What changed in this filing

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Item 1. Financial Statements

2024-08-14 compared with 2024-05-15 · 164 added, 63 removed, 379 unchanged (37% of the section changed)

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2024

June 30, 2024

December 31, 2023

61 unchanged sentences

93,117,679 91,865,831

Commitments and contingencies

Commitments and contingencies (Note 9)

Stockholders’ equity:

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

- 0 - shares outstanding at March 31, 2024 (unaudited) and December 31, 2023, respectively

- 0 - shares outstanding at June 30, 2024 (unaudited) and December 31, 2023, respectively

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

28,779,206 and 28,661,406 issued, and 26,412,259 and 26,332,523 outstanding at March 31, 2024 (unaudited) and December 31, 2023, respectively

29,764,435 and 28,671,606 issued, and 27,331,969 and 26,332,523 outstanding at June 30, 2024 (unaudited) and December 31, 2023, respectively

198,179 197,087

2 unchanged sentences

Treasury stock, at cost;

2,366,947 and 2,339,083 shares at March 31, 2024 (unaudited) and December 31, 2023, respectively

2,432,466 and 2,339,083 shares at June 30, 2024 (unaudited) and December 31, 2023, respectively

( 4,511,919 ) ( 4,362,150 )

9 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

$ 20,079,888 $ 21,436,572 $ 41,050,274 $ 42,952,842

15 unchanged sentences

107,270 43,978 222,624 66,880

261,413 — 261,413 —

Interest expense

8 unchanged sentences

$ 75,492 $ 205,041 $ ( 174,696 ) $ 219,874

Income (Loss) Per Share

Basic income (loss) per common share:

3 unchanged sentences

Weighted average common shares outstanding

Basic - common stock

26,534,407 26,413,329 26,454,848 26,410,340

Basic - restricted stock awards

26,534,407 26,413,329 26,454,848 26,410,340

Weighted average shares used to compute basic earnings per share

26,375,762 26,508,872

26,375,762 27,454,471

See the accompanying notes to the condensed interim consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

Operating activities:

Net income (loss)

$ ( 174,696 ) $ 219,874

Adjustments to reconcile net income (loss) to net cash (used in) operating activities:

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

688,039 605,095

2 unchanged sentences

959,334 1,082,443

Non-cash revenue from returned common stock

— ( 156,162 )

Changes in current assets and current liabilities:

16 unchanged sentences

( 57,725 ) 9,070

Net cash (used in) operating activities

Net cash provided by (used in) operating activities

( 3,064,283 ) 27,770,210

7 unchanged sentences

( 36,868 ) ( 28,215 )

Proceeds from issuance of common stock

Purchases of treasury stock

13 unchanged sentences

Issuance of deferred stock compensation

See accompanying notes to the condensed interim consolidated financial statements.

1,497,300 2,478,506

See the accompanying notes to the condensed interim consolidated financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

13 unchanged sentences

28,779,206 $ 197,194 $ 97,632,948 $ ( 4,406,973 ) $ ( 6,561,728 ) $ ( 71,588,341 ) $ 15,273,100

Issuance of common stock under equity incentive plan

994,049 994 1,610,320 — ( 1,497,300 ) — 114,014

Issuance of common stock under employee stock purchase plan

6,180 6 10,504 — — — 10,510

Reversal of deferred compensation amortization that did not vest

( 15,000 ) ( 15 ) ( 31,305 ) — 31,320 — —

Deferred compensation amortization

— — — — 346,048 — 346,048

Purchase of treasury stock costs

— — — ( 104,946 ) — — ( 104,946 )

Net income for the period

— — — — — 75,492 75,492

Balance at June 30, 2024

29,764,435 $ 198,179 $ 99,222,467 $ ( 4,511,919 ) $ ( 7,681,660 ) $ ( 71,512,849 ) $ 15,714,218

Balance at December 31, 2022

10 unchanged sentences

28,466,150 $ 196,892 $ 96,687,132 $ ( 3,757,556 ) $ ( 7,833,278 ) $ ( 70,848,216 ) $ 14,444,974

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

Issuance of common stock under equity incentive plan

111,456 111 354,199 — ( 34,452 ) — 319,858

Reversal of deferred compensation amortization that did not vest

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

Deferred compensation amortization

— — — — 343,123 — 343,123

Purchase of treasury stock costs

— — — ( 10,507 ) — — ( 10,507 )

Non-cash return of common stock

— — — ( 156,162 ) — — ( 156,162 )

Net income for the period

— — — — — 205,041 205,041

Balance at June 30, 2023

28,462,606 $ 196,888 $ 96,853,243 $ ( 3,924,225 ) $ ( 7,421,516 ) $ ( 70,643,175 ) $ 15,061,215

See the accompanying notes to the condensed interim consolidated financial statements.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6 unchanged sentences

Results of operations for interim periods are not necessarily indicative of results that may be expected for any other interim periods or the full fiscal year.

References in this quarterly report to "the quarter" or the "first quarter" mean the three month period ended March 31, 2024 or 2023, as the case may be and unless otherwise noted.

References in this quarterly report to "the quarter" or the "second quarter" mean the three month period ended June 30, 2024 or 2023, as the case may be and unless otherwise noted.

Use of Estimates:

14 unchanged sentences

("Output Solutions"), a wholly-owned subsidiary of Usio, Inc., provides bill preparation, presentment and mailing services.

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

Revenue from Output Solutions is recognized when the related services are performed for printing and delivered to the United States Postal Services, or USPS, for postage.

We also earn revenues from interest and fees earned on certain assets underlying customer balances.

Interest earned on assets directly related to our core business line operations are recorded in the revenue source underlying the associated customer balances.

Customer balances held on which the Company earns interest revenues include balances from our Automated Clearing House, or ACH, and complementary services, prepaid card services, and Output Solutions business lines.

The following table presents the Company's consolidated revenues by source:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

ACH and complementary services

5 unchanged sentences

4,686,869 4,849,197 10,224,792 10,807,417

Interest - ACH and complementary services

190,233 40,361 401,873 43,306

Interest - Prepaid card services

334,624 125,058 737,365 186,018

Interest - Output Solutions

39,146 9,447 73,536 15,568

Total revenue

5 unchanged sentences

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

The Company earns interest on these underlying processing assets, which is recognized as revenue in the ACH and complementary services business line.

Prepaid Card Load Assets and Obligations:

1 unchanged sentence

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

As the prepaid business line continues to expand, card load assets will increase as funds are sent from customers to the Company.

As the prepaid business line expands, card load assets will increase as funds are sent from customers to the Company.

As customers begin to load cash onto cards, the balance of both the prepaid card asset and corresponding liability decrease.

As these balances decrease, the Company recognizes processing revenue and cardholder fees.

The Company earns interest on these prepaid card load assets and obligations, which is recognized as revenue in the prepaid card services business line.

Customer Deposits:

1 unchanged sentence

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

The Company earns interest on these customer deposits, which is recognized as revenue in the Output Solutions business line.

Merchant Reserves:

The Company has merchant reserve requirements associated with Automated Clearing House, or ACH, transactions.

The Company has merchant reserve requirements associated with ACH transactions.

The merchant reserve assets are carried on the Company's balance sheet with a corresponding liability.

1 unchanged sentence

While this cash is not restricted in its use, the Company believes that designating this cash to collateralize merchant reserves strengthens the Company's standing with its member sponsors and is in accordance with the guidelines set by the card networks.

The Company earns interest on these merchant reserves, which is recognized as revenue in our ACH and complementary services business line.

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

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

20 unchanged sentences

The Company maintains an allowance for estimated credit losses resulting from the inability or failure of the Company’s 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.

During the three months ended March 31, 2024 and the year ended December 31, 2023, there were no credit losses incurred.

During the six months ended June 30, 2024 and the year ended December 31, 2023, there were no credit losses incurred.

In the past, losses incurred by the Company due to credit losses were within its expectations.

1 unchanged sentence

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

The allowance for credit losses was $ 319,000 at March 31, 2024 and December 31, 2023 .

The allowance for credit losses was $ 319,000 at June 30, 2024 and December 31, 2023 .

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

At March 31, 2024 and December 31, 2023 , inventory consisted primarily of printing and paper supplies used for Output Solutions.

At June 30, 2024 and December 31, 2023 , inventory consisted primarily of printing and paper supplies used for Output Solutions.

Accounting for Internal Use Software:

2 unchanged sentences

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

During the three months ended March 31, 2024 and March 31, 2023 , the Company capitalized software costs of $ 115,473 and $ 207,732 , respectively.

During the six months ended June 30, 2024 and June 30, 2023 , the Company capitalized software costs of $ 353,316 and $ 378,197 , respectively.

Valuation of Long-Lived and Intangible Assets:

5 unchanged sentences

When management determines that the carrying value of long-lived and intangible assets may not be recoverable, impairment is measured as the excess of the assets’ carrying value over the estimated fair value.

No impairment losses were recorded in 2023 or during the three months ended March 31, 2024 .

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

No impairment losses were recorded in 2023 or during the six months ended June 30, 2024 .

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

however, the Company cannot predict the occurrence of events that might adversely affect the reported values in the future.

6 unchanged sentences

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

At March 31, 2024 and December 31, 2023 , the Company’s reserve for processing losses was $ 859,528 and $ 826,528 , respectively, carried on the Company's balance sheet as an accrued expense.

At June 30, 2024 and December 31, 2023 , the Company’s reserve for processing losses was $ 892,528 and $ 826,528 , respectively, carried on the Company's balance sheet as an accrued expense.

Legal Proceedings:

2 unchanged sentences

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.

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

Our financial statements were not materially impacted upon adoption.

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 Company's consolidated financial statements upon adoption.

Reclassifications:

We have reclassified certain prior period amounts in the accompanying consolidated financial statements in order to be consistent with the current period presentation.

These reclassifications had no effect on net income, total assets, total liabilities or equity.

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

For each of the three months ended March 31, 2024 and 2023 , operating lease expenses totaled $ 132,574 and $ 179,901 , respectively.

For each of the three months ended June 30, 2024 and 2023 , operating lease expenses totaled $ 133,973 and $ 146,415 , respectively.

For each of the six months ended June 30, 2024 and 2023 , operating lease expenses totaled $ 266,105 and $ 257,038 , respectively.

Accrued Expenses

Accrued expenses consisted of the following balances:

March 31, 2024

June 30, 2024

December 31, 2023

14 unchanged sentences

Monthly principal and interest payments were required in the amount of $ 4,902 .

Principal payments for the three months ended March 31, 2024 and 2023 were $ 14,312 and $ 13,488 , respectively, and are reflected on the Company's Condensed Consolidated Statement of Cash Flows.

Principal payments for the three months ended June 30, 2024 and 2023 were $ 0 and $ 14,171 , respectively, and are reflected on the Company's Condensed Consolidated Statement of Cash Flows.

Principal payments for the six months ended June 30, 2024 and 2023 were $ 14,312 and $ 27,659 , respectively.

This loan was paid in full on its maturity date.

1 unchanged sentence

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 , with interest only payments required for the first 6 months of the loan term.

Total interest and principal payments on this folder and inserter equipment loan were $ 13,481 for the first quarter of 2024.

Monthly principal and interest payments are required in the amount of $ 16,017 , with interest only payments required for the first six months of the loan term.

Total interest and principal payments on this folder and inserter equipment loan were $ 36,687 for the three months ended June 30, 2024 .

Total interest and principal payments on this folder and inserter equipment loan were $ 50,168 for the six months ended June 30, 2024 .

Stockholders' Equity

11 unchanged sentences

The fair value of the warrants amounted to $ 552,283 and was recorded as an increase in the customer list asset and a corresponding amount to additional paid in capital.

The amortization of these warrants, which is included in the total amortization expense of the customer list intangible asset, totaled $ 27,614 in each of the three months ended March 31, 2024 and 2023 .

Net (Loss) Per Share

The amortization of these warrants, which is included in the total amortization expense of the customer list intangible asset, totaled $ 27,615 and $ 55,228 in each of the three and six months ended June 30, 2024 and 2023 , respectively.

Net Income (Loss) Per Share

Basic income (loss) per share (EPS) was computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period.

2 unchanged sentences

therefore, unvested restricted stock is considered a participating security for the purpose of calculating EPS.

The following is a reconciliation of the numerators and the denominators of the basic and diluted per share computations for net income (loss) for the three months ended March 31, 2024 and March 31, 2023 .

Three Months Ended March 31,

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

$ ( 250,188 ) $ 14,833

19,990,862 20,122,972

Restricted stock awards

The following is a reconciliation of the numerators and the denominators of the basic and diluted per share computations for net income (loss) for the three and six months ended June 30, 2024 and June 30, 2023 .

Three Months Ended June 30,

Six Months Ended June 30,

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

$ 75,492 $ 205,041 $ ( 174,696 ) $ 219,874

8 unchanged sentences

$ 0.00 $ 0.01 $ ( 0.01 ) $ 0.01

The awards and options to purchase shares of common stock that were outstanding at March 31, 2024 and March 31, 2023 that were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive, are as follows:

Three Months Ended March 31,

The awards and options to purchase shares of common stock that were outstanding at June 30, 2024 and June 30, 2023 that were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive, are as follows:

Six Months Ended June 30,

Anti-dilutive awards and options

17 unchanged sentences

Related Party Transactions

During the three months ended March 31, 2024 and March 31, 2023 , the Company purchased a total of $ 0 and $ 1,835 , respectively, of corporate imprinted sportswear, promotional items, and caps from Angry Pug Sportswear.

During the six months ended June 30, 2024 and June 30, 2023 , the Company purchased a total of $ 4,402 and $ 18,148 , respectively, of corporate imprinted sportswear, promotional items, and caps from Angry Pug Sportswear.

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

Directors and Officers

On June 21, 2024, the Company granted 966,000 shares of restricted common stock with a 10 -year vesting period and 277,200 restricted stock units ("RSUs") with a 3 -year vesting period to employees and Directors as a performance bonus at an issue price of $ 1.55 per share.

RSUs vest in equal tranches over their 3 -year vesting period, while 10 -year grants are cliff vesting, and vest in full at the conclusion of their 10 -year vesting period.

Upon vesting, employees and Directors will receive issued shares.

Executive officers and Directors included in the 10 -year restricted stock grant were Louis Hoch ( 160,000 shares), Michael White ( 120,000 shares), Greg Carter ( 80,000 shares), and Houston Frost ( 40,000 shares).

Executive officers included in the RSU grant were Louis Hoch ( 21,000 RSUs), Michael White ( 18,000 RSUs), Greg Carter ( 18,000 RSUs),and Houston Frost ( 12,000 RSUs).

On June 21, 2024, the Company granted 84,000 RSUs with a 3 -year vesting period to Non-employee Directors as a performance bonus at an issue price of $ 1.55 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 ( 21,000 RSUs).

On February 24, 2024, we repurchased 2,075 shares of our common stock for $ 3,258 in a private transaction based on the $ 1.57 per share closing price on February 24, 2024 from Tom Jewell, the Company's former Chief Financial Officer, to cover his share of taxes in connection with equity grants.

On February 24, 2024, we repurchased 4,911 shares of our common stock for $ 7,710 in a private transaction based on the $ 1.57 per share closing price on February 24, 2024 from Louis Hoch, the Company's Chairman, President, Chief Executive Officer and Chief Operating Officer, to cover his share of taxes in connection with equity grants.

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.

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

4 unchanged sentences

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 restricted stock units ("RSUs") with a 3 -year vesting period to employees and Directors as a performance bonus at an issue price of $ 1.75 per share.

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.

RSUs vest in equal tranches over their 3 -year vesting period, while 10 -year grants are cliff vesting, and vest in full at the conclusion of their 10 -year vesting period.

2 unchanged sentences

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.

On March 16, 2023, the Company granted 69,000 RSUs with a 3 -year vesting period to Non-employee 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.

Commitments and Contingencies

Legal Proceedings.

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 and, 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 related 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 Kauder, Pioletti and Triple Pay Play for breach of contract and misappropriation of trade secrets and unfair business competition.

On July 6, 2023, Kauder, 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, Pioletti, and Triple Pay Play reside.

On May 3, 2024, Kauder, Pioletti and Triple Pay Play filed a Motion to Dismiss Usio’s Complaint;

this motion was heard August 5, 2024.

The Judge did not make a ruling and is currently reviewing all materials filed in regards to this matter.

Greenwich Business Capital, LLC

On or about September 25, 2019, 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 National Automated Clearing House Association (NACHA) rules in the State of Rhode Island Kent Superior Court.

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

On May 20, 2024, Usio’s Motion to Dismiss was heard in the State of Rhode Island Kent Superior Court.

The Judge did not make a ruling and is currently reviewing all materials filed in regards to this matter.

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.

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 financial 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 have asserted 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 and the court granted the motion in favor of KDHM.

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

On March 28, 2024, the court heard Usio’s Motion for Reconsideration of Order Granting Plaintiff’s Supplemental Rule 166 (g).

On May 2, 2024, the court denied Usio’s motion.

On July 12, 2024, we filed an appeal on the lower court's decision, which is pending review.

We believe that plaintiff's claims contradict the express terms of the asset purchase agreement, and we intend to vigorously defend this matter.

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

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.

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

What changed 10-Q

Item 1. Financial Statements