Usio, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm - WithumSmith+Brown, P.C. 48 Report of Independent Registered Public Accounting Firm - Pannell Kerr Forster of Texas, P.C. 42 Consolidated Balance Sheets as of December 31, 2025 and 2024 52 Consolidated Statements of Operations for the years ended December 31, 2025 and 2024 53 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2025 and 2024 54 Consolidated Statements of Cash Flows for the years ended December 31, 2025 and 2024 55 Notes to Consolidated Financial Statements 56 47 Table of Contents Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Usio, Inc. and Subsidiaries Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of Usio, Inc. (the “Company”) as of December 31, 2025, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows, for the year ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and the results of its operations and its cash flows for the year ended December 31, 2025, in conformity accounting principles generally accepted in the United States of America. The consolidated financial statements of the Company as of and for the year ended December 31, 2024 were audited by Pannell Kerr Forster of Texas, P.C., who joined WithumSmith+Brown, P.C., on June 1, 2025, and rendered their opinion on such statements on March 26, 2025. Basis of Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 48 Table of Contents Deferred Tax Assets – Valuation Allowance Description of the Matter The Company recognizes deferred tax assets to the extent that it is expected that these assets are more likely than not to be realized. The Company evaluates the realizability of the deferred tax assets, and to the extent that the Company estimates that it is more likely than not that a benefit will not be realized, the carrying amount of the deferred tax assets is reduced with a valuation allowance. We identified the valuation of deferred tax assets as a critical audit matter because of the significant judgments made by management in projecting future taxable income. How We Addressed the Matter in Our Audit Our audit procedures related to projected future taxable income and the determination of whether it is more likely than not that the deferred tax assets will be realized included the evaluation of the reasonableness of management’s projected future taxable income. We compared the forecast of future taxable income estimates to historical earnings and evaluated the inputs, assumptions and trends used by management for developing a forecast of future taxable income. Other Matter The consolidated financial statements of the Company, including the accompanying consolidated balance sheet, as of December 31, 2024, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the year ended December 31, 2024 and the related notes were audited by Pannell Kerr Forster of Texas, P.C., who joined WithumSmith+Brown, P.C., on June 1, 2025, and rendered their opinion on such statements on March 26, 2025. /s/ WithumSmith+Brown, P.C. Houston, Texas United States March 18, 2026 PCAOB ID 100 We have served as the Company's auditor since 2024. 49 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Usio, Inc. and Subsidiaries Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of Usio, Inc. and Subsidiaries (collectively referred to as the “Company”) as of December 31, 2024, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows, for the year ended December 31, 2024, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and the results of its operations and its cash flows for the year ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America. Basis of Opinion These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As a part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 50 Table of Contents Deferred Tax Assets – Valuation Allowance Description of the Matter The Company recognizes deferred tax assets to the extent that it is expected that these assets are more likely than not to be realized. The Company evaluates the realizability of the deferred tax assets, and to the extent that the Company estimates that it is more likely than not that a benefit will not be realized, the carrying amount of the deferred tax assets is reduced with a valuation allowance. We identified the valuation of deferred tax assets as a critical audit matter because of the significant judgments made by management in projecting future taxable income. How We Addressed the Matter in Our Audit Our audit procedures related to projected future taxable income and the determination of whether it is more likely than not that the deferred tax assets will be realized included the evaluation of the reasonableness of management’s projected future taxable income. We compared the forecast of future taxable income estimates to historical earnings and evaluated the inputs, assumptions and trends used by management for developing a forecast of future taxable income. /s/ Pannell Kerr Forster of Texas, P.C. Houston, Texas United States March 26, 2025 PCAOB ID 342 We served as the Company's auditor in 2024. 51 Table of Contents USIO, INC. CONSOLIDATED BALANCE SHEETS December 31, 2025 December 31, 2024 ASSETS Cash and cash equivalents $ 7,434,051 $ 8,056,891 Settlement processing assets 74,180,475 47,104,006 Prepaid card load assets 27,623,728 25,648,688 Customer deposits 2,281,220 1,918,805 Accounts receivable, net 5,274,586 5,053,639 Accounts receivable, tax credit — 1,494,612 Inventory 461,675 403,796 Prepaid expenses and other 1,359,382 585,500 Merchant reserves 4,795,537 4,890,101 Total current assets 123,410,654 95,156,038 Property and equipment, net 4,157,393 3,194,818 Other assets: Intangibles, net 9,759 881,346 Deferred tax asset, net 4,526,228 4,580,440 Operating lease right-of-use assets 2,423,231 3,037,928 Other assets 362,949 357,877 Total other assets 7,322,167 8,857,591 Total Assets $ 134,890,214 $ 107,208,447 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 880,590 $ 1,256,819 Accrued expenses 3,326,445 3,366,925 Operating lease liabilities, current portion 639,805 612,680 Equipment loan, current portion 289,317 147,581 Settlement processing obligations 74,180,475 47,104,006 Prepaid card load obligations 27,623,728 25,648,688 Customer deposits 2,281,220 1,918,805 Merchant reserve obligations 4,795,537 4,890,101 Total current liabilities 114,017,117 84,945,605 Non-current liabilities: Equipment loan, non-current portion 1,074,711 571,862 Operating lease liabilities, non-current portion 1,885,983 2,534,017 Total liabilities 116,977,811 88,051,484 Commitments and contingencies (Note 15) Stockholders' Equity: Preferred stock, $ 0.01 par value, 10,000,000 shares authorized; - 0 - shares issued and outstanding in 2025 and 2024 — — Common stock, $ 0.001 par value, 200,000,000 shares authorized; 31,562,178 and 29,902,415 issued and 27,729,704 and 26,609,651 outstanding in 2025 and 2024, respectively 31,562 198,317 Additional paid-in capital 102,363,590 99,676,457 Treasury stock, at cost; 3,832,474 and 3,292,764 shares in 2025 and 2024, respectively ( 6,837,181 ) ( 5,770,592 ) Deferred compensation ( 7,100,573 ) ( 6,914,563 ) Accumulated deficit ( 70,544,995 ) ( 68,032,656 ) Total stockholders' equity 17,912,403 19,156,963 Total Liabilities and Stockholders' Equity $ 134,890,214 $ 107,208,447 The accompanying notes are an integral part of these consolidated financial statements. 52 Table of Contents USIO, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the Year Ended December 31, 2025 December 31, 2024 Revenues $ 85,393,626 $ 82,931,840 Cost of services 65,700,927 63,317,396 Gross profit 19,692,699 19,614,444 Selling, general and administrative: Stock-based compensation 1,743,893 2,093,406 Other expenses 18,362,187 16,728,081 Depreciation and amortization 1,946,224 2,263,302 Total operating expenses 22,052,304 21,084,789 Operating loss ( 2,359,605 ) ( 1,470,345 ) Other income: Interest income 407,160 464,746 Other income 5,000 1,737,685 Interest expense ( 52,083 ) ( 53,802 ) Other income, net 360,077 2,148,629 Income (loss) before income taxes ( 1,999,528 ) 678,284 Federal income tax expense (benefit) 54,212 ( 3,076,440 ) State income tax expense 458,599 449,227 Income taxes 512,811 ( 2,627,213 ) Net Income (loss) $ ( 2,512,339 ) $ 3,305,497 Earnings (loss) Per Share Basic income (loss) per common share: $ ( 0.09 ) $ 0.12 Diluted income (loss) per common share: $ ( 0.09 ) $ 0.12 Weighted average common shares outstanding (see Note 13) Basic 26,926,838 26,852,129 Diluted 26,926,838 26,852,129 The accompanying notes are an integral part of these consolidated financial statements. 53 Table of Contents USIO, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Additional Total Common Stock Paid - In Treasury Deferred Accumulated Stockholders' Shares Amount Capital Stock Compensation Deficit Equity Balance at December 31, 2023 28,661,406 $ 197,087 $ 97,479,830 $ ( 4,362,150 ) $ ( 6,907,775 ) $ ( 71,338,153 ) $ 15,068,839 Issuance of common stock under equity incentive plan 1,189,050 1,178 2,130,336 — ( 1,497,300 ) — 634,214 Reversal of deferred compensation amortization that did not vest 66,959 67 97,596 — — — 97,663 Deferred compensation amortization (15,000 ) ( 15 ) ( 31,305 ) — 31,320 — — Non-cash return of treasury stock — — — — 1,459,192 — 1,459,192 Purchase of treasury stock, at cost — — — ( 1,408,442 ) — — ( 1,408,442 ) Net income — — — — — 3,305,497 3,305,497 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 1,243,575 1,243 1,928,490 — ( 1,324,800 ) — 604,933 Issuance of common stock under employee stock purchase plan 61,578 62 90,583 — — — 90,645 Issuance of common stock for software acquisition 354,610 355 499,645 — — — 500,000 Deferred compensation amortization — — — — 1,138,790 — 1,138,790 Purchase of treasury stock, at cost — — — ( 1,066,589 ) — — ( 1,066,589 ) Net loss — — — — — ( 2,512,339 ) ( 2,512,339 ) Balance at December 31, 2025 31,562,178 $ 31,562 $ 102,363,590 $ ( 6,837,181 ) $ ( 7,100,573 ) $ ( 70,544,995 ) $ 17,912,403 The accompanying notes are an integral part of these consolidated financial statements. 54 Table of Contents USIO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2025 December 31, 2024 Operating Activities Net income (loss) $ ( 2,512,339 ) $ 3,305,497 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,946,224 2,263,302 Loss on disposal of equipment — 18,340 Deferred federal income tax expense (benefit) 54,212 ( 3,076,440 ) Employee stock-based compensation 1,743,893 2,093,406 Allowance for expected credit losses 80,132 5,000 Reserve for processing losses ( 112,179 ) ( 70,588 ) Changes in operating assets and liabilities: Accounts receivable ( 301,079 ) 505,499 Accounts receivable, tax credit 1,494,612 ( 1,494,612 ) Prepaid expenses and other ( 773,882 ) ( 141,429 ) Operating lease right-of-use assets 614,697 ( 617,146 ) Other assets ( 5,072 ) ( 2,520 ) Inventory ( 57,879 ) 19,012 Accounts payable and accrued expenses ( 304,530 ) ( 138,087 ) Operating lease liabilities ( 620,909 ) 593,937 Merchant reserves ( 94,564 ) ( 419,994 ) Customer deposits 362,415 53,074 Net cash provided by operating activities 1,513,752 2,896,251 Investing Activities Purchases of property and equipment ( 435,014 ) ( 195,877 ) Capitalized labor for internal use software ( 1,102,368 ) ( 796,004 ) Sale of equipment — 47,500 Net cash used by investing activities ( 1,537,382 ) ( 944,381 ) Financing Activities Payments on equipment loan ( 147,157 ) ( 106,807 ) Proceeds from equipment loan 791,742 — Proceeds from issuance of common stock 90,645 97,663 Purchases of treasury stock ( 1,066,589 ) ( 1,408,442 ) Assets held for customers 29,051,509 ( 3,725,882 ) Net cash provided (used) by financing activities 28,720,150 ( 5,143,468 ) Change in cash, cash equivalents, customer deposits and merchant reserves 28,696,520 ( 3,191,598 ) Cash, cash equivalents, customer deposits and merchant reserves, beginning of year 87,618,491 90,810,089 Cash, Cash Equivalents, Settlement Processing Assets, Prepaid Card Load Assets, Customer Deposits and Merchant Reserves, End of Year $ 116,315,011 $ 87,618,491 Supplemental disclosures of cash flow information Cash paid during the period for: Interest $ 52,083 $ 53,802 Income taxes — 290,144 Non-cash operating activities: Right of use assets obtained in exchange for operating lease liabilities $ — $ 1,156,543 Non-cash investing and financing activities: Issuance of deferred stock compensation $ 1,324,800 $ 1,497,300 Issuance of common stock for PostCredit acquisition 500,000 — The reconciliation of cash and cash equivalents to cash, cash equivalents, customer deposits and merchant reserves is as follows for each period presented: December 31, 2025 December 31, 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 $ 7,434,051 $ 8,056,891 Settlement processing assets 74,180,475 47,104,006 Prepaid card load assets 27,623,728 25,648,688 Customer deposits 2,281,220 1,918,805 Merchant reserves 4,795,537 4,890,101 Total $ 116,315,011 $ 87,618,491 The accompanying notes are an integral part of these consolidated financial statements. 55 Table of Contents USIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 Note 1. Description of Business and Summary of Significant Accounting Policies Organization: Usio, Inc., together with its subsidiaries, FiCentive, Inc., a Nevada corporation, and Zbill, Inc., a Nevada corporation (collectively, "Usio" or the "Company" or "we," "us" or "our"), provides integrated electronic payment services, including credit and debit card-based processing services and transaction processing via the Automated Clearing House, or ACH, network to billers and retailers. The Company also has an additional wholly-owned subsidiary, Usio Output Solutions, Inc., which is the entity for Output Solutions' operations. In addition, the Company operates various product websites, such as www.usio.com, www.singularpayments.com, www.payfacinabox.com, www.ficentive.com, www.akimbocard.com, and www.usiooutput.com. Principles of Consolidation and Basis of Presentation: The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") 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. 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 Accounting Standards Codification ("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 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. Usio Output Solutions, 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. 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 ACH and complementary services, prepaid card services, and Output Solutions business lines. Year Ended December 31, 2025 2024 $ Change % Change ACH and complementary service revenue $ 22,199,050 $ 16,678,324 $ 5,520,726 33 % Credit card revenue 30,012,875 29,267,546 745,329 3 % Prepaid card services revenue 11,004,704 14,080,650 ( 3,075,946 ) ( 22 )% Output Solutions revenue 20,645,353 20,618,996 26,357 0 % Interest - ACH and complementary services 745,252 789,717 ( 44,465 ) ( 6 )% Interest - Prepaid card services 615,442 1,345,679 ( 730,237 ) ( 54 )% Interest - Output Solutions 170,950 150,928 20,022 13 % Total Revenues $ 85,393,626 $ 82,931,840 $ 2,461,786 3 % 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 United States Postal Service. 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. 56 Table of Contents 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. Accounts Receivable/Allowance for Estimated Credit Losses: Accounts receivable are reported as outstanding principal net of an allowance for expected credit losses of $ 404,132 and $ 324,000 at December 31, 2025 and 2024 , respectively. 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 December 31, 2025 and 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 developed and / or software obtained for internal use. The software is capitalized when both the preliminary project stage is complete, and the software being developed is 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. For the years ended December 31, 2025 and 2024 , the Company capitalized $ 1,102,368 and $ 796,004 , 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 Federal Deposit Insurance Corporation ("FDIC"), which is $250,000. Accounts receivables potentially subject the Company to concentrations of credit risk. The Company’s customer base operates in a variety of industries and is geographically dispersed. The Company closely monitors extensions of credit. 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 . 57 Table of Contents 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 card processing, credit card, ACH or merchant prepaid customers that have been properly "charged back" by the customer or if a prepaid cardholder incurs a negative balance, the Company must bear the credit risk for the full amount of the transaction. The Company may require cash deposits and other types of collateral from certain merchants to minimize any such risk. In addition, the Company utilizes a number of 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 our loss experience and 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 with its prepaid card holders. This reserve amount is subject to the risk that actual losses may be greater than our estimates. The Company did not incur any significant processing losses in 2025 , but has experienced substantial losses in the past. For example, in the first quarter of 2023, we incurred $ 833,485 in merchant processing losses as a result of fraudulent activity and identify fraud from multiple merchants, of which $ 755,494 was deducted from our reserve for processing losses. Estimates for processing losses vary based on the volume of transactions processed and could increase or decrease accordingly. The Company evaluates its risk for such transactions and estimates its potential processing losses based primarily on historical experience and other relevant factors. At December 31, 2025 and 2024 , respectively, the Company’s reserve for processing losses was $ 784,937 and $ 897,116 , respectively, included as an accrued expense on the consolidated balance sheet. Advertising Costs: Advertising is expensed as incurred. The Company incurred approximately $ 15,324 and $ 20,173 in advertising costs in 2025 and 2024 , respectively. Accounting for Income Taxes : Our annual tax rate is based on our income, statutory tax rates, and tax planning opportunities available to us. 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 on 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. Stock-Based Compensation: The Company recognizes as compensation expense all share-based payment awards made to employees and directors, including grants of restricted stock, stock options and warrants, based on estimated fair values. For restricted stock grants, fair value is generally determined based on the closing price of the Company’s common stock on the date of grant. For options and warrants, fair value is determined using the Black Scholes Option pricing model, taking into consideration various assumptions such as stock price volatility, risk free interest rate, term of the instant annual dividend yield, market price of the stock, and exercise price. 401 (k) Plan: The Company has a defined contribution plan, or 401 (k) Plan, pursuant to Section 401 (k) of the Internal Revenue Code. All eligible full and part-time employees of the Company who meet certain age requirements may participate in the 401 (k) Plan. Participants may contribute between 1 % and 80 % of their pre-tax compensation, but not in excess of the maximum allowable under the Code. The 401 (k) Plan allows for discretionary and matching contributions by the Company. In 2025 , the Company matched 100 % of employee contributions up to 3 % and 50 % of the employee contribution over 3 % with a maximum employer contribution of 4 %. The Company made matching contributions of $ 309,160 and $ 205,485 in 2025 and 2024 , respectively. Earnings (Loss) Per Share: The Company’s basic net income (loss) per common share is based on the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per common share is calculated using the treasury stock method and is based on the weighted average number of shares of common stock and all potentially dilutive shares of common stock outstanding during the year, which includes common stock options and warrants. When a net loss per share of common stock exists, all potentially dilutive shares of common stock outstanding are anti-dilutive and are therefore excluded from the calculation of diluted weighted average shares outstanding. See “Note 13 – Net Income (Loss) per Share” for further discussion. Recently Adopted and Recently Issued But Not Yet Adopted Accounting Pronouncements : Accounting standards that have been issued or proposed by the Financial Accounting Standards Board ("FASB"), the U.S. Securities and Exchange Commission ("SEC") or other standard setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. In December 2023, the FASB issued ASU No. 2023 - 09, Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures, which requires entities to provide additional information in the rate reconciliation and additional disaggregated disclosures about income taxes paid. This guidance requires public entities to disclose in their rate reconciliation table additional categories of information about federal, state, and foreign income taxes and to provide more details about the reconciling items in some categories if the items meet a quantitative threshold. The ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company adopted ASU 2023 - 09 effective January 1, 2025 and included additional disclosures in Note 11. The adoption of this standard did not have a material impact on the Company’s financial statements. In October 2023, FASB issued ASU 2023 - 06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. This ASU amends the ASC to incorporate certain disclosure requirements from SEC Release No. 33 - 10532, Disclosure Update and Simplification that was issued in 2018. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S- X or Regulation S-K becomes effective, with early adoption prohibited. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S- X or Regulation S-K becomes effective, with early adoption prohibited. For all other entities, the amendments will be effective two years later. The Company is evaluating the effect that ASU 2023 - 06 will have on its financial statements and related disclosures. In January 2025, the FASB issued ASU 2025 - 01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220 - 40 ): Clarifying the Effective Date. ASU 2025 - 01 clarifies the effective date for ASU 2024 - 03 (Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures), ensuring public business entities adopt it initially in annual reporting periods ( not interim) for non-calendar year-end entities. ASU 2024 - 03 requires disclosure on an annual and interim basis, in the notes to the financial statements, of disaggregated information about specific categories underlying certain income statement expense line items. The effective dates of ASU 2025 - 01 align with ASU 2024 - 03: annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. The Company is currently evaluating the impact of adopting this new accounting guidance on its financial statements and related disclosures, but does not expect adoption of this new standard to be material. In May 2025, the FASB issued ASU No. 2025 - 03, Business Combinations (Topic 805 ) and Consolidation (Topic 810 ): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity (“ASU 2025 - 03” ). ASU 2025 - 03 changes how companies determine the accounting acquirer in certain business combinations involving variable interest entities. The new guidance requires considering the factors used for other acquisition transactions to assess which party is the accounting acquirer. ASU 2025 - 03 is effective for the Company’s annual reporting periods beginning on January 1, 2027. Early adoption is permitted. The Company is currently evaluating the impact of adopting this new accounting guidance on its financial statements and related disclosures, but does not expect adoption of this new standard to be material. In May 2025, the FASB issued ASU No. 2025 - 04, Compensation – Stock Compensation (Topic 718 ) and Revenue from Contracts With Customers (Topic 606 ): Clarifications to Share-Based Consideration Payable to a Customer (“ASU 2025 - 04” ). ASU 202504 revises the definition of a performance condition, eliminates the forfeiture policy election for service conditions, and clarifies that the variable consideration constraint in ASC Topic 606 does not apply to share-based consideration payable to customers. The new guidance requires entities to consistently account for share-based awards granted to customers by clarifying the treatment of vesting conditions and ensuring alignment with ASC Topic 606 and ASC Topic 718: Compensation—Stock Compensation. ASU 2025 - 04 is effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of adopting this new accounting guidance on its financial statements and related disclosures, but does not expect adoption of this new standard to be material. In December 2025, the FASB issued ASU No. 2025 - 10, Government Grants (Topic 832 ): Accounting for Government Grants Received by Business Entities. ASU 2025 - 10 establishes the accounting for a government grant received by a business entity, including guidance for ( 1 ) a grant related to an asset and ( 2 ) a grant related to income. The ASU is effective for annual periods beginning after December 15, 2028, and interim reporting periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating the impact of adopting this new accounting guidance on its financial statements and related disclosures, but does not expect adoption of this new standard to be material. 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. 58 Table of Contents Note 2. Property and Equipment Property and equipment consisted of the following at December 31: 2025 2024 Software $ 10,383,691 $ 8,562,604 Equipment 3,844,807 3,624,209 Furniture and fixtures 841,182 841,182 Leasehold improvements 207,624 221,216 Total property and equipment 15,277,304 13,249,211 Less: accumulated depreciation ( 11,119,911 ) ( 10,054,393 ) Net property and equipment $ 4,157,393 $ 3,194,818 Note 3. Intangibles Information Management Solutions, LLC Acquisition ( 2020 ) On December 15, 2020, we acquired substantially all of assets of Information Management Solutions, LLC. The intangibles acquired in such acquisition consist of customer list assets of $ 4,359,335 at cost (net of accumulated amortization of $ 4,359,335 at December 31, 2025 ). The fair value of the customer list was calculated using the net present value of the projected gross profit to be generated by the customer list over 60 months beginning in January 2021 and ending in December 2025. Annual amortization expense is $ 871,867 per year through the year 2025. Note 4. Valuation Accounts Valuation and allowance accounts included the following at the dates referenced below: Net Charged Balance to Balance End Beginning of Costs and of Year Expenses Transfers Net Write-Off Year 2025 Allowance for expected credit losses $ 324,000 $ 80,132 $ — $ — $ 404,132 Reserve for processing losses 897,116 308,989 — ( 421,168 ) 784,937 2024 Allowance for expected credit losses $ 319,000 $ 34,310 $ — $ ( 29,310 ) $ 324,000 Reserve for processing losses 826,528 70,588 — — 897,116 Accounts receivables, net and contract liabilities consist of the following as of: December 31, 2025 December 31, 2024 January 1, 2024 Trade $ 5,274,586 $ 6,548,251 $ 5,564,138 Related party — — — Accounts receivable, net $ 5,274,586 $ 6,548,251 $ 5,564,138 Contract liabilities $ — $ — $ — 59 Table of Contents Note 5. Loans Equipment Loans On March 20, 2021, we 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. The repayment schedule was for 36 months at $ 4,902 per month. Annual payments were $ 58,821 . The financing was at an annual interest rate of 3.95 %. This equipment loan was paid off in its entirety in 2024 with total payments of $ 14,536 during 2024. 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 an annual interest rate of 6.75 %. Monthly principal and interest payments are required in the amount of $ 16,017 . Total interest and principal payments on this folder and inserter equipment loan were $ 191,812 for the twelve months ended December 31, 2025 and $ 146,074 for the twelve months ended December 31, 2024 . On September 19, 2025, the Company entered into a debt arrangement to finance $ 1,017,954 for the purchase of an Output Solutions printer. The loan is for a period of 66 months with a maturity date of March 19, 2031 and an annual interest rate of 6.75 %. Monthly principal and interest payments are required in the amount of $ 20,088 , with monthly interest only payments in the amount of $ 5,758 required for the first six months of the loan term beginning in October 2025. As of December 31, 2025, only $ 791,742 in proceeds have been drawn from the loan and presented on the Company's balance sheet with the remaining commitment of $ 226,212 still available. Total payments on the printer loan in 2025 were $ 6,574 . As of December 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. 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 December 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 June 3, 2026. 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. As a result of the KDHM lawsuit settlement, the Company will not renew the line of credit or letter of credit upon their maturity. There are no ongoing costs associated with the maintenance of either of these credit facilities. Future payments on current debt arrangements are as follows at December 31, 2025 : Year ended December 31, Amount Due Remaining Balance 2026 $ 289,317 $ 1,074,711 2027 355,195 719,516 2028 379,981 339,535 2029 276,389 63,146 2030 63,146 — Total payments $ 1,364,028 60 Table of Contents Note 6. Accrued Expenses Accrued expenses consisted of the following balances at December 31: 2025 2024 Accrued commissions $ 837,193 $ 425,486 Reserve for processing losses 784,937 897,116 Other accrued expenses 1,254,205 881,925 Accrued taxes 326,586 474,561 Accrued salaries 123,524 687,837 Total accrued expenses $ 3,326,445 $ 3,366,925 61 Table of Contents Note 7. Operating Leases The Company leases approximately 10,535 square feet of office space for its San Antonio, Texas executive offices and operations. On September 18, 2025 we renewed our lease, to run concurrently with our additional leased space in the same building. The lease expires on December 31, 2030. Rental expense, excluding rental expense for the additional space referenced below, under the operating lease was $ 174,380 and $ 165,817 for the years ended December 31, 2025 and 2024 , respectively. Pursuant to a lease amendment that commenced on April 1, 2021, we began leasing an additional 2,734 square feet of space at our San Antonio, Texas office building. The incremental annual rent for this additional space during the lease term ranges from $ 57,000 to $ 60,000 . Rental expense for this additional space for the years ended December 31, 2025 and 2024 was $ 51,249 and $ 49,653 , respectively. Pursuant to a second lease amendment that commenced on April 1, 2022, we began leasing an additional 6,628 square feet of space at our San Antonio, Texas office building. The incremental annual rent for this additional space during the lease term ranges from $ 144,000 to $ 156,000 . Rental expense for this additional space for the years ended December 31, 2025 and 2024 was $ 114,995 and $ 109,355 , respectively. The Company assumed a lease in San Antonio, Texas as a part of the Information Management Solutions, LLC acquisition for its Output Solutions employees and warehouse operations. The lease had a remaining life of 45 months and expired on September 30, 2024. On September 16, 2024 the Company entered into a lease amendment commencing on October 1, 2024, extending the term of the existing lease for a period of 60 months, expiring on September 30, 2029. The space leased is 22,400 square feet. Annual rents during the lease term range from $ 174,000 to $ 225,000 . Rental expense for the years ended December 31, 2025 and 2024 was $ 177,993 and $ 135,489 , respectively. On January 1, 2021, we entered into a lease in Austin, Texas commencing on January 1, 2021 for our Austin technology organization. On January 31, 2024, the Company entered into a lease amendment commencing on February 1, 2024, extending the term of the existing lease for a period of 24 months and expiring on January 31, 2027. The space leased is 1,890 square feet. Rental expense for the years ended December 31, 2025 and 2024 was $ 78,700 and $ 83,610 , respectively. The Company has various copier equipment with a lease that has not expired. Rental expense was $ 5,497 and $ 5,508 for the years ended December 31, 2025 and 2024 , respectively. The weighted average remaining lease term for all of our leases is 3.95 years. The weighted average discount rate is 4.61 %. The Company recognized total operating lease expense of approximately $ 728,000 and $ 660,000 for the years ended December 31, 2025 and 2024 , respectively. In 2025 , the operating lease expense of $ 728,000 consisted of $ 597,000 of fixed operating expense and $ 131,000 of interest expense. We believe that our existing and new properties will be adequate to meet our needs through December 31, 2025 . The maturities of lease liabilities are as follows at December 31, 2025 : Year ended December 31, 2026 $ 728,121 2027 648,426 2028 641,181 2029 473,593 2030 274,883 Thereafter — Total minimum lease payments 2,766,204 Less: imputed interest ( 240,416 ) Total lease liabilities 2,525,788 Less: current portion ( 639,805 ) Long-term portion $ 1,885,983 62 Table of Contents Note 8. Related Party Transactions Louis Hoch During the years ended December 31, 2025 and 2024 , the Company purchased $ 27,124 and $ 21,900 , respectively, of corporate imprinted sportswear, promotional items and caps from Angry Pug Sportswear. Louis Hoch, Chairman, President, Chief Executive Officer, and Chief Operating Officer is a 50 % owner of Angry Pug Sportswear. Note 9. Stock-Based Compensation In the year ended December 31, 2025 , we withheld 129,073 shares of our common stock for $ 218,750 in private transactions based on an average purchase price of $ 1.69 per share from officers, directors and employees to cover their share of taxes in connection with equity grants. In the year ended December 31, 2024 , we withheld 408,305 shares of our common stock for $ 597,568 in private transactions based on an average purchase price of $ 1.46 per share from officers, directors and employees to cover their share of taxes in connection with equity grants. On August 21, 2025, the Company granted 920,000 shares of restricted common stock with a 10 -year vesting period and 457,800 restricted stock units ("RSUs") with a 3 -year vesting period to officers and employees as performance bonuses at an issue price of $ 1.44 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 of common stock. Executive officers included in the 10 -year restricted stock grants were Louis Hoch ( 300,000 shares), Michael White ( 50,000 shares), Greg Carter ( 50,000 shares), and Houston Frost ( 50,000 shares). Executive officers included in the RSU grants were Louis Hoch ( 21,000 RSUs), Michael White ( 18,000 RSUs), Greg Carter ( 18,000 RSUs), and Houston Frost ( 18,000 RSUs). On August 21, 2025, the Company granted 84,000 RSUs with a 3 -year vesting period to Non-employee Directors as performance bonuses at an issue price of $ 1.44 per share. Directors included in the RSU grants were Blaise Bender ( 21,000 RSUs), Brad Rollins ( 21,000 RSUs), Ernesto Beyer ( 21,000 RSUs) and Michelle Miller ( 21,000 RSUs). On June 21, 2024, the Company granted 966,000 shares of restricted common stock with a 10 -year vesting period and 277,200 RSUs with a 3 -year vesting period to officers and employees as performance bonuses at an issue price of $ 1.55 per share. Executive officers included in the 10 -year restricted stock grants 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 grants 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 performance bonuses at an issue price of $ 1.55 per share. Directors included in the RSU grants were Blaise Bender ( 21,000 RSUs), Brad Rollins ( 21,000 RSUs), Ernesto Beyer ( 21,000 RSUs) and Michelle Miller ( 21,000 RSUs). 63 Table of Contents Table of Contents Note 10. Segment Reporting Usio's reportable operating segments are "Output Solutions" and "Merchant Services" and these segments have been selected based on management’s resource allocation and performance assessment in making decisions regarding the Company. Our chief operating decision maker ("CODM") is the Company’s chief executive officer. The CODM has ultimate authority and responsibility over resource allocation decisions and performance assessment. Segment gross profit is the measure of segment profit and loss reviewed by the CODM and is used by the CODM to evaluate segment performance and make decisions about funding our operations and allocating resources. The following is a description of the segments. Output Solutions This segment, which was created in connection with the acquisition of substantially all of the assets of IMS, offers electronic bill presentment, document composition, document decomposition and printing and mailing services serving hundreds of customers representing a wide range of industry verticals, including utilities and financial institutions. Output Solutions, provides an outsourced solution for document design, print, and electronic delivery to potential customers and entities looking to reduce postage costs and increase efficiencies. Merchant Services This segment offers integrated electronic payment processing services to merchants and businesses, including credit and debit card-based processing services and electronic funds transfer via the ACH network. Additionally, as part of our Prepaid card-based processing services, we develop and manage a variety of Mastercard-branded prepaid card program types, including consumer reloadable, consumer gift, incentive, promotional, general and government disbursement and corporate expense cards. The following tables set forth certain financial information with respect to Usio’s reportable segments for the twelve months ended December 31, 2025 and 2024 : For the Year Ended December 31, 2025 Output Solutions Merchant Services Total Revenues $ 20,816,303 $ 64,577,323 $ 85,393,626 Cost of services Processing expense — 48,896,184 48,896,184 Services expense 2,480,472 — 2,480,472 Postage expense 14,324,271 — 14,324,271 Cost of services 16,804,743 48,896,184 65,700,927 Gross profit $ 4,011,560 $ 15,681,139 $ 19,692,699 Depreciation and amortization $ 944,225 $ 1,001,999 $ 1,946,224 Capital expenditures $ 103,780 $ 331,234 $ 435,014 Identifiable assets 1 $ 4,376,501 $ 7,950,143 $ 12,326,644 For the Year Ended December 31, 2024 Output Solutions Merchant Services Total Revenues $ 20,769,924 $ 62,161,916 $ 82,931,840 Cost of services Processing expense — 46,897,136 46,897,136 Services expense 3,576,677 — 3,576,677 Postage expense 12,843,583 — 12,843,583 Cost of services 16,420,260 46,897,136 63,317,396 Gross profit $ 4,349,664 $ 15,264,780 $ 19,614,444 Depreciation and amortization $ 1,269,393 $ 993,909 $ 2,263,302 Capital expenditures $ 21,515 $ 174,362 $ 195,877 Identifiable assets 1 $ 5,176,438 $ 7,395,089 $ 12,571,527 Note to tables: ( 1 ) Identifiable assets is calculated by summing the balances of accounts receivable, net; inventory; property and equipment, net; operating lease right-of-use lease assets; and intangibles, net. 64 Table of Contents The following table reconciles segment profit reported above to the loss from operations reported in the consolidated statements of operations for the twelve months ended December 31, 2025 and 2024 : Year Ended December 31, 2025 2024 Segment gross profit $ 19,692,699 $ 19,614,444 Stock-based compensation ( 1,743,893 ) ( 2,093,406 ) Selling, general and administrative ("SG&A") ( 18,362,187 ) ( 16,728,081 ) Depreciation and amortization ( 1,946,224 ) ( 2,263,302 ) Operating (loss) $ ( 2,359,605 ) $ ( 1,470,345 ) 65 Table of Contents Table of Contents Note 11. 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 $ 4.5 million recorded net of a valuation allowance of approximately $ 2.9 million. Management considered the realizability of this asset in light of historical operating results and forecasted results, and determined that more likely than not that the Company will have taxable income in the future, and elected to increase the valuation allowance by approximately $ 247,000 in 2025, and decreased the valuation allowance by $ 3.6 million during 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 December 31, 2025 , the Company had not accrued any interest or penalties related to uncertain tax provisions. Significant components of the Company’s deferred tax asset are as follows at December 31: 2025 2024 Deferred tax assets: Net operating loss carryforwards $ 4,526,228 $ 4,582,000 Depreciation and amortization 1,270,120 1,296,000 Non-cash compensation 1,366,031 1,119,000 Processing losses 164,837 188,394 Other 111,865 61,000 Total 7,439,081 7,246,394 Valuation allowance ( 2,912,853 ) ( 2,665,954 ) Deferred tax asset, net $ 4,526,228 $ 4,580,440 66 Table of Contents At December 31, 2025 , the Company had available net operating loss carryforwards ("NOLs") of approximately $ 21.6 million. 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. NOLs generated after 2017 do not expire. Our ability to use our NOLs before they expire (to the extent they are subject to expiration) 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 NOLs for 2017 and prior years were generated and the year they may expire. Tax Year End Generated NOL Expiration 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 $ 7,522,457 As of December 31, 2025 , the Company had NOLs totaling approximately $ 14.0 million that were generated after 2017, which do not expire and can be carried forward to future years to offset taxable income. The schedule below outlines when the Company's NOLs for 2018 and later years were generated. Tax Year End Generated NOL 2018 $ 4,410,916 2019 2,730,461 2020 2,272,315 2022 3,609,279 2025 1,013,889 Total $ 14,036,860 Total NOLs $ 21,559,317 The tax provision for federal and state income tax is as follows for the years ended December 31: 2025 2024 Current provision: Federal $ — $ — State 458,599 449,227 458,599 449,227 Deferred provision: Federal expense (benefit) 54,212 ( 3,076,440 ) Expense (benefit) for income taxes $ 512,811 $ ( 2,627,213 ) The reconciliation of federal income tax expense (benefit) computed at the U.S. federal statutory tax rates to total income tax expense (benefit) is as follows for the years ended December 31: For the Year Ended 2025 2024 Amount Rate Amount Rate Income tax (benefit) at 21% $ ( 419,901 ) 21.0 % $ 142,440 21.0 % Change in valuation allowance 246,899 ( 12.3 )% ( 3,576,665 ) ( 527.3 )% Permanent and other differences 227,214 ( 11.4 )% 458,460 67.6 % State taxes 458,599 ( 22.9 )% 348,552 51.4 % Income tax expense (benefit) $ 512,811 ( 25.6 )% $ ( 2,627,213 ) ( 387.3 )% 67 Table of Contents Note 12. Stock Options, Incentive Plans, Stock Awards, and Employee Benefit Plan Stock Option Plans: The Company’s 2025 Equity Incentive Plan provides for the grant of incentive stock options as defined in Section 422 of the IRC and the grant of Stock Options, Restricted Stock, Restricted Stock Units, Performance Awards, or other Awards to employees, non-employee directors, and consultants. The Board of Directors has authorized 5,250,000 shares of common stock for issuance under the 2025 Equity Incentive Plan, including automatic increases provided for in the 2025 Equity Incentive Plan through fiscal year 2035. The number of shares of common stock reserved for issuance under the 2025 Equity Incentive Plan will automatically increase, with no further action by the stockholders, on the first business day of each fiscal year during the term of the 2025 Equity Incentive Plan, beginning January 1, 2026, in an amount equal to 5 % of the issued and outstanding shares of common stock on the last day of the immediately preceding year, or such lesser amount if so determined by the Board or the Plan Administrator. During 2025 , the Company issued 920,000 shares of common stock to several employees as incentive compensation or new-hire bonuses. During 2025 , the Company granted 505,800 restricted stock units to employees and directors as a new hire bonus or as incentive compensation. Treasury Stock : The Company withheld 129,073 shares of common stock with a value of $ 218,750 to cover the employee's share of tax liabilities related to the vesting of common stock and restricted stock units in 2025 . In addition, the Company repurchased 580,406 shares of common stock on the open market with a value of $ 847,839 as part of its stock buy-back program in 2025 . The Company withheld 408,305 shares of common stock with a value of $ 597,568 to cover the employee's share of tax liabilities related to the vesting of common stock and restricted stock units in 2024 . In addition, the Company purchased 545,788 shares of common stock in the open market with a value of $ 810,874 as part of its stock buy-back program. Stock Awards : The Company has granted restricted stock awards to its employees at different periods from 2005 through 2025 . The majority of the shares granted to those employees vest 10 years from the grant date and are forfeited in the event that the recipient’s employment relationship with the Company is terminated prior to vesting. Stock awards that have not yet vested are fully participating shares for the purposes of calculating earnings per share. During 2025 , a portion of the restricted stock awards were granted, but not issued and are not listed as outstanding in the financial statements for 2025 . Stock-based compensation expense related to stock and restricted stock awards was $ 1.7 million in 2025 and $ 2.1 million in 2024 . A summary of stock awards outstanding and 2025 activities are as follows: Weighted Average Weighted Average Contractual Stock Awards Shares Grant Price Remaining Life Outstanding, December 31, 2024 5,766,567 $ 1.95 Granted 920,000 1.44 Vested ( 146,667 ) — Forfeited — — Outstanding, December 31, 2025 6,539,900 $ 1.87 6.02 Expected to Vest after December 31, 2025 6,539,900 $ 1.87 6.02 As of December 31, 2025 , there was $ 7,100,573 of unrecognized compensation costs related to the unvested share-based compensation arrangements granted. The cost is expected to be recognized over the weighted average remaining contractual life of 6.27 years. The aggregate intrinsic value represents the difference between the weighted average exercise price and the closing price of a share of the Company’s common stock on December 31, 2025 , or $ 1.95 . Employee Stock Purchase Plan : The Company's board of directors adopted the 2023 Employee Stock Purchase Plan (the “ESPP”) and the Company's stockholders approved the ESPP in July 2023. The ESPP was adopted under the requirements of Section 423 of the IRC to allow eligible employees to purchase the Company’s common stock at regular intervals. Participating employees may purchase common stock through voluntary payroll deductions at the end of each participation period at a purchase price equal to 85 % of the lower of the fair market value of the common stock at the beginning or the end of the participation period. The ESPP initially authorized the issuance of 2,500,000 shares of our common stock under purchase rights granted to our employees or to employees of any of our designated affiliates. The number of shares of our common stock reserved for issuance automatically increases on January 1 of each calendar year, beginning on January 1, 2024 through December 31, 2033, by the lesser of (i) 1 % of the total number of shares of our common stock outstanding on the last day of the fiscal year before the date of the automatic increase (determined on an as-converted to voting common stock basis); and (ii) such number of shares of common stock that would cause the aggregate number of shares of common stock then reserved for issuance under the ESPP to not exceed 2,500,000 shares; provided that before the date of any such increase, our board of directors may determine that there will be no increase or that such increase will be for a lesser number of shares. As of December 31, 2025 , 128,537 shares of our common stock have been purchased under the ESPP. Stock Warrants : On December 15, 2020, the Company issued warrants to purchase 945,599 unregistered shares of our common stock, with an exercise price of $ 4.23 to IMS. The warrants were valued using the Black-Scholes option pricing model. Assumptions used were as follows: (i) the fair value of the underlying stock was $0.58; (ii) the risk-free interest rate is 0.09%; (iii) the contractual life is five years; (iv) the dividend yield is 0%; and (v) the volatility is 59.9%. The fair value of the warrants amounted to $ 552,283 and was recorded as an increase in the customer list asset and was fully amortized December 15, 2025. 68 Table of Contents Note 13. Net Income (Loss) per Share Basic net income (loss) per share (EPS) was computed by dividing net income by the weighted average number of shares of common stock outstanding during the period in addition to stock awards that have not yet vested, as they are fully participating shares for the calculation of earnings per share. Diluted EPS differs from basic EPS due to the assumed conversion of potentially dilutive options and warrants that were outstanding during the period using the treasury stock method. The following is a reconciliation of the numerators and the denominators of the basic and diluted per share computations for net income (loss). 2025 2024 Numerator: Numerator for basic and diluted earnings per share, net income (loss) available to common shareholders $ ( 2,512,339 ) $ 3,305,497 Denominator: Denominator for basic net income (loss) per share, weighted average shares outstanding 26,926,838 26,852,129 Effect of dilutive securities-stock options and warrants — — Denominator for diluted net income (loss) per share, adjusted weighted average shares and assumed conversion 26,926,838 26,852,129 Basic net income (loss) per common share $ ( 0.09 ) $ 0.12 Diluted net income (loss) per common share and common share equivalents $ ( 0.09 ) $ 0.12 The warrants to purchase shares of common stock that were outstanding at December 31, 2025 and 2024 that were not included in the computation of diluted net income (loss) per share because the effect would have been anti-dilutive, are as follows: Year Ended December 31, 2025 2024 Anti-dilutive warrants 945,599 945,599 Note 14. Concentration of Credit Risk and Significant Customers The Company has no significant off-balance sheet or concentrations of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements. The Company currently maintains the majority of its cash and cash equivalent balance with one financial institution. No customer accounts for more than 10% of the revenues of the Company. 69 Table of Contents Note 15. Commitments and Contingencies 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, and this motion was heard August 5, 2024. On March 14, 2025 the motion was denied. On July 11, 2025, Usio attended a deposition with Kauder and Triple Pay Play in Nashville, Tennessee. On September 29, 2025, Kauder, Pioletti and Triple Pay Play agreed to Usio’s settlement and filed a Joint Notice of Voluntary Nonsuit with Prejudice in The Chancery Court of Maury County Tennessee on October 10, 2025. The settlement was in the amount of $ 115,000 , which was recorded on our statement of operations as a reduction of SG&A expense for the year ended December 31, 2025. KDHM, LLC On September 1, 2021, KDHM, LLC ("KDHM"), 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 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 5 of the notes to our consolidated financial statements in this report 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. On August 8, 2025, KDHM filed in the Supreme Court of Texas a Petition for Review from the Fourth Court of Appeals at San Antonio, Texas, which was denied on January 30, 2026. On February 6, 2026, KDHM agreed to Usio’s settlement. The settlement was in the amount of $ 120,000 , which will be recorded on our statement of operations as a reduction of SG&A expense in 2026. 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 December 31, 2025, no amounts had been drawn under this line of credit since its origination. This line of credit was obtained 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 June 3, 2026. 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. As a result of the KDHM lawsuit settlement, the Company will not renew the line of credit or letter of credit upon their maturity. There are no ongoing costs associated with the maintenance of either of these credit facilities. 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. 70 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. On June 1, 2025, WithumSmith+Brown, P.C., an independent registered public accounting firm (“ Withum ”), acquired certain assets of Pannell Kerr Forster of Texas, P.C. (“ PKF ”), the independent registered public accounting firm for Usio, Inc. (the “ Company ”) (the “ Transaction ”). As a result of this Transaction, on June 1, 2025, PKF resigned as the Company’s independent registered public accounting firm. Concurrent with such resignation, the Company, with the approval of its Audit Committee, consented to the engagement of Withum as the Company’s new independent registered public accounting firm, effective June 1, 2025. Prior to the Transaction, the Company did not consult with Withum regarding the application of accounting principles to any specific completed or contemplated transaction or regarding the type of audit opinion that might be rendered by Withum on the Company’s consolidated financial statements, and Withum did not provide any written or oral advice that was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue. PKF’s Report of Independent Registered Public Accounting Firm (the “ Audit Report ”) on the Company’s consolidated financial statements for the year ended December 31, 2024 did not contain any adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the year ended December 31, 2024, and during the interim period from the end of the most recently completed fiscal year through June 1, 2025, the date of resignation, there were no “disagreements” (as such term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304) with PKF on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of PKF would have caused it to make reference to such disagreement in its reports. During the year ended December 31, 2024, and the subsequent interim period through June 1, 2025, there have been no “reportable events” (as such term is defined in Item 304 (a)(1)(v) of Regulation S-K).