What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-08 compared with 2022-03-17 · 99 added, 350 removed, 745 unchanged (38% of the section changed)

123 unchanged sentences

56,429  

54,760  

Settlement processing obligations

9 unchanged sentences

17,647  

66,572  

Current liabilities before merchant reserve obligations

10 unchanged sentences

14,994  

71,434  

Operating lease liabilities, non-current portion

8 unchanged sentences

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

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

27,044,900 and 26,807,145 issued and 25,097,963  and 25,473,453 outstanding in 2022 and 2021 (see Note 11)

195,471  

23 unchanged sentences

December 31, 2021

$ 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.

2 unchanged sentences

Balance at December 31, 2020

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

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, 2021

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

( 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, 2022

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.

3 unchanged sentences

Operating Activities

$ ( 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  

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

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

( 48,925 )  

Net cash provided by operating activities

29,784,917  

6,294,453  

Net cash provided (used) by operating activities

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  

Net cash provided (used) by financing activities

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.

5 unchanged sentences

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.usio.com, www.singularpayments.com, www.payfacinabox.com, www.singularbillpay.com, www.ficentive.com, www.akimbocard.com, and www.usiooutput.com. 

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

Principles of Consolidation and Basis of Presentation:

43 unchanged sentences

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

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

The deferred revenue balances are as follows:

4 unchanged sentences

17,647  

66,572  

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

29 unchanged sentences

1,364,193  

1,305,296  

Merchant reserves

19 unchanged sentences

Accounts Receivable/Allowance for Estimated Losses:

Accounts receivable are reported as outstanding principal net of an allowance for doubtful accounts of $ 319,000 and $ 205,522 at December 31, 2021 and 2020 , respectively.

Accounts receivable are reported as outstanding principal net of an allowance for doubtful accounts of $ 319,000  at December 31, 2022 and 2021 .

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability or failure of its customers to make required payments.

16 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.

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

For the years ended December 31, 2022 and December 31, 2021 , the Company capitalized $ 584,246 and $ 735,813 , respectively.

Concentration of Credit Risk:

24 unchanged sentences

Advertising is expensed as incurred.

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

The Company incurred approximately $ 94,000 and $ 179,000 in advertising costs in 2022 and 2021 , respectively.

Income Taxes:

10 unchanged sentences

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

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 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:

17 unchanged sentences

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 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

$ 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

$ 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:

$ 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.

Property and Equipment

31 unchanged sentences

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 September 2017 and ending in August 2022.

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

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

Amortization expense in 2022 and 2021 was $ 666,667 and $ 1,000,000 respectively.

Information Management Solutions, LLC Acquisition ( 2020 )

11 unchanged sentences

$ 319,000  

$ ( 38,473 )  

$ 319,000  

Reserve for processing losses

2 unchanged sentences

755,494  

623,494  

Allowance for doubtful accounts

15 unchanged sentences

Current year payments on the Equipment Loan were $ 54,634 .

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 was approved in full by the U.S.

Small Business Administration on December 14, 2020 and is accounted for as income in 2020 under FASB ASC 470.

Accrued Expenses

23 unchanged sentences

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 $ 85,122  and $ 81,474 for the years ended December 31, 2021 and 2020 , respectively.

The lease expires on April 30, 2023.

Rental expense under the operating lease was $ 102,976 and $ 85,122 for the years ended December 31, 2022 and 2021 , respectively.

The lease expires on April 30, 2023. 

We will not be entering into a lease extension, or new lease agreement in Nashville, Tennessee upon the expiration of this current lease agreement.

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. 

2 unchanged sentences

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

Rental expense for the year ended 

December 31, 2021  was $ 107,647 .

Rental expense for the years ended 

December 31, 2022 and 2021  was $ 112,504 and $ 107,647 respectively.

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

1 unchanged sentence

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 .

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

December 31, 2022 and 2021  was $ 83,610 and $ 81,353 respectively. On January 26, 2023, the Company entered into a lease amendment commencing on February 1, 2023, extending the term of the existing lease for a period of 23 months and expiring on January 31, 2025.

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 annual rent during the lease term ranges from $ 56,047 to $ 60,148 . Rental expense for the years ended 

December 31, 2022 and 2021  was $ 46,658 and $ 34,125 respectively.

On October 19, 2021, the Company entered into a lease amendment to the existing lease in San Antonio, Texas commencing April 1, 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 .

 The incremental annual rent during the lease term ranges from $ 135,874 to $ 145,816 . Rental expense for the year ended December 32, 2022 was $ 75,269

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

18 unchanged sentences

Related Party Transactions

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.

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.

As part of the transaction, on November 1, 2020, the Company repurchased 54,756 shares at the closing price of $ 1.5779 on October 15, 2020 from Mr.

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.

During the year ended December 31, 2022 and 2021 , the Company purchased $ 22,835 and $ 4,009 , respectively, of corporate imprinted sportswear, promotional items and caps from Angry Pug Sportswear.

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

Officers and Directors

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.

1 unchanged sentence

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).

On October 4, 2022, we repurchased 26,234 shares for $ 42,761 in a private transaction at the closing price on October 4, 2022 

of $ 1.63 per share from Louis Hoch, the Company's Chairman, President, Chief Executive Officer and Chief Operating Officer, to cover his share of taxes.

The Company granted 

319,900  shares of restricted 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 restricted stock 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).

April 1, 2021, 

the Company granted 

1,444,000  shares of restricted 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 grants were Louis Hoch ( 300,000  shares), Tom Jewell ( 200,000  shares), Blaise Bender ( 10,000  RSUs) and Brad Rollins ( 30,000  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.

11 unchanged sentences

101,000  

6,135,000  

Valuation Allowance

7 unchanged sentences

As of December 31, 2022 , 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 $ 29.5  million.

The Company has net operating loss carryforwards for tax purposes of approximately $ 23.9 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.

12 unchanged sentences

$ 10,931,710  

$ 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.

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  

Net operating losses generated in 2018 and later total approximately $ 12,994,000 .

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

6 unchanged sentences

Federal expense (benefit)

( 110,000 )  

Expense for income taxes

5 unchanged sentences

$ (1,134,200 )  

$ ( 610,000 )

Change in valuation allowance

7 unchanged sentences

279,861  

118,057  

Income tax expense

7 unchanged sentences

During 2022 , the Company granted 103,000 shares of stock to several employees as incentive compensation or new-hire bonuses.

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

During 2022 , the Company granted 291,867  restricted stock units to employees and directors as a new hire bonus or as incentive compensation.

Treasury Stock :

4 unchanged sentences

During 2022 , a portion of the restricted stock awards were granted, but not issued and are not listed as outstanding in the financial statements for 2022 .

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

Stock-based compensation expense related to stock and restricted stock awards was $ 2.1  million in 

2022 and $ 1.5  million in 

A summary of stock awards outstanding and 2022 activities are as follows:

13 unchanged sentences

$ 2.27  

$ 2.11  

Expected to Vest after December 31, 2022

1 unchanged sentence

$ 2.27  

$ 2.11  

As of December 31, 2022 , there was $ 5,697,900  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 cost is expected to be recognized over the weighted average remaining contractual life of 5.06 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, 2022 , or $ 1.65 .

23 unchanged sentences

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 . 

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

for 945,599 shares of our common stock, with an exercise price of $ 4.23 to IMS. 

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

33 unchanged sentences

Legal Proceedings

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, 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.

On September 1, 2021, KDHM, LLC sued PDS Acquisition Corp, now known as Usio Output Solutions, Inc., in the District Court of Bexar County, Texas 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.

17 unchanged sentences

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.

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.

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. 

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.  

and  

2020,  the Company's 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 level of activity for consumer lending merchants continues to recover to pre-COVID levels. 

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

to use its prepaid debit cards to facilitate the transfer of money via its 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.

2020,  the Company has experienced some difficulty in recruiting and retaining certain categories of employees due to limited labor availability. 

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

Due to the COVID- 19  pandemic and global economic challenges, 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.

While these efforts have been successful thus far, if the Company cannot continue to acquire sufficient inventory stock, the successful completion, margins, and growth of Output Solutions  

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

To date, the Company has 

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, 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.

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

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

Throughout the incident, we remained operational.

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

We also implemented a series of containment and remediation measures to address this situation and reinforce the security of our information technology systems. Our systems were not only fully restored and capable of resuming normal operations to the extent they were impaired, but enhanced following our immediate and long term response. 

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, 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 .

The Company granted 

1,403,000 shares of restricted common stock with a 

10 -year vesting period and 

273,000 restricted stock units (RSUs) with a 

3 -year vesting period to employees and Directors as a performance bonus on  

February 8, 2023 

at an issue price of $ 1.75 per share.

Executive officers and Directors included in the 

10 -year restricted stock grant were Louis Hoch ( 330,000  shares), Tom Jewell ( 200,000  shares), Greg Carter ( 100,000  shares) and Houston Frost ( 100,000  shares).

Executive officers included in the RSU grant were Louis Hoch ( 33,000  shares), Tom Jewell ( 21,000  shares), Greg Carter ( 12,000  shares) and Houston Frost ( 12,000  shares).

Effective on February 17, 2023, 

the Company entered into an employment agreement with Greg Carter, the Company’s Executive Vice President, Payment Acceptance.

Under the terms of this agreement, Mr.

Carter will receive an annual salary of $250,000;

Override/Commissions of 10 % of the actual cash commissions paid to salespersons under direct management of Mr.

Carter to be paid quarterly, and the payment of a one -time signing bonus of $ 40,000 . 

On January 26, 2023, the Company entered into a lease amendment to the existing lease in Austin, Texas commencing on February 1, 2023, extending the term of our existing lease in for a period of 24 months and expiring on January 31, 2025.

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