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Item 3. Legal Proceedings

2025-03-26 compared with 2024-03-27 · 32 added, 26 removed, 24 unchanged (71% of the section changed)

4 unchanged sentences

Augustine, Florida.

Ben Kauder and Nina Pioletti were executives of Singular;

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

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 it relates to preserving the confidentiality of USIO’s proprietary information.

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.

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

Thereafter, Kauder and Pioletti formed Triple Pay Play, another payment processing company which directly competes with 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.

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, Nina, and Triple Pay Play reside.

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

Subsequently, in February 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.

On March 14, 2025 the motion was denied, with future proceedings to continue at a date yet to be determined.

We have not recorded a contingency in relation to this case, as we consider the risk of loss remote as related to this lawsuit.

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 or about September 25, 2019, Usio and Greenwich Business Capital LLC, or GBC, entered into an Agreement for payment processing services.

Usio effectively terminated the agreement with GBC on October 31, 2023, by providing GBC with the requisite 30-days written notice.

On November 13, 2023, GBC filed lawsuit against Usio, alleging violations of the NACHA rules in the State of Rhode Island Kent Superior Court.

In early March 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.

On December 6, 2024, the Judge ruled in favor of Usio and dismissed the case.

We did not record a contingency in relation to this case.

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.

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

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

2 unchanged sentences

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.

We subsequently 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.

We believe that 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 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.

Section 2.1(b)(x) of the asset purchase agreement provides that the purchased assets include “All of Seller’s deposits from its customers, 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.

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 Output Solutions 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.

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.

As part of the July 12, 2024 appeal, Usio was required to obtain a bond in the amount of $474,229.

Please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" for a description of certain financing arrangements we established in connection with this bond.

We have not recorded a contingency in relation to this case, as we consider the risk of loss remote as related to this lawsuit.

OTHER PROCEEDINGS

4 unchanged sentences

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 3. Legal Proceedings