Usio, Inc. 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FORWARD-LOOKING STATEMENTS DISCLAIMER This Quarterly Report on Form 10-Q (this "quarterly report" or this "report") contains forward-looking statements that involve risks and uncertainties. If used in this report, the words "will," "anticipate," "believe," "estimate," "intend," and other words or phrases of similar import are intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in the 2025 Annual Report and other reports we file with the Commission. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made. We do not intend to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law. This discussion and analysis should be read in conjunction with the unaudited interim consolidated financial statements and the notes thereto included in this report, and the 2025 Annual Report, including the audited consolidated financial statements and the notes contained therein. Overview As a cloud-based, Fintech payment processor, we serve multiple industry verticals with technology that facilitates payment acceptance and funds disbursement in a single, full-stack ecosystem. We provide payment acceptance through multiple payment methods including: payment facilitation, prepaid card and electronic billing products and services to businesses, merchants and consumers. We seek to grow our business both organically through the continued development and enhancement of our products and services and through acquisitions of new products and services. We will continue to look for opportunities (both internally and externally) to enhance our offerings to meet customer demands as they arise. Since 1998, through our merchant services business lines, which now consist of Automated Clearing House, or ACH, and complementary services, credit card processing and prepaid cards, Usio has entered a number of market verticals within the payments industry in order to satisfy the growing payment needs of consumers and merchants across the United States. Beginning with our Electronic Bill Presentment and Payment, or EBPP, product that launched the Company, we entered into the electronic funds transfer space through the ACH network, developing ancillary and complementary products such as PINless debit in 2016, and Remotely Created Checks, or RCC, account validation, and account inquiry in 2019. These supplementary product options offer customers access to faster and more convenient payment options and tools to improve operating efficiencies. Further, our credit card payment offering was expanded in 2017 with the development of Payment Facilitation, or PayFac, which utilizes our unique technology that allows for instant enrollment of merchants and combined our suite of payment options into an integrated platform for merchants and customers to utilize. Through our innovative Prepaid Debit Card platform, we offer a variety of prepaid card products such as reloadable, incentive, promotional and corporate card programs. Combined with our printing and mailing services, we can satisfy the diverse requirements of customer needs with physical and virtual document creation and distribution, including traditional paper checks. Our Consumer Choice product, developed and introduced in 2022, provides flexible ways to initiate a variety of payment distributions through a multitude of payment methods including physical prepaid and virtual cards, ACH, paper checks, real-time PINless debit and others. This offering allows us a superior opportunity to increase our cross-selling efforts through all of our payment methods. Throughout 2025, we enhanced our Consumer Choice product to accommodate additional methods of disbursement, such as issuing funds through PayPal and Venmo, alongside integration with the PIN4 network to allow cardless ATM withdrawals. With the growing need for faster payment methods, we continue to invest in technology that can help us further expand our suite of payment technology. With the rise of Real Time Payments, or RTP, we began expansion into this market vertical in 2023, which serves as an alternative to ACH payments. We also continue to enhance our existing product offerings, with improvements in reporting, data management, fraud and risk monitoring, ease of access, and accelerations in client onboarding and implementation times. With our transition to a cloud-based platform, our speed, security, and scalability in payment processing have been further expanded, allowing us to seamlessly grow as the market demands. In our over 25 year history, we have created a loyal customer base that relies on us for our convenient, secure, innovative and adaptive services and technology, and we have built long-standing and valuable relationships with premier banking institutions such as Fifth Third Bank, Sunrise Bank, TransPecos Bank and others. Payment Acceptance. We provide 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. The ACH network is a nationwide electronic funds transfer system that is regulated by the Federal Reserve and the National Automatic Clearing House Association, or NACHA, the electronic payments association, and provides for the clearing of electronic payments between participating financial institutions. Our ACH processing services enable merchants or businesses to both disburse and collect funds electronically using e-checks instead of traditional paper checks. An e-check is an electronic debit to a bank checking account that is initiated at the point-of-sale, on the Internet, over the telephone, or via a bill payment sent through the mail via a physical check. E-checks are processed using the ACH network. We are one of nine companies that hold the prestigious NACHA certification for Third-Party Senders and were the second company to receive the certification. Our payment acceptance services are delivered in a variety of forms and situations. For example, our capabilities allow merchants to convert a paper check to an e-check or receive card authorization at the point-of-sale, allow our merchants’ respective customer service representatives to take e-check or card payments from their consumers by telephone, and enable their consumers to make e-check or card payments directly through the use of a website or by calling an interactive voice response telephone system. Similarly, our PINless debit product allows merchants to debit and credit accounts in real-time. In the first half of 2025, we began, and completed, development of a new EBPP product. This offering allows merchants to create and distribute bills to their customers that can be viewed, and paid, online through our platform and payment processing services, increasing the opportunities for cross-selling between our various business lines. Card-Based Services. Our card-based processing services enable merchants to process both traditional card-present, tap-and-pay, or "swipe" transactions, as well as card-not-present transactions. A traditional card-present transaction occurs whenever a card holder physically presents a credit or debit card to a merchant at the point-of-sale. A card-not-present transaction occurs whenever the customer does not physically present a payment card at the point-of-sale and may occur over the Internet, mail, or telephone. A tap-and-pay transaction occurs whenever a consumer taps their phone on a physical terminal utilizing third party wallet services like Apple Pay®, Samsung Pay™ and Google Pay™. 19 Payment Facilitation. Following the completion of the Singular Payments acquisition in 2017, we launched our payment facilitation, or PayFac, platform called "PayFac-in-a-Box" in late 2018 targeting partnership opportunities with app and software developers in bill-centric verticals, such as legal, healthcare, property management, utilities and insurance. The PayFac-in-a-Box platform 'integration layer' offers a simple integration experience for technology companies who are looking to monetize payments within an existing base of downstream clients. The added value of offering our integration partners access to real-time merchant enrollment, credit card, debit card, ACH and prepaid card issuance capabilities through a single vendor partner relationship in face-to-face, mobile and virtual payment acceptance environments provides a true single channel commerce experience through an application programming interface, or API. Prepaid and Incentive Card Services. Through our December 2014 acquisition of the assets of Akimbo Financial, Inc., we added a highly talented technical staff of industry subject matter experts and an innovative cardholder service platform including cardholder web and mobile applications and launched what is now our UsioCard business. As a result of this acquisition, through our subsidiary, FiCentive, Inc., we offer customizable prepaid cards which companies use for expense management, incentives, refunds, claims and disbursements, as well as unique forms of compensation such as per diem payments, government disbursements, and similar payments. This comprehensive money disbursement platform allows businesses to pay their contractors, employees, or other recipients by choosing among a prepaid debit Mastercard, real-time deposit to a checking account, traditional ACH, direct deposit or paper check. These cardholder web and mobile applications have been fully integrated into FiCentive’s prepaid card core processor, and now support all program types and brands offered by FiCentive and its clients. 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. We also offer prepaid cards to consumers for use as a tool to stay on budget, manage allowances and share money with family and friends. Our UsioCard platform supports Apple Pay®, Samsung Pay™ and Google Pay™ with full mobile wallet provisioning. In 2025 we also launched a new distribution strategy for our Prepaid card services, with a wearable device program. Our prepaid cards can now be successfully loaded onto items such as watches, wristbands, belt buckles, or nearly any wearable product through the use of embedded chips. We first demonstrated this new product in October 2025, and continue to refine the product, anticipating it will assist in enhancing our prepaid card program's marketability and diversity in the overall payment ecosystem. Electronic and Paper Billing. On December 15, 2020, we entered into the business of 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, through the acquisition of substantially all of the assets of Information Management Solutions, LLC, or IMS. This product offering provides an outsourced solution for document design, print, and electronic delivery to potential customers and entities looking to reduce postage costs and increase efficiencies. This acquisition increased our ability to grow new revenue streams and allowed us to reenter the electronic bill presentment and payment revenue stream. Usio Output Solutions, Inc., or Output Solutions, offers a unique, and complementary payment related solution to our merchant services products of ACH, credit card, and prepaid card processing, with an opportunity for enhanced cross-selling efforts. The success of this business line depends on our ability to realize the anticipated growth opportunities, although we cannot provide any assurance that we will be able to realize these opportunities. Since the acquisition of substantially all of the assets of IMS, we have invested in new equipment to enhance the capacity and speed of the business unit, such as a new inserter and folder, on October 1, 2023, that was implemented over the course of 2024, and a new printer in September 2025 that will be installed and operational in the first half of 2026. Further, in December 2024, we partnered with an outsourced presorting company to further automate our print and mail systems. Despite challenges in growing revenues from Output Solutions in 2025, we have significantly reduced labor costs related to print and mail processing. We believe this reduction has better positioned the business line to pursue and successfully generate much larger opportunities than we previously were able to through the increase in capacity and automation. Results have already been realized, as the quantity of mail we printed and delivered in the first quarter of 2026 was higher than in any other fiscal quarter in the history of the Company, while simultaneously requiring fewer working hours to achieve, compared to each fiscal quarter of 2025. "Usio One". Throughout 2025, we adopted and began implementing our "Usio One" strategy, designed to unify our brand, sales approach, and payments offerings. Through this strategy, we are developing enhanced client onboarding features, superior customer management, improved reporting and fraud monitoring, alongside a consolidated sales and marketing team to better cross-sell our various payment methods and ancillary services. We believe this strategy will help better position our merchant services and Output Solutions business segments to customers and the broader payments related market as a more cohesive service offering. In turn, we anticipate being able to better leverage our resources, reduce friction in new customer acquisition, and drive more meaningful cross-selling opportunities, which we anticipate will help increase our products' stickiness and customer retention. Success from this strategy has already been realized by our sales and client management staff through the generation of new integrations between our existing customers and our ancillary business lines. The consolidation of our various technologies into a more seamless product offering continues to progress, and we anticipate that it will ultimately result in a client and customer onboarding process that enables all of our customers to automatically be enrolled in, and have access to, each of our payment acceptance and issuing products. In turn, through the continued development of our back end technology infrastructure, we anticipate the ability to eliminate the need for distinct contracts, dashboards, funding accounts, and support teams per product. PostCredit Acquisition. In November of 2025, we acquired substantially all of the assets of PostCredit, allowing an entry point into the expense management space. PostCredit had been developing technology that would cater to companies looking for fund management and expense tracking that integrated with various Enterprise Resource Planning, or ERP, systems. The Company anticipates continuing to develop this technology, while simultaneously integrating it into our existing products, opening a new sales channel to the broader market already utilizing ERPs such as Microsoft Business Dynamics and Business Central. We intend to combine this technology seamlessly with our EBPP product launched in 2025, allowing clients to send invoices, payments, manage funds, and reconcile with their various ERP platforms utilizing our payment channels. In combination with the other efforts of our Usio One strategy, we believe we will be able to develop a central Usio Hub that further encourages and incentivizes the utilization of our products, cross-sells our corporate expense solution, and assists in retaining the deposits we hold for our customers to help maintain or grow our interest revenues. We believe we will be able to implement phased portions of this strategy, and other PostCredit related projects, by the end of 2026. In the first quarter of 2026, we were able to demonstrate our early stage development to both existing clients and prospective customers as an upcoming feature, and believe we have been able to generate significant interest in PostCredit as both a standalone product and as a value-added service to our existing suite of technology. 20 Summary of Results We believe that our success will continue to depend in large part on our ability to (a) scale recurring revenues and deepen partner relationships, (b) expand our product offerings, (c) pursue disciplined, accretive opportunities, (d) enhance shareholder value via operational execution and capital allocation, and (e) assimilate current and future acquisitions of companies and customer portfolios. We will continue to invest in our sales force and technology platforms to drive revenue growth. In particular, we are focused on growing our ACH merchants, adding new software integrators, and growing our electronic bill presentment, document composition, document decomposition, printing and mailing services business while providing incremental services to existing merchants. In addition to our near-term growth opportunities, we are focused on leveraging and optimizing the infrastructure of our business to enable expansion of our payment processing and mail and printing capabilities without significantly increasing our operating costs. We continue to seek ways to grow revenue, and net new client implementations and onboards occur regularly due to our ability to address the needs of our market. Growing Revenues. Revenue growth remains a consistent focus for the Company, as we strive to achieve expanded scale, and establish a strong reputation within the financial technologies space. This growth assists us in maintaining our diversified offerings and remaining relevant in the payments ecosystem by developing payment platforms that address the current needs of our marketplace. In the first quarter of 2026, our revenues increased 16% to $25.5 million, as compared to $22.0 million in the same quarter of 2025, due primarily to strong growth in our ACH and complementary services, credit card, and Output Solutions lines of business, though offset slightly by declines in our prepaid card services line of business and interest revenues. The strong growth in each of our ACH and complementary services, and credit card lines of business was due to organic growth from existing customers and net new client implementations and onboarding. Growth in our Output Solutions line of business was driven by a combination of organic growth and net new customer acquisitions, but also from the presence of some cyclical business related to voter registration cards and tax statements, that are almost entirely printed and mailed in the first quarter each year in the case of tax statements, or every other year in the case of voter registration cards. The decrease in our prepaid card services revenues was due to declines from one of our key prepaid card programs, as its business was impacted by the loss of a key customer in the second quarter of 2025 that made meaningful contributions to Usio revenues in the first quarter of 2025. Lower interest revenues were driven by interest rates and interest bearing deposits declining versus the prior year. Expand our product offerings. We maintain a committed focus on the ever changing technological landscape within the payments ecosystem. We believe that regularly attending payments focused conferences, webinars, and training sessions, alongside our consistent communication with customers and clients, enables us to be informed of the most current, and future, applications and evolutions of financial technologies. We believe that this allows us to implement new feature functionality to existing products and introduce new payment methods. This has led to our evolution from being an EBPP provider at the Company's founding, to the diverse payment provider we are today, with offerings such as ACH processing, PINless debit, RTP, prepaid card issuance, and credit card processing. In the digital marketplace, it is especially crucial to match the need for diversified payment options in an increasingly ecommerce driven world. Pursue disciplined, accretive opportunities. Acquisitions have been a key element in our growth-focused strategy, both by adding net new customers and by enhancing our suite of payment technologies. This is evident through our acquisitions of Akimbo Financial, Inc., Singular Payments, and IMS, which allowed us to introduce new offerings such as prepaid card issuance, PayFac, and electronic bill presentment, all of which represent significant portions of our current revenues. The Company continually evaluates the markets for opportunities to acquire or partner with accretive opportunities that align with our core competencies. In 2025, we acquired the assets of PostCredit, which we believe once again represents an opportunity to enhance our existing products and to introduce us as a new competitor in the expense management market vertical. We cannot assure you that we will be able to complete any acquisitions in the future. Enhancing shareholder value via operational execution and capital allocation. By appropriately managing our expenses (which are discussed under "- Results of Operations - Selling, General and Administrative Expenses" below), we believe we can achieve better economies of scale, and drive revenue growth. We believe that carefully evaluating our existing selling, general and administrative, or SG&A, expenses, and balancing them against the need for client implementation and support, together with our technology staff driving product innovation, will guide our operational strategies while maintaining a focus on efficiencies and profitability. SG&A expenses were up in the quarter, at $4.4 million as compared to $4.1 million in the prior year quarter. The increase in SG&A expense was primarily due to increases in salary alongside increases in network infrastructure, travel expenditures, professional fees, and other various general expenses. For more information, see "Results of Operations - Selling, General and Administrative Expenses" below. Assimilating Current and Future Acquisitions. The assimilation of our previous acquisitions has been critical in both the retention of purchased assets and their growth, through cross-selling and implementation into our broader infrastructure, which allows for increased diversity of offerings and support. Successfully assimilating acquisitions remains a crucial priority for the success of the Company. The recent acquisition of PostCredit represents an especially critical component of this strategy, and may require significant time investment and capital expenditure to fully implement. We cannot assure you that we will be able to successfully assimilate new and future acquisitions. 21 In addition to the factors discussed above, we believe that processing volume and transaction counts are vital measures that indicate our addition and implementation of net new customers, and growth from existing customers, which we believe correlate to both current and future revenues. The change in credit card processing volume, ACH transaction counts, and prepaid card purchase volume are the most direct metrics that drive revenues in their respective business lines, while prepaid card load volumes specifically, are an indicator of future revenue change within the prepaid card business line. While there are many components to the revenues of our business units that could impact revenue growth or decline, these processing metrics offer an indication to the current health of our overall company and success in our strategies to grow the business. During the first quarter of 2026, the number of credit card transactions processed by us increased by 22% versus the first quarter of 2025. The volume of credit card dollars processed during the first quarter of 2026 increased by 16% compared to the same period in 2025. The continued growth in credit card metrics was primarily attributable to our PayFac strategy to drive increased penetration across multiple industries including healthcare and legal. ACH (eCheck) transaction counts during the first quarter of 2026 increased by 34% compared to the first quarter of 2025. Returned check transactions processed during the first quarter of 2026 increased by 54% compared to the first quarter of 2025. Electronic check dollars processed during the first quarter of 2026 increased by 31% compared to the first quarter of 2025. The increases in eCheck transactions, returns, and electronic check dollar volumes processed were primarily attributable to traction in our ACH sales efforts driving new merchant onboarding and processing, alongside organic growth from existing customers, and increased adoption of newer payment products, such as RTP. Prepaid card load volumes during the first quarter of 2026 decreased by 19% compared to the first quarter of 2025. Prepaid card transaction counts processed during the first quarter of 2026 decreased by 16% compared to the first quarter of 2025. These declines were primarily due to processing reductions from one of our key clients, who lost its own downstream customers during the second quarter of 2025. This client contributed significant card load, purchase volume, and purchase transactions during the prior year period. Prepaid card purchase volume during the first quarter of 2026 increased by 7% compared to the first quarter of 2025. Despite the growth in prepaid card purchase volume driving increase revenues related to spend, it was not enough to overcome the more meaningful client and cardholder fee revenues derived from the aforementioned declines in one of our key clients. We continue to invest time and resources in the development of additional net new customers and clients that are at various stages of the implementation process, and we believe have the potential to drive meaningful revenue growth in the third and fourth quarters of 2026. Output Solutions total mail pieces processed and delivered were 8.9 million for the first quarter of 2026, an increase of 31% compared to 6.8 million in the first quarter of 2025, while electronic only documents delivered were 29 million, up 41% in the first quarter of 2026 compared to 20.5 million in the first quarter of 2025. This strong processing activity was driven by increased organic growth, new customer acquisitions, and the presence of increased traffic related to tax forms and voter registration cards being printed and mailed in the first quarter of 2026. Total dollar volumes processed across all business lines in the first quarter of 2026 were $2.50 billion compared to $1.96 billion processed in the first quarter of 2025, up 28% over the prior year quarter, attributable to processing volume growth in our credit card, and ACH and complementary services business lines, countering the decline of prepaid card processing volume. For more information, see "Results of Operations - Revenues." 22 Material Trends and Uncertainties On August 16, 2022, former President Biden signed the Inflation Reduction Act, or IRA, which implemented a 1% excise tax on certain corporate stock repurchases, when repurchases of stock on an established securities market exceed $1 million in a tax year. On May 13, 2022, and again on March 24, 2025, the Board authorized a renewal of the buy-back program, with a limit up to $4 million of the Company's common stock with a three year duration. As of December 31, 2025, the Company had repurchased approximately $1.1 million of stock as part of the buyback program for which the Company may be required to pay approximately $11,000 in excise tax. Should the Company continue the repurchase of its securities on the open market, and the IRA remains in effect, we may be subject to this tax in 2026 and future years. During the three months ended March 31, 2026, the Company repurchased $233,459 of stock as part of the buyback program, which may become subject to the IRA's 1% excise tax if the Company meets or exceeds the IRA's 1% excise tax repurchase minimum of $1 million in stock buybacks. The broader implications of the macroeconomic environment, including uncertainty around recent international conflicts such as the Russia and Ukraine conflict and the military actions in Iran by the U.S. and Israel, supply chain shortages, a recession globally or in markets in which we operate, higher inflation rates, higher interest rates, and other related global economic conditions, remain unknown. In April 2025, developments relating to tariffs intensified concerns over the global macroeconomic environment. Volatility across financial markets rose and the prospect of a U.S. recession increased further. Uncertainty around the path forward and concerns over the potentially escalating effects of a trade war have created risks for the U.S. and global economies. A deterioration in macroeconomic conditions as well as ongoing uncertainty regarding tariffs or trade disputes could continue to increase the risk of lower consumer spending, merchant and consumer bankruptcy, insolvency, business failure, higher credit losses, or other business interruption, which may adversely impact our business. If these conditions continue or worsen, they could adversely impact our future financial and operating results. As the Federal Reserve has worked to fight economic inflation, the federal funds rate experienced rapid growth from the beginning of 2022 into the third quarter of 2023, and remained flat until September 2024 when the federal funds rate was lowered. This resulted in the Company's receiving more favorable interest rates on its current cash balances, amounting to $0.4 million in interest earnings in the three months ended March 31, 2026. Of this interest, $0.3 million was recognized as revenue in the respective business lines for which the cash balances are held, and $91,491 as interest income. In 2024, the Federal Reserve lowered the federal funds rate three times by a cumulative 1%, and by 0.25% three times in 2025 during September, October, and December 2025, which has resulted in lower interest earnings on our interest-bearing cash accounts. Should the Federal Reserve continue lowering the federal funds rate in the future, this incremental source of income would decline. We continue to work closely with our bank partners, to ensure we effectively manage our cash balances, and monitor the Federal Reserve's monetary policy decisions. Changes in these factors are difficult to predict, and a change in one factor could affect other factors, which could result in adverse effects to our business, results of operations, financial condition, and cash flows. Critical Accounting Policies and Estimates Our management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to the reported amounts of revenues and expenses, credit losses, investments, intangible assets, income taxes, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions or conditions. We consider these accounting policies to be critical because the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for such highly uncertain matters or due to the susceptibility of such matters to change or because the impact of the estimates and assumptions on financial condition or operating performance is material. For a summary of Critical Accounting Policies and Estimates, please refer to the Notes to Interim Consolidated Financial Statements, Note 1, Basis of Presentation. 23 Table of Contents Reserve for Processing Losses If, due to insolvency or bankruptcy of any 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, 2026 and December 31, 2025, the Company’s reserve for processing losses was $802,937 and $784,937, respectively, and carried on the Company's balance sheet as an accrued expense, and in the statement of cash flows as a change in accrued expenses. Accounts Receivable/Allowance for Estimated Credit Losses Accounts receivable are reported as outstanding principal net of an allowance for estimated credit losses, which was $404,132 at March 31, 2026 and December 31, 2025. The Company maintains an allowance for estimated credit losses representing estimated losses expected to result 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 estimates. 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. 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 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. 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 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. 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 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. 24 Key Business Metrics - Non-GAAP Financial Measures This report includes the following non-GAAP financial measures as defined in Regulation G adopted by the Commission: EBITDA, Adjusted EBITDA, and Adjusted EBITDA margins. The Company reports its financial results in compliance with GAAP but believes that also discussing non-GAAP financial measures is useful to investors because it provides them with financial measures the Company uses in the management of its business. • The Company defines EBITDA as operating income (loss), before interest, taxes, depreciation and amortization of intangibles. • The Company defines Adjusted EBITDA as EBITDA, as defined above, plus non-cash stock based compensation and certain non-recurring items, such as costs related to acquisitions. • The Company defines Adjusted EBITDA margins as Adjusted EBITDA, as defined above, divided by total revenues. Management believes that EBITDA, Adjusted EBITDA, and Adjusted EBITDA margins are helpful to investors in evaluating the Company's operating performance because non-cash costs and other items that management believes are not indicative of its results of operations are excluded. We reported Adjusted EBITDA of $0.8 million for the quarter ended March 31, 2026, as compared to Adjusted EBITDA of $0.7 million for the same period in the prior year. The increase in Adjusted EBITDA in the 2026 quarter was attributable to increased gross profit in the period. Adjusted EBITDA margins were 3.1% in the quarter ended March 31, 2026, as compared to Adjusted EBITDA margins of 3.0% for the same period in the prior year. The increase in Adjusted EBITDA margins was due primarily to increased gross profit versus the prior year period, alongside SG&A expenses representing a smaller percentage portion of revenues driving improved bottom line results. The following tables set forth reconciliations of Operating (Loss) to EBITDA; EBITDA to Adjusted EBITDA; and Revenues to Adjusted EBITDA margins for the three months ended March 31, 2026 and 2025. Three Months Ended March 31, 2026 2025 Reconciliation from Operating income (loss) to Adjusted EBITDA: Operating income (loss) $ 225,712 $ (239,584 ) Depreciation and amortization 225,745 495,770 EBITDA 451,457 256,186 Non-cash stock-based compensation expense, net 329,284 410,062 Adjusted EBITDA $ 780,741 $ 666,248 Calculation of Adjusted EBITDA margins: Revenues $ 25,465,774 $ 22,009,050 Adjusted EBITDA $ 780,741 $ 666,248 Adjusted EBITDA margins 3.1 % 3.0 % 25 Table of Contents Use of Non-GAAP Financial Measures EBITDA, Adjusted EBITDA, and Adjusted EBITDA margins should be considered in addition to, not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. They are not measurements of our financial performance under GAAP and should not be considered as alternatives to revenue, net income (loss), or cash provided by (used in) operating activities, as applicable, or any other performance measures derived in accordance with GAAP and may not be comparable to other similarly titled measures of other businesses. EBITDA, Adjusted EBITDA, and Adjusted EBITDA margins have limitations as analytical tools and you should not consider these non-GAAP measures in isolation or as a substitute for analysis of our operating results as reported under GAAP. Results of Operations Revenues Our revenue is principally derived from providing integrated electronic payment services to merchants and businesses, including credit and debit card-based processing services and transaction processing via the ACH network and program management and processing of prepaid debit cards. In addition, through Output Solutions, we provide 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. We also earn revenue from interest and fees earned on certain assets underlying the associated customer balances. Customer balances on which the Company earns interest revenue include balances from our ACH and complementary services, prepaid card services, and Output Solutions business lines. Three Months Ended March 31, 2026 2025 $ Change % Change ACH and complementary services $ 6,293,066 $ 5,044,517 $ 1,248,549 25 % Credit card 9,710,324 7,878,694 1,831,630 23 % Prepaid card services 2,373,201 2,907,451 (534,250 ) (18 )% Output Solutions 6,805,314 5,732,867 1,072,447 19 % Interest - ACH and complementary services 122,201 224,129 (101,928 ) (45 )% Interest - Prepaid card services 118,029 182,661 (64,632 ) (35 )% Interest - Output Solutions 43,639 38,731 4,908 13 % Total Revenue $ 25,465,774 $ 22,009,050 $ 3,456,724 16 % Consolidated revenues for the quarter ended March 31, 2026 were up 16%, at $25.5 million, as compared to $22.0 million for the quarter ended March 31, 2025, due to the 25% growth in ACH and complementary services revenue, 23% growth in credit card revenue, and 19% growth in Output Solutions revenue. This growth completely offset an 18% revenue decline in our prepaid card services business line, alongside a net 36% decline in total interest revenues from all three interest revenue sources. ACH and complementary services revenue growth of 25% was primarily attributable to an increase in ACH check dollar volume of 31%, an increase in transactions of 34%, and an increase in returned check transactions of 54%, in each case, for the quarter ended March 31, 2026 compared to the same period in 2025. This growth was a result of organic growth within our existing customer base, alongside net new client implementations that began processing at the end of the second quarter of 2025. Our ACH business also benefited from an increase in revenue from ancillary product offerings, such as PINless debit, RCC, and RTP. The 23% increase in our credit card business unit was partially the result of several key implementations of new independent software vendors and enterprise customers throughout 2025, who began processing at the end of the fourth quarter of 2025, and continued to increase their volumes in the first quarter of 2026. This new business was in addition to the organic growth from our existing customer base, who have continued to increase their processing volumes over time. Output Solutions revenue was up 19% for the quarter ended March 31, 2026 compared to the same period of 2025, due to strong organic growth, and net new customers. Compounding this was the presence of increased business related to the printing and mailing of tax statements and voter registration cards that occurred, a recurring source of revenue, but one that occurs only once each year in the case of tax statements, and once every other year with respect to voter registration cards. The 18% decrease in prepaid card services revenues was attributable to one of our key clients losing a portion of its downstream customer base during the second quarter of 2025, which contributed significant revenues in the prior year period. We have already signed several contracts throughout the second half of 2025, and into 2026, that we believe will have the ability drive meaningful revenue growth in the second half of 2026, as we fully implement and onboard their business. Further declines in revenues were attributable to lower interest revenue, associated with lower interest rates and interest bearing deposits versus the prior year period. For more information, see "- Summary of Results." 26 Cost of Services Cost of services includes the cost of personnel dedicated to the creation and maintenance of connections to third-party payment processors and the fees paid to such third-party providers for electronic payment processing services. Through our contractual relationships with our payment processors and sponsoring banks, we process ACH and debit, credit and prepaid card transactions on behalf of our customers and their consumers. We pay volume-based fees for debit, credit, ACH and prepaid transactions initiated through these processors or sponsoring banks, and pay fees for other transactions such as returns, notices of change to bank accounts and file transmission. Additional costs include commissions paid to referral agents and partners. Cost of service fees also include fees related to our Output Solutions business line related to items such as paper, ink, and postage for the printing and mailing of paper statements. Cost of services increased by $3.1 million, or 18%, to $20.3 million for the quarter ended March 31, 2026, as compared to $17.2 million for the same period in the prior year, due to increased revenues of 16%. Revenue contribution from lower margin business lines such as PINless debit and RCC within ACH and complementary services, and credit card. Declines in our higher margin prepaid and interest revenues further compounded this, resulting in cost of services growth slightly outpacing revenue growth. Gross Profit Gross profit is the net profit existing after the cost of services. Gross profit increased by 7% to $5.1 million for the quarter ended March 31, 2026, as compared to $4.8 million for the same period in the prior year. Gross profit percentage of revenue was 20.2% for the quarter ended March 31, 2026, down versus 21.9% in the prior year period. The increase in gross profit in the quarter ended March 31, 2026, as compared to the same period during the prior year, was primarily attributable to the 16% increase in revenue. However, as a result of revenue mix favoring lower margin business lines such as PINless debit and RCC within ACH and complementary services, and credit card, alongside declines in our higher margin prepaid business and in interest revenues, gross profit percentages declined compared to the prior year period. Stock-based Compensation Stock-based compensation expenses were $0.3 million for the quarter ended March 31, 2026 as compared to $0.4 million for the quarter ended March 31, 2025, with the decrease from the prior year quarter due to completed amortization of previously issued stock based awards. Selling, General and Administrative Expenses SG&A expenses were $4.4 million for the quarter ended March 31, 2026 as compared to $4.1 million in the prior year quarter. The increase in SG&A for the quarter ended March 31, 2026 was driven primarily by increases in salary alongside increases in network infrastructure, travel expenditures, professional fees, and other various general expenses. Depreciation and Amortization Depreciation and amortization expense consists of the reduction in value of our tangible and intangible assets over their useful life. These assets include property, plant, and equipment, along with intangible assets acquired through acquisitions, or developed as internal use software. Depreciation and amortization expense totaled $0.2 million and $0.5 million in the quarter ended March 31, 2026 and 2025, respectively. The decrease in depreciation and amortization expense for the quarter ended March 31, 2026 compared to the prior year quarter was due to the completed amortization of intangible assets, specifically related to the completed amortization of our acquisition of Output Solutions, alongside capitalized labor for our internal use software, decreasing overall depreciation and amortization expense versus the same period a year ago. 27 Other Income, Net Other income, net was $0.1 million for the quarter ended March 31, 2026, flat compared to $0.1 million for the quarter ended March 31, 2025. Income Taxes State income tax expense in the three months ended March 31, 2026 and 2025 was $104,790 and $62,554, respectively, up slightly versus the prior year period as a result of increased taxable income. Net Income (Loss) We reported net income of $0.1 million for the quarter ended March 31, 2026, as compared to a net loss of $0.2 million for the same period in the prior year. The increase from a net loss to net income was driven primarily by the increased revenues, and corresponding gross profits alongside lower stock-based compensation and depreciation and amortization expense in the quarter ended March 31, 2026 as compared to the same period in the prior year. We may incur future operating losses. To maintain, grow and achieve profitability, we must, among other things, continue to incrementally grow and maintain our customer base, sell our ACH, credit card, prepaid product and Output Solutions offerings to existing and new customers, implement successful marketing strategies, maintain and upgrade our technology and transaction-processing systems, provide superior customer service, respond to competitive developments, attract, retain and motivate personnel, and respond to unforeseen industry developments among other factors. Liquidity and Capital Resources Our primary sources of liquidity are available cash and cash equivalents and cash flows provided by operations. As of March 31, 2026, we had cash and cash equivalents of $7.7 million. For the three months ended March 31, 2026, cash provided by operations was $0.9 million. We expect available cash and cash equivalents and internally generated funds to be sufficient to support working capital needs, capital expenditures (including acquisitions), and our debt service obligations. We believe we have sufficient liquidity to operate for at least the next 12 months from the date of filing this report. Cash from operating activities is dependent on our net income (loss), less depreciation, amortization, credit losses, deferred federal income tax, non-cash stock-based compensation, the amortization of intangible assets, and net of the changes in our operating assets and liabilities. These assets and liabilities include our accounts receivable, prepaid expenses, operating lease right-of-use assets, inventory, other assets, accounts payable and accrued expenses, operating lease liabilities, merchant reserves, customer deposits, and deferred revenues. We reported net income of $0.1 million for the three months ended March 31, 2026 compared to a net loss of $0.2 million for the three months ended March 31, 2025. We had an accumulated deficit of $70.4 million and $70.5 million at March 31, 2026 and December 31, 2025, respectively. Additionally, we had working capital of $9.0 million and $9.4 million at March 31, 2026 and December 31, 2025, respectively. We have in the past, and may in the future, utilize equipment loans in order to finance the cost of particular pieces of equipment. 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 monthly interest only payments in the amount of $4,744 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 each of the three months ended March 31, 2026 and March 31, 2025. 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 annual interest 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 March 31, 2026, $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 the three months ended March 31, 2026 were $13,361. As of March 31, 2026, 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 a prior lawsuit that has since been settled in the Company's favor. 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, 2026, 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 a lawsuit appeal that has since been settled but remains fully available. 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 a lawsuit appeal that has since been settled 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 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. From time to time, we have sold shares of our common stock in order to provide us liquidity. For example, on November 19, 2021, Voyager Digital purchased 142,857 unregistered shares of common stock at an offering price of $7.00 per share in a private offering. The gross proceeds to us from the private offering were $1,000,000. We have also sold securities in public offerings from time to time. For example, in September 2020, we sold 4,705,883 shares of our common stock and received net proceeds of approximately $8 million. We cannot assure you that in the future we will be able to sell shares of our equity securities on terms acceptable to us or at all. 28 Table of Contents Cash Flows Net cash provided by operating activities for the three months ended March 31, 2026 was $0.9 million, as compared to net cash provided by operating activities of $1.4 million for the three months ended March 31, 2025. The decrease in net cash provided by operating activities was due primarily to increases in accounts receivable, alongside higher levels of prepaid expenses in the three months ended March 31, 2026. We continue to invest resources in the infrastructure of our business such as the retention and acquisition of employees, sales-related travel, and marketing efforts to achieve scale across all business lines. Net cash used in investing activities was $0.6 million for the three months ended March 31, 2026 as compared to net cash used in investing activities of $0.3 million for the three months ended March 31, 2025. The primary driver of our investing activities was capital expenditures associated with capitalized software development costs and other capital investments associated with growing our business lines and associated employee counts. The increase in net cash used in investing activities was primarily attributable to the increased amount of fixed asset purchases and capitalization of internal use software relative to the same period a year ago. Net cash used in financing activities for the three months ended March 31, 2026 was $17.1 million and net cash provided by financing activities for the three months ended March 31, 2025 was $3.6 million. The decrease in cash provided by financing activities was primarily attributable to the decrease in assets held for customers, which include settlement processing and prepaid card load assets, relative to the same period a year ago. Off-Balance Sheet Arrangements We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. As a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.