What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-13 compared with 2020-11-12 · 154 added, 132 removed, 248 unchanged (54% of the section changed)

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2020

March 31, 2021

December 31, 2020

4 unchanged sentences

Prepaid card load assets

Customer deposits

Prepaid expenses and other

13 unchanged sentences

Operating lease liabilities, current portion

Equipment loan, current portion

Settlement processing obligations

Prepaid card load obligations

Customer deposits

Deferred revenues

PPP Loan payable, current portion

Current liabilities before merchant reserve obligations

2 unchanged sentences

Non-current liabilities:

PPP Loan payable, non-current portion

Equipment loan, non-current portion

Operating lease liabilities, non-current portion

2 unchanged sentences

Preferred stock, $0.01 par value, 10,000,000 shares authorized;

-0- shares outstanding at September 30, 2020 (unaudited) and December 31, 2019, respectively

-0- shares outstanding at March 31, 2021 (unaudited) and December 31, 2020, respectively

Common stock, $0.001 par value, 200,000,000 shares authorized;

25,887,785 and 18,224,577 issued, and 24,665,486 and 17,104,998 outstanding at September 30, 2020 (unaudited) and December 31, 2019, respectively

26,314,460 and 26,260,776 issued, and 25,013,557 and 24,974,995 outstanding at March 31, 2021 (unaudited) and December 31, 2020, respectively

Additional paid-in capital

Treasury stock, at cost;

1,222,299 and 1,119,579 shares at September 30, 2020 (unaudited) and December 31, 2019, respectively

1,300,903 and 1,285,781 shares at March 31, 2021 (unaudited) and December 31, 2020, respectively

Deferred compensation

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Cost of services

16 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

Operating activities:

10 unchanged sentences

Merchant reserves

Customer deposits

Deferred revenue

Deferred rent

Net cash provided (used) by operating activities

1 unchanged sentence

Purchases of property and equipment

Net cash (used) by investing activities

Net cash provided by investing activities

Financing activities:

Proceeds from PPP Loan Program

Proceeds from public offering, net of expenses

Proceeds from private offering

Proceeds from equipment loan

Purchases of treasury stock

Net cash provided by financing activities

Change in cash, cash equivalents, prepaid card load assets and merchant reserves

Cash, cash equivalents, prepaid card load assets and merchant reserves, beginning of period

Cash, Cash Equivalents, Prepaid Card Load Assets and Merchant Reserves, End of Period

Net cash provided (used) by financing activities

Change in cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves

Cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves, beginning of period

Cash, Cash Equivalents, Prepaid Card Load Assets, Customer Deposits and Merchant Reserves, End of Period

Supplemental disclosure of cash flow information:

9 unchanged sentences

Warrant compensation costs

Deferred compensation amortization

Purchase of treasury stock

Net (loss) for the period

Balance at March 31, 2020

Issuance of common stock under equity incentive plan

Warrant compensation costs

Deferred compensation amortization

Purchase of treasury stock

Net (loss) for the period

Balance at June 30, 2020

Issuance of common stock under equity incentive plan

Warrant compensation costs

Cashless warrant exercise

Reversal of deferred compensation amortization that did not vest

Issuance of common stock, public offering

Issuance of common stock, private offering

Deferred compensation amortization

Purchase of treasury stock

Purchase of treasury stock costs

Net (loss) for the period

Balance at September 30, 2020

Balance at March 31, 2021

Balance at December 31, 2019

Issuance of common stock, public offering

Issuance of common stock under equity incentive plan

Warrant compensation cost

Warrant compensation costs

Deferred compensation amortization

Purchase of treasury stock

Purchase of treasury stock costs

Net (loss) for the period

Balance at March 31, 2020

Issuance of common stock under equity incentive plan

Warrant compensation cost

Deferred compensation amortization

Reversal of deferred stock compensation that did not vest

Purchase of treasury stock

Net (loss) for the period

Balance at June 30, 2019

Issuance of common stock under equity incentive plan

Warrant compensation cost

Deferred compensation amortization

Reversal of deferred stock compensation that did not vest

Purchase of treasury stock

Net (loss) for the period

Balance at September 30, 2019

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

12 unchanged sentences

Revenue Recognition:

Revenue consists primarily of fees generated through the electronic processing of payment transactions and related services.

Revenue consists primarily of fees generated through the electronic processing of payment transactions and related services and bill preparation, presentment and mailing services.

Revenue is recognized during the period in which the transactions are processed or when the related services are performed.

4 unchanged sentences

Revenues derived from electronic processing of credit, debit, and prepaid card transactions that are authorized and captured through third-party networks are reported gross of amounts paid to sponsor banks as well as interchange and assessments paid to credit card associations.

Certain card distributors remit payment of fees earned 45 days after the end of the processing period.

Prepaid card distributors have payment terms of 30 days following the end of the month.

Sales taxes billed are reported directly as a liability to the taxing authority and are not included in revenue.

Usio Output Solutions, Inc.

provides bill preparation, presentment and mailing services.

Revenue from Output solutions is recognized when the related services are performed for printing and delivered to USPS for postage.

The following table presents the Company's payment processing service revenues by source:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

ACH and complementary service revenue

1 unchanged sentence

Prepaid card services revenue

Output solutions revenue

Total revenue

2 unchanged sentences

The advance consideration received from a customer is deferred until the Company provides the customer that product or service.

The deferred revenues totaled $83,824 and $123,529 at September 30, 2020 and December 31, 2019 , respectively.

The deferred revenues totaled $57,353 and $66,572 at March 31, 2021 and December 31, 2020 , respectively.

Cash and Cash Equivalents:

1 unchanged sentence

The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents.

Settlement Processing Assets and Obligations:

Settlement processing assets and obligations represent intermediary balances arising in our settlement process for merchants.

Customer Deposits:

The Company holds customer deposits primarily for postage expenses to ensure the Company is not out of pocket for amounts billed daily by the United States Postal Service.

These customer deposits are carried on the Company's balance sheet with a corresponding liability.

Merchant Reserves:

7 unchanged sentences

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:

Nine Months Ended September 30,

Beginning cash, cash equivalents, prepaid card load assets and merchant reserves:

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

Three Months Ended March 31,

Beginning cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves:

Cash and cash equivalents

Prepaid card load assets

Customer deposits

Merchant reserves

Ending cash, cash equivalents, prepaid card load assets and merchant reserves:

Ending cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves:

Cash and cash equivalents

Prepaid card load assets

Customer deposits

Merchant reserves

5 unchanged sentences

Estimates for doubtful account losses are variable based on the volume of transactions processed and could increase or decrease accordingly.

The allowance for estimated doubtful accounts was $236,891 and $123,165 at September 30, 2020 and December 31, 2019 , respectively.

The allowance for estimated doubtful accounts was $205,000 and $205,522 at March 31, 2021 and December 31, 2020 , respectively.

Inventory is stated at the lower of cost or net realizable value.

At March 31, 2021 and December 31, 2020, inventory consisted primarily of printing and paper supplies used for Output solutions.

Accounting for Internal Use Software:

2 unchanged sentences

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 three months ended September 30, 2020 and September 30, 2019 , the Company capitalized $178,311 and $147,459 , respectively.

In the three months ended March 31, 2021 and March 31, 2020 , the Company capitalized $187,914 and $135,419 , respectively.

Valuation of Long-Lived and Intangible Assets:

5 unchanged sentences

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 2019 or during the nine months ended September 30, 2020 .

No impairment losses were recorded in 2020 or during the three months ended March 31, 2021 .

Management is not aware of any impairment changes that may currently be required;

8 unchanged sentences

Estimates for processing losses are variable based on the volume of transactions processed and could increase or decrease accordingly.

At September 30, 2020 and December 31, 2019 , the Company’s reserve for processing losses was $491,659 and $506,153 respectively.

Recently Adopted Accounting Pronouncements:

In February 2016, the FASB issued, "Leases (Topic 842)." This update requires that a lessee recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term.

For leases with initial terms of 12 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 largely unchanged from existing GAAP.

The guidance became effective for the Company on January 1, 2019.

As a lessee, this standard primarily impacted the Company's accounting 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 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 lease term and 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 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 it will exercise that option.

Lease expenses for lease payments are recognized on a straight-line basis over the lease term.

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation which 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 for all fiscal years beginning after December 15, 2018.

The Company adopted the new standard on January 1, 2019.

The adoption of the new standard did not result in a change to the previously presented financial statements.

At March 31, 2021 and December 31, 2020 , the Company’s reserve for processing losses was $548,199 and $515,199 respectively.

New Accounting Pronouncements :

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2016-13, Financial Instruments - Credit Losses (Topic 326), to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

To achieve this objective, the amendments in Topic 326 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

Topic 326 is effective for fiscal years beginning after December 25, 2022, including interim periods within those fiscal years for smaller reporting companies.

The Company does not expect the adoption of the amendments in ASU 2016-13 to have a significant effect on its financial position and the results of its operations when such amendment is adopted.

Accounting standards that have been issued or proposed by the FASB, the SEC or other standard setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

Acquisition of Information Management Solutions, LLC.

On December 15, 2020, the Company entered into an asset purchase agreement to purchase substantially all the assets of Information Management Solutions, LLC ("IMS"), a Texas limited liability company in the business of electronic bill presentment, document composition, document decomposition and printing and mailing services serving hundreds of customers representing a wide range of industry verticals, including utilities and financial institutions.

The total purchase price consideration consisted of a cash payment of $5,907,408 at closing and warrant considerations valued at $552,283.

The warrants were comprised of 945,599 unregistered warrants to purchase shares of common stock of Usio, Inc., or 945,599 shares of common stock, $0.001 par value per share, with an exercise price of $4.23 per share.

The final number of warrants was determined by dividing $2,000,000 by the 5-day weighted average closing price for the four trading days preceding the closing date and the closing day, or $2.115 per share.

The exercise price of the warrants was determined by multiplying the 5-day weighted average closing price by the number 2.

The warrants vest in three equal installments on the first, second and third anniversary of the closing date and have a term of five years from vest.

The purchase price was allocated to the net assets acquired based upon their estimated fair values as follows:

Estimated Fair

Estimated Useful

Life (in years)

Accounts receivable

Prepaid expenses

Customer list

Total Cash Consideration

Customer list

Total Warrant Consideration

Total Purchase Price

The 2020 consolidated statement of operations included one month of IMS operations, which was approximately $1.2 million of revenue and $0.6 million of gross profit.

Unaudited Pro Forma Information

The unaudited proforma results including the effects of the IMS acquisition as if it had been consummated on January 1, 2019 were included in a Form 8-K/A filed on March 3, 2021 and summarized in the Form 10-K filed on March 30, 2021.

The Company leases facilities and office equipment under various operating leases, which generally are expected to be renewed or replaced by other leases.

For the quarter ended September 30, 2020 and 2019, operating lease expenses totaled $58,039 and $66,223 , respectively.

For the nine months ended September 30, 2020 and 2019, operating lease expenses totaled $186,731 and $183,225 , respectively.

Operating lease liabilities as of September 30, 2020 will require the following payments:

2020 (three months)

For the quarter ended March 31, 2021 and 2020 , operating lease expenses totaled $104,131 and $68,086 , respectively.

Operating lease liabilities as of March 31, 2021 will require the following payments:

Total minimum lease payments

3 unchanged sentences

Accrued expenses consisted of the following balances:

September 30, 2020

March 31, 2021

December 31, 2020

5 unchanged sentences

Total accrued expenses

PPP Loan Payable

The Company received funding under the Paycheck Protection Program (PPP) as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), administered by the U.S.

Small Business Administration.

Under the terms of the Note, the Company received total proceeds of $813,500 bearing interest at a rate of 1% per annum with a maturity date of April 15, 2022.

In addition, principal and interest payments will be deferred for the first ten months of the loan.

The loan is subject to the terms and conditions applicable to loans administered by the U.S.

Small Business Administration under the CARES Act.

The Company used the proceeds for payroll costs and other permitted expenses.

Under the terms of the PPP, the principal may be forgiven if the loan proceeds are used for qualifying expenses as described in the CARES act, such as payroll costs, benefits, rent and utilities.

The Company's loan forgiveness documentation has been filed with the Small Business Administration.

The determination of how much of the loan, if any, may be subject to forgiveness will be determined by the Small Business Administration.

Equipment Loan

On March 20, 2021, the Company entered into a debit arrangement to finance $165,996 for the purchase of an Output Solutions sorter.

The loan is for a period of 36 months with a maturity date of March 20, 2024.

The repayment amount is for 36 months at $4,902 per month.

Annual payments are $58,821.

The financing is at an interest rate of 3.95%.

Stockholders' Equity

13 unchanged sentences

The fair value of the warrants was $135,764 which will be amortized over the life of the warrants as a reduction of revenues.

The reduction of revenues recorded for the nine months ended September 30, 2020 and 2019 was $26,958 and $26,955 , respectively.

The reduction of revenues recorded for the three months ended March 31, 2021 and 2020 was $8,985 .

On August 12, 2020, the Company issued 27,051 shares of common stock to University FanCards, LLC in a cashless exercise at $3.46 per common share in exchange for 60,000 warrants exercised by FanCards, LLC.

On February 5, 2021, the Company issued 19,795 shares of common stock to University FanCards, LLC in a cashless exercise at $5.88 per common share in exchange for 30,000 warrants exercised by FanCards, LLC.

On December 15, 2020, the Company issued to Information Management Solutions, LLC warrants to purchase 945,599 unregistered warrants to purchase shares of Usio, Inc.

or 945,599 shares of common stock, $0.001 par value per share, with an exercise price of $4.23.

The warrants were valued using the Black-Scholes option pricing model.

Assumptions used were as follows:

(i) the fair value of the underlying stock was $0.58;

(ii) the risk-free interest rate is 0.09%;

(iii) the contractual life is 5 years;

(iv) the dividend yield of 0%;

and (v) the volatility is 59.9%.

The fair value of the warrants amounted to $552,283 and will be recorded as an increase in the customer list asset and have a term of five years from time of vest.

Equity Transactions :

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 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 the Company from the public offering were $1.8 million, after deducting the offering expenses and fees payable by the Company.

On April 1, 2020, the Company granted 1,444,000 shares of common stock with a 10-year vesting period and 103,000 restricted stock units (RSUs) with a 3-year vesting period to employees and Directors as a performance bonus at an issue price of $1.08 per share.

Executive officers and Directors included in the grant were Louis Hoch (300,000 shares), Vaden Landers (150,000 shares), Tom Jewell (200,000 shares), Blaise Bender (10,000 RSUs), Brad Rollins (30,000 RSUs) and Miguel Chapa (30,000 RSUs).

Executive officers and Directors included in the grant were Louis Hoch (300,000 shares), Tom Jewell (200,000 shares), Blaise Bender (10,000 RSUs) and Brad Rollins (30,000 RSUs).

On July 1, 2020, Topline Capital Partners, LP purchased 1,796,407 unregistered shares of common stock at an offering price of $1.67 per share in a private offering.

7 unchanged sentences

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, 2020 and September 30, 2019 .

Three Months Ended September 30,

Nine Months Ended September 30,

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 months ended March 31, 2021 and March 31, 2020 .

Three Months Ended March 31,

Numerator for basic and diluted (loss) per share, net (loss) available to common shareholders

4 unchanged sentences

Diluted (loss) per common share and common share equivalent

The awards and options to purchase shares of common stock that were outstanding at September 30, 2020 and September 30, 2019 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,

The awards and options to purchase shares of common stock that were outstanding at March 31, 2021 and March 31, 2020 that were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive, are as follows:

Three Months Ended March 31,

Anti-dilutive awards and options

12 unchanged sentences

Related Party Transactions

During the nine months ended September 30, 2020 and the year ended December 31, 2019 , the Company purchased a total of $4,831 and $13,831, respectively, of corporate imprinted sportswear and caps from Angry Pug Sportswear.

During the three months ended March 31, 2021 and the year ended December 31, 2020 , the Company purchased a total of $0 and $9,886, 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, 2020 and the year ended December 31, 2019 , the Company received $0 and $6,665, respectively, in revenue from Lush Rooftop.

Miguel Chapa, a former member of our Board of Directors, was an owner of Lush Rooftop.

Louis Hoch, the Company’s President and Chief Executive Officer, was also a minority owner of Lush Rooftop.

The relationship ended in September, 2019 when the business was sold.

During the nine months ended September 30, 2020 and the year ended December 31, 2019 , the Company received $3,219 and $24,363, respectively, in revenue from BLVD Bar and Lounge.

Miguel Chapa, a former member of the Company's Board of Directors, was an owner in BLVD Bar and Lounge.

Louis Hoch, the Company’s President and Chief Executive Officer, was also an owner of BLVD Bar and Lounge.

In May 2020, both Mr.

Chapa and Mr.

Hoch sold all their interests in BLVD.

The Company retained the card processing business.

Directors and Officers

2 unchanged sentences

The Company granted 1,444,000 shares of common stock with a 10-year vesting period and 103,000 restricted stock units (RSUs) with a 3-year vesting period to employees and Directors as a performance bonus on April 1, 2020 at an issue price of $1.08 per share.

As approved by the Company's Compensation Committee, on November 1, 2020, we issued 136,891 shares of common stock to Mr.

Executive officers and Directors included in the grant were Louis Hoch (300,000 shares), Tom Jewell (200,000 shares), Blaise Bender (10,000 RSUs) and Brad Rollins (30,000 RSUs).

As approved by the Company's Compensation Committee, on November 1, 2020, the Company issued 136,891 shares of common stock to Mr.

Louis Hoch, the Company's Chief Executive Officer, valued at $216,000 at the closing price of $1.5779 per share from October 15, 2020 in satisfaction of the terms of the additional bonus of the employment agreement.

1 unchanged sentence

Hoch to cover withholding taxes due.

In March 2020, the outbreak of COVID-19 was recognized as a pandemic by the World Health Organization, and the outbreak has spread to all parts of the United States, including markets in which the Company operates.

The ongoing COVID-19 outbreaks have had a notable impact on general economic conditions, including but not limited to the temporary closures of many businesses, “shelter in place” and other governmental regulations, reduced consumer spending due to both job losses and other effects attributable to the COVID-19 pandemic.

The ongoing COVID-19 pandemic has had a notable impact on general economic conditions, including but not limited to the temporary closures of many businesses, “shelter in place” and other governmental regulations, reduced consumer spending due to both job losses and other effects attributable to the COVID-19 pandemic.

There remain many uncertainties as a result of the pandemic.

1 unchanged sentence

Any potential incremental financial impact is unknown at this time.

At this time, most states are reducing mandated operating restrictions and efforts are underway to provide vaccinations to as many people as possible.

During 2020 and 2021, the U.S.

government issued several rounds of COVID-19 relief and stimulus payments and other programs to stimulate economic activity and facilitate an economic recovery.

The Company's business was initially adversely affected as doctor's offices, dental offices, veterinarian offices and non-bank consumer lending accounts were ordered closed in connection with curbing the spread of the pandemic.

As these doctors, dental and veterinarian offices re-opened, these businesses quickly recovered and returned to levels higher than pre-COVID.

Consumer lending merchants were adversely affected by COVID relief payments made during the pandemic and the pause placed on past due amounts owed.

The level of activity for consumer lending merchants has not returned to pre-COVID levels.

The Company received an increase in revenues in its prepaid business line, as the Company was able to work in conjunction with major cities across the U.S.

to use the Company's prepaid debit cards to facilitate the transfer of money via debit cards from city foundations to the local residents in need of financial assistance.

The impacts and recovery from the COVID-19 pandemic are still a work in process.

The Company was not impacted in the magnitude of other payment processors as its customer base had limited exposure to retail facing businesses.

Within that framework, the Company will continue to monitor the overall impact on its operations and take necessary steps to ensure the safety of its employees and the well-being of its customers.

Legal Proceedings

The Company may be involved in legal matters arising in the ordinary course of business from time to time.

Vaden Landers

On January 19, 2021, the Company initiated a lawsuit in Bexar County, Texas against its former Chief Revenue Officer, Vaden Landers.

In the lawsuit, which is styled:

Vaden Landers , Cause No.

2021CI01069, 407th Judicial District Court, Bexar County, Texas, the Company alleges that Mr.

Landers violated the provisions of his employment agreement dated September 1, 2017 - specifically that Mr.

Landers violated his non-compete obligations.

The state court lawsuit only seeks injunctive relief against Mr.

The Company also instituted an action before the American Arbitration Association on February 2, 2021.

Landers initially refused to participate in the arbitration proceeding.

After hearings in Bexar County state court proceeding, all of the parties' claims, excluding Mr.

Lander's claims for defamation and tortious interference with contract, were ordered to be heard by the American Arbitration Association.

The Company denies Mr.

Landers’ allegations and does not believe that his counterclaims have any merit.

On or about April 27, 2021, Mr.

Landers filed his Answering Statement and Counterclaim against Usio in the arbitration proceeding.

Landers alleged a variety of defenses to the Company's claim that Mr.

Landers violated the non-compete provisions of his Employment Agreement.

Landers also asserts a counterclaim for a declaratory judgment finding the non-compete provisions are unenforceable.

Landers further alleges that the Company breached the terms of his Employment Agreement because Mr.

Landers' resignation was for Good Reason thus entitling Mr.

Landers to deferred compensation.

The Company denies Mr.

Landers' allegations.

Through its investigation, the Company has learned that Mr.

Landers committed other violations of his employment agreement and intends to pursue those claims in arbitration.

Both the state court litigation and the arbitration are in their initial stages.

The Company recently served Mr.

Landers with a request for production of documents in the Bexar County state court proceeding, but Mr.

Landers has not responded at this time.

Aside from the proceedings 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.

Subsequent Events

As approved by the Company's Compensation Committee, on November 1, 2020, the Company issued 136,891 shares of common stock to Mr.

As part of the transaction, on November 1, 2020, the Company repurchased 54,756 shares from Mr.

Hoch to cover withholding taxes due.

On April 18, 2021, the Company's Compensation Committee approved an amendment to the employment agreement with Louis Hoch, the Company's Chief Executive Officer.

Under the terms of the amendment, Mr.

Hoch's annual base salary increases from $350,000 to $566,000 beginning April 18, 2021.

Hoch's entitlement to an annual bonus of $216,000 per year was cancelled as a result of the base salary increase.

The Compensation Committee also approved a change of the term of the employment agreement of Tom Jewell, the Company's Chief Financial Officer, from one to two years with a renewal of one-year increments.

The committee further approved the payout of one additional year of Mr.

Jewell's base salary upon a change of control in addition to what he was already entitled to under the employment agreement.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements