USIO 10-K & 10-Q changes, risk factors and insider trading

Any cyberattacks or data security breaches affecting our information technology or infrastructure or of our customers, partners, or vendors could have negative effects. For example, on December 25, 2021, we detected a ransomware attack that accessed and encrypted a small portion of our information technology systems. The unauthorized access included the download of non-payment processing related data files from our externally hosted Office 365 environmentenvironment, which is separate from our payment processing environment. Throughout the incident, we remained operational. Promptly upon the detection of the event, we launched an investigation, notified law enforcement and our insurance carrier, and engaged legal counsel, computer forensic firms and other incident response professionals. We also implemented a series of containment and remediation measures to address this situation and reinforce the security of our information technology systems. Our systems were not only fully restored and capable of resuming normal operations to the extent they were impaired, but enhanced following our immediate and long term response. Further preventative and proactive security measures were integrated, including incremental network and cloud defenses, implementation of third party cyber defense applications, structured incident response and disaster recovery plans, along with advanced employee cyber security training. We actively pursue any potential actions that will improve our existing systems. This cyber event had no material impact on the business, and no cardholder, or payments related data was compromised. Our direct losses associated with the cyber incident and its response were largely covered by our cybersecurity insurance, except for a deductible. We cannot assure you that a future cyberattack would be resolved in the same manner, and a future attack could have a much more negative impact on our business, results of operations, financial condition and prospects.

We have incurred substantial losses in the past and may incur additional losses in the future, and we may need additional financing in the future. We may be unable to obtain additional financing or if we obtain financing it may not be on terms favorable to us. YouOur mayinability loseto obtain additional financing when needed, or financing on terms favorable to us, could result in the loss of your entire investment.

We have contractual relationships with North American Banking Company, or NABC, Metropolitan Commercial Bank, and TransPecos Bank, which are Originating Depository Financial Institutions, or ODFI, in the ACH network. The ACH network is a nationwide batch-oriented electronic funds transfer system that provides for the interbank clearing of electronic payments for participating financial institutions. An ODFI is a participating financial institution that must abide by the provisions of the ACH Operating Rules and Guidelines. Through our relationshipsrelationship with Metropolitan Commercial Bank, TransPecos Bank, and NABC, we process payment transactions on behalf of our customers and their consumers by submitting payment instructions in a prescribed ACH format. We pay volume-based fees to TransPecos Bank,Bank and NABC for debit and credit transactions processed each month, and pay fees for other transactions such as returns and notices of change to bank accounts. These fees are part of our agreed-upon cost structures with the banks. If the Federal Reserve rules were to introduce restrictions or modify access to the Automated Clearing House, our business could be materially adversely affected. Further, if one or all of Metropolitan Commercial Bank, TransPecos Bank, or NABC were to cancel our respective contract with the bank, our business could be materially affected. At this time, we believe we could find and enter into additional agreements with other bank sponsors on similar contractual terms, but no assurances can be made.

Substantially all of the card-based transactions we process involve the use of Visa, Mastercard or Discover credit cards. In order to provide payment-processing services for Visa, Mastercard and Discover transactions, we must be sponsored by a financial institution that is a principal member of the respective Visa, Mastercard and Discover card associations. Both Central Bank of St. Louis and Wells Fargo Bank have sponsored us under the designations Third Party Processor, or TPP, and Independent Sales Organization, or ISO, with the Visa card association, and under the designations Third Party Servicer, or TPS, and Merchant Service Provider, or MSP, with the Mastercard card association. We have agreements with TriSource Solutions, LLC, Card Connect / First Data Merchant Services Corp. and Global Payments Inc. through which their member banks, Central Bank of St. Louis and Wells Fargo Bank, sponsor us for membership in the Visa and Mastercard card associations, and settle card transactions for our merchants. If our third-party processing provider, TriSource Solutions, Card Connect or Global Payments, or our bank sponsors, Central Bank of St. Louis, Wells Fargo Bank, or TransPecos Bank, CBW Bank or Evolve Bank & Trust fail to comply with the applicable requirements of the Visa, Mastercard, and Discover card associations, Visa, Mastercard or Discover could suspend or terminate the registration of our third-party processing provider. Also, our contracts with both of these third parties are subject to cancellation upon limited notice by either party. The cancellation of either contract, termination of their registration or any changes in the Visa, Mastercard or Discover rules that would impair the registration of our third-party processing provider could require us to stop providing such payment processing services if we are unable to enter into a similar agreement with another provider or sponsor at similar costs and upon similar contractual terms. Additionally, changing our bank sponsor could adversely affect our relationship with our merchants if the new sponsor provides inferior service or charges higher costs.

In the case of termination of the agreement due to death of the executive, we will be liable for separation payments,payments equaling an amount of 2.95 times the respective base salary. The deferred compensation does not include amounts paid or accrued to the executive for bonuses or bonus compensation, benefits or equity awards. Unpaid and unearned bonus compensation or bonus deferred compensation is forfeited. No deferred compensation will be due as long as we and/or an insurance company continues to pay the executive’s base salary, minus any monthly base salary already paid to the executive prior to his death pursuant to the executive’s disability, to the executive’s estate for a period of up to 36 months. If these continuing payments cease before 36 months, we will have to pay the executive’s estate the deferred compensation minus any base salary payments within 30 days of the cessation. We estimate the cash disbursements over time to be approximately $3.5 million for the agreement with Mr. Hoch. Further, all stock options issued to the executive and all restricted stock granted to executive shall continue on their established vesting schedule.

In the case of termination of the agreement due to disability without death, we will be liable for separation payments,payments equaling an amount of disability benefits constituting base salary for three years. We estimate the cash disbursement over time to be $3.5 million for the agreement with Mr. Hoch. Unpaid and unearned bonus compensation or bonus deferred compensation is forfeited. Further, all stock options issued to the executive and all restricted stock granted to executive shall continue on their established vesting schedule. No further compensation will be due for compliance with the agreements’ non-compete, non-solicitation and disparagement clauses.

Significant portions of our revenue and earnings are derived from fees from processing consumer ACH, prepaid, credit, and debit card transactions. We are exposed to general economic conditions that affect consumer confidence, consumer spending, consumer discretionary income or changes in consumer purchasing habits. A general reduction in consumer spending in the United States or in any other country where we do business could adversely affect our revenues and earnings. Please also refer to "General Risk Factors" in this Item 1A in this Annual Report on Form 10-K

The electronic commerce market is evolving and if it does not continue to grow, we may not be able to sell sufficient services to make our business viable.

The electronic commerce market is a service industry that continues to grow significantly. If the electronic commerce market fails to grow or grows slower than anticipated, or if we, despite an investment of significant resources,we are unable to adapt to meet changing customer requirements or technological changes in this emerging market, or if our services and related products do not maintain a proportionate degree of acceptance in this growing market, our business may not grow and could even fail. Additionally, the security and privacy concerns of existing and potential customers may inhibit the growth of the electronic commerce market in general, and our customer base and revenues, in particular. Similar to the emergence of the credit card and automatic teller machine industries, we and other organizations serving the electronic commerce market must educate users that electronic transactions use encryption technology and other electronic security measures that make electronic transactions more secure than paper-based transactions.

The local, state and federal laws, rules, regulations, licensing schemes and industry standards that govern our business, both directly and through our relationships with banks, card networks and other financial services partners, include, or may in the future include, those relating to payments services, such as payment processing and settlement services, anti-money laundering, combating terrorist financing, escheatment, international sanctions regimes and compliance with the Payment Card Industry Data Security Standard, or PCI-DSS, a set of requirements designed to ensure that all companies that process, store or transmit payment card information maintain a secure environment to protect cardholder data. We do not directly collect or store payment card information; instead, we rely on a third-party payment processor to do so. These laws, rules, regulations, licensing schemes and standards are enforced by multiple authorities and governing bodies in the United States, including the Department of the Treasury, self-regulatory organizations and numerous state and local agencies. Currently, we do not possess any permits or licenses from financial regulators. We believe the licensing requirements of federal and state agencies that regulate or monitor banks or other types of providers of electronic commerce services do not apply to us. While our business itself is not currently subject to financial services-related regulation, and we have received confirmation from multiple state regulators that we are not required to obtain money transmitter licenses in those states, the banks, payment networks and card networks that we partner with operate in a highly regulated landscape and there is a risk that those regulations could become directly applicable to us, such as the Electronic Fund Transfer Act and the Bank Secrecy Act. Nevertheless, there is a risk that a state regulator may misinterpret our services and find we are offering unlicensed money transmission. In addition, as our business and products continue to develop and expand, we may become subject to additional laws, rules, regulations, licensing schemes and standards. In late 2023, the Consumer Financial Protection Bureau, or CFPB, proposed new federal oversight of large technology firms and providers of digital wallets and payment applications that would require large nonbank financial companies handling more than 5 million transactions per year to adhere to the same rules as large banks, credit unions, and other financial institutions already supervised by the CFPB. The ultimate adoption or impact of this rule is uncertain, but it could materially increase regulatory risks and impact the way we conduct our business. We may not always be able to accurately predict the scope or applicability of certain laws, rules, regulations, licensing schemes or standards to our business, particularly as we expand into new areas of operations, which could have a significant negative effect on our existing business and our ability to pursue future plans.

As an agent of, and third-party service provider to, our issuing banks, we are subject to indirect regulation and direct audit and examination by the Office of Thrift Supervision, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, or FRB, and the Federal Deposit Insurance Corporation.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or Dodd-Frank Act, effected and required significant changes to United States financial regulations, includeincluding regulations addressing fees charged or received by issuers for processing debit transactions and the transaction routing options available to merchants. The Dodd-Frank Act also established the Consumer Financial Protection Bureau, or CFPB,CFPB to regulate consumer financial services, including many services offered by our customers. The CFPB is responsible for enforcing and writing rules regarding consumer access to disclosures, fees and statements, error resolution, limited liability and overdrafts when using prepaid cards.

The Credit Card Accountability, Responsibility, and Disclosure Act of 2009, or CARD ActAct, imposes requirements relating to disclosures, fees and expiration dates that are generally applicable to gift certificates, store gift cards and general-use prepaid cards. We believe that our general purpose re-loadable prepaid cards, and the maintenance fees charged on our general purpose re-loadable cards, are exempt from the requirements under this rule, as they fall within an express exclusion for cards which are re-loadable and not marketed or labeled as a gift card or gift certificate. However, this exclusion is not available if the issuer, the retailer selling the card to a consumer or the program manager, promotes, even if occasionally, the use of the card as a gift card or gift certificate. As a result, we provide retailers with instructions and policies regarding the display and promotion of our general purpose re-loadable cards. However, it is possible that despite our instructions and policies to the contrary, a retailer engaged in offering our general purpose re-loadable cards to consumers could take an action with respect to one or more of the cards that would cause each similar card to be viewed as being marketed or labeled as a gift card, such as by placing our general purpose re-loadable cards on a display which prominently features the availability of gift cards and does not separate or otherwise distinguish our general purpose re-loadable cards from the gift cards. In such event, it is possible that such general purpose re-loadable cards would lose their eligibility for such exemption to the CARD Act and its requirements, and therefore we could be deemed to be in violation of the CARD Act and the rule, which could result in the imposition of fines, the suspension of our ability to offer our general purpose re-loadable cards, civil liability, criminal liability, and the inability of our issuing banks to apply certain fees to our general purpose re-loadable cards, each of which would likely have a material adverse impact on our revenues.

Our business is subject to U.S. federal anti-money laundering, or AMLAML, laws and regulations, including the Bank Secrecy Act, or BSA. AML laws among other things, require certain financial services providers to develop and implement risk-based anti-money laundering programs, report large cash transactions and suspicious activity and maintain transaction records.

Banking-related provisions of the USA PATRIOT Act have been implemented as additions to the banking rules regarding monetary instrument sales record keeping requirements and tracking of cash movements. In our capacity as an agent for Sunrise Banks, N.A., the issuing bank for our prepaid card programs and in our capacity as an agent for Metropolitan Commercial Bank, NABC and TransPecos Bank, the sponsoring banks for our ACH services, we are required to comply with these rules. We are also required to implement a Customer Identification Program and establish an Anti-Money Laundering program and to report any suspected money laundering to the appropriate agencies. Our compliance with such regulations increases our responsibilities and costs associated with the administration of our debit card programs.

The use of Artificial IntelligenceAI could make us subject to evolving regulatory risks

We use AI and machine learning technologies in various aspects of our business, including fraud prevention, risk management, and customer service. While our use of artificial intelligence, or AI,AI and machine learning is not materialminimal at this time, theirits use can present risks. The legal and regulatory landscape surrounding AI technologies is rapidly evolving and uncertain, including in the areas of consumer protection, intellectual property, cybersecurity, and privacy and data protection. In addition, there is uncertainty around the validity and enforceability of intellectual property rights related to the use, development, and deployment of AI-generated outputs. Compliance with new and emerging laws, regulations or industry standards relating to AI in the U.S., such as the SEC, FTC, and U.S. state regulations, may impose significant operational costs and may limit our ability to develop, deploy or use existing or future AI technologies. As a result, our ability to adapt our existing products and services or develop future and new products and services using AI may be limited or restricted, which could adversely impact our business.

Pursuant to our 20152025 Equity Incentive Plan (the “20152025 Plan”), our management is authorized to grant stock options to our employees, directors and consultants. There are 5,000,0005,250,000 shares of Commoncommon Stockstock reserved for issuance under the 20152025 Plan. Additionally, the number of shares of our Commoncommon Stockstock reserved for issuance under our 20152025 Plan automatically increases on January 1 of each year, beginning on January 1, 2016,2026, and continuing through and including JulyJanuary 2,1, 2025,2035, by 5% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year (determined on an as-converted to voting common stock basis, without regard to any limitations on the conversion of the non-voting common stock), or a lesser number of shares determined by our board of directors.directors, or Board.

In addition, pursuant to our 2023 Employee Stock Purchase Plan (“ESPP”), we have reserved 2,500,000 shares of Commoncommon Stock.stock. The number of shares of our Commoncommon Stockstock 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 Commoncommon Stockstock 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 Commoncommon Stockstock that would cause the aggregate number of shares of Commoncommon Stockstock then reserved for issuance under the ESPP to not exceed 2,500,000 shares. As of December 31, 2024,2025, 66,959128,537 shares of our Commoncommon Stockstock had been purchased pursuant to the ESPP.

Unless our board of directorsBoard elects not to increase the number of shares available for future grant pursuant to our 20152025 Plan and ESPP each year, our stockholders may experience additional dilution, which could cause our stock price to fall.

Subject to the rules of The Nasdaq Stock Market, our articles of incorporation authorize our board of directorsBoard to issue one or more series of preferred stock and set the terms of the preferred stock without seeking any further approval from holders of our Commoncommon Stock. Any preferred stock that is issued may rank ahead of our Commoncommon Stockstock in terms of dividends, priority and liquidation premiums and may have greater voting rights than our Commoncommon Stock.stock.

We have not paid any cash dividends in the past and have no plans to issuepay cash dividends in the future, which could cause our Commoncommon Stockstock to have a lower value than that of similar companies which do pay cash dividends.

While our dividend policy will be based on the operating results and capital needs of the business, it is anticipated that any earnings will be retained to finance our future expansion. As we have no plans to issuepay cash dividends in the future, our Commoncommon Stockstock could be less desirable to other investors and as a result, the value of our Commoncommon Stockstock may decline, or fail to reach the valuations of other similarly situated companies that pay cash dividends.

As of March 21,16, 2025,2026, we had 26,514,35627,746,208 shares of Commoncommon Stockstock outstanding of which 4,748,457approximately 5,240,200 shares were held by affiliates. All of the shares of Commoncommon Stockstock held by affiliates are restricted or control securities under Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”). Sales of shares of Commoncommon Stockstock under Rule 144 or another exemption under the Securities Act or pursuant to a registration statement could have a material adverse effect on the price of our Commoncommon Stockstock and could impair our ability to raise additional capital through the sale of equity securities. Furthermore, all Commoncommon Stockstock beneficially owned by persons who are not our affiliates and have beneficially owned such shares for at least one year may be sold at any time by these existing stockholders in accordance with Rule 144 of the Securities Act. However, there can be no assurance that any of these existing stockholders will sell any or all of their Commoncommon Stockstock and there may be a lack of supply of, or demand for, our Commoncommon Stockstock on The Nasdaq Stock Market. In the case of a lack of supply of our Commoncommon Stockstock offered in the market, the trading price of our Commoncommon Stock may rise to an unsustainable level, particularly in instances where institutional investors may be discouraged from purchasing our Commoncommon Stockstock because they are unable to purchase a block of our Commoncommon Stockstock in the open market due to a potential unwillingness of our existing stockholders to sell the amount of Common Stock at the price offered by such investors and the greater influence individual investors have in setting the trading price. In the case of a lack of market demand for our Commoncommon Stock,stock, the trading price of our Commoncommon Stockstock could decline significantly and rapidly after our listing.

Our Board of Director members are classified into three classes of directors serving staggered three-year terms. Such classification of theour Board of Directors expands the time required to change the composition of the majority of directors and may discourage a proxy contest or other takeover bid for our company.Company. These provisions in our bylaws could make it more difficult for a third party to acquire us without the approval of our board.Board. In addition, the Nevada corporate statute also contains certain provisions that could make an acquisition by a third party more difficult.

Usio, Inc. was founded under the name Billserv Com,Billserv.com, Inc. in July 1998 and incorporated in the State of Nevada. On June 26, 2019, we changed our corporate name from Payment Data Systems, Inc. to Usio, Inc. Our principal offices are located at 3611 Paesanos Parkway, Suite 300, San Antonio, TX 78231. Our telephone number is (210) 249-4100.

We also offer payment facilitation, or PayFacPayFac, services through a leveraged, one to many, distribution model. Following the completion of the Singular Payments acquisition, we launched our payment facilitation, 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 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, API.

As a result of the acquisition of substantially all of the assets of Information Management Solutions, LLC, or IMS, in December 2020, weWe also offer additional services relating to 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 our wholly-owned subsidiary, Usio Output Solutions, Inc., or Output Solutions. 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.

In 2024,2025, we processed $7.1$8.4 billion for all payment types, which was up 33%19% from the prior year volume of $5.3$7.1 billion total dollars processed due to strong growth in our ACH and complimentary services business unit and PINless debit product line, via organic growth and net new customer acquisitions. In addition, success in our PayFac platform drove growth, and exceeded the attrition in our legacy credit card processing portfolios by focusing on our distributed sales force and Independent Software Vendor, or ISV, market. We believe this strategy will continue to drive superior results over time. Total transactions processed were up 26%30% in 2025 to 46.960.8 million. ACH or electronic check transactions processed for 2024 increased by 18.5% compared to 2023. Returned check transactions increased by 17.1% in 2024 compared to 2023. Credit card dollars processed in 2024 increased by 9.9% compared to 2023 and credit card transactions processed for 2024 increased by 23.8% compared to 2023. Both the credit card dollars and transactions processed represent all-time records for the Company. Prepaid card load volume increased by 34.8% and transaction volume increased by 45.1%. These improved transactional metrics helped offset the significantly reduced revenues as part of the anticipated wind down of our COVID incentive card programs at the start of 2024. These incentive programs contributed approximately $12.1 million in prepaid card services revenue during 2023 that needed to be replaced in 2024. Our processing metrics help reflect the improved organic growth and sales activity that took place in the year as part of our initiative to minimize the impact of these expired programs, while also indicating a positive sign for continued growth in the future.

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 of Directors 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. In the year ended December 31, 2024,2025, the Company had repurchased approximately $1.4$1.1 million of stock as part of its buyback program for which the Company may be required to pay approximately $14,000$11,000 in excise tax. Should the Company opt to continue the repurchase of its securities on the open market, and the IRA remain in effect, we may qualify for this tax in 2025,2026, and future years.

The broader implications of the macroeconomic environment, including uncertainty around recent international conflicts including the Russia and Ukraine conflict,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 has 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 $2.8$1.9 million in interest earnings in 2024.2025. Of this interest, $2.3$1.5 million was recognized as revenue in the respective business lines for which the cash balances are held, and $0.5$0.4 million as interest income. In September 2024, the Federal Reserve lowered the federal funds rate 0.50%,four followedtimes by a furthercumulative 1%, and by 0.25% declinetwice in each2025 ofduring NovemberSeptember and DecemberOctober 2024.2025, which has resulted in lower interest earnings on our interest bearinginterest-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.

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 U.S. generally accepted accounting principles.principles, or 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 are believed 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 highly uncertain matters or the susceptibility of such matters to change or because the impact of the estimates and assumptions on financial condition or operating performance is material.

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 hasdid not incurredincur any significant processing losses toin date.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, 20242025 and 2023, respectively,2024, the Company’s reserve for processing losses was $897,116$784,937 and $826,528,$897,116, respectively.respectively, included as an accrued expense on the consolidated balance sheets.

Accounts receivable are reported as outstanding principal net of an allowance for expected credit losses of $404,132 and $324,000 at December 31, 20242025 and 2023.2024, respectively.

We recognize and measure uncertain tax positions in accordance with U.S. 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 marginfranchise tax and Tennessee franchise tax. Management is not aware of any tax positions that would have a significant impact on its financial position.

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. 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 Automated Clearing House, or ACH, and complementary services, prepaid card services, and Output Solutions business lines.

This reportAnnual Report on Form 10-K includes the following non-GAAP financial measures as defined in Regulation G adopted by the CommissionSEC: 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 provides investors with financial measures the Company uses in the management of its business.

We reported adjusted EBITDA loss of $0.5($0.2) million for the quarter ended December 31, 2024,2025, as compared to an adjusted EBITDA of $1.1$0.5 million for the same period in the prior year. The decrease in adjusted EBITDA in the 20242025 quarter was attributable to increases in SG&A combined withand reduced gross profit margins.as a result of declines in interest revenue.

We reported adjusted EBITDA of $2.9$1.3 million for the twelve months ended December 31, 2024,2025, as compared to an adjusted EBITDA of $3.9$2.9 million for the same period in the prior year. The decrease in adjusted EBITDA in 20242025 was attributable to slightly lower revenues and profit margins, alongside increases in SG&A.

Our revenues are 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 AutomatedACH Clearingnetwork House, or ACH, network,and the program management and processing of prepaid debit cards, and we also offer additional output solution services relating to 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 revenues from interest and fees earned on certain assets underlying customer balances. Interest earned on assets directly related to our core business line operations are recorded in the revenue source underlying the associated customer balances. Customer balances held on which the Company earns interest revenues include balances from our Automated Clearing House, or ACH,ACH and complementary services, prepaid card services, and Output Solutions business lines.

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 or 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. Cost of services expense was $63.3$65.7 million and $64.0$63.3 million for 20242025 and 2023,2024, respectively. Cost of services expenses decreasedincreased by $0.7$2.4 million, or 1%,4%, in 20242025 as compared to 20232024 primarily due to decreasedincreased transactionrevenues. costsIncreases associated within our cost of services outpaced revenue growth due to the shift in revenue-generating business lines. This was primarily related to declines in higher margin prepaid card services revenues and increases in lower revenues.margin revenues from complementary services in our ACH and complementary service business line, such as PINless debit.

Gross profit is the net profit after deducting the cost of services. Gross profit was $19.6$19.7 million and $20.1$19.6 million for 20242025 and 2023,2024, respectively. Gross profit decreasedincreased nominally by $0.5$0.1 million, or 2%,0.4%, in 20242025 as compared to 2023.2024. The key drivers of the decreased grossGross profit were attributable to slightly lower revenues, though gross margin percentagesmargins were also down slightly from 23.9% in 2023 to 23.7% in 2024 resultingto 23.1% in lower2025, totalreflective grossof profits.both Thea decline in grossour 100% margin percentageinterest wasrevenues, alongside a shift in largeour partbusiness duemix, toas thehigher anticipatedmargin windprepaid downrevenues made up a smaller portion of ouroverall highly profitable COVID incentive programs in 2024.revenues.

Stock-based compensation expense decreased slightlyto to$1.7 million in 2025 from $2.1 million in 2024 from $2.2 million in 2023.2024. Our stock-based compensation expenses for 20242025 and 20232024 represented the amortization of deferred compensation expenses related to incentive stock grants to employees, officers and directors. The decrease in stock-based compensation iswas primarily attributable to various three year RSUs and 10 year grants fully vesting during 2024.2025. TheseThis vesting offset the increase in stock-based compensation expense related to our June 21, 2024 and August 21, 2025 stock grants. Please refer to Notes 89 and 1011 to our Consolidated Financial Statements included elsewhere in this annualAnnual reportReport for incremental information regarding these stock grants.

Other Selling, General and Administrative Expenses

Other selling,Selling, general and administrative expenses, or SG&A, increased to $18.4 million in 2025 from $16.7 million in 2024 from $16.2 million in 2023.2024. The increase of $0.5$1.6 million, or 3%,10%, represented continued investments in staffing and employee retention through various hires and salary increases, alongside increased expenditures related to the Company's security and IT infrastructure to strengthen the Company's defense from cybersecurity risks. Further investments were made to increase our customer success, implementations of merchant onboarding processes, and partner and client integrations strategy to sustain existing operations and future growth.

Depreciation and amortization expense increaseddecreased to $1.9 million in 2025 as compared to $2.3 million in 2024 as compared to $2.1 million in 2023.2024. The increasedecrease of $0.2$0.3 million, or 9%,14%, was primarily attributable to ourthe continuedcompleted investmentdepreciation inof ourfixed and intangible assets related to internal use software, which is continually being developed to offer new or improved consumer offerings.software.

Other IncomeIncome, net

Interest income increaseddecreased to $0.4 million in 2025 from $0.5 million in 2024 from $0.2 million in 2023 due to higherboth lower interest rates, and interest-bearing cash balances. Other incomeincome, net was $1.7$0.4 million for 2024,2025, as compared to expenseincome of $0.1$2.1 million for 20232024 due to the employee retention tax credit recorded under the CARES Act, and extended by the ARPA, received in the2024, year ended December 31, 2024,and recorded as other income in our consolidated statement of operations.

State income tax expense was $458,599 in 2025 and $449,227 in 2024 and $292,524 in 2023.2024. The state income tax expense represents amounts incurred under the Texas marginfranchise tax.

Net incomeIncome tax benefit reported was an expense of $0.5 million in 2025 and a benefit of $2.6 million in 2024, andwith anthe expense of $0.3 million in 2023difference due to the decrease in our valuation allowance of approximately $3.0$3.6 million, increasedand an increase in our deferred tax asset to approximately $4.7$4.5 million, resulting in a federal income tax benefit to the Company of $3.0$3.1 million.million in 2024. Please refer to Note 911 to our Consolidated Financial Statements included elsewhere in this annualAnnual reportReport for incremental information regarding this deferred tax asset.

Income (loss) before income taxes was a loss of $2.0 million in 2025 and income of $0.7 million in 2024, with the decline from 2024 andto a loss of $0.2 million in 2023,2025 due primarily to increased SG&A expenses in 2025 versus 2024 alongside the presence of $1.7 million recorded in 2024 as part of the one time employee retention tax credit issued under the CARES act.which was not present in 2025, to offset the higher operating loss.

We reported a net income of $3.3 million and a net loss of $0.5$2.5 million and net income of $3.3 million for the years ended December 31, 20242025 and December 31, 2023,2024, respectively. The increasedecrease in net income (loss) was due to the decrease in our valuation allowance of approximately $3.0 million, increased our deferred tax asset to approximately $4.7 million, resulting in a2024 federal income tax benefit to the Company of $3.0 million.million, combined with the receipt of the employee retention tax credit in 2024, which did not occur in 2025. Please refer to Note 911 to our Consolidated Financial Statements included elsewhere in this annual report for additional information regarding this deferred tax asset.

Our primary sources of liquidity are available cash and cash equivalents andequivalents, cash flows provided by operations and, if an appropriate opportunity presents itself, the sale of debt or equity securities, although we may not be able to complete any financing on terms acceptable to us, if at all. At December 31, 2024,2025, we had $8.1$7.4 million of cash and cash equivalents, as compared to $7.2$8.1 million of cash and cash equivalents at December 31, 2023.2024. The increasedecrease was primarily a result of the increaseincreased inSG&A netand lower interest revenues/income. For the year ended December 31, 20242025, net cash provided by operating activities was $2.9$1.5 millionmillion, and for the year ended December 31, 2023,2024, cash provided by operations was $3.5$2.9 million with the decrease due primarily to the increaseabsence of prepaidthe expensesemployee andretention decreasetax credit that was received in merchant2024, reserves.combined with increased SG&A expense. 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 warrant costs, 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. To the extent we require other sources of capital, we may seek a commercial line of credit or sell debt or equity securities, although we may not be able to complete any financing on terms acceptable to us, if at all.

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 March 20, 2021, we entered into a debt arrangement to finance $165,996 for the purchase of an Output Solutions sorter. The loan iswas for a period of 36 months with a maturity date of March 20, 2024. The repayment amountschedule iswas for 36 months at $4,902 per month. Annual payments arewere $58,821. The financing iswas at an annual interest rate of 3.95%. PaymentsThis equipment loan was paid off in its entirety in 2024 onwith thistotal equipmentpayments loanof were$14,536 $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. PaymentsTotal interest and principal payments on this folder and inserter equipment loan were $146,074.$191,812 We cannot assure you that such financing may be available to us on terms acceptable to us, or at all, infor the future.twelve months ended December 31, 2025 and $146,074 for the twelve months ended December 31, 2024.

As of December 31, 2024,2025, 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.lawsuit, which was settled in February 2026.

The Company has an irrevocable letter of credit in the amount of $474,229, issued on June 3, 2024, with a maturity date of JulyJune 3, 2025.2026. 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 to 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.

Net cash provided by operating activities totaled $2.9$1.5 million for 20242025 as compared to net cash provided by operating activities of $3.5$2.9 million in 2023.2024. The decrease in cash provided by operating activities was drivendue primarily byto increasesthe absence of the employee retention tax credit that was received in prepaid2024, expenses,combined andwith decreasesincreased inSG&A merchant reserves.expense.

Net cash used by investing activities was $0.9$1.5 million for 20242025 and $0.8$0.9 million in 2023.2024. The minor increase in investing activities was due to increased expenditures inrelated propertyto andcapitalized equipment.labor for internal use software.

In 20252025, we also launched a new distribution strategy for our Prepaid card services,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 bewas installed and operational in the firstsecond halfquarter 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. This performance continued into the second quarter of 2026, in which each month set a record for the highest number of pieces printed and mailed in the same month of any prior year.

"Usio One". Throughout 2025,2025 and continuing in 2026, 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 Business 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 quarterhalf 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. We continue to work towards releasing a live version of this platform to customers in the second half of 2026.

Growing Revenues. Revenue growth remains a consistent focus for the Company, as we strive to achieve expanded scale,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 firstsecond quarter of 2026, our revenues increased 16%19% to $25.5$23.7 million, as compared to $22.0$20.0 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. GrowthSimilarly, growth in our Output Solutions line of business was driven by a combination of organic growth and net new customer acquisitions,acquisitions. butAdditionally, alsorevenues were further enhanced due to the scalability and printing speed realized from theour presencenew of some cyclical business related to voter registration cards and tax statements,printer that arebecame almost entirely printed and mailedoperational in the firstsecond quarter each year in the case of tax2026, statements,improving orwork everyflows otherand yearallowing inus theto casedrive ofincreased voter registration cards.sales. 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 and second quarter of 2025. Lower interest revenues were driven by interest rates and interest bearing deposits declining versus the prior year.

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 upflat in the quarter,second atquarter $4.4of million as2026 compared to $4.1 million in the priorsecond yearquarter quarter.of The2025, increaseat in$4.6 SG&A expense was primarily due to increases in salary alongside increases in network infrastructure, travel expenditures, professional fees, and other various general expenses.million. For more information, see "Results of Operations - Selling, General and Administrative Expenses" below.

During the firstsecond quarter of 2026, the number of credit card transactions processed by us increased by 22%19% versus the firstsecond quarter of 2025. The volume of credit card dollars processed during the firstsecond quarter of 2026 increased by 16%13% 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 firstsecond quarter of 2026 increased by 34% compared to the firstsecond quarter of 2025. Returned check transactions processed during the firstsecond quarter of 2026 increased by 54%35% compared to the firstsecond quarter of 2025. Electronic check dollars processed during the firstsecond quarter of 2026 increased by 31%28% compared to the firstsecond 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 firstsecond quarter of 2026 decreasedwere byflat 19%at $65 million compared to the firstsecond quarter of 2025. Prepaid card transaction counts processed during the firstsecond quarter of 2026 decreased by 16%4% compared to the firstsecond 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. This loss, however, was partially offset by growth in our existing client base, alongside the implementation of several new customers. Prepaid card purchase volume during the firstsecond quarter of 2026 increased by 7%11% compared to the firstsecond 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 8.97.8 million for the firstsecond quarter of 2026, an increase of 31%43% compared to 6.85.4 million in the firstsecond quarter of 2025, while electronic only documents delivered were 2929.8 million, up 41%49% in the firstsecond quarter of 2026 compared to 20.520 million in the firstsecond quarter of 2025. This strong processing activity was driven by increased organic growth, new customer acquisitions, and the presenceimplementation of our new printer, driving increased traffic related to tax formsscale and voterprinting registrationspeeds cardsallowing beingfor printedquicker andjob mailedcompletion in the first quarter of 2026.time.

Total dollar volumes processed across all business lines in the firstsecond quarter of 2026 were $2.50$2.47 billion compared to $1.96$1.94 billion processed in the firstsecond quarter of 2025, up 28%27% over the prior year quarter, attributable to processing volume growth in our credit card, and ACH and complementary servicesservices, business lines, countering the decline ofand prepaid card processingbusiness volume.lines.

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 threesix months ended MarchJune 31,30, 2026, the Company repurchased $233,459$370,932 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.

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$0.7 million in interest earnings in the threesix months ended MarchJune 31,30, 2026. Of this interest, $0.3$0.5 million was recognized as revenue in the respective business lines for which the cash balances are held, and $91,491$187,689 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.

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 MarchJune 31,30, 2026 and December 31, 2025, the Company’s reserve for processing losses was $802,937$629,837 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 are reported as outstanding principal net of an allowance for estimated credit losses, which was $181,036 and $404,132 at MarchJune 31,30, 2026 and December 31, 2025.2025, respectively.

We reported Adjusted EBITDA of $0.8$1.1 million for the quarter ended MarchJune 31,30, 2026, as compared to Adjusted EBITDA of $0.7$0.5 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%4.8% in the quarter ended MarchJune 31,30, 2026, as compared to Adjusted EBITDA margins of 3.0%2.5% 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 revenuesrevenues, thereby driving improved bottom line results.

The following tables set forth reconciliations of Operating Income (Loss) to EBITDA; EBITDA to Adjusted EBITDA; and Revenues to Adjusted EBITDA margins for the three and six months ended MarchJune 31,30, 2026 and 2025.

Consolidated revenues for the quarter ended MarchJune 31,30, 2026 were up 16%,19%, at $25.5$23.7 million, as compared to $22.0$20.0 million for the quarter ended MarchJune 31,30, 2025, due to the 25%21% growth in ACH and complementary services revenue, 23%28% growth in credit card revenue, and 19%22% growth in Output Solutions revenue. This growth completely offset ana 18%10% revenue decline in our prepaid card services business line, alongside a net 36%29% decline in total interest revenues from all three interest revenue sources.

ACH and complementary services revenue growth of 25%21% was primarily attributable to an increase in ACH check dollar volume of 31%,28%, an increase in transactions of 34%, and an increase in returned check transactions of 54%,35%, in each case, for the quarter ended MarchJune 31,30, 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%28% increase in our credit card business unit for the quarter ended June 30, 2026 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 quarterhalf 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%22% for the quarter ended MarchJune 31,30, 2026 compared to the same period of 2025, due to strong organic growth, and net new customers. CompoundingFurther thisleverage in revenue driven by new customer acquisition was the presence of increased business related to the printing and mailingimplementation of taxour statementsnew and voter registration cards that occurred, a recurring source of revenue, but one that occurs only once each yearprinter in the casesecond quarter of tax2026, statements,drastically increasing the quantity of mail we can print and once every other year with respect to voter registration cards.deliver.

The 18%10% decrease in prepaid card services revenues for the quarter ended June 30, 2026 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 throughoutbeginning in the second half of 2025,2025 and into 2026, that we believe will have the ability to 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.three and six month periods. For more information, see "- Summary of Results."

Cost of services increased by $3.1 million, or 18%,21%, to $20.3$18.0 million for the quarter ended MarchJune 31,30, 2026, as compared to $17.2$14.8 million for the same period in the prior year, due to increased revenues of 16%.19%. RevenueThe contributiondecline in interest revenues, which have no associated cost of services, alongside growth in revenues from lower margin business lines suchof asbusiness, PINless debit and RCC within ACH and complementary services, and credit card. Declines in our higher margin prepaid and interest revenues further compounded this, resultingresulted in cost of services growth slightly outpacing revenue growth.

Gross profit increased by 7%11% to $5.1$5.7 million for the quarter ended MarchJune 31,30, 2026, as compared to $4.8$5.1 million for the same period in the prior year. Gross profit percentage of revenue was 20.2%24.2% for the quarter ended MarchJune 31,30, 2026, down versus 21.9%25.8% in the prior year period. The increase in gross profit in the quarter ended MarchJune 31,30, 2026, as compared to the same period during the prior year, was primarily attributable to the 16%19% 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 expenses were $0.3$0.5 million for the quarter ended MarchJune 31,30, 2026 as compared to $0.4 million for the quarter ended MarchJune 31,30, 2025, with the decreaseincrease fromover the prior year quarter due to the amortization of newly issued stock-based awards offsetting the completed amortization of previously issued stockawards basedat awards.the end of 2025.

SG&A expenses were $4.4$8.9 million for the quartersix months ended MarchJune 31,30, 2026 as compared to $4.1$8.8 million in the prior year quarter. The increase in SG&A for the quartersix months ended MarchJune 31,30, 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 expense totaled $0.2$0.3 million and $0.5 million in the quarter ended MarchJune 31,30, 2026 and 2025, respectively. The decrease in depreciation and amortization expense for the quarter ended MarchJune 31,30, 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.

Other income, net was $0.1 million for the quarter ended MarchJune 31,30, 2026, flat compared to $0.1 million for the quarter ended MarchJune 31,30, 2025.

State incomeIncome tax expense in the three months ended MarchJune 31,30, 2026 and 2025 was $104,790$0.2 million and $62,554,$0.1 million, respectively, up slightly versus the prior year period as a result of increased taxable income.

We reported net income of $0.1$0.3 million for the quarter ended MarchJune 31,30, 2026, as compared to a net loss of $0.2$0.4 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 MarchJune 31,30, 2026 as compared to the same period in the prior year.

Our primary sources of liquidity are available cash and cash equivalents and cash flows provided by operations. As of MarchJune 31,30, 2026, we had cash and cash equivalents of $7.7$6.4 million. For the threesix months ended MarchJune 31,30, 2026, cash provided by operations was $0.9$0.3 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$0.4 million for the threesix months ended MarchJune 31,30, 2026 compared to a net loss of $0.2$0.6 million for the threesix months ended MarchJune 31,30, 2025. We had an accumulated deficit of $70.4$70.1 million and $70.5 million at MarchJune 31,30, 2026 and December 31, 2025, respectively. Additionally, we had working capital of $9.0$9.7 million and $9.4 million at MarchJune 31,30, 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.$16,017. Total interest and principal payments on this folder and inserter equipment loan were $50,188 and $47,953 for each of the three months ended MarchJune 31,30, 2026 and March2025, 31,respectively. 2025.Total interest and principal payments on this folder and inserter equipment loan were $98,141 and $95,906 for the six months ended June 30, 2026 and 2025, respectively.

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,$20,088. with monthly interest only payments inThrough the amountend of $5,7582025, required for the first six months of the loan term beginning in October 2025. As of March 31, 2026,only $791,742 in proceeds have beenwere drawn from the loan and presentedreflected on the Company's consolidated balance sheetsheets at December 31, 2025, with the remaining commitment of $226,212 still available.available as of June 30, 2026. Total payments on the printer loan induring the three months ended MarchJune 31,30, 2026 were $13,361.$44,636. Total payments on the printer loan during the six months ended June 30, 2026 were $57,997.

Net cash provided by operating activities for the threesix months ended MarchJune 31,30, 2026 was $0.9$0.3 million, as compared to net cash provided by operating activities of $1.4$1.1 million for the threesix months ended MarchJune 31,30, 2025. The decrease in net cash provided by operating activities was due primarily to increases in accounts receivable, alongside higherlower levelsmerchant ofreserves prepaidand depreciation and amortization expenses in the threesix months ended MarchJune 31,30, 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$1.0 million for the threesix months ended MarchJune 31,30, 2026 as compared to net cash used in investing activities of $0.3$0.7 million for the threesix months ended MarchJune 31,30, 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 capitalizationleasehold of internal use softwareimprovements relative to the same period a year ago.

Net cash used in financing activities for the threesix months ended MarchJune 31,30, 2026 was $17.1$13.1 million and net cash provided by financing activities for the threesix months ended MarchJune 31,30, 2025 was $3.6$2.5 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.