Usio, Inc. 10-Q

Item 1. Financial Statements. USIO, INC. CONDENSED CONSOLIDATED BALANCE SHEETS March 31, 2025 December 31, 2024 (Unaudited) Assets Current assets: Cash and cash equivalents $ 8,718,247 $ 8,056,891 Accounts receivable, net 4,569,616 5,053,639 Accounts receivable, tax credit — 1,494,612 Settlement processing assets 62,151,877 47,104,006 Prepaid card load assets 14,553,939 25,648,688 Customer deposits 1,907,169 1,918,805 Inventory 348,493 403,796 Prepaid expenses and other 729,039 585,500 Current assets before merchant reserves 92,978,380 90,265,937 Merchant reserves 4,925,101 4,890,101 Total current assets 97,903,481 95,156,038 Property and equipment, net 3,230,300 3,194,818 Other assets: Intangibles, net 663,349 881,346 Deferred tax asset, net 4,580,440 4,580,440 Operating lease right-of-use assets 2,884,691 3,037,928 Other assets 357,877 357,877 Total other assets 8,486,357 8,857,591 Total assets $ 109,620,138 $ 107,208,447 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 715,223 $ 1,256,819 Accrued expenses 2,705,122 3,366,925 Operating lease liabilities, current portion 620,915 612,680 Equipment loan, current portion 150,085 147,581 Settlement processing obligations 62,151,877 47,104,006 Prepaid card load obligations 14,553,939 25,648,688 Customer deposits 1,907,169 1,918,805 Current liabilities before merchant reserve obligations 82,804,330 80,055,504 Merchant reserve obligations 4,925,101 4,890,101 Total current liabilities 87,729,431 84,945,605 Non-current liabilities: Equipment loan, net of current portion 533,248 571,862 Operating lease liabilities, net of current portion 2,365,529 2,534,017 Total liabilities 90,628,208 88,051,484 Commitments and contingencies (Note 9) Stockholders’ equity: Preferred stock, $ 0.01 par value, 10,000,000 shares authorized; - 0 - shares outstanding at March 31, 2025 (unaudited) and December 31, 2024, respectively — — Common stock, $ 0.001 par value, 200,000,000 shares authorized; 30,038,355 and 29,902,415 issued, and 26,527,906 and 26,609,651 outstanding at March 31, 2025 (unaudited) and December 31, 2024, respectively 30,038 198,317 Additional paid-in capital 99,992,655 99,676,457 Treasury stock, at cost; 3,510,449 and 3,292,764 shares at March 31, 2025 (unaudited) and December 31, 2024, respectively ( 6,122,232 ) ( 5,770,592 ) Deferred compensation ( 6,640,905 ) ( 6,914,563 ) Accumulated deficit ( 68,267,626 ) ( 68,032,656 ) Total stockholders’ equity 18,991,930 19,156,963 Total liabilities and stockholders’ equity $ 109,620,138 $ 107,208,447 See the accompanying notes to the condensed interim consolidated financial statements. 3 Table of Contents USIO, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended March 31, 2025 2024 Revenues $ 22,009,050 $ 20,970,386 Cost of services 17,199,907 16,116,691 Gross profit 4,809,143 4,853,695 Selling, general and administrative expenses: Stock-based compensation 410,062 499,273 Other SG&A 4,142,895 4,060,225 Depreciation and amortization 495,770 576,154 Total selling, general and administrative 5,048,727 5,135,652 Operating (loss) ( 239,584 ) ( 281,957 ) Other income and (expense): Interest income 79,011 115,354 Interest expense ( 11,843 ) ( 13,585 ) Other income, net 67,168 101,769 (Loss) before income taxes ( 172,416 ) ( 180,188 ) State income tax expense 62,554 70,000 Income tax expense 62,554 70,000 Net (loss) $ ( 234,970 ) $ ( 250,188 ) Basic (loss) per common share: $ ( 0.01 ) $ ( 0.01 ) Diluted (loss) per common share: $ ( 0.01 ) $ ( 0.01 ) Weighted average common shares outstanding Basic 26,615,947 26,375,762 Diluted 26,615,947 26,375,762 See the accompanying notes to the condensed interim consolidated financial statements. 4 Table of Contents USIO, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended March 31, 2025 2024 Operating activities: Net (loss) $ ( 234,970 ) $ ( 250,188 ) Adjustments to reconcile net (loss) to net cash provided by operating activities: Depreciation 277,773 358,187 Amortization 217,997 217,967 Employee stock-based compensation 410,062 499,273 Changes in current assets and current liabilities: Accounts receivable 484,023 701,911 Accounts receivable, tax credit 1,494,612 — Prepaid expenses and other ( 143,539 ) ( 243,344 ) Operating lease right-of-use assets 153,237 102,394 Other assets — 20,000 Inventory 55,303 ( 6,769 ) Accounts payable and accrued expenses ( 1,203,399 ) ( 1,158,059 ) Operating lease liabilities ( 160,253 ) ( 107,243 ) Merchant reserves 35,000 12,000 Customer deposits ( 11,636 ) ( 57,468 ) Net cash provided by operating activities 1,374,210 88,661 Investing activities: Purchases of property and equipment ( 313,254 ) ( 176,750 ) Net cash (used in) investing activities ( 313,254 ) ( 176,750 ) Financing activities: Payments on equipment loan ( 36,110 ) ( 14,431 ) Proceeds from issuance of common stock 11,515 — Purchases of treasury stock ( 351,640 ) ( 44,823 ) Assets held for customers 3,953,121 ( 6,748,838 ) Net cash provided by (used in) financing activities 3,576,886 ( 6,808,092 ) Change in cash, cash equivalents, settlement processing assets, prepaid card load assets, customer deposits and merchant reserves 4,637,842 ( 6,896,181 ) Cash, cash equivalents, settlement processing assets, prepaid card load assets, customer deposits and merchant reserves, beginning of period 87,618,491 90,810,089 Cash, Cash Equivalents, Settlement Processing Assets, Prepaid Card Load Assets, Customer Deposits and Merchant Reserves, End of Period $ 92,256,333 $ 83,913,908 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 11,843 $ 13,585 Issuance of deferred stock compensation — — 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, 2025 2024 Beginning cash, cash equivalents, settlement processing assets, prepaid card load assets, customer deposits and merchant reserves: Cash and cash equivalents $ 8,056,891 $ 7,155,687 Settlement processing assets 47,104,006 44,899,603 Prepaid card load assets 25,648,688 31,578,973 Customer deposits 1,918,805 1,865,731 Merchant reserves 4,890,101 5,310,095 Total $ 87,618,491 $ 90,810,089 Ending cash, cash equivalents, settlement processing assets, prepaid card load assets, customer deposits and merchant reserves: Cash and cash equivalents $ 8,718,247 $ 7,053,812 Settlement processing assets 62,151,877 41,030,860 Prepaid card load assets 14,553,939 28,698,878 Customer deposits 1,907,169 1,808,263 Merchant reserves 4,925,101 5,322,095 Total $ 92,256,333 $ 83,913,908 See the accompanying notes to the condensed interim consolidated financial statements. 5 Table of Contents USIO, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) Common Stock Additional Paid- In Treasury Deferred Accumulated Total Stockholders' Shares Amount Capital Stock Compensation Deficit Equity Balance at December 31, 2024 29,902,415 $ 198,317 $ 99,676,457 $ ( 5,770,592 ) $ ( 6,914,563 ) $ ( 68,032,656 ) $ 19,156,963 Adjustment to par value of common stock — ( 168,415 ) 168,415 — — — — Issuance of common stock under equity incentive plan 128,053 128 136,276 — — — 136,404 Issuance of common stock under employee stock purchase plan 7,887 8 11,507 — — — 11,515 Deferred compensation amortization — — — — 273,658 — 273,658 Purchase of treasury stock costs — — — ( 351,640 ) — — ( 351,640 ) Net (loss) for the period — — — — — ( 234,970 ) ( 234,970 ) Balance at March 31, 2025 30,038,355 $ 30,038 $ 99,992,655 $ ( 6,122,232 ) $ ( 6,640,905 ) $ ( 68,267,626 ) $ 18,991,930 Balance at December 31, 2023 28,671,606 $ 197,087 $ 97,479,830 $ ( 4,362,150 ) $ ( 6,907,775 ) $ ( 71,338,153 ) $ 15,068,839 Issuance of common stock under equity incentive plan 107,600 107 153,118 — — — 153,225 Deferred compensation amortization — — — — 346,047 — 346,047 Purchase of treasury stock costs — — — ( 44,823 ) — — ( 44,823 ) Net (loss) for the period — — — — — ( 250,188 ) ( 250,188 ) Balance at March 31, 2024 28,779,206 $ 197,194 $ 97,632,948 $ ( 4,406,973 ) $ ( 6,561,728 ) $ ( 71,588,341 ) $ 15,273,100 See the accompanying notes to the condensed interim consolidated financial statements. 6 Table of Contents USIO, INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1. Basis of Presentation The accompanying unaudited interim condensed consolidated financial statements of Usio, Inc. and its subsidiaries (collectively, the “Company”) have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission" or the "SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles ("GAAP") have been omitted pursuant to such rules and regulations. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature considered necessary to present fairly the Company's financial position, results of operations and cash flows for such periods. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's annual report on Form 10 -K for the year ended December 31, 2024 , as filed with the Commission on March 26, 2025 ( the " 2024 Annual Report"). 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, 2025 or 2024 , as the case may be and unless otherwise noted. Change in Accounting Policy: On December 31, 2024, we changed our policy for cash flows presentation purposes to include settlement processing assets as cash and cash equivalents consistent with the accounting treatment for other forms of cash assets held for customers and controlled by the Company. Additionally, we changed the presentation for prepaid card load obligations on the statement of cash flows from an operating activity to a financing activity. Per Accounting Standards Codification 230 and related interpretations, funds held on behalf of others can be reported as either operating activities or financing activities within the statement of cash flows depending on the obligations surrounding the funds being held. Upon further assessment of changes in our operations over time, it was determined that reflecting these activities as assets held for customers within financing activities provides a more predictable measure of operating cash flows. Accordingly, this change in presentation is accounted for retrospectively, with each comparable period being revised to reflect the new change in presentation. As a result of the change in presentation of prepaid card load obligations to be included as a component of assets held for customers, operating cash flows for the three months ended March 31, 2024 were increased by $ 2.9 million with a corresponding decrease in assets held for customers reflected as a financing activity. The election to include settlement processing assets as part of cash and cash equivalents further decreased assets held for customers by an additional $ 3.9 million. This policy change had no effect on working capital, total assets, total liabilities, total equity or net loss as of and for the period ended March 31, 2024. Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Accounting for Income Taxes: Our annual tax rate is based on our income, statutory tax rates, and available tax planning opportunities. Tax laws are complex and subject to different interpretations by the taxpayer and respective government taxing authority. Significant judgement is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties. We review our tax positions yearly and adjust the balances as new information becomes available. Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings, and available tax planning strategies. These rely heavily on estimates that are based on a number of factors, including historical data, and business forecasts. To the extent deferred tax assets are not expected to be realized, we record a valuation allowance. We recognize and measure uncertain tax positions in accordance with GAAP, pursuant to which we only recognize the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities. 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 franchise tax and Tennessee franchise tax. Management is not aware of any tax positions that would have a significant impact on its financial position. Revenue Recognition: Revenue consists primarily of fees generated through the electronic processing of payment transactions and related services. Revenue is recognized during the period in which the transactions are processed or when the related services are performed. The Company complies with ASC 606 - 10 and reports revenues at gross as a principal versus net as an agent. Although some of the Company's processing agreements vary with respect to specific credit risks, the Company has determined for each agreement that it is acting in the principal role. Merchants may be charged for these processing services at a bundled rate based on a percentage of the dollar amount of each transaction and, in some instances, additional fees are charged for each transaction. Certain merchant customers are charged a flat fee per transaction, while others may also be charged miscellaneous fees, including fees for chargebacks or returns, monthly minimums, and other miscellaneous services. Revenues derived from electronic processing of credit, debit, and prepaid card transactions that are authorized and captured through third -party networks are reported gross of amounts paid to sponsor banks as well as interchange and assessments paid to credit card associations. Certain card distributors remit payment of fees earned 45 days after the end of the processing period. 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. Our wholly-owned subsidiary, Usio Output Solutions, Inc., or Output Solutions, provides bill preparation, presentment and mailing services. Revenue from Output Solutions is recognized when the related services are performed for printing and delivered to the United States Postal Service, 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, 2025 2024 ACH and complementary services $ 5,044,517 $ 3,881,734 Credit card 7,878,694 7,560,734 Prepaid card services 2,907,451 3,341,224 Output Solutions 5,732,867 5,537,923 Interest - ACH and complementary services 224,129 211,640 Interest - Prepaid card services 182,661 402,741 Interest - Output Solutions 38,731 34,390 Total revenue $ 22,009,050 $ 20,970,386 Cash and Cash Equivalents: Cash and cash equivalents includes cash and other money market instruments. The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents. Settlement Processing Assets and Obligations: 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: 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 earns interest on these prepaid card load assets and obligations, which is recognized as revenue in the prepaid card services business line. Customer Deposits: The Company holds customer deposits primarily for postage expenses to ensure the Company is not out of pocket for amounts billed daily by the USPS. 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 ACH transactions. The merchant reserve assets are carried on the Company's balance sheet with a corresponding liability. Merchant Reserves are set for each merchant. Funds are collected from each merchant and held as collateral to minimize contingent liabilities associated with any losses that may occur under the merchant agreement. While this cash is not restricted in its use, the Company believes that designating this cash to collateralize Merchant Reserves strengthens its fiduciary standing with the Company's 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. 7 Table of Contents Accounts Receivable/Allowance for Estimated Credit Losses: Accounts receivable are reported as outstanding principal net of an allowance for expected credit losses of $ 324,000 at March 31, 2025 and December 31, 2024 . 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 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 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. Inventory : Inventory is stated at the lower of cost or net realizable value. At March 31, 2025 and December 31, 2024 , inventory consisted primarily of printing and paper supplies used for Output Solutions. Property and Equipment: Property and equipment are stated at cost. Depreciation and amortization are computed on a straight-line method over the estimated useful lives of the related assets, ranging from three to ten years. Leasehold improvements are amortized over the lesser of the estimated useful lives or remaining lease period. Expenditures for maintenance and repairs are charged to expense as incurred. Accounting for Internal Use Software: The Company capitalizes the costs associated with software being developed or obtained for internal use until both the preliminary project stage is substantially completed and it is probable that computer software being developed will be completed and placed in service. Capitalized costs include only (i) external direct costs of materials and services consumed in developing or obtaining internal-use software, (ii) payroll and other related costs for employees who are directly associated with and who devote time to the internal-use software project, and (iii) interest costs incurred, when material, while developing internal-use software. 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, 2025 and March 31, 2024 , the Company capitalized software costs of $ 290,650 and $ 115,473 , respectively. Concentration of Credit Risk: Financial instruments that potentially expose the Company to credit risk consist of cash and cash equivalents, and accounts receivable. The Company is exposed to credit risk on its cash and cash equivalents in the event of default by the financial institutions to the extent account balances exceed the amount insured by the FDIC, which is $250,000. Accounts receivable 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. Estimated credit losses have been recorded in the consolidated financial statements. Recent credit losses have been within management's expectations. No customer accounted for more than 10% of revenues in 2025 or 2024 . Valuation of Long-Lived and Intangible Assets: The Company assesses the impairment of long-lived and intangible assets at least annually, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important, which could trigger an impairment review, include the following: significant underperformance relative to historical or projected future cash flows; significant changes in the manner of use of the assets or the strategy of the overall business; and significant negative industry trends. 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 2024 or during the three months ended March 31, 2025 . 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. Fair Value Measurements: The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels: • Level 1 inputs - unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date; • Level 2 inputs - other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability; and • Level 3 inputs - unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. Cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and short-term borrowings are reflected in the accompanying consolidated financial statements at cost, which approximates fair value because of the short-term maturity of these instruments. Impairment of Long-Lived Assets and Intangible Assets: The Company reviews periodically, on at least an annual basis, the carrying value of its long-lived assets and intangible assets and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. To the extent the fair value of a long-lived asset, determined based upon the estimated future cash inflows attributable to the asset, less estimated future cash outflows, is less than the carrying amount, an impairment loss is recognized. 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 credit card, ACH or 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 risks. In addition, the Company utilizes multiple systems and procedures to manage merchant risk. ACH, prepaid and credit card merchant processing loss reserves are primarily determined by performing a historical analysis of the Company’s loss experience, considering other factors that could affect that experience in the future, such as the types of transactions processed and nature of the merchant relationship with its consumers and the Company’s relationship with the Company’s prepaid card holders. This reserve amount is subject to the risk that actual losses may be greater than the Company’s estimates. Estimates for processing losses are variable based on the volume of transactions processed and could increase or decrease accordingly. At March 31, 2025 and December 31, 2024 , the Company’s reserve for processing losses was $ 541,521 and $ 897,116 , respectively, which is recorded on the Company's balance sheet as an accrued expense, and in the statement of cash flows as a change in accrued expenses. Legal Proceedings: In addition to the legal proceedings disclosed in this quarterly report, the Company may be involved in legal matters arising in the ordinary course of business from time to time. Litigation is subject to inherent uncertainties, and an adverse result in the legal proceedings disclosed in this quarterly report or other matters that may arise from time to time may harm our business. Recently Adopted Accounting Pronouncements : 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. 8 Table of Contents Note 2. Leases 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, 2025 and 2024 , operating lease expenses totaled $ 150,688 and $ 132,574 , respectively. Note 3. Accrued Expenses Accrued expenses consisted of the following balances: March 31, 2025 December 31, 2024 Accrued commissions $ 771,156 $ 425,486 Reserve for processing losses 541,521 897,116 Other accrued expenses 815,954 881,925 Accrued taxes 537,806 474,561 Accrued salaries 38,685 687,837 Total accrued expenses $ 2,705,122 $ 3,366,925 Note 4. Loans 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 was for a period of 36 months with a maturity date of March 20, 2024 and annual interest of 3.95 %. Monthly principal and interest payments were required in the amount of $ 4,902 . Principal payments for the three months ended March 31, 2025 and 2024 were $ 0 and $ 14,312 , respectively, and are reflected on the Company's Condensed Consolidated Statement of Cash Flows. This loan was paid in full on its maturity date. 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 , 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 $ 47,953 for the three months ended March 31, 2025 and $ 13,481 for the three months ended March 31, 2024 . As of March 31, 2025 , the Company maintains an undrawn line of credit and an outstanding letter of credit, both of which were established in connection with a bond required for the Company's appeal of the court’s decision in the KDHM lawsuit. See "Note 9. Commitments and Contingencies" for further information. Line of Credit The Company has an unsecured revolving line of credit with a maximum borrowing capacity of $ 475,000 . The facility was established on May 29, 2024, and matures on June 5, 2026. As of March 31, 2025 , no amounts had been drawn under this line of credit since its origination. This line of credit was secured to support the bond requirement in the KDHM lawsuit appeal but remains fully available. Letter of Credit The Company has an irrevocable letter of credit in the amount of $ 474,229 , issued on June 3, 2024, with a maturity date of July 3, 2025. This letter of credit was obtained as part of the bonding requirement for the KDHM lawsuit appeal and has not been drawn upon since its issuance. These credit facilities were arranged to comply with legal requirements related to the Company’s appeal and provide additional liquidity resources if needed. Management continues to monitor its financial position and believes that existing cash balances, along with these credit facilities, are sufficient to meet operational needs and legal obligations. Future principal payments on current debt arrangements are as follows at March 31, 2025 : Year ended December 31, Amount Due 2025 (excluding the three months ended March 31, 2025) $ 111,471 2026 158,043 2027 169,048 2028 180,818 2029 63,953 Total payments $ 683,333 Note 5. Stockholders' Equity Stock Warrants : On December 15, 2020, the Company issued warrants to purchase 945,599 shares of the Company's common stock with an initial exercise price of $ 4.23 per share, subject to adjustment as provided in the warrant agreement governing the warrants, to Information Management Solutions, LLC d/b/a/ KDHM, LLC ("IMS" or "KDHM") which were issued in connection with our acquisition of substantially all of the assets of IMS in December 2020. IMS's warrants vest and become exercisable annually over three years in three equal tranches beginning on December 15, 2021 and became fully vested on December 15, 2023. Each warrant is exercisable for a period of five years beginning on the date it vests. At the time of issuance, these warrants were valued using the Black-Scholes option pricing model. Assumptions used were as follows: (i) the fair value of the underlying stock was $0.58 per share; (ii) the risk-free interest rate was 0.09%; (iii) the contractual life was 5 years; (iv) the dividend yield was 0%; and (v) the volatility was 59.9%. 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 $ 27,615 in the three months ended March 31, 2025 and 2024 , respectively. 9 Table of Contents Note 6. 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. Diluted EPS differs from basic EPS due to the assumed conversion of potentially dilutive awards and options that were outstanding during the period. Holders of unvested restricted stock awards have the right to receive nonforfeitable dividends on the same basis as common shares; 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, 2025 and March 31, 2024 . Three Months Ended March 31, 2025 2024 Numerator: Numerator for basic and diluted (loss) per share, net (loss) available to common shareholders $ ( 234,970 ) $ ( 250,188 ) Denominator: Denominator for basic (loss) per share, weighted average shares outstanding 26,615,947 26,375,762 Effect of dilutive securities — — Denominator for diluted earnings per share, adjusted for weighted average shares and assumed conversion 26,615,947 26,375,762 Basic (loss) per common share $ ( 0.01 ) $ ( 0.01 ) Diluted (loss) per common share and common share equivalent $ ( 0.01 ) $ ( 0.01 ) The warrants to purchase shares of common stock that were outstanding at March 31, 2025 and March 31, 2024 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, 2025 2024 Anti-dilutive warrants 945,599 945,599 Note 7. Income Taxes Deferred tax assets and liabilities are recorded based on the difference between financial reporting and tax basis of assets and liabilities and are measured by the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Deferred tax assets are computed with the presumption that they will be realizable in future periods when taxable income is generated. Predicting the ability to realize these assets in future periods requires judgment by management. GAAP prescribes 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 are recognized. The Company has recognized a deferred tax asset of approximately $ 4.6 million recorded net of a valuation allowance of approximately $ 2.7 million. Management considered the realizability of this asset in light of historical operating results and forecasted results, and determined that it was more likely than not that the Company will have taxable income in the future, and elected to decrease the valuation allowance by approximately $ 3.6 million during the third quarter of 2024. The Company reviews the assessment of the deferred tax asset and valuation allowance on an annual basis or more often when events indicate that a change to the valuation allowance may be warranted. If applicable, the Company would recognize interest expense and penalties related to uncertain tax positions in interest expense. As of March 31, 2025 , the Company had not accrued any interest or penalties related to uncertain tax provisions. At March 31, 2025 , the Company had available net operating loss carryforwards of approximately $ 21.8 million. Net operating loss carryforwards ("NOLs") generated during or prior to 2017 are available to offset taxable income of future periods and expire 20 years after the loss was generated. Net operating loss carryforwards generated after 2017 do not expire. Our ability to use our NOLs during this period will be dependent on our ability to generate taxable income, and the NOLs could expire before we generate sufficient taxable income. Pursuant to Sections 382 and 383 of the Internal Revenue Code ("IRC"), federal and state tax laws impose significant restrictions on the utilization of net operating loss and other tax carryforwards in the event of a change in ownership of the Company. The Company does not expect IRC Sections 382 and 383 to significantly impact the utilization of its NOLs and other tax carryforwards. If we were to experience an "ownership change," as determined under Section 382 of the IRC, our ability to offset taxable income arising after the ownership change with NOLs arising prior to the ownership change would be limited, possibly substantially. An ownership change would establish an annual limitation on the amount of our pre-change NOLs we could utilize to offset our taxable income in any future taxable year to an amount generally equal to the value of our stock immediately prior to the ownership change multiplied by the long-term tax-exempt rate. In general, an ownership change will occur if there is a cumulative increase in our ownership of more than 50 percentage points by one or more "5% shareholders" (as defined in the IRC) at any time during a rolling three -year period. The schedule below outlines when the Company's net operating losses for 2017 and prior years were generated and the year they may expire. Tax Year End NOL Expiration 2005 $ 1,275,415 2025 2006 1,350,961 2026 2007 1,740,724 2027 2008 918,960 2028 2009 835,322 2029 2010 429,827 2030 2013 504,862 2033 2016 474,465 2036 2017 1,267,336 2037 Total $ 8,797,872 As of March 31, 2025 , there were NOLs totaling approximately $ 13.0 million that have been generated since 2017 that do not expire, and can be carried forward to future year to offset taxable income. The schedule below outlines when the Company's net operating losses for 2018 and later years were generated. Tax Year End NOL 2018 $ 4,410,916 2019 2,730,461 2020 2,272,315 2022 3,609,279 Total $ 13,022,971 Total loss carryforwards $ 21,820,843 Management is not aware of any tax positions that would have a significant impact on the Company's financial position or results of operations. 10 Table of Contents Note 8. Related Party Transactions Louis Hoch During the three months ended March 31, 2025 and March 31, 2024 , the Company purchased a total of $ 2,003 and $ 0 , 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 LLC. Directors and Officers On March 14, 2025, we withheld 500 shares of our common stock for $ 735 in a private transaction based on the $ 1.47 per share closing price on March 14, 2025 from Michelle Miller, a member of the company’s Board of Directors to cover her share of taxes in connection with equity grants. On February 21, 2025, we withheld 1,186 shares of our common stock for $ 2,028 in a private transaction based on the $ 1.71 per share closing price on February 21, 2025 from Houston Frost, the Company's Senior Vice President, Chief Product Officer, to cover his share of taxes in connection with equity grants. On February 21, 2025, we withheld 1,186 shares of our common stock for $ 2,028 in a private transaction based on the $ 1.71 per share closing price on February 21, 2025 from Greg Carter, the Company's Senior Vice President, Chief Revenue Officer, to cover his share of taxes in connection with equity grants. On February 21, 2025, we withheld 4,911 shares of our common stock for $ 8,399 in a private transaction based on the $ 1.71 per share closing price on February 21, 2025 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 January 31 2025, we withheld 54,460 shares of our common stock for $ 102,385 in a private transaction based on the $ 1.88 per share closing price on January 31, 2025 from Houston Frost, the Company's Senior Vice President, Chief Product Officer, to cover his share of taxes in connection with equity grants. On January 8, 2025, we withheld 355 shares of our common stock for $ 850 in a private transaction based on the $ 2.39 per share closing price on January 8, 2025 from Michael White, the Company's Senior Vice President, Chief Accounting Officer, to cover his share of taxes in connection with equity grants. On December 29, 2024, we withheld 208,615 shares of our common stock for $ 302,492 in a private transaction based on the $ 1.45 per share closing price on December 29, 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 18, 2024, we withheld 3,935 shares of our common stock for $ 5,784 in a private transaction based on the $ 1.47 per share closing price on November 18, 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 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 officers and employees 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, officers and employees will receive issued shares. Executive officers 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 withheld 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 withheld 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. Note 9. 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 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 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 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 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. KDHM, LLC 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 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. 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 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 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 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. As part of the July 12, 2024 appeal, Usio was required to obtain a bond in the amount of $ 474,229 . See Note 4 for more information. On April 2, 2025, the Fourth Court of Appeals reversed the trial court’s judgment and rendered judgement that KDHM should take nothing against Usio on its “money had and received claim.” With respect to the remaining claims, the court remanded back to the lower court. On April 11, 2025, KDHM filed a Motion for Reconsideration with the appellate court, which was denied on May 5, 2025. We have not recorded a contingency in relation to this case, as we consider the risk of loss remote as related to this lawsuit. The Company has an unsecured revolving line of credit with a maximum borrowing capacity of $ 475,000 . The facility was established on May 29, 2024, and matures on June 5, 2026. As of March 31, 2025, no amounts had been drawn under this line of credit since its origination. This line of credit was secured to support the bond requirement in the KDHM lawsuit appeal but remains fully available. The Company also has an irrevocable letter of credit in the amount of $ 474,229 , issued on June 3, 2024, with a maturity date of July 3, 2025. This letter of credit was obtained as part of the bonding requirement for the KDHM lawsuit appeal and has not been drawn upon since its issuance. These credit facilities were arranged to comply with legal requirements related to the Company’s appeal and provide additional liquidity resources if needed. Management continues to monitor its financial position and believes that existing cash balances, along with these credit facilities, are sufficient to meet operational needs and legal obligations. 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. 11 Table of Contents