in exchange for approximately $272,000 of cash at closing, an unsecured promissory note payable of $2,720,000, and 7,800,000 shares of the Company’s restricted common stock which had an estimated fair value at the date of the acquisition of $.05 per share. As a result of the transaction, all of the Company’s sales and marketing activities, as well as all of the customer service duties to manage the credit card merchant accounts of NDS will be conducted through NDS, which is now a wholly-owned subsidiary of the Company.

As part of the purchase, the Company acquired $3,402,925 of identified intangibles. The value allocated to customer relationships and contracts created as a result of the acquisition of NDS is being amortized over its estimated useful life of ten years. Amortization expense related to NDS for the three months and nine months ended September 30, 2011 was $78,360 and $235,080, respectively.

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Portfolio Asset Purchases

On September 17, 2008, the Company, through its wholly-owned subsidiary NDS, entered into and closed an Asset Purchase Agreement (the “Agreement”) with Netcom Data Corp. of N.Y. and American Timeshare Associates, Inc. (collectively the “Sellers”). Under the terms of the Agreement the Company paid $2,275,000 in cash, plus 3,200,000 shares of its restricted common stock, in exchange for the assignment all of the Sellers’ rights under a certain Independent Sales Organization Agreement (the “Bank Agreement”) with LaSalle Bank, N.A., a subsidiary of Bank of America (the “Bank”). The terms of the Bank Agreement allow merchant customers of the Seller to utilize the credit card merchant processing services provided by the Bank. As a result of the assignment of the Bank Agreement, NDS will perform certain services previously provided by the Sellers under the Bank Agreement and will receive all payments due therefore from the Bank. Pursuant to the Agreement, 10% of the cash and stock paid at closing was escrowed, subject to an attrition formula applicable during the 12 months following the transaction date, whereby the Company may be reimbursed up to the amounts escrowed if the portfolio’s performance does not meet certain benchmarks during the applicable period.

The Company accounted for this transaction as an asset purchase and the purchase price, which is based upon the total consideration paid, is included on its consolidated balance sheet as Intangible Assets. The purchase price is amortized over a ten year period, commencing September 17, 2008. Amortization expense related to the Portfolio Asset Purchase for the three months and nine months ended September 30, 2011, was $56,208 and $168,624, respectively.

On February 5, 2010, the Company acquired a 50% interest in a portfolio of credit card merchant accounts from Mr. Leo Daboub. The Company obtained all of Mr. Daboub’s rights pursuant to a contract between Mr. Daboub and one of the Company’s vendors, a non-bank credit card processor. Pursuant to the purchase, the Company now receives a portion of the fees associated with the credit card processing services provided to this portfolio of merchants. The Company paid $94,080 in cash at closing. The transaction was accounted for as an asset purchase based on the total consideration paid at closing of $94,080 in cash amortized over a period of 16 months. The asset was fully amortized during the second calendar quarter of 2011, and accordingly, the Company recognized amortization expense for the three months and nine months ended September 30, 2011, of $0 and $29,400, respectively.

On November 5, 2010, the Company entered into a purchase agreement whereby it acquired all of the rights to residual commissions related to a portfolio of accounts from Equicel Incorporated, one of its existing independent sales agents. Pursuant to the agreement, the Company paid $27,683 at closing. The transaction was accounted for as an asset purchase based on the consideration paid at closing and was amortized over a period of ten months. The Company recognized amortization expense for the three months and nine months ended September 30, 2011, of $8,305 and $24,915, respectively.

On November 24, 2010, the Company entered into a purchase agreement whereby it acquired 90% of the rights to residual commissions related to a portfolio of accounts from Elite Merchant Services, Inc., one of its existing independent sales agents. Pursuant to the agreement, the Company paid $19,325 in cash at closing. The transaction was accounted for as an asset purchase based on the consideration paid at closing and was amortized over a period of ten months. The Company recognized amortization expense for the three months and nine months ended September 30, 2011, of $5,798 and $17,394, respectively.

On July 2, 2011, the Company entered into a purchase agreement whereby it acquired 100% of the rights to residual commissions related to a portfolio of accounts from one of its existing independent sales agents. Pursuant to the agreement, the Company paid $3,960 in cash at closing. The transaction was accounted for as an asset purchase based on the consideration paid at closing and was amortized over a period of ten months. The Company recognized amortization expense of $1,188 for the three months and nine months ended September 30, 2011.

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

As described in Notes 1 and 2, UNITED ESYSTEMS, INC. (Company) serves as the holding company for United Check Services, L.L.C. (United) and Netcom Data Southern Corp (NDS). United provides automated clearing house (ACH) services to businesses throughout the United States. NDS is an independent sales organization that

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obtains merchant customers that utilize credit card processing services through several NDS sponsored banks. NDS receives a portion of the fees charged for such services in exchange for acquiring the merchants and maintaining certain customer service functions. The Company’s headquarters are in Covington, Louisiana, its ACH operations center is located in Gulfport, Mississippi, and the operations of NDS are conducted at its offices in Roswell, Georgia.

Basis of Presentation and Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, United and NDS. All significant intercompany balances and transactions have been eliminated in consolidation.

The consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of financial information for the interim periods presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of 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

United charges customers a per transaction fee for its ACH services. For these transactions, United recognizes only the fees generated as revenue. United recognizes these fees as revenue when United has provided the service to its customers. Fees for ACH services are based on contractually determined rates with each individual customer. Settlements paid to customers for ACH transactions are submitted to the customer net of fees due to United.

NDS receives a portion of the fees generated from credit card merchant processing services which are provided through its contractual agreements with various sponsor banks. Under these agreements the merchants’ transaction activity is reported and NDS’ portion of the fees are paid during the month following the month in which the transactions occurred. Accordingly, NDS recognizes its revenue in the month in which such transactions are reported and payable, which is consistent with industry practices within the United States of America.

Basis of Accounting

The books and records of the Company are kept on the accrual basis of accounting, whereby revenues are recognized when earned and expenses are recognized when incurred.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using primarily straight-line methods over the estimated useful lives of the related assets, which ranges from three to seven years.

Income Taxes

The Company reports its income taxes under a consolidated Federal tax return which includes the business activity of the Company, as well as the business activity of its wholly-owned subsidiaries, United and NDS.

Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to change in tax rates and laws.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the

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position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above would be reflected as a liability for unrecognized tax benefits in the consolidated balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties associated with unrecognized tax benefits would be classified as additional income taxes in the statement of operations.

Advertising

Advertising costs are charged to operations when incurred.

Statement of Cash Flow Information

For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

NOTE 4 — RESTRICTED CASH

Restricted cash consists primarily of funds maintained in United’s primary bank account to facilitate ACH transactions. The Company has restricted this cash from operations in order to ensure that sufficient funds are maintained to process and settle customers’ ACH transactions.

NOTE 5 — NOTES PAYABLE

Due to Shareholders

During September 2008, the Company entered into two notes payable with two existing shareholders of the Company for a total principal amount of $70,000. The notes provide for interest only payments at a rate of 10% per annum payable monthly thereafter, with the entire principal balances due and payable two years from inception of the notes. As of December 31, 2010, there was an outstanding balance on one of these notes, in the amount of $17,500, which was extended for an additional two years, such that the entire remaining principal balance will be due and payable September 8, 2012.

On July 31, 2010, the Company entered into a note payable with one of its existing shareholders, for a total principal amount of $77,000. The note provides for interest only payments at a rate of 7% per annum payable monthly thereafter, with the entire principal balance due and payable two years from inception of the note. During 2010, as a short-term means to assist with some of our purchases of merchant portfolios, this shareholder also advanced additional funds to the Company in the amount of $7,500, for which there were no notes payable or interest specified, and which was repaid during the three months ended March 31, 2011. On June 27, 2011, the outstanding balance of $77,000 due this shareholder was paid in full.

As a result of the transactions described above, the total amount due to these shareholders was $17,500 at September 30, 2011.

NDS Acquisition – Share Purchase Note

On August 22, 2008, as part of the acquisition of NDS, the Company issued an unsecured note (the “Share Purchase Note”) payable to the shareholders of NDS. The Share Purchase Note bears interest at 5.5% for the first 12 months and 9.5% for the following 24 months, when the Share Purchase Note is due in full. Pursuant to the terms of the Share Purchase Note, the Company will make interest-only payments each month and will make three principal payments of $180,000 on each anniversary date of the note with one final balloon payment representing the then outstanding principal and accrued interest on the third anniversary of the issue date of the Share Purchase Note. During August 2009, the Company executed an amendment to the Share Purchase Note whereby the scheduled principal payment of $180,000 due on August 22, 2009, was amended to require a $30,000 principal payment which was paid by the Company. Mr. William Plummer, a current employee, shareholder, and director of the Company, was formerly the majority shareholder of NDS and will receive a majority of the payments on the Share Purchase Note.

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On April 8, 2011, the Company amended its Share Purchase Note with the former shareholders of NDS whereby the due date of the outstanding principal note of $2,670,000 was extended from August 23, 2011 until August 23, 2014, in exchange for 130,000 shares of the Company’s restricted common stock. The interest rate was adjusted from 9.5% to 10.6%, and the outstanding principal balance was reduced by $240,000 in exchange for 120,000 additional shares of restricted common stock. As a result, the Company will continue to make regular monthly payments of interest only on the remaining principal balance of $2,435,000 which will amount to approximately $21,509, compared to the monthly payments of approximately $21,177 it has been making since 2009. Additionally, the Company agreed that the repayment of the note will now be secured by all of the Company’s assets. As a result of these transactions the Company recorded prepaid interest of $260,000 in conjunction with the stock issued in exchange for the extension of the due date on the note, which is being amortized over the three year extension period. The remaining outstanding principal balance of the note was $2,435,000 as of September 30, 2011.

NDS Acquisition – Sorrentino Note

On August 22, 2008, in order to facilitate the cash payment due at the closing of the acquisition of NDS, the Company issued a non-interest bearing secured promissory note (the “Sorrentino Note”) and entered into and closed a security agreement (the “Security Agreement”) with Robert J. Sorrentino, one of the Company’s shareholders. The terms of the Sorrentino Note provide that the Company may draw up to $500,000 from Sorrentino with advanced written notice to and subject to the approval of Sorrentino for a period of up to seven months. The Company drew $280,000 immediately upon issuance of the Sorrentino Note. Commencing on the seven-month anniversary of the issue date of the Sorrentino Note, the Company will make 24 equal monthly installments in an amount sufficient to repay the entire outstanding principal balance during such 24 month period. The Sorrentino Note is secured by the Security Agreement, which grants Sorrentino a security interest in all of the assets existing, owned, or hereafter acquired by the Company. In lieu of payment of interest, the Company granted Sorrentino 4,800,000 shares of its common stock with an estimated fair value of $0.05 per share. The Company has recognized the value of the shares issued ($240,000) as prepaid interest, and is amortizing this amount over the total life of the note of 30 months. On May 27, 2009, the Company executed an Amendment to the Loan Agreement with Sorrentino (“Sorrentino Amendment”) which reduced the amount of monthly principal payments as provided for in the original Sorrentino Note. Under the Sorrentino Amendment, the Company made an initial payment of $15,350 in principal and began making monthly principal payments of $7,675 thereafter, continuing through February 28, 2011, at which time the note is considered due on demand, and the Company continued to make its minimum payments of $7,675. For the nine months ended September 30, 2011, the Company made principal payments of $69,075, thereby reducing the outstanding principal balance of these notes to $93,250.

On December 28, 2010, the Company entered into a Loan Agreement with Mr. Sorrentino in the amount of $500,000 for the purpose of reducing its existing note payable with Thermo Credit, LLC. The terms of the note provide that the Company will make monthly principal payment, commencing January 29, 2011, of $13,889, together with accrued interest at the greater of 12% per annum, or the 30-day LIBOR rate as published in the Wall Street Journal, plus 1,075 basis points, for a period of 36 months. The loan is secured by the Company’s assets and matures December 28, 2013. As of September 30, 2011, the outstanding principal balance on this Loan Agreement was $375,000.

Thermo Credit Note

On September 17, 2008, in order to facilitate the cash payment due at the closing of the purchase of the portfolio of credit card merchant services accounts from Netcom Data Corp. of N.Y. and American Timeshare Associates, Inc., the Company, NDS, and United (collectively the “Debtors”) borrowed $2,128,500 from Thermo Credit, LLC, a Colorado limited liability company (the “Lender”) pursuant to a Loan, Pledge, and Security Agreement (the “Loan Agreement”) and a Promissory Note (the “Note”) which provide for interest at the greater of 15% per annum or 8% in excess of the prime rate, plus other fees. Accrued and unpaid interest on the outstanding principal balance of the Note is due and payable monthly commencing on October 31, 2008 and the Note matures and becomes due in full on March 17, 2009, with the Company having the right to extend the maturity to September 17, 2009 with Lender’s approval (not to be unreasonably withheld or delayed). In the event of such extension, the Note is payable as follows: (a) one payment of accrued and unpaid interest on March 31, 2009; (b) five monthly payments of principal plus accrued and unpaid interest thereon in an amount necessary to amortize the outstanding principal balance of the Note as of March 17, 2009 over a period of 24 months commencing on April 30, 2009 and continuing on the same day of each calendar month thereafter (or if no such corresponding date, on the last date of such calendar month); and (c) a final payment of all principal plus accrued and unpaid interest on September 17, 2009. The Loan

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Agreement grants the Lender a security interest in all of the assets, now owned, or hereafter acquired by the Debtors, and pledges all of the outstanding common stock of NDS and all of the outstanding membership interests of UCS to the Lender. Two of the Company’s minority shareholders serve on the board of directors for Thermo Credit, LLC.

On December 29, 2010, the Company entered into an amendment to its existing Note with Thermo Credit, LLC whereby, in conjunction with a principal payment of $510,000 made at closing, it amended the terms of the Note such that its remaining outstanding principal balance of $500,000 is repaid in monthly installments of $17,579, at 16% per annum, over a period of 36 months, maturing December 29, 2013. As of September 30, 2011, the outstanding principal balance on the Note with Thermo Credit, LLC was $432,307.

Sledz Trust Note

On March 4, 2011, the Company entered into a promissory note with Kelda Sledz Trust, whereby the Company received proceeds of $113,500. The note calls for sixteen monthly payments of $7,094, plus interest, computed on the outstanding principal balance and based upon an interest rate of 3.5% per annum. As of September 30, 2011, the outstanding principal balance on the Sledz Trust Note was $70,938.

Guaranty Bank Line of Credit

On June 27, 2011, the Company was granted an increase in its line of credit at Guaranty Savings Bank to $250,000. The note bears interest at 3.14% per annum and requires monthly payments of interest only. The line of credit is annually renewable and secured by the assets of one of the Company’s significant shareholders.

NOTE 6 — INCENTIVE STOCK & OPTIONS

On March 30, 2005, the Company entered into a non-qualified stock option agreement, whereby the Company granted 312,000 options to its CFO. On February 15, 2006, the Company entered into non-qualified stock option agreements with four key employees, granting a total of 9,000 options, which included 3,250 options to its CFO. All of the options have an exercise price of $.30 per share, and were fully vested as of the date of the grant. The option agreements terminate five years from the date they were granted. During 2009 and 2010, a total of 4,250 and 10,000 shares of these non-qualified stock options were exercised, respectively. The options exercised in 2010 were previously granted in 2005 to the CFO. During 2010 all of these non-qualified options were either exercised or expired unexercised, such that there were no remaining non-qualified options outstanding at December 31, 2010.

On August 20, 2008, the Board of Directors adopted the 2008 Incentive Stock Plan and granted at total of 115,700 options to employees of United. All of the options have an exercise price of $.50 per share and were fully vested as of the date of the grant. The options terminate five years from the date granted. None of these options have been exercised. Therefore, there were a total of 115,700 of these options unexercised and outstanding at September 30, 2011.

There were no options granted during the three months and nine months ended September 30, 2011 and there was no compensation expense charged to operations related to stock options during the three months and nine months ended September 30, 2011.

For the nine months ended September 30, 2011, the Company issued a total of 6,375 shares of restricted common stock to a total of nine of its employees. The Company valued the stock at $2.00 per share and recorded a total $12,750 of compensation expense related to the shares issued.

NOTE 7 — SIGNIFICANT CONCENTRATIONS

Cash

At September 30, 2011, and December 31, 2010, the Company maintained balances with financial institutions in excess of FDIC insured limits. The Company has not experienced any losses and does not believe that significant credit risk exists as a result of this practice.

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Major Customers

During the three months and nine months ended September 30, 2011, the Company had no transactions with any one customer that amounted to 10% or more of the Company’s gross revenue.

NOTE 8 — COMMITMENTS

Operating Leases

The Company’s principal executive office is located at 2150 North Highway 190, Covington, Louisiana 70433. It leases approximately 800 square feet at a cost of approximately $975 per month of office space pursuant to a 36 month lease that expires July 14, 2012.

Effective August 22, 2008, in conjunction with the acquisition of NDS, the Company entered into a 36 month lease with the existing lessor of the NDS office facilities in Roswell, Georgia, at a rate of $4,000 per month. The lease is automatically renewable for additional one year periods beyond the initial 36 month terms unless the Company as Lessee elects not to extend by providing written notice to the lessor at least five days prior to the expiration of the initial term.

Effective November 1, 2010, the Company accepted an amendment to its existing lease to extend its leased office facilities at its present location in Gulfport, Mississippi, for an additional three year term at $2,350 per month, beginning on the effective date, and continuing for the entire lease term.

Employment Contracts

In connection with the Company’s acquisition of NDS, the Company entered into employment contracts with two key employees of NDS, each having a three-year term. The employment contracts address compensation and termination.

ACH Processing Agreement

On August 4, 2006, United entered into an ACH processing agreement that provided for the utilization of an internet based ACH processing system, inclusive of bank and processing fees. The term of the agreement is 60 months, and renewable for successive 12 month periods thereafter. If management elects to terminate this agreement during its initial term without cause, the agreement provides for a liquidation fee equal to the average monthly processing volume at termination times the number of months remaining in the agreement, subject to a maximum of $66,000.

NOTE 9 — RELATED PARTY TRANSACTIONS

As disclosed in Note 5, the Company has notes payable with minority shareholders and with an entity for which two minority shareholders serve on the board of directors.

NOTE 10 — EARNINGS PER SHARE

For earnings per share calculations, the weighted average common shares outstanding amounted to 4,192,145, and 4,098,022, for the three months and nine months ended September 30, 2011, respectively. The weighted average common shares outstanding were 3,934,513 and 3,824,887, for the three months and nine months ended September 30, 2010, respectively. Options to purchase 115,700 shares at $.50 per share were outstanding during the three months and nine months ended September 30, 2011, but were not included in the computation of diluted earnings per share because the options’ weighted average exercise price was greater than the estimated market price of the common shares.

On January 19, 2011, a total of 6,375 common shares were issued to employees pursuant to the Company’s 2008 ISO Plan.

NOTE 11 – FINANCIAL STATEMENT PRESENTATION

Certain amounts in the 2010 financial statements have been reclassified to conform with the 2011 presentation.

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

Executive Summary

The Company is an electronic payments service provider headquartered in Covington, Louisiana, that caters mostly to small and medium-size businesses that handle significant volumes of electronic transactions as an integral part of their business. Since 1998, we have provided electronic ACH (Automated Clearing House) payments via our internet-based, encrypted systems, to assist merchants in the collection of their sales and accounts receivables. Our processing systems may also be used to transmit payments such as loan proceeds, customer refunds, travel expenses, commission payments, and payroll direct deposits. We act as the merchant’s ACH processor and clear transactions electronically through the Federal Reserve Banking System. We are paid based on a fee per each ACH transaction we process, and typically receive our fees at the time we are settling collected proceeds electronically to each of our merchants.

The ACH Network has been in use for in excess of 30 years, serving a variety of customers, including over 20,000 financial institutions, 3.5 million businesses, and 135 million individuals. The ACH business is divided between traditional banks, large “in-house” processors, and independent processors. We currently concentrate on independent processors service customers that utilize electronic commerce but find that outsourcing is a more cost effective solution. The independent processors find they are able to provide custom tailored solutions and better transaction pricing than the merchants could individually obtain from traditional banks. We have established ourselves as a quality provider of ACH processing services with proven results utilizing state of-the-art technology.

In addition, the Company, through its acquisition of NDS, now offers additional services including credit and debit card services, real-time account verification, and identity verification services. Such services are complimentary to our ACH payment services and with their addition it allows us to provide a more comprehensive line of services to our existing and prospective business customers.

Results of Operations

In this section, we provide more detailed information about our operating results and changes in financial position. This section should be read in conjunction with the financial statements and related notes include in this Form 10-Q, and in conjunction with our Form 10-K previously filed for the year ended December 31, 2010.

Three Months and Nine Months Ended September 30, 2011 compared to the Three Months and Nine Months Ended September 30, 2010

Revenues

Our revenue is mostly generated by providing payment services which include Automated Clearing House (ACH) processing services as well as earning residual revenue from credit card merchant services for business customers. We also provide real-time electronic account verification services, as well as identity and age verification services. The majority of our customers utilize our services to collect their gross receipts or accounts receivable electronically. However, ACH processing services may also be utilized for other purposes, including direct deposit of employee payroll, employee travel advances, payments to non-employee contractors, and inter-company transfers. We recognize our ACH revenue upon completion of the service being provided and residual credit card services revenue upon receipt from our sponsoring banks which is consistent with industry practices within the United States of America.

For the three months ended September 30, 2011, revenues were $533,340, compared to $758,224 for the three months ended September 30, 2010, representing a decrease of $224,884, or approximately 29.7%. This decrease is mostly related to the decrease in ACH Services of $247,877, partially offset by the increase in verification services of $3,039 and the increase in credit card services of $19,954. The increase in credit card services related mostly to increases new business we obtained as a result of changes we made to some of our compensation plans as well as enhancements made to provide better supporting resources for our independent sales agents. These changes included improvements in the amount of initial compensation paid on new accounts, provided more commission options for our agents to select, and made improvements to our online agent support and management website. The reductions in our ACH revenues are mostly related to reductions in ACH transactions experienced by some of our internet based merchants as they reacted to changes resulting from new legislation regarding the manner in which

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online marketing may be conducted and new restrictions on how consumer information may be captured or transferred in conjunction with internet transactions. These decreases in ACH revenues were also partially offset by modest increases in our verification services as some of these internet merchants resumed utilization in of our verification services to improve the conversion quality of their ACH transactions.

For the nine months ended September 30, 2011, revenues were $1,593,683, compared to $2,169,281 for the nine months ended September 30, 2010, representing a decrease of $575,598, or approximately 26.5%. This decrease is mostly related to the decrease in ACH Services of $674,740, together with the decrease in verification services of $13,297, partially offset by the increase in credit card services of $112,439. The increase in credit card services related mostly to increases in new business we obtained as a result of changes we made to some of our compensation plans and other improvements made to support our sales agents, as previously described. The reductions in our ACH and verification revenues are mostly related to reductions in ACH transactions experienced by some of our internet based merchants as they reacted to changes resulting from new legislation regarding the manner in which online marketing may be conducted and new restrictions on how consumer information may be captured or transferred in conjunction with internet transactions.

Cost of Revenue and Gross Profit

Cost of revenues includes the costs incurred in conjunction with the items processed as well as costs associated with the residual credit card revenue we now receive through NDS, our wholly-owned subsidiary. These costs include the direct transactional costs incurred with respect to ACH processing and software as well as direct costs associated with the revenue generated from credit card merchant processing services.

The following table presents the composition of cost of revenue for the three months ended September 30, 2011 and 2010:

Cost of Revenue:	Three Months Ended September 30, 2011		Percentage			Three Months Ended September 30, 2010	Percentage		Variance Dollars

ACH Services	$	62,503	30.2	%	$	145,541	54.2	%	$	(83,038	)

Verification Services		5,644	2.7	%		52	--	%		5,592

Credit Card Services		138,961	67.1	%		122,956	45.8			16,005

Total Cost of Revenue	$	207,108	100.0	%	$	268,549	100.0	%	$	(61,441	)

For the three months ended September 30, 2011, cost of revenues was $207,108, compared to $268,549 for the three months ended September 30, 2010, representing a decrease of $61,441, or approximately 22.9%. This decrease is mostly attributable to the decrease in our ACH services business, partially offset by increases in our verification and credit card services. The increases in verification services were partly a result of the increase in verification service revenue compared to the three months ended September 30, 2010, together with certain minimum contract costs we incur related to maintaining these services. The increases in our credit card services costs related mostly to the increase in the volume of credit card services we provided compared to the same period in the prior year

We have typically sold verification services in conjunction with ACH services for certain types of merchants that need to confirm identity and/or age. As a result, we often maintain low margins in our pricing, or bundle services in order to provide competitive pricing and meet the compliance needs of these merchants. As a result our verification service costs exceeded our verification services revenue for the three months ended September 30, 2011.

For the three months ended September 30, 2011, our gross profit was $326,232, compared to $489,675 for the three months ended September 30, 2010, representing a decrease of $163,443, or approximately 33.4%. Our gross profit stated as a percentage of revenues was 61.2% for the three months ended September 30, 2011, compared to 64.6% for the three months ended September 30, 2010. The decrease in gross profit as a percentage of revenue reflects the effect of the decrease in our ACH service revenue, together with the improvements in our gross profit as a

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percentage of revenue derived from our credit card services business, which were partially offset by increases in our verification cost of revenue, as previously described.

The following table presents the composition of cost of revenue for the nine months ended September 30, 2011 and 2010:

Cost of Revenue:	Nine Months Ended September 30, 2011		Percentage			Nine Months Ended September 30, 2010	Percentage		Variance Dollars

ACH Services	$	161,340	27.4	%	$	322,519	44.2	%	$	(161,179	)

Verification Services		21,170	3.6	%		10,957	1.5	%		10,213

Credit Card Services		406,554	69.0	%		396,086	54.3			10,468

Total Cost of Revenue	$	589,064	100.0	%	$	729,562	100.0	%	$	(140,498	)

For the nine months ended September 30, 2011, cost of revenues was $589,064, compared to $729,562 for the nine months ended September 30, 2010, representing a decrease of $140,498, or approximately 19.3%. This decrease is mostly attributable to the decrease in our ACH services costs related to the decreases in our ACH services business, partially offset by increases related to our costs of verification services and credit card services.

With respect to our verification services, cost of sales increased for the nine months ended September 30, 2011, compared to the same period in the prior year. For the past year, we have typically sold verification services in conjunction with ACH services for certain types of merchants that need to confirm identity and/or age. As a result, we often maintain low margins or in some cases negative margins in our pricing, or bundle services in order to provide competitive pricing and meet the compliance needs of these merchants.

For the nine months ended September 30, 2011, our credit card services cost of revenue increased slightly compared to the nine months ended September 30, 2010, in conjunction with increases in our credit card revenue. However, the increase in our credit card service costs was not proportional to the larger increase in our credit card services revenue. During the nine months ended September 30, 2010, we had implemented more aggressive compensation plans for our commissioned sales agents while at the same time we were experiencing negative effects from unfavorable economic conditions. As a result we temporarily experienced lower margins on new accounts we obtained during the first six months of 2011, as compared to the three months ended September 30, 2011.

For the nine months ended September 30, 2011, our gross profit was $1,004,619, compared to $1,439,719 for the nine months ended September 30, 2010, representing a decrease of $435,100, or approximately 30.2%. Our gross profit stated as a percentage of revenues was 63.0% for the nine months ended September 30, 2011, compared to 66.4% for the nine months ended September 30, 2010. Our gross profit percentages decreased slightly due to the combination of the decrease in our ACH service revenue, together with the improvements in our costs associated with our credit card services business, but were partially offset by increases in our verification cost of revenue, as previously described.

Operating Expenses

Operating expenses include costs of personnel, computer maintenance and expenses, supplies, internet services, delivery charges, telecommunications expenses, travel, and other costs associated with our payment services operations.

For the three months ended September 30, 2011, operating expenses were $273,318, compared to $290,804 for the three months ended September 30, 2010, representing a decrease of $17,486 or approximately 6.0%. The decrease in operating expenses relate to decreases in travel expense of $7,088, amortization expense of $2,350, commissions and fees expenses of $9,813, and other expenses of $5,045, partially offset by increases in personnel costs of $6,810.

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The decreases in our travel expenses related mostly to changes we made in the way we conduct our business with our sales agents whereby we utilized internet based sales information systems and conducted webinars and online meetings resulting in less travel expenses. The reduction in amortization expense reflects that several of our small portfolio acquisitions had become fully amortized during the second quarter of 2011, resulting in less amortization expense for the current quarter forward. The reduction in commissions and fees expenses related mostly to the reduction in fees associated with our Thermo Credit loan facility whereby we reduced the outstanding principal balance during the prior year but incurred higher fees during the first half of 2010.

The decrease in other operating expenses of $5,045 related to decreases such as computer expenses of $1,498, office leases of $2,000, office expenses of $3,107, telephone expenses of $595, donations of $500, training expenses of $450, freight expenses of $267, and bank fees of $145, partially offset by increases dues and subscriptions expenses of $1,718, insurance expense of $2,051, and depreciation of $235.

The reduction in computer costs represents various upgrades during the prior year that were not recurring during the three months ended September 30, 2011. Our lease expenses were reduced as a result of negotiating lower monthly costs on our existing office space at our Roswell, Georgia facility where we conduct our credit card services business. We also reduced various office expenses by changing the way we communicated with merchants to reduce the utilization of office supplies. Telephone expenses were reduced by changes we have made in some of our service plans which reduce the amount of long distance charges we incur. We reduced certain business donations we had made in the prior year as a cost cutting measure, as well as reduce the frequency of certain training seminars some of our employees attended. Our freight costs decreased in conjunction with changes previously described in which we have moved to a lower utilization of paper based supplies and correspondence with our merchants and sales prospecting, and incurred less bank fees related mostly to eliminating unnecessary or redundant accounts compared to the same period in the prior year. The increases in dues and subscriptions represents increased activity related to subscriptions with various online sales prospecting services and the increase in insurance expense relates to additional costs associated with various of our office facilities, such as increased costs for windstorm and general liability coverage.

For the nine months ended September 30, 2011, operating expenses were $879,240, compared to $888,437 for the nine months ended September 30, 2010, representing a decrease of $9,197 or approximately 1.0%.

The decrease in operating expenses related to decreases in travel expense of $13,072, and commissions and fees expenses of $48,694, partially offset by increases in personnel costs of $21,482, amortization expense of $25,856, and other expenses of $5,231.

The increases in our personnel costs represented costs associated with our ACH processing staff, which included cost-of-living as well as merit increases in compensation which occurred during the second half of 2010 so such increases are not fully reflected in the nine months ended September 30, 2010. Our amortization expenses increased in conjunction the continued acquisitions of portfolios of merchant accounts which occurred during the fourth calendar quarter of 2010, and also are not reflected in the nine months ended September 30, 2010. The increase in other operating expenses of $5,231 related to increases such as bad debt expenses of $4,421, insurance expenses of $10,120, dues and subscriptions of $1,898, employee search expenses of $1,243, repairs of $967, depreciation of $749, training seminars of $365, and license and permits of $396, which were partially offset by decreases in other operating expenses such as freight expenses of $3,182, office expenses of $5,396, computer expenses of $2,512, lease expenses of $2,000, telephone expenses of $1,313, bank charges of $539, and donations of $500.

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The increase in bad debt expense represents write-offs of uncollectible accounts during the first quarter of 2011, and the increase in insurance relates to additional costs associated with various of our office facilities, such as increased costs for windstorm and general liability coverage. The increase in dues and subscriptions related mostly to utilization of online sales prospecting services, while employee search expenses related more to the timing of expenditures during the first half of 2011 compared to the first half of 2010. We incurred minor repairs associated with our leased facility in Roswell, Georgia in which we pay for a portion of certain types of repairs subject to annual limits. We also incurred additional costs for training seminars for several of our operations personnel and incurred modest increases in certain permit fees and trade association dues compared to other operating costs during the nine months ended September 30, 2010. The decreases in freight expenses, as well as office and telephone expenses, related to changes in how we corresponded with merchants and the manner in which we conducted some of our sales prospecting activities. Reductions in our computer expenses related to higher expenses incurred in the prior year rather than reductions in the current year. We reduced our lease cost by negotiating lower monthly rates on our exiting office facility in Roswell, Georgia where we conduct our credit card services business. We also discontinued certain business donations that occurred during the prior year, and eliminated or reduced various bank fees by eliminating redundant or unnecessary costs from our operations for the nine months ended September 30, 2011.

Selling, General, and Administrative Expenses

For the three months ended September 30, 2011, our selling, general, and administrative expenses were $150,141, compared to $145,733 for the three months ended September 30, 2010, representing an increase of $4,408, or approximately 3.0%. This increase is mostly due to increases in other selling, general and administrative expenses of $6,609, partially offset by decreases in personnel costs of $368, legal and accounting expenses of $717, and marketing expenses of $1,116.

The increase in other selling, general, and administrative costs of $6,609 included increases in investor relations costs of $798 together with increases in SEC filing fees of $5,363, and business gifts of $94, partially offset by decreases in meals and entertainment of $268, postage of $122. Our investor relations costs and SEC filing fees were mostly related to the cost of effecting our 1 for 10 reverse stock split at which time we retained a full service transfer agent and no longer process our stock transactions internally. We reduced our meals and entertainment costs associated with our overall cost saving efforts, and had lower postage costs associates with the reduction in overall utilization of paper supplies in our business communications.

The decrease in our personnel costs relates mostly to the reduction of certain administrative functions during 2010 that were either duplicative or outsourced in a more cost effective manner. Our legal and accounting costs were lower in conjunction with a reduced amount of acquisition activities compared to the same period in the prior year. The decreases in our marketing costs represented reductions in the size of some of our advertisements in trade publications that have not produced results that met our expectations.

For the nine months ended September 30, 2011, our selling, general, and administrative expenses were $480,620, compared to $477,064 for the nine months ended September 30, 2010, representing an increase of $3,556, or approximately 0.7%. This increase is mostly due to increases in legal and accounting expenses of $1,225, marketing expenses of $896, and other selling, general and administrative expenses of $6,200, partially offset by decreases in personnel costs of $4,765.

The increase in our legal and accounting expenses relates partially to increases in our annual audit fees and the associated legal review costs, together with additional costs we incurred in conjunction with our reverse stock split and costs associated with our efforts to obtain additional financing as well as our continued efforts to obtain more revenue through acquisitions. Although we made some changes that decreased our marketing expenses during the three months ended June 30, 2011, over the nine months ended September 30, 2011, marketing expenses increased, reflecting modest overall increases in our marketing efforts as we have made various changes in advertising vendors in order to obtain new and different leads for both merchants and sales agents.

The increase in other selling, general, and administrative costs of $6,200 included increases in investor relations costs of $3,991, and SEC filing fees of $5,649, partially offset by decreases in business gifts of $219, and postage costs of $433. Our investor relations costs were mostly related to the cost of affecting our 1 for 10 reverse stock split, at which time we retained a full service transfer agent and no longer process our stock transactions internally. The decreases in business gifts and postage expenses were partially due to the cost cutting effect of our increased utilization of web-based systems to communicate with our sales agents. Postage expenses were also lower

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compared to the same figure a year ago when we were completing our $1 million private equity offering and incurred additional costs associated with disseminating materials to investors. The decrease in our personnel costs relates mostly to the reduction of certain administrative functions during 2010 that were either duplicative or outsourced in a more cost effective manner.

Results of Operations

We reported a net loss for the three months ended September 30, 2011, of $201,972 compared to $371,813 for the three months ended September 30, 2010, representing a decrease of $169,841. The decrease in our net loss was mostly attributable to reduction of $284,262 in our income expense compared to the prior year quarter, partially offset by the net reduction in our ACH service business as previously described. For the nine months ended September 30, 2011, our net loss was $660,638 compared to $616,201 for the nine months ended September 30, 2010, representing an increase of $44,437. The increase in our net losses are mostly attributable to the decrease in our ACH services revenue, partially offset by increases in our credit card services revenue compared to the same period in the prior year. We also recognize significant amortization expenses related to our acquisitions of intangible assets. Following the completion of our private equity offering in 2010, we reduced our outstanding principal indebtedness, and accordingly our interest expense has been reduced compared to the same period in the prior year. Additionally, we have not recorded any tax benefit in our financial statements for the three months or the nine months ended September 30, 2011, whereas our net loss for the same periods in the prior year included a tax expense of $284,262 and $240,784, respectively, for the three months and nine months ended September 30, 2010.

Liquidity and Capital Resources

Per our Consolidated Statements of Cash Flows, net cash provided by operating activities for the nine months ended September 30, 2011, was $113,679 compared to $156,504 for the nine months ended September 30, 2010, or a decrease of $42,825. The decrease in cash provided by operating activities is due mostly to the increase in our net loss of $44,437 together with the various adjustments necessary to reconcile net loss to net cash provided by operations for each of the respective periods presented.

For the nine months ended September 30, 2011, adjustments decreasing our net loss of $660,638 included depreciation and amortization of $490,663, the decrease in trade receivables of $25,344, and the increase in accounts payable and accrued liabilities of $254,679, offset by adjustments that increased our net loss, such as the increase in prepaid expenses of $17,457 and the decrease in customer deposits of $7,500.

For the nine months ended September 30, 2010, adjustments decreasing our net loss of $616,201 included depreciation and amortization of $477,720, the decrease in trade receivables of $38,797, the decrease in prepaid interest of $78,000, the increase in ACH settlements payable of $19,219, and the increase in customer deposits of $16,000, offset by adjustments that increased our net loss, such as the increase in prepaid expenses of $2,300, and the decrease in accounts payable and accrued liabilities of $60,297.

Net cash used in investing activities was $5,100 for the nine months ended September 30, 2011 and $99,085 for the nine months ended September 30, 2010. During the nine months ended September 30, 2011, we replaced signage at our existing facility in Roswell, Georgia, made a small acquisition of a group of several accounts from one of our independent sales agents, and paid a small deposit in conjunction with retaining a stock transfer agent. During the nine months ended September 30, 2010, we completed the purchase of an interest in a portfolio of merchant credit card processing accounts and made improvements to our some of our customer relations software systems.

Net cash used in financing activities was $137,833 for the nine months ended September 30, 2011, compared to $21,634 for the nine months ended September 30, 2010. During the nine months ended September 30, 2011, we received proceeds of $17,500 from sales of restricted stock, and received $213,500 of proceeds related to loans, which included a loan made in conjunction with an asset portfolio transaction of $113,500 and an increase of $100,000 in our line of credit with one of our banks,. We reduced our notes payable by $240,000 in exchange for restricted stock, and repaid $608,833 of principal on our existing notes payable. During the nine months ended September 30, 2010, we completed a private placement offering of our common stock which provided net proceeds of $898,595, and we executed notes payable with two of our existing shareholders totaling $94,000 which helped facilitate the initial purchase price of the portfolio asset previously described. We also repaid $1,017,229 in outstanding principal, comprised mostly of a reduction of $920,000 in our outstanding principal balance with Thermo Credit, and the repayment of approximately $97,229 of outstanding notes payable with shareholders, and received $3,000 in proceeds from the exercise of employee stock options.

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On February 28, 2010, we completed a private placement of 5,072,500 shares of our common stock, at $.20 per share, to a limited number of investors, generating gross proceeds of $1,014,500. The offer and sale was conducted on behalf of the company by a FINRA-licensed broker-dealer who served as placement agent in the offering and received a sales commission equal to 7% of the gross proceeds of the offering, or $71,015, and a financial advisory/management fee equal to 2% of the gross proceeds of the offering, or $20,290. We also had accrued offering costs of $24,600. As a result of the transaction we received net proceeds of $898,595.

To date we have financed our capital expenditure needs from a combination of cash flows generated from our operations and various financings and/or investments we have received mostly from our significant shareholders. At this time, however, we have not generated sufficient cash flow resulting from our operations in order to fund our operating needs for the next twelve months. Accordingly, we have been advised by our independent auditors that if we are unable to make substantial improvements in our operating results or to refinance significant portions of our existing debt we may receive a qualified opinion upon their completion of our calendar year 2011 audit that indicates there is substantial doubt about our ability to continue as a going concern. We are currently working with our existing shareholders which are holders of the majority of our outstanding debt, and with our most significant creditors, in an effort to complete a series of re-financings which will reduce our ongoing debt service in an effort to address these concerns. However, at this time we have not completed such re-financings nor have we achieved the significant improvements to our operations, and accordingly we can give no assurances that we will continue to receive unqualified audit opinions from our independent auditors in the future.

Our future expansion is planned from two sources. First, we plan to continue to expand our use of independent sales organizations (ISOs) to assist in the growth of our ACH and verification service business. While there are costs associated with this increase, the majority of additional sales costs will be funded through the additional sales produced from these selling activities. We have and plan to continue to structure our sales compensation plans based on commissions only, and employ the use of independent sales representatives already engaged in selling financial products and/or services that are complementary to ACH services. Accordingly, we believe we can continue to expand these sales activities from our internally generated cash flow.

Second, we believe we will also expand future operations through acquisitions which are accretive to our current earnings at the time of acquisition. During 2008, we completed two such acquisitions, NDS and the Portfolio Asset Purchase, as means of increasing our volume of business while at the same time expanding our payment services to include credit card services. In February 2010 we completed the purchase of an additional portfolio of credit card merchant accounts which supplemented our growth.

In March 2011, we reported on Form 8-K that we signed a Letter of Intent to acquire Unified Processing LLC (Unified), in an effort to further expand our payment services business. Since this time we have continued to negotiate final terms of an agreement and secure the necessary financing to complete a transaction. Going forward, we expect to begin utilizing our public company status to more effectively enhance our ability to obtain working capital and facilitate acquisitions more effectively than could be accomplished as a private entity. At this time, although we acknowledge our continued negotiations with Unified, we currently have no final understanding, arrangement, or agreement to make any acquisitions, but continue to actively seek such opportunities as a means to accelerate our revenue and earnings growth.

Recent General Economic Conditions

In light of the slowdown in the economy and challenges within the financial sector and credit markets it has become more difficult for many companies to evaluate their future operations. Although we have been able to complete financing transactions which facilitated the acquisition of NDS on August 22, 2008, and the purchase of the portfolio asset on September 17, 2008, and completed a private placement in February 2010, we believe that access to future financing may continue to be difficult until such time as general economic conditions improve. At this time we have not experienced any material negative impact from recent economic conditions, but we believe it is reasonable to expect that our payment processing business, both for ACH and for credit card transactions, could be negatively impacted by these conditions. Accordingly, we believe that the following factors should be taken into consideration:

We may experience reductions in the amount of payments we process for merchants as a result of a downturn in consumer activity and consumer confidence.

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We may be negatively impacted in our credit card processing business if consumers are unable to maintain existing credit card limits or have credit card services terminated.

We may experience difficulties in maintaining or re-financing our existing credit facilities at either equivalent or more favorable rates.

New sources of borrowed capital may become more expensive or unavailable which may inhibit our ability to grow.

Competition may become more intense and we may be required to reduce pricing to maintain the business we have and/or to obtain new business through our existing sales force.

Inflation

Inflation has not had a material effect on the operations of the Company in the past. At the present time there is a substantial doubt that such conditions will adversely affect the Company for the foreseeable future.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a smaller reporting company, the Company is not required to provide the information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this Quarterly Report, under the supervision and with the participation of our principal executive officer and principal financial officer, we evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2011.

Changes in Internal Control over Financial Reporting

There have been no changes in internal controls over financial reporting during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We are not engaged in any material legal proceedings which involve us, any of our subsidiaries or any of our properties.

ITEM 1A. RISK FACTORS.

As a smaller reporting company, the Company is not required to provide the information required by this Item.

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

During the quarter ended September 30, 2011, we did not have any sales of securities in transactions that were not registered under the Securities Act of 1933, as amended, that have not been reported in a Form 8-K. Please refer to our Form 8-K filed with the SEC on March 4, 2010 for information regarding our private placement of common stock that closed on February 28, 2010.

ITEM 3. DEFAULT UPON SENIOR SECURITIES.

None.

ITEM 4. [REMOVED AND RESERVED]

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

Exhibit
Number		Description of Exhibit

31.1*		Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act.

31.2*		Certification of the Principal Accounting and Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act.

32.1*		Certification of the Principal Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act and 18 U.S.C. §1350.

32.2*		Certification of the Principal Accounting and Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act and 18 U.S.C. §1350.

101.INS**		XBRL Instance Document

101.SCH**		XBRL Taxonomy Extension Schema

101.CAL**		XBRL Taxonomy Extension Calculation Linkbase

101.LAB**		XBRL Taxonomy Extension Label Linkbase

101.PRE**		XBRL Taxonomy Extension Presentation Linkbase

101.DEF**		XBRL Taxonomy Extension Definition Linkbase

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(*)		Filed herewith.

(**)		Pursuant to applicable securities laws and regulations, we are deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and are not subject to liability under any anti-fraud provisions of the federal securities laws as long as we have made a good faith attempt to comply with the submission requirements and promptly amend the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

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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.

	UNITED ESYSTEMS, INC.

Date: November 21, 2011	By: /s/ Walter Reid Green, Jr.
	Walter Reid Green, Jr.
	Chief Executive Officer, President and Chief Financial Officer
	(Principal Executive Officer and Principal Accounting and Financial Officer)

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Attached files

United eSystems, Inc. Reports

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