What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-03-27 compared with 2023-03-08 · 306 added, 421 removed, 423 unchanged (63% of the section changed)

4 unchanged sentences

Consolidated Statements of Operations for the years ended December 31, 2023 and 2022

Consolidated Statement of Changes in Stockholders’

Equity for the years ended December 31, 2022 and 2021

Consolidated Statement of Changes in Stockholders’ Equity for the years ended December 31, 2023 and 2022

Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022

6 unchanged sentences

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

and Subsidiaries (collectively referred to as the “Company”) as of December 31, 2022 and 2021, 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, 2022, and the related notes (collectively referred to as the "consolidated financial statements").

and Subsidiaries (collectively referred to as the “Company”) as of December 31, 2023 and 2022, 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, 2023, 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, 2023 and 2022 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America.

17 unchanged sentences

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, 2022, 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, 2023, 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.

4 unchanged sentences

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

3 unchanged sentences

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.

7 unchanged sentences

Cash and cash equivalents

$ 5,709,117  

$ 7,255,321  

$ 7,155,687 $ 5,709,117

Accounts receivable, net

4,371,640  

4,979,493  

5,564,138 4,371,640

Settlement processing assets

49,737,068  

63,824,646  

44,899,603 49,737,068

Prepaid card load assets

20,170,761  

36,590,893  

31,578,973 20,170,761

Customer deposits

1,554,122  

1,364,193  

507,355  

434,532  

1,865,731 1,554,122

422,808 507,355

Prepaid expenses and other

450,389  

426,963  

444,071 450,389

Current assets before merchant reserves

82,500,452  

114,876,041  

91,931,011 82,500,452

Merchant reserves

4,909,501  

6,381,153  

5,310,095 4,909,501

Total current assets

87,409,953  

121,257,194  

97,241,106 87,409,953

Property and equipment, net

3,222,816  

3,607,157  

3,660,092 3,222,816

Other assets:

Intangibles, net

2,625,360  

4,163,894  

1,753,333 2,625,360

Deferred tax asset

1,504,000  

1,504,000 1,504,000

Operating lease right-of-use assets

2,795,483  

2,802,113  

355,357  

345,357  

2,420,782 2,795,483

355,357 355,357

Total other assets

7,280,200  

8,815,364  

$ 97,912,969  

$ 133,679,715  

6,033,472 7,280,200

$ 106,934,670 $ 97,912,969

LIABILITIES AND STOCKHOLDERS' EQUITY

1 unchanged sentence

Accounts payable

$ 858,622  

$ 1,400,100  

$ 1,031,141 $ 858,622

Accrued expenses

3,721,108  

2,325,665  

3,801,278 3,721,108

Operating lease liabilities, current portion

617,319  

504,027  

633,616 617,319

Equipment loan, current portion

56,429  

54,760  

107,270 56,429

Settlement processing obligations

49,737,068  

63,824,646  

44,899,603 49,737,068

Prepaid card load obligations

20,170,761  

36,590,893  

31,578,973 20,170,761

Customer deposits

1,554,122  

1,364,193  

Deferred revenues

17,647  

1,865,731 1,554,122

Current liabilities before merchant reserve obligations

76,715,429  

106,081,931  

83,917,612 76,715,429

Merchant reserve obligations

4,909,501  

6,381,153  

5,310,095 4,909,501

Total current liabilities

81,624,930  

112,463,084  

89,227,707 81,624,930

Non-current liabilities:

Equipment loan, non-current portion

14,994  

71,434  

718,980 14,994

Operating lease liabilities, non-current portion

2,338,947  

2,476,291  

1,919,144 2,338,947

Total liabilities

83,978,871  

115,010,809  

91,865,831 83,978,871

Stockholders' Equity:

2 unchanged sentences

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

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  

195,235  

28,671,606 and 27,044,900 issued and 26,332,523 and 25,097,963 outstanding in 2023 and 2022 (see Note 11)

197,087 195,471

Additional paid-in capital

94,048,603  

93,100,129  

97,479,830 94,048,603

Treasury stock, at cost;

2,339,083 and 1,946,937 shares in 2023 and 2022 (see Note 11)

( 3,749,027 )  

( 4,362,150 ) ( 3,749,027 )

Deferred compensation

( 5,697,900 )  

( 6,907,775 ) ( 5,697,900 )

Accumulated deficit

( 70,863,049 )  

( 71,338,153 ) ( 70,863,049 )

Total stockholders' equity

13,934,098  

18,668,906  

15,068,839 13,934,098

Total Liabilities and Stockholders' Equity

$ 97,912,969  

$ 133,679,715  

$ 106,934,670 $ 97,912,969

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

2 unchanged sentences

December 31, 2022

$ 82,591,109 $ 69,428,285

Cost of services

63,992,417 54,835,069

18,598,692 14,593,216

Selling, general and administrative:

Stock-based compensation

2,222,969 2,072,041

Other expenses

16,216,690 15,000,487

Depreciation and Amortization

2,081,533 2,735,118

Total operating expenses

20,521,192 19,807,646

Operating (loss)

( 1,922,500 ) ( 5,214,430 )

Other income:

Interest income

1,695,122 15,237

Other income (expense)

Interest expense

( 5,202 ) ( 4,051 )

Other income and (expense), net

1,739,920 11,186

(Loss) before income taxes

( 182,580 ) ( 5,203,244 )

Federal income tax (benefit)

State income tax expense

292,524 280,000

$ ( 475,104 ) $ ( 5,483,244 )

(Loss) Per Share

Basic (loss) per common share:

$ ( 0.02 ) $ ( 0.27 )

Diluted (loss) per common share:

$ ( 0.02 ) $ ( 0.27 )

Weighted average common shares outstanding (see Note 12)

20,105,968 20,379,386

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

2 unchanged sentences

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

Issuance of common stock under equity incentive plan

369,755 368 1,182,939 — ( 166,329 ) — 1,016,978

Warrant compensation cost

Cashless warrant exercise

— — 20,963 — - — 20,963

Reversal of deferred compensation amortization that did not vest

Issuance of common stock, private offering

( 132,000 ) ( 132 ) ( 255,428 ) — 145,498 — ( 110,062 )

Deferred compensation amortization

— — — — 1,165,126 — 1,165,126

Purchase of treasury stock

— — — ( 1,344,569 ) — — ( 1,344,569 )

Net (loss) for the year

— — — — — ( 5,483,244 ) ( 5,483,244 )

Balance at December 31, 2022

27,044,900 $ 195,471 $ 94,048,603 $ ( 3,749,027 ) $ ( 5,697,900 ) $ ( 70,863,049 ) $ 13,934,098

Issuance of common stock under equity incentive plan

Warrant compensation cost

1,731,506 1,731 3,619,315 — ( 2,650,505 ) — 970,541

Reversal of deferred compensation amortization that did not vest

( 115,000 ) ( 115 ) ( 188,088 ) — 103,091 — ( 85,112 )

Deferred compensation amortization

— — — — 1,337,539 — 1,337,539

Non-cash return of treasury stock

— — — ( 156,162 ) — — ( 156,162 )

Purchase of treasury stock

— — — ( 456,961 ) — — ( 456,961 )

Net (loss) for the year

— — — — — ( 475,104 ) ( 475,104 )

Balance at December 31, 2023

28,661,406 $ 197,087 $ 97,479,830 $ ( 4,362,150 ) $ ( 6,907,775 ) $ ( 71,338,153 ) $ 15,068,839

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

3 unchanged sentences

Operating Activities

$ ( 475,104 ) $ ( 5,483,244 )

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

Deferred federal income tax

Non-cash stock-based compensation

1,209,506 1,196,584

872,027 1,538,534

Employee stock-based compensation

2,190,369 2,072,041

Vendor stock-based compensation

Amortization of warrant costs

Non-cash revenue from return of treasury stock

( 156,162 ) —

Changes in operating assets and liabilities:

Accounts receivable

( 1,192,498 ) 607,853

Prepaid expenses and other

6,318 ( 23,426 )

Operating lease right-of-use assets

374,701 6,630

84,547 ( 72,823 )

Accounts payable and accrued expenses

252,689 853,965

Operating lease liabilities

( 403,506 ) ( 24,052 )

Prepaid card load obligations

11,408,212 ( 16,420,132 )

Merchant reserves

400,594 ( 1,471,652 )

Customer deposits

311,609 189,929

Deferred revenue

Net cash provided (used) by operating activities

14,915,902 ( 17,036,477 )

Investing Activities

Purchases of property and equipment

( 834,964 ) ( 812,242 )

Net cash (used) by investing activities

( 834,964 ) ( 812,242 )

Financing Activities

Proceeds from equipment loan

Payments on equipment loan

Proceeds from private offering

( 56,992 ) ( 54,771 )

Purchases of treasury stock

Net cash provided (used) by financing activities

( 456,961 ) ( 1,344,569 )

Net cash (used) by financing activities

( 513,953 ) ( 1,399,340 )

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

13,566,985 ( 19,248,059 )

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

32,343,501 51,591,560

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

45,910,486 32,343,501

Supplemental disclosures of cash flow information

Cash paid during the period for:

Non-cash transactions:

$ 5,202 $ 4,051

116,204 269,500

Non-cash investing and financing activities:

Issuance of deferred stock compensation

2,650,505 166,229

Non-cash transaction for acquisition of equipment in exchange for note payable

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.ficentive.com, www.akimbocard.com, and www.usiooutput.com. 

Principles of Consolidation and Basis of Presentation:

15 unchanged sentences

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.

3 unchanged sentences

ACH and complementary service revenue

$ 14,782,606  

$ 15,432,787  

$ ( 650,181 )  

$ 14,888,973 $ 14,782,606 $ 106,367 1 %

Credit card revenue

27,121,621  

25,174,579  

1,947,042  

28,476,591 27,121,621 1,354,970 5 %

Prepaid card services revenue

9,117,670  

6,542,651  

2,575,019  

18,729,350 9,117,670 9,611,680 105 %

Output solutions revenue

18,406,388  

14,792,299  

3,614,089  

20,496,195 18,406,388 2,089,807 11 %

Total Revenue

$ 69,428,285  

$ 61,942,316  

$ 7,485,969  

$ 82,591,109 $ 69,428,285 $ 13,162,824 19 %

Deferred Revenues:

3 unchanged sentences

Deferred revenues, beginning of period

$ 17,647  

$ 66,572  

Deferred revenues, end of period

17,647  

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

$ 17,647  

$ 48,925  

Cash and Cash Equivalents:

4 unchanged sentences

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:

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. 

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

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

10 unchanged sentences

Cash and cash equivalents

$ 7,255,321  

$ 5,011,132  

$ 5,709,117 $ 7,255,321

Prepaid card load assets

36,590,893  

7,610,242  

20,170,761 36,590,893

Customer deposits

1,364,193  

1,305,296  

1,554,122 1,364,193

Merchant reserves

6,381,153  

8,265,555  

$ 51,591,560  

$ 22,192,225  

4,909,501 6,381,153

$ 32,343,501 $ 51,591,560

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

Cash and cash equivalents

$ 5,709,117  

$ 7,255,321  

$ 7,155,687 $ 5,709,117

Prepaid card load assets

20,170,761  

36,590,893  

31,578,973 20,170,761

Customer deposits

1,554,122  

1,364,193  

1,865,731 1,554,122

Merchant reserves

4,909,501  

6,381,153  

$ 32,343,501  

$ 51,591,560  

Accounts Receivable/Allowance for Estimated Losses:

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.

5,310,095 4,909,501

$ 45,910,486 $ 32,343,501

Accounts Receivable/Allowance for Estimated Credit Losses:

Accounts receivable are reported as outstanding principal net of an allowance for expected credit losses of $ 319,000 at December 31, 2023 and 2022 .

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

The Company determines the allowance based on an account-by-account review, taking into consideration such factors as the age of the outstanding balance, historical pattern of collections and financial condition of the customer.

Past losses incurred by the Company due to bad debts have been within its expectations.

Past losses incurred by the Company due to credit losses have been within its expectations.

If the financial condition of its customers deteriorates, resulting in an impairment of their ability to make contractual payments, additional allowances might be required.

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

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

The Company normally does not charge interest on accounts receivable.

16 unchanged sentences

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.

8 unchanged sentences

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.

5 unchanged sentences

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, 2022 and 2021 , respectively, the Company’s reserve for processing losses was $ 755,494 and $ 623,494 , respectively.

At December 31, 2023 and 2022 , respectively, the Company’s reserve for processing losses was $ 826,528 and $ 755,494 , respectively.

Advertising Costs:

6 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.

2 unchanged sentences

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:

7 unchanged sentences

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

New Accounting Pronouncements :

Recently Adopted Accounting Pronouncements :

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

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

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

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

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

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

We adopted this guidance effective January 1 2023 on a prospective basis.

Our financial statements were not materially impacted upon adoption.

For additional information, see "Note 4 - Valuation Accounts."

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.

1 unchanged sentence

Property and equipment consisted of the following at December 31:

$ 7,053,905  

$ 6,455,040  

2,530,498  

2,418,421  

$ 7,688,476 $ 7,053,905

3,542,707 2,530,498

Furniture and fixtures

818,522  

732,153  

818,522 818,522

Leasehold improvements

207,624  

192,692  

207,624 207,624

Total property and equipment

10,610,549  

9,798,306  

12,257,329 10,610,548

accumulated depreciation

( 7,387,732 )  

( 8,597,237 ) ( 7,387,732 )

Net property and equipment

$ 3,222,816  

$ 3,607,157  

$ 3,660,092 $ 3,222,816

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, 2022) 

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, 2023 ) and goodwill of $ 9,759 .

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

2 unchanged sentences

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 $ 5,000,000 at December 31, 2023 ).

2 unchanged sentences

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 (net of accumulated amortization of $ 1,743,734 at December 31, 2022).

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 $ 2,615,761 at December 31, 2023 ).

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

1 unchanged sentence

Net Write-Off

Allowance for doubtful accounts

$ 319,000  

Allowance for expected credit losses

$ 319,000 $ — $ — $ — $ 319,000

Reserve for processing losses

623,494  

132,000  

755,494  

Allowance for doubtful accounts

$ 205,522  

$ 151,951  

$ ( 38,473 )  

$ 319,000  

755,494 71,034 — — 826,528

Allowance for expected credit losses

$ 319,000 $ — $ — $ — $ 319,000

Reserve for processing losses

515,199  

132,000  

( 23,705 )  

623,494  

Equipment Loan

623,494 132,000 — — 755,494

Equipment Loans

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.

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 $ 54,634 .

On October 1, 2023, the Company entered into a debt arrangement to finance $ 811,819 for the purchase of an Output Solutions folder and inserter.

The loan is for a period of 66 months with a maturity date of April 5, 2029 and annual interest of 6.75 %.

Monthly principal and interest payments are required in the amount of $ 16,017 .

Current year payments on the Equipment Loan were $ 9,894 .

Accrued Expenses

1 unchanged sentence

Accrued commissions

$ 1,479,580  

$ 879,120  

Reserve for processing losses

755,494  

623,494  

Other accrued expenses

821,167  

226,888  

Accrued taxes

320,854  

298,168  

Accrued salaries

344,013  

297,995  

Total accrued expenses

$ 3,721,108  

$ 2,325,665  

Operating Leases

2 unchanged sentences

The lease expires on July 31, 2024.

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

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

Rental expense under the operating lease was $ 36,995 and $ 102,976 for the years ended December 31, 2023 and 2022 , 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. 

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

The space leased is 22,400  square feet.

The lease expired on April 30, 2023.

We did enter into a lease extension, or new lease agreement in Nashville, Tennessee upon the expiration of the 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.

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 .

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 

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 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 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 . Rental expense for the year ended December 32, 2022 was $ 75,269

Rental expense for the years ended December 31, 2023 and 2022 was $ 117,836 and $ 112,504 respectively.

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 years ended December 31, 2023 and 2022 was $ 79,467 and $ 83,610 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.

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 years ended December 31, 2023 and 2022 was $ 48,113 and $ 46,658 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 .

Rental expense for the year ended December 31, 2023 and 2022 was $ 104,375 and $ 75,269 respectively.

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, 2022 and 2021 , respectively.

The weighted average remaining lease term is 5.27  years.

Rental expense under the operating lease was $ 6,546 and $ 12,729 for the years ended December 31, 2023 and 2022 , respectively.

The weighted average remaining lease term is 4.20 years.

The weighted average discount rate is 4.47 %

The Company recognized total operating lease expense of approximately $ 711,000  and $ 591,000  for the years ended December 31, 2022 and 2021 , respectively.

In 2022 , the operating lease expense of $ 711,000  consisted of $ 577,000  of fixed operating expense and $ 134,000  of interest expense.

The Company recognized total operating lease expense of approximately $ 674,000 and $ 711,000 for the years ended December 31, 2023 and 2022 , respectively.

In 2023 , the operating lease expense of $ 674,000 consisted of $ 544,000 of fixed operating expense and $ 130,000 of interest expense.

The maturities of lease liabilities are as follows at December 31, 2023 :

Year ended December 31,

$ 617,319  

554,916  

518,935  

414,138  

917,081  

Total minimum lease payments

3,436,527  

Less imputed interest

Total lease liabilities

$ 2,956,266  

Related Party Transactions

2 unchanged sentences

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.

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.

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).

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 former Chief Financial Officer, to cover his share of taxes.

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.

On November 18, 2023 we repurchased 2,619 shares for $ 4,452 in a private transaction at a closing price on November 18, 2023 of $ 1.70 per share from Tom Jewell, the Company's former Chief Financial Officer, to cover his share of taxes.

On November 18, 2023 we repurchased 3,927 shares for $ 6,675 in a private transaction at a closing price on November 18, 2023 of $ 1.70 per share from Louis Hoch, the Company's Chairman, President, Chief Executive Officer and Chief Operating Officer, to cover his share of taxes.

On February 8, 2022, the Company granted 1,000 RSUs with a 3 -year vesting period to Houston Frost as a performance bonus at an issue price of $ 3.32 per share.

On June 26, 2022, the Company granted 66,667 RSUs with a 3 -year vesting period to Elizabeth Michelle Miller for joining the Board of Directors at an issue price of $ 2.28 per share.

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 February 8, 2023, the Company granted 1,403,000 shares of restricted common stock with a 10 -year vesting period and 273,000 RSUs with a 3 -year vesting period to employees and Directors as a performance bonus 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 RSUs), Tom Jewell ( 21,000 RSUs), Greg Carter ( 12,000 RSUs) and Houston Frost ( 12,000 RSUs).

On March 16, 2023, the Company granted 69,000 RSUs with a 3 -year vesting period to Directors as a performance bonus at an issue price of $ 1.60 per share.

Directors included in the RSU grant were Blaise Bender ( 21,000 RSUs), Brad Rollins ( 21,000 RSUs), Ernesto Beyer ( 21,000 RSUs) and Michelle Miller ( 6,000 RSUs).

On November 30, 2023, Tom Jewell, the Senior Vice President, Chief Financial Officer, and principal financial and accounting officer of the Company notified the Company of his intention to retire.

On December 11, 2023, Mr.

Jewell entered into a Separation and Mutual Release of Claims Agreement (“Separation Agreement”) with the Company.

Pursuant to the Separation Agreement, Mr.

Jewell will be paid installment payments equal to his current base salary until and including April 18, 2024.

Additionally, Mr.

Jewell will be permitted to retain any unvested Company stock options or other equity awards which shall vest in accordance with the applicable schedules.

Jewell will also receive all employee benefits including, but not limited to, health, dental, vision and life insurances that he was receiving prior to his execution of the Agreement until April 18, 2024.

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

$ 5,024,000  

$ 5,942,000  

$ 4,686,000 $ 5,024,000

Depreciation and amortization

1,159,000  

999,000  

1,137,000 1,159,000

Non-cash compensation

( 117,000 )  

69,000  

101,000  

6,135,000  

1,649,000 ( 117,000 )

124,000 69,000

7,596,000 6,135,000

Valuation Allowance

( 4,631,000 )  

( 6,092,000 ) ( 4,631,000 )

Deferred tax asset

$ 1,504,000  

$ 1,504,000 $ 1,504,000

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, 2023 and 2022 is warranted.

2 unchanged sentences

The Company has net operating loss carryforwards for tax purposes of approximately $ 23.3 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 2022 was in the amount of $ 9.1 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 schedule below outlines when our pre- 2017 net operating losses were generated and the year they may expire.

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  

$ 10,931,710  

$ 1,768,851 2025

1,350,961 2026

1,740,724 2027

1,267,336 2037

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.

2 unchanged sentences

Current provision:

280,000  

279,861  

280,000  

279,861  

292,524 280,000

Deferred provision:

1 unchanged sentence

Expense for income taxes

$ 280,000  

$ 169,861  

$ 292,524 $ 280,000

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

1 unchanged sentence

Income tax (benefit) at 21 %

$ (1,134,200 )  

$ ( 99,772 ) $ ( 1,134,200 )

Change in valuation allowance

( 581,000 )  

( 1,361,228 ) ( 581,000 )

Permanent and other differences

1,715,200  

2,389,543  

1,461,000 1,715,200

Federal income tax (benefit)

280,000  

279,861  

292,524 280,000

Income tax expense

$ 280,000  

$ 169,861  

$ 292,524 $ 280,000

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.

1 unchanged sentence

During 2023 , the Company granted 273,000 shares of stock to several employees as incentive compensation or new-hire bonuses.

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

During 2023 , the Company granted 402,900 restricted stock units to employees and directors as a new hire bonus or as incentive compensation.

Treasury Stock :

The Company purchased 105,805 shares of common stock with a value of $ 227,975 to cover the employee's share of tax liabilities related to the vesting of commons stock and restricted stock units in 2022.

The Company purchased 26,606 shares of common stock with a value of $ 47,382 to cover the employee's share of tax liabilities related to the vesting of commons stock and restricted stock units in 2023.

Stock Awards :

The Company has granted restricted stock awards to its employees at different periods from 2005 through 2023.

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 2023 , a portion of the restricted stock awards were granted, but not issued and are not listed as outstanding in the financial statements for 2023 .

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

2022 and $ 1.5  million in 

Stock-based compensation expense related to stock and restricted stock awards was $ 2.2 million in 2023 and $ 2.1 million in 2022 .

A summary of stock awards outstanding and 2023 activities are as follows:

5 unchanged sentences

Outstanding, December 31, 2022

5,241,902  

$ 2.25  

103,000  

230,002  

132,000  

4,982,900 $ 2.27

1,520,000 1.74

Outstanding, December 31, 2023

4,982,900  

$ 2.27  

6,384,900 $ 2.17 5.13 $ ( 0.45 )

Expected to Vest after December 31, 2023

4,982,900  

$ 2.27  

As of December 31, 2022 , there was $ 5,697,900  of unrecognized compensation costs related to the un-vested share-based compensation arrangements granted.

6,384,900 $ 2.17 5.13 $ ( 0.45 )

As of December 31, 2023 , there was $ 6,907,775 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 5.13 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 .

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, 2023 , or $ 1.72 .

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.

The Company's board of directors adopted the 2023 Employee Stock Purchase Plan (the “ESPP”) and the Company's stockholders approved the ESPP in July 2023.

The ESPP was adopted 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.

The Company issued - 0 - shares from the ESPP in 2022 and 2021 , respectively.

The ESPP is no longer active.

The ESPP initially authorized the issuance of 2,500,000 shares of our common stock under purchase rights granted to our employees or to employees of any of our designated affiliates.

The number of shares of our common stock reserved for issuance automatically increases on January 1 of each calendar year, beginning on January 1, 2024 through December 31, 2033, by the lesser of (i) 1 % of the total number of shares of our common stock outstanding on the last day of the fiscal year before the date of the automatic increase (determined on an as-converted to voting common stock basis);

and (ii) such number of shares of common stock that would cause the aggregate number of shares of common stock then reserved for issuance under the ESPP to not exceed 2,500,000 shares;

provided that before the date of any such increase, our board of directors may determine that there will be no increase or that such increase will be for a lesser number of shares.

As of the date hereof, no shares of our common stock have been purchased under the ESPP.

Stock Warrants :

On August 21, 2018, the Company issued University Fancards, LLC a warrant to purchase 150,000 shares of the Company's common stock.

30,000 warrants vested immediately upon the date on which the first financial transaction was processed on a card account issued under the prepaid agreement, which occurred on October 5, 2018.

120,000 warrants vest annually over 4 years in 30,000 warrant increments beginning on July 31, 2019 and becoming fully vested on July 31, 2022.

The exercise price for the 30,000 warrants that vested immediately on October 5, 2018 was $ 1.80 per share.

The exercise price for the remaining 120,000 warrants will be the lesser of $ 2.00 per share or one hundred and twenty percent ( 120 %) of the market price of the Company's common stock on the vesting date of the warrant.

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

Assumptions used were as follows:

(i) the fair value of the underlying stock was $ 0.94 for the 30,000 warrants and $ 0.90 for the 120,000 warrants;

(ii) the risk-free interest rate is 2.77%;

(iii) the contractual life is 5 years;

(iv) the dividend yield of 0%;

and (v) the volatility is 64.6 %.

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, 2022 and 2021 was $ 20,963 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 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 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. 

On December 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.

5 unchanged sentences

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

3 unchanged sentences

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

$ ( 5,483,244 )  

$ ( 321,634 )

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

20,379,386  

20,028,850  

Effect of dilutive securities-stock options and restricted awards

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

20,379,386  

20,028,850  

Basic (loss) per common share

$ ( 0.27 )  

Diluted (loss) per common share and common share equivalent

$ ( 0.27 )  

The awards and options to purchase shares of common stock that were outstanding at December 31, 2023 and 2022 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

4,982,900  

5,241,902  

Concentration of Credit Risk and Significant Customers

3 unchanged sentences

Legal Proceedings

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.

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.

BEN KAUDER, NINA PIOLETTI, & TRIPLE PAY PLAY, INC.

In 2017, USIO acquired Singular Payments, Inc.

(“Singular”), another payment processing company with offices in Nashville, Tennessee and St.

Augustine, Florida.

Ben Kauder and Nina Pioletti were executives of Singular;

after the acquisition, USIO hired them as executive-level employees.

USIO hired Kauder to serve as Senior Vice President of Integrated Payments, and Pioletti was hired to serve as Director of Sales.

As a condition of employment, Kauder and Pioletti agreed to be bound by certain USIO policies, including as it relates to preserving the confidentiality of USIO’s proprietary information.

As USIO executives, Kauder and Pioletti were afforded access to and contributed to the development of USIO’s trade secrets and other proprietary information not generally known by the public at large, including but not limited to financial information, marketing plans, cost and operational/strategic plans, and sales presentations.

In May 2021, Kauder resigned from USIO followed by Pioletti in July of 2022.

Thereafter, Kauder and Pioletti formed Triple Pay Play, another payment processing company which competes with the same services as USIO.

Upon information and belief, Kauder and Pioletti were working to form Triple Pay Play while employed by USIO, during USIO business hours, and while using USIO resources and USIO property.

On or about June 21, 2023, USIO filed suit against Ben Kauder, Nina Pioletti and Triple Pay Play for breach of contract and misappropriation of trade secrets and unfair business competition.

On July 6, 2023, Ben Kauder, Nina Pioletti and Triple Pay Play filed a Motion to Dismiss for Lack of Jurisdiction.

The motion was granted.

Subsequently, in February of 2024, USIO refiled its case in Tennessee, where Kauder, Nina, and Triple Pay Play reside.

Currently, this case is in the early-stage discovery.

GREENWICH BUSINESS CAPITAL, LLC

On or about September 25, 2019, Usio, Inc., (USIO) and Greenwich Business Capital LLC (“GBC”), entered into an Agreement for payment processing services (the “Agreement”).

Pursuant to the terms of the Agreement, USIO effectively terminated the Agreement with GBC on October 31, 2023, by providing Greenwich with a 30 -days written notice as required by the Agreement.

On November 13, 2023, GBC filed lawsuit against USIO, alleging violations of the NACHA rules.

In early March of 2024, USIO filed a Motion to Dismiss for improper venue and failure to state a claim.

The motion is set to be heard in May of 2024.

On September 1, 2021, KDHM, LLC, an entity owned by the former owners of IMS, sued PDS Acquisition Corp, now known as Usio Output Solutions, Inc., in the 73rd 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.

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 the 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 GAAP.

KDHM and third -party defendants, its principals Henry Minten and Thomas Dowe, affirmatively represented and warranted in section 3.1 (e) of the asset purchase agreement that “[t]he 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 that these deposits were not conveyed to us as required by the asset purchase 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 existed and that they were purchased by Usio.

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

Section 2.1 (b)( x ) of the asset purchase agreement provides that the purchased assets include “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 assets under the agreement.

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

On August 18, 2023, the judge granted a summary motion entitling KDHM to deposits for customer accounts that were printed and mailed prior to the acquisition, and Usio Output Solutions, Inc.

was entitled to deposits for accounts that were not yet printed and printed but not yet mailed prior to the acquisition.

Usio has requested a reconsideration of the motion, as it does not consider that deposits are only owed to KDHM if they were earned and offset against accounts receivable.

On March 4, 2024, the court held a hearing on KDHM’s Supplemental Rule 166 (G) Motion;

the court granted the motion in favor of KDHM.

However, USIO believes the court erred in granting the motion and ultimately filed a motion for reconsideration on March 19, 2024.

Usio’s Motion for Reconsideration of Order Granting Plaintiff’s Supplemental Rule 166 (g) Motion is set to be heard on March 28, 2024.

OTHER PROCEEDINGS

Aside from these proceedings, 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.

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 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. 

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, and believe this incident to be resolved.

Subsequent Events

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.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data