What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-03-17 compared with 2021-03-30 · 632 added, 196 removed, 463 unchanged (64% of the section changed)

4 unchanged sentences

Consolidated Statements of Operations for the years ended December 31, 2021 and 2020

Consolidated Statement of Changes in Stockholders’ Equity for the years ended December 31, 2020 and 2019

Consolidated Statement of Changes in Stockholders’

Equity for the years ended December 31, 2021 and 2020

Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020

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We have audited the accompanying consolidated balance sheets of Usio, Inc.

and Subsidiaries (collectively referred to as the “Company”) as of December 31, 2020 and 2019 , and the related consolidated statements of operations, changes in stockholders’ equity and cash flows, for each of the two years in the period ended December 31, 2020 , and the related notes (collectively referred to as the "consolidated financial statements").

and Subsidiaries (collectively referred to as the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, changes in stockholders’

equity and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Intangible Assets – Customer Lists

Intangible Assets –

Customer Lists

Description of the Matter

As of December 31, 2020, the Company had intangible assets relating to acquired customer lists which are recorded at their cost basis net of accumulated amortization.

As of December 31, 2021, the Company had intangible assets relating to acquired customer lists which are recorded at their cost basis net of accumulated amortization.

On at least an annual basis, the company performs an analysis of the carrying value of these customer lists to evaluate the assets for impairment.

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We also evaluated whether the key factors considered in the evaluation were consistent with evidence obtained in other areas of the audit.

Deferred Tax Assets – Valuation Allowance

Deferred Tax Assets –

Valuation Allowance

Description of the Matter

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How We Addressed the Matter in Our Audit

Our audit procedures related to projected future taxable income and the determination of whether it is more likely than not that the deferred tax assets will be realized included the evaluation of the reasonableness of management’s projected future taxable income.

We compared the estimates to historical earnings and evaluated the inputs and assumptions used by management for developing future forecasts.

/s/ ADKF, P.C.

San Antonio, Texas

San Antonio, Texas United States

March 17, 2022

4 unchanged sentences

Cash and cash equivalents

$ 7,255,321  

$ 5,011,132  

Accounts receivable, net

4,979,493  

2,863,638  

Settlement processing assets

63,824,646  

43,558,442  

Prepaid card load assets

36,590,893  

7,610,242  

Customer deposits

1,364,193  

1,305,296  

434,532  

176,466  

Prepaid expenses and other

426,963  

301,755  

Current assets before merchant reserves

114,876,041  

60,826,971  

Merchant reserves

6,381,153  

8,265,555  

Total current assets

121,257,194  

69,092,526  

Property and equipment, net

3,607,157  

3,105,926  

Other assets:

Intangibles, net

4,163,894  

6,035,761  

Deferred tax asset

1,504,000  

1,394,000  

Operating lease right-of-use assets

2,802,113  

2,671,266  

345,357  

368,078  

Total other assets

8,815,364  

10,469,105  

$ 133,679,715  

$ 82,667,557  

LIABILITIES AND STOCKHOLDERS' EQUITY

1 unchanged sentence

Accounts payable

$ 1,400,100  

$ 851,349  

Accrued expenses

2,325,665  

1,463,944  

Operating lease liabilities, current portion

504,027  

346,913  

Equipment loan, current portion

54,760  

Settlement processing obligations

63,824,646  

43,558,442  

Prepaid card load obligations

36,590,893  

7,610,242  

Customer deposits

1,364,193  

1,305,296  

Deferred revenues

17,647  

66,572  

Current liabilities before merchant reserve obligations

106,081,931  

55,202,758  

Merchant reserve obligations

6,381,153  

8,265,555  

Total current liabilities

112,463,084  

63,468,313  

Non-current liabilities:

Equipment loan, non-current portion

71,434  

Operating lease liabilities, non-current portion

2,476,291  

2,495,883  

Total liabilities

115,010,809  

65,964,196  

Stockholders' Equity:

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26,807,145 and 26,260,776 issued and 25,473,453 and 24,974,995 outstanding in 2021 and 2020 (see Note 11)

195,235  

194,692  

Additional paid-in capital

93,100,129  

89,659,433  

Treasury stock, at cost;

1,333,692 and 1,285,781 shares in 2021 and 2020 (see Note 11)

( 2,404,458 )  

( 2,165,721 )

Deferred compensation

( 6,842,195 )  

( 5,926,872 )

Accumulated deficit

( 65,379,805 )  

( 65,058,171 )

Total stockholders' equity

18,668,906  

16,703,361  

Total Liabilities and Stockholders' Equity

$ 133,679,715  

$ 82,667,557  

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

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December 31, 2020

$ 61,942,316  

$ 32,251,823  

Cost of services

46,309,706  

24,875,930  

15,632,610  

7,375,893  

Selling, general and administrative:

Stock-based compensation

1,489,976  

1,475,328  

Other expenses

11,654,340  

8,139,219  

Depreciation and Amortization

2,643,675  

1,518,214  

Total operating expenses

15,787,991  

11,132,761  

Operating (loss)

( 155,381 )  

( 3,756,868 )

Other income:

Interest income

59,392  

PPP Loan forgiveness

813,500  

Other income (expense)

Interest expense

( 4,314 )  

Other income and (expense), net

873,794  

(Loss) before income taxes

( 151,773 )  

( 2,883,074 )

Federal income tax (benefit)

( 110,000 )  

State income tax expense

279,861  

118,057  

169,861  

23,109  

$ ( 321,634 )  

$ ( 2,906,183 )

(Loss) Per Share

Basic (loss) per common share:

$ ( 0.02 )  

Diluted (loss) per common share:

$ ( 0.02 )  

Weighted average common shares outstanding (see Note 12)

20,028,850  

15,428,798  

20,028,850  

15,428,798  

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

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Balance at December 31, 2019

Issuance of common stock, public offering

Issuance of common stock, employees, restricted

18,224,577  

$ 186,656  

$ 77,055,273  

$ ( 1,885,452 )  

$ ( 5,636,154 )  

$ ( 62,151,988 )  

$ 7,568,335  

Issuance of common stock under equity incentive plan

Reversal of deferred compensation amortization that did not vest

1,956,858  

2,556,087  

( 1,937,620 )  

620,425  

Warrant compensation cost

588,224  

Cashless warrant exercise

27,051  

Reversal of deferred compensation amortization that did not vest

( 450,000 )  

( 450 )  

( 791,550 )  

594,900  

Issuance of common stock, public offering

4,705,883  

7,253,222  

7,257,927  

Issuance of common stock, private offering

1,796,407  

2,998,204  

3,000,000  

Deferred compensation amortization

1,052,002  

Purchase of treasury stock

( 280,269 )  

Net (loss) for the year

( 2,906,183 )  

Balance at December 31, 2020

26,260,776  

$ 194,692  

$ 89,659,433  

$ ( 2,165,721 )  

$ ( 5,926,872 )  

$ ( 65,058,171 )  

$ 16,703,361  

Issuance of common stock under equity incentive plan

536,878  

2,750,204  

( 2,168,347 )  

582,392  

Warrant compensation cost

35,940  

Cashless warrant exercise

39,745  

( 39 )  

Reversal of deferred compensation amortization that did not vest

Issuance of common stock, public offering

( 173,111 )  

( 173 )  

( 345,267 )  

241,295  

Issuance of common stock, private offering

142,857  

999,858  

1,000,000  

Deferred compensation amortization

1,011,729  

Purchase of treasury stock

( 238,737 )  

Net (loss) for the year

( 321,634 )  

Balance at December 31, 2021

26,807,145  

$ 195,235  

$ 93,100,129  

$ ( 2,404,458 )  

$ ( 6,842,195 )  

$ ( 65,379,805 )  

$ 18,668,906  

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

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Operating Activities

Adjustments to reconcile net (loss) to net cash provided (used) by operating activities:

Provision for loss on note receivable

$ ( 321,634 )  

$ ( 2,906,183 )

Adjustments to reconcile net (loss) to net cash provided by operating activities:

771,808  

518,214  

1,871,867  

1,000,000  

151,951  

96,000  

Deferred federal income tax

( 110,000 )  

Non-cash stock-based compensation

1,489,976  

1,475,328  

Amortization of warrant costs

35,940  

35,943  

Changes in operating assets and liabilities:

Accounts receivable

( 2,267,806 )  

( 1,001,901 )

Prepaid expenses and other

( 125,208 )  

Operating lease right-of-use assets

( 130,847 )  

22,721  

35,977  

( 258,066 )  

Accounts payable and accrued expenses

1,410,472  

534,893  

Operating lease liabilities

137,522  

206,999  

Prepaid card load obligations

28,980,651  

7,081,808  

Merchant reserves

( 1,884,402 )  

( 1,751,349 )

Customer deposits

58,897  

1,305,296  

Deferred revenue

Deferred rent

Net cash provided (used) by operating activities

( 48,925 )  

Net cash provided by operating activities

29,784,917  

6,294,453  

Investing Activities

Purchases of property and equipment

( 1,273,039 )  

Purchase of Information Management Solutions, LLC (IMS)

( 5,907,408 )

Net cash (used) by investing activities

( 1,273,039 )  

( 6,762,802 )

Financing Activities

Proceeds from PPP Loan Program

813,500  

Forgiveness of PPP Loan

Proceeds from equipment loan

165,996  

Payments on equipment loan

( 39,802 )  

Proceeds from public offering, net of expenses

7,257,925  

Proceeds from private offering

1,000,000  

3,000,000  

Purchases of treasury stock

( 238,737 )  

Net cash provided by financing activities

887,457  

9,977,656  

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

29,399,335  

9,509,307  

Cash, cash equivalents, prepaid card loads, customer deposits and merchant reserves, beginning of year

22,192,225  

12,682,918  

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

$ 51,591,560  

$ 22,192,225  

Supplemental disclosures of cash flow information

Cash paid during the period for:

$ 4,314  

116,204  

93,525  

Non-cash transactions:

Issuance of stock warrants in exchange for purchase of IMS

552,283  

Issuance of deferred stock compensation

2,164,361  

1,937,620  

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

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The company also has an additional wholly-owned subsidiary, Usio Output Solutions, Inc., which is the entity for the Output Solutions operations.

In addition, the Company operates various product websites, such as www.akimbocard.com , www.payfacinabox.com , and www.singularpayments.com .

In addition, the Company operates various product websites, such as www.usio.com, www.singularpayments.com, www.payfacinabox.com, www.singularbillpay.com, www.ficentive.com, www.akimbocard.com, and www.usiooutput.com. 

Principles of Consolidation and Basis of Presentation:

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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.

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ACH and complementary service revenue

$ 15,432,787  

$ 8,471,705  

$ 6,961,082  

Credit card revenue

25,174,579  

19,453,501  

5,721,078  

Prepaid card services revenue

6,542,651  

3,166,580  

3,376,071  

Output solutions revenue

14,792,299  

1,160,037  

13,632,262  

Total Revenue

$ 61,942,316  

$ 32,251,823  

$ 29,690,493  

Deferred Revenues:

1 unchanged sentence

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

At December 31, 2020 and 2019 , the deferred revenues totaled $66,572 and $123,529.

At December 31, 2021 and 2020 , the deferred revenues totaled $ 17,647 and $ 66,572 respectively.

The deferred revenue balances are as follows:

Deferred revenues, beginning of period

$ 66,572  

$ 123,529  

Deferred revenues, end of period

17,647  

66,572  

Revenue recognized in the period from amounts included in deferred revenues at the beginning of the period

$ 48,925  

$ 56,957  

Cash and Cash Equivalents:

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Prepaid Card Load Assets:

The Company maintains pre-funding accounts for its customers to facilitate prepaid card loads as initiated by our customer.

These prepaid card load assets are carried on the Company's balance sheet with a corresponding liability.

The Company maintains pre-funding accounts for its customers to facilitate prepaid card loads as initiated by our customer.  These prepaid card load assets are carried on the Company's balance sheet with a corresponding liability.

Customer Deposits:

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

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.

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Cash and cash equivalents

$ 5,011,132  

$ 2,137,580  

Prepaid card load assets

7,610,242  

528,434  

Customer deposits

1,305,296  

Merchant reserves

8,265,555  

10,016,904  

$ 22,192,225  

$ 12,682,918  

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

Cash and cash equivalents

$ 7,255,321  

$ 5,011,132  

Prepaid card load assets

36,590,893  

7,610,242  

Customer deposits

1,364,193  

1,305,296  

Merchant reserves

6,381,153  

8,265,555  

$ 51,591,560  

$ 22,192,225  

Accounts Receivable/Allowance for Estimated Losses:

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

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

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

Property and Equipment:

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The Company ceases capitalization of such costs no later than the point at which the project is substantially complete and ready for its intended purpose.

For the years ended December 31, 2020 and December 31, 2019 , the Company capitalized $759,923 and $518,785, respectively.

For the years ended December 31, 2021 and December 31, 2020 , the Company capitalized $ 735,813  and $ 759,923 , respectively.

Concentration of Credit Risk:

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Accounts receivables potentially subject the Company to concentrations of credit risk.

The Company’s customer base operates in a variety of industries and is geographically dispersed.

The Company closely monitors extensions of credit.

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Reserve for Processing Losses:

If, due to insolvency or bankruptcy of one of the Company’s merchant customers, or for any other reason, the Company is not able to collect amounts from its card processing, credit card, ACH or merchant prepaid customers that have been properly "charged back" by the customer or if a prepaid cardholder incurs a negative balance, the Company must bear the credit risk for the full amount of the transaction.

The Company may require cash deposits and other types of collateral from certain merchants to minimize any such risk.

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The Company evaluates its risk for such transactions and estimates its potential processing losses based primarily on historical experience and other relevant factors.

At December 31, 2020 and 2019 , respectively, the Company’s reserve for processing losses was $515,199 and $506,153, respectively.

At December 31, 2021 and 2020 , respectively, the Company’s reserve for processing losses was $ 623,494 and $ 515,199 , respectively.

Advertising Costs:

Advertising is expensed as incurred.

The Company incurred approximately $59,000 and $114,000 in advertising costs in 2020 and 2019 , respectively.

The Company incurred approximately $ 179,000  and $ 59,000 in advertising costs in 2021 and 2020 , respectively.

Income Taxes:

3 unchanged sentences

generally accepted accounting principles prescribe a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return.

Income tax benefits that meet the “more likely than not” recognition threshold should be recognized.

Income tax benefits that meet the “more likely than not”

recognition threshold should be recognized.

Goodwill is amortized over 15 years for tax purposes.

As with all businesses, the Company’s tax returns are subject to periodic examination.

The Company’s federal returns for the past four years remain open to examination.

As with all businesses, the Company’s tax returns are subject to periodic examination.

The Company’s federal returns for the past four years remain open to examination.

The Company is subject to the Texas margin tax and Tennessee franchise tax.

Management is not aware of any tax positions that would have a significant impact on its financial position.

The Company has approximately $39.4 million of net operating loss carryforwards.

The Company has approximately $ 29.5  million of net operating loss carryforwards available to offset future taxable income.

However, the Company cannot predict with reasonable certainty whether all of the available net operating loss carryforwards will be realized in future periods.

Accordingly, a valuation allowance has been provided to reduce the net deferred tax assets to $1.4 million.

Management does not anticipate a significant change in the assessment and will review the deferred tax asset balance at December 31, 2021, or earlier as events may warrant.

Accordingly, a valuation allowance has been provided to increase the net deferred tax assets to $ 1.5  million.

Management considered the realizability of this asset in light of historical operating results and forecasted results, and elected to decrease the valuation allowance by $ 110,000 during 2021.

The valuation allowance is reviewed annually at year-end by management.

Stock-Based Compensation:

The Company recognizes as compensation expense all share-based payment awards made to employees and directors, including grants of stock options and warrants, based on estimated fair values.

Fair value is generally determined based on the closing price of the Company’s common stock on the date of grant.

401 (k) Plan:

The Company has a defined contribution plan, or 401 (k) Plan, pursuant to Section 401 (k) of the Internal Revenue Code.

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Basic and diluted (loss) per common share are calculated by dividing earnings by the weighted average number of common shares outstanding during the period.

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 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.

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.

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. 

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.

Reclassification of Prior Year Presentation :

Certain prior year amounts have been reclassified for consistency with the current period presentation.

These reclassifications had no effect on the reported results of operations.

A reclassification has been made to the Statement of Cash Flows for the year ended December 31, 2020 to identify Bad Debt totaling $ 96,000  previously reported in accounts receivable.

A reclassification has been made to the Statement of Operations for the year ended December 31, 2020 to identify a federal income tax benefit totaling $ 94,948 .

This change in classification does not affect previously reported total cash flows in the Statement of Cash Flows or income in the Statement of Operations.

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 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 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:

3 unchanged sentences

Accounts receivable

$ 683,736  

168,138  

1,211,225  

Prepaid expenses

29,849  

Customer list

3,807,052  

Total Cash Consideration

$ 5,907,408  

Customer list

$ 552,283  

Total Warrant Consideration

$ 552,283  

Total Purchase Price

The 2020 consolidated statement of operations includes 1 month of IMS operations, which is approximately $1.2 million of revenue and $0.6 million of gross profit.

$ 6,459,691  

The 2020  consolidated statement of operations includes 1  month of IMS operations, which was approximately $ 1.2  million of revenue. The first full year of operations from the Output Solutions unit exceeded our expectations, achieving $ 14.8  million in top line revenue for The Company in 2021, exceeding expectations.

Unaudited Pro Forma Information

The Company estimates that the revenues and net income for the periods below that would have been reported if the IMS acquisition would have taken place on the first day of the Company's 2019 calendar year would be as follows and includes pro-forma adjustments to normalize results in line with future operating performance:

The Company estimates that the revenues and net income for the periods below that would have been reported if the IMS acquisition would have taken place on the first day of the Company's 2019  calendar year would be as follows and includes pro-forma adjustments to normalize results in line with future operating performance:

$ 45,184,678  

$ 41,809,997  

9,251,517  

8,099,868  

( 3,127,387 )  

( 4,909,074 )

Income per share:

$ ( 0.17 )  

Amounts set forth above are not necessarily indicative of the results that would have been obtained had the IMS acquisition had taken place on the first day of the Company's 2019 calendar year or of the results that may be achieved by the combined enterprise in the future.

Note Receivable

C2Go Note Receivable

Under a loan and security agreement dated February 2, 2016, we loaned the principal amount of $200,000 to C2Go, Inc.

with an interest rate of 10% per annum for a term of 18 months.

The loan was secured by a first lien on all assets of C2Go.

C2Go defaulted under the note by failing to repay the loan plus interest on August 2, 2017.

On December 7, 2017, we entered into a note purchase and settlement agreement with C2Go and Mercury Investment Partners LLC.

There are no assurances that we will be able to recover the remaining $145,000 principal and there are no assurances there will be any assets for us to recover from its lien on all the assets of C2Go if payment in full of the obligation is not made.

The loss reserve on the note receivable as of December 31, 2020 and 2019 , was $145,000 reflecting a "more likely than not" recognition threshold.

Property and Equipment

Property and equipment consisted of the following at December 31:

$ 6,455,040  

$ 5,724,971  

2,418,421  

2,137,364  

Furniture and fixtures

732,153  

492,347  

Leasehold improvements

192,692  

170,583  

Total property and equipment

9,798,306  

8,525,265  

accumulated depreciation

( 6,191,149 )  

( 5,419,339 )

Net property and equipment

$ 3,607,157  

$ 3,105,926  

Akimbo Financial, Inc.

Acquisition ( 2015 )

On December 22, 2014, we acquired substantially all of the assets of Akimbo Financial, Inc.

The intangibles acquired in the acquisition consist of the customer list and contracts at cost of $396,824 (net of accumulated amortization of $396,824 at December 31, 2020) and goodwill of $9,759.

On December 22, 2014, we acquired substantially all of the assets of Akimbo Financial, Inc.

The intangibles acquired in the acquisition consist of the customer list and contracts at cost of $ 396,824 (net of accumulated amortization of $ 396,824 at December 31, 2021) 

and goodwill of $ 9,759 .

The intangible asset was fully amortized as of December 31, 2017.

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Singular Payments, LLC Acquisition ( 2017 )

On September 1, 2017, we acquired all of the membership interest of Singular Payments, LLC.

On September 1, 2017, we acquired all of the membership interest of Singular Payments, LLC.

The intangibles acquired in such acquisition consist of customer list assets of $ 5,000,000 at cost (net of accumulated amortization of $ 4,333,333 at December 31, 2021).

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Amortization expense in 2021 and 2020 was $ 1,000,000 .

Annual amortization expense will be $1,000,000 per year through the year 2021 and $666,667 in the year 2022.

Annual amortization expense will be $ 666,667 in the year 2022.

Information Management Solutions, LLC Acquisition ( 2020 )

On December 15, 2020, we acquired substantially all of assets of Information Management Solutions, LLC.

The intangibles acquired in such acquisition consist of customer list assets of $4,359,335 at cost.

The fair value of the customer list was calculated using the net present value of the projected gross profit to be generated by the customer list over 60 months beginning in January 2021 and ending in December 2025.

Annual amortization expense will be $871,867 per year through the year 2025.

On December 

15, 2020, we acquired substantially all of assets of Information Management Solutions, LLC.

The intangibles acquired in such acquisition consist of customer list assets of $ 4,359,335  at cost (net of accumulated amortization of $ 871,867 at December 31, 2021).

The fair value of the customer list was calculated using the net present value of the projected gross profit to be generated by the customer list over 60 months beginning in January 2021 

and ending in December 2025.

Annual amortization expense will be $ 871,867  per year through the year 2025.

Valuation Accounts

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Allowance for doubtful accounts

$ 205,522  

$ 151,951  

$ ( 38,473 )  

$ 319,000  

Reserve for processing losses

515,199  

132,000  

( 23,705 )  

623,494  

Allowance for doubtful accounts

$ 123,165  

$ 96,000  

$ ( 13,643 )  

$ 205,522  

Reserve for processing losses

506,153  

132,000  

( 122,954 )  

515,199  

Equipment Loan

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

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

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

Annual payments are $ 58,821 .

The financing is at an interest rate of 3.95 %. 

Current year payments on the Equipment Loan were $ 26,446 .

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.

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.

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Small Business Administration under the CARES Act.

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

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.

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Accrued commissions

$ 879,120  

$ 373,154  

Reserve for processing losses

623,494  

515,199  

Other accrued expenses

226,888  

225,412  

Accrued taxes

298,168  

132,363  

Accrued salaries

297,995  

217,816  

Total accrued expenses

$ 2,325,665  

$ 1,463,944  

Operating Leases

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The Company leases approximately 3,794 square feet of office space for its Nashville, Tennessee sales offices and operations.

Rental expense under the operating lease was $81,474 and $112,108 for the years ended December 31, 2020 and 2019 , respectively.

Rental expense under the operating lease was $ 85,122  and $ 81,474 for the years ended December 31, 2021 and 2020 , respectively.

The lease expires on April 30, 2023.

The Company assumed a lease in San Antonio, Texas as a part of the Information Management Solutions, LLC acquisition for its Output Solutions employees and warehouse operations.

The lease has a remaining life of 45 months and expires on September 30, 2024.

The space leased is 22,400 square feet.

The Company assumed a lease in San Antonio, Texas as a part of the Information Management Solutions, LLC acquisition for its Output Solutions employees and warehouse operations. 

The lease has a remaining life of 45  months and expires on September 30, 2024.

The space leased is 22,400  square feet.

Annual rents during the lease term range from $ 123,554 to $ 133,703 .

On January 1, 2021, the Company entered into a lease in Austin, Texas commencing on January 1, 2021 for its Austin technology organization.

The lease is for a period of 25 months and expires on January 31, 2023.

The space leased is 1,890 square feet.

Annual rents during the lease term is $55,755.

On March 15, 2021, the Company entered into a lease amendment to the existing lease in San Antonio, Texas commencing April 1, 2021 and expiring on September 30, 2024 running concurrently with the existing lease.

The incremental space leased is 2,734 square feet.

The incremental annual rent during the lease term ranges from $56,047 to $60,148.

The Company also leased select computer equipment for a period of 36 months beginning in May, 2016.

The lease expired in April, 2019.

Additionally, the Company has various copier equipment with leases that have not expired.

Rental expense under the operating lease was $12,729 and $25,000 for the years ended December 31, 2020 and 2019 , respectively.

The weighted average remaining lease term is 6.86 years.

Rental expense for the year ended 

December 31, 2021  was $ 107,647 .

On January 1, 2021, we entered into a lease in Austin, Texas commencing on January 1, 2021 

for our Austin technology organization.

The lease is for a period of 25  months and expires on January 31, 2023.

The space leased is 1,890 square feet. Rental expense for the year ended 

December 31, 2021  was $ 81,353 .

On March 15, 2021, we entered into a lease amendment to our existing lease in San Antonio, Texas commencing April 1, 2021 and expiring on September 30, 2024 running concurrently with the existing lease. 

 The incremental space leased is 2,734 square feet. 

 The incremental annual rent during the lease term ranges from $ 56,047 to $ 60,148 .

 Rental expense for the year ended 

December 31, 2021  was $ 34,125 .

On October 19, 2021, the Company entered into a lease amendment to the existing lease in San Antonio, Texas commencing at a date to be determined and expiring on September 24, 2024 running concurrently with the existing lease. 

The incremental space lease is 6,628 square feet. 

 The incremental annual rent during the lease term ranges from $ 135,874 to $ 145,816 .

The Company has various copier equipment with leases that have not expired.

Rental expense under the operating lease was $ 12,729  and $ 25,000  for the years ended December 31, 2021 and 2020 , respectively.

The weighted average remaining lease term is 5.27  years.

The weighted average discount rate is 4.17 %

The Company recognized total operating lease expense of approximately $360,000 and $450,000 for the years ended December 31, 2020 and 2019 , respectively.

In 2020 , the operating lease expense of $360,000 consisted of $245,000 of fixed operating expense and $115,000 of interest expense.

The Company recognized total operating lease expense of approximately $ 591,000  and $ 360,000  for the years ended December 31, 2021 and 2020 , respectively.

In 2021 , the operating lease expense of $ 591,000  consisted of $ 457,000  of fixed operating expense and $ 134,000  of interest expense.

The maturities of lease liabilities are as follows at December 31, 2021 :

Year ended December 31,

$ 621,802  

554,916  

518,935  

414,138  

917,081  

Total minimum lease payments

3,441,010  

Less imputed interest

Total lease liabilities

$ 2,980,318  

Related Party Transactions

During the year ended December 31, 2020 and 2019 , the Company purchased $9,885.72 and $13,831, respectively, of corporate imprinted sportswear, promotional items and caps from Angry Pug Sportswear.

During the year ended December 31, 2021 and 2020 , the Company purchased $ 4,009  and $ 9,886 , respectively, of corporate imprinted sportswear, promotional items and caps from Angry Pug Sportswear.

Louis Hoch, President and Chief Executive Officer is a 50 % owner of Angry Pug Sportswear.

During the year ended December 31, 2020 and 2019 , the Company received $0 and $6,665 in revenue from Lush Rooftop.

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

Louis Hoch, President and Chief Executive Officer, was an owner in Lush Rooftop.

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

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

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

Louis Hoch, President and Chief Executive Officer, was also an owner in BLVD Bar and Lounge.

In May 2020, Mr.

Chapa and Mr.

Hoch sold all their interests in BLVD.

Officers and Directors

On January 6, 2019, the Company repurchased 11,860 shares for $21,822 in a private transaction at the closing price on January 6, 2019 from employees to cover the respective employee's share of taxes for shares that vested on that day for Tom Jewell, Chief Financial Officer to cover taxes.

On January 6, 2020, the Company repurchased 11,860 shares of common stock for $20,636 at the closing price on January 6, 2020 from Tom Jewell, the Company's Chief Financial Officer to cover taxes.

On January 6, 2021, the Company repurchased 11,860 shares for $38,545 in a private transaction at the closing price on January 6, 2021 of $3.25 per share from Tom Jewell, the Company's Chief Financial Officer, to cover his share of taxes.

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

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

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Hoch to cover withholding taxes due.

On January 6, 2020, the Company repurchased 11,860 shares of common stock for $ 20,636 at the closing price on January 6, 2020 from Tom Jewell, the Company's Chief Financial Officer to cover taxes.

On January 6, 2021, the Company repurchased 11,860 shares for $ 38,545  in a private transaction at the closing price on January 6, 2021 of $ 3.25  per share from Tom Jewell, the Company's Chief Financial Officer, to cover his share of taxes.

On January 6, 2022, we repurchased 11,361 shares for $ 47,930 in a private transaction at the closing price on January 6, 2022 

of $ 4.21 per share from Tom Jewell, the Company's Chief Financial Officer, to cover his share of taxes.

Officers and Directors

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

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

The Company granted 319,900 shares of common stock with a 10 -year vesting period and 141,900 restricted stock units (RSUs) with a 3 -year vesting period to employees and Directors as a performance bonus on November 18, 2021 

at an issue price of $ 6.39 per share.

Executive officers and Directors included in the 10 -year grant were Louis Hoch ( 100,000 shares), Tom Jewell ( 50,000 shares), Greg Carter ( 30,000 shares) and Houston Frost ( 25,000 shares).

Executive officers and Directors included in the RSU grant were Louis Hoch ( 30,000 shares), Tom Jewell ( 21,000 shares), Greg Carter ( 9,000 shares) Houston Frost ( 6,000 shares), Blaise Bender ( 12,000 RSUs), Brad Rollins ( 12,000 RSUs) and Ernesto Beyer ( 12,000 RSUs).

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred tax asset are as follows at December 31:

Deferred tax assets:

Net operating loss carryforwards

$ 5,942,000  

$ 8,277,000  

Depreciation and amortization

999,000  

827,000  

Non-cash compensation

( 326,000 )  

101,000  

49,000  

Valuation Allowance

( 5,212,000 )  

( 7,534,000 )

Deferred tax asset

$ 1,504,000  

$ 1,394,000  

Management has reviewed its net deferred asset position, and due to the history of operating losses has determined that the application of a valuation allowance at December 31, 2021 and 2020 is warranted.

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As of December 31, 2021 , the Company had not accrued any interest or penalties related to uncertain tax provisions.

The Company has net operating loss carryforwards for tax purposes of approximately $39.4 million.

Net operating loss carryforwards prior to 2017 are available to offset taxable income of future periods and begin to expire in 2021.

The Company has net operating loss carryforwards for tax purposes of approximately $ 29.5  million.

Net operating loss carryforwards prior to 2017 are available to offset taxable income of future periods and expire 20 years after the loss was generated.

The Net operating loss carryforward that expired in 2021 was in the amount of $ 10.7 million.

The schedule below outlines when our pre- 2017 net operating losses were generated and the year they may expire.

$ 9,109,774  

1,621,096  

1,788,157  

1,350,961  

1,740,724  

918,960  

835,322  

429,827  

504,862  

474,465  

1,267,336  

$ 20,041,484  

Effective for tax years ending in 2018 or later, net operating losses cannot be carried back but can be carried forward to future tax years indefinitely, subject to annual limitations for utilization.

Approximately $0.5 million of the total net operating loss is subject to an IRS Section 382 limitation from 1999.

Net operating losses generated in 2018 and later total $ 9,413,692 .

The below table outlines our net operating losses generated in 2018 and after.

$ 4,410,916  

2,730,461  

2,272,315  

$ 9,413,692  

Total loss carryforwards

$ 29,455,176  

The tax provision for federal and state income tax is as follows for the years ended December 31:

Current provision:

279,861  

118,057  

279,861  

23,109  

Deferred provision:

Federal expense

Federal expense (benefit)

( 110,000 )  

Expense for income taxes

$ 169,861  

$ 23,109  

The reconciliation of federal income tax computed at the U.S.

federal statutory tax rates to total income tax expense is as follows for the years ended

federal statutory tax rates to total income tax expense is as follows for the years ended December 31:

Income tax (benefit) at 21%

$ ( 67,543 )  

$ ( 610,000 )

Change in valuation allowance

( 2,322,000 )  

( 2,470,000 )

Permanent and other differences

Alternative minimum tax and state taxes

2,389,543  

3,080,000  

Federal income tax (benefit)

(110,000 )  

(94,948)  

279,861  

118,057  

Income tax expense

$ 169,861  

$ 23,109  

Stock Options, Incentive Plans, Stock Awards, and Employee Benefit Plan

Stock Option Plans:

The Company’s 2015 Equity Incentive Plan provides for the grant of incentive stock options as defined in Section 422 of the Internal Revenue Code and the grant of Stock Options, Restricted Stock, Restricted Stock Units, Performance Awards, or other Awards to employees, non-employee directors, and consultants.

The Board of Directors has authorized 5,000,000 shares of common capital stock for issuance under the 2015 Equity Incentive Plan, including automatic increases provided for in the 2015 Equity Incentive Plan through fiscal year 2025.

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During 2021 , the Company granted 339,900 shares of stock to several employees as incentive compensation or new-hire bonuses.

During 2020 , the Company issued 332,267 restricted stock units to employees as a new hire bonus and directors.

During 2021 , the Company granted 237,900 restricted stock units to employees and directors as a new hire bonus or as incentive compensation.

Treasury Stock :

The Company also purchased 121,867 shares of common stock with a value of $227,766 to cover the employee's share of tax liabilities related to the vesting of commons stock and restricted stock units.

The Company purchased 48,814 shares of common stock with a value of $ 238,737 to cover the employee's share of tax liabilities related to the vesting of commons stock and restricted stock units in 2021.

Stock Awards :

The Company has granted restricted stock awards to its employees at different periods from 2005 through 2020.

The majority of the shares granted to those employees vest 10 years from the grant date and are forfeited in the event that the recipient’s employment relationship with the Company is terminated prior to vesting.

During 2021 , a portion of the restricted stock awards were granted, but not issued and are not listed as outstanding in the financial statements for 2021 .

Stock-based compensation expense related to stock and restricted stock awards was $1,475,328 for 2020 and $1,292,419 for 2019 .

Stock-based compensation expense related to stock and restricted stock awards was $ 1,489,976 for 2021 and $ 1,475,328  for 2020 .

A summary of stock awards outstanding and 2021 activities are as follows:

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Outstanding, December 31, 2020

5,101,113  

$ 1.96  

339,900  

26,000  

173,111  

Outstanding, December 31, 2021

5,241,902  

$ 2.25  

$ 2.11  

Expected to Vest after December 31, 2021

As of December 31, 2020 , there were $5,926,872 of unrecognized compensation costs related to the un-vested share-based compensation arrangements granted.

The cost is expected to be recognized over the weighted average remaining contractual life of 6.94 years.

The aggregate intrinsic value represents the difference between the weighted average exercise price and the closing price of the Company’s stock on December 31, 2020 , or $2.67.

5,241,902  

$ 2.25  

$ 2.11  

As of December 31, 2021 , there was $ 6,842,195  of unrecognized compensation costs related to the un-vested share-based compensation arrangements granted.

The cost is expected to be recognized over the weighted average remaining contractual life of 5.74  years.

The aggregate intrinsic value represents the difference between the weighted average exercise price and the closing price of the Company’s stock on December 31, 2021 , or $ 4.36 .

Employee Stock Purchase Plan :

The Company established the 1999 Employee Stock Purchase Plan (“ESPP”) under the requirements of Section 423 of the Internal Revenue Code to allow eligible employees to purchase the Company’s common stock at regular intervals.

Participating employees may purchase common stock through voluntary payroll deductions at the end of each participation period at a purchase price equal to 85 % of the lower of the fair market value of the common stock at the beginning or the end of the participation period.

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

The reduction of revenues recorded for the year ended December 31, 2020 and 2019 was $35,943 and $35,940, respectively.

On August 12, 2020, the Company issued 27,051 shares of common stock to University FanCards, LLC in a cashless exercise at $3.46 per 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 our common stock, $0.001 par value per share, with an exercise price of $4.23.

The reduction of revenues recorded for the year ended December 31, 2021 and 2020 was $ 35,940 and $ 35,943  respectively.

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

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

On September 1, 2021, the Company issued 19,950 shares of common stock to University FanCards, LLC in a cashless exercise at $ 5.97 per share in exchange for 30,000 warrants exercised by FanCards, LLC.

On December 

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

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

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

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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.

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.

Net (Loss) per Share

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

$ ( 321,634 )  

$ ( 2,906,183 )

Denominator for basic (loss) per share, weighted average shares outstanding

20,028,850  

15,428,798  

Effect of dilutive securities-stock options and restricted awards

Denominator for diluted (loss) per share, adjusted weighted average shares and assumed conversion

20,028,850  

15,428,798  

Basic (loss) per common share

$ ( 0.02 )  

Diluted (loss) per common share and common share equivalent

$ ( 0.02 )  

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

Anti-dilutive awards and options

5,241,902  

5,101,113  

Concentration of Credit Risk and Significant Customers

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Legal Proceedings

C2Go Note Receivable

Under a loan and security agreement dated February 2, 2016, we loaned the principal amount of $200,000 to C2Go, Inc.

with an interest rate of 10% per annum for a term of 18 months.

The loan was secured by a first lien on all assets of C2Go.

C2Go defaulted under the note by failing to repay the loan plus interest on August 2, 2017.

On December 7, 2017, we entered into a note purchase and settlement agreement with C2Go and Mercury Investment Partners LLC.

The loss reserve on the note receivable as of December 31, 2020 and 2019 , was $145,000 reflecting a "more likely than not" recognition threshold.

Vaden Landers

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

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

In the lawsuit, which is styled:

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 has refused to participate in the arbitration proceeding and has not filed an answer in the proceeding.

Landers has answered the state court lawsuit, denying the Company's allegations.

Landers has also asserted counterclaim against the Company for breach of contract, tortious interference with contract and defamation.

Landers seeks damages in excess of $1,000,000.

The Company denies Mr.

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

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 and no discovery has been conducted by the parties.

Aside from the lawsuits described above, the Company may be involved in legal matters arising in the ordinary course of business from time to time.

While the Company believes that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is or could become involved in litigation will not have a material adverse effect on our business, financial condition or results of operations.

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

There remain many uncertainties as a result of the pandemic.

As a result of the spread of COVID-19, economic uncertainties could continue to impact our operations.

2021CI01069, 407th Judicial District Court, Bexar County, Texas, we allege that Mr.

Landers violated the provisions of his employment agreement dated September 1, 2017 - specifically his non-compete obligations. 

The state court lawsuit only seeks injunctive relief against Landers. 

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

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. 

Landers’

allegations and do not believe that his counterclaims have any merit.

On or about April 27, 2021, Mr.

Landers filed his answering statement and counterclaim against us in the arbitration proceeding.

Landers alleged a variety of defenses to our claim that Landers violated the non-compete provisions of his employment agreement. 

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

Landers further alleged that we breached the terms of his employment agreement because Mr.

Landers' resignation was for good reason thus entitling Mr.

Landers to deferred compensation. 

Landers' allegations.

Through our investigation, we have learned that Mr.

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

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

We have obtained certain documents from Mr.

Landers in the state court proceeding.

In the arbitration, the parties have both submitted motions to the arbitration panel on the initial legal question of whether the non-compete is enforceable. 

On September 16, 2021, the arbitration panel ruled the non-competition provisions in Mr.

Landers' employment agreement were enforceable. 

The panel reserved ruling on the scope of the restrictions contained therein pending discovery. 

The arbitration panel held that the non-compete provisions need to be reformed to more specifically set forth the competition restrictions applicable to Mr.

On February 7, 2022, we and Mr.

Landers, resolved the state court litigation pending in San Antonio, Bexar County, Texas and the separate litigation pending before the American Arbitration Association, both of which related to certain conduct by Mr.

Landers both prior to and after his resignation.

Pursuant to the settlement agreement, Landers paid us $ 13,742.50 , which represents one -half of our costs incurred in the arbitration proceedings. 

In exchange for this payment, both parties dismissed their respective claims with prejudice without the admission of any liability. 

On September 1, 2021, KDHM, LLC sued PDS Acquisition Corp, now known as Usio Output Solutions, Inc., claiming a breach of the asset purchase agreement executed by the parties on December 14, 2020.

The lawsuit alleges that due to a mistake, accident, or inadvertence, certain customer deposits in the amount of $ 317,000  were improperly transferred to us.

We believe that plaintiff's claims in the lawsuit have no merit and contradict the express terms of the asset purchase agreement.

As a result of this post sale dispute, we discovered that KDHM, LLC, and its principals, made certain misrepresentations and breached the terms of the asset purchase agreement. 

On September 28, 2021, we filed an answer generally denying plaintiff’s allegations. 

On October 5, 2021, we filed a counterclaim and third -party petition. 

Therein, we allege that neither KDHM nor its principals disclosed that KDHM was not accounting for the customer deposits in accordance with Generally Accepted Accounting Principles. 

Yet, KDHM, and third -party defendants its principals Henry Minten and Thomas Dowe, affirmatively represented and warranted in section 3.1 (e) of the agreement that “[t]Annual Financial Statements and the Interim Financial Statements have been prepared from the books and records of Seller in accordance with GAAP applied on a consistent basis.” 

We also discovered that KDHM by and through its principals failed to disclose that $ 305,000  in additional customer deposits existed and these deposits were not conveyed to us as required by the agreement. 

KDHM, Minten and Dowe provided us with fraudulent and misleading profit and loss statements that did not disclose these additional customer deposits. 

KDHM and the defendants do not dispute that these additional customer deposits exist and that they were purchased by Usio. 

However, despite a written representation that these funds would be returned, KDHM and its principal have held these funds hostage. 

Section 2.1 (b)( x ) of the agreement provides that the purchased assets includes “All of Seller’s deposits from its customer, including without limitation, those customer deposits listed on Schedule 2.1 (b)(xi) of the Disclosure Schedules.” 

Finally, we discovered that KDHM did not provide us with all customer lists, which are identified as purchased asset under the agreement. 

We demanded the missing customer lists, but they have yet to be provided to us per the agreement.

In our counterclaims and third -party petition, we assert causes of action for fraud, breach of contract and conversion. 

At this time, the parties are engaging in written discovery and working on scheduling the depositions of the parties.

We consider the risk of loss as remote related to this lawsuit.

Aside from these proceedings above, the Company may be involved in legal matters arising in the ordinary course of business from time to time.

While we believe that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which we are or could become involved in litigation will not have a material adverse effect on our business, financial condition or results of operations.

The ongoing COVID- 19 pandemic has had a notable impact on general economic conditions, including but not limited to the temporary closures of many businesses, “shelter in place”

and other governmental regulations, reduced consumer spending due to both job losses and other effects attributable to the COVID- 19 pandemic.

There remain many uncertainties as a result of the pandemic.  As a result of the spread of COVID- 19, economic uncertainties could continue to impact our operations.

Any potential incremental financial impact is unknown at this time.

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

During 2020 and 2021, 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 doctors 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.

We received a gain during COVID in our prepaid business line, as we were able to work in conjunction with major cities across the U.S.

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

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

We were impacted in the magnitude of other payment processors as our customer base had limited exposure to retail facing businesses.

With that framework, we will continue to monitor the overall impact on our operations and take necessary steps to ensure the safety of our employees and the well being of our customers.

During 2020 and 2021, the government issued several rounds of COVID- 19 relief and stimulus payments and other programs to stimulate economic activity and facilitate an economic recovery.  

In April and May of 2020, our business was adversely affected as doctor's offices, dental offices, veterinarian offices and non-bank consumer lending accounts were ordered closed in connection with curbing the spread of the pandemic. 

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

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

 The level of activity for consumer lending merchants has somewhat returned to pre-COVID levels. 

We received an increase in revenues in our prepaid business line, as we were able to work in conjunction with major cities across the U.S.

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

The efforts have included the disbursement of funds to encourage vaccinations. 

The Company has recently experienced some difficulty in recruiting and retaining certain categories of employees due to limited resource availability. 

The Company continues to monitor resource availability and is taking necessary steps to retain employees and recruit employees to fill open positions.

Due to the COVID- 19 pandemic, supply chain issues have resulted in a reduced supply, and growing demand of paper and paper products utilized in our Output Solutions line of business. Sourcing inventory remains a key challenge to execute jobs and projects with existing and new customers.

If we cannot continue to acquire sufficient inventory stock, the successful completion, margins, and growth of the Output Solutions may be impacted.

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

To date, we have not been adversely impacted in the magnitude that other payment processors were, as our customer base had limited exposure to retail facing businesses. 

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

On December 25, 2021, the Company detected a ransomware attack that accessed and encrypted a small portion of its information technology systems.

The unauthorized access included the download of non-payment processing related data files from an externally hosted Office 365 environment which is separate from the Company's payment processing environment.

Throughout the incident, the Company remained operational.

Promptly upon the detection of the event, the Company launched an investigation, notified law enforcement, its insurance carrier, and engaged legal counsel, computer forensic firms and other incident response professionals.

The Company also implemented a series of containment and remediation measures to address this situation and reinforce the security of our information technology systems.

This cyber event had no material impact on the business, and no cardholder, or payments related data was compromised.

The Company has undertaken and continues to undertake certain system upgrades and re-platforming efforts designed to improve the security, availability, reliability, resiliency, and speed of its information technology systems in order to prevent and mitigate such events in the future.

Subsequent Events

On January 6, 2021, the Company repurchased 11,860 shares of common stock for $20,636 at the closing price on January 6, 2021 from Tom Jewell, the Company's Chief Financial Officer to cover taxes.

In early January, 2021, the Company's largest ACH customer went bankrupt and stopped processing transactions.

The customer represented 15% of our total ACH volume in 2020 and 1.12% of revenue for the Company.

The volume loss has been more than offset by organic growth from existing ACH clients to the extent the Company processed more ACH transactions in January 2021 than in January 2020 and the Company will process more ACH transactions in the first quarter of 2021 as compared to the same period in 2020.

On January 1, 2021, the Company entered into a lease in Austin, Texas commencing on January 1, 2021 for its Austin technology organization.

The lease is for a period of 25 months and expires on January 31, 2023.

The space leased is 1,890 square feet.

Annual rents during the lease term is $55,755.

The incremental space leased is 2,734 square feet.

The incremental annual rent during the lease term ranges from $56,047 to $60,148.

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 35 months at $4,901.79 per month and a final payment of $4,901.88.

Annual payments are $58,821.

The financing is at an interest rate of 3.95%.

On January 6, 2022, the Company repurchased 11,361 shares for $ 47,930 in a private transaction at the closing price on January 6, 2022 

of $ 4.21 per share from Tom Jewell, the Company's Chief Financial Officer, to cover his share of taxes.

On October 19, 2021, the Company entered into a lease amendment to the existing lease in San Antonio, Texas commencing at a date to be determined in 2022 and expiring on September 24, 2024 running concurrently with the existing lease. 

The incremental space lease is 6,628 square feet. 

 The incremental annual rent during the lease term ranges from $ 135,874 to $ 145,816 .

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

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What changed 10-K

Item 8. Financial Statements and Supplementary Data